Financial Performance - Total interest income for the three months ended September 30, 2022, was $6,918,000, an increase of 7% compared to $6,465,000 in the same period of 2021[12] - Net income for the three months ended September 30, 2022, was $1,771,000, up from $1,691,000 in the same period of 2021, representing a growth of 4.7%[12] - Basic and diluted earnings per common share for the three months ended September 30, 2022, were $0.30, compared to $0.29 for the same period in 2021, reflecting a 3.4% increase[12] - Net income for the nine months ended September 30, 2022, was $4,516,000, compared to $4,372,000 for the same period in 2021, reflecting a year-over-year increase of 3.3%[18] - Diluted earnings per share for the nine months ended September 30, 2022, was $0.77, compared to $0.74 for the same period in 2021[76] Income and Expenses - Non-interest income for the nine months ended September 30, 2022, totaled $2,120,000, a decrease of 4.1% from $2,210,000 in the same period of 2021[12] - Total non-interest expense for the three months ended September 30, 2022, was $4,870,000, an increase of 8.4% compared to $4,494,000 in the same period of 2021[12] - Total interest expense for the three months ended September 30, 2022, was $573,000, a decrease of 8.8% from $628,000 in the same period of 2021[12] Dividends - Dividends declared per share increased to $0.18 for the three months ended September 30, 2022, from $0.14 in the same period of 2021[12] - Cash dividends declared were $0.16 per share for the first half of 2022, totaling $625,000, and increased to $0.18 per share for the third quarter, totaling $353,000[18] - The Company declared a quarterly cash dividend of $0.18 per share on October 21, 2022, with Lake Shore, MHC waiving $546,000 of this dividend[115] - The MHC has cumulatively waived approximately $17.9 million of cash dividends as of September 30, 2022, which is considered a restriction on the retained earnings of the Company[115] Loan Losses and Provisions - The provision for loan losses for the nine months ended September 30, 2022, was $500,000, down from $650,000 in the same period of 2021[12] - The allowance for loan losses at the end of the reporting period was $150,000, down from $162,000 at the beginning of the period[39] - The allowance for loan losses increased to $6,849,000 as of September 30, 2022, from $6,118,000 at the beginning of the year, reflecting a provision of $500,000 during the nine months[51] - The company experienced charge-offs of $17,000 in the third quarter of 2022, primarily from consumer loans[51] - The provision for loan losses included a credit of $23,000 for consumer loans, reflecting a cautious approach to potential defaults[51] Securities and Investments - The company reported unrealized holding losses on securities available for sale for the three months ended September 30, 2022, were $(3,954,000), compared to $(559,000) in the same period of 2021[13] - As of September 30, 2022, the total amortized cost of debt securities available for sale was $87,144,000, with a fair value of $71,261,000, reflecting unrealized losses of $15,991,000[32] - The total debt securities available for sale included U.S. government agencies valued at $1,821,000 and municipal bonds valued at $39,819,000[32] - The fair value of debt securities available for sale was $71,261,000, with total securities valued at $71,273,000[95] - The total estimated fair value of financial liabilities, including deposits, was $585,028,000[108] Cash and Deposits - The company reported a net cash provided by operating activities of $6,351,000 for the nine months ended September 30, 2022, slightly down from $6,427,000 in the same period of 2021[18] - Total cash and cash equivalents at the end of September 30, 2022, were $19,676,000, a decrease from $60,980,000 at the end of September 30, 2021[18] - The company experienced a net decrease in deposits of $9,824,000 during the nine months ended September 30, 2022, compared to an increase of $31,495,000 in the same period of 2021[18] Loan Portfolio - The gross loans receivable reached $564,147,000 as of September 30, 2022, with a significant portion in real estate loans totaling $171,570,000[51] - The total loans receivable as of September 30, 2022, were $564.147 million, compared to $519.779 million as of December 31, 2021, representing an increase of approximately 8.5%[58] - The total past due loans as of September 30, 2022, were $3.396 million, compared to $3.189 million on December 31, 2021, indicating an increase of about 6.5%[58] - The residential one- to four-family loans classified as pass/performing increased to $169.319 million as of September 30, 2022, from $156.931 million as of December 31, 2021, reflecting a growth of approximately 7.3%[63] Stock and Compensation - The Company recorded stock-based compensation costs of $85,000 for the three months ended September 30, 2022, down from $106,000 for the same period in 2021[78] - For the nine months ended September 30, 2022, 27,132 restricted stock awards were granted at a weighted average grant price of $14.97, increasing unvested shares outstanding to 50,373[86] - Compensation expense related to unvested restricted stock awards under the EIP was $59,000 for Q3 2022 and $60,000 for Q3 2021, totaling $175,000 for the nine months ended September 30, 2022, compared to $146,000 for the same period in 2021[86] Other Comprehensive Income - For the nine months ended September 30, 2022, the total other comprehensive loss was $13,526, with net unrealized losses on securities available for sale amounting to $17,109[113] - For the three months ended September 30, 2022, the net unrealized losses arising during the period were $5,004, with a tax benefit of $1,050[113]

Financial Performance - Total interest income for the three months ended June 30, 2022, was $6,431,000, an increase of 4.25% compared to $6,169,000 in the same period of 2021[12]. - Net income for the three months ended June 30, 2022, was $1,684,000, representing a 69.5% increase from $993,000 in the same period of 2021[12]. - Basic and diluted earnings per common share for the three months ended June 30, 2022, were $0.29, compared to $0.17 for the same period in 2021[12]. - Net income for the six months ended June 30, 2022, was $2,745,000, a slight increase from $2,681,000 in the same period of 2021, representing a growth of 2.4%[19]. - For the three months ended June 30, 2022, net income was $1,684,000, compared to $993,000 for the same period in 2021, representing a 69.6% increase[75]. Income and Expenses - Non-interest income for the six months ended June 30, 2022, was $1,452,000, slightly down from $1,503,000 in the same period of 2021[12]. - Total non-interest expense for the three months ended June 30, 2022, was $4,577,000, an increase of 4.13% compared to $4,395,000 in the same period of 2021[12]. - The provision for loan losses decreased to $100,000 for the three months ended June 30, 2022, down from $500,000 in the same period of 2021[12]. - The provision for loan losses was $500,000 for the six months ended June 30, 2022, down from $650,000 in 2021, indicating a decrease of 23.1%[19]. - The provision for income tax expense for the six months ended June 30, 2022, was $2,000, down from $7,000 in 2021[118]. Cash Flow and Investments - Net cash provided by operating activities increased to $4,103,000 for the six months ended June 30, 2022, compared to $3,556,000 in 2021, reflecting a rise of 15.4%[19]. - Net cash used in investing activities was $32,028,000 for the six months ended June 30, 2022, compared to $22,511,000 in 2021, indicating an increase of 42.3%[19]. - Net cash used in financing activities was $12,504,000 for the six months ended June 30, 2022, a decrease from $21,781,000 in 2021, showing a reduction of 42.5%[19]. Securities and Investments - The total amortized cost of debt securities available for sale was $88,407,000, with a fair value of $77,530,000 as of June 30, 2022, reflecting unrealized losses of $11,032,000[33]. - The total debt securities available for sale amounted to $88,797,000, with gross unrealized losses of $1,757,000[34]. - The fair value of securities was $77,540,000 as of June 30, 2022, with a carrying amount of $77,540,000[111]. - The estimated fair value of debt securities available for sale was $77,530,000 as of June 30, 2022, down from $88,797,000 as of December 31, 2021[97][100]. Loan Portfolio and Allowance for Loan Losses - Gross loans receivable totaled $550,218,000 as of June 30, 2022, compared to $519,779,000 at the end of 2021, indicating a growth in the loan portfolio[52]. - The allowance for loan losses increased to $6,747,000 as of June 30, 2022, up from $6,118,000 at the beginning of the year, reflecting a provision of $100,000 for the second quarter[52]. - The ending balance for collectively evaluated loans for impairment was $6,747,000 as of June 30, 2022[52]. - The company reported a total of $4,921,000 in recorded investment for commercial real estate loans with no related allowance as of June 30, 2022[57]. - The total amount of loans classified as substandard as of June 30, 2022, was $6,876,000, compared to $13,653,000 as of December 31, 2021, showing a decrease in risk[64]. Dividends and Stockholder Equity - Cash dividends declared per share increased to $0.16 for the three months ended June 30, 2022, from $0.13 in the same period of 2021[12]. - The Company declared a quarterly cash dividend of $0.18 per share, payable on August 19, 2022, to shareholders of record as of August 2, 2022[119]. - Lake Shore, MHC waived dividends totaling $582,000 and $1.2 million for the three and six months ended June 30, 2022, respectively, cumulatively waiving approximately $17.3 million as of June 30, 2022[119]. Asset Quality and Risk Management - The company maintains conservative underwriting standards for its one- to four-family residential mortgage loans, which are primarily held in the Western New York region[46]. - The company reviews all investment securities on an ongoing basis for the presence of other-than-temporary-impairment (OTTI) with formal reviews performed quarterly[39]. - The total amount of non-accruing loans as of June 30, 2022, was $22,000, with 7 loans in the residential one- to four-family category[70]. - The company's asset classification committee is responsible for monitoring risk ratings and making changes as deemed appropriate, with a focus on individual loan classifications[62]. Miscellaneous - The company expects an increase in the allowance for loan losses due to the adoption of the CECL model, which will require covering the full remaining expected life of the portfolio[26]. - As of June 30, 2022, all Paycheck Protection Program loans originated by the company have been forgiven by the SBA, indicating successful support for small businesses during the pandemic[30]. - The company had $578,268,000 in deposits with an estimated fair value of $579,437,000 as of June 30, 2022[111].

Financial Performance - Total interest income for the three months ended March 31, 2022, was $5,934,000, a decrease of 2.03% from $6,057,000 in the same period of 2021[12]. - Net interest income after provision for loan losses was $5,068,000 for Q1 2022, compared to $5,120,000 in Q1 2021, reflecting a decrease of 1.02%[12]. - Non-interest income decreased to $732,000 in Q1 2022 from $820,000 in Q1 2021, a decline of 10.73%[12]. - Net income for the three months ended March 31, 2022, was $1,061,000, down 37.04% from $1,688,000 in the same period of 2021[12]. - Basic and diluted earnings per common share decreased to $0.18 in Q1 2022 from $0.29 in Q1 2021, a decline of 37.93%[12]. - Total comprehensive loss for Q1 2022 was $(5,073,000), compared to a comprehensive income of $885,000 in Q1 2021[13]. Expenses and Losses - Total non-interest expense increased to $4,532,000 in Q1 2022, up 14.66% from $3,953,000 in Q1 2021[12]. - The provision for loan losses increased to $400,000 in Q1 2022 from $150,000 in Q1 2021, indicating a higher risk assessment[12]. - The allowance for loan losses increased to $6,500,000 as of March 31, 2022, compared to $6,118,000 at the beginning of the year[49]. - The total past due loans as of March 31, 2022, were $4,250,000, with residential one- to four-family loans accounting for $2,219,000 of this amount[55]. - The total number of loans classified as Troubled Debt Restructurings (TDRs) was 10, with a recorded investment of $7.226 million as of March 31, 2022[65]. Assets and Securities - Cash and cash equivalents at the end of Q1 2022 were $30,766,000, down from $51,960,000 at the end of Q1 2021[17]. - The Company reported total debt securities available for sale with an amortized cost of $91.068 million and a fair value of $84.542 million as of March 31, 2022, reflecting unrealized losses of $6.991 million[31]. - The fair value of municipal bonds with gross unrealized losses was $29.948 million as of March 31, 2022, with total gross unrealized losses of $4.857 million[36]. - The estimated fair value of loans receivable, net, was $525,832,000, compared to a carrying amount of $550,286,000[100]. - The fair value of interest rate swaps was $124,000 as of March 31, 2022[88]. Loan Portfolio - The gross loans receivable totaled $553,230,000 as of March 31, 2022, with real estate loans making up $160,052,000 of that total[49]. - The Company had commitments to grant loans totaling $43.541 million as of March 31, 2022, a decrease from $61.234 million as of December 31, 2021[72]. - The Company reported a provision for loan losses of $400,000 for the three months ended March 31, 2022[49]. - The Company’s mortgage-backed securities had a fair value of $35,190,000 as of March 31, 2022[41]. - The Company evaluated the impact of the COVID-19 pandemic, which has resulted in lower interest rates and may materially affect future results and operations[29]. Dividends and Shareholder Information - Cash dividends declared per share increased to $0.16 in Q1 2022 from $0.13 in Q1 2021[15]. - The Board of Directors declared a quarterly cash dividend of $0.16 per share on April 27, 2022, payable on May 23, 2022[108]. - Lake Shore, MHC waived receipt of dividends on its 3,636,875 shares, representing approximately 63.6% of the Company's total outstanding stock[108]. - Cumulatively, the MHC has waived approximately $16.7 million of cash dividends as of March 31, 2022[109]. - The dividends waived by the MHC are considered a restriction on the retained earnings of the Company[109]. Compensation and Stock Information - Stock-based compensation expense for the three months ended March 31, 2022, was $72,000, slightly up from $71,000 in the same period of 2021[74]. - The balance of the loan to the ESOP was $1.4 million as of March 31, 2022, with 90,135 allocated shares and 103,154 unallocated shares[83]. - The ESOP compensation expense was $30,000 for the three months ended March 31, 2022, compared to $29,000 for the same period in 2021[83]. - The weighted average shares outstanding for basic earnings per share decreased from 5,913,111 in 2021 to 5,832,170 in 2022[70]. - The Company did not repurchase any shares of common stock during the three months ended March 31, 2022, with 36,327 shares remaining under the stock repurchase program[104].

Loan Performance - Lake Shore Bancorp's total loans outstanding at the end of 2021 were $519.779 million, a decrease from $526.632 million at the end of 2020, reflecting a reduction of approximately 1.6%[45] - The company originated a total of $168.609 million in loans during 2021, compared to $188.473 million in 2020, indicating a decline of about 10.5% year-over-year[45] - Principal repayments for total loans in 2021 amounted to $161.462 million, up from $114.156 million in 2020, representing an increase of approximately 41.5%[45] - The loan portfolio composition includes $158.826 million in residential one-to four-family loans and $266.525 million in commercial loans as of December 31, 2021[42] - The company originated $50.081 million in residential one- to four-family loans in 2021, an increase from $43.802 million in 2020, reflecting a growth of approximately 5.8%[45] - The company reported a significant increase in commercial loan originations, with $47.333 million in 2021 compared to $58.403 million in 2020, a decrease of about 19%[45] - As of December 31, 2021, commercial real estate loans totaled $266.5 million, representing 51.3% of the total loan portfolio[47] - Multi-family apartment complexes collateralized loans made up 44.7% of the commercial real estate loan portfolio, totaling $119.0 million[47] - Construction loans amounted to $21.8 million, or 4.2% of the total loan portfolio, as of December 31, 2021[52] - One- to four-family residential loans totaled $158.8 million, representing 30.6% of the total loan portfolio[55] - Home equity loans and lines of credit totaled $48.0 million, accounting for 9.2% of the total loan portfolio[67] - Commercial business loans reached $23.2 million, or 4.5% of the total loan portfolio, as of December 31, 2021[71] - Jumbo loans totaled $10.0 million, representing 6.3% of the one- to four-family residential mortgage portfolio[59] Risk Management - The company sold $13.0 million of long-term fixed-rate residential mortgage loans in 2021 to mitigate long-term interest rate risk[46] - The company retains the majority of loans originated, but sells residential mortgage loans into the secondary market to manage interest rate risk[38] - The allowance for loan losses reflects the evaluation of losses inherent in the loan portfolio, with provisions charged to income[96] - The allowance for loan losses at the end of 2021 was $6,118,000, an increase from $5,857,000 at the end of 2020[102] - The allocated component of the allowance for loan losses was $5,894,000, representing 96.3% of the total allowance, while the unallocated component was $224,000, or 3.7%[102] - The commercial real estate loans accounted for 71.5% of the total allowance for loan losses in 2021, up from 69.2% in 2020[102] Economic Environment - The local economy's growth, particularly in Erie and Chautauqua counties, is crucial for the company's future growth possibilities, as it significantly depends on population, income levels, deposits, and housing starts[200] - The COVID-19 pandemic has had a significant economic impact on the communities where the company operates, affecting borrowers and depositors, with ongoing volatility expected[201][202] - High inflation levels are currently affecting the national economy, with the consumer price index increasing to 7.0% in 2021, which could adversely impact the company's business and results of operations[203] - Changes in the Federal Reserve Board's monetary or fiscal policies could negatively affect the company's results of operations and financial condition, as these policies influence bank loans, investments, and deposits[204] Compliance and Regulations - The company must comply with the Truth in Lending Act and other federal laws governing credit transactions and consumer protection[183] - Lake Shore Savings is classified as "well-capitalized" with at least 5% leverage capital and 6.5% common equity Tier 1 risk-based capital[155] - Lake Shore Savings Bank is in compliance with the loans-to-one borrower limitations, which restrict loans to a single borrower to 15% of unimpaired capital and surplus[158] - The bank maintained a liquidity ratio of liquid assets not subject to pledge as a percentage of deposits and borrowings of 15% or greater[165] - The company has exercised a one-time opt-out regarding the inclusion of unrealized gains and losses on certain "available-for-sale" securities for regulatory capital calculations[145] - The minimum capital standards require a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets, with a well-capitalized status requiring a CET1 ratio of 6.5%[144] Employee and Operational Policies - The company employed 104 full-time and 3 part-time employees, with 21.1% having been employed for 15 years or longer[131] - The company has implemented safety protocols to ensure employee safety during the COVID-19 pandemic, prioritizing health and wellness[133] - The company provides a comprehensive benefits package, including health, dental, life, and disability insurance, along with a generous paid time off policy[134] Cybersecurity and Data Security - A data security incident in November 2021 led to unauthorized access to certain data, prompting the company to enhance its security measures and notify affected customers[207][209] - The company maintains insurance coverage, including cybersecurity insurance, but the coverage may not fully cover all losses incurred from incidents like the November 2021 breach[208] - The company relies heavily on communications and information systems, making it vulnerable to hardware and cybersecurity issues, which could lead to operational impairments and financial losses[210]

Financial Performance - Total interest income for the three months ended September 30, 2021, increased to $6,465,000, up 9.2% from $5,922,000 in the same period of 2020[12] - Net interest income after provision for loan losses for the nine months ended September 30, 2021, was $15,888,000, a 15.9% increase from $13,717,000 in 2020[12] - Non-interest income for the three months ended September 30, 2021, was $707,000, a decrease of 8.3% compared to $771,000 in 2020[12] - Net income for the three months ended September 30, 2021, was $1,691,000, representing a 37.4% increase from $1,231,000 in 2020[12] - Net income for the nine months ended September 30, 2021, was $4,372,000, an increase from $3,315,000 in the same period of 2020, representing a growth of 31.9%[17] - Basic and diluted earnings per common share for the three months ended September 30, 2021, were $0.29, up from $0.21 in the same period of 2020[12] Expenses and Losses - Total non-interest expense for the nine months ended September 30, 2021, rose to $12,842,000, an increase of 10.2% from $11,655,000 in 2020[12] - The provision for loan losses for the three months ended September 30, 2021, was $0, down from $300,000 in 2020[12] - The provision for loan losses was $650,000 for the nine months ended September 30, 2021, down from $1,125,000 in the same period of 2020, reflecting improved asset quality[17] Dividends - Dividends declared per share increased to $0.14 for the three months ended September 30, 2021, from $0.12 in 2020[12] - Cash dividends declared were $0.13 per share for the first half of 2021, totaling $268,000, and increased to $0.14 per share for the third quarter, maintaining a consistent payout[17] - The Board of Directors declared a quarterly cash dividend of $0.14 per share on October 27, 2021, payable on November 19, 2021[114] - Lake Shore, MHC waived dividends totaling $509,000 and $1.5 million during the three and nine months ended September 30, 2021, respectively[114] - Cumulatively, Lake Shore, MHC has waived approximately $15.6 million of cash dividends as of September 30, 2021[114] Assets and Securities - The total cash and cash equivalents at the end of September 30, 2021, were $60,980,000, a decrease from $71,139,000 at the end of September 30, 2020[17] - The amortized cost of total securities as of September 30, 2021, was $82.458 million, with a fair value of $83.698 million, reflecting unrealized losses of $569,000[33] - The fair value of total securities as of September 30, 2021, was $83,698,000, including $2,257,000 in Level 1 and $81,441,000 in Level 2[97] - The estimated fair value of loans receivable, net, was $514,174,000 as of September 30, 2021[106] - The fair value of deposits was estimated at $595,245,000 as of September 30, 2021[106] Loan Portfolio - The company reported total gross loans receivable of $527,256,000 as of September 30, 2021, which does not include the allowance for loan losses[49] - The balance of one- to four-family real estate loans was $159,286,000 as of September 30, 2021, with an allowance for loan losses of $417,000[49] - The total past due loans as of September 30, 2021, were $3.137 million, with $1.978 million classified as 30-59 days past due and $190,000 as 60-89 days past due[55] - The total loans receivable as of September 30, 2021, were $527.256 million, with $9.855 million classified as non-accrual[55] - The Company’s policies classify loans based on performance, with consumer loans classified by delinquency status, where loans more than 90 days past due are placed in non-accrual[59] Troubled Debt Restructurings (TDRs) - The Company identifies potential Troubled Debt Restructurings (TDRs) through direct communication with borrowers and evaluation of their financial conditions[64] - The Company’s TDRs are considered impaired loans, which may lead to specific allocations and charge-offs if necessary[64] - As of September 30, 2021, the total recorded investment in loans classified as TDRs (Troubled Debt Restructurings) was $7,346,000, with 10 loans in total[65] Stock Repurchase and Compensation - The company repurchased 60,000 shares of common stock at an average cost of $14.95 per share during the three months ended September 30, 2021[109] - As of September 30, 2021, the company had 46,327 shares remaining to be repurchased under the existing stock repurchase program[109] - Compensation expense related to unvested restricted stock awards under the EIP was $60,000 for Q3 2021, compared to $45,000 for Q3 2020[88] - The intrinsic value of stock options outstanding under the EIP was $11,000 as of September 30, 2021, with 20,000 options outstanding[89] Other Comprehensive Income - The total other comprehensive loss for the three months ended September 30, 2021, was $725,000, compared to a loss of $175,000 for the same period in 2020[112] - For the nine months ended September 30, 2021, the total other comprehensive loss was $1,475,000, compared to a gain of $880,000 for the same period in 2020[112]

United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q (Mark One) ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 000-51821 LAKE SHORE BANCORP, INC. (Exact name of registrant as specified in its charter) | | | | United | States | | | 20-4729288 | | | | --- | --- | --- | --- | --- | - ...

United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 000-51821 LAKE SHORE BANCORP, INC. (Exact name of registrant as specified in its charter) | United States | | 20-4729288 | | --- | --- | --- | | (State or other jurisdic ...

Loan Portfolio and Originations - Total loans outstanding at the end of 2020 increased to $526.6 million, up from $471.5 million at the end of 2019, representing an increase of 11.7%[52] - Loan originations for 2020 totaled $188.5 million, a 11.4% increase compared to $169.2 million in 2019[52] - Commercial real estate loans reached $257.3 million, accounting for 48.9% of the total loan portfolio as of December 31, 2020[54] - One- to four-family residential loans totaled $150.7 million, representing 28.6% of the total loan portfolio[62] - Construction loans amounted to $28.9 million, making up 5.5% of the total loan portfolio[59] - The company originated $26.9 million in Paycheck Protection Program (PPP) loans, which are 100% guaranteed by the SBA[53] - Jumbo loans totaled $9.0 million, or 5.9% of the one- to four-family residential mortgage portfolio[66] - As of December 31, 2020, home equity loans and lines of credit totaled $47.6 million, representing 9.0% of the total loan portfolio[74] - At December 31, 2020, commercial business loans amounted to $40.8 million, or 7.7% of the total loan portfolio[77] - Consumer loans totaled $1.4 million, or less than 1% of the total loan portfolio, as of December 31, 2020[80] Loan Repayments and Modifications - The company reported principal repayments of $114.2 million in 2020, compared to $86.6 million in 2019, reflecting a 31.8% increase[52] - The company implemented a loan modification program in 2020, allowing customers affected by COVID-19 to defer loan payments, with expectations that the number of modifications will decrease in 2021[95] Allowance for Loan Losses - The allowance for loan losses increased to $5,857 million in 2020 from $4,267 million in 2019, reflecting adjustments for qualitative factors due to the uncertain impact of COVID-19 on economic conditions and borrowers' ability to repay loans[106] - The total allocated allowance for loan losses was $5,707 million, representing 97.4% of the total allowance, with commercial loans accounting for 69.2% of the allocated allowance[105] - The percentage of loans classified as "Substandard" increased from 10.2% in 2019 to 5.9% in 2020 for residential, one- to four-family loans, while commercial loans saw a decrease from 62.9% to 69.2%[105] - The company maintains a general component of the allowance for loan losses based on historical loss experience, adjusted for qualitative and environmental factors, reflecting ongoing economic conditions[102] Investment Portfolio - The investment portfolio is designed to manage interest rate sensitivity and maintain liquidity, with a focus on U.S. Government obligations and mortgage-backed securities[108] - The company’s investment policy requires routine monitoring of the investment portfolio to mitigate credit quality risks[108] - The fair values of available-for-sale securities are based on a market approach, with unrealized gains and losses reported as a separate component of equity[111] - The company recaptured $73,000 and $54,000 of prior year other-than-temporary impairment charges in 2020 and 2019, respectively[116] Deposits and Borrowings - At December 31, 2020, the Bank had $106.1 million in time deposits with remaining terms to maturity of less than one year, compared to $90.1 million in 2019[125] - The Bank had $89.4 million in uninsured deposits exceeding the FDIC insurance limit of $250,000 as of December 31, 2020[126] - Long-term borrowings from the Federal Home Loan Bank of NY decreased from $34.7 million in 2019 to $29.8 million in 2020[126] - The Bank's total time deposits at December 31, 2020, amounted to $159.3 million, a decrease from $170.5 million in 2019[125] - The Bank's cash flows from operations, loan repayments, and mortgage-backed securities principal repayments are stable sources of funds[120] Regulatory Compliance and Capital Requirements - The bank raised the eligibility for the 18-month exam cycle from $1 billion to $3 billion in assets[146] - The community bank leverage ratio was established at a minimum of 9% for institutions under $10 billion in assets, with a temporary reduction to 8% due to the CARES Act[152][154] - As of December 31, 2020, Lake Shore Savings met the criteria for being considered "well-capitalized"[156] - The bank maintained a ratio of liquid assets not subject to pledge as a percentage of deposits and borrowings of 15% or greater[167] - The bank's capital requirements assign higher risk weights to asset categories believed to present greater risk, with a risk weight of 100% assigned to commercial and consumer loans[150] - The OCC requires savings banks to maintain detailed records of all transactions with affiliates to ensure compliance with regulations[171] Employee and Community Engagement - As of December 31, 2020, 20.8% of employees had been with the Bank for 15 years or longer, indicating strong employee retention[131] - The Bank's employee health care premiums are competitive, with employees covering 20% of the premiums[136] - The Bank's management emphasizes employee safety and wellness, implementing protocols in response to the COVID-19 pandemic[133] - Lake Shore Savings received a "satisfactory" rating under the Community Reinvestment Act in its most recent federal examination[169] Impact of COVID-19 and Economic Conditions - The CARES Act provided over $2 trillion to combat the COVID-19 pandemic, impacting the company's operations significantly[184] - The Federal Reserve Board reduced reserve requirement ratios to zero in March 2020, with no plans to re-impose them unless conditions warrant[187] Corporate Governance and Compliance - Lake Shore Bancorp common stock is registered under the Securities Exchange Act of 1934 and is subject to various regulatory requirements[202] - The Sarbanes-Oxley Act requires the CEO and CFO of Lake Shore Bancorp to certify the accuracy of quarterly and annual reports filed with the SEC[204] - Lake Shore Bancorp is enhancing its policies and procedures to ensure compliance with Sarbanes-Oxley regulations[204]

United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 000-51821 LAKE SHORE BANCORP, INC. (Exact name of registrant as specified in its charter) | United States | | 20-4729288 | | --- | --- | --- | | (State or other juri ...

Capital Position and Regulatory Compliance - As of June 30, 2020, the Bank's capital ratios were in excess of all regulatory requirements, indicating a strong capital position to withstand economic challenges [136]. - As of June 30, 2020, the Bank's Community Bank Leverage Ratio was 11.83%, indicating compliance with capital requirements to be considered "well capitalized" [229]. - The Company maintains access to multiple sources of liquidity to support capital ratios amid potential credit losses [136]. - The Company has established lines of credit with correspondent banks totaling $22.0 million, with no borrowings on these lines as of June 30, 2020 [219]. - The Company does not anticipate any material capital expenditures in 2020 and has no balloon payments due on long-term obligations [224]. Loan Portfolio and Modifications - During Q2 2020, the Company approved loan payment deferral requests of up to 90 days on 219 loans, representing $103.1 million, or 21.1%, of the Bank's loan portfolio [139]. - The Company has implemented a loan modification program for impacted customers, allowing for deferrals that do not classify as troubled debt restructurings under the CARES Act [139]. - The Company originated 245 SBA PPP loans totaling $26.2 million, which helped retain over 3,300 jobs during the first six months of 2020 [143]. - The outstanding balance of PPP loans was $23.1 million at June 30, 2020, contributing to the increase in commercial business loans [168]. - The average balance of the loan portfolio increased by $69.9 million, or 16.8%, during the second quarter of 2020 compared to the prior year quarter [162]. Financial Performance and Income - Net income for the three months ended June 30, 2020, was $1.4 million, or $0.23 per diluted share, an increase of $548,000, or 68.1%, compared to the same period in 2019 [179]. - Net income for the six months ended June 30, 2020, was $2.1 million, or $0.35 per diluted share, an increase of $381,000, or 22.4%, compared to the same period in 2019 [199]. - Interest income increased by $192,000, or 3.2%, to $6.1 million for the three months ended June 30, 2020, primarily due to an increase in loan interest income [180]. - Interest income increased by $821,000, or 7.1%, to $12.4 million for the six months ended June 30, 2020, primarily due to an increase in loan interest income [200]. - Non-interest income increased by $62,000, or 11.4%, to $608,000 for the three months ended June 30, 2020, primarily due to an increase in gains on the sale of loans [194]. Asset and Deposit Growth - Total assets increased by $66.9 million, or 11.0%, to $677.8 million as of June 30, 2020, compared to $610.9 million at December 31, 2019 [164]. - Total deposits increased by $67.0 million, or 13.9%, to $550.5 million at June 30, 2020, primarily due to an increase in core deposits [176]. - Total deposits increased to $550.5 million at June 30, 2020, compared to $483.5 million at December 31, 2019, with approximately $87.2 million of time deposit accounts scheduled to mature within one year [222]. Interest Income and Expense - Net interest income for the three months ended June 30, 2020, was $5.038 million, an increase from $4.683 million for the same period in 2019 [162]. - The average interest rate paid on interest-bearing liabilities decreased from 1.21% in the second quarter of 2019 to 0.91% in the second quarter of 2020 [162]. - Interest expense decreased by $163,000, or 12.8%, to $1.1 million for the three months ended June 30, 2020, with interest paid on deposits decreasing by $188,000, or 17.0% [185]. - Interest expense increased by $108,000, or 4.5%, to $2.5 million for the six months ended June 30, 2020, primarily due to a $55.0 million, or 14.2%, increase in average deposit balances [203]. Economic Impact and Response - The COVID-19 pandemic has resulted in significant adverse effects on various industries, leading to layoffs and furloughs in the Company's market areas [133]. - The Company continues to prioritize customer and employee safety during the pandemic, implementing enhanced health measures in its branches [137]. - Provision for loan losses increased by $400,000 to $825,000 for the six months ended June 30, 2020, reflecting adjustments for uncertain economic conditions due to the COVID-19 pandemic [207]. - Non-interest income decreased by $72,000, or 6.3%, to $1.1 million for the six months ended June 30, 2020, primarily due to unrealized losses on derivative contracts and service charge waivers during the pandemic [214].