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 March 31, 2022 ¨ 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 | | | --- | --- | --- | --- | --- ...

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]

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 September 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 (State or other jurisdiction of incorporation or o ...

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 ...

United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (State or Other Jurisdiction 20-4729288 of Incorporation or Organization) (I.R.S. Employer Identification No.) For the fiscal year ended December 31, 2020 31 East Fourth Street, Dunkirk, NY 14048 (Address of Principal Executive Of ices, including zip code) ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXC ...

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 ...

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. 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 June 30, 2020 ☐ TRANSITION REPORT P ...

PART I - Financial Information [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's total assets grew to **$628.3 million** by March 31, 2020, a **2.9%** increase from year-end 2019, while net income for Q1 2020 decreased **18.6%** to **$731,000** due to a **$500,000** increase in loan loss provision, with **$480,000** attributed to **COVID-19** impacts [Consolidated Statements of Financial Condition](index=4&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition) As of March 31, 2020, total assets increased **2.9%** to **$628.3 million**, driven by a **$15.3 million** rise in cash and **$2.5 million** in net loans, alongside a **3.7%** increase in total deposits to **$501.2 million** and a **1.2%** rise in stockholders' equity to **$83.8 million** Consolidated Balance Sheet Highlights (Unaudited) | Financial Metric | March 31, 2020 ($ thousands) | December 31, 2019 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | 45,539 | 30,289 | 50.3% | | Loans receivable, net | 473,354 | 470,816 | 0.5% | | **Total Assets** | **628,326** | **610,869** | **2.9%** | | Total Deposits | 501,199 | 483,476 | 3.7% | | **Total Liabilities** | **544,495** | **528,029** | **3.1%** | | **Total Stockholders' Equity** | **83,831** | **82,840** | **1.2%** | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Net income for Q1 2020 decreased **18.6%** to **$731,000** from **$898,000** in Q1 2019, primarily due to a **566.7%** increase in provision for loan losses to **$500,000**, despite a **7.9%** growth in net interest income to **$4.9 million** Q1 2020 vs. Q1 2019 Income Statement (Unaudited) | Metric | Three Months Ended Mar 31, 2020 ($ thousands) | Three Months Ended Mar 31, 2019 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | 4,896 | 4,538 | 7.9% | | Provision for Loan Losses | 500 | 75 | 566.7% | | Non-Interest Income | 455 | 589 | -22.8% | | Non-Interest Expenses | 3,998 | 4,003 | -0.1% | | **Net Income** | **731** | **898** | **-18.6%** | | **Basic and diluted EPS** | **$0.12** | **$0.15** | **-20.0%** | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended March 31, 2020, the company experienced a net increase in cash and cash equivalents of **$15.3 million**, primarily driven by **$16.2 million** in net cash from financing activities, offset by **$2.3 million** used in investing activities Cash Flow Summary (Unaudited) | Activity | Three Months Ended Mar 31, 2020 ($ thousands) | Three Months Ended Mar 31, 2019 ($ thousands) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 1,386 | 303 | | Net Cash Used in Investing Activities | (2,319) | (6,780) | | Net Cash Provided by Financing Activities | 16,183 | 6,832 | | **Net Increase in Cash and Cash Equivalents** | **15,250** | **355** | [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including the adoption of **CARES Act** provisions for **TDR** and the deferral of **CECL** adoption, while also disclosing a **$480,000** additional loan loss provision due to **COVID-19**, **$103.1 million** in loan deferrals, and **$20.3 million** in **PPP** loan applications - The company elected to adopt provisions of the **CARES Act**, which allows it to not apply **troubled debt restructuring** (**TDR**) accounting to loan modifications related to **COVID-19** for qualifying borrowers[22](index=22&type=chunk)[24](index=24&type=chunk) - The **effective** date for adopting the new **Current Expected Credit Loss** (**CECL**) standard (**ASU 2016-13**) has been deferred to January 1, 2023[25](index=25&type=chunk)[27](index=27&type=chunk) - The projected economic impact of **COVID-19** resulted in an additional **$480,000** provision for loan losses for the quarter, primarily due to adjustments in qualitative factors to account for economic uncertainty[46](index=46&type=chunk) - As of May 11, 2020, the company had executed principal and interest payment deferrals on **219 loans** with outstanding balances of **$103.1 million** in connection with **COVID-19** relief[71](index=71&type=chunk) - The company is participating in the **SBA's Paycheck Protection Program** (**PPP**) and, as of May 11, 2020, had processed approximately **282 applications** for up to **$20.3 million** in **loans**[109](index=109&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant impact of the **COVID-19** pandemic, which led to a **$425,000** year-over-year increase in the provision for loan losses and a corresponding **18.6%** drop in net income to **$731,000** for Q1 2020, with responses including **$103.1 million** in loan deferrals and **PPP** participation, while net interest margin declined **18 basis points** to **3.42%**, and the bank remains **well-capitalized** with a **Community Bank Leverage Ratio** of **12.85%** [Recent Market Conditions and Pandemic Response](index=48&type=section&id=Recent%20Market%20Conditions%20and%20Pandemic%20Response) The company responded to **COVID-19** by implementing social distancing, promoting digital banking, offering payment deferrals for **219 loans** totaling **$103.1 million**, identifying **$57.0 million** in loans to at-risk industries, and actively participating in the **SBA's Paycheck Protection Program** (**PPP**) Loan Modifications by Type (as of May 11, 2020) | Loan Type | Number of Loans | Balance Outstanding ($ thousands) | | :--- | :--- | :--- | | Commercial real estate | 86 | 82,393 | | Residential, one- to four-family | 79 | 10,163 | | Commercial business | 30 | 8,495 | | Home Equity | 22 | 2,032 | | Consumer | 2 | 9 | | **Total** | **219** | **103,092** | Exposure to 'At Risk' Industries (as of March 31, 2020) | Industry Type | Balance Outstanding ($ thousands) | % of Total Loans Outstanding | | :--- | :--- | :--- | | Retail (non-essential) | 17,713 | 3.7% | | Eating and Drinking Establishments | 16,040 | 3.4% | | Hotels/Accommodations | 11,276 | 2.4% | | Construction Trades | 8,202 | 1.7% | | Dental/Medical Practices/Gyms | 3,731 | 0.8% | | **Total** | **56,962** | **12.0%** | - The company is participating in the **SBA Paycheck Protection Program** (**PPP**), processing **282 applications** for up to **$20.3 million** in **loans** as of May 11, 2020[131](index=131&type=chunk) [Comparison of Financial Condition](index=54&type=section&id=Comparison%20of%20Financial%20Condition%20at%20March%2031%2C%202020%20and%20December%2031%2C%202019) Total assets grew **2.9%** to **$628.3 million** by March 31, 2020, driven by increased cash and net loans, while total deposits rose **3.7%** to **$501.2 million**, and non-performing loans increased **12.4%** to **$4.0 million**, representing **0.84%** of total net loans - Total assets increased by **$17.5 million**, or **2.9%**, from December 31, 2019 to March 31, 2020[142](index=142&type=chunk) - Total non-performing loans increased by **$439,000**, or **12.4%**, to **$4.0 million** at March 31, 2020, primarily due to an increase in non-performing residential and home equity loans[148](index=148&type=chunk) - The allowance for loan losses increased to **1.01%** of total net loans, up from **0.88%** in the prior year period[149](index=149&type=chunk) [Comparison of Results of Operations](index=58&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202020%20and%202019) Net income for Q1 2020 decreased **18.6%** to **$731,000** due to a **$425,000** increase in loan loss provision to **$500,000** from **COVID-19** uncertainty, despite an **11.1%** rise in net interest income to **$6.3 million** - Net income decreased by **$167,000**, or **18.6%**, to **$731,000** for Q1 2020 compared to Q1 2019[153](index=153&type=chunk) - The provision for loan losses increased to **$500,000** in Q1 2020 from **$75,000** in Q1 2019, with the increase primarily due to adjusting qualitative factors for the uncertain economic impact of the **COVID-19** pandemic[161](index=161&type=chunk) - Net interest margin decreased by **18 basis points** to **3.42%** for Q1 2020 from **3.60%** for Q1 2019, impacted by a decrease in the average yield on interest-earning assets[141](index=141&type=chunk) [Liquidity and Capital Resources](index=62&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$109.5 million** in **FHLBNY** borrowing capacity and elected the **CBLR** framework, reporting a **12.85% CBLR** as of March 31, 2020, which deems the bank **well capitalized** - The Bank elected to be subject to the new **Community Bank Leverage Ratio** (**CBLR**) framework, which was set at **9.00%** for Q1 2020[180](index=180&type=chunk) - As of March 31, 2020, the Bank's **CBLR** was **12.85%**, deeming it to be in compliance and considered **well capitalized**[181](index=181&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=65&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Lake Shore Bancorp, Inc. is not required to provide these disclosures - This section is not required as the Company qualifies as a smaller reporting company[183](index=183&type=chunk) [Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the **CEO** and **CFO**, concluded the company's disclosure controls and procedures were **effective** as of March 31, 2020, with **no material changes** to internal control over financial reporting during the quarter - The **CEO** and **CFO** concluded that the company's disclosure controls and procedures were **effective** as of the end of the period covered by this report[184](index=184&type=chunk) - **No material changes** to internal control over financial reporting were identified during the quarter ended March 31, 2020[185](index=185&type=chunk)[187](index=187&type=chunk) PART II - Other Information [Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, highlighting the significant and uncertain economic impact of the **COVID-19** pandemic, including potential declines in demand, increased loan delinquencies, declining collateral values, higher loan loss provisions, and pressure on net interest margin - The primary updated risk factor relates to the **COVID-19** outbreak and its potential adverse effects on the company's financial condition and operations[189](index=189&type=chunk) - Specific risks from the pandemic include: * Decline in demand for products and services * Increased loan delinquencies, problem assets, and foreclosures * Decline in collateral value, especially real estate * Potential for further increases in the allowance for loan losses * Reduction in net interest margin due to near-zero federal funds rates * Increased cybersecurity risks from remote work[190](index=190&type=chunk)[196](index=196&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=69&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q1 2020, the company repurchased **26,900 shares** of common stock at an average price of **$14.00 per share** under an existing plan, with **70,139 shares** remaining available for repurchase as of March 31, 2020 Q1 2020 Stock Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2020 | - | $ - | | February 2020 | 8,800 | $15.46 | | March 2020 | 18,100 | $13.28 | | **Total Q1 2020** | **26,900** | **$14.00** | - As of March 31, 2020, **70,139 shares** were remaining to be repurchased under the existing stock repurchase program[194](index=194&type=chunk) [Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including **CEO** and **CFO** certifications pursuant to the **Sarbanes-Oxley Act of 2002** and **XBRL** interactive data files - Exhibits filed include **CEO** and **CFO** certifications under **Sarbanes-Oxley Sections 302** and **906**, as well as **XBRL** data files[197](index=197&type=chunk)

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Lake Shore Bancorp, Inc. operates Lake Shore Savings Bank, focusing on retail deposits and commercial real estate lending in Western New York [General Overview](index=4&type=section&id=General) Lake Shore Bancorp, Inc. is a mid-tier holding company for Lake Shore Savings Bank, focused on deposits and loans, trading on Nasdaq - Lake Shore Bancorp, Inc. operates as a mid-tier holding company for Lake Shore Savings Bank[21](index=21&type=chunk) - A majority of the company's stock (**61.4%** as of December 31, 2019) is held by Lake Shore, MHC, a federally chartered mutual holding company[21](index=21&type=chunk) - The bank's main activities include attracting retail deposits and investing them primarily in commercial real estate loans, one- to four-family residential mortgages, and home equity lines of credit[28](index=28&type=chunk) [Market Area and Competition](index=5&type=section&id=Market%20Area%20and%20Competition) The company primarily serves Erie and Chautauqua Counties, Western New York, competing via personalized service and local market knowledge - The primary market area is Erie and Chautauqua Counties in Western New York, including the city of Buffalo[33](index=33&type=chunk) - The region has seen economic growth led by the health care and education sectors, creating opportunities for the bank to serve small and middle-market customers[35](index=35&type=chunk)[36](index=36&type=chunk) - Competition is intense from larger banks, credit unions, and online lenders. The company's competitive strategy relies on personalized service, local market knowledge, and community support[40](index=40&type=chunk)[41](index=41&type=chunk) [Lending Activities](index=7&type=section&id=Lending%20Activities) The bank shifted lending focus to commercial real estate and business loans to manage risk and improve yields, growing total loans to $471.5 million Loan Portfolio Composition (at December 31) | Loan Type | 2019 ($ thousands) | 2019 (%) | 2018 ($ thousands) | 2018 (%) | | :--- | :--- | :--- | :--- | :--- | | Commercial Real Estate | $211,220 | 44.8% | $150,475 | 38.3% | | Residential 1-4 Family | $154,749 | 32.8% | $155,024 | 39.5% | | Home Equity | $45,250 | 9.6% | $41,830 | 10.7% | | Commercial Construction | $32,299 | 6.9% | $22,252 | 5.7% | | Commercial Business (C&I) | $26,720 | 5.7% | $21,825 | 5.6% | | Consumer & Other | $1,297 | 0.3% | $1,156 | 0.3% | | **Total Loans** | **$471,535** | **100.0%** | **$392,562** | **100.0%** | Loan Originations (for the Year Ended December 31) | Loan Type | 2019 ($ thousands) | 2018 ($ thousands) | | :--- | :--- | :--- | | Commercial Real Estate | $54,981 | $38,299 | | Commercial Business (C&I) | $41,390 | $29,039 | | Commercial Construction | $30,864 | $11,839 | | Residential 1-4 Family | $21,958 | $29,642 | | Home Equity | $18,723 | $20,778 | | Consumer | $1,241 | $975 | | **Total Originations** | **$169,157** | **$130,572** | - The bank has strategically increased its focus on originating commercial real estate and commercial business loans to add adjustable-rate assets, increase yield, and manage interest rate risk[43](index=43&type=chunk) - To manage interest rate risk, the bank sells some long-term fixed-rate residential mortgage loans into the secondary market while retaining servicing rights. In 2019, **$2.6 million** of such loans were sold to FHLMC[56](index=56&type=chunk)[58](index=58&type=chunk) [Asset Quality](index=19&type=section&id=Asset%20Quality) The company maintains high asset quality, with non-performing loans at **0.75%** in 2019, despite increased provision for loan losses from loan growth Non-Performing Assets (at December 31) | Metric | 2019 ($ thousands) | 2018 ($ thousands) | | :--- | :--- | :--- | | Non-performing loans | $3,547 | $3,218 | | Foreclosed real estate | $779 | $678 | | **Total non-performing assets** | **$4,326** | **$3,896** | | Non-performing loans / total net loans | 0.75% | 0.82% | | Non-performing assets / total assets | 0.71% | 0.71% | Allowance for Loan Losses Activity (Year Ended December 31) | Metric | 2019 ($ thousands) | 2018 ($ thousands) | | :--- | :--- | :--- | | Beginning Balance | $3,448 | $3,283 | | Provision for loan losses | $900 | $390 | | Net charge-offs | ($81) | ($225) | | **Ending Balance** | **$4,267** | **$3,448** | | ALL / total net loans | 0.91% | 0.88% | | ALL / non-performing loans | 120.30% | 107.15% | - The provision for loan losses increased by **$0.51 million** (**130.8%**) in 2019, mainly due to a **$78.3 million** increase in net loans and a rise in criticized commercial loans[101](index=101&type=chunk) - Total classified and criticized loans increased to **$11.1 million** in 2019 from **$6.9 million** in 2018, primarily due to two large commercial loan relationships being classified as 'special mention'[90](index=90&type=chunk) [Investment Activities and Sources of Funds](index=27&type=section&id=Investment%20Activities%20and%20Sources%20of%20Funds) The company's **$71.2 million** investment portfolio supports liquidity, with deposits totaling **$483.5 million** as the primary funding source Securities Available for Sale (at December 31) | Security Type | 2019 Fair Value ($ thousands) | 2018 Fair Value ($ thousands) | | :--- | :--- | :--- | | Municipal bonds | $35,819 | $44,942 | | Mortgage-backed securities | $32,920 | $38,725 | | U.S. Government Agencies | $2,145 | $1,961 | | Asset-backed securities | $250 | $314 | | Equity securities | $67 | $24 | | **Total** | **$71,201** | **$86,193** | Deposit Composition (at December 31) | Deposit Type | 2019 ($ thousands) | 2019 (%) | 2018 ($ thousands) | 2018 (%) | | :--- | :--- | :--- | :--- | :--- | | Money market | $141,398 | 29.3% | $119,885 | 27.7% | | Non-interest bearing demand | $61,229 | 12.7% | $55,327 | 12.8% | | Interest bearing demand | $56,703 | 11.7% | $50,211 | 11.6% | | Savings | $53,628 | 11.1% | $52,050 | 12.0% | | **Total core deposits** | **$312,958** | **64.7%** | **$277,473** | **64.2%** | | Time deposits | $170,518 | 35.3% | $154,985 | 35.8% | | **Total deposits** | **$483,476** | **100.0%** | **$432,458** | **100.0%** | - The company owns Bank Owned Life Insurance (BOLI) policies totaling **$22.0 million** at December 31, 2019, used to offset costs of supplemental employee retirement benefit (SERP) plans[121](index=121&type=chunk) [Supervision and Regulation](index=36&type=section&id=Supervision%20and%20Regulation) The company and its subsidiaries are extensively regulated, consistently meeting capital requirements and maintaining 'well-capitalized' status - Lake Shore Savings Bank is regulated by the OCC, while the holding companies (Lake Shore Bancorp and Lake Shore, MHC) are regulated by the Federal Reserve Board[141](index=141&type=chunk) - The bank is subject to Basel III capital rules. To be well-capitalized, it must maintain a CET1 ratio of **6.5%**, Tier 1 ratio of **8%**, total risk-based capital ratio of **10%**, and a leverage ratio of **5%**[154](index=154&type=chunk)[155](index=155&type=chunk) - As of December 31, 2019, Lake Shore Savings Bank's capital levels exceeded all applicable minimum requirements, including the fully phased-in **2.5%** capital conservation buffer[152](index=152&type=chunk)[154](index=154&type=chunk) - Lake Shore, MHC, as a 'grandfathered' mutual holding company, can waive its right to receive dividends from Lake Shore Bancorp, subject to member and Federal Reserve approval, which it has consistently done[188](index=188&type=chunk)[189](index=189&type=chunk) [Item 1A. Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) The company faces economic, operational, interest rate, and regulatory risks, including COVID-19 impacts and limited public shareholder control - **Economic/Credit Risk:** The loan portfolio has a growing concentration in commercial real estate and business loans (**57.6%** of total), which carry higher credit risk than residential mortgages. The company's geographic concentration in Western New York makes it vulnerable to local economic downturns[197](index=197&type=chunk)[198](index=198&type=chunk)[206](index=206&type=chunk) - **Operational Risk:** The company highlights the significant risk of the COVID-19 pandemic, which could disrupt operations, reduce loan demand, and negatively impact financial results. Other operational risks include cybersecurity threats, reliance on key executives, and competition[209](index=209&type=chunk)[214](index=214&type=chunk)[212](index=212&type=chunk) - **Interest Rate Risk:** The company is generally liability-sensitive, meaning its liabilities re-price faster than its assets. A rising interest rate environment could increase funding costs more rapidly than asset yields, negatively impacting earnings[228](index=228&type=chunk) - **Regulatory & Stock Risk:** The ability to pay dividends depends on the bank's performance and the MHC's continued waiver of its dividends, which requires regulatory approval. Public shareholders have limited control as the MHC owns a majority of the voting stock[240](index=240&type=chunk)[244](index=244&type=chunk) [Item 1B. Unresolved Staff Comments](index=71&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[253](index=253&type=chunk) [Item 2. Properties](index=73&type=section&id=Item%202.%20Properties) The company operates from a corporate headquarters and eleven owned branch offices in Western New York, valued at **$8.0 million** - The company operates through its corporate headquarters and eleven branch offices[254](index=254&type=chunk) - At December 31, 2019, the net book value of buildings and premises was **$8.0 million**, and the net book value of equipment and fixtures was **$1.4 million**[254](index=254&type=chunk) [Item 3. Legal Proceedings](index=74&type=section&id=Item%203.%20Legal%20Proceedings) The company is not involved in any material pending legal proceedings as of December 31, 2019 - The company is not involved in any material pending legal proceedings[257](index=257&type=chunk) [Item 4. Mine Safety Disclosures](index=74&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[258](index=258&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=74&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under 'LSBK', maintains quarterly dividends, and actively repurchases shares - The company's common stock trades on the Nasdaq Global Market under the symbol 'LSBK'[260](index=260&type=chunk) Stock Repurchases (Q4 2019) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2019 | 6,500 | $14.95 | | November 2019 | 12,700 | $15.14 | | December 2019 | - | - | | **Total** | **19,200** | **$15.08** | - A new stock repurchase plan was approved on September 6, 2019, allowing for the repurchase of up to **116,239 shares**. As of December 31, 2019, **97,039 shares** remained available for repurchase under this plan[263](index=263&type=chunk) [Item 6. Selected Financial Data](index=75&type=section&id=Item%206.%20Selected%20Financial%20Data) This section summarizes five years of key financial data, showing asset growth to **$610.9 million** and net income of **$4.1 million** in 2019 Selected Financial Highlights (Year Ended December 31) | Metric ($ in thousands, except per share) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total Assets | $610,869 | $545,708 | $518,977 | | Loans, net | $470,816 | $392,471 | $365,063 | | Total Deposits | $483,476 | $432,458 | $405,153 | | Total Stockholders' Equity | $82,840 | $79,804 | $78,375 | | Net Interest Income | $19,070 | $17,934 | $16,778 | | Net Income | $4,087 | $4,000 | $3,378 | | Diluted EPS | $0.68 | $0.66 | $0.55 | Selected Performance Ratios (Year Ended December 31) | Ratio | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Return on average assets | 0.71% | 0.75% | 0.67% | | Return on average equity | 4.99% | 5.07% | 4.34% | | Net interest margin | 3.58% | 3.61% | 3.61% | | Efficiency ratio | 73.83% | 75.62% | 73.89% | | Book value per share | $13.98 | $13.29 | $12.85 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=77&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, noting a **2.2%** net income increase to **$4.1 million** in 2019, driven by loan growth and asset expansion [Comparison of Financial Condition (2019 vs. 2018)](index=86&type=section&id=Comparison%20of%20Financial%20Condition) Total assets increased by **$65.2 million** to **$610.9 million** in 2019, driven by a **20.0%** loan growth and **11.8%** deposit increase - Total assets grew **11.9%** to **$610.9 million** at Dec 31, 2019[303](index=303&type=chunk) - Net loans receivable increased by **$78.3 million**, or **20.0%**, driven by a **$60.7 million** (**40.4%**) increase in commercial real estate loans and a **$10.0 million** (**45.2%**) increase in commercial construction loans[305](index=305&type=chunk)[306](index=306&type=chunk) - Total deposits increased by **$51.0 million**, or **11.8%**, with core deposits growing **12.8%** and time deposits growing **10.0%**[308](index=308&type=chunk) [Comparison of Results of Operations (2019 vs. 2018 & 2018 vs. 2017)](index=89&type=section&id=Comparison%20of%20Results%20of%20Operations) Net income increased **2.2%** to **$4.1 million** in 2019 from net interest income growth; 2018 saw an **18.4%** increase to **$4.0 million** from higher net interest income and lower tax - **2019 vs. 2018:** Net income rose **2.2%** to **$4.1 million**. The increase was driven by a **6.3%** rise in net interest income, which was largely offset by a **130.8%** increase in the provision for loan losses and a **3.2%** increase in non-interest expenses[311](index=311&type=chunk)[312](index=312&type=chunk)[319](index=319&type=chunk)[325](index=325&type=chunk) - **2018 vs. 2017:** Net income rose **18.4%** to **$4.0 million**. This was primarily due to a **6.9%** increase in net interest income and a **50.6%** decrease in income tax expense resulting from the lower corporate tax rate enacted by the Tax Cuts and Jobs Act[327](index=327&type=chunk)[328](index=328&type=chunk)[343](index=343&type=chunk) Key Income Statement Changes (2019 vs. 2018) | Item ($ thousands) | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $19,070 | $17,934 | +6.3% | | Provision for Loan Losses | $900 | $390 | +130.8% | | Non-Interest Income | $2,492 | $2,474 | +0.7% | | Non-Interest Expense | $15,920 | $15,433 | +3.2% | | **Net Income** | **$4,087** | **$4,000** | **+2.2%** | [Item 9A. Controls and Procedures](index=102&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[357](index=357&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework[360](index=360&type=chunk) PART III [Items 10-14 (Directors, Compensation, Governance, etc.)](index=104&type=section&id=Item%2010,%2011,%2012,%2013,%2014) Information for Items 10-14 (directors, compensation, governance) is incorporated by reference from the 2020 Proxy Statement - Information for these sections is incorporated by reference from the forthcoming 2020 Proxy Statement[365](index=365&type=chunk)[366](index=366&type=chunk)[367](index=367&type=chunk)[368](index=368&type=chunk)[369](index=369&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=104&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and all exhibits filed as part of the Annual Report on Form 10-K - This item lists the financial statements and all exhibits filed with the Annual Report on Form 10-K[371](index=371&type=chunk)[373](index=373&type=chunk) Financial Statements and Notes [Consolidated Financial Statements](index=113&type=section&id=Consolidated%20Financial%20Statements) The audited consolidated financial statements for 2019 show total assets of **$610.9 million** and net income of **$4.1 million**, with an unqualified opinion Consolidated Statement of Financial Condition (at December 31) | ($ in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | **Total Assets** | **$610,869** | **$545,708** | | Loans receivable, net | $470,816 | $392,471 | | Securities available for sale | $71,201 | $86,193 | | **Total Liabilities** | **$528,029** | **$465,904** | | Total Deposits | $483,476 | $432,458 | | **Total Stockholders' Equity** | **$82,840** | **$79,804** | Consolidated Statement of Income (Year Ended December 31) | ($ in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net Interest Income | $19,070 | $17,934 | $16,778 | | Provision for Loan Losses | $900 | $390 | $510 | | Non-Interest Income | $2,492 | $2,474 | $2,655 | | Non-Interest Expenses | $15,920 | $15,433 | $14,360 | | **Net Income** | **$4,087** | **$4,000** | **$3,378** | [Notes to Consolidated Financial Statements](index=120&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, portfolio composition, loan loss allowance, capital adequacy, and employee benefits, confirming 'well-capitalized' status - The company adopted ASU 2016-02 (Leases) on January 1, 2019, resulting in the recognition of right-of-use assets of **$0.904 million** and lease liabilities of **$0.916 million**[445](index=445&type=chunk) - The company will adopt the new CECL accounting standard (ASU 2016-13) effective January 1, 2023, which is expected to increase the allowance for loan losses[447](index=447&type=chunk)[448](index=448&type=chunk)[449](index=449&type=chunk) Bank Regulatory Capital Ratios (at December 31, 2019) | Ratio | Actual | Minimum for Adequacy | To Be Well-Capitalized | | :--- | :--- | :--- | :--- | | Total capital (to risk weighted assets) | 18.02% | 8.00% | 10.00% | | Tier 1 capital (to risk weighted assets) | 17.09% | 6.00% | 8.00% | | CET 1 capital (to risk weighted assets) | 17.09% | 4.50% | 6.50% | | Tier 1 Leverage (to adjusted total assets) | 13.01% | 4.00% | 5.00% | - Subsequent to year-end, on February 5, 2020, the MHC members approved the waiver of dividends for the next twelve months, and the Federal Reserve provided its non-objection on February 28, 2020[602](index=602&type=chunk)