The Bank’s asset quality metrics remained superior to industry and peer averages. Non-performing loans as a percent of total loans were 0.86%, at September 30, 2012 down 16 basis points from 1.02% at December 31, 2011. At September 30, 2012, the Bank’s allowance for loan losses as a percent of non-performing loans was 65.57%, up from 48.82% at December 31, 2011.

Total assets were $498.7 million at September 30, 2012, an annualized increase of 2.8% from December 31, 2011. Total deposits were $392.6 million at September 30, 2012, an increase of $12.8 million from the end of 2011. More importantly, core deposits were up $20.6 million during that same period reflecting the Bank’s strategic focus of a greater reliance on core deposits as a source of funding. Total stockholders’ equity was $67.1 million at September 30, 2012, an increase of $3.1 million from the end of 2011. The increase in total stockholders’ equity was primarily due to $2.8 million in net income and a $1.0 million increase in unrealized gains on the investment portfolio since December 31, 2011, offset by $698,000 in cash dividends paid.

Cash Dividend Declared

The Company’s Board of Directors approved a $0.04 cash dividend on its common stock, payable on November 20, 2012, to shareholders of record as of November 6, 2012. Based on the closing price for a share of Lake Shore Bancorp, Inc. common stock of $10.22 on October 25, 2012, the implied annual dividend yield is 2.45%.

Lake Shore, MHC (the “MHC”) which holds 3,636,875 shares, or 61.2% of the Company’s total outstanding stock, will not waive receipt of the dividend payment as it has in past quarters because of the Federal Reserve Board’s interim final regulation which requires the prior approval of a majority of the eligible votes of the MHC’s members (i.e., depositors) for the MHC to waive the receipt of dividends. Due to the significant time that would be required to obtain the member vote required by the Federal Reserve Board’s regulation, the Board of Directors of the MHC has determined not to pursue such a vote in connection with this dividend. Without the dividend waiver, the Company must pay a dividend at the same rate on the shares that are held by the MHC as it does for public shareholders. Because of the increased number of shares that must receive the dividend payout, the Company has approved payment of this quarterly dividend at the amount of $0.04 per share.

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