📰 What This Document Is 📄

This filing is an 8-K, which is a form used to announce important, material events that happened after the company filed its regular quarterly report. Think of it as an immediate update for investors. This specific filing (Ex-99.1) announces Lake Shore Bancorp’s unaudited financial results for the first quarter (Q1) of 2026. 👉 Overall, the company reported positive net income growth year-over-year, driven mainly by increases in its interest revenue.

🏦 Company Overview 🗺️

Before diving into the numbers, it’s helpful to understand who Lake Shore Bancorp is. It functions as the holding company for Lake Shore Bank. The Bank itself is a community-oriented financial institution chartered in New York and operates across Western New York. 👉 It has a local focus, maintaining ten full-service branch locations across Chautauqua County and Erie County, and it offers a full range of retail and commercial lending and deposit services.

💰 Q1 2026 Financial Highlights ✨

The highlights section gives a quick snapshot of the company's financial health for the first quarter of 2026. The headline finding is a significant increase in net income compared to the prior year, backed by improvements in operational efficiency.

• Net Income: The company posted net income of $1.9 million for Q1 2026. This represents a major increase of $866,000, or 81.9%, compared to the $1.1 million reported for Q1 2025. Why it matters: This large percentage growth signals that the bank is becoming significantly more profitable year-over-year.
• Net Interest Income (NII): NII increased to $1.2 million (or 21.9%) compared to Q1 2025. This growth in the bank’s core lending revenue was the primary positive factor for the quarter.
• Efficiency Ratio: This ratio improved substantially, dropping to 69.58%. This was a decrease of 924 basis points from 78.82% in Q1 2025. Why it matters: A lower efficiency ratio means the bank is operating more efficiently—it is generating more profit for every dollar it spends on operations.
• Book Value & Capital: The book value per share increased to $18.11 (up from $18.10 at the end of 2025). The bank also confirmed its capital position is "well capitalized," with a Tier 1 Leverage ratio of 17.54%.

📈 Sources of Revenue: Net Interest Income 💸

The bank's interest income is a vital metric, representing the difference between the interest it earns and the interest it pays out. The Q1 2026 results show strong year-over-year growth in this core revenue stream.

• Year-over-Year Growth: NII rose to $6.7 million in Q1 2026, a 21.9% increase compared to the $5.5 million reported in Q1 2025. This increase was helped by both a higher average yield and more loans issued.
• Interest Income: Total interest income was $9.1 million. This was up 8.2% compared to the $8.4 million in Q1 2025. A key driver was the $480,000 increase in interest income on loans, due to both a 1.0% increase in average loan balances and a 29 basis point increase in the average yield earned on loans.
• Interest Expense: The company recorded interest expense of $2.4 million. This was a 17.5% decrease compared to the $2.9 million in Q1 2025. The decrease was largely attributed to management proactively reducing the rates paid on deposits due to falling market interest rates.

📉 Costs and Expenses Overview ⚙️

Beyond the main interest revenue, the filing provides detailed look at other costs, including non-interest income, expenses, and taxes.

• Non-Interest Income: This category was $703,000 in Q1 2026. While this represents an increase of $20,000 compared to the previous quarter, it saw a slight decrease of 2.9% compared to Q1 2025.
• Non-Interest Expense: Total non-interest expense was $5.1 million in Q1 2026. This reflects an increase of 4.1% compared to the previous quarter. The primary drivers of this increase were higher costs for health insurance, taxes, and other benefits.
• Income Tax Expense: The expense was $430,000 in Q1 2026. This represents a significant increase of 108.7% compared to the $206,000 tax expense recorded in Q1 2025.

🛡️ Credit Quality and Risk Management 🔒

This section details how the bank is managing its lending risk, which is critical for any financial institution. The good news is that indicators suggest loan risk is decreasing.

• Non-Performing Assets (NPA): The percentage of non-performing assets to total assets decreased to 0.22% at March 31, 2026, down from 0.23% at the end of 2025. Why it matters: A lower percentage means a smaller portion of the bank's total lending capital is currently considered uncollectible, suggesting stable credit quality.
• Allowance for Losses: The company maintained its reserves, recording an allowance for credit losses on loans of $4.8 million (down slightly from $4.9 million at the end of 2025). The decrease in the allowance was noted as a result of reduced quantitative and qualitative loss rates, particularly for commercial real estate and home equity loans.

🏛️ Balance Sheet Snapshot 💵

The balance sheet summarizes the company's resources (assets) and obligations (liabilities) as of March 31, 2026.

• Total Assets: Total assets were $722.0 million, representing a slight decrease of 0.7% compared to $727.3 million at the end of 2025.
• Total Deposits: The company reported total deposits of $566.6 million. This was a slight decrease of $6.7 million (1.2%) compared to the $573.3 million at the end of 2025.
• Cash Position: Cash and cash equivalents stood at $61.6 million at March 31, 2026. This decline was primarily linked to the decrease in deposits.
• Equity: Stockholders’ equity increased to $142.4 million, up by 0.5% compared to the $141.6 million at the end of 2025, largely due to the net income earned during the quarter.

🗣️ Management Commentary and Outlook 💬

Lake Shore Bancorp’s President and CEO, Kim C. Liddell, offered commentary on the results, giving insight into the current market challenges.

• CEO Kim C. Liddell stated: "Despite intense competition and challenging loan pricing environments, we remain dedicated to optimizing our balance sheet and operational efficiencies to enhance the Company’s overall performance." Why it matters: This signals that while the market is difficult (high competition, tough lending rates), the management is proactively working internally to improve cost control and efficiency.

🔄 Key Changes in Interest Rates and Funds 🏦

The filing provided granular detail on how changes in the broader economy are impacting the bank's funding costs. These details show meticulous rate management.

• Deposit Rates: The average interest rate paid on time deposit accounts decreased by 48 basis points. This decrease was attributed to two factors: the overall decrease in market interest rates and the bank’s proactive management of its deposit funding costs.
• Borrowing Funds: Interest expense on borrowed funds and other interest-bearing liabilities decreased by 61.7%. This massive decrease was due to a significant $3.9 million reduction in average outstanding borrowings, partially resulting from the bank repaying existing loans during 2025.

🚀 What's Next for Lake Shore? 🔮

The filing does not provide specific forward-looking guidance (like a forecast for Q2 2026). However, the management statement emphasizes a continued focus on strategic goals:

• The company is committed to "optimizing our balance sheet and operational efficiencies." This implies that in future reporting periods, investors should monitor capital allocation and expense control closely.

📞 Contact and Information 📞

If readers require further information, the filing notes the following contact information:

• Location: Dunkirk, N.Y.
• Stock Ticker: LSBK (on NASDAQ Global Market).

🧠 The Analogy 💡

Think of a local bank like a garden hose sprinkler system. The money it makes (Net Interest Income) is the water flow itself, which grows when the garden (the community) has more people and more flowers (loans). The efficiency ratio is like how much energy (cash) the homeowners have to use to keep the system running; the lower that number, the better the system is doing its job with less effort.

🧩 Final Takeaway 📝

Lake Shore Bancorp showed strong profitability growth (81.9% net income increase) in Q1 2026, powered by rising loan interest income. The bank’s management is successfully managing costs by reducing deposit rates and minimizing overhead, even while navigating a competitive market.