Lake Shore Bancorp, Inc. Reports Results for the Fourth Quarter and Fiscal Year 2008 and Announces Withdrawal of TARP Application

Business Wire, Feb 13, 2009

Non-interest income was $410,000 for the quarter ended December 31, 2008 compared to $510,000 for the same period in 2007. During the quarter ended December 31, 2008, the Company recorded a $202,000 non-cash, pre-tax, other-than-temporary impairment charge on one non-agency asset backed security. Excluding the $202,000 impairment charge, the Company's non-interest income for the quarter would have been $612,000, which represents a 20% increase over the same period in 2007. This increase was primarily due to a new fee based service implemented in February 2008.

Non-interest expense increased $200,000, or 9.1%, to $2.4 million for the quarter ended December 31, 2008 compared to $2.2 million for the quarter ended December 31, 2007. In the fourth quarter of 2008, the Company executed an agreement with First Niagara Financial Group to purchase the former Greater Buffalo Savings Bank branch office located on Delaware Avenue in Kenmore, New York. The Company opened their ninth branch office at this location on December 1, 2008. Advertising expenses increased $74,000, or 137.0%, for the quarter ended December 31, 2008 compared to the quarter ended December 31, 2007 due to increased advertising and marketing of the new branch location. Occupancy and equipment increased by $40,000, or 13.0%, in the fourth quarter of 2008 compared to the same period of 2007 primarily due to the addition of the new branch location. Data processing costs increased $28,000, or 24.4%, in the fourth quarter of 2008 compared to the same period of 2007 due to an increase in the number of transactions and increased costs for ATM and debit card transactions, including the implementation of a Business Debit Card for our commercial customers in the fourth quarter of 2008. FDIC insurance premiums increased by $26,000 to $33,000 for the quarter ended December 31, 2008 compared to $7,000 for the quarter ended December 31, 2007, as the Company had fully utilized the $174,000 one-time assessment credit granted by the FDIC and applied against Company premiums since June 2007. Salaries and employee benefits increased $17,000, or 1.4%, for the quarter ended December 31, 2008 compared to the quarter ended December 31, 2007 due to the opening of the new branch location.

Fiscal Year 2008 Results Compared to Same Period of 2007

The Company recorded net income of $1.5 million for the year ended December 31, 2008, a decrease of 19.1%, compared to net income of $1.8 million for the year ended December 31, 2007. The decrease in net income was primarily attributed to a non-cash, pre-tax, impairment of $1.9 million ($1.2 million net of tax) related to write-downs of the Company's investments in four non-agency asset-backed securities during 2008. Excluding the $1.9 million impairment charge, the Company would have recorded net income of $2.7 million for the year ended December 31, 2008, which would have been an increase of $839,000, or 46.2%, over the year ended December 31, 2007. When excluding the impairment charge, earnings per diluted share would have been $0.44 for the year ended December 31, 2008 compared to earnings per diluted share of $0.29 for the year ended December 31, 2007.