Lake Shore Bancorp (LSBK) risk factors, FY2025 10-K

Risks Related to Lending Activities

1. 01We have a substantial amount of commercial real estate and commercial business loans, and we intend to continue to increase our originations of these types of loans. These loans involve credit risks that could adversely affect our financial condition and results of operations
2. 02We have a significant number of loans secured by real estate and a downturn in the local real estate market could negatively impact our profitability
3. 03Our non-residential, non-owner-occupied real estate loans may expose us to increased credit risk
4. 04Our historical emphasis on residential mortgage loans exposes us to lending risks
5. 05Deteriorating credit quality could adversely affect our earnings
6. 06We have extended off-balance sheet commitments to borrowers which expose us to credit and interest rate risk

Risks Related To Our Business

1. 07Low demand for real estate loans may lower our profitability
2. 08We depend on our executive officers and key personnel to implement our business strategy and could be harmed by the loss of their services
3. 09Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses
4. 10The results of our operations may be adversely affected by environmental conditions
5. 11Our business strategy includes growth, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. Growing our operations could also cause our expenses to increase faster than our revenues
6. 12Acquisitions may disrupt our business and dilute stockholder value
7. 13Competition in our primary market area may reduce our ability to attract and retain deposits and originate loans
8. 14Our asset size may make it more difficult for us to compete

Risks Related to Interest Rates and Liquidity

1. 15Changes in interest rates could adversely affect our results of operations and financial condition
2. 16We are subject to certain risks with respect to liquidity

Risks Related to Economic Conditions

1. 17High inflation levels could adversely impact our business and results of operations
2. 18Changes in the Federal Reserve Board’s monetary or fiscal policies could adversely affect our results of operations and financial condition

Risks Related to Operations

1. 19We face significant operational risks because of our reliance on technology. Our information technology systems may be subject to failure, interruption or security breaches
2. 20We rely on third party vendors, which could expose us to and have exposed us to additional cybersecurity risks
3. 21We continually encounter technological change
4. 22We may be subject to risks and losses resulting from fraudulent activities that could adversely impact our financial performance and results of operations

Risks Related To Laws and Regulations

1. 23Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations
2. 24Non-compliance with the USA PATRIOT Act, Bank Secrecy Act and related regulations may subject us to fines or sanctions
3. 25We are subject to the Community Reinvestment Act (“CRA”) and fair lending laws, and failure to comply with these laws could lead to material penalties
4. 26We may be required to raise additional capital in the future, but that capital may not be available when it is needed, or it may only be available on unacceptable terms, which could adversely affect our financial condition and results of operations
5. 27The Federal Reserve Board may require us to commit capital resources to support Lake Shore Bank, and we may not have sufficient access to such capital resources
6. 28We qualify as a smaller reporting company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to smaller reporting companies could make our common stock less attractive to investors
7. 29We are a community bank and our ability to maintain our reputation, which is critical to the success of our business, may materially adversely affect our performance
8. 30Legal and regulatory proceedings and related matters could adversely affect us
9. 31Severe weather, acts of terrorism, geopolitical and other external events could impact our ability to conduct business
10. 32We may be subject to shareholder activism, which could adversely affect our business

Risks Related to Investment in the Company’s Stock

1. 33We expect that our return on equity will be low compared to other financial institutions as a result of our high level of capital
2. 34If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud, and, as a result, stockholders and depositors could lose confidence in our financial reporting, which could adversely affect our business, the trading price of our stock and our ability to attract additional deposits
3. 35Various factors may make takeover attempts more difficult to achieve
4. 36Lake Shore Bancorp may not pay or may reduce the dividends paid on shares of its common stock, and its ability to pay dividends is subject to certain restrictions
5. 37Our stock price may be volatile due to limited trading volume