PROPOSAL ONE:  ELECTION OF DIRECTORS 

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Our charter provides that we must have between five and fifteen directors.  The Board of Directors is currently comprised of tenseven members, and is divided into three classes. Our directors generally serve staggered three-year terms such that usually only one class (one-third of the directors) is elected each year.    

Upon the recommendation of the Nominating and Corporate Governance Committee, our Board of Directors has nominated the fivetwo individuals listed in the table below for election as directors at the Annual Meeting.    If you elect the nominees, they will hold office for the term set forth opposite their names or until their successors have been elected.

We know of no reason why any nominee may be unable to serve as a director. If any nominee is unable to serve, your proxy may be voted for another nominee proposed by the Board of Directors.

The table below sets forth certain information regarding the composition of the Board of Directors and Director Nominees, and Retiring Director, including the terms of office of Board members.

the board of directors unanimously recommends a vote “for” each nominee.

Composition of Director Nominees and Directors Continuing in Office and Retiring Director

(1)As of March 24, 2022.23,  2023. 

(2)Includes service as a director of Lake Shore Savings and Loan Association.  In April 2006, the Bank converted from a New York-chartered savings and loan association to a federal savings bank, in connection with the Company’s initial public offering and organization as a savings and loan holding company, which resulted in the name change of the Bank to Lake Shore Savings Bank.

(3)  Mrs.  Yocum’s service as a director will end at the 2022 annual shareholders meeting due to the age limitation in Lake Shore Bancorp’s bylaws. 

INFORMATION ABOUT OUR BOARD OF DIRECTORS



Business Experience of Directors 

The principal occupation during the past five years of each director nominee and directors continuing in office and the retiring director, including the President and Chief Executive Officer, as well as other relevant experience is set forth below.  All director nominees and directors continuing in office the retiring director and the President and Chief Executive Officer have held their present positions for five years unless otherwise stated. None of our director nominees,  directors continuing in office, the retiring director or the President and Chief Executive Officer have been the subject of securities litigation, regulatory enforcement or bankruptcy in the past ten years.

Board Responsibilities 

The Board of Directors oversees our business and monitors the performance of our management. In accordance with our corporate governance guidelines, the Board of Directors does not involve itself in our day-to-day operations; our executive officers and management oversee our day-to-day operations. Our directors fulfill their duties and responsibilities by attending regular

meetings of the Board of Directors and its committees, and also through considerable contact via telephone, e-mail and other communications with the Chairman and others regarding matters of concern and interest to us. Our directors also discuss business and other matters with the Chairman, other key executives, and our principal external advisors.

Meetings of the Board of Directors 

The Board of Directors held a total of twelve regular meetings and one special meeting during 2021.2022. Each incumbent director attended at least 75% of the meetings of the Board of 

Directors held during the time in which theyhe or she served as director, plus meetings of committees on which that particular director served during this period.

It is our policy that all directors should attend the annual meeting of shareholders.  In accordance with such policy, all directors attended the 20212022 Annual Meeting of Shareholders. 

COMPENSATION OF DIRECTORS

Director Compensation

Meeting Fees.    We pay a fee to each of the non-employee directors for attendance at Board of Directors meetings.  On each meeting date, the board members are required to attend a board meeting for Lake Shore Savings Bank, as well as Lake Shore Bancorp, Inc. and Lake Shore, MHC, if there are agenda items up for discussion.  Only one meeting fee is paid for attendance at the three board meetings on the meeting date.   The director meeting fee is $1,650 for Board meetings attended in person and $1,237.50 for Board meetings attended telephonically.    Since the onset of the COVID-19 pandemic, the Board Chairman has the authority to establish guidance for use of a virtual meeting platform for board meetings at his discretion.  If the Chairman determines that a virtual meeting platform will be used for social distancing purposes due to COVID-19, then the meeting fee will be $1,650 whether attended in person or via the virtual meeting platform.remotely.    The annual retainer for the Chairman of the Board of Directors was $32,500.  The Chairperson of each board committee received an annual retainer of $6,000, with the exception of the Audit/Audit,  Risk and Chairman’s Compliance Committee Chairperson,Chairpersons, who received an annual retainer of $10,000.  The Loan Committee Chairperson did not receive an annual retainer as he is also an employee of the Company.  The annual retainer for committee members of the Compensation, Asset/Asset Liability, Loan and Nominating and Corporate Governance Committees was $3,000.  The annual retainer for committee members of the Audit/Audit, Risk Committeeand Chairman’s Compliance Committees was $5,000.  Members of the Board of Directors who are also employees do not receive director fees.  The Chairman of the Board does not earn fees for his service on Board committees.committees, except for his service as Chairman of the Chairman’s Compliance committee, where he does receive an annual retainer of $10,000.

Supplemental Benefit Plans for Non-Employee Directors.    Lake Shore Savings entered into a supplemental benefit plan in 1999 (the “1999 Plan”) with each of its then non-employee directors, (i.e., the 1999 Plan includes the following current directors:  Mr. Reininga and Mrs. Yocum who are the only remaining directors that were non-employee directors in 1999).directors.  Under the 1999 Plan, each participant is guaranteed monthly payments over a period of fifteen years commencing at age 70 equal to $18,105 per year based upon 21 years of service as a director to Lake Shore Savings (or an earlier retirement age if 21 years of service is attained prior to age 70) with the annual benefit payable reduced proportionately for each year of service as a director less than 21 years attained at age 70.    During 2021, Mrs. Yocum received $18,105 under this plan.

Lake Shore Savings entered into a supplemental benefit plan in 2001 with each of its then non-employee directors.  This plan,  as amended, provides a benefit formula equal to a percentage of the participant’s average pay, which is multiplied by number of years of service, not to exceed 20 years of service or 40% of average pay.  The payment is guaranteed over a period of fifteen years beginning the month following termination of service or age 72, whichever comes first.  This

plan includes each of the current non-employee directors, with the exception of Ms. DeBergalis, Mr. McGrath,  and Mr. Passafaro and Mrs. Young.Passafaro.  During 2021, Mrs. Yocum2022, Mr. Bennett received $15,532$3,323 under this supplemental benefit plan for non-employee directors.     

In connection with Mr. Reininga’s appointment to Executive Vice President and Chief Operating Officer on January 1, 2010, his participation in the supplemental benefit plans for non-employee directors was terminated and he entered into a supplemental benefit plan for executives, as further described in the “Executive Officer Compensation – Compensation Plans – Supplemental Employee Retirement Plans”section elsewhere in this proxy statement.

Equity Plans.    Our directors are eligible to participate in the Lake Shore Bancorp, Inc. 2006 Stock Option Plan, the Lake Shore Bancorp, Inc. 2006 Recognition and Retention Plan and the Lake Shore Bancorp, Inc. 2012 Equity Incentive Plan (the “Equity Incentive Plans”). These benefit plans are discussed under the “Executive Officer Compensation—2006 Stock Option Plan”, “2006 Recognition and Retention Plan” and “Executive Officer Compensation - 2012 Equity Incentive Compensation” sections elsewhere in this proxy statement.

Non-employee directors are granted awards under the Equity Plans for the purpose of aligning non-employee director interests with shareholder interests and to aid in the retention of such directors.  The allocation of awards to non-employee directors may be made based on the director’s responsibilities and years of service at the time of grant.  Directors who hold the title of chairperson or vice-chairperson, or who were a committee chairperson, may receive a greater allocation of awards than those who did not hold such positions.  The grant of awards to non-employee directors may also be made in lieu of cash compensation that would otherwise be paid as director fees in order to further align the non-employee director interests with shareholder interests.



Director Compensation Table. The following table sets forth information regarding compensation earned by our non-employee directors during the 20212022 fiscal year.    

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CORPORATE GOVERNANCE 

Our Board of Directors has adopted Corporate Governance Guidelines that contain a number of corporate governance initiatives designed to comply with NASDAQ corporate governance listing standards, the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC. We have also adopted charters for the Audit/RiskAudit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee in order to implement these rules and standards.  Current versions of the Audit/Risk,Audit, Compensation and Nominating and Corporate Governance Committee charters are available on our website, www.lakeshoresavings.com under “About Us”, “Investor Relations” - “Governance“Corporate Overview” - Governance Documents” section.  The information set forth on our website shall not be deemed filed with, and is not incorporated by reference into, this proxy statement or any of our other filings under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, except to the extent that we specifically so provide.

Board of Directors Independence 

Annually, the Board of Directors determines director independence as defined by NASDAQ listing rule 5605(a)(2).  The annual review includes reviewing the relationships that each director, his or her immediate family members and his or her related affiliates had  with the Company.  In making its determination as to the independence of its directors in accordance with NASDAQ listing standards rules, a review of the outstanding loans that directors Bennett, Brautigam, Sanvidge and YocumSanvidge and their family members or affiliates had with the Company was completed, and it was noted that the loans were made in the ordinary course of business with substantially the same terms prevailing for loans made to others unrelated to the Company and did not involve more than the normal risk of collectability or present other unfavorable features.  A review was also made of the Company’s donations to charitable organizations with which Mr.

Bennett and Mrs. Yocum (or theirhis family members) is affiliated and aaffiliated.  The Board of Directors made the determination was made that thesethe above-named directors remained independent.



The table below notes independent directors and committee assignments.assignments in 2022.  As noted in the table below, the Board of Directors is comprised of a majority of directors who qualify as independent according to NASDAQ Stock Market Rules.



Mr. Daniel P. Reininga iswas not an independent director because he iswas the President and CEO of the Company.Company in 2022. 

Leadership Structure of the Board of Directors

The positions of Chief Executive Officer of the Company and the Chairman of the Board of Directors are currentlyexpected to continue to be held by two different individuals.  Our Chief Executive Officer serves as a Director and theThe Chairman of the Board is an independent, non-employee director.  We believe that this structure provides strength to the Company by giving the Chief Executive Officer a respected voice onto our Board, while at the same time giving leadership of the Board to an independent person who, together with the other Directors, provides active oversight of management and its implementation of the strategic plans of the Board. Each of our Directors serves on one or more of the committees of the Board and actively and regularly participates in the various functions of these committees.  The committee structure enables the duties of the Board to be divided among the Directors.  This division of duties allows each of the Directors to concentrate his or her energies in a focused way on a narrower area of Board responsibility and helps insure that adequate time is being given to the many oversight responsibilities of the Board. We believe that the size of our Board provides a sufficient number

of Directors to serve on each

of the Board’s committees, but is not so large as to be cumbersome or excessively expensive to the Company.

Committees of the Board of Directors 

Our Board of Directors has established the following committees: 

Audit/RiskAudit Committee. The Audit/RiskAudit Committee oversees and monitors the integrity of the Company’s financial reporting process and systems of internal control regarding finance, accounting and regulatory compliance. The Audit/RiskAudit Committee retains, oversees and monitors the independence and performance of the Company’s independent registered public accounting firm.  The Audit/RiskAudit Committee also oversees and monitors the independence and performance of the internal audit department and acts as an avenue of communication between the independent registered public accounting firm, management, the internal audit department and the Board of Directors.  The Audit/RiskAudit Committee meets with the external auditors to review quarterly and annual SEC filings, the results of the annual audit and other related matters. As noted below, the Audit/Risk Committee has also accepted responsibility for oversight of the Company’s risk management function.    



Our Board of Directors has determined that Mr. Bennett and Ms. Yocum each qualifyqualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K. The Audit/RiskAudit Committee has chosen Ms. YocumMr. Bennett to serve as the “financial expert” on behalf of the Company until her retirement in May 2022, after which Mr. Bennett will serve as the “financial expert”.Company. The Audit/RiskAudit Committee met sevennine times during 2021.2022.

Compensation Committee.  The Compensation Committee evaluates the performance of our management team and recommends compensation based upon that performance. It oversees executive compensation and director compensation by approving salary increases and reviewing general personnel matters such as Named Executive Officer performance evaluations. The Compensation Committee annually reviews and makes recommendations to the Board of Directors with respect to the compensation of directors and Named Executive Officers.  It is also responsible for approving, evaluating and administering compensation structure, policies and programs, which includes benefit plans, such as the Company’s 401K and ESOP plan, as well as incentive plans and stock compensation plans. 

The Compensation Committee relied on an American Bankers Compensation and Benefits survey and on information provided from the Compensation Committee’s priorengaged an independent compensation consultant,  McLagan of Aon Plc (“McLagan”), to conduct an extensive peer review survey of salary and incentives for NEOs which was provided through August 2020,completed in December 2021.  The survey and peer review were used as guidance in determining the appropriate salaries for Named Executive Officers and directorsdirector fees for 2021.2022.   Based on this information, the Compensation Committee decided on a percentage increase in base salary for each of the Named Executive OfficersOfficers.  The percentage increase in base salary for the President and CEO and for the Executive Vice President- Commercial Division was 1.96% and for the Chief Financial Officer was 4.90%.  The Compensation Committee did not make any changes to director fees for 2021. 

2022. 



The Compensation Committee takes into account numerous factors when determining a recommendation for the salaries and incentive goals of Named Executive Officers.  In addition to information obtained from American Bankers Compensation and Benefits survey and on information provided from the Compensation Committee’s prior independent compensation

consultant, the Compensation Committee also obtains the CEO’s recommendation for proposed salary increases

and incentive goals for the Named Executive Officers (other than the President and CEO).  The results of the non-binding shareholder vote to approve the compensation of the Company’s Named Executive Officers from the most recent shareholders’ meeting are also reviewed by the Compensation Committee.  The Compensation Committee considers Lake Shore Savings’ performance in the prior year,  and Lake Shore Savings’ strategic plans and goals for the future, and position scope (for positions other than the President and CEO) as part of its decision process to decide upon a recommendation for salaries and incentive goals for the Named Executive Officers. 

The Compensation Committee will submit to the full Board of Directors for approval their own recommendations on compensation for Named Executive Officers and directors.  The Compensation Committee met fiveseven times during 2021.2022. 



Asset/Liability Committee. The Asset/Liability Committee of the Board of Directors is responsible for overseeing the asset/liability management process, including its execution and adherence to defined policies and procedures.  The Asset/Liability Committee is also responsible for monitoring the activity of its financial advisor, which is responsible for recommending certain balance sheet strategies and investments and providing investment advice to the committee.  The Asset/Liability Committee met four times during 2021.

Loan Committee.  The Loan Committee of the Board of Directors is responsible for reviewing commercial and residential loans exceeding certain thresholds and is responsible for ensuring these loans comply with Bank policy and do not present undue credit risk to Bank operations. The Loan Committee is responsible for approving commercial loans between $1.5 million and $5.0 million, as per board approved lending authority.  Residential loans that exceed $1.0 million and commercial loans that exceed $5.0 million will be presented to the full board for approval.  The Loan Committee does not meet formally, but rather acts as needed via telephone conference, e-mail, e-voting via our secure, online director portal, or in person, when loans require review and/or approval. 



Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee recommends the nomination of directors to the full Board of Directors to fill the terms for the upcoming year or to fill vacancies during a term. The Nominating and Corporate Governance Committee considers recommendations from shareholders if submitted in a timely manner in accordance with the procedures established by the Committee and applies the same criteria to all persons being considered. The Nominating and Corporate Governance Committee also assists the Board of Directors in monitoring a process to assess Board of Directors’ effectiveness and in developing and implementing our corporate governance guidelines and reviewing and approving all transactions with affiliated parties. The Nominating and Corporate Governance Committee monitors our regulatory compliance and our compliance with our corporate governance guidelines.  In addition, the Nominating and Corporate Governance Committee recommends to the full Board the assignment of Directors to the committees of the Board, which responsibility includes a determination of the independence of individual directors according to the NASDAQ and SEC rules.  The Nominating and Corporate Governance Committee also oversees periodic evaluations of individual Directors and of the full Board of Directors, to insure their effectiveness.  Lastly, the Nominating and Governance Committee assists the Board of Directors in selecting a President and Chief Executive Officer and in selecting a chairperson for the Board of Directors by overseeing the succession process for these positions.  

The Committee also ensures that an emergency succession plan for the Chief Executive Officer is in place and is annually updated. 



The Nominating and Corporate Governance Committee met five times during 2021.2022.  

The Nominating and Corporate Governance Committee has adopted procedures for the submission of recommendations for director nominees by our shareholders.  If a determination is made that an additional candidate is needed for the board of directors, the Nominating and Corporate Governance Committee will consider candidates submitted by our shareholders.  Shareholders can submit the names of qualified candidates for director by writing to the chairperson of the Nominating and Corporate Governance Committee at 31 East Fourth Street, Dunkirk, New York 14048.  The chairperson must receive a submission not less than 180 days prior to the anniversary date of our proxy materials for the preceding year’s annual meeting. The submission must include the following information:



A nomination submitted by a shareholder for presentation by the shareholder at an annual meeting of shareholders must comply with the procedural and informational requirements described in our bylaws.

Shareholder nominees are analyzed by the Committee in the same manner as nominees that are identified by the Committee.  We do not pay a fee to any third party to identify or evaluate nominees.  As of April 5, 2022,4, 2023, the Committee had not received any shareholder recommendations for nominees in connection with the Annual Meeting.

Consideration of Director Candidates

It is the policy of the Nominating and Corporate Governance Committee to select individuals as director nominees with the goal of creating a balance of knowledge, experience and interest on the Board.  The Committee evaluates candidates for their character, judgment, business experience and acumen.  The Nominating and Corporate Governance Committee considers the following skills and characteristics when deciding which individuals to nominate for election as director:















The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective director candidates. For a discussion of the specific backgrounds and qualifications of our current directors and director nominees, see “Information about our Board of Directors – Business Experience of Directors.”



Board Composition

The Company believes in the benefits that diversity brings to the Board of Directors.  Based upon voluntary self-identification by each member of the Company’s Board of Directors, the diversity composition of the Board of Directors for the current year is disclosed as follows:



Board Diversity Matrix (as of December 31, 2021)March 23, 2023)









Risk Oversight by the Board of Directors

The Board of Directors is actively involved inresponsible for the oversight of risks that could have a material effect on the Company.  This oversight is conducted primarily by the Audit/Enterprise Risk Committee, with the assistance of other committees of the Board.  The Enterprise Risk Committee oversees and monitors the Bank’s enterprise risk management program.  A key role of the Enterprise Risk Committee is to coordinate with Management, Board butCommittees and the full Board of Directors has retained responsibilityto ensure all parties accountable for general oversight of risk.  risk understand the risks to the institution and confirm that risks are identified, measured, monitored and controlled. The Board of Directors satisfies this responsibility through full reports by each committee chairperson regarding the committee’s considerations and actions, as well as through regular reports directly from members of management who are responsible for oversight of particular risks within the Company, including credit, interest rate, liquidity, price, strategic, reputational, operational, information technology

(including (including cybersecurity), and compliance.     The Senior Management Risk Teams and Enterprise Risk Manager responsible for risk oversight have formalized their review process by creating an internal risk assessment model to efficiently identify, measure, monitor and control the quantity, quality, aggregate level and direction of risk for the risk categories noted above.  As part of this process, the Board of Directors and Enterprise Risk Management enlisted a third party vendor to import the Bank’s data into a CAMELS+ based enterprise risk management model, which allows the Bank to stress test its risk levels and to monitor risk levels against pre-established limits.  A summary report resulting from the internal risk assessment and the third party vendor risk assessment are presented to the Board of Directors for review and discussion on a periodic basis.  The Board of Directors has assigned various board committees to monitor risks associated with their respective principal areas of focus through regular meetings with management and outside advisors.  The following is a list of oversight responsibility by board committee:

As the Company is entrusted with the safeguarding of sensitive information, our Board believes that strong enterprise risk management is vital to effective cybersecurity risk management.  Accordingly, our Board is actively engaged in the oversight of the Company’s risk profile and cybersecurity strategy through representation of an Audit/Risk Committee member on the Bank’s IT Steering Committee, which meets quarterly.  The Bank’s IT Steering Committee receives updates from the Vice President of Management Information Systems on the Company’s cybersecurity risk profile and cybersecurity risk management initiatives.  The Board of Directors annually reviews and approves the Company’s Contingency Planning and Disaster Recovery

policy, Cybersecurity policy, Incident Response policy and Information Security policy.  Materials provided to the Bank’s IT Steering Committee are also presented to the Audit/Risk Committee at its quarterly meetings for review and discussion. The Audit/Risk Committee is responsible for the review of open and pending items resulting from external third-party examinations of the Bank’s information technology activities. The Audit/Risk committee will review management’s responses to the open and pending items and ensure that processes and procedures are timely implemented to manage the risks identified.   

The full Board of Directors is responsible for strategic risk, and also oversees all risk areas through the review and approval of policies that are designed to guide operations in a manner consistent with applicable laws, regulations and risks acceptable to the organization.    

Code of Conduct and Ethics 

We have adopted a Code of Conduct and Ethics that is applicable to all officers, directors and employees of Lake Shore Bancorp and its affiliates, including our principal executive officer and principal financial officer and principal accounting officer. A copy of the Code of Conduct and Ethics is available at our website, www.lakeshoresavings.com under “About Us”, “Investor Relations” – 

“Corporate Overview” - “Governance Documents” section.  The information set forth on our website shall not be deemed filed with, and is not incorporated by reference into, this proxy statement or any of our other filings under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, except to the extent that we specifically so provide.

Anti-Hedging Policy

The Company’s Insider Trading Policy prohibits its directors, officers or other employees from engaging in short sales of Company stock, as well as transactions in any puts, calls or other derivative securities on Company stock in any organized market, or “hedging”.  The Insider Trading Policy also prohibits employees, officers and directors of the Company from pledging its Company stock or depositing any Company stock in a margin account. 



Shareholder Communications with the Board of Directors 

Shareholders may contact our Board of Directors, our independent directors as a group, or an individual director by contacting Rachel A. Foley, Investor Relations, Lake Shore Bancorp, Inc., 31 East Fourth Street, Dunkirk, New York 14048. All comments will be forwarded directly to the Board of Directors, the independent directors as a group, or the individual director, as applicable. 

INFORMATION ABOUT OUR EXECUTIVE OFFICERS 

General 

Our executive officers serve at the discretion of the Board of Directors. The name, age, length of service and principal position of each of our executive officers is set forth in the table below.



Business Experience of Executive Officers 

The business experience for each of our executive officers who are not directors is set forth below.  The business experience of Mr. Reininga is included above under “Information about our Board of Directors – Business Experience of Directors.”All executive officers have held their current positions for five years unless otherwise indicated.

Jeffrey M. Werdein was appointed the Interim Principal Executive Officer in March 2023.  He is also the Executive Vice President for the Commercial Division of Lake Shore Bancorp and Lake Shore Savings. He was appointed Executive Vice President in August 2014 after serving as the Senior Vice President responsible for business development in the commercial real estate and small/middle market business segments at Evans Bank since 1999. Mr. Werdein has over 30 years of commercial banking experience, including prior positions with Citibank and Chase Manhattan Bank.  Mr. Werdein has a Bachelor of Science degree and a Masters of Business Administration degree with a focus in Business and Financial Institutions and Markets from the State University of New York at Buffalo. Mr. Werdein is a graduate of the American Bankers Association Stonier National Graduate School of Banking.

Susan C. Ballard is the Executive Vice President, Retail, Sales and Marketing of Lake Shore Bancorp and Lake Shore Savings.  She was appointed to this position on August 1, 2020, after  previously serving as a member of the Board of Directors for Lake Shore, MHC, Lake Shore Bancorp, Inc. and Lake Shore Savings Bank since 2012.  As a board member, she served as a member of the Compensation Committee,  Nominating and Corporate Governance Committee and Loan Committee.  Ms. Ballard has over 25 years of experience in management with an emphasis on real estate, construction and development, most recently as the Branch Director for Hunt Real Estate ERA, a position she held from 2016 through July 2020.  Ms. Ballard has also served as Chief Operating Officer for National Fire Adjustment Co., Inc., Regional Sales Manager for Essex

Homes of Western New York, Inc., and as Vice President of Patrick Custom Homes.  Ms. Ballard has a Bachelor’s of Business Administration degree from the University of Notre Dame.

Rachel A. Foley is the Chief Financial Officer and Treasurer of Lake Shore, MHC, Lake Shore Bancorp and Lake Shore Savings. She was appointed Chief Financial Officer of the Company in March 2006 after serving as the Controller since March 1999. Ms. Foley has a Bachelor of Science degree from Allegheny College and a Master of Business Administration degree in Accounting from the University at Buffalo.  Ms. Foley is a graduate of the American Bankers Association Stonier National Graduate School of Banking.Banking and is certified as an Accredited ACH Professional (AAP).  Prior to joining the Company, Ms. Foley was a Financial Audit Supervisor in the Internal Audit department of M&T Bank Corporation.

Jennifer L. Zatkos is the Chief Operating Officer of Lake Shore Saving Bank. She was appointed Chief Operating Officer of the Bank in November 2022 after serving as the Head of Fraud at Voyager Digital since February 2022.  Prior to that she was the Senior Vice President, Director of Financial Crimes Case Intake and Investigations at M&T Bank Corporation in Buffalo, New York from August 2020 through February 2022.  Ms. Zatkos has also held the position of Administrative Vice President, Financial Crimes Alert Management from 2015 until 2020 at M&T Bank Corporation.  Ms. Zatkos has a Bachelor of Arts in Communication degree from the State University of New York at Buffalo and is a Certified Fraud Examiner (CFE).

Robert Cortellucci is the Chief Technology Officer of Lake Shore Saving Bank, He was appointed Chief Technology Officer of the Bank in November 2022 after having worked in several different industries including banking, healthcare, and logistics. He earned his bachelor’s degree from the State University of New York at Buffalo. Cortellucci most recently served as the Manager of Information Technology at FedEx Trade Networks since January 2020, where he led multiple cross-functional teams responsible for developing a customs brokerage solution for the company.  Prior to that he was the Senior Director, Information Technology at Kaleida Health from May 2017 until January 2019.  Mr. Cortellucci also held the position of First Vice President, Technology Relationship Management, Consumer and Digital Banking Systems from 2014 until 2016 at First Niagara Bank and the position of Information Technology Manager with HSBC Bank from 2001 through 2014. 



Compensation Plans

Annual Incentive Plan.    Lake Shore Bancorp provides performance-based bonuses to its Named Executive Officers pursuant to the Annual Incentive Plan, which is designed to link awards to our strategic and operating objectives.  The goal of the plan is to have long-term viability and to be attractive to new hires and help retain current employees.  The plan measures business plan goals and objectives and clearly defines these for the calendar year for which the plan is in effect. 

For purposes of the annual bonus, each Named Executive Officer is evaluated on several corporate performance measures which are established at the beginning of the year and relate to strategic business objectives for the ensuing year.  The Named Executive Officers, with the exception of the President and CEO, are also evaluated on individual performance measures that take into account individual responsibilities, in addition to the corporate performance measures.  The Compensation Committee establishes the performance measures for each of the Named Executive Officers. The President and Chief Executive Officer is not involved in decisions regarding his own performance-based bonus.  Decisions relating to the President and Chief Executive Officer’s performance-based compensation are determined and recommended by the Compensation Committee. The Compensation Committee will present the performance measures to the Board of Directors for approval. The individual metrics are discussed under footnote 4 of the Summary Compensation Table, shown below.

Supplemental EmployeeExecutive Retirement Plans.    Lake Shore Savings entered into separate supplemental benefit plans in 2001 and 2017 with certain officers.

The Board of Directors of Lake Shore Savings subsequently amended  Under the 2001 executive supplemental benefit plan andplans, each participant in the planofficer is fully vested in an annual benefit, (payablepayable in monthly installments).  Theinstallments, and the annual benefit is equal to (i) 2% of the executive’sofficer’s average final pay (average(which is defined as the average pay over the two years prior to termination of service), multiplied by (ii) the executive’sofficer’s years of service (with a maximum percentage of 40% of average final pay for Ms. Ballard, Ms. Foley and Mr. Werdein).  Mr. Reininga is also a participant in this plan, and his benefit is equal to the remaining benefit he had under the 2001 Director’s SERP Plan, as described earlier in this document.  The benefit amount is payable over a period of fifteen years commencing at age 65, with the exception of Mr. Reininga whose annual benefit payable would be reduced for termination of service prior to age 65.  In addition,and in the event of a change of control, the executive is treated as having attained age 65 for purposes of benefit payments. 

Lake Shore Savings entered intoIn connection with Mr. Reininga’s retirement on March 10, 2023, he is entitled to his vested benefits under the supplemental benefit plan and, in addition, his vested benefits under a supplemental executive retirement plan withthat Lake Shore Savings and Mr. Reininga which was amended and restated as of January 1,entered into in 2017.  The plan provides that when

Mr. Reininga attains age 67,  Mr. Reininga will be entitled to an annual benefit equal to $183,545, which will be paid in monthly installments for 15 years, with the first payment made in the month after the executive attains age 67.  In the event that the executive becomes disabled before attaining age 67not receive any additional benefits or retires after he attains age 63 and 1 month, the executive will be entitled to a reduced benefit, which will be paid in monthly installments for 15 years.  If Mr. Reininga’s employment is terminated involuntarily or voluntarily for good reason within 24 months after a change in control, he will be entitled to receive a lump sum payment equal to approximately $2.8 million payable within three days of the termination date. Mr. Reininga is the only participant in the plan. 

Mr. Reininga is also entitled to an annual benefit commencing at age 57payments under the 1999 Lake Shore Savings Supplemental Benefit Plan for Directors, and commencing at age 72 under the 2001 Lake Shore Savings Supplemental Benefit Plan for Directors.  Mr. Reininga received $11,199 under the 1999either supplemental benefit plan for directors during 2021.in connection with his retirement and he will only receive his vested benefits.

Retention Agreement.    In order to provide further incentive for Jeffrey M. Werdein, Executive Vice President Commercial Division of the Company and Bank, to remain in the employ of the Bank, Lake Shore Savings entered into a retention agreement with Mr. Werdein on March 29, 2018.  Under the agreement, Mr. Werdein will receive a total of $1.4 million provided that he remains continuously employed with the Bank through March 29, 2028, payable in three equal installments on March 29, 2028,  January 2, 2029 and January 2, 2030.  In the event Mr. Werdein’s employment is terminated without cause, for good reason or due to death or disability prior to March 29, 2028, Mr. Werdein will receive the vested account balance as set forth in the agreement.  IfSubject to regulatory approval, if Mr. Werdein’s employment is terminated within two years of a change of control and prior to March 29, 2028, Mr. Werdein willmay receive up to $1.4 million in a lump sum. 

Employee Stock Ownership Plan.    This plan is a tax-qualified plan that covers substantially all employees who have at least one year of service with Lake Shore Savings and have attained age 21. Lake Shore Bancorp loaned the Employee Stock Ownership Plan Trust sufficient funds to purchase a number of shares equal to 8% of the shares sold in Lake Shore Bancorp’s stock offering to persons other than Lake Shore, MHC, or 238,050 shares. These shares were purchased in the open market following completion of the offering at prevailing market prices.

Although contributions to the plan are discretionary, Lake Shore Savings intends to contribute enough money each year to make the required principal and interest payments on the loan from Lake Shore Bancorp. This loan is for a term of 30 years and calls for annual payments of principal and interest. The plan pledges the shares it purchases as collateral for the loan and holds them in a suspense account.

The plan will not distribute the pledged shares right away. Instead, it will release a portion of the pledged shares annually. Assuming the plan repays its loan as scheduled over a 30-year term, we expect that 1/30th of the shares will be released annually in years 2006 through 2035. Although the repayment period of the loan is scheduled over a 30-year term, we anticipate that we may prepay a portion of the principal which would trigger the release of additional shares. The plan will allocate the shares released each year among the accounts of participants in proportion to their compensation for the year. For example, if a participant’s compensation for a year represents 1% of the total compensation of all participants for the year, the plan would allocate to that participant 1% of the shares released for the year. Participants direct the voting of shares

allocated to their accounts. Shares in the suspense account and allocated shares for which no voting instructions are received will be voted in a way that mirrors the votes which participants cast for shares in their individual accounts.

401(k) Defined Contribution Plan.    The Lake Shore Savings tax-qualified 401(k) defined contribution plan is maintained for employees who have completed three months of service and attained age 21.  Eligible employees may make pre-tax contributions to the 401(k) Plan in the form of salary deferrals of up to 75% of their total annual compensation subject to certain IRS limitations.  The plan consists of three components: 401(k), Profit Sharing and Safe Harbor. For the 401(k) component, the Company makes a matching contribution equal to 40% of the eligible employee’s salary deferral, up to 6% of such employee’s compensation after one year of service.  For the profit sharing component, the Company makes a discretionary contribution, up to 5.1% of an eligible employee’s salary, depending on years of service.  Lastly, the Company contributes 3.4% of an eligible employee’s salary based on years of service, which is a discretionary contribution to the Safe Harbor component of the plan.   

2006 Stock Option Plan.  Stock options can no longer be granted under the Lake Shore Bancorp, Inc. 2006 Stock Option Plan since the plan was adopted more than 10 years ago.  Stock options previously granted under this plan remain outstanding and are subject to the terms and conditions of this plan. 

Upon the exercise of an option, the exercise price of the option must be paid in full. Payment may be made in cash, with common stock of Lake Shore Bancorp already owned by the option holder, shares to be acquired by the option holder upon exercise of the option or such other consideration as the Compensation Committee authorizes.  If the option is not exercised during its term, it will expire. 

2006 Recognition and Retention Plan.Restricted stock can no longer be granted under the Lake Shore Bancorp, Inc. 2006 Recognition and Retention Plan since the plan was adopted more than 10 years ago.  All remaining restricted stock awards previously granted under this plan became fully vested during the year ended December 31, 2021.      

2012 Equity Incentive Compensation.    The Lake Shore Bancorp, Inc. 2012 Equity Incentive Plan (the “Equity Incentive Plan”) provides officers, employees and directors of Lake Shore Bancorp and Lake Shore Savings with incentives to promote our growth and performance and shareholders approved the Equity Incentive Plan at the 2012 Annual Shareholders Meeting.        

The Equity Incentive Plan authorizes the issuance of up to 180,000 shares of our common stock pursuant to grants of restricted stock awards and up to 20,000 shares of our common stock pursuant to grants of incentive stock options and non-qualified stock options, subject to permitted adjustments for certain corporate transactions.  Employees and directors of Lake Shore Bancorp or its subsidiaries are eligible to receive awards under the Equity Incentive Plan, except that non-employees may not be granted incentive stock options.    



Employment Agreements.Lake Shore Bancorp, Inc. and Lake Shore Savings entered into an amended and restated employment agreement with Daniel P. Reininga, our President and Chief Executive Officer, initially effective as of January 25,  2017 for a three year term. The term of the agreement will extend automatically for one additional year on January 1 of each year unless the

Board of Directors of Lake Shore Savings (the “Board”) or the executive gives notice no later than 30 days before such anniversary date that an agreement will not be renewed. 

The agreement provides that the executive’s base salary, which is currently $388,200, will be reviewed not less frequently than once every twelve months and may be increased in the Board’s discretion.  In addition to the base salary, the agreement provides that the executive will be eligible to participate in short-term and long-term incentive compensation, determined and payable at the discretion of the Compensation Committee. 

If the executive’s employment is involuntarily terminated without cause or voluntarily for good reason (as defined in the agreement), the executive will be entitled to a payment equal to three times the sum of: (i) his base salary, plus (ii) his average annual incentive cash compensation awarded during the three most recent fiscal years ending before the year of the termination, with such amount payable in a lump sum within 30 days of the date of termination date, subject to the receipt of a signed release of claims from the executive.  In addition, the executive will receive a cash payment equal to the employer’s cost (less the executive’s share of the employee premiums) to continue life, medical and dental coverage for 36 months. 

If the executive’s employment is involuntarily terminated without cause or voluntarily for good reason (as defined in the agreement) within 24 months following a change in control, the executive will be entitled to a payment equal to three times the sum of: (i) his base salary (or, if higher, the base salary immediately prior to a change in control), plus (ii) his average annual incentive cash compensation awarded during the three most recent fiscal years ending before the year of the change in control, with such amount payable in a lump sum within five business days of the termination date.  In addition, the executive will receive a cash payment equal to the cost of continued life, medical and dental coverage for 36 months. 

If the executive is terminated due to disability (as defined in his employment agreement), the employment agreement will terminate, and the executive will receive his base salary and benefits until he receives disability income under the employer’s long-term disability insurance plan.  If the executive dies while employed, the employer will continue to provide the executive’s base salary to his designated beneficiary for three months following his death. 

The employment agreement requires the executive not to compete with Lake Shore Savings for two years following a termination of employment for which the executive receives severance payments as the result of an involuntary termination or resignation for good reason (other than a termination of employment following a change in control).  The employment agreement further requires that the executive not solicit business, customers or employees of Lake Shore Savings for two years following termination of employment (other than a termination of employment following a change in control) and requires the executive to maintain confidential information.

Change of Control Agreements. Lake Shore Savings has entered into a change of control agreement with its executive officers including Jeffrey M. Werdein, our Executive Vice President Commercial Lending Division, Susan C. Ballard, our Executive Vice President Retail, Sales and Marketing and Rachel A. Foley, our Chief Financial Officer and Treasurer. The agreements are guaranteed by Lake Shore Bancorp. The term of each agreement is for one year and the Board of Directors of Lake Shore Savings may extend the term on an annual basis, unless written notice of

non-renewal is given by the Board of Directors or by the executive.  The Agreements for each executive contain substantially similar terms.

Generally, Lake Shore Savings may terminate the employment of the officer covered by the agreement, with or without cause, at any time prior to a change of control without obligation for severance benefits. If the executive’s employment is terminated without cause or for good reason within twenty-four (24) months following a change in control, the executive will be entitled to a lump sum cash severance benefit in an amount equal to the value of the salary and bonus that the executive received in the calendar year preceding the calendar year in which the termination of employment occurs. The agreements also provide death and disability benefits.  Severance payments will be reduced to the extent necessary to avoid the imposition of an excise tax and related non-deductibility under section 280G of the Internal Revenue Code.

PROPOSAL TWO:  APPROVE, ON AN ADVISORY BASIS, A NON-BINDING RESOLUTION REGARDING THE COMPENSATION

OF OUR NAMED EXECUTIVE OFFICERS

Pursuant to Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the proxy rules of the SEC were amended to require that not less frequently than once every three years, a proxy statement for an annual meeting of shareholders must include a separate resolution subject to a non-binding shareholder vote to approve the compensation of the Company’s named executive officers disclosed in the proxy statement. 

The executive officers named in the summary compensation table and disclosures set forth below under the “Executive Officer Compensation” section in this proxy statement and deemed to be “named executive officers” are Mr. Reininga, Mr. Werdein, and Ms. Foley.

This proposal gives shareholders the ability to vote on the compensation of our named executive officers through the following resolution:

“Resolved, that the shareholders approve, on an advisory basis, the compensation of the named executive officers as disclosed in the “Executive Officer Compensation” section of the proxy statement.”

The shareholder vote on this proposal is not binding on Lake Shore Bancorp, Inc. or the Board of Directors and cannot be construed as overruling any decision made by the Board of Directors.  However, the Board of Directors of Lake Shore Bancorp, Inc. will review the voting results on the non-binding resolution and take them into consideration when making future decisions regarding executive compensation.

the board of directors unanimously recommends a vote “for” the non-binding resolution to approve the compensation of our named executive officers.

EXECUTIVE OFFICER COMPENSATION



The discussion provided below reflects the SEC’s executive compensation reporting requirements for “smaller reporting companies.” 

Summary Compensation Table

The table below sets forth the compensation paid to or earned by Mr. Reininga, our former President and Chief Executive Officer, and our two other most highly compensated officers for 2021.2022.  Each individual listed in the table below is referred to as a named executive officer.officer or NEO.









(1)Amounts payable to Mr. Reininga may be adjusted up or down by 2% of salary, based on the executive’s leadership over the completion of corporate goals and senior management team activities, and as determined solely by the Board of Directors.

(2)In addition, if Mr. Werdein exceeds the stretch goal for his personal lending goals and the Commercial Loan Department meets its target goal, he will receive an additional $2,000$3,000 bonus, prorated, for every $1.0 million of loan originations in excess of the stretch goal. 

Mr. Reininga, Mr. Werdein and Ms. Foley received 7.2%, 45.5% and 12.1%, respectively, of base salary in 2022.  Mr. Reininga, Mr. Werdein and Ms. Foley received 18.5%, 27.7% and 20.7%, respectively, of base salary in 2021. Mr. Reininga, Mr. Werdein and Ms. Foley received 29.9%, 27.8% and 21.4%, respectively, of base salary in 2020. 







Outstanding Equity Awards at Fiscal Year End

The following table sets forth information regarding stock awards and stock options outstanding for each of our named executive officers at December 31, 2021.2022.



________________



Shares awarded in 2020 will vest on February 24, 2023 if performance metric is attained.

Shares awarded in 2021 will vest on February 21, 2024 if performance metric is attained.

Shares awarded in 2022 will vest on February 28, 2025 if performance metric is attained.

*In connection with Mr. Reininga’s retirement in March 2023, he forfeited all of the stock-based awards granted to him in 2021 and 2022.



PAY VERSUS PERFORMANCE

Pay Versus Performance Table

The following table shows the total compensation for our NEOs for the past two fiscal years as set forth in the Summary Compensation Table above and the “compensation actually paid” to our principal executive officer (“PEO”) and, on an average basis, our other NEOs, in each case, as determined under SEC rules, our total shareholder return (“TSR”) based on a fixed $100 initial investment, and our net income,