Note 8 – Stock-based Compensation

As of June 30, 2025, the Company had three active stock-based compensation plans, which are described below. The compensation cost related to these plans was $106,000 and $88,000 for the three months ended June 30, 2025 and 2024, respectively, and $226,000 and $126,000 for the six months ended June 30, 2025 and 2024, respectively, and is included within salary and benefits expense in the non-interest expense section of the consolidated statements of income.

2006 Stock Option Plan

The Company’s 2006 Stock Option Plan (the “Stock Option Plan”), which was approved by the Company’s stockholders, permitted the grant of options to its employees and non-employee directors for up to 297,562 shares of common stock. The Stock Option Plan expired on October 24, 2016, and grants of options can no longer be awarded.

Both incentive stock options and non-qualified stock options have been granted under the Stock Option Plan. The exercise price of each stock option equals the market price of the Company’s common stock on the date of grant and an option’s maximum term is ten years. The stock options generally vest over a five year period.

A summary of the status of the Stock Option Plan during the six months ended June 30, 2025 and 2024 is presented below:

:At June 30, 2025, stock options granted under this plan had an intrinsic value of $40,000 and there were no remaining options available for grant under the Stock Option Plan. At June 30, 2025, all compensation cost and expense related to the Stock Option Plan had been recognized in prior periods.

2012 Equity Incentive Plan

The Company’s 2012 Equity Incentive Plan (the “2012 EIP”), which was approved by the Company’s stockholders on May 23, 2012, authorizes the issuance of up to 180,000 shares of common stock pursuant to grants of restricted stock awards and up to 20,000 shares of common stock pursuant to grants of incentive stock options and non-qualified stock options, subject to permitted adjustments for certain corporate transactions. Employees and non-employee directors of Lake Shore Bancorp or its subsidiaries were eligible to receive awards under the 2012 EIP, except that non-employees may not be granted incentive stock options. The 2012 EIP expired on April 24, 2024, and grants of awards can no longer be made.

A summary of the status of unvested restricted stock awards under the 2012 EIP for the six months ended June 30, 2025 and 2024 is as follows:

As of June 30, 2025, there were 154,128 shares of restricted stock vested or distributed to eligible participants under the 2012 EIP and the plan expired on April 24, 2024. Accordingly, there were no remaining shares available for grant. Compensation expense related to unvested restricted stock awards under the EIP amounted to $35,000 and $65,000 for the three months ended June 30, 2025 and 2024, respectively. Compensation expense related to unvested restricted stock awards under the EIP amounted to $114,000 and $80,000 for the six months ended June 30, 2025 and 2024, respectively. At June 30, 2025, $243,000 of unrecognized compensation cost related to unvested restricted stock awards is expected to be recognized over a period of 34.1 months.

A summary of the status of stock options under the 2012 EIP for the six months ended June 30, 2025 and 2024 is presented below:

Compensation expense related to unvested stock options under the 2012 EIP amounted to $1,000, for the three months ended June 30, 2025 and 2024. Compensation expense related to unvested stock options under the 2012 EIP amounted to $2,000 and $1,000 for the six months ended June 30, 2025 and 2024, respectively. At June 30, 2025, $22,000 of unrecognized compensation cost related to unvested stock options is expected to be recognized over a period of 3.8 years. During April 2024, the Company granted all remaining options available under the 2012 EIP. The 2012 EIP expired on April 24, 2024 and no additional options were available for grant nor issued after this date.

2025 Equity Incentive Plan

On February 4, 2025, the stockholders of Lake Shore Bancorp, Inc. approved the Company's 2025 Equity Incentive Plan ("2025 EIP") which authorized the issuance of up to 300,000 shares of common stock pursuant to grants of restricted stock, restricted stock units, non-qualified stock options, and incentive stock options. Employees of the Company and Lake Shore Bank and non-employee members of the Company's Board of Directors are eligible to receive grants of stock-based awards under the 2025 EIP.

The Compensation Committee of the Board of Directors granted restricted stock awards under the 2025 EIP during the six months ended June 30, 2025 as follows:

A summary of the status of unvested restricted stock awards under the 2025 EIP for the six months ended June 30, 2025 is as follows:

As of June 30, 2025, there were no shares of restricted stock vested or distributed to eligible participants under the 2025 EIP. There were 272,803 remaining shares available for grant. Compensation expense related to unvested restricted stock awards under the 2025 EIP amounted to $40,000 for the three months ended June 30, 2025 and $49,000 for the six months ended June 30, 2025. At June 30, 2025, $380,000 of unrecognized compensation cost related to unvested restricted stock awards is expected to be recognized over a period of 38.7 months.

Employee Stock Ownership Plan (“ESOP”)

The Company established the ESOP for the benefit of eligible employees of the Company and Bank. All Company and Bank employees meeting certain age and service requirements are eligible to participate in the ESOP. Participants’ benefits become fully vested after five years of service once the employee is eligible to participate in the ESOP. The Company utilized $2.6 million of the proceeds of its 2006 stock offering to extend a loan to the ESOP and the ESOP used such proceeds to purchase 238,050 shares of stock on the open market at an average price of $10.70 per share, plus commission expenses. As a result of the purchase of shares by the ESOP, total stockholders’ equity of the Company was reduced by $2.6 million. As of June 30, 2025, the balance of the loan to the ESOP was $1.2 million and the fair value of unallocated shares was $1.4 million. As of June 30, 2025, there were 71,557 allocated shares and 87,284 unallocated shares compared to 66,117 allocated shares and 95,219 unallocated shares at December 31, 2024. The ESOP compensation expense was $30,000 for the three months ended June 30, 2025 and $23,000 for the three months ended June 30, 2024 based on 1,984

shares earned in each of those quarters. The ESOP compensation expense was $61,000 for the six months ended June 30, 2025 and $46,000 for the six months ended June 30, 2024 based on 3,968 shares earned in each of those six month periods.