Note 12 – Stock-based Compensation

As of December 31, 2025, the Company had four active stock-based compensation plans, which are described below. The compensation cost related to these plans was $558,000 and $345,000 for the years ended December 31, 2025 and 2024, respectively, and is included within salary and benefits expense in the non-interest expense section of the consolidated statements of income.

Share and per share amounts related to periods prior to the date of Conversion (July 18, 2025) have been adjusted to give the retroactive recognition to the exchange ratio applied in the Conversion (1.3549).

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 403,167 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.

At December 31, 2025, stock options granted under this plan had an intrinsic value of $153,000 and there were no remaining options available for grant under the Stock Option Plan. At December 31, 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, authorized the issuance of up to 243,882 shares of common stock pursuant to grants of restricted stock awards and up to 27,098 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 the Company 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.

As of December 31, 2025, there were 209,099 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 restricted stock awards under the EIP amounted to $158,000 and $242,000 for the years ended December 31, 2025 and 2024, respectively. At December 31, 2025, $193,000 of unrecognized compensation cost related to unvested restricted stock awards is expected to be recognized over a period of 28.1 months.

Compensation expense related to unvested stock options under the 2012 EIP amounted to $6,000 and $4,000 for the years ended December 31, 2025 and 2024, respectively. At December 31, 2025, $23,000 of unrecognized compensation cost related to unvested stock options is expected to be recognized over a period of 3.3 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 406,470 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.

As of December 31, 2025, there were 47,556 shares of restricted stock vested or distributed to eligible participants under the 2025 EIP. Compensation expense related to unvested restricted stock awards under the 2025 EIP amounted to $130,000 for the year ended 2025. At December 31, 2025 $420,000 of unrecognized compensation cost related to unvested restricted stock awards is expected to be recognized over a period of 27.8 months.

The Company estimates the grant date fair value of stock option awards using the Black-Scholes option-pricing model. This model requires the use of assumptions that involve significant judgment, including expected volatility, expected term, risk‑free interest rate, and expected dividend yield. The expected term represents the period of time the options are expected to be outstanding and is based on the simplified method and amounted to 6.5 years for the options granted during the year ended December 31, 2025. The risk‑free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent with the expected term of the options and was 3.96% for the options granted during the year ended December 31, 2025. Expected volatility and the expected dividend yield is based on the historical volatility and dividend yield of the Company’s common stock since the date of the second step conversion. Expected volatility and dividend yield amounted to 16.24% and 2.75%, respectively, for the options granted during the year ended December 31, 2025.

Compensation expense related to unvested stock options under the 2025 EIP amounted to $1,000, for the year ended December 31, 2025. At December 31, 2025 $105,000 of unrecognized cost related to unvested stock options is expected to be recognized over a period of 4.9 years. As of December 31, 2025 there were 315,739 shares available to be granted under the 2025 EIP.

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 322,534 shares of stock on the open market at an average price of $7.90 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 part of the Conversion, the remaining balance of $1.2 million of the original 2006 ESOP loan was paid off and refinanced with a new loan to the ESOP. The Company utilized $4.0 million of the proceeds from the 2025 stock offering to extend a loan to the ESOP and ESOP purchased 396,036 shares of stock in the new Company at an average cost of $10.00. As a result of the purchase of shares by the ESOP, total stockholders' equity of the Company was reduced by $4.0 million. As of December 31, 2025, the balance of the loan to the ESOP was $5.0 million and the fair value of unallocated shares was $7.2 million. As of December 31, 2025, there were 111,292 allocated shares and 493,724 unallocated shares compared to 89,582 allocated shares and 129,012 unallocated shares at December 31, 2024. The ESOP compensation

expense was $263,000 for the year ended December 31, 2025 and $99,000 for the year ended December 31, 2024 based on 20,572 shares and 10,751 shares earned in each of those years, respectively.