Lake Shore Bancorp (LSBK)

Adoption of New Accounting Standards

The Company adopted Financial Accounting Standards Board (“FASB”) Statement No. 157 “Fair Value Measurements” (“SFAS 157”) effective January 1, 2008, for financial assets and liabilities that are measured and reported at fair value. The adoption of SFAS 157 had a significant impact on the amounts reported in the consolidated financial statements. The overall impact on the financial statements by using the “income approach” was an increase of $639,000 (net of deferred taxes) to the accumulated other comprehensive income line item on the equity section of the balance sheet. See Note 14 for further details.

The Company adopted FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active” (“FSP 157-3”), effective October 2008, to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 was effective immediately and applies to our December 31, 2008 financial statements. The application of the provisions of FSP 157-3 together with SFAS 157 had a $639,000 affect on our results of financial condition as of December 31, 2008. See Note 14 for further details.

The Company adopted FSP EITF 99-20-1, “Amendments to the Impairment of Guidance of EITF Issue No. 99-20” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 was effective for interim and annual reporting periods ending after December 15, 2008, and was applied prospectively. FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and other related guidance. Retrospective application to a prior interim or annual reporting period is not permitted. The application of FSP EITF 99-20-1 did not have a material effect on the Company’s financial condition and results of operations upon adoption. See Note 3 for further details.

Adoption of New Accounting Standards

The Company adopted Financial Accounting Standards Board (“FASB”) Statement No. 157 “Fair Value Measurements” (“SFAS 157”) effective January 1, 2008, for financial assets and liabilities that are measured and reported at fair value. The adoption of SFAS 157 had a significant impact on the amounts reported in the consolidated financial statements. The overall impact on the financial statements by using the “income approach” was an increase of $639,000 (net of deferred taxes) to the accumulated other comprehensive income line item on the equity section of the balance sheet. See Note 14 for further details.

The Company adopted FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active” (“FSP 157-3”), effective October 2008, to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 was effective immediately and applies to our December 31, 2008 financial statements. The application of the provisions of FSP 157-3 together with SFAS 157 had a $639,000 affect on our results of financial condition as of December 31, 2008. See Note 14 for further details.

The Company adopted FSP EITF 99-20-1, “Amendments to the Impairment of Guidance of EITF Issue No. 99-20” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 was effective for interim and annual reporting periods ending after December 15, 2008, and was applied prospectively. FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and other related guidance. Retrospective application to a prior interim or annual reporting period is not permitted. The application of FSP EITF 99-20-1 did not have a material effect on the Company’s financial condition and results of operations upon adoption. See Note 3 for further details.

Adoption of New Accounting Standards

The Company adopted
Financial Accounting Standards Board (“FASB”) Statement No. 157 “Fair Value Measurements” (“SFAS 157”) effective January 1, 2008, for financial assets and liabilities that are measured and reported at
fair value. The adoption of SFAS 157 had a significant impact on the amounts reported in the consolidated financial statements. The overall impact on the financial statements by using the “income approach” was an increase of $639,000 (net
of deferred taxes) to the accumulated other comprehensive income line item on the equity section of the balance sheet. See Note 14 for further details.

SIZE="2">The Company adopted FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active” (“FSP 157-3”), effective October 2008, to clarify the application of the
provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 was effective immediately and applies to our December 31, 2008 financial statements. The application of the provisions of
FSP 157-3 together with SFAS 157 had a $639,000 affect on our results of financial condition as of December 31, 2008. See Note 14 for further details.

SIZE="2">The Company adopted FSP EITF 99-20-1, “Amendments to the Impairment of Guidance of EITF Issue No. 99-20” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 was effective for interim and annual reporting periods ending
after December 15, 2008, and was applied prospectively. FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests
That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an
other-than-temporary impairment assessment and the related disclosure requirements in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and other related guidance. Retrospective application to a
prior interim or annual reporting period is not permitted. The application of FSP EITF 99-20-1 did not have a material effect on the Company’s financial condition and results of operations upon adoption. See Note 3 for further details.

Adoption of New Accounting Standards

The Company adopted
Financial Accounting Standards Board (“FASB”) Statement No. 157 “Fair Value Measurements” (“SFAS 157”) effective January 1, 2008, for financial assets and liabilities that are measured and reported at
fair value. The adoption of SFAS 157 had a significant impact on the amounts reported in the consolidated financial statements. The overall impact on the financial statements by using the “income approach” was an increase of $639,000 (net
of deferred taxes) to the accumulated other comprehensive income line item on the equity section of the balance sheet. See Note 14 for further details.

SIZE="2">The Company adopted FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active” (“FSP 157-3”), effective October 2008, to clarify the application of the
provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 was effective immediately and applies to our December 31, 2008 financial statements. The application of the provisions of
FSP 157-3 together with SFAS 157 had a $639,000 affect on our results of financial condition as of December 31, 2008. See Note 14 for further details.

SIZE="2">The Company adopted FSP EITF 99-20-1, “Amendments to the Impairment of Guidance of EITF Issue No. 99-20” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 was effective for interim and annual reporting periods ending
after December 15, 2008, and was applied prospectively. FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests
That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an
other-than-temporary impairment assessment and the related disclosure requirements in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and other related guidance. Retrospective application to a
prior interim or annual reporting period is not permitted. The application of FSP EITF 99-20-1 did not have a material effect on the Company’s financial condition and results of operations upon adoption. See Note 3 for further details.

NOTE 3 – ADOPTION OF NEW ACCOUNTING STANDARDS

The Company adopted FASB Statement No. 157 “Fair Value Measurements” (SFAS 157) effective January 1, 2008, for financial assets and liabilities that are measured and reported at fair value. There was no impact from the adoption of SFAS 157 on the amounts reported in the consolidated financial statements. The primary impact of SFAS 157 on the Company was to expand required disclosures pertaining to the methods used to determine fair values. See Note 9 for further details.

NOTE 3 – ADOPTION OF NEW ACCOUNTING STANDARDS

The Company adopted FASB Statement No. 157 “Fair Value Measurements” (SFAS 157) effective January 1, 2008, for financial assets and liabilities that are measured and reported at fair value. There was no impact from the adoption of SFAS 157 on the amounts reported in the consolidated financial statements. The primary impact of SFAS 157 on the Company was to expand required disclosures pertaining to the methods used to determine fair values. See Note 9 for further details.

NOTE 3 – ADOPTION OF NEW ACCOUNTING STANDARDS

The Company adopted FASB Statement No. 157 “Fair Value Measurements” (SFAS 157) effective January 1, 2008, for financial assets and liabilities that are measured and reported at fair value. There was no impact from the adoption of SFAS 157 on the amounts reported in the consolidated financial statements. The primary impact of SFAS 157 on the Company was to expand required disclosures pertaining to the methods used to determine fair values. See Note 9 for further details.