Lake Shore Bancorp, Inc. Announces Adoption of Plan of Conversion and Reorganization to Undertake Second Step Conversion

Rhea-AI Summary

Lake Shore Bancorp (NASDAQ: LSBK) announced that its parent mutual holding company, Lake Shore, MHC, will undergo a 'second step' conversion from mutual holding company structure to stock holding company structure. Lake Shore, MHC currently owns 63.4% of LSBK's outstanding shares.

The conversion will involve creating a new bank holding company that will offer shares representing Lake Shore, MHC's ownership stake to Bank depositors through a subscription offering. Bank depositors as of December 31, 2023, will have first priority subscription rights. The number of shares to be issued will be based on an independent appraisal of the new holding company's pro forma market value.

Existing minority shareholders will receive shares in the new holding company based on an exchange ratio designed to maintain their current ownership percentage. The transaction is expected to complete in Q3 2025, subject to regulatory, member, and shareholder approvals.

Positive

• Opportunity for existing depositors to participate in share ownership
• Minority shareholders maintain their ownership percentage through exchange ratio
• Bank plans to convert to New York-chartered commercial bank status

Negative

• Complex restructuring process requiring multiple regulatory and shareholder approvals
• Potential share price volatility during transition period
• Extended timeline until completion (Q3 2025)

Insights

Financial Services Analyst

The announced second-step conversion of Lake Shore Bancorp represents a transformative corporate event that warrants careful investor attention. The transaction will convert Lake Shore, MHC's controlling 63.4% ownership stake into shares available for purchase by depositors, effectively completing the company's full transition to a stock holding company structure.

For existing minority shareholders, the conversion includes a important protective mechanism through an exchange ratio that will maintain their proportional ownership in the new entity, excluding any additional shares they may purchase in the offering. This structure typically benefits minority shareholders in two ways: 1) improved stock liquidity due to a larger public float and 2) potential value creation through more efficient capital deployment.

The planned conversion to a New York-chartered commercial bank is equally significant. Commercial bank charters typically offer broader operational flexibility compared to savings bank charters, including:

• Enhanced lending capabilities, particularly in commercial sectors
• More diverse revenue opportunities through expanded financial services
• Potential for improved profitability through operational efficiencies

Historical precedents of similar conversions in the banking sector have generally been positive for shareholders. The increased operational flexibility and expanded capital base typically lead to enhanced growth opportunities and improved market valuation. The timing of the conversion, planned for Q3 2025, allows for proper regulatory review while giving investors adequate time to evaluate their participation options.

The success of this conversion will largely depend on market conditions during the offering period and the independent appraisal that will determine the offering price. The transaction's multiple approval requirements - from regulators, members and shareholders - provide important checks and balances to ensure fair treatment of all stakeholders.

DUNKIRK, N.Y., Jan. 30, 2025 (GLOBE NEWSWIRE) -- Lake Shore Bancorp, Inc. (the “Company”) (NASDAQ: LSBK), the holding company for Lake Shore Savings Bank (the “Bank”), announced today that the Board of Directors of its parent mutual holding company, Lake Shore, MHC, has adopted a Plan of Conversion and Reorganization pursuant to which Lake Shore, MHC will undertake a “second step” conversion from the mutual holding company structure to the stock holding company structure. In connection with the second step conversion, the Bank intends to seek regulatory approval to convert its charter to a New York-chartered commercial bank.

Lake Shore, MHC currently owns approximately 63.4% of the outstanding shares of common stock of the Company which it acquired in connection with the reorganization of the Bank into the mutual holding company structure and the related initial public offering by the Company in 2006.

As a result of the proposed transaction, a new stock holding company for the Bank (the “New Bank Holding Company”), which will succeed the Company, and will offer for sale shares of its common stock, representing Lake Shore, MHC’s ownership interest in the Company, to depositors of the Bank in a subscription offering and, if necessary, a community offering and/or a syndicated community offering. Eligible account holders of the Bank as of the close of business on December 31, 2023 have first priority non-transferable subscription rights to subscribe for shares of common stock of the New Bank Holding Company. The total number of shares of common stock of the New Bank Holding Company to be issued in the proposed stock offering will be based on the aggregate pro forma market value of the common stock of the New Bank Holding Company, as determined by an independent appraisal. In addition, each share of common stock of the Company owned by persons other than Lake Shore, MHC (the “minority shareholders”) will be converted into and become the right to receive a number of shares of common stock of the New Bank Holding Company pursuant to an exchange ratio established at the completion of the proposed transaction. The exchange ratio is designed to preserve in the New Bank Holding Company the same aggregate percentage ownership interest that the minority shareholders will have in the Company immediately before the completion of the proposed transaction, exclusive of the purchase of any additional shares of common stock of the New Bank Holding Company by minority shareholders in the stock offering and the effect of cash received in lieu of issuance of fractional shares of common stock of the New Bank Holding Company, and adjusted to reflect certain assets held by Lake Shore, MHC.

The proposed transaction is expected to be completed in the third quarter of 2025, subject to regulatory approval, approval by the members of Lake Shore, MHC (i.e., depositors of the Bank), and approval by the shareholders of the Company, including by a separate vote of approval by the Company’s minority shareholders. Detailed information regarding the proposed transaction, including the stock offering, will be sent to shareholders of the Company and members of Lake Shore, MHC following regulatory approval.

About Lake Shore

Lake Shore Bancorp, Inc. (NASDAQ Global Market: LSBK) is the mid-tier holding company of Lake Shore Savings Bank, a federally chartered, community-oriented financial institution headquartered in Dunkirk, New York. The Bank has ten full-service branch locations in Western New York, including four in Chautauqua County and six in Erie County. The Bank offers a broad range of retail and commercial lending and deposit services. The Company’s common stock is traded on the NASDAQ Global Market as “LSBK”. Additional information about the Company is available at www.lakeshoresavings.com.

Safe-Harbor

This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are based on current expectations, estimates and projections about the Company’s and the Bank’s industry, and management’s beliefs and assumptions. Words such as anticipates, expects, intends, plans, believes, estimates and variations of such words and expressions are intended to identify forward-looking statements. Such statements reflect management’s current views of future events and operations. These forward-looking statements are based on information currently available to the Company as of the date of this release. It is important to note that these forward-looking statements are not guarantees of future performance and involve and are subject to significant risks, contingencies, and uncertainties, many of which are difficult to predict and are generally beyond our control including, but not limited to, that the proposed transaction may not be timely completed, if at all, that required regulatory, shareholder and member approvals are not timely received, if at all, or that other customary closing conditions are not satisfied in a timely manner, if at all, compliance with the Written Agreement with the Federal Reserve Bank of Philadelphia, data loss or other security breaches, including a breach of our operational or security systems, policies or procedures, including cyber-attacks on us or on our third party vendors or service providers, economic conditions, the effect of changes in monetary and fiscal policy, inflation, unanticipated changes in our liquidity position, climate change, geopolitical conflicts, public health issues, increased unemployment, deterioration in the credit quality of the loan portfolio and/or the value of the collateral securing repayment of loans, reduction in the value of investment securities, the cost and ability to attract and retain key employees, regulatory or legal developments, tax policy changes, dividend policy changes and our ability to implement and execute our business plan and strategy and expand our operations. These factors should be considered in evaluating forward looking statements and undue reliance should not be placed on such statements, as our financial performance could differ materially due to various risks or uncertainties. We do not undertake to publicly update or revise our forward-looking statements if future changes make it clear that any projected results expressed or implied therein will not be realized.

Important Additional Information and Where to Find It

Lake Shore Bancorp, Inc. will file with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-1 that will include a proxy statement of the Company and a prospectus of Lake Shore Bancorp, Inc., as well as other relevant documents concerning the proposed transaction. SHAREHOLDERS OF THE COMPANY ARE URGED TO READ THE REGISTRATION STATEMENT, THE PROXY STATEMENT, AND THE PROSPECTUS CAREFULLY WHEN THESE DOCUMENTS BECOME AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. When filed, these documents and other documents relating to the proposed transaction can be obtained free of charge from the SEC’s website at www.sec.gov. Alternatively, these documents, when available, can be obtained free-of-charge from the Company upon written request to Lake Shore Bancorp, Inc., 31 East Fourth Street, Dunkirk, New York 14048, Attention: Taylor M. Gilden, or by calling (716) 366-4070 ext. 1065.

Participants in the Solicitation

The Company and its directors and its executive officers may be deemed to be participants in the solicitation of proxies with respect of the proposed transaction. Information regarding the Company’s directors and executive officers is available in its definitive proxy statement for its 2024 Annual Meeting of Shareholders, filed with the SEC on April 11, 2024. Other information regarding the participants in the proxy solicitation will be contained in the proxy statement, the prospectus, and other relevant materials filed with the SEC, as described above.

This press release is neither an offer to sell nor a solicitation of an offer to buy common stock. The offer is made only by the prospectus when accompanied by a stock order form. The shares of common stock to be offered for sale by Lake Shore Bancorp, Inc. are not savings accounts or savings deposits and are not insured by the Federal Deposit Insurance Corporation or by any other government agency.

Source: Lake Shore Bancorp, Inc.
Category: Financial

Investor Relations/Media Contact
Taylor M. Gilden
Chief Financial Officer and Treasurer
Lake Shore Bancorp, Inc.
31 East Fourth Street
Dunkirk, New York 14048
(716) 366-4070 ext. 1065

FAQ

What is the ownership percentage of Lake Shore, MHC in LSBK stock?

Lake Shore, MHC currently owns approximately 63.4% of the outstanding shares of Lake Shore Bancorp (LSBK).

When will LSBK complete its second step conversion?

The second step conversion is expected to be completed in the third quarter of 2025, subject to regulatory and shareholder approvals.

Who has priority rights in LSBK's subscription offering?

Eligible account holders of Lake Shore Savings Bank as of December 31, 2023, have first priority non-transferable subscription rights.

How will LSBK's minority shareholders be affected by the conversion?

Minority shareholders will receive shares in the new holding company based on an exchange ratio that preserves their current ownership percentage.

What approvals are needed for LSBK's conversion plan?

The transaction requires regulatory approval, approval from Lake Shore, MHC members (bank depositors), and approval from company shareholders, including a separate vote by minority shareholders.