8-K: Lake Shore Bancorp Engages Raymond James for Stock Offering

Lake Shore Bancorp, Inc. has formally engaged Raymond James & Associates, Inc. to manage its upcoming stock offering as part of its mutual-to-stock conversion.

Summary

• Lake Shore Bancorp, Inc. (the Holding Company), Lake Shore, MHC (the MHC), and Lake Shore Savings Bank have entered into an Agency Agreement with Raymond James & Associates, Inc. on May 14, 2025.
• Raymond James will serve as the exclusive financial advisor and marketing agent for the Holding Company's common stock offering, which is part of the MHC's conversion from a mutual holding company to a stock holding company.
• The offering involves up to 5,750,000 shares, subject to increase up to 6,612,500 shares, of common stock at a subscription price of $10.00 per share.
• Raymond James will receive a success fee of 1.35% of the aggregate dollar amount of shares sold in the subscription and community offerings, excluding shares purchased by officers, directors, employees, or their immediate families/plans.
• An additional commission of up to 6.00% of the aggregate purchase price will be paid for shares sold in a potential syndicated community offering.
• Raymond James will also receive a non-refundable $30,000 fee for records agent services, plus reimbursements for out-of-pocket expenses (up to $35,000) and legal expenses (up to $100,000), with potential increases for delays.
• The conversion requires a minimum sale of 4,250,000 shares; failure to meet this minimum will result in termination of the agreement and refunds to subscribers.
• The conversion process includes the formation of the Holding Company, mergers of the MHC and Mid-Tier Company into the Holding Company, and the Bank's conversion from a federal savings bank to a New York-chartered commercial bank (Lake Shore Bank).
• The shares are being offered pursuant to a Registration Statement on Form S-1, which was declared effective by the SEC on May 14, 2025.
• Conditional approvals for the Conversion Application and Charter Conversion Application have been received from the FRB, NYSDFS, and FDIC.
• The Holding Company intends to loan funds to the Bank's Employee Stock Ownership Plan (ESOP) to enable it to purchase up to 8.0% of the common stock in the offering.
• The Shares and Exchange Shares are expected to be approved for listing on the Nasdaq Capital Market upon notice of issuance.

Sentiment

Score: 7

Explanation: The filing represents a significant and expected procedural step in a strategic mutual-to-stock conversion and capital raise. While it details associated costs, the overall sentiment is positive as it moves the company closer to achieving its strategic objectives of enhanced capital access and market liquidity.

Positives

• The engagement of Raymond James, a reputable financial firm, provides professional expertise for the complex mutual-to-stock conversion and stock offering.
• The conversion to a stock holding company structure is a strategic move that can enhance the company's ability to raise capital, improve liquidity, and facilitate future growth initiatives.
• Conditional regulatory approvals from the FRB, NYSDFS, and FDIC are already in place, indicating progress and reducing regulatory uncertainty for the conversion.
• The planned listing on the Nasdaq Capital Market is expected to increase the visibility and liquidity of the company's common stock.
• The offering includes provisions for employee benefit plans (ESOP) to participate, aligning employee interests with shareholder value.

Negatives

• The conversion and offering entail significant fees and expenses, including a 1.35% success fee, up to 6.0% syndicated offering commission, a $30,000 records agent fee, and substantial expense reimbursements, which will reduce net proceeds.
• The agreement includes provisions for increased expense reimbursements to Raymond James if there are delays requiring financial information updates or resolicitation, potentially increasing the overall cost of the offering.
• The Agent's obligations terminate if a minimum of 4,250,000 shares are not sold, which could lead to the abandonment of the conversion and associated costs without the desired capital raise.
• Raymond James explicitly waives any fiduciary duty to Lake Shore Bancorp, stating their relationship is solely commercial, which means the company cannot rely on the agent for advice beyond the scope of the agreement.
• Indemnification clauses largely protect Raymond James, shifting potential liabilities related to offering documents to Lake Shore Bancorp, except for specific instances of Agent's bad faith, willful misconduct, or gross negligence.

Risks

• The offering may be terminated if the minimum of 4,250,000 shares is not sold, requiring the company to refund all subscription payments with interest.
• Raymond James may terminate the agreement if there is a material adverse change in the financial condition or operations of the Bank since December 31, 2024, or if market conditions make the sale inadvisable.
• The Agent may terminate the agreement if there is a failure to satisfactorily disclose all relevant information in the Registration Statement or Prospectus.
• Regulatory authorities (SEC, FRB, NYSDFS, FDIC) could issue stop orders or suspend the effectiveness of the Registration Statement or the conversion, preventing the offering from proceeding.
• The company faces risks related to compliance with various federal and state laws and regulations, including Anti-Money Laundering Laws, the Foreign Corrupt Practices Act, and banking regulations (e.g., Sections 23A/23B of the Federal Reserve Act, Section 18(k) of the Federal Deposit Insurance Act).
• Potential legal proceedings or regulatory actions, if determined adversely, could have a Material Adverse Effect on the company's business, financial condition, or operations.
• Labor disputes or disturbances involving the company or its principal customers/contractors could materially affect business operations.
• Environmental liabilities or non-compliance with Environmental Laws could result in significant costs or legal actions.
• The company's ability to renew existing insurance coverage or obtain similar coverage at a reasonable cost could be impacted, potentially leading to a Material Adverse Effect.

Future Outlook

Lake Shore Bancorp is proceeding with its strategic conversion from a mutual holding company to a stock holding company, which will involve a public offering of its common stock. The Bank will simultaneously convert to a New York-chartered commercial bank and become a wholly-owned subsidiary of the new stock holding company. The common stock is expected to be listed on the Nasdaq Capital Market, and the Holding Company will become a registered bank holding company. The proceeds from the offering will be used as outlined in the Prospectus, and the company commits to ongoing compliance with regulatory reporting and governance standards.

Management Comments

• Management has carefully examined the Registration Statement, Prospectus, and General Disclosure Package, affirming their belief that these documents do not contain any untrue statements of material fact or omit necessary material facts.
• Management is responsible for establishing and maintaining disclosure controls and procedures designed to ensure material information is communicated and reported timely.
• Management has disclosed to auditors and the Audit Committee any significant deficiencies or material weaknesses in internal control over financial reporting, as well as any fraud involving management or significant employees.
• Management confirms that the Lake Shore Parties have complied with all agreements and satisfied all conditions for the conversion and offering, and will continue to comply with post-closing obligations.

Industry Context

The mutual-to-stock conversion is a well-established strategy within the banking industry for mutual institutions seeking to raise capital, enhance liquidity, and gain greater financial flexibility. This move allows Lake Shore Bancorp to access public equity markets, which can support growth initiatives, acquisitions, and provide a more liquid currency for shareholders. The engagement of a prominent firm like Raymond James for the offering is standard practice, reflecting the complexity and regulatory requirements of such transactions. The shift to a New York-chartered commercial bank also aligns with broader trends of institutions optimizing their charters for specific market and regulatory environments.

Comparison to Industry Standards

• The subscription price of $10.00 per share is a common initial offering price for mutual-to-stock conversions, often set to attract a broad base of investors, including eligible depositors.
• The fee structure for Raymond James, including a 1.35% success fee and up to 6.0% for syndicated offerings, is within the typical range for marketing agent and underwriting services in similar capital market transactions for community banks.
• The minimum offering requirement of 4,250,000 shares is a standard mechanism to ensure sufficient capital is raised to justify the conversion costs and meet regulatory capital requirements.
• The lock-up period of 180 days for the Holding Company's common stock sales post-closing is a customary measure to stabilize the stock price after an initial public offering.
• The establishment of liquidation accounts for eligible depositors is a regulatory requirement for mutual-to-stock conversions, ensuring a priority claim for these stakeholders in the event of liquidation, consistent with industry practice.

Corporate Governance

Legal Proceedings

• The filing mentions that no suit or proceeding, charge, investigation, or action before or by any court, regulatory authority, or governmental agency is pending or threatened that might materially and adversely affect the performance of obligations under the agreement or the consummation of the transactions, or result in a Material Adverse Effect.

Related Party Transactions

• No success fee will be payable to Raymond James for shares purchased by or on behalf of officers, directors, employees, or their immediate family members (spouse, parents, siblings, children living in the same house), or trusts/companies controlled by such persons, and qualified/non-qualified employee benefit plans.
• The Holding Company intends to make a loan to the Bank's Employee Stock Ownership Plan (ESOP) to enable the ESOP to purchase Shares in an amount up to 8.0% of the Common Stock that will be sold in the Offering.

Stakeholder Impact

• **Shareholders (Existing Mid-Tier Company):** Will have their shares converted into Holding Company common stock, maintaining their aggregate percentage ownership post-conversion.
• **Depositors (Eligible Account Holders, Supplemental Eligible Account Holders, Other Members):** Will have subscription rights in the stock offering, with specific preferences. Eligible and Supplemental Eligible Account Holders will also have an inchoate interest in liquidation accounts, providing a priority claim in a liquidation event.
• **Employees:** Employee benefit plans, including the ESOP, have subscription rights in the offering. The ESOP is expected to purchase a significant portion (up to 8.0%) of the common stock, aligning employee incentives with company performance.
• **Raymond James & Associates, Inc.:** Will receive substantial fees and expense reimbursements for its role as marketing and records agent, benefiting financially from the successful completion of the offering.
• **General Public:** Will have the opportunity to purchase shares in the community offering, with preferences for local residents and minority stockholders, and potentially through a syndicated offering.
• **Regulatory Authorities:** The conversion and offering are subject to extensive oversight and approval from the SEC, FRB, NYSDFS, and FDIC, ensuring compliance with banking and securities laws.

Next Steps

• Conduct the Subscription Offering, Community Offering, and potentially a Syndicated Community Offering for the common stock.
• Complete the MHC Merger and Mid-Tier Company Merger, resulting in Lake Shore Bancorp, Inc. (Maryland corporation) as the surviving entity.
• Effectuate the Charter Conversion of Lake Shore Savings Bank from a federal savings bank to a New York-chartered commercial bank, to be renamed Lake Shore Bank.
• Issue and deliver the Shares and Exchange Shares on the Closing Date.
• Obtain approval for listing the Shares and Exchange Shares on the Nasdaq Capital Market.
• The Holding Company will become a registered bank holding company under the BHCA.
• Establish and maintain liquidation accounts for Eligible Account Holders and Supplemental Eligible Account Holders.
• File all required post-sale and post-conversion reports and documents with regulatory authorities.
• Maintain the effectiveness of the 1934 Act registration for at least three years and furnish annual and quarterly reports to stockholders and the Agent.
• Report the use of proceeds from the offering in accordance with Rule 463 under the 1933 Act.
• Comply with all applicable provisions of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Key Dates

Recommendation

This filing is a procedural update regarding the engagement of an agent for a planned mutual-to-stock conversion and associated stock offering. While the conversion itself is a significant strategic event that could positively impact the company's long-term capital structure and growth prospects, this specific filing does not contain new financial performance data or unexpected strategic shifts that would warrant an immediate change in investment recommendation. Investors should maintain their current position and monitor the progress of the offering, the company's financial performance post-conversion, and the market's reception to the new stock.

Keywords

Mutual-to-Stock Conversion, Stock Offering, Agency Agreement, Capital Raise, SEC Filing, Financial Services, Banking, Raymond James, Nasdaq Listing, Corporate Governance