Lake Shore Bancorp said third-quarter earnings fell 28 percent, as both lending and fee revenues dropped, the bank set aside more money for loan losses, and operating expenses rose.

The Dunkirk-based parent of Lake Shore Savings Bank reported net income of $863,000, or 15 cents per share, down from $1.2 million, or 20 cents per share, in the same quarter a year ago.

The bank suffered from the impact of continued record-low interest rates, which reduces what it earns on loans and investments. At the same time, total loans fell just from last December while lower-yielding investment securities and higher-cost short-term borrowings both rose, narrowing the bank’s core profit margin.

“We continue to realize solid bottom-line performance with our consistent and conservative approach to managing through this extended low interest rate period,” said President and CEO Daniel P. Reininga, citing the company’s effort to add more adjustable-rate commercial real estate loans that are well-secured by property.

“Our overall approach continues to be centered on meeting the financial needs of local families and businesses with a superior level of personal service that differentiates us from large banks.”

Net interest income from taking deposits and making loans fell 2.6 percent to $3.7 million, as both interest income and interest expense declined. Interest income fell 7.6 percent to $4.8 million because of a lower average loan balance during the three-month period and a lower yield on investments, while the bank paid 17.4 percent less on deposits and debt, to $1.1 million.

Deposits grew 3.4 percent from yearend, to $392.6 million, while loans fell 3.6 percent to $265.1 million. Investments rose 2.9 percent to $168.9 million, while short-term debt more than doubled to $14.15 million. The bank set aside $220,000 for loan losses, up from just $10,000 a year ago, mostly because of a downgrade for two commercial loans.

Fee and other income fell 4.2 percent to $506,000, mostly because of lower deposit service charges, particularly overdraft fees, because consumers can now “opt-out” of overdrafts. Expenses rose 3.5 percent to $2.9 million, on higher salary and benefit costs and increased professional service costs, offset by lower advertising and other expenses.