LAKELAND FINANCIAL CORP
10-Ks and 10-Qs
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P.O. Box 1387
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Warsaw, Indiana 46581
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(574) 267-6144
March 3, 2016
Dear Shareholder:
On behalf of the Board of Directors and management of Lakeland Financial Corporation, we cordially invite you to attend the annual meeting of shareholders of Lakeland Financial Corporation to be held at 4:30 p.m. (local time) on April 12, 2016, at the Morris Inn, located at
1399 N Notre Dame Ave, South Bend, IN
46617.
This year we are again using the Securities and Exchange Commission rule that allows us to furnish our proxy statement, our 2015 summary annual report to shareholders, a copy of our annual report on Form 10-K and proxy card to shareholders over the Internet. This means that, unless you have previously requested to receive only printed materials, you will receive only a notice containing instructions on how to access the proxy materials over the Internet and vote online. If you receive this notice but would still like to request paper copies of the proxy materials, please follow the instructions on the notice or on the website referred to on the notice. By delivering proxy materials electronically to our shareholders, we can reduce the costs of printing and mailing our proxy materials. Please visit www.proxyvote.com for more information about the electronic delivery of proxy materials.
There are a number of proposals to be considered at the meeting. Our Nominating and Corporate Governance Committee has nominated thirteen persons to serve as directors, each of whom is an incumbent director. If elected, each of them would serve a one-year term. Additionally, we have included a non-binding advisory proposal on the compensation of certain executive officers. Finally, our Audit Committee has selected, and we recommend that you ratify the selection of, Crowe Horwath LLP to continue as our independent registered public accounting firm for the year ending December 31, 2016. We recommend you vote your shares “FOR” the director nominees, “FOR” the compensation of our executive management, and “FOR” the ratification of our accountants. Additionally, at the meeting, we will review our performance in 2015 and update you on our strategic plan as we move forward. You are welcome to attend a reception immediately following the annual meeting.
We encourage you to attend the meeting in person.
However, whether or not you plan to attend the meeting in person, please take the time to vote by following the instructions provided on the notice as soon as possible.
This will ensure that your shares are represented at the meeting.
We look forward with pleasure to seeing and visiting with you at the meeting.
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Very truly yours,
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| /s/ David M. Findlay |
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David M. Findlay
President and Chief Executive Officer
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P.O. Box 1387
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Warsaw, Indiana 46581
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(574) 267-6144
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 12, 2016
To the Shareholders:
The annual meeting of the shareholders of Lakeland Financial Corporation will be held on Tuesday, April 12, 2016, at 4:30 p.m. (local time) at the Morris Inn, located at
1399 N Notre Dame Ave, South Bend, IN
46617 for the following purposes:
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1.
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to elect 13 members of the Board of Directors;
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2.
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to approve a non-binding advisory proposal on the compensation of certain executive officers, otherwise known as a “say-on-pay” proposal;
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3.
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to ratify the appointment of Crowe Horwath LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016; and
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4.
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to transact such other business as may properly be brought before the meeting and any adjournments or postponements of the meeting.
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Only shareholders of record on our books at the close of business on February 22, 2016, the record date for the annual meeting, will be entitled to vote at the annual meeting. In the event there are an insufficient number of votes for a quorum or to approve or ratify any of the foregoing proposals at the time of the annual meeting, the meeting may be adjourned or postponed in order to permit us to further solicit proxies.
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By order of the Board of Directors,
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| /s/ Kristin L. Pruitt |
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Kristin L. Pruitt
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Secretary
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Warsaw, Indiana
March 3, 2016
LAKELAND FINANCIAL CORPORATION
__________________________________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 12, 2016
_______________________________
Lakeland Financial Corporation, an Indiana corporation, with its principal executive offices located in Warsaw, Indiana, is the holding company for Lake City Bank. We also own all of the common securities of Lakeland Statutory Trust II, a business trust created for the issuance of trust preferred securities and all of the common stock of LCB Risk Management, Inc., a captive insurance company. Lake City Bank owns all of the common stock of LCB Investments II, Inc., which was formed to manage a portion of the Bank’s securities portfolio. LCB Investments II, Inc. owns all of the common stock of LCB Funding, Inc., a real estate investment trust.
This proxy statement is being furnished to our shareholders in connection with the solicitation by our Board of Directors of proxies to be used at the annual meeting of shareholders to be held at the Morris Inn, located at
1399 N Notre Dame Ave, South Bend, IN
on Tuesday, April 12, 2016 at 4:30 p.m. (local time), or at any adjournments or postponements of the meeting. Our summary annual report to shareholders, including the consolidated financial statements for the fiscal year ended December 31, 2015, and a copy of our Form 10-K, which we filed with the Securities and Exchange Commission (the “SEC”), are also available. These proxy materials are first being made available or distributed to shareholders on or about March 3, 2016.
The following is information regarding the meeting and the voting process, presented in a question and answer format. As used in this proxy statement, unless the context otherwise requires, the terms “Lakeland Financial,” “the Company,” “we,” “our” and “us” all refer to Lakeland Financial Corporation and its direct and indirect subsidiaries.
Why did I receive access to the proxy materials?
We have made the proxy materials available to you over the Internet because on February 22, 2016, the record date for the annual meeting, you owned shares of our common stock. This proxy statement describes the matters that will be presented for consideration by the shareholders at the annual meeting. It also gives you information concerning those matters to assist you in making an informed decision.
When you vote pursuant to one of the methods set forth herein, you appoint the proxy holder as your representative at the meeting. The proxy holder will vote your shares as you instruct, thereby ensuring that your shares will be voted whether or not you attend the meeting. Even if you plan to attend the meeting, we ask that you instruct the proxies how to vote your shares in advance of the meeting just in case your plans change.
If you appointed the proxies to vote your shares and an issue comes up for a vote at the meeting that is not identified in the proxy materials, the proxy holder will vote your shares, pursuant to your proxy, in accordance with his or her judgment.
Why did I receive a notice regarding the Internet availability of proxy materials instead of paper copies of the proxy materials?
We are using the SEC notice and access rule that allows us to furnish our proxy materials over the Internet to our shareholders instead of mailing paper copies of those materials to each shareholder. As a result, beginning on or about February 22, 2016, we sent our shareholders (other than those who had previously requested to receive only printed copies of our proxy materials) by mail a notice containing instructions on how to access our proxy materials over the Internet and vote online. This notice is not a proxy card and cannot be used to vote your shares. If you received a notice this year, you will not receive paper copies of the proxy materials unless you request the materials by following the instructions on the notice or on the website referred to in the notice.
What matters will be voted on at the meeting?
You are being asked to vote on: (i) the election of 13 directors of Lakeland Financial for a term expiring in 2017; (ii) a non-binding advisory proposal on the compensation of certain executive officers, otherwise known as a “say-on-pay” proposal; and (iii) the ratification of the appointment of Crowe Horwath LLP as our independent registered public accounting firm for the 2016 fiscal year. These matters are more fully described in this proxy statement.
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If I am the record holder of my shares, how do I vote?
You may vote by telephone, by Internet, by mail by completing, signing, dating and mailing the proxy card you received in the mail, if you received paper copies of the proxy materials, or in person at the meeting. If you vote using one of the methods described above, your shares will be voted as you instruct.
If you sign and return your proxy card or vote over the Internet or by telephone without giving specific voting instructions, the shares represented by your proxy card will be voted “for” all nominees named in this proxy statement, and “for” each of the other proposals described in this proxy.
Although you may vote by mail, we ask that you vote instead by Internet or telephone, which saves us postage and processing costs.
You may vote by telephone by calling the toll-free number specified on your notice card or by accessing the Internet website referred to on your notice card, each by following the preprinted instructions on the notice card. Votes submitted by telephone or Internet must be received by 11:59 p.m. on Monday, April 11, 2016. The giving of a proxy by either of these means will not affect your right to vote in person if you decide to attend the meeting.
If you want to vote in person, please come to the meeting. We will distribute written ballots to anyone who wants to vote at the meeting. Please note, however, that if your shares are held in the name of a broker or other fiduciary (or what is usually referred to as “street name”), you will need to arrange to obtain a proxy from the record holder in order to vote in person at the meeting. Even if you plan to attend the annual meeting, we ask that you complete and return your proxy card in advance of the annual meeting in case your plans change.
If I hold shares in the name of a broker or fiduciary, who votes my shares?
If you are a beneficial owner and a broker or other fiduciary is the record holder, then you received access to these proxy materials from the record holder. The record holder should have given you instructions for directing how the record holder should vote your shares. It will then be the record holder’s responsibility to vote your shares for you in the manner you direct.
Under the rules of various national and regional securities exchanges, brokers and other fiduciaries may generally vote on routine matters, such as the ratification of an independent registered public accounting firm, without your direction but cannot vote on non-routine matters unless they have received voting instructions from the person for whom they are holding shares. The election of directors and the say-on-pay vote are considered non-routine matters. If your broker or fiduciary does not receive instructions from you on how to vote your shares on these matters, your broker or fiduciary will return the proxy card to us indicating that he or she does not have authority to vote. This is generally referred to as a “broker non-vote” and may affect the outcome of the voting on these matters.
We therefore encourage you to provide directions to your broker as to how you want your shares voted on all matters to be brought before the meeting. You should do this by carefully following the instructions your broker gives you concerning its procedures.
What does it mean if I receive more than one proxy card?
It means that you have multiple holdings reflected in our stock transfer records and/or in accounts with brokers. To vote all of your shares by proxy, please follow the separate voting instructions that you received for your shares of common stock held in each of your different accounts.
What if I change my mind after I return my proxy card?
If you hold your shares in your own name, you may revoke your proxy and change your vote at any time before the polls close at the meeting. You may do this by:
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signing another proxy with a later date and returning that proxy to us;
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timely submitting another proxy via the telephone or Internet;
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sending notice to us that you are revoking your proxy; or
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voting in person at the meeting.
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If you hold your shares in the name of your broker or other fiduciary and desire to revoke your proxy, you will need to contact that party to revoke your proxy.
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How many shares must be represented in order to hold the annual meeting?
A majority of the shares that are outstanding and entitled to vote as of the record date must be present in person or by proxy at the meeting in order to hold the meeting and conduct business.
Shares are counted as present at the meeting if the shareholder either:
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is present and votes in person at the meeting; or
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has properly submitted a signed proxy card or other form of proxy (through the telephone or Internet).
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On February 22, 2016, the record date, there were 16,696,834 shares of common stock issued and outstanding. Therefore, at least 8,348,418 shares need to be present at the annual meeting.
What happens if a nominee is unable to stand for re-election?
The Board may, by resolution, provide for a lesser number of directors or designate a substitute nominee. In the latter case, shares represented by proxies may be voted for a substitute nominee. Proxies cannot be voted for more than 13 nominees. As of the date of this proxy statement, we have no reason to believe any nominee will be unable to stand for re-election.
What options do I have in voting on each of the proposals?
You may vote “for,” “against,” or “abstain” with respect to each director nominee and on each of the proposals described in this proxy statement, and on any other proposal properly brought before the meeting.
How many votes may I cast?
Generally, you are entitled to cast one vote for each share of stock you owned on the record date.
How many votes are needed for each proposal?
A majority of the votes cast by the holders of the stock having voting power at the meeting will approve each matter that arises at the annual meeting.
Please note, however, because the say-on-pay vote is advisory, it will not be binding upon the Board of Directors or the Compensation Committee. Also, please remember that the election of directors and the say-on-pay vote are each considered non-routine matters. Consequently, if your shares are held by a broker or other fiduciary, it cannot vote your shares on these matters unless it has received voting instructions from you.
Abstentions and broker non-votes, if any, will not be counted votes cast, but will count for purposes of determining whether or not a quorum is present. So long as a quorum is present, broker non-votes will have no effect on any of the matters presented for a vote at the annual meeting.
Where do I find the voting results of the meeting?
If available, we will announce voting results at the meeting. The voting results will also be disclosed on a Form 8-K that we will file with the SEC within four business days after the meeting.
Who bears the cost of soliciting proxies?
We will bear the cost of soliciting proxies. In addition to solicitations by mail, officers, directors or employees of Lakeland Financial may solicit proxies in person or by telephone. These persons will not receive any special or additional compensation for soliciting proxies. We may reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to shareholders.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on April 12, 2016.
Our proxy statement for the annual meeting of shareholders to be held on April 12, 2016, other proxy materials, and our 2015 annual report to shareholders are available at www.proxyvote.com.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our common stock at February 22, 2016, by each person known by us to be the beneficial owner of more than 5% of the outstanding common stock, by each director or nominee, by each executive officer named in the Summary Compensation Table, which can be found later in this proxy statement, and by all directors and executive officers of Lakeland Financial Corporation as a group. Beneficial ownership has been determined for this purpose in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, under which a person is deemed to be the beneficial owner of securities if he, she or it has or shares voting power or investment power in respect of such securities or has the right to acquire beneficial ownership of securities within 60 days of February 22, 2016
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Name of Beneficial Owner
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Amount and Nature of
Beneficial Ownership
(1,2)
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Percent
of Class
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5% Shareholders
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FMR LLC
(3)
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1,396,479
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8.4%
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BlackRock, Inc.
(4)
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1,026,034
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6.2%
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Directors and Nominees
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Blake W. Augsburger
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11,167
(5)
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*
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Robert E. Bartels, Jr.
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11,825
(6)
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*
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Daniel F. Evans, Jr.
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16,004
(7)
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*
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David M. Findlay
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95,138
(8)
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*
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Thomas A. Hiatt
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24,157
(9)
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*
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Michael L. Kubacki
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198,923
(10)
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1.2%
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Charles E. Niemier
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134,275
(11)
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*
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Emily E. Pichon
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9,113
(12)
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*
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Steven D. Ross
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22,093
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*
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Brian J. Smith
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33,579
(13)
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*
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Bradley J. Toothaker
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13,080
(14)
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*
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Ronald D. Truex
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38,695
(15)
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*
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M. Scott Welch
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113,367
(16)
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*
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Other Named Executive Officers
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Lisa M. O’Neill
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3,561
(17)
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*
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Eric H. Ottinger
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16,759
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*
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Kevin L. Deardorff
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30,911
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*
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All directors and executive officers as a group
(23 persons)
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813,058
(18)
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4.9%
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*Indicates that the individual or entity owns less than one percent of Lakeland Financial’s common stock.
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(1)
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The total number of shares of common stock issued and outstanding on February 22, 2016 was 16,696,834.
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(2)
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The information contained in this column is based upon information furnished to us by the persons named above and as shown on our transfer records. The nature of beneficial ownership for shares shown in this column, unless otherwise noted, represents sole voting and investment power.
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(3)
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Includes entities related to reporting entity. Based upon a schedule 13G filed with the SEC on February 12, 2016. The address for the reporting entity is 245 Summer Street, Boston, MA 02210.
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(4)
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Includes entities related to reporting entity. Based upon a schedule 13G filed with the SEC on January 26, 2016. The address for the reporting entity is 55 East 52
nd
Street, New York, NY 10055.
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(5)
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Includes 5,042 shares credited to Mr. Augsburger’s account as of February 5, 2016 under the terms of the Amended and Restated Lakeland Financial Corporation Directors Fee Deferral Plan.
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(6)
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Includes 1,000 options, which are currently exercisable, over which Mr. Bartels has no voting power and sole investment power.
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(7)
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Includes 6,981 shares credited to Mr. Evans’s account as of February 5, 2016 under the terms of the Amended and Restated Lakeland Financial Corporation Directors Fee Deferral Plan.
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(8)
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Includes 2,500 shares held by Mr. Findlay’s individual retirement account; 2,000 shares held by Mr. Findlay’s wife, as to which shares he has no voting or investment power; 66,150 shares held in trust, as to which shares he shares voting and investment power; and 10,000 options, which are currently exercisable, over which Mr. Findlay has no voting power and sole investment power.
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(9)
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Includes 25 shares held by Mr. Hiatt’s individual retirement account; 630 shares held by Mr. Hiatt’s wife’s individual retirement account, as to which shares he shares voting and investment power; and 12,428 shares credited to Mr. Hiatt’s account as of February 5, 2016 under the terms of the Amended and Restated Lakeland Financial Corporation Directors Fee Deferral Plan.
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(10)
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Includes 2,000 shares held by Mr. Kubacki’s individual retirement account and 15,000 options, which are currently exercisable, over which Mr. Kubacki has no voting power and sole investment power.
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(11)
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Includes 72,193 shares held by Mr. Niemier’s individual retirement account; 9,059 shares held by Mr. Niemier’s wife’s individual retirement account, as to which shares he has no voting or investment power; 22,607 shares held in trust, as to which shares he shares voting and investment power; and 30,416 shares credited to Mr. Niemier’s account as of February 5, 2016 under the terms of the Amended and Restated Lakeland Financial Corporation Directors Fee Deferral Plan.
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(12)
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Includes 488 shares credited to Ms. Pichon’s account as of February 5, 2016 under the terms of the Amended and Restated Lakeland Financial Corporation Directors Fee Deferral Plan.
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(13)
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Includes 17,779 shares held in a trust in which he serves as trustee and 5,919 shares credited to Mr. Smith’s account as of February 5, 2016 under the terms of the Amended and Restated Lakeland Financial Corporation Directors Fee Deferral Plan.
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(14)
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Includes 2,000 shares held jointly, as to which shares he shares voting and investment power and 4,955 shares credited to Mr. Toothaker’s account as of February 5, 2016 under the terms of the Amended and Restated Lakeland Financial Corporation Directors Fee Deferral Plan.
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(15)
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Includes 5,183 shares held by Mr. Truex’s wife, as to which shares he has no voting or investment power; 20,000 shares held by CB Financial, LLC, as to which shares he shares voting and investment power; and 6,887 shares credited to Mr. Truex’s account as of February 5, 2016 under the terms of the Amended and Restated Lakeland Financial Corporation Directors Fee Deferral Plan.
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(16)
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Includes 838 shares held by Mr. Welch’s individual retirement account; 1,930 shares held by Mr. Welch’s wife’s individual retirement account, as to which shares he shares voting and investment power; 16,000 shares held by BEL Leasing LLP, as to which shares he has sole voting and investment power; and 26,973 shares credited to Mr. Welch’s account as of February 5, 2016 under the terms of the Amended and Restated Lakeland Financial Corporation Directors Fee Deferral Plan.
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(17)
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Includes 3,500 shares held by Ms. O’Neill’s individual retirement account.
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(18)
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This includes shares which have been allocated to executive officers under the 401(k) plan through
December 31, 2015.
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ELECTION OF DIRECTORS
Shareholders will be entitled to elect 13 directors for a term expiring in 2017 at the annual meeting.
We have no knowledge that any nominee will refuse or be unable to serve, but if any of the nominees is unavailable for election, the holders of the proxies reserve the right to substitute another person of their choice as a nominee when voting at the meeting.
Set forth below is information concerning the nominees for election, including the age, the year first appointed or elected as a director and the other positions held by the person at Lakeland Financial and Lake City Bank. The nominees, if elected at the annual meeting, will serve as directors for a one-year term expiring in 2017. Each of the nominees is an incumbent director and has served as a director of Lakeland Financial for at least one term.
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The directors will be elected by a majority voting standard. Each vote is required to be counted “for” or “against” the director’s election. Consequently, to be elected as a director, the votes cast “for” a nominee’s election must exceed the number of votes cast “against” such nominee’s election. Shareholders will also be entitled to abstain with respect to the election of a director although abstentions will have no effect in determining whether the required affirmative majority vote has been obtained.
We recommend that shareholders vote “FOR” each of the nominees for director.
NOMINEES
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Director Since
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Positions with Lakeland Financial and Lake City Bank
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Term Expires 2017
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Blake W. Augsburger (age 52)
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2011
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Director of Lakeland Financial and Lake City Bank
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Robert E. Bartels, Jr. (age 51)
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2002
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Director of Lakeland Financial and Lake City Bank
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Daniel F. Evans, Jr. (age 66)
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2010
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Director of Lakeland Financial and Lake City Bank
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David M. Findlay (age 54)
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2010
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President and Chief Executive Officer and Director of Lakeland Financial and Lake City Bank
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Thomas A. Hiatt (age 68)
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2007
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Director of Lakeland Financial and Lake City Bank
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Michael L. Kubacki (age 64)
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1998
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Executive Chairman of Lakeland Financial and Lake City Bank
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Charles E. Niemier (age 60)
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1998
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Director of Lakeland Financial and Lake City Bank
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Emily E. Pichon (age 52)
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2002
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Director of Lakeland Financial and Lake City Bank
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Steven D. Ross (age 61)
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2000
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Director of Lakeland Financial and Lake City Bank
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Brian J. Smith (age 51)
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2011
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Director of Lakeland Financial and Lake City Bank
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Bradley J. Toothaker (age 47)
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2011
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Director of Lakeland Financial and Lake City Bank
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Ronald D. Truex (age 65)
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2010
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Director of Lakeland Financial and Lake City Bank
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M. Scott Welch (age 55)
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1998
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Director of Lakeland Financial and Lake City Bank
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All directors will hold office for the terms indicated, or until their earlier death, resignation, removal or disqualification, and until their respective successors are duly elected and qualified. Other than pursuant to Mr. Kubacki’s Transitional Employment Agreement, as described herein, there are no arrangements or understandings between any of the nominees, directors or executive officers and any other person pursuant to which any of our nominees, directors or executive officers have been selected for their respective positions. No nominee, member of the Board of Directors or executive officer is related to any other nominee, member of the Board of Directors or executive officer. No nominee or director has been a director of another “public corporation” (
i.e
. subject to the reporting requirements of the Securities Exchange Act of 1934) or of any investment company within the past five years.
The business experience of each of the nominees and continuing directors for the past five years, as well as their qualifications to serve on the Board, is as follows:
Mr. Augsburger
is Executive Vice President and serves as America’s Country Manager of Harman International Industries, Incorporated, a Fortune 500 company that designs and manufactures audio and infotainment products and systems. He also serves as the President of the Harman Professional Division, which is based in Northridge, California. We consider Mr. Augsburger to be a qualified candidate for service on the Board, as well as the Nominating and Corporate Governance Committee, due to his leadership skills and expertise as an executive of a large, complex public company.
Mr. Bartels, Jr.
is President and Chief Executive Officer of Martin’s Supermarkets, Inc., a regional supermarket chain headquartered in South Bend, Indiana. We consider Mr. Bartels to be a qualified candidate for service on the Board, as well as the Audit Committee and the Nominating and Corporate Governance Committee, due to his skills and expertise acquired as the leader of a successful business that is prominent in many of our markets.
Mr. Evans, Jr.
is the Chief Executive Officer of Indiana University Health, a large, statewide health care and hospital system headquartered in Indianapolis, Indiana. In addition, Mr. Evans is an attorney with private practice and governmental relations experience. Mr. Evans also has strong banking experience, having served as the Chairman of the Federal Home Loan Bank of Indianapolis from 1987-1990 and as the chairman of the Federal Housing Finance Board, the regulator of the Federal Home Loan Banks, from 1990-1993. We consider Mr. Evans to be qualified to serve on the Board, as well as the Nominating and Corporate Governance Committee, due to his experience managing a large organization, his experience in the banking industry and his knowledge of the Indianapolis market as we look to expand our presence in Indianapolis.
Mr. Findlay
presently serves as the President and Chief Executive Officer of Lakeland Financial and Lake City Bank. Mr. Findlay also served as President and Chief Financial Officer from 2010-2014 and Chief Financial Officer from 2000-2010. Prior to joining Lakeland Financial in September of 2000, Mr. Findlay served as the Chief Financial Officer of Quality Dining, Inc., a publicly traded company with its headquarters in South Bend, Indiana. Prior to that, he served in various capacities with The Northern Trust Company in Chicago, Illinois. We consider Mr. Findlay to be qualified to serve on the Board due to the familiarity with Lakeland Financial’s operations he has acquired as its President and Chief Financial Officer, his experience in the financial services industry and his prior experience as the chief financial officer of a publicly traded company.
Mr. Hiatt
is Managing Director and Founding Partner of Centerfield Capital Partners, an investment firm that provides private equity and mezzanine debt to middle-market companies, headquartered in Indianapolis, Indiana. We consider Mr. Hiatt to be a qualified candidate for service on the Board, as well as the Nominating and Corporate Governance Committee, due to his business and financial expertise acquired as the founding partner and manager of one of the largest private equity funds based in Indiana, and his knowledge of, and prominence in, the Indianapolis market.
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Mr. Kubacki
presently serves as Executive Chairman of the Board of Directors of Lakeland Financial and Lake City Bank. In April 2016, Mr. Kubacki will retire from his executive officer position and, if re-elected, will remain Chairman of the Board. Mr. Kubacki also served as Chief Executive Officer of Lakeland Financial and Lake City Bank from 1998 to 2014 and as President from 1998 to 2010. Prior to joining Lakeland Financial in 1998, Mr. Kubacki served as Executive Vice President of The Northern Trust Bank of California, N.A. We consider Mr. Kubacki to be a qualified candidate for service on the Board due to the intimate familiarity with Lakeland Financial’s operations he has acquired as its Chairman and Chief Executive Officer and his skills and experience in the financial services industry.
Mr. Niemier
is the former Chief Operating Officer of International Operations for Biomet, Inc., which was a manufacturer of medical and orthopedic devices based in Warsaw, Indiana. He is also a former director of Biomet, which was a public company during the time he served as a director. Mr. Niemier also serves as a trustee of Valparaiso University. We consider Mr. Niemier to be a qualified candidate for service on the Board, as well as the Audit Committee and the Compensation Committee, due to his experience as a Chief Financial Officer of Biomet, his financial accounting background and his general experience in business and our markets.
Ms. Pichon
is the Chairman of ExTech Plastics, Inc., an extruder of plastic sheet, and an officer and director of the Olive B. Cole Foundation and the M E Raker Foundation, each a private charitable foundation focused on northeast Indiana education, economic development and conservation based in Fort Wayne, Indiana. We consider Ms. Pichon to be qualified to serve on the Board, as well as the Audit Committee and the Compensation Committee, due to her experience with two prominent charitable foundations located in Fort Wayne and her education and training as an attorney.
Mr. Ross
is the former President of Heartland Coffee Company, a regional coffee and beverage service company, based in Warsaw, Indiana. Mr. Ross is also the former President of Bertsch Services, Inc., a regional food service and vending company, that was based in Warsaw, Indiana prior to its sale. We consider Mr. Ross to be a qualified candidate for service on the Board, as well as the Audit Committee, due to his skills and expertise acquired as president of a successful business in Kosciusko County and his knowledge of the business community in this region.
Mr. Smith
is co-Chief Executive Officer of Heritage Financial Group, Inc., a real estate investment and management and consumer finance company based in Elkhart, Indiana. We consider Mr. Smith to be a qualified candidate for service on the Board, due to his expertise in the manufactured housing and consumer finance industries, which is a significant industry in northern Indiana, and his knowledge of, and prominence in, the Elkhart market. Additionally, Mr. Smith has a strong financial background as a certified public accountant, which adds meaningful expertise to the Audit Committee.
Mr. Toothaker
is the President and Chief Executive Officer of Bradley Company, a large Midwest-based, full-service real estate company. We consider Mr. Toothaker to be a qualified candidate for service on the Board due to his extensive knowledge of the real estate sector in our region and his knowledge of the Northern Indiana market.
Mr. Truex
is the President of Creighton Brothers, LLC, a diversified agribusiness company focused on egg and grain production, headquartered in Warsaw, Indiana. We consider Mr. Truex to be a qualified candidate for service on the Board due to his skills and expertise in the agricultural industry and his knowledge of the agricultural communities in many of our markets.
Mr. Welch
is the Chief Executive Officer of Welch Packaging Group, Inc., which is primarily engaged in producing industrial and point of purchase packaging and is headquartered in Elkhart, Indiana. We consider Mr. Welch to be a qualified candidate for service on the Board, as well as the Audit Committee and the Nominating and Corporate Governance Committee, due to his skills and expertise in the manufacturing industry and his past experience with growing organizations.
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In addition, the following individuals serve as executive officers of Lakeland Financial and are named in the compensation tables included in this proxy statement:
Lisa M. O’Neill,
age 48, presently serves as Executive Vice President and Chief Financial Officer of Lakeland Financial Corporation and Lake City Bank, a position she has held since April 2014. Prior to that, Ms. O’Neill served as Chief Financial Officer of Bank First National Corporation located in Manitowoc, Wisconsin from 2007-2014. From 1999-2006, Ms. O’Neill was the Controller of Private Bancorp, Inc. Prior to 1999, Ms. O’Neill was with Arthur Andersen in its financial institutions group audit practice since 1989.
Eric H. Ottinger
, age 45, presently serves as an Executive Vice President of Lakeland Financial and as head of our Commercial Banking Department, a position which he has held since August 2011. He joined Lake City Bank in April 1999 as Vice President, Commercial Loan Officer. In April 2002 he was promoted to Commercial East Regional Manager. In April 2009, he was promoted to head of our Wealth Advisory Group. Prior to that time, Mr. Ottinger was a commercial lending officer at another bank since 1993.
Kevin L. Deardorff
,
age 54, presently serves as an Executive Vice President of Lakeland Financial and as head of Retail Banking, positions he has held since 2001. He has served as an officer of Lake City Bank since 1993.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires that our executive officers, directors and persons who own more than 10% of our common stock file reports of ownership and changes in ownership with the SEC. They are also required to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms, and, if appropriate, representations made to us by any reporting person concerning whether a Form 5 was required to be filed for 2015, we are aware that one filing with respect to the purchase of shares by Ms. O’Neill was made late. Other than that one filing, we are not aware that any of our directors, executive officers or 10% shareholders failed to comply with the filing requirements of Section 16(a) during 2015.
CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
General
The Board has adopted guidelines on significant corporate governance matters that, together with our Code of Conduct and other policies, create our corporate governance standards. You may view the Corporate Governance Guidelines and our committee charters and other policies in the Investor Relations section of our website at www.lakecitybank.com.
Generally, the Board oversees our business and monitors the performance of our management. In accordance with our corporate governance procedures, the Board does not involve itself in the day-to-day operations of Lakeland Financial, which is monitored by our executive officers and management. Our directors fulfill their duties and responsibilities by attending regular meetings of the Board, which convene eight times a year, and through committee membership, which is discussed below. Our directors also discuss business and other matters with Mr. Kubacki, our Executive Chairman, Mr. Findlay, our President and Chief Executive Officer, Ms. O’Neill, our Chief Financial Officer, other key executives and our principal external advisers (legal counsel, auditors and other consultants). All members of our Board of Directors also serve as members of Lake City Bank’s Board of Directors.
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With the exception of Mr. Kubacki and Mr. Findlay who are executive officers, all of our current directors are “independent,” as defined by the NASDAQ Global Select Market, or Nasdaq, and we have determined that the independent directors do not have other relationships with us that prevent them from making objective, independent decisions. The Board of Directors has established an Audit Committee, a Nominating and Corporate Governance Committee and a Compensation Committee, among other committees. In addition to our Corporate Governance Guidelines, the current charters of each of these committees are available on our website at www.lakecitybank.com. Also posted on the website is a general description regarding our Company and links to our filings with the SEC.
Our Board of Directors held eight meetings during 2015. All of the directors attended at least 75% of the Board meetings and meetings of committees of which they were members. While we do not have a specific policy regarding attendance at the annual shareholder meeting, all directors are encouraged and expected to attend the meeting. All of our directors attended last year’s annual meeting.
Audit Committee
In 2015, the Audit Committee was comprised of Charles E. Niemier, Robert E. Bartels, Jr., Emily E. Pichon, Brian J. Smith, Bradley J. Toothaker, Ronald D. Truex and M. Scott Welch. Assuming that they are re-elected, each current member is expected to serve on the Audit Committee through 2016, other than Mr. Welch who will not continue. Mr. Steven Ross, as Chairman of Lake City Bank’s Corporate Risk Committee, will serve on the Audit Committee in 2016 assuming he is re-elected to the Board. Each of the members is considered “independent” according to the Nasdaq listing requirements and the regulations of the SEC. The Board of Directors has determined that Mr. Niemier and Mr. Smith both qualify as “audit committee financial experts” under the regulations of the SEC. For Mr. Niemier, the Board based its decision on Mr. Niemier’s education, his professional experience at an audit firm and his experience as a former chief operating officer and board member of Biomet, Inc., a company whose common stock was quoted on the Nasdaq exchange until September 25, 2007, when the company was acquired by a private equity consortium and ceased trading as a public company. For Mr. Smith, the Board based its decision on Mr. Smith’s education, his certified public accounting certificate, his professional experience in public accounting at the firm of Ernst & Young from 1986-1990 and his strong financial background managing Heritage Financial Group.
The functions performed by the Audit Committee include, among other things, the following:
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overseeing our accounting and financial reporting;
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selecting, appointing and overseeing our independent registered public accounting firm;
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reviewing actions by management on recommendations of the independent registered public accounting firm and internal auditors;
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meeting with management, the internal auditors and the independent registered public accounting firm to review the effectiveness of our system of internal controls and internal audit procedures; and
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reviewing reports of bank regulatory agencies and monitoring management’s compliance with recommendations contained in those reports.
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To promote independence of the audit function, the committee consults separately and jointly with our independent registered public accounting firm, the internal auditors and management. We have adopted a written charter for the committee, which sets forth the committee’s duties and responsibilities. Our current charter is available on our website at www.lakecitybank.com. In 2015, the Audit Committee met four times.
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Compensation Committee
During 2015, the Compensation Committee was comprised of Daniel F. Evans, Jr., Thomas A. Hiatt, Charles E. Niemier, Emily E. Pichon and M. Scott Welch. Assuming they are re-elected, each current member is expected to serve on the committee through 2016. Each of the members is considered “independent” according to the Nasdaq listing requirements, an “outside” director pursuant to Section 162(m) of the Internal Revenue Code and a “non-employee” director under Section 16 of the Securities Exchange Act of 1934.
The functions performed by the Compensation Committee include, among other things, the following:
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review and approve the performance goals and objectives relevant to the compensation of our Executive Chairman, Chief Executive Officer, and the other executive officers;
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evaluate the performance of our Executive Chairman, Chief Executive Officer and the other executive officers and set the compensation level of our Chief Executive Officer and the other executive officers based upon such evaluation;
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review and approve all employment agreements, severance arrangements and change in control agreements or provisions, if any, for the executive officers;
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make recommendations to the full Board of Directors regarding annual compensation of the directors, including equity-based compensation;
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administer our equity incentive plans, our long term incentive plan and our executive incentive bonus plan;
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evaluate the risks associated with all employee compensation plans; and
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evaluate the independence of advisors to the Compensation Committee prior to their engagement.
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We have adopted a written charter for the committee, which sets forth the committee’s duties and responsibilities. Our current charter is available on our website at www.lakecitybank.com. In 2015, the Compensation Committee met twice.
Nominating and Corporate Governance Committee
We also have a Nominating and Corporate Governance Committee. In 2015, the members of the committee were Blake W. Augsburger, Robert E. Bartels, Jr., Daniel F. Evans, Jr., Thomas A. Hiatt, Steven D. Ross and M. Scott Welch. Each current member is expected to serve on the committee through 2016, assuming they are re-elected except for Mr. Ross who will not continue to serve on this committee. Each of these members is considered “independent” according to the Nasdaq listing requirements. The primary purposes of the committee are to identify and recommend individuals to be presented to our shareholders for election or re-election to the Board of Directors and to review and monitor our policies, procedures and structure as they relate to corporate governance. We have adopted a written charter for the committee, which sets forth the committee’s duties and responsibilities. Our current charter is available on our website at www.lakecitybank.com. The Nominating and Corporate Governance Committee met three times in 2015.
Director Nominations and Qualifications
For the 2016 annual meeting, the Nominating and Corporate Governance Committee nominated for re-election to the Board the thirteen incumbent directors whose terms are set to expire in 2016. This nomination was further approved by the full Board. We did not receive any shareholder nominations for director for the 2016 annual meeting.
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The Nominating and Corporate Governance Committee evaluates all potential nominees for election, including incumbent directors, Board nominees and shareholder nominees, in the same manner. As described in our Corporate Governance Guidelines, the committee believes that, at a minimum, directors should possess certain qualities, including the highest personal and professional ethics and integrity, a sufficient educational and professional background, demonstrated leadership skills, sound judgment, a strong sense of service to the communities which we serve and an ability to meet the standards and duties set forth in our code of conduct. Additionally, all nominees must be under the age of 70, which is the mandatory retirement age established by the Board. While we do not have a separate diversity policy, the committee does consider the diversity of its directors and nominees in terms of knowledge, experience, skills, expertise, and other demographics which may contribute to the Board. The committee also evaluates potential nominees to determine if they have any conflicts of interest that may interfere with their ability to serve as effective Board members and to determine whether they are “independent” in accordance with Nasdaq requirements (to ensure that at least a majority of the directors will, at all times, be independent). The committee has not, in the past, retained any third party to assist it in identifying candidates.
The committee identifies nominees by first evaluating the current members of the Board who are willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the committee or the Board decides not to re-nominate a member for re-election, the committee would identify the desired skills and experience of a new nominee in light of the criteria above.
Shareholder Communication with the Board, Nomination and Proposal Procedures
General Communications with the Board.
Shareholders may contact Lakeland Financial’s Board of Directors by contacting Kristin L. Pruitt, Corporate Secretary, at Lakeland Financial Corporation, P.O. Box 1387, Warsaw, Indiana, 46581-1387 or (574) 267-6144. Ms. Pruitt will generally not forward communications that are primarily commercial in nature or related to an improper or irrelevant topic.
Nominations of Directors
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In accordance with our bylaws, a shareholder may nominate a director for election to the Board at an annual meeting of shareholders by delivering written notice of the nomination to the Company’s chairman of the Board not less than 150 days nor more than 180 days prior to the date of the annual meeting. The shareholder’s notice of intention to nominate a director must include the name and address of the proposed nominee, the principal occupation of the proposed nominee, the name and address of the shareholder making the nomination and the number of shares of capital stock of Lakeland Financial owned by the notifying shareholder. We may request additional information after receiving the notification.
For a shareholder nominee to be considered by our Board as a Company nominee and included in our proxy statement, the nominating shareholder must file a written notice of the proposed director nomination with our corporate secretary, at the above address, at least 120 days prior to the date the previous year’s proxy statement was first made available to shareholders. Nominations must include the full name and address of the proposed nominee and a brief description of the proposed nominee’s business experience for at least the previous five years. All submissions must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected. The Nominating and Corporate Governance Committee may request additional information in order to make a determination as to whether to nominate the person for director.
Other Shareholder Proposals.
For all other shareholder proposals to be considered for inclusion in our proxy statement and form of proxy relating to our annual meeting of shareholders to be held in 2017, shareholder proposals must be received by Kristin L. Pruitt, our Corporate Secretary, at the above address, no later than November 3, 2016, and must otherwise comply with the rules and regulations set forth by the SEC.
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Board Leadership Structure
The positions of Chairman of the Board and Chief Executive Officer of Lakeland Financial have historically been combined, and Mr. Kubacki held both positions until April 2014 when he stepped down as Chief Executive Officer. At that time, Mr. Findlay was appointed President and Chief Executive Officer of Lakeland Financial Corporation. We expect that Mr. Kubacki will continue serving as Chairman of the Board. We have a strong governance structure in place, including a designated lead independent director, as discussed below, and believe that Mr. Kubacki’s active role in helping Mr. Findlay transition into his duties as Chief Executive Officer while remaining as Chairman of the Board will only make our governance structure stronger. Furthermore, consistent with Nasdaq listing requirements, the independent directors regularly have the opportunity to meet without Mr. Kubacki and/or Mr. Findlay in attendance and in 2015 there were two such executive sessions.
In 2003, the Board of Directors created the position of a lead independent director, and the Nominating and Corporate Governance Committee and in 2012 the Board appointed M. Scott Welch as lead independent director and he continues to serve in that role. This appointment is reviewed annually by the Nominating and Corporate Governance Committee. The lead independent director assists the Board in assuring effective corporate governance and serves as chairperson of the independent director sessions, and chairs Board meetings during any meetings or portions of meetings if Mr. Kubacki is absent.
Code of Conduct
We have a code of conduct in place that applies to all of our directors and employees. The code sets forth the standard of ethics that we expect all of our directors and employees to follow, including our Chief Executive Officer and President and Chief Financial Officer. The code of conduct is posted on our website at www.lakecitybank.com. We intend to satisfy the disclosure requirements under Item 10 of Form 8-K regarding any amendment to or waiver of the code with respect to our Chief Executive Officer and President and Chief Financial Officer, and persons performing similar functions, by posting such information on our website.
Board’s Role in Risk Oversight
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including general economic risks, credit risks, regulatory risks, audit risks, reputational risks and others, such as risks related to the unintentional effects our compensation plan may have on employee decision-making or the impact of competition. Management is responsible for the day-to-day management of risks the Company faces, while the Board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the Board of Directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.
While the full Board of Directors is charged with ultimate oversight responsibility for risk management, various committees of the Board and members of management also have responsibilities with respect to our risk oversight. In particular, the Audit Committee plays a large role in monitoring and assessing our financial, legal, and operational risks, and receives regular reports from the management team’s senior risk officer regarding comprehensive organizational risk as well as particular areas of concern. The Board’s Compensation Committee monitors and assesses the various risks associated with compensation policies and oversees incentive plans to ensure a reasonable and manageable level of risk-taking consistent with our overall strategy. In 2013, the Company established a Corporate Risk Committee of the Board to oversee the risk management practices of Lake City Bank, including management’s ability to assess and manage the Company’s credit, market, interest rate, liquidity, legal and compliance, reputational, technology, operational Trust and Wealth Advisory risks.
In addition, the Corporate Risk Committee provides a forum for open and regular communication between senior management and the Board in order to effectively manage risks. The Corporate Risk Committee began meeting in January 2013.
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In addition, the Company has designated Ms. Kristin L. Pruitt, Executive Vice President and General Counsel, as its senior risk officer. Ms. Pruitt generally oversees management’s role in its risk management practices, and she is invited to and generally attends all Board and committee meetings. Additionally, Michael E. Gavin, Executive Vice President and Chief Credit Officer, is directly responsible for overseeing our credit risk.
We believe that establishing the right “tone at the top” and providing for full and open communication between management and the Board of Directors is essential for effective risk management and oversight. Our executive management meets regularly with our other senior officers to discuss strategy and risks facing the Company. Senior officers attend many of the Board meetings, or, if not in attendance, are available to address any questions or concerns raised by the Board on risk management-related issues and any other matters. The Board has an annual offsite meeting with senior management to discuss strategies, key challenges, and risks and opportunities for the Company. Additionally, each of our Board-level committees provides regular reports to the full Board and apprises the Board of our comprehensive risk profile and any areas of concern.
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion and Analysis describes Lakeland Financial’s compensation philosophy and policies for 2015 as applicable to the executive officers named in the Summary Compensation Table on page 29. This section explains the structure and rationale associated with each material element of the executives’ compensation, and it provides important context for the more detailed disclosure tables and specific compensation amounts provided following the section.
The Compensation Committee has overall responsibility for evaluating the compensation plans, policies and programs relating to the executive officers of Lakeland Financial Corporation.
The Compensation Committee relies upon Mr. Findlay’s assessment of each executive officer’s individual performance, which considers the executive’s efforts in achieving his or her individual goals each year, managing and developing employees and the enhancement of long-term relationships with customers, if applicable to his or her position. Individual goals for executive officers are established by Mr. Findlay in consultation with each executive officer.
The Compensation Committee’s charter gives it the authority to hire outside consultants to further its objectives and responsibilities. In 2015, the committee retained Pearl Meyer & Partners, a compensation consulting firm, to assess the effectiveness of the Company’s executive compensation programs. Pearl Meyer & Partners are independent, report directly to the committee chair, and perform no other work for the Company other than assisting the committee in review of the total compensation program, including gathering and analyzing market data for compensation paid for similar positions at companies with which we compete for executive talent and for director compensation. Pearl Meyer & Partners also provide input on marketplace trends and best practices relating to competitive pay levels, as well as developments in regulatory and technical matters. The Compensation Committee also reviewed compensation survey data in 2015 from industry sources such as the American Bankers Association and Bank Director Magazine.
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Regulatory Impact on Compensation
As a publicly-traded financial institution, we must contend with several often overlapping layers of regulations when considering and implementing compensation-related decisions. These regulations do not set specific parameters within which compensation decisions must be made, but do require Lakeland Financial and the Compensation Committee to be mindful of the risks that often go hand-in-hand with compensation programs designed to incentivize the achievement of better than average performance. While the regulatory focus on risk assessment has been heightened over the last several years, the incorporation of general concepts of risk assessment into compensation decisions is not a recent development.
Under its
Interagency Guidelines Establishing Standards for Safety and Soundness
, the Federal Deposit Insurance Corporation (the “FDIC”) has long held that excessive compensation is prohibited as an unsafe and unsound practice. In describing a framework within which to make a determination as to whether compensation is considered excessive, the FDIC has indicated that financial institutions should consider whether aggregate cash amounts paid, or noncash benefits provided, to employees are unreasonable or disproportionate to the services performed by an employee. The FDIC encourages financial institutions to review an employee’s compensation history and to consider internal pay equity, and, as appropriate, to consider benchmarking compensation to peer groups. Finally, the FDIC provides that such an assessment must be made in light of the institution’s overall financial condition.
In addition, the various financial institution regulatory agencies have issued additional guidance,
Guidance on Sound Incentive Compensation Policies
, which serves as a compliment to the
Safety and Soundness
standards. As its title would imply, the joint agency guidance sets forth a framework for assessing the soundness of incentive compensation plans, programs and arrangements maintained by financial institutions. The joint agency guidance is narrower in scope than the
Safety and Soundness
standards because it applies only to senior executive officers and those other individuals who, either alone or as a group, could pose a material risk to the institution. With respect to those identified individuals, the joint agency guidance is intended to focus the institution’s attention on balanced risk-taking incentives, compatibility with effective controls and risk management, with a focus on general principles of strong corporate governance.
In addition to the foregoing, we anticipate that the rules under the Dodd-Frank Act intended to implement further risk assessment guidelines and procedures will eventually be finalized by the financial institution regulatory agencies and the SEC, and we expect that we will be subject to those further guidelines and procedures. Initial proposed guidance with respect to the Dodd-Frank Act risk assessment guidelines and procedures was issued in 2011. In large part, that guidance restates the frameworks set forth in the
Safety and Soundness
standards and joint agency guidance described above.
Finally as a publicly-traded corporation, Lakeland Financial is also subject to the SEC's rules regarding risk assessment. Those rules require a publicly-traded company to determine whether any of its existing incentive compensation plans, programs or arrangements, create risks that are reasonably likely to have a material adverse effect on the company. We do not believe that our incentive compensation plans, programs or arrangements create risks that are reasonably likely to have a material adverse effect on Lakeland Financial.
The Compensation Committee believes that a sensible approach to balancing risk-taking and rewarding reasonable, but not necessarily easily attainable, goals has always been a component of its overall assessment of the compensation plans, programs and arrangements it has established for Lakeland Financial’s named executive officers. In this regard, the committee has revisited the components of the frameworks set forth in the
Safety and Soundness
standards and the joint guidance as an effective tool for conducting its own assessment of the balance between risk and reward built into Lakeland Financial’s compensation programs for named executive officers. In addition, the committee continues to anticipate final guidance under the Dodd-Frank Act and will be prepared to incorporate into its risk assessment procedures any new guidelines and procedures as may be necessary or appropriate.
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Assessment of Compensation Risk
The Compensation Committee has reviewed and discussed this Compensation Discussion and Analysis with management.
The Compensation Committee in 2015 completed its thorough annual review of all compensation programs offered at Lakeland Financial and Lake City Bank, including those described in this Compensation Discussion and Analysis, to determine whether any aspect of the plans or programs encourages excessive or unnecessary risk that would adversely affect the long-term value or performance of Lakeland Financial. Based on the risk assessment process, more fully described below, the committee concluded that the compensation plans and programs, considered individually and as a whole, do not encourage excessive risk taking.
The Compensation Committee compiled an inventory of the design features of all incentive compensation plans and programs for purposes of assessing the potential for encouraging excessive or unnecessary risk-taking that could threaten the value of the enterprise. The committee then considered how the structure of each plan or program impacted risk-taking of plan participants.
With respect to the LTI Plan as defined on pages 26 and 27, the committee concluded that the plan was well designed to align the Company’s strategic objectives with long-term value creation for the following reasons:
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Performance metrics factor in risk of capital and measures that take into consideration balance sheet, income statement and equity factors.
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Threshold goals are reasonably achievable with good performance and are sufficiently challenging but not overly difficult. The LTI Plan does not include steep cliffs for not achieving goals nor exponential upside for achieving them. Reasonable leverage exists above threshold goals to achieve maximum payouts.
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Incentives are capped at reasonable levels.
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Maximum awards are an appropriate portion of total pay.
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The three-year performance period discourages measures that do not benefit the Company over the long term.
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Denomination in Company stock gives incentive to focus on sustained value creation, and further alignment with shareholder interests.
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In analyzing the risks inherent in the Company’s annual bonus plan, the Compensation Committee determined as follows:
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Bonus amounts are tied to financial performance and personal performance against individualized goals, including non-financial goals.
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Threshold goals are reasonably achievable with good performance and are sufficiently challenging but not overly difficult.
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Payouts are interpolated based on percentage of net income achieved.
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Reasonable bonus maximums exist as part of an overall balanced pay mix.
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The Compensation Committee did a similar analysis for the other compensation programs available to employees, and concluded that the amounts provided under such programs are reasonable as part of a balanced pay mix and appropriately incentivize performance without encouraging the manipulation of earnings in order to enhance the benefits payable under such programs.
The Compensation Committee then reviewed the executive compensation structure overall and reached the following conclusions, based on key risk categories:
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Strategic
Risk
: The Compensation Committee determined that overall, the performance metrics used are aligned with the Company’s strategy and objectives for long-term value creation for our shareholders, properly reward various performance outcomes, and account for risk over a longer-term time horizon.
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Cultural
Risk
: Lakeland Financial has a strong set of corporate values that emphasize ethical behavior, actions that contribute to building long-term value, rather than short-term performance, teamwork and investment in people and infrastructure. Our senior executives have little incentive to be overly focused on short-term stock price performance.
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Governance Risk
: The Compensation Committee is independent, has access to consultants and other advisers independent of management, has an appropriate level of expertise and is fully educated on all significant incentive plans and programs.
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Pay-Mix Risk
: Lakeland Financial has market-competitive salaries to reduce pressure on short-term performance to earn reasonable annual compensation. The Compensation Committee believes the mix between longer-term incentives is appropriately balanced with motivation for short-term performance.
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Performance Measurement Risk:
The Compensation Committee has a disciplined process of establishing goals for and evaluating the performance of Mr. Kubacki and Mr. Findlay in executive sessions. Financial performance measures consider the income statement, balance sheet and statement of cash flows so that management is accountable for all aspects of Lakeland Financial’s financial health. The Company considers both financial and non-financial performance outcomes in assessing executives’ performance and compensation.
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Annual Incentive Risk
: Executives’ annual bonuses are earned based on both financial performance and non-financial performance. Goals for achieving target bonuses are reasonably achievable with good performance. The Compensation Committee believes the goals are challenging, but not overly difficult. The bonus payout curves do not use steep cliffs for target bonus or exponential payouts for maximum payouts.
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Long-Term Incentive Risk
: The LTI Plan uses different performance metrics and measurement periods than annual incentives so that short-term performance is not overemphasized. Restricted stock units under the LTI Plan do not use overly stretched goals or accelerated payout curves. The target and maximum payouts under the LTI Plan are reasonable in light of our overall pay mix. Long-term incentives focus on measures of sustainable value creation for long-term investors.
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Conclusion
After considering all components of the compensation paid to the named executive officers, the Compensation Committee has determined that the compensation is reasonable and not excessive, and does not encourage imprudent risk-taking.
In making this determination, the Compensation Committee considered many factors, including the following:
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Management has positioned Lakeland Financial for future success through the planning and execution of Lakeland Financial’s strategic plan.
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Management has consistently led Lakeland Financial to strong levels of performance in recent years.
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The shareholder return performance of Lakeland Financial over the past five years has outpaced the performance of companies in Lakeland Financial’s peer group.
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Lakeland Financial is well positioned in the communities it serves as a result of the direction that this management team has taken the Company.
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Compensation Philosophy and Objectives
The overall objectives of Lakeland Financial’s compensation programs are to align executive officer compensation with the success of meeting long-term strategic operating and financial goals. The programs are designed to create meaningful incentives to manage the business successfully with a constant focus on short-term and long-term performance versus the strategic plan and the key operating and financial objectives. Our philosophy is intended to align the interests of executive officers with the long-term interests of our shareholders. The executive compensation program is structured to accomplish the following objectives:
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encourage a consistent and competitive return to shareholders over the long-term;
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maintain a corporate environment which encourages stability and a long-term focus for the primary constituencies of Lakeland Financial, including shareholders, clients, employees, communities and government regulatory agencies;
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maintain a program that:
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clearly motivates personnel to perform and succeed according to our current goals;
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provides management with the appropriate empowerment to make decisions that benefit the primary constituents;
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retains key personnel critical to our long-term success;
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provides for management succession planning and related considerations;
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emphasizes formula-based components, such as performance-based bonus plans and long-term incentive plans, in order to focus management efforts in its execution of corporate goals;
|
|
·
|
encourages increased productivity; and
|
|
·
|
responsibly manages risks related to compensation programs;
|
|
·
|
provide for subjective consideration in determining incentive and compensation components; and
|
|
·
|
ensure that management:
|
|
·
|
fulfills its oversight responsibility to its primary constituents;
|
|
·
|
conforms its business conduct to the highest ethical standards;
|
|
·
|
remains free from any influences that could impair or appear to impair the objectivity and impartiality of its judgments or treatment of our constituents; and
|
19
|
·
|
continues to avoid any conflict between its responsibilities to Lakeland Financial and each executive officer’s personal interests.
|
Consideration of 2015 Say on Pay
At the Company’s 2015 annual meeting of shareholders, approximately 99% of the shares voted were cast in favor of the non-binding advisory proposal on the compensation of certain executive officers. The Company, the Board of Directors and the Compensation Committee pay careful attention to communications received from shareholders regarding executive compensation, including the non-binding advisory vote. The Company carefully considered the result of the 2015 advisory vote on executive compensation but not for specific 2016 compensation decisions. Based on this consideration and the other factors described in this Compensation Discussion and Analysis, the committee did not materially alter the policies or structure for the named executive officers’ compensation for 2015 or 2016.
Compensation Factors
General.
The Compensation Committee’s decisions regarding each named executive officer are based, in part, on the committee’s subjective judgment, and also take into account qualitative and quantitative factors, as will be set forth in the discussion below. In reviewing an executive officer’s compensation, the committee considers and evaluates all components of the officer’s total compensation package.
Corporate Performance.
In establishing executive compensation, the Compensation Committee measures Lakeland Financial’s performance compared to management’s and the Board’s goals and objectives, and also compares our performance to that of our peer group of financial institutions. The committee believes that using Lakeland Financial’s performance as a factor in determining an executive officer’s compensation is effective in helping to align the executive’s interests with those of our shareholders. With that in mind, the committee focuses on performance versus key financial performance criteria, such as return on beginning equity, return on average assets, revenue growth, diluted earnings per share growth, capital adequacy, the efficiency ratio and asset quality. As part of the evaluation and review of these criteria, the committee will also take into account various subjective issues, such as general economic conditions, including the interest rate environment and its impact on performance, and how they may affect Lakeland Financial’s performance.
For purposes of peer analysis in assessing performance, Lakeland Financial generally considers peer groups that include commercial banks of similar asset size. Given the ever-changing landscape within the banking industry, there is no specifically defined group of banks that are utilized for this analysis. In connection with its 2015 analysis of the Company’s executive compensation programs, Pearl Meyer & Partners compiled a market reference group of 19 other publicly-traded bank holding companies headquartered in the central United States, with median assets of $3.8 billion, median market capitalization of $582 million and stable, if not strong, performance history. The peer group is slightly different from the peer group used in prior years. The companies included in this peer group are as follows:
|
Chemical Financial – Midland, Michigan
|
Pinnacle Financial Partners – Nashville, Tennessee
|
|
Park National Corporation – Newark, Ohio
|
First Commonwealth Financial Corp.– Indiana, Pennsylvania
|
|
Heartland Financial – Dubuque, Iowa
|
1
st
Source Corporation – South Bend, Indiana
|
|
Community Trust Bancorp – Pikeville, Kentucky
|
First Busey – Champaign, Illinois
|
|
First Merchants Corporation – Muncie, Indiana
|
Peoples Bancorp – Marietta, Ohio
|
|
Enterprise Financial Services – St. Louis, Missouri
|
MainSource Financial – Greensburg, Indiana
|
|
First Defiance Financial – Defiance, Ohio
|
S.Y. Bancorp – Louisville, Kentucky
|
|
Hills Bancorporation – Hills, Iowa
|
German American – Jasper, Indiana
|
|
BankFinancial – Burr Ridge, Illinois
|
MidWestOne Financial – Iowa City, Iowa
|
|
United Community Financial Corporation – Youngstown, Ohio
|
20
In addition, the Compensation Committee reviewed compensation survey data that is readily available to Lakeland Financial from industry sources such as Bank Director Magazine and the American Bankers Association.
Other factors of corporate performance that may affect an executive’s compensation include succession planning consideration, realization of economies of scale through cost-saving measures, Lakeland Financial’s market share reputation in the communities which it serves and turnover level of employees, as well as other less subjective performance considerations. In addition, because the Compensation Committee believes strongly that our executives should be involved in the communities that we serve, the committee takes into consideration indirect and intangible business factors such as community involvement and leadership when reviewing executive compensation.
Comparison to Peer Group.
In establishing the compensation of the named executive officers, the Compensation Committee utilizes market data regarding the compensation practices of other financial institutions of a similar asset size and complexity. The peer group used in 2015 generally included financial institutions with total assets of $1.4 billion to $9 billion, with a focus on institutions located in the central region of the United States. In some cases, however, the committee will consider data from outside the peer comparison when reviewing compensation practices if that comparison identifies similarities, such as business-line focus and long-term operating and financial stability, which should be considered. For example, institutions with a similar focus on complex commercial lending may be considered by the committee even if they fall outside of the general asset size in which our other peers are included. The committee believes that such comparison is useful in creating an overall compensation program to stay competitive in the marketplace and for attracting and retaining qualified executives. While the committee believes that it is prudent to consider such comparative information in determining compensation practices, it does not set strict parameters using this data. Rather, the committee uses comparative data to ensure that executive compensation is not inconsistent with appropriately defined peer organizations. Generally, the committee believes that the current executive officers of the Company have established a sound track record of long-term performance that warrants compensation at or around the median level of compensation among similarly situated financial institutions.
Individual Performance.
When evaluating an executive officer’s individual performance, the Compensation Committee takes into account Mr. Findlay’s assessment
of individual performance, which considers the executive’s efforts in achieving his or her individual goals each year, managing and developing employees and the enhancement of long-term relationships with customers, if applicable to the officer’s position. The measure of an executive officer’s individual performance and individual contribution to the overall Company performance depends, to a degree, on what steps are taken to increase revenues and implement cost-saving strategies and the outcome of such strategies. Each executive officer has different goals established that are intended to focus that executive’s contributions to the strategic goals of the Company. Individual goals for executive officers are developed by Mr. Findlay in consultation with each executive officer and recommended to the committee by Mr. Findlay for approval. The committee establishes Mr. Findlay’s goals after reviewing the Company’s annual strategic plan, annual budget plan and the goals of the other executive officers. Mr. Findlay is not present for the discussion or determination of his own compensation.
Chief Executive Officer Transition
Lakeland Financial entered into a Transitional Employment Agreement with Mr. Kubacki in September 2013 (the “Transition Agreement”). Prior to entering into the Transition Agreement, the Compensation Committee engaged an independent compensation consultant, Fredrick W. Cook & Co., Inc., and worked with its existing legal advisor, Barack Ferrazzano Kirschbaum & Nagelberg LLP, to assist in the design and implementation of a structured transition process that would facilitate a seamless transition for Lakeland Financial’s shareholders and customers in connection with Mr. Kubacki’s retirement. The Transition Agreement was intended to effect an orderly transition from Mr. Kubacki to his successor as Chief Executive Officer, Mr. Findlay, at the 2014 annual meeting and to secure Mr. Kubacki’s assistance with the transition and his continued assistance through his retirement. Pursuant to the Transition Agreement, Mr. Kubacki will retire from employment with Lakeland Financial effective as of the 2016 annual meeting, though Mr. Kubacki and the Company currently intend for him to remain as Chairman of the Board beyond that time. The Transition Agreement covers the commitments Mr. Kubacki and Lakeland Financial have made to each other on a variety of important issues concerning Mr. Kubacki’s employment through his retirement date, including his duties as Executive Chairman of Lakeland Financial, the compensation he will be paid, how long and under what circumstances he will remain employed, and the financial details relating to any decision that either the Company or Mr. Kubacki may make to terminate his employment. The financial terms of the Transition Agreement were reviewed and considered market reasonable by Fredrick W. Cook & Co., Inc. before the committee approved entering into the agreement.
21
Under the Transition Agreement, Mr. Kubacki continued to serve as the Chief Executive Officer of Lakeland Financial through the 2014 annual meeting, at which time he resigned from that position and began to serve in the role of Executive Chairman of Lakeland Financial, which is a full-time executive position, subject to the direction of the Board. Mr. Kubacki will remain employed as the Executive Chairman (in addition to his position of Chairman of the Board) through the 2016 annual meeting, at which time he will retire from employment with Lakeland Financial. As noted above, Mr. Kubacki and Lakeland Financial currently intend for Mr. Kubacki to remain as Chairman of the Board beyond the 2016 annual meeting.
Mr. Kubacki’s annual base salary rates and target levels of annual bonus under the Transition Agreement are as follows:
|
Time Period
|
Annual Base Salary
|
Target Annual Bonus
|
|
2014 Annual Meeting - 2015 Annual Meeting
|
$500,000
|
40% of Annual Base Salary
|
|
2015 Annual Meeting - 2016 Annual Meeting
|
$250,000
|
40% of Annual Base Salary
|
Mr. Kubacki is also entitled to target awards of 12,000 performance-based restricted stock units under, and subject to the terms and conditions of, the LTI Plan, for each of the 2014-2016 and 2015-2017 performance periods. These awards will continue to vest and become payable as long as Mr. Kubacki remains an employee or director of Lakeland Financial.
Mr. Kubacki is entitled to severance benefits under the Transition Agreement in the event his employment is terminated by Lakeland Financial without cause or due to his disability, or if he terminates his employment for good reason, prior to the 2016 annual meeting. These severance benefits generally consist of continued payment of base salary, continued annual bonus payments at target levels, continued vesting of LTI Plan awards in accordance with their terms and continued medical benefits through the 2016 annual meeting. Thus, the severance benefits are structured such that they will become less valuable to Mr. Kubacki as he gets closer to his expected retirement date.
All severance benefits under the Transition Agreement are subject to Mr. Kubacki’s execution of a general waiver and release of claims against Lakeland Financial. Further, all severance benefits are subject to potential downward adjustment in the event those payments would not be deductible to Lakeland Financial under the “golden parachute” rules of Internal Revenue Code Section 280G. Further, all severance benefits are subject to clawback if required pursuant to any applicable law. Finally, any severance benefits that Mr. Kubacki may receive under the Transition Agreement would reduce, on a dollar-for-dollar basis, any benefits Mr. Kubacki may become entitled to under his existing change in control agreement.
The Transition Agreement also contains significant protections for Lakeland Financial following Mr. Kubacki’s retirement or earlier termination. Mr. Kubacki is subject to various restrictive covenants under the Transition Agreement, including a confidentiality provision, a non-competition provision for 12 months following termination of employment and a non-solicitation of employees and customers provision for 12 months following termination of employment.
22
Compensation Decisions
This section describes the decisions made by the Compensation Committee with respect to the compensation for the named executive officers for 2015 and 2016.
Executive Summary
.
The major components of executive officer compensation are base salary, annual bonus, long-term incentive awards and additional benefit plans. In reviewing an executive officer’s compensation, the Compensation Committee considers and evaluates all components of the officer’s total compensation package through the use of tally sheets. The use of tally sheets allows the committee to assess the executive’s aggregate compensation, including cash payments and non-cash incentives and benefits, in one concise document. Our compensation decisions for 2015 and for 2016 factored in Lakeland Financial’s performance versus key financial criteria, including return on beginning equity, return on average assets, revenue growth, diluted earnings per share growth, capital adequacy, efficiency ratio and asset quality. Lakeland Financial achieved 98% of its targeted goals in net income and other key measures of financial performance in 2015. The committee believes that Lakeland Financial’s financial performance in 2015 was very strong. When compared to its peer group, the Compensation Committee believes Lakeland Financial’s performance was good and, therefore, the committee weighed heavily Lakeland Financial’s relative performance when compared to its peers. Additionally, the Compensation Committee determined that the named executive officers performed well versus their individual goals for 2015.
The following is a brief summary of the compensation decisions of the Compensation Committee for 2015 and 2016:
|
·
|
base salaries for the named executive officers other than Mr. Findlay and Mr. Kubacki increased, on average, 3.6% for 2015 and 5.1% for 2016, with the base salary for Mr. Findlay increasing approximately 20% for 2015 and 5% for 2016 as part of his transition to Chief Executive Officer beginning in April 2014, and the base salary for Mr. Kubacki remaining the same as discussed above;
|
|
·
|
bonus payments to named executive officers for 2015 were slightly less than bonuses for 2014, due to a slight underperformance of Lakeland Financial in 2015 against its target;
|
|
·
|
the long-term incentive plan was continued in 2015 to strengthen our retention tools for key senior and executive management;
|
|
·
|
the amount of total compensation paid to Mr. Kubacki was less in 2015 than 2014 due to a planned decrease in base salary;
|
|
·
|
The amount of total compensation paid to Mr. Findlay was higher due to his transition to the Chief Executive Officer role; and
|
|
·
|
benefits and perquisites remained substantially similar between 2015 and 2014 and we expect that will continue through 2016.
|
Base Salary.
We annually review the base salaries of the named executive officers to determine whether or not they will be adjusted. The salaries for 2015, determined by the Compensation Committee at the end of 2014, are set forth in the Summary Compensation Table on page 29. In determining these salary levels, we considered the following factors, with no specific weighting applied to any single factor:
|
·
|
the compensation philosophy and guiding principles described above;
|
23
|
·
|
the performance of Lakeland Financial versus key financial objectives;
|
|
·
|
the base salary paid to the officers in comparable positions at companies in the peer groups, generally using the median of total compensation as our point of reference if the officer’s overall performance and experience warrants such consideration;
|
|
·
|
the overall professional experience and background and the industry knowledge of the named executive officers and the quality and effectiveness of their leadership at Lakeland Financial;
|
|
·
|
all of the other components of executive compensation, including bonus, stock options, retirement and death benefits, as well as other benefits and perquisites;
|
|
·
|
the performance of Lakeland Financial’s stock price, although it is not a key factor in considering compensation as the committee believes that the performance of the stock price is subject to factors outside the control of executive management;
|
|
·
|
the increase in responsibilities for certain of the executives as Mr. Findlay assumed the Chief Executive Officer duties in April 2014; and
|
|
·
|
internal pay equity among Lakeland Financial executives.
|
At the end of 2015, the Compensation Committee determined the base salaries of the named executive officers for 2016. The committee approved raises for all of the named executive officers, other than Mr. Kubacki, for 2016 based on the factors described above and the guidance and analysis from the compensation study performed by Pearl Meyer & Partners. The base salaries for 2015 and 2016 are set forth below. Pursuant to the Transition Agreement, Mr. Kubacki’s base salary declined to $250,000 following the annual meeting in 2015. Mr. Kubacki will not receive a salary following the 2016 shareholder meeting upon his retirement from employment. Following his retirement, Mr. Kubacki will only receive fees for his services as a member of the Board of Directors.
|
Name
|
Position
|
2015 Base Salary
|
2016 Base Salary
|
|
David M. Findlay
|
President and Chief Executive Officer
|
$500,000
|
$525,000
|
|
Lisa M. O’Neill
|
Executive Vice President and Chief Financial Officer
|
$207,000
|
$216,000
|
|
Michael L. Kubacki
|
Executive Chairman
|
$500,000/$250,000
|
$250,000
|
|
Eric H. Ottinger
|
Executive Vice President
|
$219,000
|
$235,000
|
|
Kevin L. Deardorff
|
Executive Vice President
|
$219,000
|
$227,000
|
Annual Bonus.
The Compensation Committee typically determines eligibility for annual bonus payments using the parameters defined in the Company’s Executive Incentive Bonus Plan, which is a performance-based bonus plan for selected Lake City Bank corporate officers, including the named executive officers. As established, the committee retains the right to modify the program or withhold payment at any time. Since the plan’s inception in 2002, Lakeland Financial’s performance has warranted annual payments under the plan.
Eligible participants in the plan may earn an annual performance-based bonus based on Lakeland Financial’s overall performance as well as the individual participant’s performance. The measure of our performance is based on our actual net income for that year compared to the targeted net income. We calculate this by using our net income after the 401(k) match and incentive compensation costs and excluding non-recurring gain/loss on sale of fixed assets, investments, business assets and extinguishment of debt. The Compensation Committee approves a targeted net income amount after reviewing the previous year’s actual net income in conjunction with the Board’s and management’s expectations for that particular year. The amount is generally increased each year in order to provide a proper level of incentive to the officers and, in the committee’s view, is not at a level that makes it substantially certain that the target threshold will be obtained. The targeted net income used for 2015 was $47,318,000, and the actual net income was $46,367,000
(which was approximately 98% of the targeted amount).
24
Bonus payments under this plan are determined by the formulas described below, although the Compensation Committee reserves the right to modify the payouts in its sole discretion. The plan pays a percentage of the bonus amount equal to the percentage amount of actual net income achieved against the targeted net income. For example, if actual net income equals 95% of the targeted net income amount, the bonus payout would be at the 95% level. The plan has minimum performance threshold of 70% so that bonuses would only be paid if actual net income is at least 70% of the targeted net income amount.
With respect to the net income component of the bonus formula, bonuses under the program provide for target bonus payments of 3% to 50% of eligible salary. In 2015, the bonus program provided that our Chief Executive Officer would have a target bonus of 50% of his salary, Executive Vice Presidents would have target bonuses of 40% of their salaries and certain Senior Vice Presidents would have target bonuses of 30% of their salaries. Bonuses will vary based upon Company and individual performance. At threshold performance of 70%, the bonuses would be 50% of target levels and at 150% or more performance, bonus levels would be capped at 150% of target levels. Bonuses for officers receiving promotions during the year were prorated. For 2015, our actual net income, calculated as described above, equaled 98% of the targeted net income threshold, and bonuses with respect to the net income component were, therefore, paid out at that same level.
The amount of the bonus is also determined, in part, on the individual’s overall performance compared to the individual’s performance goals that are discussed in the beginning of the year by the individual and the other executives. The Compensation Committee also has the discretion to reward achievements that are not the subject of any pre-established goals. The committee determined that the named executive officers performed well against their respective individual performance goals in 2015. The 2015 individual goals are set forth below:
David M. Findlay
|
·
|
Work with the Management Committee to implement the 2015 Strategic Plan, complete the strategic initiatives and achieve financial performance targets contained in the 2015 Strategic Plan.
|
|
·
|
Provide effective leadership of the Company’s Management Team.
|
|
·
|
Actively maintain the Company’s leadership position in its markets through direct involvement.
|
|
·
|
Maintain effective relationships with the Board of Directors and the investment community.
|
Lisa M. O’Neill
|
·
|
Ensure completion of 2015 Strategic Initiatives for all areas of responsibility.
|
|
·
|
Continue proactive engagement in deposit strategy task force and overall funding strategy.
|
|
·
|
Develop summary tracking and reporting approach for analyst coverage.
|
|
·
|
Perform a review of management and Board financial reporting and revise as appropriate.
|
|
·
|
Develop a succession plan for investment portfolio management responsibilities.
|
Michael L. Kubacki
|
·
|
Continue to ensure smooth transition of Chief Executive Officer responsibilities.
|
|
·
|
Maintain an effective Board governance process.
|
|
·
|
Maintain Lake City Bank’s leadership position in our local and regional markets.
|
25
Eric H. Ottinger
|
·
|
Ensure completion of 2015 Commercial Strategic Initiatives.
|
|
·
|
Achieve budgeted totals for commercial loans, deposits and fees.
|
|
·
|
Manage commercial loan process to maintain historical loan quality while ensuring growth objectives are met.
|
|
·
|
Collaborate with retail banking on deposit gathering and cross-selling.
|
|
·
|
Actively participate in Management Committee.
|
Kevin L. Deardorff
|
·
|
Ensure completion of 2015 Retail Strategic Initiatives.
|
|
·
|
Reinforce leadership role in deposit strategy task force.
|
|
·
|
Manage retail banking group’s performance against goals.
|
|
·
|
Actively participate in Management Committee.
|
|
·
|
Collaborate with commercial banking on deposit gathering and cross-selling.
|
For 2015, our overall performance and achievement of individual goals resulted in aggregate bonus payments of approximately $2.3 million paid to 209 employees. The bonuses paid to Mr. Findlay and the other named executive officers are set forth in the Summary Compensation Table on page 29 of this Proxy Statement.
Long-Term Incentive Plan.
The Company maintains an Amended and Restated Long-Term Incentive Plan, or LTI Plan. The plan is designed to provide for performance-based payouts based upon three key financial criteria, including revenue growth rate, diluted earnings per share growth rate and average return on beginning equity over rolling three-year periods. The Compensation Committee has made grants under the LTI Plan each year since the plan was implemented in 2006. Awards are denominated in Company shares rather than cash to provide for additional alignment with shareholders and stock price performance over the performance period. Shares delivered pursuant to the LTI Plan are granted under the shareholder approved 2013 Equity Incentive Plan.
The purpose of the LTI Plan is to motivate select officers to collectively produce outstanding results, encourage superior performance, increase productivity and aid in attracting and retaining key employees. Mr. Findlay recommends, subject to the Compensation Committee’s approval, the performance measures and performance targets to be used for each performance period and the LTI bonus to be paid if certain required conditions are met. Performance targets are based on a combination of Lakeland Financial’s goals, business unit and/or individual goals or on such other factors that the committee may determine and approve. Different performance targets may be established for different participants for any performance period, although currently all executives have the same performance targets.
Unless the Compensation Committee determines otherwise, a new three-year performance period will begin each year under the LTI Plan. Thus, the maximum number of performance periods open to measurement at any time is three. Going forward, executive officers will have the ability to receive LTI Plan bonus payouts on a yearly basis at the conclusion of each successive three-year performance period. The committee believes that, by making annual awards that consider Company performance over rolling three-year periods, the committee is incentivizing our named executive officers to focus on consistent and sustainable performance rather than taking outsized risk in any one particular year.
The amount of the LTI bonus awarded for each performance period is based upon achieving certain performance thresholds for each of the three measurement criteria. Under the plan, performance on each of the three measurement criteria is computed for the three-year period from the start date and constitutes 33.33% of the overall vesting calculation. For the 2014-2016 performance period, the target performance levels are 6.00% revenue growth, 8.00% diluted earnings per share growth and 12.00% average return on beginning equity growth. For the 2015-2017 and 2016-2018 performance periods, the Compensation Committee increased the target threshold for average return on beginning equity growth to 12.25%, and left the target thresholds for revenue growth and diluted earnings per share equal to those for the 2014-2016 performance period. The Compensation Committee directed management to accrue for the open periods at an amount equal to the sum of the percentages of the actual financial performance against the targeted thresholds, with each of the three criteria valued at 33.33% of the total accrual.
26
The LTI Plan allows the Compensation Committee, at its discretion, to adjust performance goals and performance measure results for extraordinary events or accounting adjustments resulting from significant asset purchases or dispositions or other events not contemplated or otherwise considered by the committee when the performance measures and targets were set.
For the three-year performance period ending December 31, 2015, awards were paid at 111% of target, for a total of 62,160 shares paid to 21 individuals in accordance with the terms of the LTI Plan. The payouts to the named executive officers for the 2012-2014 and the 2013-2015 performance periods were as follows:
|
Name
|
Performance Period
2012-2014
Payout Shares
|
Performance Period
2013-2015
Payout Shares
|
|
David M. Findlay
|
8,960
|
11,100
|
|
Lisa M. O’Neill
|
---
|
---
|
|
Michael L. Kubacki
|
13,440
|
13,320
|
|
Eric H. Ottinger
|
4,480
|
4,440
|
|
Kevin L. Deardorff
|
4,480
|
4,440
|
The target award that each named executive officer may earn under the 2014-2016, 2015-2017 and 2016-2018 performance periods is as follows:
|
Name
|
Performance Period
2014-2016
Target Share Award Payable in 2017
|
Performance Period
2015-2017
Target Share Award Payable in 2018
|
Performance Period 2016-2018
Target Share Award Payable in 2019
|
|
David M. Findlay
|
12,000
|
12,000
|
12,000
|
|
Lisa M. O’Neill
|
4,000
|
4,000
|
4,000
|
|
Michael L. Kubacki
|
12,000
|
12,000
|
---
|
|
Eric H. Ottinger
|
4,000
|
4,000
|
4,000
|
|
Kevin L. Deardorff
|
4,000
|
4,000
|
4,000
|
Equity Awards.
No stock options were issued in 2015 to the named executive officers under our 2013 Equity Incentive Plan, as set forth on the Outstanding Equity Awards at Fiscal Year End table on page 32.
All Other Compensation and Perquisites.
While the Compensation Committee reviews and monitors the level of other compensation offered to the named executive officers, the committee typically does not adjust the level of benefits offered on an annual basis. The committee does consider the benefits and perquisites offered to the named executive officers in its evaluation of the total compensation received by each. It is our belief that perquisites for executive officers should be very limited in scope and value and reflective of similar perquisites from competitive employers both in the industry and the region. Due to this philosophy, Lakeland Financial has generally provided nominal benefits to executives that are not available to all full time employees and we plan to continue this approach in the future. The benefits offered in 2015 to the named executive officers will continue for 2016. The perquisites received by the named executive officers in 2015 are reported in the Summary Compensation Table on page 29.
27
Compensation-Related Actions in 2016
In February 2016, the Board took the following actions related to compensation of its executive officers:
|
·
|
The Board approved new Change-in-Control Agreements for its Chief Executive Officer and its Executive Vice Presidents. The new agreements replace the existing agreements for all of the Named Executive Officers except for Ms. O’Neill, who had not previously entered into a Change-in-Control Agreement. The new agreements modify the existing arrangements in the following material ways:
|
|
·
|
“Double-trigger” requiring both a change-in-control and a termination of the employment (either by the Company without cause or by the executive with good reason);
|
|
·
|
Benefits are conditioned upon receipt of an executed release and waiver of all claims against the Company;
|
|
·
|
More restrictive non-compete covenants, but shorter term; and
|
|
·
|
More specific definition of what constitutes termination for “cause”.
|
|
·
|
The Board approved new Executive Officer Stock Ownership Guidelines to replace the existing requirement that executive officers own 5,000 shares of Company common stock. The new guidelines require the Chief Executive Officer to hold shares with a value equal to three times his annual base salary and other executive officers, including all of the Named Executive Officers, to hold shares with a value equal to two times their respective annual base salary. Unvested options or restricted stock units issued under the Company’s LTI Plan are not included when considering ownership totals for this requirement.
|
COMPENSATION COMMITTEE REPORT
Based on our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in Lakeland Financial’s Annual Report on Form 10-K for the year ended December 31, 2015.
Submitted by:
Daniel F. Evans, Jr.
Thomas A. Hiatt
Charles E. Niemier
Emily E. Pichon
M. Scott Welch
Members of the Compensation Committee
Compensation Committee Interlocks and Insider Participation
The persons named above were the only persons who served on the Compensation Committee of the Board of Directors during the last fiscal year.
28
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation of our Chief Executive Officer, Chief Financial Officer and our other three most highly compensated executive officers in 2015, 2014 and 2013 compensation is presented for officers who were also named executive officers in those years.
|
Name and principal position
|
Year
|
Salary
(1)
|
Stock awards
(2)(3)
|
Option awards
|
Non-equity incentive plan compensation
|
Change in pension
value and nonqualified deferred compensation earnings
(4)
|
All other compensation
(5)
|
Total
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
|
David M. Findlay
President and Chief Executive Officer
|
2015
2014
2013
|
$493,360
424,693
360,154
|
$408,837
590,910
270,972
|
---
---
---
|
$245,000
225,750
167,324
|
---
---
---
|
$23,401
21,939
36,071
|
$1,170,598
1,263,292
834,521
|
|
Lisa M. O’Neill
Executive Vice
President and Chief Financial Officer
|
2015
2014
|
206,286
162,692
|
136,279
189,556
|
---
---
|
78,710
84,000
|
---
---
|
17,391
6,827
|
438,667
443,075
|
|
Michael L. Kubacki
Executive Chairman
|
2015
2014
2013
|
326,328
499,769
495,846
|
408,837
590,910
325,167
|
---
---
---
|
125,892
223,534
255,955
|
---
20,031
---
|
22,454
30,597
25,118
|
883,511
1,364,841
1,102,086
|
|
Eric H. Ottinger
Executive Vice President - Commercial Banking
|
2015
2014
2013
|
218,263
211,154
200,538
|
136,279
196,970
108,389
|
---
---
---
|
85,848
89,040
82,812
|
---
---
---
|
26,251
26,839
27,893
|
466,641
524,003
419,632
|
|
Kevin L. Deardorff
Executive Vice President – Retail Banking
|
2015
2014
2013
|
217,963
211,462
201,058
|
136,279
196,970
108,389
|
---
---
---
|
85,848
89,040
84,460
|
---
22,712
---
|
17,391
18,189
14,346
|
457,482
538,373
408,253
|
29
|
|
(1)
|
Salary reported includes amounts deferred at the officer’s election pursuant to the Company’s deferred compensation plans.
|
|
|
(2)
|
For 2015, represents the grant date fair value calculated in accordance with FASB ASC Topic 718 for performance-based restricted stock unit awards granted under our LTI Plan for the 2015-2017 performance period. For 2014, represents such grant date fair value for performance-based restricted stock unit awards granted under our LTI Plan for the 2014-2016 performance period. For 2013, represents such grant date fair value for performance-based restricted stock unit awards granted under our LTI Plan for the 2013-2015 performance period. See the discussion of equity awards in Note 15 of the Notes to Consolidated Financial Statements for Lakeland Financial’s financial statements for the year ended December 31, 2015 for further information regarding these awards.
|
|
|
(3)
|
The maximum value that could be paid out due to performance for each individual under the respective performance-based restricted stock unit award is as follows: Mr. Findlay 2015 – $730,065, 2014 - $661,466 and 2013 – $359,698; Ms. O’Neill 2015 – $243,355 and 2014 - $212,189; Mr. Kubacki 2015 – $730,065, 2014 - $661,466 and 2013 – $431,638; Mr. Ottinger 2015 – $243,355, 2014 - $220,489 and 2013 – $143,879; Mr. Deardorff 2015 - $243,355, 2014 - $220,489 and 2013 – $143,879.
|
|
|
(4)
|
The amounts in this column are the change in pension value and earnings on nonqualified deferred compensation for each individual. No named executive officer received preferential or above-market earnings on deferred compensation.
|
|
|
(5)
|
The amounts for 2015 set forth in column (h) include 401(k) plan matching contributions, country club memberships and cell phone stipends paid by us as follows:
|
|
Mr. Findlay
|
Ms. O’Neill
|
Mr. Kubacki
|
Mr. Ottinger
|
Mr. Deardorff
|
|
|
401(k) match
|
$15,582
|
$15,582
|
$15,582
|
$15,582
|
$15,582
|
|
Cell phone stipend
|
1,809
|
1,809
|
1,809
|
1,809
|
1,809
|
|
Country club membership
|
6,010
|
---
|
5,063
|
8,860
|
---
|
|
Total
|
$23,401
|
$17,391
|
$22,454
|
$26,251
|
$17,391
|
30
Grants of Plan-Based Awards
The following table provides information on annual cash bonuses under our Executive Incentive Bonus Plan and on long-term equity performance awards under our Amended and Restated Long-Term Incentive Plan. These plans are described in more detail in the Compensation Discussion and Analysis section. The estimated amounts set forth in the table are subject to the terms of the respective plan and Company and individual performance, as described in the Compensation Discussion and Analysis section.
|
Name
|
Grant date
|
Estimated future payouts under non-equity incentive plan awards
|
Estimated future payouts under equity incentive plan awards
(3)
|
|||||
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Threshold
(shares)
|
Target
(shares)
|
Maximum
(shares)
|
Grant date
fair value
of stock
and option
awards
|
||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
|
David M. Findlay
LTI Plan
Executive Incentive Bonus Plan
|
1/1/2015
(1)
---
(2)
|
$125,000
|
$250,000
|
$375,000
|
6,000
|
12,000
|
18,000
|
$408,837
|
|
Lisa M. O’Neill
LTI Plan
Executive Incentive Bonus Plan
|
1/1/2015
(1)
---
(2)
|
41,400
|
82,800
|
124,200
|
2,000
|
4,000
|
6,000
|
136,279
|
|
Michael L. Kubacki
LTI Plan
Executive Incentive Bonus Plan
|
1/1/2015
(1)
---
(2)
|
64,231
|
128,462
|
192,692
|
6,000
|
12,000
|
18,000
|
408,837
|
|
Eric H. Ottinger
LTI Plan
Executive Incentive Bonus Plan
|
1/1/2015
(1)
---
(2)
|
43,800
|
87,600
|
131,400
|
2,000
|
4,000
|
6,000
|
136,279
|
|
Kevin L. Deardorff
LTI Plan
Executive Incentive Bonus Plan
|
1/1/2015
(1)
---
(2)
|
43,800
|
87,600
|
131,400
|
2,000
|
4,000
|
6,000
|
136,279
|
|
|
(1)
|
Represents possible payments pursuant to the LTI Plan for the performance period running from 2015-2017. The plan is described in the section entitled “Long-Term Incentive Plan” in the Compensation Discussion and Analysis section.
|
|
|
(2)
|
Represents possible payments pursuant to the Executive Incentive Bonus Plan for 2015 performance. The plan is described in the section entitled “Annual Bonus” in the Compensation Discussion and Analysis section. The bonus payout for 2015 performance is shown in the column entitled “Non-equity incentive plan compensation” in the Summary Compensation Table above.
|
|
|
(3)
|
The Compensation Discussion and Analysis describes the performance conditions applicable to these grants under Compensation Decisions – Long-Term Incentive Plan on pages 26 through 27.
|
31
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning outstanding option awards and stock awards at December 31, 2015 held by the individuals named in the Summary Compensation Table. Market values for outstanding stock awards are based on the closing price of Lakeland Financial stock on December 31, 2015 (the last trading day of the year) of $46.62.
|
Option Awards
|
Stock Awards
|
||||||||
|
Name
|
Grant date
|
Number of securities underlying unexercised options
exercisable
|
Number of securities underlying unexercised options
unexercisable
(1)
|
Option exercise price
|
Option
expiration date
(1)
|
Number of shares or units of stock that have not vested
(2)
|
Market value of shares of units of stock that have not vested
|
Equity incentive plan awards: number of unearned shares, units or other rights that have not vested
(3)
|
Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
David M. Findlay
|
5/14/08
1/1/13
1/1/14
1/1/15
|
10,000
|
0
|
$24.05
|
5/14/2018
|
10,000
12,000
12,000
|
$446,200
559,440
559,440
|
||
|
Lisa M. O’Neill
|
4/16/14
4/16/14
1/1/15
|
3,000
|
$130,410
|
4,000
4,000
|
$186,480
186,480
|
||||
|
Michael L. Kubacki
|
5/14/08
1/1/13
1/1/14
1/1/15
|
15,000
|
0
|
$24.05
|
5/14/2018
|
12,000
12,000
12,000
|
$559,440
559,440
559,440
|
||
|
Eric H. Ottinger
|
1/1/13
1/1/14
1/1/15
|
4,000
4,000
4,000
|
$186,480
186,480
186,480
|
||||||
|
Kevin L. Deardorff
|
1/1/13
1/1/14
1/1/15
|
4,000
4,000
4,000
|
$186,480
186,480
186,480
|
||||||
|
|
(1)
|
All options reflected in the “Option Awards” columns above expire on the 10th anniversary of the grant date.
|
|
(2)
|
The stock awards reflected in the “Stock Awards” columns g and h above vest based upon completion of a 3 year service period from the grant date.
|
|
|
(3)
|
The stock awards reflected in the “Stock Awards” columns i and j above vest based upon the achievement of certain performance thresholds over a three-year period, as described more completely in the section entitled “Long-Term Incentive Plan” in the Compensation Discussion and Analysis section above.
|
32
Option Exercises and Stock Vested in 2015
The following table sets forth information concerning the exercise of options and the vesting of stock awards in 2015 by the individuals named in the Summary Compensation Table.
|
Option Awards
|
Stock Awards
|
|||
|
Name
|
Number of shares acquired on exercise
|
Value realized on exercise
(1)
|
Number of shares acquired on vesting
(2)(3)
|
Value realized on vesting
(3)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
|
David M. Findlay
|
---
|
$---
|
8,960
|
$338,150
|
|
Lisa M. O’Neill
|
---
|
---
|
---
|
---
|
|
Michael L. Kubacki
|
---
|
---
|
13,440
|
507,226
|
|
Eric H. Ottinger
|
3,500
|
82,678
|
4,480
|
169,075
|
|
Kevin L. Deardorff
|
---
|
---
|
4,480
|
169,075
|
|
|
(1)
|
Amounts reflect the difference between the exercise price of the option and the market price at the time of exercise.
|
|
|
(2)
|
Shares include restricted stock units under the LTI Plan that vested in 2015.
|
|
|
(3)
|
Amounts reflect the value realized upon vesting of restricted stock units based on the closing price of Lakeland Financial stock on the date of vesting.
|
Pension Benefits
The following table provides information as of December 31, 2015 for each of our named executive officers regarding the actuarial present value of the officer’s total accumulated benefit under our defined benefit retirement plan, the Lakeland Financial Corporation Pension Plan.
|
Name
|
Plan name
|
Number of years credited service
|
Present value of accumulated benefit
|
Payments during last fiscal year
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
|
David M. Findlay
|
---
|
---
|
---
|
---
|
|
Lisa M. O’Neill
|
---
|
---
|
---
|
---
|
|
Michael L. Kubacki
|
Lakeland Financial Corporation Pension Plan
|
2
|
$62,577
|
---
|
|
Eric H. Ottinger
|
---
|
---
|
---
|
---
|
|
Kevin L. Deardorff
|
Lakeland Financial Corporation Pension Plan
|
10
|
54,368
|
---
|
33
Our defined benefit retirement plan covers certain employees over 21 years of age with more than one year of service. Effective April 1, 2000, we amended the plan to freeze the accrual of benefits to participants under the plan. As a result of this amendment, employees who were not participants in the plan as of March 31, 2000 are not able to become participants under the plan. In addition, all benefits previously accrued under the plan by participants were frozen in place, and continuing employment with us will not increase the employee’s benefits upon retirement. Normal retirement age is 65. Participants received credit for 2 1/2% of their average salary for each year up to 20 years of service or through March 31, 2000, whichever occurred first.
The principal benefit under this plan is a lifetime annuity for the joint lives of participants and their spouses. This amount is offset by social security benefits. On December 31, 1985, the then existing plan was terminated and the latest plan (which is now frozen) was adopted effective January 1, 1986. Participants in the terminated plan were paid cash or received annuities for their earned benefits as of December 31, 1985. The amounts paid for annuities purchased as a part of the plan termination will reduce the benefits to be paid out of the latest plan.
Nonqualified Deferred Compensation
Effective January 1, 2004, we adopted the Lake City Bank Deferred Compensation Plan. The purpose of the plan is to provide an option for salary deferrals at the participant’s voluntary election for certain individuals without regard to statutory limitations under tax qualified plans. The plan is available to all of our executive officers. The plan is funded solely by participant contributions and does not receive a Company match.
Participants may defer a portion of their salary or bonus under the plan and invest the deferred portion in a mutual fund-like investment pool managed by an independent third party. Participants may elect to receive the funds in a lump sum or in up to 10 annual installments following retirement, but may not make withdrawals during their employment, except in the event of hardship as approved by the Compensation Committee. All deferral elections and associated distribution schedules are irrevocable. Earnings or losses on deferrals are the result of market performance of the investment pool.
|
Name
|
Executive contributions in last FY
|
Registrant contributions in last FY
|
Aggregate earnings in last FY
|
Aggregate withdrawals/distributions
|
Aggregate balance at last FYE
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|
David M. Findlay
|
$155,722
|
---
|
$(55,753)
|
---
|
$1,372,872
|
|
Lisa M. O’Neill
|
---
|
---
|
---
|
---
|
---
|
|
Michael L. Kubacki
|
---
|
---
|
33
|
---
|
411,401
|
|
Eric H. Ottinger
|
---
|
---
|
---
|
---
|
---
|
|
Kevin L. Deardorff
|
---
|
---
|
---
|
---
|
---
|
As noted above, all contributions to the plan are funded solely by voluntary participant contributions, which represent a deferral of annual salary, and there are no Company match payments. All aggregate earnings shown above represent investment and interest return on participant contributions and are not additional payments by Lakeland Financial.
34
Potential Payments Upon Termination or Change in Control
The following table sets forth information concerning potential payments and benefits under our compensation programs and benefit plans to which the named executive officers would be entitled upon a termination of employment as of December 31, 2015. As is more fully described below, all of the named executive officers, except for Ms. O’Neill, were subject to change in control agreements with Lakeland Financial that were in effect on December 31, 2015 (each, a “Change in Control Agreement”), which provide for payments and benefits to a terminating executive following a change in control of Lakeland Financial. Mr. Kubacki was also subject to the Transition Agreement, which is more fully described above under the section entitled “Chief Executive Officer Transition.” Except for the payments and benefits provided by the Change in Control Agreements and the Transition Agreement, all other payments and benefits provided to any named executive officer upon termination of his employment are the same as the payments and benefits provided to other eligible executives of Lakeland Financial. For purposes of estimating the value of certain equity awards, we have assumed a price per share of our common stock of $46.62, which was the closing price of our stock on December 31, 2015, the last trading day of the year.
|
Cash Severance Payment
|
LTI Plan
(1)
|
Executive Incentive Bonus Plan
(2)
|
Equity Incentive Plan
|
Continuation of Medical/Dental Benefits
(3)
|
Total Termination Benefits
|
|
|
David M. Findlay
|
||||||
|
Voluntary retirement
|
---
|
---
|
---
|
---
|
---
|
---
|
|
Termination – death
|
---
|
$570,269
|
---
|
---
|
---
|
$570,269
|
|
Termination, other than for cause, in connection with change in control
|
$1,500,000
|
---
|
---
|
$31,500
|
$39,056
|
$1,570,556
|
|
Lisa M. O’Neill
|
||||||
|
Voluntary retirement
|
---
|
---
|
---
|
---
|
---
|
---
|
|
Termination – death
|
---
|
$190,210
|
---
|
---
|
---
|
$190,210
|
|
Termination, other than for cause, in connection with change in control
|
---
|
---
|
---
|
---
|
---
|
---
|
|
Michael L. Kubacki
|
||||||
|
Voluntary retirement
|
---
|
$570,629
|
$100,000
|
---
|
---
|
$670,629
|
|
Termination – death
|
---
|
$570,629
|
---
|
---
|
---
|
$570,629
|
|
Involuntary termination (including due to disability), not in connection with change in control
(4)(5)
|
$62,500
|
---
|
$100,000
|
---
|
$3,128
|
$165,628
|
|
Termination, other than for cause, in connection with change in control
|
$700,000
|
---
|
---
|
$47,250
|
$25,020
|
$772,270
|
|
Eric H. Ottinger
|
||||||
|
Voluntary retirement
|
---
|
---
|
---
|
---
|
---
|
---
|
|
Termination – death
|
---
|
$190,210
|
---
|
---
|
---
|
$190,210
|
|
Termination, other than for cause, in connection with change in control
|
$613,200
|
---
|
---
|
---
|
$39,056
|
$652,256
|
35
|
Cash Severance Payment
|
LTI Plan
(1)
|
Executive Incentive Bonus Plan
(2)
|
Equity Incentive Plan
|
Continuation of Medical/Dental Benefits
(3)
|
Total Termination Benefits
|
|
|
Kevin L. Deardorff
|
||||||
|
Voluntary retirement
|
---
|
---
|
---
|
---
|
---
|
---
|
|
Termination – death
|
---
|
$190,210
|
---
|
---
|
---
|
$190,210
|
|
Termination, other than for cause, in connection with change in control
|
$613,200
|
---
|
---
|
---
|
$25,510
|
$638,710
|
|
|
(1)
|
A prorated bonus is payable to a participant under the LTI Plan when such participant’s employment is terminated by reason of his or her retirement or death.
|
|
|
(2)
|
Unless an executive is employed on the date on which bonuses are paid under the Executive Incentive Bonus Plan, he or she will not receive any payment thereunder. The only exception to this rule is that a prorated bonus is payable to a participant under the Executive Incentive Bonus Plan when such participant retires prior to the date of payment. For purposes of the table above, it is assumed that each executive’s employment terminated on December 31, 2015. Therefore, since the executive was employed for the entire calendar year, no proration is required and the executive would be entitled to the full amount of the bonus under the Executive Incentive Bonus Plan.
|
|
|
(3)
|
Since our medical and dental benefit plans are self-funded, we have estimated the amounts due for 24 months of medical and dental benefits based on our monthly COBRA continuation rates.
|
|
|
(4)
|
The amounts in this row assume that Mr. Kubacki would not be continuing after December 31, 2015 in his current role as a member of the Board of Directors. In the event that he continued as a member of the Board of Directors he would also be entitled to additional LTI Plan awards with a target 12,000 shares of stock for the performance cycles ending in 2016.
|
|
|
(5)
|
Under his Transition Agreement, in the event Mr. Kubacki’s employment is terminated by Lakeland Financial without cause or due to his disability, or if he terminates his employment for good reason, in each case prior to the 2016 annual meeting, he will be entitled to the following, in each case through the 2016 annual meeting: (i) continued payment of annual base salary; (ii) continued annual bonus payments at target levels; and (iii) continued medical benefits.
|
Accrued Pay, Certain Retirement Benefits and Vested Equity Awards.
The amounts shown in the table above do not include payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment, or amounts that are fully vested under the terms of the applicable plan. These include:
|
·
|
Accrued salary and vacation pay.
|
|
·
|
Regular pension benefits under our defined benefit retirement plan. See “Pension Benefits” on pages 33 and 34.
|
|
·
|
Distributions of plan balances under our 401(k) plan and the Lake City Bank Deferred Compensation Plan (the “Deferred Compensation Plan”). See “Nonqualified Deferred Compensation” on page 34
for information on current account balances and an overview of the Deferred Compensation Plan.
|
|
·
|
The value of option continuation upon retirement, death or disability. Except as may be provided in connection with a change in control, when an employee terminates employment prior to retirement, death or disability, his or her stock options, whether vested or unvested, are terminated immediately. However, when a retirement-eligible employee terminates, or when an employee dies or becomes disabled, his or her options remain in force for 12 months following the date of his or her termination.
|
36
|
·
|
Stock options that are fully vested that may be exercised or cashed out in connection with a change in control or following a termination event.
|
Disability, Death and Retirement.
A termination of employment due to disability does not entitle the named executive officers to any payments or benefits that are not available to salaried employees generally, except for the payments and benefits to which Mr. Kubacki is entitled upon a termination due to disability pursuant to his Transition Agreement (reflected in the table above). As is the case with any other eligible participant under our LTI Plan (as described in the Compensation Discussion and Analysis on pages 15 through 28 above), termination of employment due to death or retirement will entitle the named executive officers to a prorated payout under such plan. In addition, as is also the case with any other eligible participant under our Executive Incentive Bonus Plan (as described in the Compensation Discussion and Analysis on pages 15 through 28 above), termination of employment due to retirement will entitle the named executive officers to a prorated bonus under such plan.
Acceleration of Vesting Upon a Change in Control.
All employees, including the named executive officers, who receive awards under our 2008 Equity Incentive Plan or our 2013 Equity Incentive Plan, will immediately vest in any unvested awards held by such employee upon the occurrence of a change in control.
Change in Control Agreements.
Other than as is provided in the Change in Control Agreements, and except as is provided in accordance with the terms of our 2008 Equity Incentive Plan or our 2013 Equity Incentive Plan, no named executive officer will be entitled to any payments or benefits as a result of the occurrence of a change in control or as a result of a termination of employment in connection with a change in control.
In the case of a termination of employment by the Company without cause within 12 months prior to, or 12 months immediately following, a change in control, or in the case of a termination of employment by an executive for good reason within 12 months following a change in control, the Change in Control Agreements provide for the following:
|
·
|
Payment, in a single lump sum, of a severance benefit equal to two times the sum of (i) the greater of the executive’s then current base salary or the executive’s annual base salary as of the date one day prior to his termination and (ii) the designated percentage of the amount determined under (i) above payable as annual bonus compensation for the year in which the change in control occurs.
|
|
·
|
To the extent the executive (or any of the executive’s dependents) was eligible to be covered under the terms of our medical and dental plans for active employees immediately prior to his termination date, we will provide the executive (and his dependents, if any) with equivalent coverages for a period not to exceed 24 months from the date of termination of employment. In the event that the executive (and/or his dependents, if any) become eligible for coverage under the terms of any other medical and/or dental plan of a subsequent employer which plan benefits are comparable to our plan benefits, coverage under our plans will cease for the executive (and/or his dependents, if any).
|
Mr. Kubacki’s Transition Agreement provides that if he becomes entitled to severance benefits under his Change in Control Agreement, his right to severance benefits, if any, under the Transition Agreement would cease and any severance benefits he becomes entitled to under the Change in Control Agreement would be reduced on a dollar-for-dollar basis by any benefits previously paid to him under the Transition Agreement.
The Change in Control Agreements were modified as of December 9, 2011 to eliminate the excise tax gross-up provision. In addition, the benefit amounts were reduced by excluding income received under the LTI Plan from the severance payment calculation.
37
In exchange for the payments and benefits provided under the Change in Control Agreements, the executives agree to be bound by a two-year restrictive covenant, which will be effective throughout the geographic area within a 60-mile radius from the center of Warsaw, Indiana. The restrictive covenant will prohibit the executive from competing, in any way, with the Company for the two-year period following the executive’s termination of employment.
Tax Deductibility of Compensation
Lakeland Financial seeks to maximize the tax deductibility of all elements of compensation. Section 162(m) of the Internal Revenue Code will generally disallow a corporate tax deduction for compensation paid to certain officers in excess of $1 million, unless the compensation meets an exception as performance-based compensation. While we try to structure compensation plans and programs to ensure deductibility, we may approve compensation amounts that do not qualify for deductibility when we deem it to be in the best interest of Lakeland Financial.
DIRECTOR COMPENSATION
During 2015, directors who were not employees of Lakeland Financial or Lake City Bank were paid $1,000 for each Board or committee meeting attended. Each director also received a retainer of $25,000 for service on the Board, and the chairperson of the Audit Committee received an additional $10,000, the lead director received an additional $5,000, the chairperson of the Compensation Committee received an additional $5,000, the chairperson of the Nominating and Corporate Governance Committee received an additional $5,000 and the chairperson of the Corporate Risk Committee received an additional $5,000.
Each director of Lakeland Financial is also a director of Lake City Bank and is not compensated separately for service on the Lake City Bank’s Board.
Mr. Kubacki and Mr. Findlay, who are directors and also serve as our Executive Chairman, and Chief Executive Officer and President, respectively, are not paid any fees for their service as directors. The directors’ fees are reviewed annually by the Compensation Committee.
Additionally, under the 2013 Equity Incentive Plan, directors may be awarded non-qualified stock options or stock grants at the discretion of the Compensation Committee. In 2015, each non-employee director was awarded 1,250 shares Lakeland Financial stock and in 2016 each non-employee director will once again receive 1,250 shares of Lakeland Financial stock upon approval by the Board of Directors.
Since 2011, the Board of Directors has maintained a stock ownership policy that require that directors to hold a minimum of 5,000 shares of Lakeland Financial within five years from either the adoption of the stock ownership policy or first becoming a director. At the time of the decision to increase the requirement, 5,000 shares represented approximately the same value as five times the annual retainer for directors. This requirement will be reviewed each year by the Nominating and Corporate Governance Committee and may be adjusted to maintain a similar ratio. As of December 31, 2015, all of our non-employee directors met the requirements of our stock ownership policy.
38
The following table provides information on 2015 compensation for non-employee directors who served during 2015.
|
Name
|
Fees earned or
paid in cash
(1)
|
Stock awards
(2)(3)
|
Total
|
|
(a)
|
(b)
|
(c)
|
(d)
|
|
Blake W. Augsburger
|
$43,071
|
$52,800
|
$95,871
|
|
Robert E. Bartels, Jr.
|
40,000
|
52,800
|
92,800
|
|
Daniel F. Evans, Jr.
|
47,810
|
52,800
|
100,610
|
|
Thomas A. Hiatt
|
56,795
|
52,800
|
109,595
|
|
Charles E. Niemier
|
66,577
|
52,800
|
119,377
|
|
Emily E. Pichon
|
40,236
|
52,800
|
93,036
|
|
Steven D. Ross
|
40,000
|
52,800
|
92,800
|
|
Brian J. Smith
|
54,695
|
52,800
|
107,495
|
|
Bradley J. Toothaker
|
44,948
|
52,800
|
97,748
|
|
Ronald D. Truex
|
45,749
|
52,800
|
98,549
|
|
M. Scott Welch
|
76,187
|
52,800
|
128,987
|
|
|
(1)
|
We maintain the Lakeland Financial Corporation Directors Fee Deferral Plan under which non-employee directors are permitted to defer receipt of their directors’ fees and earn a rate of return based upon the performance of our stock. The amounts shown in this column include amounts that may have been deferred by the directors. We may, but are not required to, fund the deferred fees into a trust which may hold our stock. The plan is unqualified and the directors have no interest in the trust. The deferred fees and any earnings thereon are unsecured obligations of Lakeland Financial. Any shares held in the trust are treated as treasury shares and may not be voted on any matter presented to shareholders. The number of shares attributable to each director under the plan are set forth in the footnotes to the Beneficial Ownership Table on page 5.
|
|
|
(2)
|
Represents the grant date fair value for restricted stock awards in accordance with FASB ASC Topic 718 - “Compensation-Stock Compensation.” See the discussion of equity awards in Note 15 of the Notes to Consolidated Financial Statements for Lakeland Financial’s financial statements for the year ended December 31, 2015. The number of shares granted and vested for each director was 1,250.
|
|
|
(3)
|
The aggregate amount of option awards outstanding as of December 31, 2015 for non-employee directors was as follows: Robert E. Bartels and Charles E. Niemier held 1,000 each. The other non-employee directors did not have any outstanding option awards as of December 31, 2015.
|
39
ADVISORY (NON-BINDING) VOTE ON EXECUTIVE COMPENSATION
Section 14A of the Securities Exchange Act of 1934, as created by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the rules and regulations promulgated thereunder require publicly traded companies, such as Lakeland Financial Corporation, to permit a separate shareholder vote to approve the compensation of executives as disclosed pursuant to the compensation rules of the SEC. In accordance with these requirements, we are providing shareholders with an advisory vote on the compensation of our executive officers.
As described in more detail in the Compensation Discussion and Analysis section of this proxy statement, the overall objectives of Lakeland Financial’s compensation programs have been to align executive officer compensation with the success of meeting long-term strategic operating and financial goals. Shareholders are urged to read the Compensation Discussion and Analysis section of this proxy statement, as well as the Summary Compensation Table and other related compensation tables and narrative disclosure that describe the compensation of our named executive officers in 2015. The Compensation Committee and the Board of Directors believe that the policies and procedures articulated in the Compensation Discussion and Analysis section are effective in implementing our compensation philosophy and achieving its goals, and that the compensation of our executive officers in fiscal year 2015 reflects and supports these compensation policies and procedures.
The following resolution is submitted for shareholder approval:
“RESOLVED, that Lakeland Financial Corporation’s shareholders approve, on an advisory basis, its executive compensation as described in the section captioned ‘Compensation Discussion and Analysis’ and the tabular disclosure regarding named executive officer compensation under ‘Executive Compensation’ contained in the Company's proxy statement, dated March 3, 2016.”
Approval of this resolution requires the affirmative vote of a majority of the shares voted on this matter at the annual meeting. While this advisory vote on executive compensation, commonly referred to as a “say-on-pay” advisory vote, is required, it is not binding on our Board of Directors and may not be construed as overruling any decision by the Board. However, the Compensation Committee will take into account the outcome of the vote when considering future compensation arrangements.
The Board of Directors recommends shareholders vote to approve the overall compensation of our named executive officers by voting “FOR” this proposal. Proxies properly signed and returned will be voted “FOR” this proposal unless shareholders specify otherwise.
40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2015, Lake City Bank had extended, and expects to continue to extend, loans to its directors and officers and to their related interests. Such loans were, and will continue to be, made only upon the same terms, conditions, interest rates, and collateral requirements as those prevailing at the same time for comparable loans extended from time to time to other, unrelated borrowers. Loans to directors and officers do not and will not involve greater risks of collectability, or present other unfavorable features, than loans to other borrowers. All such loans are approved by the Lake City Bank Board of Directors in accordance with the bank regulatory requirements.
Lake City Bank entered into a Lease Agreement with Michigan Street, LLC for retail branch and office space in South Bend, Indiana, in June 2011. In October 2011, Bradley Toothaker, a one-third owner of Michigan Street, LLC, joined the Boards of Directors of Lakeland Financial Corporation and Lake City Bank. The initial term of the lease is for a period of 20 years, with two consecutive five year renewal terms. Pursuant to the lease, monthly rent for 4,450 square feet of leased space is $6,304.16 for the first five years, and will increase by 7.5% every five years. In addition, Lake City Bank is required to pay its proportionate share of common area maintenance fees for the building, presently expected to be approximately $2,600 per month. Mr. Toothaker had not yet become a director at the time of the lease signing and the Lease Agreement was negotiated by Lake City Bank’s management on an arms-length basis. Effective January 1, 2012, the parties amended the terms of the lease to reflect additional square footage to be used by Lake City Bank in the building. Based on the addition of approximately 550 square feet, the monthly rent for the leased space increased to $7,001.87. This amendment was ratified by Lake City Bank’s Board of Directors in February 2012. Management and the Board of Directors believe that the terms of the lease are reasonable and consistent with the customary terms of the local market. As part of its annual review of director independence, the Board of Directors considered and re-evaluated this lease arrangement when considering Mr. Toothaker’s independence and determined that it did not prevent Mr. Toothaker from being able to serve as an independent director.
Additionally, pursuant to the Corporate Governance Committee Charter, the Nominating and Corporate Governance Committee evaluates and pre-approves any non-lending, material transaction between Lakeland Financial and any director or officer. The charter does not provide any thresholds as to when a proposed transaction needs to be pre-approved, but the committee evaluates those proposed transactions that may affect a director’s independence or create a perception that the transaction was not fair to Lakeland Financial or not done at arm’s length. Generally, transactions which would not require disclosure in our proxy statement under SEC rules (without regard to the amount involved) do not require the Nominating and Corporate Governance Committee’s pre-approval. A director may not participate in any discussion or approval by the Nominating and Corporate Governance Committee of any related party transaction with respect to which he or she is a related party, but must provide to the Nominating and Corporate Governance Committee all material information reasonably requested concerning the transaction.
41
AUDIT COMMITTEE REPORT
The Audit Committee assists the Board in carrying out its oversight responsibilities for our financial reporting process, audit process and internal controls. The Audit Committee also reviews the audited financial statements and recommends to the Board that they be included in our annual report on Form 10-K. As of December 31, 2015, the committee was comprised solely of independent directors.
The Audit Committee has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2015 with our management and Crowe Horwath LLP, our independent registered public accounting firm. The committee has also discussed with Crowe Horwath the matters required to be discussed by Public Company Oversight Board AS16 (Auditing Standards Communications with Audit Committees) as well as having received and discussed the written disclosures and the letter from Crowe Horwath required by the Public Company Accounting Oversight Board Rule 3526, communication with Audit Committees concerning independence. Based on the review and discussions with management and Crowe Horwath, the Audit Committee has recommended to the Board that the audited financial statements be included in our annual report on Form 10-K for the fiscal year ending December 31, 2015 for filing with the SEC.
Submitted by:
Robert E. Bartels, Jr.
Charles E. Niemier
Emily E. Pichon
Brian J. Smith
Bradley J. Toothaker
Ronald D. Truex
M. Scott Welch
Members of the Audit Committee
42
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders are also being asked to ratify the appointment of Crowe Horwath LLP as our independent registered public accounting firm for the year ending December 31, 2016. If the appointment of Crowe Horwath is not ratified by shareholders, the matter of the appointment of an independent registered public accounting firm will be considered by the Audit Committee and Board of Directors. Representatives of Crowe Horwath are expected to be present at the annual meeting and will have an opportunity to make a statement, if they so desire, as well as to respond to appropriate questions that may be asked by shareholders.
Accountant Fees
Audit Fees
.
The aggregate fees billed or expected to be billed by Crowe Horwath for its audit of Lakeland Financial’s annual financial statements for fiscal years 2015 and 2014, for its required reviews of our unaudited interim financial statements included in our Form 10-Qs filed during fiscal 2015 and 2014, for the integrated audit of internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act and for consents and assistance with documents filed with the SEC were $379,500 and $366,500, respectively.
Audit-Related Fees.
The aggregate audit-related fees billed by Crowe Horwath LLP for fiscal years 2015 and 2014 were $49,713 and $51,900, respectively. The services included employee benefit plan audits, captive insurance subsidiary audit and accounting and financial reporting-related consultations.
Tax Fees.
The aggregate fees for tax-related services billed by Crowe Horwath for fiscal years 2015 and 2014 were $65,400 and $93,480, respectively, for professional services rendered for tax compliance, tax advice and tax planning. The services provided included assistance with the preparation of Lakeland Financial’s and subsidiaries’ tax returns and guidance with respect to estimated tax payments and for assistance relating to maintaining a real estate investment trust and for assistance related to maintaining a captive insurance company.
All Other Fees.
The aggregate fees for other services billed by Crowe Horwath for fiscal years 2015 and 2014 were $4,296 and $29,102, respectively, for professional services rendered for assistance with Bank Secrecy Act reviews, regulatory compliance reviews and training, and software license fees. We did not incur any other fees from Crowe Horwath for fiscal years 2015 and 2014 other than the fees reported above.
The Audit Committee, after consideration of the matter, does not believe the rendering of these services by Crowe Horwath to be incompatible with maintaining Crowe Horwath’s independence as our independent registered public accounting firm.
Audit Committee Pre-Approval Policy
Among other things, the Audit Committee is responsible for appointing, setting compensation for and overseeing the work of the independent registered public accounting firm. The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by Crowe Horwath and all such services provided in 2014 and 2015 were pre-approved. These services include audit and audit-related services, tax services, and other services. Crowe Horwath and management are required to periodically report to the Audit Committee regarding the extent of services provided by Crowe Horwath in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis that the Audit Committee had not already specifically approved.
43
ANNUAL REPORT AND FINANCIAL STATEMENTS
A copy of our Annual Report to Shareholders for the 2015 fiscal year, which also includes our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (including financial statements), accompanies this proxy statement.
|
Michael L. Kubacki
|
|
Executive Chairman
|
March 3, 2016
Warsaw, Indiana
44
PROXY FOR COMMON SHARES SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
LAKELAND FINANCIAL CORPORATION TO BE HELD ON APRIL 12, 2016
The undersigned hereby appoints David M. Findlay and Michael L. Kubacki, or either one of them acting in the absence of the other, with power of substitution, attorneys and proxies, for and in the name and place of the undersigned, to vote the number of common shares that the undersigned would be entitled to vote if then personally present at the annual meeting of shareholders, to be held at 4:30 p.m., local time, at the Morris Inn, located at 1399 N. Notre Dame Avenue, South Bend, Indiana 46617, on the 12th day of April, 2016, or any adjournments or postponements of the meeting, upon the matters set forth in the notice of annual meeting and proxy statement, receipt of which is hereby acknowledged, as follows:
|
1.
|
ELECTION OF DIRECTORS:
|
|
FOR
|
AGAINST
|
ABSTAIN
|
||||||
|
01- Blake W. Augsburger
|
¨
|
¨
|
¨
|
|||||
|
02- Robert E. Bartels, Jr.
|
¨
|
¨
|
¨
|
|||||
|
03- Daniel F. Evans, Jr.
|
¨
|
¨
|
¨
|
|||||
|
04- David M. Findlay
|
¨
|
¨
|
¨
|
|||||
|
05- Thomas A. Hiatt
|
¨
|
¨
|
¨
|
|||||
|
06- Michael L. Kubacki
|
¨
|
¨
|
¨
|
|||||
|
07- Charles E. Niemier
|
¨
|
¨
|
¨
|
|||||
|
08-Emily E. Pichon
|
¨
|
¨
|
¨
|
|||||
|
09- Steven D. Ross
|
¨
|
¨
|
¨
|
|||||
|
10- Brian J. Smith
|
¨
|
¨
|
¨
|
|||||
|
11- Bradley J. Toothaker
|
¨
|
¨
|
¨
|
|||||
|
12- Ronald D. Truex
|
¨
|
¨
|
¨
|
|||||
|
13- M. Scott Welch
|
¨
|
¨
|
¨
|
|||||
2. APPROVAL, by non-binding vote, of the Company’s compensation of certain executive officers.
|
¨
For
|
¨
Against
|
¨
Abstain
|
|
3.
|
RATIFY THE APPOINTMENT OF
CROWE HORWATH LLP
as the Company's independent registered public accounting firm for the year ending December 31, 2016.
|
|
¨
For
|
¨
Against
|
¨
Abstain
|
|
4.
|
In accordance with their discretion, upon all other matters that may properly come before said meeting and any adjournments or postponements of the meeting.
|
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED UNDER PROPOSAL 1 AND FOR PROPOSALS 2 AND 3.
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