NOTE 15 – STOCK BASED COMPENSATION

Effective April 8, 2008, the Company adopted the Lakeland Financial Corporation 2008 Equity Incentive Plan (the “2008 Plan”), which is stockholder approved. At its inception there were 750,000 shares of common stock reserved for grants of stock options, stock appreciation rights, stock awards and cash incentive awards to employees of the Company, its subsidiaries and Board of Directors. Effective April 9, 2013, the Company adopted the Lakeland Financial Corporation 2013 Equity Incentive Plan (the “2013 Plan”), which is stockholder approved. At its inception the remaining shares of common stock available to grant under the 2008 Plan of 290,578 were transferred to the 2013 Plan and reserved for grants of stock options, stock appreciation rights, stock awards and cash incentive awards to employees of the Company, its subsidiaries and Board of Directors. Nonvested shares from the 2008 Plan that are unused at vesting are added to the shares available to grant of the 2013 Plan. As of December 31, 2013, 297,169 were available for future grants. Certain stock awards provide for accelerated vesting if there is a change in control. The Company has a policy of issuing new shares to satisfy exercises of stock awards.

Included in net income for the years ended December 31, 2013, 2012 and 2011 was employee stock compensation expense of $2.0 million, $1.3 million and $1.3 million, and a related tax benefit of $795,000, $545,000 and $544,000 respectively.

Stock Options

The equity incentive plan requires that the exercise price for options be the market price on the date the options are granted. The maximum option term is ten years and the awards usually vest over three years. The fair value of each stock option is estimated with the Black Scholes pricing model, using the following weighted-average assumptions as of the grant date for stock options granted during the years presented. Expected volatilities are based on historical volatility of the Company’s stock over the immediately preceding expected life period, as well as other factors known on the grant date that would have a significant effect on the stock price during the expected life period. The expected stock option life used is the historical option life of the similar employee base or Board of Directors. The turnover rate is based on historical data of the similar employee base as a group and the Board of Directors as a group. The risk-free interest rate is the Treasury rate on the date of grant corresponding to the expected life period of the stock option.

There were no stock option grants in 2013, 2012 or 2011.

A summary of the activity in the stock option plan as of December 31, 2013 and changes during the period then ended follows:

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term (years)		Value
Outstanding at beginning of the year		119,260		$	21.74
Granted		0			0.00
Exercised		(48,260	)		20.04
Forfeited		0			0
Outstanding at end of the year		71,000		$	22.89		3.4	$	1,143,663
Options exercisable at end of the year		71,000		$	22.89		3.4	$	1,143,663

The following table presents information on stock awards exercised for the years ended December 31, 2013, 2012 and 2011.

(dollars in thousands)	2013		2012		2011
Total intrinsic value	$	589	$	541	$	489
Cash received		757		782		330
Actual tax benefit realized for tax deductions		146		112		138

There were no modifications of stock option awards during the years ended December 31, 2013, 2012 and 2011.

As of December 31, 2013, there was no unrecognized compensation cost related to nonvested stock options granted under the plan.

Restricted Stock Awards and Units

The fair value of restricted stock awards and units is the closing price of the Company’s common stock on the date of grant adjusted for the present value of expected dividends. The restricted stock awards fully vest on the third anniversary of the grant date, with the exception of 13,750 shares listed below, which vested on the grant date.

A summary of the changes in the Company’s nonvested shares for the year follows:

				Weighted- Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2013		7,150		$	25.37
Granted		13,750			28.05
Vested		(13,750	)		28.05
Forfeited		0			0.00
Nonvested at December 31, 2013		7,150		$	25.37

As of December 31, 2013, there was $70,000 of total unrecognized compensation cost related to nonvested shares granted under the plan. The cost is expected to be recognized over a weighted period of 1.19 years. The total fair value of shares vested during the year ended December 31, 2013, 2012 and 2011 was $536,000, $1.5 million and $241,000.

Performance Stock Units

The fair value of stock awards is the closing price of the Company’s common stock on the date of grant adjusted for the present value of expected dividends. The stock awards fully vest on the third anniversary of the grant date. The 2013-2015, 2012-2014 and 2011-2013 Long-Term Incentive Plans must be paid in stock and have performance conditions which include revenue growth, diluted earnings per share growth and average return on equity growth. Shares granted below include the number of shares assumed granted based on meeting the performance criteria of the 2013-2015, 2012-2014 and 2011-2013 Long-Term Incentive Plans at December 31, 2013.

				Weighted- Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2013		141,309		$	19.91
Granted		80,179			23.56
Vested		(44,894	)		15.59
Forfeited		0			0.00
Nonvested at December 31, 2013		176,594		$	22.67

As of December 31, 2013, 2012 and 2011, there was $1.5 million, $1.1 million and $911,000 of total unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted period of 1.53 years, 1.51 years and 1.49 years. The total fair value of shares vested during the year ended December 31, 2013 was $292,000. At December 31, 2013 and 2012, 44,894 and 50,160 shares vested, respectively. No shares vested during the year ended December 31, 2011.

During 2011, the Company modified the number of shares of performance stock units that could vest to an employee under the 2011 Long-Term Incentive Plan. The Company did not recognize any additional compensation expense for the year ended December 31, 2011 as a result of the modifications.