DEF 14A 1 sybt20180321_def14a.htm FORM DEF 14A sybt20180321_def14a.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.     )

 

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Filed by a Party other than the Registrant  ☐

  

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Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

 

Stock Yards Bancorp, Inc.

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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1040 East Main Street
Louisville, Kentucky 40206
502.582.2571

 

 

March 23, 2018

 

Dear Shareholder:

 

We invite you to attend the 2018 Annual Meeting of Shareholders of Stock Yards Bancorp, Inc., to be held at 10:00 a.m., Eastern Time, on Thursday, April 26, 2018, at The Olmsted, 3701 Frankfort Avenue, Louisville, Kentucky 40206. There is a map on the back cover for your reference.

 

The enclosed Notice and Proxy Statement contain complete information about matters to be considered at the Annual Meeting, at which we will also review Stock Yards Bancorp’s business and operations. Only shareholders of record on the record date for the meeting and their proxies are entitled to vote at the Annual Meeting.

 

Your vote is important. Whether or not you plan to attend the Annual Meeting of Shareholders, we hope you will vote as soon as possible. You may vote your shares via a toll free number or over the Internet, or by completing, signing and returning the enclosed proxy card in the envelope provided. Instructions regarding each of the three methods of voting are contained in the Proxy Statement.

 

Sincerely yours,

 

/s/ David P. Heintzman

 

David P. Heintzman

Chairman and Chief Executive Officer

 

 

 

 

 

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on April 26, 2018: The Notice and Proxy Statement and Annual Report are available at http://irinfo.com/sybt/sybt.html.

  

 

 

 

Stock Yards Bancorp, Inc.

 

1040 East Main Street
Louisville, Kentucky 40206

 

 

 

NOTICE OF THE
2018 ANNUAL MEETING OF SHAREHOLDERS

 

March 23, 2018

 

To our Shareholders:

 

The Annual Meeting of Shareholders of Stock Yards Bancorp, Inc., a Kentucky corporation, will be held on Thursday, April 26, 2018 at 10:00 a.m., Eastern Time, at The Olmsted, 3701 Frankfort Avenue, Louisville, Kentucky 40206 for the following purposes:

 

 

(1)

To elect twelve directors to serve until the next Annual Meeting of Shareholders and until their respective successors are duly elected and qualified;

 

 

(2)

To approve a proposal to amend the 2015 Omnibus Equity Compensation Plan to reserve an additional 500,000 shares of Common Stock for issuance under the Plan and restrict the payment or vesting of dividends or dividend equivalents on unvested awards;

 

 

(3)

To approve a non-binding resolution to approve the compensation of Stock Yards Bancorp’s named executive officers; and

 

 

(4)

To transact such other business as may properly come before the meeting.

 

The record date for the determination of the shareholders entitled to vote at the meeting or at any adjournment thereof is the close of business on March 5, 2018.

 

Your vote is important. Whether or not you plan to attend the Annual Meeting of Shareholders, we hope you will vote as soon as possible. Please review the instructions with respect to each of your voting options as described in the Proxy Statement. The Board of Directors of Stock Yards Bancorp appreciates your cooperation in directing proxies to vote at the meeting. If your schedule permits, I hope you will join me at the meeting.

 

 

By Order of the Board of Directors

 

/s/ David P. Heintzman

 

David P. Heintzman
Chairman and Chief Executive Officer

 

 

 

WE URGE SHAREHOLDERS TO VOTE AS SOON AS POSSIBLE

 

 

 

 

Stock Yards Bancorp, Inc.

 

1040 East Main Street
Louisville, Kentucky 40206

 

 

 

PROXY STATEMENT
FOR THE 2018 ANNUAL MEETING OF SHAREHOLDERS

 

 

 

General Information about the Annual Meeting

 

Why have I received these materials?

 

We are mailing this Proxy Statement and the accompanying proxy to shareholders on or about March 23, 2018. The proxy is solicited by the Board of Directors of Stock Yards Bancorp, Inc. (referred to throughout this Proxy Statement as “Stock Yards Bancorp”, “Bancorp”, “the Company” or “we” or “our”) in connection with our Annual Meeting of Shareholders that will take place on Thursday, April 26, 2018. We invite you to attend the Annual Meeting and request you to vote on the proposals described in this Proxy Statement.

 

What am I voting on?

 

 

Electing twelve directors to serve until the next Annual Meeting of Shareholders and until their respective successors are duly elected;

 

 

Amending our 2015 Omnibus Equity Compensation Plan (referred to throughout this Proxy Statement as the “2015 Plan”) to reserve an additional 500,000 shares of Common Stock for issuance under the Plan and restrict the payment or vesting of dividends or dividend equivalents on unvested awards; and

 

 

Approving a non-binding resolution to approve the compensation of the Company’s named executive officers.

 

Where can I find more information about these voting matters?

 

 

Information about the nominees for election as directors is contained in Item 1;

 

 

Information about the proposed amendments to the 2015 Plan is contained in Item 2; and

 

 

Information about the non-binding resolution to approve the compensation of Stock Yards Bancorp’s named executive officers is contained in Item 3.

 

What is the relationship of Stock Yards Bancorp and Stock Yards Bank & Trust Company?

 

Stock Yards Bancorp is the holding company for Stock Yards Bank & Trust Company (referred to throughout this Proxy Statement as “the Bank”). Stock Yards Bancorp owns 100% of Stock Yards Bank & Trust Company. Because Stock Yards Bancorp has no significant operations of its own, its business and that of Stock Yards Bank & Trust Company are essentially the same.

 

Who is entitled to vote at the Annual Meeting?

 

Holders of record of Common Stock (“Common Stock”) of Stock Yards Bancorp as of the close of business on March 5, 2018 will be entitled to vote at the Annual Meeting. On March 5, 2018, there were 22,715,322 shares of Common Stock outstanding and entitled to one vote on all matters presented for vote at the Annual Meeting.

 

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How do I vote my shares?

 

If you are a “record” shareholder of Common Stock (that is, if you hold Common Stock in your own name in Stock Yards Bancorp’s stock records maintained by our transfer agent), you may vote your shares by using one of the following three options.

 

 

By Internet – If you have Internet access, we encourage you to vote on www.proxyvote.com by following instructions on the proxy card;

 

 

By Telephone – By making a toll-free telephone call from the U.S. or Canada to 1(800) 690-6903; or

 

 

By Mail – You can vote by completing, signing and returning the enclosed proxy card in the postage-paid envelope provided.

 

If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the beneficial owner of those shares. This Notice of Annual Meeting and Proxy Statement and any accompanying documents have been forwarded to you by your broker, bank or other holder of record. As the beneficial owner, you have the right to direct your broker, bank or other holder of record how to vote your shares by using the voting instruction card provided by them or by following their instructions for voting by telephone or over the Internet. Beneficial owners who wish to vote at the Annual Meeting will need to obtain a proxy form from the institution that holds your shares and to follow the voting instructions on such form.

 

If you are a participant in the Stock Yards Bank & Trust Company 401(k) and Employee Stock Ownership Plan (“KSOP”), you will receive a paper version of the proxy card via postal mail that will include the shares you own through that savings plan. That proxy card will serve as a voting instruction card for the trustee of the plan. If you own shares through the plan and do not vote, the plan trustee will be instructed by the plan’s administrative committee to vote the plan shares as the Board of Directors recommend.

 

What if I return my proxy card but do not provide voting instructions?

 

If you vote by proxy card, your shares will be voted as you instruct. If you return your proxy card but do not mark your voting instructions on your signed card, Mr. Heintzman, Chairman and Chief Executive Officer, and Mr. James A. Hillebrand, President, as proxies named on the proxy card, will vote your shares FOR the election of the twelve director nominees, FOR the approval of the amendments to the 2015 Plan and FOR the approval of the compensation of the named executive officers.

 

Can I change my vote after I have voted?

 

Yes. You may change your vote at any time before the polls close at the Annual Meeting. You may do this by:

 

 

Signing another proxy card with a later date and returning it to us prior to the Annual Meeting;

 

 

Voting again by telephone or through the Internet prior to 11:59 p.m., Eastern Time, on April 25, 2018;

 

 

Giving written notice of revocation to the Secretary of the Company prior to the Annual Meeting; or

 

 

Voting again at the Annual Meeting.

 

Your attendance at the Annual Meeting will not have the effect of revoking a proxy unless you notify our Corporate Secretary in writing before the polls close that you wish to revoke a previous proxy.

 

What is a broker non-vote?

 

If you are a beneficial owner whose shares are held of record by a broker, you must instruct the broker how to vote your shares. If you do not provide voting instructions, your shares will not be voted on any proposal on which the broker does not have the discretionary authority to vote. This is called a “broker non-vote”. In these cases the broker can register your shares as being present at the Annual Meeting for purposes of determining the presence of a quorum but will not be able to vote on those matters for which specific authorization is required under the rules of the New York Stock Exchange (“NYSE”) that govern brokers.

 

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If you are a beneficial owner whose shares are held of record by a broker, your broker does not have discretionary authority to vote on the election of directors (Item 1), the approval of the amendments to the 2015 Plan (Item 2) or the approval of executive compensation (Item 3) without instructions from you, in which case a broker non-vote will occur and your shares will not be voted on these matters.

 

What constitutes a quorum for purposes of the Annual Meeting?

 

The presence at the Annual Meeting in person or by proxy of the holders of more than 50 percent of the voting power of all outstanding shares of Common Stock entitled to vote shall constitute a quorum for the transaction of business. Proxies marked as abstaining (including proxies containing broker non-votes) on any matter to be acted upon by shareholders will be treated as present at the meeting for purposes of determining a quorum but will not be counted as votes cast on such matters.

 

What vote is required to approve each item? 

 

You may vote “FOR” each nominee for director or “AGAINST” each nominee, or “ABSTAIN” from voting on one or more nominees. Unless you mark “AGAINST” or “ABSTAIN” with respect to a particular nominee or nominees or for all nominees, your proxy will be voted “FOR” each of the director nominees named in this Proxy Statement. A nominee will be elected as a director if the number of “FOR” votes exceeds the number of “AGAINST” votes.

 

The proposal to amend the 2015 Plan will pass if a majority of votes cast on the proposal are cast for approval of the amendment.

 

The proposal to approve the compensation of our named executive officers disclosed in this Proxy Statement will pass if votes cast for it exceed votes cast against it. Because this vote is advisory, it will not be binding upon Bancorp or the Board of Directors.

 

Any other item to be voted upon at the Annual Meeting will pass if votes cast for it exceed votes cast against it.

 

Who counts the votes?

 

Broadridge Financial Solutions will count votes cast by proxy at the Annual Meeting. They will also certify the results of the voting and will also determine whether a quorum is present at the meeting. Any votes cast in person at the Annual Meeting will be included in the final voting tally.

 

How are abstentions and broker non-votes treated?

 

You may abstain from voting on one or more nominees for director. You may also abstain from voting on any or all other proposals. Abstentions will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum, but will not be counted in the number of votes cast for or against any nominee or with respect to any other matter. If a broker does not receive voting instructions from the beneficial owner of shares on a particular matter and indicates on the proxy that it does not have discretionary authority to vote on that matter, we will treat these shares as present at the meeting for purposes of determining a quorum but the shares will not count as votes cast on the matter. Abstentions and broker non-votes will not affect the outcome of any matters to be voted on at the Annual Meeting.

 

What information do I need to attend the Annual Meeting?

 

We do not use tickets for admission to the Annual Meeting. If you are voting in person, we may ask for photo identification.

 

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How does the Board recommend that I vote my shares?

 

The Board recommends a vote FOR each of the nominees for director set forth in this document, FOR the approval of the amendments to the 2015 Plan and FOR the approval of the compensation of the named executive officers.

 

With respect to any other matter that properly comes before the Annual Meeting, the proxy holders will vote as recommended by the Board of Directors or, if no recommendation is given, in their own discretion in the best interests of Stock Yards Bancorp. At the date this Proxy Statement went to press, the Board of Directors had no knowledge of any business other than that described herein that would be presented for consideration at the Annual Meeting.

 

Who will bear the expense of soliciting proxies?

 

Stock Yards Bancorp will bear the cost of soliciting proxies in the form enclosed. In addition to the solicitation by mail, proxies may be solicited personally or by telephone, facsimile or electronic transmission by our employees. We reimburse brokers holding Common Stock in their names or in the names of their nominees for their expenses in sending proxy materials to the beneficial owners of such Common Stock. The Company has engaged the services of Laurel Hill Advisory Group, LLC., a professional proxy solicitation firm, to aid in the solicitation of proxies from certain brokers, bank nominees and other institutional owners. The Company’s costs for such services will not exceed $7,500 plus reasonable out of pocket expenses.

 

Is there any information that I should know about future annual meetings?

 

Any shareholder who intends to present a proposal at the 2019 Annual Meeting of Shareholders must deliver the proposal to the Corporate Secretary at 1040 East Main Street, Louisville, Kentucky 40206 no later than November 23, 2018, if the proposal is submitted for inclusion in our proxy materials for that meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934. In addition, our Bylaws impose certain advance notice requirements on a shareholder nominating a director or submitting a proposal to an Annual Meeting. Such notice must be submitted to the Secretary of Stock Yards Bancorp no later than January 25, 2019. The notice must contain information prescribed by the Bylaws, copies of which are available from the Secretary. These requirements apply even if the shareholder does not desire to have his or her nomination or proposal included in our Proxy Statement.

 

 

 

CORPORATE GOVERNANCE AND RELATED MATTERS

 

Role of the Board and Governance Principles

 

The Stock Yards Bancorp’s Board of Directors represents shareholders’ interests in perpetuating a successful business including optimizing shareholder returns. The Directors are responsible for determining that the Company is managed to ensure this result. This is an active responsibility, and the Board monitors the effectiveness of policies and decisions including the execution of the Company’s business strategies. Strong corporate governance guidelines form the foundation for Board practices. As a part of this foundation, the Board believes that high ethical standards in all Company matters are essential to earning the confidence of investors, customers, employees and vendors. Accordingly, Stock Yards Bancorp has established a framework that exercises appropriate measures of oversight at all levels of the Company and clearly communicates that the Board expects all actions be consistent with its fundamental principles of business ethics and other corporate governance guidelines. The Company’s governance guidelines and other related matters are published on the Company website: www.syb.com under the Investor Relations tab.

 

Board Leadership Structure

 

The Board of Directors believes the most effective leadership structure for the Company is a combined Chairman and Chief Executive Officer position filled by Mr. Heintzman. He is the director most familiar with the business of the Company and the banking industry, and the Board believes that he is best suited to lead discussions on important issues affecting the Bank and Bancorp. Combining the Chief Executive Officer and Chairman positions creates a firm link between management and the Board and promotes development and implementation of corporate strategy. As the Board is committed to strong corporate governance practices, the Board has designated a lead independent director. In addition to an independent lead director, three committees of the Board provide independent oversight of management – the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Each is composed entirely of independent directors.

 

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The Chair of the Nominating and Corporate Governance Committee (currently Charles R. Edinger III) acts in the role of lead director. The lead director presides at executive sessions of the Board which consist of non-management directors and are held at least four times annually. He has authority to call special meetings of the independent directors and committees of the Board, serves as liaison between the Chairman and board members and is available to discuss with any director concerns he or she may have regarding the Board, the Company or the management team. The lead independent director is responsible for providing advice and consultation to the Chairman and Chief Executive Officer and informing him of decisions reached and suggestions made during executive sessions of the Board of Directors. The lead director reviews and approves matters such as agendas for Board meetings and executive sessions, and information distributed to board members.

 

Board Evaluation Process

 

The Board conducts an annual self-assessment to enhance its effectiveness. Through regular evaluation of its policies, practices and procedures, the Board identifies areas for further consideration and improvement. The evaluation process is led by the Nominating and Corporate Governance Committee. Each director is requested to complete a questionnaire and provide feedback on a range of issues, including his or her assessment of the Board’s overall effectiveness and performance; its committee structure; priorities for future Board discussion and attention; the composition of the Board and the background and skills of its members; the quality, timing and relevance of information received from management; and the nature and scope of agenda items. The lead director then meets with each director individually to discuss his or her questionnaire responses and any other thoughts or suggestions the director may have regarding the Board’s overall effectiveness or specific Board practices or policies. The lead director prepares a summary of findings drawn from the questionnaire responses and director interviews for presentation to the full Board of Directors. Each of the Committees also conducts their own self-assessments led by the committee chairs.

 

Board Oversight of Risk Management

 

The Board of Directors has a significant role in the oversight of risk management. The Board receives information regarding risks facing the Company, their relative magnitude and management’s plan for mitigating these risks. Primary risks facing the Company are credit, operational, interest rate, liquidity, compliance/legal, strategic and reputational risks. After assessment by management, reports are made to committees of the Board. Credit risk is addressed by the Bank’s Risk Committee. Operational and compliance/legal risks are addressed by the Audit Committee of Bancorp and the Bank’s Risk Committee. Interest rate and liquidity risks are addressed by the Asset/Liability Committee comprised of Bank management and reports are made monthly to the Board. Strategic and reputational risk is addressed by the above committees in addition to the Compensation Committee of Bancorp along with other executive compensation matters. Oversight of the trust department is addressed by the Trust Committee of the Bank. Corporate governance matters are addressed by the Nominating and Corporate Governance Committee of Bancorp. The full Board hears reports from each of these committees at the Board meeting immediately following the Committee meeting. The Bank’s Director of Internal Audit has a direct reporting line to the Audit Committee of the Board. The Chief Risk Officer, Information Security Officer and Compliance Officer make regular reports to the Audit and Risk Committees and the full Board when appropriate. During 2016, the Risk Committee assumed oversight responsibility for a broader range of enterprise-related risks within the Bank and has become the primary board level committee focused on risk management and related policies and processes.

 

Shareholder Communications with the Board of Directors

 

Shareholders may communicate directly to the Board of Directors in writing by sending a letter to the Board at: Stock Yards Bancorp Board of Directors, P.O. Box 32890, Louisville, KY 40232-2890.  Communications directed to the Board of Directors will be received by the Chairman and processed by the Nominating and Corporate Governance Committee when the communications concern matters related to the duties and responsibilities of the Board of Directors.

 

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BOARD OF DIRECTORS’ MEETINGS AND COMMITTEES

 

During 2017, the Board of Directors of Stock Yards Bancorp held thirteen regularly scheduled meetings. All directors of Stock Yards Bancorp are also directors of the Bank. During 2017, the Bank’s Board of Directors also held thirteen regularly scheduled meetings.

 

All directors attended at least 75% of the number of meetings of the Board and committees of the Board on which they served that were held during the period he or she served as a director. All directors are encouraged to attend annual meetings of shareholders, and ten of eleven attended the 2017 Annual Meeting.

 

Stock Yards Bancorp has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee of the Board of Directors. The Bank has a Risk Committee and a Trust Committee of the Board of Directors.

 

Audit Committee

 

The Board of Directors of Stock Yards Bancorp maintains an Audit Committee comprised of directors who are not officers of Stock Yards Bancorp. For 2017, the Audit Committee was comprised of Messrs. Herde (Chairman), Lechleiter and Priebe and Ms. Heitzman.   Each of these individuals meets the SEC and NASDAQ independence requirements for membership on an audit committee and each is financially literate within the meaning of the NASDAQ listing rules. The Board of Directors has adopted a written charter for the Audit Committee, and this charter is available on Stock Yards Bancorp’s website: www.syb.com.

 

The Audit Committee oversees Stock Yards Bancorp’s financial reporting process on behalf of the Board of Directors. Management has primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the Committee, among other things, considers the appointment of the external auditors for Stock Yards Bancorp, reviews with the auditors the plan and scope of the audit and audit fees, monitors the adequacy of reporting and internal controls, meets regularly with internal and external auditors, reviews the independence of the external auditors, reviews Stock Yards Bancorp’s financial results as reported in Securities and Exchange Commission filings, and approves all audit and permitted non-audit services performed by its external auditors. The Committee reviews and evaluates identified related party transactions and discusses with management the Company’s major financial risk exposures and the steps management has taken to monitor and control those exposures. The Audit Committee meets with our management at least quarterly to consider the adequacy of our internal controls and the objectivity of our financial reporting. This Committee also meets with the external auditors and with our internal auditors regarding these matters. Both the independent auditors and the internal auditors regularly meet privately with this Committee and have unrestricted access to this Committee. The Audit Committee held five meetings during 2017.

 

The Board of Directors has determined that Messrs. Herde and Lechleiter and Ms. Heitzman are audit committee financial experts for Stock Yards Bancorp and are independent as described in the paragraph above. See “REPORT OF THE AUDIT COMMITTEE” for more information.

 

Nominating and Corporate Governance Committee

 

The Board of Directors of Stock Yards Bancorp maintains a Nominating and Corporate Governance Committee. Members of this Committee are Messrs. Brown, Edinger (Chairman) and Northern, all of whom are non-employee directors meeting the NASDAQ independence requirements for membership on a nominating and governance committee. Responsibilities of the Committee are set forth in a written charter satisfying the NASDAQ’s corporate governance standards, requirements of federal securities law and incorporating other best practices.  The Board of Directors has adopted a written charter for the Nominating and Corporate Governance Committee, and this charter is available on Stock Yards Bancorp’s website: www.syb.com.

 

Among the Committee’s duties are identifying and evaluating candidates for election to the Board of Directors, including consideration of candidates suggested by shareholders. To submit a candidate for consideration by the Committee, a shareholder must provide written communication to the Committee. The Committee would apply the same board membership criteria to shareholder-nominated candidates as it would to Committee-nominated candidates. The Committee also assists the Board in determining the composition of Board committees, assessing the Board’s effectiveness and developing and implementing the Company’s corporate governance guidelines. This Committee held three meetings during 2017.

 

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Compensation Committee

 

The Board of Directors of Stock Yards Bancorp maintains a Compensation Committee. Members of this Committee are Messrs. Edinger, Lechleiter (Chairman) and Tasman, all of whom meet the NASDAQ independence requirements for membership on the Compensation Committee. The Board of Directors has adopted a written charter for the Compensation Committee, and this charter is available on Stock Yards Bancorp’s website: www.syb.com. The responsibilities of this Committee include oversight of executive and Board compensation and related programs. The Compensation Committee held six meetings during 2017. See “EXECUTIVE COMPENSATION AND OTHER INFORMATION - REPORT ON EXECUTIVE COMPENSATION” for more information.

 

Risk Committee

 

The Board of Directors of Stock Yards Bank maintains a Risk Committee. This Committee is responsible for monitoring the Bank’s commercial and consumer loan portfolio and the related credit risk. The Committee reviews and discusses with management its assessment of asset quality and trends in asset quality, credit quality administration and underwriting standards and the effectiveness of portfolio risk management systems. The Committee is also responsible for reviewing and approving significant lending and credit policies and compliance with those policies. During 2016, the Risk Committee significantly expanded its duties to include oversight responsibility for a wider range of enterprise-related risks within the Bank, including regulatory compliance, information security, cybersecurity, insurance and physical security. Members of this Committee are Messrs. Bickel, Edinger, Northern (Chairman) and Tasman. The Risk Committee held twelve meetings in 2017.

 

Trust Committee

 

The members of the Bank’s Trust Committee are Messrs. Bickel, Brown, Herde and Priebe and Ms. Heitzman. This Committee held six meetings in 2017. The Trust Committee oversees the operations of the wealth management and trust department of the Bank to help ensure it operates in accordance with sound fiduciary principles and is in compliance with pertinent laws and regulations.

 

 

 

ITEM 1. ELECTION OF TWELVE DIRECTORS

 

The Board of Directors presently consists of twelve members. Directors serve a one-year term and hold office until the Annual Meeting following the year of their election and until his or her successor is elected and qualified, subject to his or her death, resignation, retirement, removal or disqualification.

 

The twelve directors nominated by the Nominating and Corporate Governance Committee of the Board of Directors for election this year to hold office until the 2019 Annual Meeting and until their respective successors are elected and qualified are:

 

Name, Age and Year

Individual Became Director (1)

 

Principal Occupation;

Certain Directorships (2) (3)

     

Paul J. Bickel III

 

President, U.S. Specialties

Age 62

   

Director since 2017

   
     

J. McCauley Brown

 

Retired Vice President, Brown-Forman Corporation

Age 65

   

Director since 2015

   

 

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Name, Age and Year

Individual Became Director (1)

 

Principal Occupation;

Certain Directorships (2) (3)

     

Charles R. Edinger III

 

President, J. Edinger & Son, Inc.

Age 68

   

Director since 1984

   
     

David P. Heintzman (4)

 

Chairman and Chief Executive Officer,

Age 58   Stock Yards Bancorp, Inc. and Stock Yards Bank & Trust Company

Director since 1992

 

 

     

Donna L. Heitzman (4)

 

Retired Portfolio Manager,

Age 65   KKR Prisma Capital
Director since 2016    
     
Carl G. Herde   Vice President/Finance,

Age 57

 

Kentucky Hospital Association

Director since 2005

   
     

James A. Hillebrand

 

President,

Age 49

 

Stock Yards Bancorp, Inc. and Stock Yards Bank & Trust Company

Director since 2008

   
     

Richard A. Lechleiter (3)

 

President, Catholic Education Foundation of Louisville

Age 59

   

Director since 2007

   
     

Richard Northern

 

Partner, Wyatt, Tarrant & Combs LLP

Age 69

   

Director since 2011

   
     

Stephen M. Priebe

 

President, Hall Contracting of Kentucky

Age 54

   

Director since 2012

   
     

Norman Tasman

 

President, Tasman Industries, Inc. and

Age 66

 

Tasman Hide Processing, Inc.

Director since 1995

   
     

Kathy C. Thompson

 

Senior Executive Vice President, Stock Yards Bancorp, Inc.

Age 56

 

and Stock Yards Bank & Trust Company, Manager of

Director since 1994

 

the Bank’s Wealth Management and Trust Department

                                   

   

 

 

(1)

Ages listed are as of December 31, 2017.

 

 

(2)

Each nominee has been engaged in his or her chief occupation for five years or more with the exception of Messrs. Brown, Herde and Lechleiter and Ms. Heitzman as described below.

 

 

(3)

Mr. Lechleiter is a director of Amedisys, Inc., a publicly-traded healthcare services company. No other nominee holds, or at any time in the last five years has held, any directorship in a company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, other than Stock Yards Bancorp.

 

 

(4)

There is no family relationship between Mr. Heintzman and Ms. Heitzman.

 

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Our Board of Directors, through a process managed by the Nominating and Corporate Governance Committee, conducts an annual review of director independence. During this review, the Nominating and Corporate Governance Committee considers transactions and relationships between each director or any member of his or her immediate family and the Company. The purpose of this review is to determine whether any such relationships or transactions are inconsistent with a determination that the director is independent.

 

As a result of this review, and based upon the advice and recommendations of the Nominating and Corporate Governance Committee, the Board of Directors has affirmatively determined that Messrs. Bickel, Brown, Edinger, Herde, Lechleiter, Northern, Priebe and Tasman and Ms. Heitzman satisfy the independence requirements of the NASDAQ Stock Market. As employees of the Bank, Messrs. Heintzman and Hillebrand and Ms. Thompson do not satisfy these requirements.

 

In performing its independence review, the Nominating and Corporate Governance Committee noted that the Bank has a business relationship with Wyatt, Tarrant & Combs, of which Mr. Northern is a partner. Additionally, the Committee noted that the Bank and Mr. Heintzman have made charitable donations to the Catholic Education Foundation of Louisville, of which Mr. Lechleiter is the President. However, in all cases, the Committee determined that these relationships were not material to the director or his affiliated company or organization.

 

Our Articles of Incorporation and Bylaws require majority voting for the election of directors in uncontested elections. This means that the director nominees in an uncontested election for directors must receive a number of votes cast “for” his or her election that exceeds the number of votes cast “against.” The Company’s corporate governance guidelines further provide that any incumbent director who does not receive a majority of “for” votes in an uncontested election must, within five days following the certification of the election results, tender to the Chairman of the Board his or her resignation from the Board. The resignation will specify that it is effective upon the Board’s acceptance of the resignation. The Board will, through a process managed by the Nominating and Corporate Governance Committee and excluding the nominee in question, accept or reject the resignation within 90 days after certification of the shareholder vote. The Board will promptly communicate any action taken on the resignation.

 

Additional Information Regarding the Background and Qualifications of Director Nominees

 

The Nominating and Corporate Governance Committee considers the particular experience, qualifications, attributes and expertise of each nominee for election to the Board. Having directors with different points of view, professional experience, education and skills provides broader perspectives and more diverse considerations valuable to the directors as they fulfill their leadership roles. Potential Board candidates are evaluated based upon various criteria, including:

 

Direct industry knowledge, broad-based business experience, or professional skills that indicate the candidate will make a significant and immediate contribution to the Board’s discussion and decision-making in the array of complex issues facing Bancorp;

Behavior and reputation that indicate he or she is committed to the highest ethical standards and the values of Bancorp;

Special skills, expertise, and background that add to and complement the range of skills, expertise, and background of the existing directors;

The ability to contribute to broad Board responsibilities, including succession planning, management development, and strategic planning; and

Confidence that the candidate will effectively, consistently, and appropriately take into account and balance the legitimate interests and concerns of all Bancorp’s shareholders in reaching decisions.

 

Directors must have time available to devote to Board activities and to enhance their knowledge of Stock Yards Bancorp, Inc. and the banking industry.

 

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All non-management directors are required to own stock equal in value to at least $200,000 within three years of joining the Board and to maintain that minimum ownership level for the remainder of their service as a director. The Nominating and Corporate Governance Committee may exercise its discretion in enforcing the guidelines when the accumulation of Common Stock is affected by the price of Bancorp stock or changes in director compensation. Management directors also have ownership targets as set forth elsewhere in this Proxy Statement. All directors’ ownership positions meet or exceed the requirement, and some of the more tenured directors are among the Company’s largest shareholders.

 

The Nominating and Corporate Governance Committee of the Board of Directors has presented a slate of twelve nominees for election as directors at the 2018 Annual Meeting. If elected, we expect that all of the aforementioned nominees will serve as directors and hold office until the 2019 annual meeting of shareholders and until their respective successors have been elected and qualified. However, if for any reason a nominee should become unable or unwilling to serve, proxies may be voted for another person nominated as a substitute by the Board of Directors, or the Board may reduce the number of directors to be elected.

 

All twelve nominees are standing for re-election and were last elected to the Board of Directors by shareholders at the 2017 Annual Meeting except Mr. Bickel, who was first appointed in December 2017 and will be standing for election by shareholders for the first time. Below is a summary of the Committee’s consideration and evaluation of each director nominee.

 

Mr. Bickel is founder and President of U.S. Specialties, a commercial building supply company. He has served as the managing member of several real estate development organizations in the Louisville area over the past 30 years. Outside of commercial endeavors, Mr. Bickel has been very active in the Louisville community, serving in a leadership capacity on numerous area non-profit boards. Mr. Bickel serves on the Bank’s Risk Committee and Trust Committee.

 

Mr. Brown retired as a Vice President of Brown-Forman Corporation, a Fortune 1,000 company, in 2015. His extensive experience in business, management and accounting, and his deep ties to the Louisville community, bring valuable local and global perspectives to our Board. Additionally, his widespread commitment to community organizations in Louisville and beyond gives him a strong sense of the needs, prospects and potential of our region. Mr. Brown serves on the Nominating and Corporate Governance Committee of Bancorp and the Bank’s Trust Committee.

 

Mr. Edinger is President of J. Edinger & Son, Inc., a family owned business, which is typical of the Bank’s historical customer base. He brings this perspective to the Board, and he has the skills necessary to serve as lead director. Mr. Edinger is a long-serving member of the Board with a deep understanding of the role of the Board and of the Company and its operations. He chairs the Nominating and Corporate Governance Committee of Bancorp, and he serves on the Compensation Committee of Bancorp and the Bank’s Risk Committee.

 

Mr. Heintzman holds an accounting degree, and prior to joining the Bank, worked as a certified public accountant for an international accounting firm. He joined the Bank in 1985 and has served as Chief Financial Officer, Executive Vice President and President. In January 2005 he assumed the position of Chairman and Chief Executive Officer. Mr. Heintzman has been instrumental in the Bank’s growth strategies and profitable execution. His commitment to ethical standards sets the example for the Bank and its employees, and his tenure and experience in all areas of the business provide a unique perspective of the business and strategic direction of the Company.

 

Ms. Heitzman, CPA, CFA, with expertise in the institutional credit markets and experience with investment strategies, provides our Board with a deep knowledge and understanding of capital markets, finance and accounting. Ms. Heitzman recently retired as a portfolio manager for New York City-based KKR Prisma Capital. She joined that company in 2004 to help construct and manage customized portfolios. Before joining KKR Prisma, Ms. Heitzman served in various capacities at AEGON USA, previously Providian Capital. As a portfolio manager in capital market strategies, she facilitated significant growth and broad diversification of a $1 billion fund portfolio. Ms. Heitzman serves on the Audit Committee of Bancorp and has been designated by the Board of Directors as an audit committee financial expert. She also serves on the Bank's Trust Committee.

 

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Mr. Herde holds an accounting degree, is a certified public accountant and joined Baptist Healthcare System, Inc., one of the largest not-for-profit health care systems in Kentucky, in 1984 as controller.  He served as the Chief Financial Officer from 1993 until his retirement from Baptist in September 2016.  He now serves as the Vice President of Finance for the Kentucky Hospital Association.  He has extensive experience in financial reporting and corporate finance.  Mr. Herde chairs the Audit Committee of Bancorp and has been designated by the Board of Directors as an audit committee financial expert. He also serves on the Bank’s Trust Committee.

 

Mr. Hillebrand joined Stock Yards Bank in 1996 as director and developer of the private banking group. Prior to joining the Bank, he was with a regional bank and a community bank where he specialized in private banking. He has directed the expansion of the Bank into the Indianapolis and Cincinnati markets and was named President in 2008.

 

Mr. Lechleiter is the President of the Catholic Education Foundation of Louisville. From February 2002 until his retirement in January 2014, he served as the Executive Vice President and Chief Financial Officer of Kindred Healthcare, Inc., a Fortune 500 healthcare services company based in Louisville. Mr. Lechleiter also served in senior financial positions at other large publicly held healthcare services companies such as Humana Inc. and HCA, Inc. during his professional financial career spanning nearly 35 years. His extensive experience in business leadership, financial reporting, corporate finance, investor relations, mergers and acquisitions and corporate governance is valuable to the Board. Mr. Lechleiter serves on the Audit Committee of Bancorp and has been designated by the Board of Directors as an audit committee financial expert. He also chairs the Compensation Committee of Bancorp. 

 

Mr. Northern is a partner in the Louisville office of Wyatt, Tarrant & Combs LLP where he has practiced law since 1980. Earlier in his career Mr. Northern was a White House Fellow, served as Special Assistant to the United States Secretary of the Interior Cecil Andrus and was the Legislative Director for U.S. Representative Romano Mazzoli. Mr. Northern’s legal experience is valuable to the Board including corporate governance, compliance, strategy and acquisition and development activities. He serves on the Nominating and Corporate Governance Committee of Bancorp and chairs the Bank’s Risk Committee.

 

Mr. Priebe is President of Hall Contracting of Kentucky, which provides construction services in the areas of heavy construction, asphalt, civil, pipeline, and highway and bridge construction. A registered professional civil engineer, he began his career at Hall in 1986. Mr. Priebe has had extensive involvement with many civic organizations throughout his career. He has worked with the Kentucky Transportation Cabinet Disadvantaged Business Enterprise Training Program and is actively mentoring a local electric contractor. Mr. Priebe’s business acumen and familiarity with the local and regional economic climate bring valuable perspective to the Board. Mr. Priebe serves on the Audit Committee of Bancorp and the Bank’s Trust Committee.

 

Mr. Tasman is President of Tasman Industries, Inc. and Tasman Hide Processing headquartered in Louisville. This family-owned business was founded in 1947 and operates 14 locations in North America with offices in Europe and Asia. The company produces leather and finished products used by the military and general population. Mr. Tasman’s extensive knowledge of consumer demands and global business trends brings a unique perspective to the Board. He serves on the Compensation Committee of Bancorp and the Bank’s Risk Committee.

 

Ms. Thompson joined the Bank in 1992 as Manager of the Wealth Management and Trust Department, at which time the trust department had $200 million in assets under management. Under her leadership, the department has grown to $2.8 billion in assets under management and is one of the most profitable bank-owned trust companies in the country. Prior to joining the Company, Ms. Thompson practiced estate planning law and worked in a regional bank’s trust department where she specialized in investment management and estate and personal financial planning.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF THESE NOMINEES

 

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ITEM 2. APPROVAL OF AMENDMENTS OF THE 2015 EQUITY COMPENSATION PLAN

 

On February 20, 2018, the Board of Directors adopted, subject to shareholder approval, Amendment No. 2 (the “Amendment”) to the Stock Yards Bancorp 2015 Omnibus Equity Compensation Plan (the “Plan” or the “2015 Plan”). The Board of Directors has directed that the Amendment be submitted to shareholders for approval at the Annual Meeting. The Amendment will:

 

 

Increase the number of shares of Common Stock reserved and available for issuance under the Plan by 500,000 shares;

 

Prohibit the payment or vesting of dividends or dividend equivalents on unvested awards; and

 

Adjust the various share limits under the Plan solely to reflect how those limits apply following our 2016 stock split.

 

A copy of the full text of the Amendment is attached to this Proxy Statement as Exhibit A.

 

Shareholders approved the 2015 Plan on April 22, 2015. The 2015 Plan carries forward, but does not increase, the number of shares that were remaining and available to grant under the predecessor equity plan, the 2005 Stock Incentive Plan, which expired in 2015. As originally approved by shareholders, the 2015 Plan had 526,278 shares (as adjusted for our 2016 stock split) available for future grants.

 

If approved, the total number of shares of the Company’s common stock that are available for grants under the Plan will increase from 145,827 shares to 645,827 shares. If the proposed amendments are not so approved, the increase in the number of shares reserved under the Plan pursuant to the amendment and the dividend restriction will not take effect.

 

The Board of Directors believes that having the additional 500,000 shares of Common Stock available for issuance will ensure that we continue to have a sufficient number of shares available to achieve our current compensation strategy for several years. The Board of Directors believes the interests of shareholders will be advanced if we can continue to offer employees, particularly those at the senior management level, the opportunity to acquire or increase their ownership interests in the Company.

 

Our Board believes our equity award granting practices and the provisions of the 2015 Plan are consistent with the interests of shareholders and sound corporate governance practices. We refer you to the section of this Proxy Statement entitled “Compensation Discussion and Analysis” beginning on page 23 for additional information concerning our equity award practices. Since 2015, our practice has been to not pay dividends on Plan awards until the awards vest. The Amendment will serve to formalize our current grant practice in this regard.

 

      The following table sets forth information regarding all grants that have been made under the 2015 Plan to Bancorp’s directors, officers and employees, including the named individuals in the Summary Compensation Table. Information presented in this table does not give effect to awards that were subsequently cancelled, forfeited, surrendered or otherwise not paid in full upon exercise or vesting. Shares subject to these grants become available again for future grants under the plan.

 

   

Total Awards Under 2015 Equity Compensation Plan

 
   

Stock

Appreciation

Rights

   

Restricted

Stock

   

Performance

Stock Units

   

Total

 

David P. Heintzman, Chairman and CEO

    50,955       -       57,732       108,687  

James A. Hillebrand, President

    29,422       -       33,273       62,695  

Kathy C. Thompson, Senior Executive Vice President and Manager of Investment Management and Trust Department

    23,063       -       26,032       49,095  

Phillip S. Poindexter, Executive Vice President and Chief Lending Officer

    19,309       -       21,836       41,145  

Nancy B. Davis, Chief Financial Officer

    15,361       -       17,546       32,907  

All executive officers as a group

    179,210       -       202,983       382,193  

All directors as a group excluding employee directors

    3,500       18,331       -       21,831  

All employees as a group excluding named executives

    -       118,514       -       118,514  

 

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 Material Features of the Plan

 

General. The Plan provides that grants may be made in any of the following forms:

 

 

Incentive stock options;

 

Nonqualified stock options;

 

Stock units;

 

Stock awards;

 

Stock appreciation rights;

 

Dividend equivalents;

 

Other stock-based awards.

 

The Plan authorizes a number of shares of Common Stock for issuance equal to the sum of the following: the number of shares of Common Stock subject to outstanding grants under our predecessor equity plan, the 2005 Stock Incentive Plan (some of which may expire, be cancelled or forfeited in the future and again be available for grant, as discussed below), plus the number of shares of Common Stock remaining available for issuance under the 2005 Plan but not subject to an outstanding award, in each case as of the date of shareholder approval of the Plan in 2015. As amended, the 2015 Plan will provide that the total number of shares authorized for issuance will be equal to the sum of these two amounts plus 500,000 shares. No more than 450,000 of these reserved shares (as adjusted for our 2016 stock split) may be used for incentive stock options under the 2015 Plan.

 

The Plan provides limits on the maximum aggregate number of shares of Common Stock with respect to which grants may be made during any calendar year is as follows (each of the share limits is adjusted for our 2016 stock split):

 

 

For non-employee directors, 4,500 shares via options and SARs and 3,750 via stock awards or stock units; and

 

For any other participant, 112,500 total shares with no more than 60,000 shares via options and SARs and 52,500 via stock awards or stock units. 

 

The number of shares available under the 2015 Plan and the individual limits on annual awards are both subject to adjustment for stock splits, etc. as described below.

 

If and to the extent options and SARs granted under the 2005 or 2015 Plan terminate, expire or are cancelled, forfeited, exchanged or surrendered without being exercised or if any stock awards, stock units, or other stock-based awards under those plans are forfeited, terminated, or otherwise not paid in full, the shares subject to such grants will become available again for purposes of the Plan. Shares otherwise issuable under the Plan that are withheld or surrendered in payment of the exercise price of an option, and shares withheld or surrendered for payment of taxes will not be available again for issuance or transfer under the Plan. If any grants are paid in cash, and not in shares of Common Stock, any shares of Common Stock related to such grants will also be available for future grants. Upon the exercise of a SAR, then both for purposes of calculating the number of shares of Common Stock remaining available for issuance under the Plan and the number of shares of Common Stock remaining available for exercise under the SAR, the number of such shares will be reduced by the net number of shares for which the SAR is exercised, and without regard to any cash settlement of a SAR.

 

Administration. The Plan is administered and interpreted by the Compensation Committee (the “Committee”). Ministerial functions may be performed by an administrative committee of the employees appointed by the Committee. The Committee has the authority to (i) determine individuals to whom grants will be made under the Plan, (ii) determine the type, size, terms and conditions of grants, (iii) determine when grants will be made and the duration of any applicable exercise or restriction period, including criteria for exercisability and acceleration of exercisability, (iv) amend terms and conditions of any previously issued grant, subject to limitations described below and (v) deal with any other matters arising under the Plan. The Committee presently consists of Charles R. Edinger, III, Richard A. Lechleiter, and Norman Tasman, each of whom is a non-employee member of the Board of Directors.

 

Eligibility for Participation. Designated employees and non-employee directors of the Company and its subsidiaries are eligible to receive grants under the Plan. The Committee is authorized to select persons to receive grants from among those eligible and will determine the number of shares of Common Stock that are subject to each grant.

 

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Vesting. The Committee determines the vesting of awards granted under the Plan provided that all awards will have a minimum of one year (cliff or incremental) vesting, which may be accelerated only in the events of death, disability, retirement or change in control.

 

Types of Awards.

 

Stock Options 

 

The Committee may grant options intended to qualify as incentive stock options (“ISOs”) within the meaning of section 422 of the Code or nonqualified stock options (“NQSOs”) that are not intended to so qualify or any combination of ISOs and NQSOs. Anyone eligible to participate in the Plan may receive a grant of NQSOs. Only employees may receive a grant of ISOs.

 

The Committee will fix the exercise price per share of options on the date of grant. The exercise price of options granted under the Plan will not be less than the fair market value of Common Stock on the date of grant. However, if the grantee of an ISO is a person who holds more than 10% of the total combined voting power of all classes of the outstanding stock, the exercise price per share of an ISO granted to such person must be at least 110% of the fair market value of Common Stock on the date of grant.

 

The Committee will determine the term of each option which will not exceed 10 years from date of grant. Notwithstanding the foregoing, if the grantee of an ISO is a person who holds more than 10% of the combined voting power of all classes of the outstanding stock, the term of the ISO may not exceed five years from the date of grant. To the extent that the aggregate fair market value of shares of Common Stock, determined on the date of grant, with respect to which ISOs become exercisable for the first time by a grantee during any calendar year exceeds $100,000, such ISOs will be treated as NQSOs. The maximum aggregate number of shares of Common Stock with respect to which ISOs may be granted under the Plan is 300,000, subject to adjustment in accordance with the terms of the Plan.

 

The Committee will determine terms and conditions of options, including when they become exercisable. The Committee may accelerate exercisability of any options, subject to the Plan’s one-year vesting minimum. Except as provided in the grant instrument or as otherwise determined by the Committee, an option may only be exercised while a grantee is employed by or providing service as a non-employee director.

 

A grantee may exercise an option by delivering notice of exercise to the Company. The grantee will pay the exercise price and any withholding taxes for the option in cash, if permitted by the Committee, by the surrender of already-owned shares of Common Stock with an aggregate fair market value on the date the option is exercised equal to the exercise price, by payment through a broker in accordance with the procedures permitted by Regulation T of the Federal Reserve Board, or, if permitted by the Committee, by surrender or withholding of shares that would otherwise have been issuable upon exercise with a fair market value at the time of exercise equal to the exercise price, or by another method approved by the Committee. Tax withholding arrangements acceptable to the Committee must also be made upon exercise of a NQSO.

 

If allowed by the Committee, a participant may elect to exercise an option before it is vested, but if this is permitted, the shares issued on exercise will be subject to a repurchase right in favor of the Company at their exercise value (or then fair market value, if less) until the option would have been vested.

 

Stock Units 

 

The Committee may grant stock units to anyone eligible to participate in the Plan. Each stock unit provides the grantee with the right to receive a share of Common Stock or an amount based on the value of a share of Common Stock at a future date. The Committee will determine the number of stock units that will be granted, whether stock units will become payable based on achievement of performance goals or other conditions, and the other terms and conditions applicable to stock units.

 

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Stock units may be paid at the end of a specified period or deferred to a date authorized by the Committee. If a stock unit becomes payable, it will be paid to the grantee in cash, in shares of Common Stock, or in a combination of cash and shares of Common Stock, as determined by the Committee. All unvested stock units are forfeited if the grantee’s employment or service is terminated for any reason, unless the Committee determines otherwise.

 

The Committee may grant dividend equivalents in connection with grants of stock units made under the Plan. Dividend equivalents entitle the grantee to receive amounts equal to ordinary dividends that are paid on the shares underlying a grant while the grant is outstanding. The Committee will determine whether dividend equivalents will be paid currently or credited to a bookkeeping account as a dollar amount or in the form of stock units and then only paid at vesting of the underlying stock unit. The terms and conditions of dividend equivalents will be determined by the Committee.

 

Stock Awards 

 

The Committee may grant stock awards to anyone eligible to participate in the Plan. The Committee may require that grantees pay consideration for stock awards and may impose restrictions on stock awards. If restrictions are imposed on stock awards, the Committee will determine whether they will lapse over a period of time or according to such other criteria, including achievement of specific performance goals, as the Committee determines.

 

The Committee will determine the number of shares of Common Stock subject to the grant of stock awards and the other terms and conditions of the grant including whether the grantee will have the right to vote shares of Common Stock and to receive dividends paid on such shares during the restriction period. Unless the Committee determines otherwise, all unvested stock awards are forfeited if the grantee’s employment or service is terminated for any reason.

 

Stock Appreciation Rights 

 

The Committee may grant SARs to anyone eligible to participate in the Plan. SARs may be granted in connection with, or independently of, any option granted under the Plan. Upon exercise of an SAR, the grantee will be paid an amount equal to the excess of the fair market value of Common Stock on the date of exercise over the base amount of the SAR which base amount will be no less than the fair market value per share of Common Stock on the date the SAR is granted. Such payment to the grantee will be in cash, in shares of Common Stock, or in a combination of cash and shares of Common Stock, as determined by the Committee. The Committee will determine the term of each SAR, which will not exceed 10 years from the date of grant.

 

The base amount of each SAR will be determined by the Committee and will be equal to the per-share exercise price of the related option or, if there is no related option, an amount that is equal to or greater than the fair market value of Common Stock on the date the SAR is granted. The Committee will determine the terms and conditions of SARs, including when they become exercisable. The Committee may accelerate the exercisability of any SARs.

 

Other Stock-Based Awards 

 

The Committee may grant other stock-based awards, which are grants other than options, SARs, stock units, and stock awards. The Committee may grant other stock-based awards to anyone eligible to participate in the Plan. These grants will be based on or measured by shares of Common Stock, and will be payable in cash, in shares of Common Stock, or in a combination of cash and shares of Common Stock. The terms and conditions for other stock-based awards will be determined by the Committee.

 

Deferrals. The Committee may permit or require grantees to defer receipt of payment of cash or delivery of shares of Common Stock that would otherwise be due to the grantee in connection with any stock units or other stock-based awards under the Plan. The Committee will establish rules and procedures applicable to any such deferrals and may provide for interest or other earnings to be paid on such deferrals.

 

Adjustment Provisions. In connection with stock splits, stock dividends, recapitalizations and certain other events affecting Common Stock, the Committee will make adjustments as it deems appropriate in the maximum number of shares of Common Stock reserved for issuance as grants, the maximum number of shares of Common Stock that any individual participating in the Plan may be granted in any year, the number and kind of shares covered by outstanding grants, the kind of shares that may be issued or transferred under the Plan, and the price per share or market value of any outstanding grants. Any fractional shares resulting from such adjustment will be eliminated. In addition, in the event of a change of control, the provisions applicable to a change in control will apply. Any adjustments to outstanding grants will be consistent with section 409A or 422 of the Code, to the extent applicable.

 

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Change of Control. Upon a change of control, and unless otherwise provided in a grant agreement, all outstanding options and SARs held by persons whose employment ends within 24 months thereafter (with exception for cause, as defined by the Committee in a grant agreement) will accelerate and become fully exercisable and any restrictions of conditions on outstanding stock awards, stock units or dividend equivalents will lapse (so-called “double-trigger” vesting).

 

Notwithstanding the foregoing, in the event of a change of control, the Committee may also take any of the following actions with respect to any or all outstanding grants under the Plan.

 

 

Require that grantees surrender their options and SARs in exchange for payment by us, in cash or shares of Common Stock as determined by the Committee, in an amount equal to the amount by which the then fair market value of the shares subject to the grantees’ unexercised options and SARs exceeds the exercise price of the options or the base amount of the SARs, as applicable;

 

After giving grantees the opportunity to exercise their options and SARs, terminate any or all unexercised options and SARs at such time as the Committee deems appropriate; or

 

Determine that outstanding options and SARs that are not exercised will be assumed by, or replaced with comparable options or rights by, the surviving corporation (or a parent or subsidiary of the surviving corporation), and other outstanding grants that remain in effect after the change of control will be converted to similar grants of the surviving corporation (or a parent or subsidiary of the surviving corporation).

 

In general terms, a change of control under the Plan occurs:

 

 

If a person, entity or affiliated group (with certain exceptions) acquires more than 20% of the then outstanding voting securities;

 

If the Company consummates a merger into another entity, unless the holders of the voting shares immediately prior to the merger have at least 80% of the combined voting power of the securities in the merged entity or its parent;

 

If shareholders approve a plan to liquidate or dissolve the Company;

 

If the Company consummates an agreement to sell or dispose of the Company or substantially all of the Company’s assets; or

 

If there is turnover in majority of Board seats over a two year period, other than with replacements that were approved by 2/3rd of the Board members in office before their election.

 

For any grants of awards subject to 409A (discussed below), the payment timing of which is triggered upon a change in control, the transaction constituting a change of control must also constitute a change of control for purposes of Section 409A.

 

Transferability of Grants. Only the grantee may exercise rights under a grant during the grantee’s lifetime. A grantee may not transfer those rights except by will or the laws of descent and distribution; provided, however, that a grantee may transfer a grant other than an ISO pursuant to a domestic relations order. The Committee may also provide in a grant agreement, that a grantee may transfer NQSOs to his or her family members, or one or more trusts or other entities for benefit of or owned by such family members, consistent with applicable securities laws, according to such terms as the Committee may determine.

 

Repricing of Options. Except in relation to transactions that trigger appropriate adjustments in awards (see below), neither the Board nor the Committee can amend the price of outstanding options or SARs under the Plan to reduce the exercise price or cancel such options or SARs in exchange for cash or other awards of options or SARs with an exercise price that is less than the exercise price of the original options or SARs, without prior shareholder approval.

 

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Clawback Policy. All grants made under the Plan are subject to any compensation, clawback or recoupment policy that may be applicable to employees of the Company; as such policy may be in effect from time to time, whether or not approved before or after the effective date of the Plan.

 

Amendment and Termination of the Plan. The Board may amend or terminate the Plan at any time, subject to shareholder approval if such approval is required under any applicable laws or stock exchange requirements.

 

New Plan Benefits. Grants under the 2015 Plan are discretionary, so it is currently not possible to predict the number of shares of Common Stock that will be granted or who will receive grants under the 2015 Plan after the Annual Meeting.

 

Federal Income Tax Consequences of the Plan

 

The federal income tax consequences of grants under the Plan will depend on the type of grant. The following description provides only a general description of the application of federal income tax laws to grants under the Plan. This discussion is intended for the information of shareholders considering how to vote at the Annual Meeting and not as tax guidance to grantees, as consequences may vary with the types of grants made, identity of grantees, and method of payment or settlement. The summary does not address effects of other federal taxes (including possible “golden parachute” excise taxes) or taxes imposed under state, local, or foreign tax laws.

 

From the grantees’ standpoint, as a general rule, ordinary income will be recognized at the time of delivery of shares of Common Stock or payment of cash under the Plan. Future appreciation on shares of Common Stock held beyond the ordinary income recognition event will be taxable as capital gain when shares of Common Stock are sold. The tax rate applicable to capital gain will depend upon how long the grantee holds the shares. The Company, as a general rule, for all awards other than ISOs, will be entitled to a tax deduction that corresponds in time and amount to the ordinary income recognized by the grantee, and the Company will not be entitled to any tax deduction with respect to capital gain income recognized by the grantee.

 

Exceptions to these general rules arise under the following circumstances:

 

(i) If shares of Common Stock, when delivered, are subject to a substantial risk of forfeiture by reason of any employment or performance-related condition, ordinary income taxation and the tax deduction will be delayed until the risk of forfeiture lapses, unless the grantee makes a special election to accelerate taxation under section 83(b) of the Code.

 

(ii) If an employee exercises a stock option that qualifies as an ISO, no ordinary income will be recognized, and the Company will not be entitled to any tax deduction, if shares of Common Stock acquired upon exercise of the stock option are held until the later of one year from the date of exercise and two years from the date of grant. However, if the employee disposes of the shares acquired upon exercise of an ISO before satisfying both holding period requirements, the employee will recognize ordinary income at the time of the disposition equal to the difference between the fair market value of the shares on the date of exercise (or the amount realized on the disposition, if less) and the exercise price, and the Company will be entitled to a tax deduction in that amount. The gain, if any, in excess of the amount recognized as ordinary income will be long-term or short-term capital gain, depending upon the length of time the employee held the shares before the disposition.

 

(iii) A grant may be subject to a 20% tax, in addition to ordinary income tax, at the time the grant becomes vested, plus interest, if the grant constitutes deferred compensation under section 409A of the Code and the requirements of section 409A of the Code are not satisfied.

 

The Company has the right to require that grantees pay an amount necessary to satisfy the federal, state or local tax withholding obligations with respect to grants or exercises of awards. The Company may withhold from other amounts payable to a grantee an amount necessary to satisfy these obligations. The Committee may permit a grantee to satisfy the withholding obligation with respect to grants paid in shares of Common Stock by having shares withheld, at the time grants become taxable, provided that the number of shares withheld does not exceed the individual’s minimum applicable withholding tax rate for federal, state and local tax liabilities.

 

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 Equity Compensation Plan Information

 

The following table summarizes information regarding Bancorp’s equity compensation plans under which Common Stock may be issued to directors, officers and employees of Bancorp or the Bank as of December 31, 2017.  These plans include the 2015 Plan and a prior plan, the 2005 Stock Incentive Plan.  The 2005 Stock Incentive Plan expired in 2015.  For further information on stock-based awards under Bancorp’s equity compensation plans, see note 17 to the consolidated financial statements in Bancorp’s Annual Report on Form 10-K.

 

Plan Category

 

Number of
securities to be
issued upon
exercise of
outstanding
options and SARs

   

Weighted-average
exercise price of
outstanding options
and SARs

   

Number of
securities to be
issued upon vesting
of restricted shares
(1)

   

Number of securities
remaining available for
future issuance under
equity compensation
plans

 

Equity compensation plans approved by shareholders

    704,363     $ 19.51       124,052       302,727  
                                 

Equity compensation plans not approved by shareholders

                       

                                  

 

(1)  In addition to awards of restricted stock and restricted stock units, Bancorp has made grants of performance stock units (“PSUs”) to its executive officers under the 2015 Plan. The number of shares to be issued upon vesting of the PSUs is dependent upon Bancorp achieving certain predefined performance targets and ranges from zero shares to approximately 205,000 shares. As of December 31, 2017, the expected shares to be awarded are 155,497.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AMEND THE 2015 EQUITY COMPENSATION PLAN

 

 

 

ITEM 3. ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

We are asking our shareholders to provide an advisory vote on the compensation of the named executive officers disclosed in the REPORT ON EXECUTIVE COMPENSATION section of this Proxy Statement. We have included this proposal among the items to be considered at the Annual Meeting pursuant to the requirements of Section 14A of the Securities Exchange Act of 1934. While this vote is non-binding on our Company and the Board of Directors, it will provide the Compensation Committee with information regarding investor sentiment about our executive compensation philosophy, policies and practices which the Committee will be able to consider when determining future executive compensation arrangements. Our current policy is to hold an advisory vote on executive compensation each year. We expect to hold the next advisory vote at our 2019 annual meeting of shareholders. Following is a summary of some of the key points of our 2017 executive compensation program. See the REPORT ON EXECUTIVE COMPENSATION section of this Proxy Statement for more information.

 

The pay-for-performance compensation philosophy of the Compensation Committee supports Stock Yards Bancorp’s primary objective of creating value for its shareholders.  The Committee strives to ensure that compensation of Stock Yards Bancorp’s executive officers is market-competitive to attract and retain talented individuals to lead Stock Yards Bancorp and the Bank to growth and higher profitability while maintaining stability and capital strength.  Our executive compensation program has been designed to align managements’ interests with those of our shareholders. In addition, the program seeks to mitigate risks related to compensation. In designing the 2017 compensation program, the Compensation Committee used key performance measurements to motivate our executive officers to achieve short-term and long-term business goals after reviewing peer and market data and the Company’s business expectations for 2017.

 

We believe that the information provided regarding executive compensation in this Proxy Statement demonstrates that our executive compensation program was designed appropriately and is working to maximize shareholder return while mitigating risk and aligning managements’ interests with our shareholders. Accordingly, the Board of Directors recommends that shareholders approve the following advisory resolution:

 

18

 

 

RESOLVED, that the shareholders of Stock Yards Bancorp, Inc. approve, on an advisory basis, the compensation paid to the Company’s named executive officers as disclosed in the Stock Yards Bancorp, Inc. 2018 Proxy Statement pursuant to the executive compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other executive compensation tables and related narratives.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DESCRIBED IN THIS PROXY STATEMENT

 

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Set forth in the following table is the beneficial ownership of our Common Stock as of December 31, 2017 for each person or entity known by us to beneficially own more than five percent of the outstanding shares of our Common Stock; all our directors and executive officers as a group; and directors, executive officers and employees as a group. “Executive officer” means the chairman, president, any vice president in charge of a principal business unit, division or function, or other officer who performs a policy making function or any other person who performs similar policy making functions and is so designated by the Board of Directors. For a description of the voting and investment power with respect to the shares beneficially owned by the nominees for election as directors and named executive officers of Stock Yards Bancorp, see the tables below.

 

                                                                     

   

Amount and Nature

   

Percent of

 
   

of Beneficial

   

Stock Yards Bancorp

 

Name of Beneficial Owner

 

Ownership

   

Common Stock (1)

 
                 

BlackRock, Inc.

    1,545,281  (2)     6.8%  

55 East 52nd Street

               

New York, NY 10055

               
                 

Fidelity Management & Research Company

    1,366,357  (2)     6.0%  

245 Summer Street

               

Boston, MA 02210

               
                 

Directors and executive officers of Bancorp and

    1,746,921  (3)     7.6%  

the Bank as a group (17 persons)

               
                 

Directors, executive officers, and employees of

    2,551,471  (3) (4)     11.0%  

Bancorp and the Bank as a group (526 persons)

               

 

                                   

 

(1)

Shares of Stock Yards Bancorp Common Stock subject to stock options and stock appreciation rights that are currently exercisable or may become exercisable within the following 60 days under Stock Yards Bancorp’s Stock Incentive Plans are deemed outstanding for purposes of computing the percentage of Stock Yards Bancorp Common Stock beneficially owned by the person and group holding such options and stock appreciation rights but are not deemed outstanding for purposes of computing the percentage of Stock Yards Bancorp Common Stock beneficially owned by any other person or group.

 

(2)

Based upon Schedule 13G filed with the SEC as of December 31, 2017.

 

19

 

 

(3)

Includes 362,563 shares held by directors and executive officers subject to outstanding stock options and stock appreciation rights that are currently exercisable or may become exercisable within the following 60 days and 103,796 shares held in KSOP accounts.

 

(4)

The shares held by the group include those described in note (3) above and 280,734 shares held by non-executive officers and employees of the Bank. In addition, includes 110,243 shares subject to stock options and stock appreciation rights that are currently exercisable or may become exercisable within the following 60 days held by non-executive officers of the Bank and 413,573 shares held by non-executive officers and employees of the Bank in their KSOP accounts, with sole voting power and investment power. Stock Yards Bancorp has not undertaken the expense and effort of compiling the number of shares other officers and employees of the Bank may hold other than directly in their own name.

 

The following table shows the beneficial ownership of Stock Yards Bancorp, Inc.’s Common Stock as of December 31, 2017 by each nominee for election as directors and each named executive officer.

 

Name

 

Number of Shares Beneficially

Owned
(1) (2) (3) (4)

   

Percent of Stock Yards

Bancorp Common Stock

 
                         

Paul J. Bickel III

    4,250       (6 )     (5 )

J. McCauley Brown

    9,101       (7 )     (5 )

Nancy B. Davis

    127,991               (5 )

Charles R. Edinger III

    341,520       (8 )     1.48 %

David P. Heintzman

    332,887       (9 )     1.45 %

Donna L. Heitzman

    3,493               (5 )

Carl G. Herde

    41,948               (5 )

James A. Hillebrand

    181,151       (10 )     (5 )

Richard A. Lechleiter

    22,073       (11 )     (5 )

Richard Northern

    43,075               (5 )

Phillip S. Poindexter

    71,867               (5 )

Stephen M. Priebe

    16,736               (5 )

Norman Tasman

    302,146       (12 )     1.31 %

Kathy C. Thompson

    85,978               (5 )

 

 

(1)

Includes, where noted, shares in which members of the nominee’s or executive officer’s immediate family have a beneficial interest. The column does not, however, include the interest of certain of the listed nominees or executive officer in shares held by other non-dependent family members in their own right. In each case, the principal disclaims beneficial ownership of any such shares, and declares that the listing in this Proxy Statement should not be construed as an admission that the principal is the beneficial owner of any such securities.

 

20

 

 

(2)

Includes shares subject to outstanding stock options and SARs that are currently exercisable or may become exercisable within the following 60 days and unvested restricted shares issued under Stock Yards Bancorp’s Stock Incentive Plan(s) as follows:

 

Name

 

Number of
Stock Options
and SARs

   

Number of
Unvested Restricted
Stock Grants

 

Bickel

    -       -  

Brown

    600       585  

Davis

    24,435       449  

Edinger

    -       585  

Heintzman

    146,170       862  

Heitzman

    200       585  

Herde

    -       585  

Hillebrand

    93,074       -  

Lechleiter

    -       585  

Northern

    1,500       585  

Poindexter

    36,647       261  

Priebe

    1,500       585  

Tasman

    -       585  

Thompson

    16,770       778  

 

 

(3)

Includes shares held in Directors’ Deferred Compensation Plan as follows:

 

   

Number

 

Name                        

 

of Shares

 

Bickel

    -  

Brown

    1,387  

Edinger

    36,725  

Heitzman

    1,208  

Herde

    20,024  

Hillebrand

    427  

Lechleiter

    17,847  

Northern

    17,760  

Priebe

    11,985  

Tasman

    61,158  

 

(4)

Includes shares held in the Company’s KSOP as follows:

 

   

Number

 

Name                        

 

of Shares

 

Davis

    265  

Heintzman

    14,846  

Hillebrand

    21,297  

Poindexter

    12,087  

Thompson

    31,768  

 

(5)

Less than one percent of outstanding Stock Yards Bancorp Common Stock.

(6)

Held jointly by Mr. Bickel and his wife.

(7)

Includes 3,987 shares owned by Mr. Brown’s wife.

(8)

Includes 102,322 shares owned by Mr. Edinger’s wife.

(9)

Includes 6,061 shares owned by Mr. Heintzman’s wife.

(10)

Includes 22,500 shares held jointly by Mr. Hillebrand and his wife; 11,634 shares owned by Mr. Hillebrand’s wife; and 586 shares held as custodian for children.

(11)

Includes 900 shares held as custodian for children and 1,050 shares owned by Mr. Lechleiter’s mother.

(12)

Includes 89,038 shares held jointly by Mr. Tasman and his wife; and 7,027 shares held as custodian for their son.

 

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, our directors and persons who own more than 10% of a registered class of Stock Yards Bancorp’s Common Stock to file initial reports of ownership and changes in ownership with the SEC and the NASDAQ. Such executive officers, directors and shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to us and written representations from the applicable executive officers and our directors, all persons subject to the reporting requirements of Section 16(a) filed the required reports on a timely basis for the year ended December 31, 2017, with the exception of Ms. Heitzman, who purchased 500 shares on October 30, 2017 and reported the transaction on December 21, 2017.

 

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EXECUTIVE COMPENSATION AND OTHER INFORMATION

 

REPORT ON EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis (“CD&A”) reflects our 2017 executive compensation program with respect to the named executive officers (“NEOs”) whose compensation is detailed in the compensation tables that follow the CD&A. In this discussion, we explain our compensation philosophy and program, factors considered by the Compensation Committee (the “Committee”) in making compensation decisions and additional details of our practices.

 

Our 2017 NEOs are:

 

 

David P. Heintzman, Chairman and Chief Executive Officer (“CEO”);

 

Nancy B. Davis, Chief Financial Officer (“CFO”);

 

James A. Hillebrand, President;

 

Kathy C. Thompson, Senior Executive Vice President and Manager of the Wealth Management and Trust (“WM&T”) Department; and

 

Phillip S. Poindexter, Executive Vice President and Chief Lending Officer.

 

Executive Summary

 

2017 Business Highlights

 

 

Solid loan growth which increased the Company’s loan portfolio almost 5%;

 

 

Consistently strong net interest margin;

 

 

Credit quality remained at historically strong levels; and

 

 

Continued growth in fee income, led by the Wealth Management and Trust Group.

            

Year Ended December 31,

 

2017

   

2016

 

Net income per share, diluted (1)

  $ 1.66     $ 1.80  

Return on average equity (“ROAE”) (2)

    11.61 %     13.49 %

Return on average assets (“ROAA”) (2)

    1.25 %     1.42 %

 

 

(1)

Net income for the year 2017 reflected a non-cash charge of $5.9 million or $0.25 per diluted share to revalue the Company’s net deferred tax asset in connection with federal income tax legislation enacted on December 22, 2017.

 

(2)

The $5.9 million charge described above reduced 2017 ROAE 1.81% and ROAA 0.20%.

 

The Company’s 2017 ROAA continued our trend of significantly outperforming similar community banks, as measured by our compensation peer group (see page 29 for a listing of the compensation peer group). The following chart illustrates the Company ROAA compared to that of its compensation peer group.

 

   

Compensation Peer Group

   

Stock Yards Bancorp

 

2017 ROAA

    0.83 %     0.97 %     1.02 %     1.25%  

Percentile

    25th       50th       75th       94th  

 

The Company’s actual performance in 2017 represents a 29% premium on earnings measured against the peer median.

 

23

 

 

Additionally, the graphs below illustrate superior long-term performance of the Company.

 

      

 

 

 

         

 

(1)

Diluted EPS for 2017 was $1.66 which included a $5.9 million or $0.25 per diluted share non-cash charge to revalue the Company’s net deferred tax asset in connection with enactment of the Tax Cut and Jobs Act in December, 2017. The graph above reflects both EPS in accordance with US GAAP and adjusted diluted earnings per share, a non-GAAP financial measure.

   
  The following table provides a reconciliation of diluted earnings per share for 2017, in accordance with US GAAP, to adjusted diluted earnings per share, a non-GAAP financial measure, which excludes the effect of the $5.9 million non-cash charge included in 2017 net income to revalue the Company’s deferred tax asset in conjunction with enactment of the Tax Cut and Jobs Act in December 2017. The Company provides this reconciliation to demonstrate the effect of tax reform on 2017 diluted earnings per share.

 

Net income per share, diluted, as reported

  $ 1.66  

Per share effect of tax reform

    0.25  

Adjusted net income per share, diluted, excluding the effect of tax reform

  $ 1.91  

 

24

 

 

Mix of Pay

 

We believe that our executive compensation program strikes a very appropriate balance between fixed and variable pay as well as short and long-term pay. The charts below represent the mix of 2017 direct compensation at Target and Maximum performance.

 

2017 Target Compensation

 

           

 

2017 Maximum Compensation

 

           

 

 

As demonstrated above, variable pay at Target for the CEO represents 52% of direct compensation. However, when the Bank performs at Maximum, payouts for variable pay significantly increase commensurate with that outperformance. Short-term cash compensation can maximize at 100% of base salary and long-term equity awards maximize at 130% of base salary for the CEO. At Maximum, base salary, or fixed pay, represents 31% of direct compensation for the CEO, while variable, or at-risk pay, represents 69% of direct compensation, clearly rewarding superior performance.

 

Say On Pay Results

 

At the 2017 Annual Meeting of Shareholders, 97.3% of the votes were cast in favor of the advisory vote to approve executive compensation, commonly known as “Say on Pay”. This vote is consistent with the 2016 Say on Pay result. The Committee believes its compensations practices are properly aligned with the interests of shareholders and that the high level of shareholder support of our 2017 Say on Pay proposal indicates that most shareholders share the Committee’s view.

 

25

 

 

Recently Adopted Governance Best Practices

 

The Committee continually reviews its policies and procedures to ensure they are consistent with strong corporate governance guidelines. This also includes education around governance best practices and their bearing on the Company.

 

In 2018, the Committee approved an amendment to the 2015 Omnibus Equity Compensation Plan to allow dividends to accrue but prohibit payment of dividends on nonvested equity awards. Also in 2018, the Nominating and Corporate Governance Committee amended the provisions of the Company’s corporate governance guidelines regarding independent director common stock ownership requirements. The revised guidelines require new directors to join the Board with the greater of 1,000 shares or $50,000 of Company stock and own Company stock valued at $200,000 or more within three years of joining.

 

Beginning with grants made in 2015, all of our performance share grant agreements were modified to require all NEOs to hold any shares earned after the three year performance period for a period of 12 months (net of shares withheld for taxes). We instituted this policy to further encourage an ownership culture among our executive team, and to enhance long-term alignment between executives and shareholders.

 

Connecting Pay and Performance

 

As shown throughout this document, Stock Yards Bancorp continues to be one of the top-performing banks in the country with regard to generating corporate profits for shareholders. In conjunction, our shareholders have been rewarded with superior results over the long term. In particular, our three and ten-year total shareholder returns have outpaced the banking market as well as the broader market. In spite of this strong long-term performance, the Company’s TSR performance over the one-year period ended December 31, 2017 did lag its peers. We believe this stock price underperformance was significantly driven by an unusual run up in our stock price in late 2016 which produced an unsustainable 90.6% total return for 2016. While the community banking market as a whole experienced significant stock price appreciation in late 2016, the increase in Stock Yard’s price was significantly higher than peers and contributed to our larger price decline in 2017.

 

The 10-year TSR is especially indicative of strong long-term performance, in that it covers a complete financial cycle, beginning before the 2008 financial crisis and includes results through and following the crisis. As the table below indicates, our shareholders have earned strong returns over medium and long-term time horizons.

 

   

Median Total Shareholder Return of Peer Groups (1)

 
   

One Year

Ended

December 31, 2017

   

Three Year

Ended

December 31, 2017

   

Ten Year

Ended

December 31, 2017

 
                         

Compensation Peer Group (2)

    4.7 %     65.8 %     137.8 %

Midwest banks $1.5-$6.0 billion in assets (3)

    3.7 %     78.4 %     169.9 %

Nationwide banks $1.5-$6.0 billion in assets (4)

    4.1 %     66.9 %     128.3 %

SYBT

    (18.0 )%     82.0 %     213.7 %

Source: S&P Global Market Intelligence. Market pricing data as of 12/29/17.

(1)

Total Return equals the return of a security over a period, including price appreciation and the reinvestment of dividends. Dividends are assumed to be reinvested at the closing price of the security on the ex-date of the dividend.

(2)

See page 29 for a listing of the compensation peer group.

(3)

Midwest peers representing 36 major exchange-traded banks (Nasdaq, NYSE and NYSE Mkt) headquartered in the Midwest with total assets between $1.5B and $6.0B. Excludes merger targets.

(4)

Nationwide peers representing 134 major exchange-traded banks (Nasdaq, NYSE and NYSE Mkt) headquartered in the U.S. with total assets between $1.5B and $6.0B. Excludes merger targets.

 

26

 

 

The Committee believes stock price follows earnings growth over the long term, and management should be incented with respect to performance measures related to the operations of the Company. Over the short term, stock price is not controllable by management and should not be a tool to judge management’s performance. Often, price-to-earnings and price-to-book ratios expand or contract based on economic and broad market conditions, and the entire financial services sector is impacted to some degree. We believe our earnings per share growth aligns management’s interests with shareholders and drives total return over the long term.

 

Additionally, the Committee believes that it uses appropriately challenging targets in setting goals for both short-term and long-term incentives, and that the Company’s financial results must far exceed peer median performance in order to achieve Target-level awards. For example, under the Company’s performance share goals, executives do not achieve Target award vesting unless our ROAA exceeds the 75th percentile of our comparator group (which is comprised of all public banks with $1.5 to $6.0 billion in assets), and no awards are earned if our ROAA does not exceed the 50th percentile of our comparator group.

 

 

Compensation Philosophy and Process

 

Objective of the Company’s Compensation Program

 

Our compensation program is designed to achieve the following objectives:

 

 

To attract, retain, and motivate top executive talent;

 

To link overall compensation to company performance;

 

To align executive interests with shareholder interests;

 

To place at risk a significant portion of total compensation, making it contingent on Company performance while remaining consistent with our risk management policies; and

 

To support the Company’s objective of creating shareholder value without taking unnecessary risks.

 

The Committee believes that Bancorp’s pay policies and practices do not create risks reasonably likely to have a material adverse effect on the Company.

 

 

Role of the Compensation Committee

 

The Compensation Committee assists our Board in establishing the compensation of our executive officers. The Compensation Committee is responsible for annually assessing the performance of the eight executive officers including the NEOs and for determining their annual salary, incentive (short- and long-term) compensation goals and payout/grant levels. Each of the three members of our Compensation Committee is independent as is defined under NASDAQ listing standards. The Compensation Committee retains an independent executive compensation consultant to assist in evaluating the compensation practices at the Company and to provide advice and ongoing recommendations regarding executive compensation consistent with our business goals and pay philosophy.

 

In 2016, the Compensation Committee engaged McLagan to provide executive compensation consulting services regarding our 2017 compensation programs and pay levels. The scope of McLagan’s executive compensation consulting assignment included the ongoing evaluation of the appropriateness of our peer group of banks as well as a comparison of management’s base salaries, annual cash incentive awards and equity-based compensation to those paid by the banks in the peer bank group (see page 29). The Compensation Committee used data developed by McLagan in its determination of overall competitive pay practices.

 

McLagan performed services solely on behalf of the Compensation Committee and has no other relationship with Bancorp or its management. The Compensation Committee has assessed the independence of McLagan and has concluded that McLagan’s work did not involve any conflicts of interest.

 

27

 

 

Compensation Committee Actions

 

The Compensation Committee held six meetings during 2017, and its actions included finalizing all aspects of 2017 executive compensation based on recommendations made by McLagan. In addition, the Committee reviewed its compensation philosophy with McLagan, reviewed the Committee charter, reviewed the company-wide retirement plan programs, reviewed the 2018 Bancorp operating budget and its effect on incentive compensation programs for 2018 (including setting the EPS benchmarks for short-term compensation payouts), discussed executive succession planning, and received education on compensation trends, compliance issues and best practices.

 

Role of Executives in Compensation Committee Deliberations

 

The Compensation Committee works closely with the CEO, who provides administrative support to the Compensation Committee. The CEO attends Compensation Committee meetings to discuss Bancorp’s compensation and performance matters. The general counsel of Bancorp works with the Committee Chair to provide administrative support and, along with other executives, provide pertinent financial, tax, accounting, or operational information. Executives in attendance may provide their insights and suggestions, but only Compensation Committee members may vote on decisions regarding executive compensation. The Committee regularly conducts a portion of its business in executive session.

 

For each executive officer other than himself, the CEO makes recommendations to the Compensation Committee regarding base salary. The Compensation Committee reviews recommendations made by the CEO and information from the executive compensation consultant review. The Committee’s decisions are based on a variety of factors, including short- and long-term Company performance, the officer’s level of responsibility, an assessment of individual performance, and competitive market data.

 

Peer Selection Process

 

Each year the Compensation Committee re-evaluates and updates the peer group, with the consultant’s guidance, to ensure ongoing relevance. The Compensation Committee uses this information for making compensation decisions, such as changes to base salaries, annual cash incentive awards, and long-term equity awards.

 

For 2017 compensation, the Committee worked with the consultant in 2016 to select peer banks using the following criteria:

 

 

Located in the continental United States;

 

Total assets less than $7 billion;

 

Total revenue from $50 to $300 million;

 

Location in a metropolitan area with a population of 200,000 or more. Bancorp competes against money center, regional, and community banks in its three primary markets. Competition for talented executives is greater in larger markets than in smaller communities, which often drives higher levels of compensation in those larger markets;

 

Insider ownership less than 35% with no single holder owning more than 15%. Certain banks comparable in size to Bancorp are controlled by a family or other group and pay for top executives may not be indicative of market conditions if the executive is also a substantial owner;

 

Non-interest income greater than 12.5% of revenue with WM&T revenue greater than $3.0 million. Bancorp has a large portion of non-interest income earned by its WM&T business;

 

Market capitalization greater than $100 million;

 

Non-performing assets / total assets less than 3.0%; and

 

Return on average assets greater than .5%.

 

28

 

 

The table below lists the peer banks approved by the Compensation Committee for 2017.

 

Bryn Mawr Bank Corporation, Pennsylvania (BMTC)

Orrstown Financial Services, Inc., Pennsylvania (ORRF)

City Holding Company, West Virginia (CHCO)

Park Sterling Corporation, North Carolina (PSTB)

CoBiz Financial Inc., Colorado (COBZ)

Peapack-Gladstone Financial Corporation, New Jersey (PGC)

Enterprise Bancorp, Inc., Massachusetts (EBTC)

QCR Holdings, Inc., Illinois (QCRH)

Enterprise Financial Services, Missouri (EFSC)

Sandy Spring Bancorp, Inc., Maryland (SASR)

Farmers National Banc Corp., Ohio (FMNB)

Seacoast Banking Corp. of Florida, Florida (SBCF)

First Busey Corporation, Illinois (BUSE)

Southside Bancshares, Inc., Texas (SBSI)

Merchants Bancshares, Inc., Vermont (MBVT)

Univest Corporation of Pennsylvania, Pennsylvania (UVSP)

Nicolet Bankshares, Inc., Wisconsin (NCBS)

Washington Trust Bancorp, Inc., Rhode Island (WASH)

Old Second Bancorp Inc., Illinois (OSBC)

WSFS Financial Corporation, Delaware (WSFS)

 

 

 The asset size, net income and market capitalization of the Peer Group as of December 31, 2017 compared to our asset size, net income and market capitalization is set forth in the table below. Merchants Bancshares and Park Sterling Corporation were acquired in 2017 and thus are excluded from the table.

 

Peer Bank

 

Total Assets (1)

   

Net Income (1)

   

Market Capitalization (1)

 
   

As of year

end 2017

   

For year
ended 201
7

   

As of year

end 2017

 

Bryn Mawr Bank Corporation

  $ 4,450     $ 23.0     $ 891.2  

City Holding Company

    4,132       54.3       1,053.8  

CoBiz Financial Inc.

    3,846       32.9       843.9  

Enterprise Bancorp, Inc.

    2,818       19.4       395.3  

Enterprise Financial Services

    5,289       48.2       1,042.5  

Farmers National Banc Corp.

    2,159       22.7       406.3  

First Busey Corporation

    7,861       62.7       1,457.6  

Nicolet Bankshares, Inc.

    2,932       33.4       537.4  

Old Second Bancorp, Inc.

    2,383       15.1       404.4  

Orrstown Financial Services, Inc.

    1,559       8.9       210.8  

Peapack-Gladstone Financial Corporation

    4,261       36.5       652.1  

QCR Holdings, Inc.

    3,983       35.7       596.4  

Sandy Spring Bancorp, Inc.

    5,447       53.2       936.3  

Seacoast Banking Corp. of Florida

    5,810       42.9       1,182.8  

Southside Bancshares, Inc.

    6,498       54.3       1,178.8  

Univest Corporation of Pennsylvania

    4,560       44.1       822.8  

Washington Trust Bancorp, Inc.

    4,530       45.89       917.3  

WSFS Financial Corporation

    6,997       59.6       1,503.4  

Median

  $ 4,356     $ 39.7     $ 867.6  

Stock Yards Bancorp, Inc.

  $ 3,235     $ 38.0     $ 855.0  

Source: S&P Global Market Intelligence 

 

 

On a total asset basis, Bancorp is smaller than the median of the peer group; however, on net income and market capitalization the Company approximates the median. On a ROAA and ROAE basis as shown below, Bancorp ranks well above the 90th percentile of the peer group. For 2017 and consistently for many years, Bancorp performed at or near the 90th percentile of not only this peer group but a broader peer group of similar sized banks.

 

   

Total Assets (1)

   

ROAA

   

ROAE

 

25th percentile

  $ 3,161       0.83 %     8.21 %

50th percentile

  $ 4,356       0.97 %     9.05 %

75th percentile

  $ 5,408       1.02 %     10.12 %

Stock Yards Bancorp

  $ 3,235       1.25 %     11.61 %

 

(1)

Dollars in millions

 

29

 

 

Benchmarking 2017 Compensation

 

The Compensation Committee considers a number of factors in determining appropriate pay levels and plan designs for our executive officers. These factors include competitive compensation data from peer companies and the banking market in general. The Compensation Committee does not view competitive market prescriptively or tie the compensation levels of our executives to specific market percentiles. Instead, the Committee applies judgment and discretion in establishing targeted pay levels, taking into account not only competitive market data, but also factors such as company, business unit and individual performance, scope of responsibility, internal pay equity, skill sets, leadership potential and succession planning.

 

 

Compensation Components

 

Compensation

Component

 

Purpose

 

Link to Performance

 

Fixed or
Performance
Based

 

Short
or
Long-term

                 

Base salary

 

Attract and retain executives through market competitive payments

 

Based on each executive's performance and responsibilities. Used as a basis for short and long-term incentive award goals.

 

Fixed

 

Short-term

                 

Cash incentives

 

Reward executives for achievement of certain annual financial goals

 

Incentives are 100% quantitative to goals important for near term financial success. Includes a measurement of our corporate performance for all executives, as well as business line performance for certain executives.

 

Performance

 

Short-term

                 

Performance stock units

 

Reward executives for sustained long-term performance while aligning the value of awards with the success of our shareholders

 

Awards vest based on achievement of three-year goals on EPS growth and Return on Assets versus peers.

 

Performance

 

Long-term

                 

Stock appreciation rights

 

Align interests of executives with shareholders by rewarding increases in our stock price.

 

Awards only have value if stock price increases.

 

Performance

 

Long-term

                 

Other executive
compensation

 

Primarily Company-matching retirement contributions

 

Success of Company allows it to approve benefit plan matching levels.

 

Linked to performance

 

Short and long-term

 

 

 

Base Salary

 

We provide a base salary as the fundamental element of executive compensation. In support of our focus to attract and retain top talent, our philosophy is to pay base salaries that are within a competitive range of market practice. Individual pay will vary within the range depending on each executive’s position, performance, experience, and contribution. Salaries are the basis from which incentives and other select benefits are derived.

 

 

Executive

 

2016

Base Salary

   

2017

Base Salary

   

Percentage

Change

 

Heintzman

  $ 550,000     $ 561,000       2.0%  

Davis

  $ 270,000     $ 280,000       3.7%  

Hillebrand

  $ 400,000     $ 400,000       0.0%  

Thompson

  $ 360,000     $ 360,000       0.0%  

Poindexter

  $ 300,000     $ 300,000       0.0%  

 

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Short-Term Cash Incentives

 

The objective of annual cash incentive compensation is to deliver variable compensation that is conditioned on the attainment of certain financial, departmental and/or operating results of Bancorp. Therefore, the Committee established an incentive program based upon the achievement of certain earnings per share goals as well as line of business goals applicable to specific officers’ duties. The table below summarizes the short-term incentive targets and actual payments for 2017 performance.

 

   

Target % of Base

Salary

   

Target $

   

Actual Earned

 

Heintzman

    50%     $ 280,500     $ 336,600  

Davis

    30%     $ 84,000     $ 100,800  

Hillebrand

    40%     $ 160,000     $ 192,000  

Thompson

    35%     $ 126,000     $ 141,750  

Poindexter

    35%     $ 105,000     $ 78,630  

 

 

Mr. Heintzman, Ms. Davis and Mr. Hillebrand

 

For 2017, the determination as to whether cash incentives would be paid to Mr. Heintzman and two non-line of business executive officers, Ms. Davis and Mr. Hillebrand, was based solely upon the achievement of diluted earnings per share (“EPS”) objectives as set forth below.

 

The Committee strongly supports the use of EPS exclusively in the determining short-term cash incentive for certain executives without specific line of business oversight. The Committee believes that EPS, over the long-term, drives total shareholder return. Oftentimes boards use several goals to focus management on specific operational objectives while also balancing credit quality and other risks. With virtually all areas of the Company operating at high performance levels and operating ratios at superior levels, growth in EPS should be, and is, the primary focus of the management team. Establishing the appropriate mix of revenue growth, expense control measures, risk profile and other tactics should result in higher EPS over time. Therefore, the Committee believes aligning pay with EPS growth gives management the appropriate incentive to make the best decisions.

 

Target performance level for the diluted EPS goal represented a 4.4% increase in diluted EPS over 2016. With the Company’s ROAA performance historically being above the 90th percentile of peers, the Committee believed these goals to be appropriately challenging. As the Committee was setting incentive goals for 2017, they believed it to be prudent to exclude the effect, positive or negative, on EPS incentive goal achievement of any change in federal income tax law in 2017.

 

31

 

 

The annual cash incentive formula includes increasingly higher payout percentages for corresponding higher EPS levels, further reinforcing the Committee’s pay-for-performance philosophy. EPS targets and corresponding bonus percentages for 2017 were as follows:

 

   

Bancorp

           

Bonus as a Percentage of Base Salary

 
   

EPS (1)

   

EPS Growth

   

Mr. Heintzman

   

Ms. Davis

   

Mr. Hillebrand

 
                                         

Threshold

  $ 1.80       0.0 %     10 %     6 %     8 %
    $ 1.82       1.1 %     20 %     12 %     16 %
    $ 1.84       2.2 %     30 %     18 %     24 %
    $ 1.86       3.3 %     40 %     24 %     32 %

Target

  $ 1.88       4.4 %     50 %     30 %     40 %
    $ 1.90       5.6 %     60 %     36 %     48 %
    $ 1.92       6.7 %     70 %     42 %     56 %
    $ 1.94       7.8 %     80 %     48 %     64 %
    $ 1.96       8.9 %     90 %     54 %     72 %

Maximum

 

$

1.98 or greater       10.0 %     100 %     60 %     80 %

Actual Results

  $ 1.91 (1)       6.1 %     60 %     36 %     48 %

 

(1)   Per plan parameters detailed above, the net income effect of the Tax Cuts and Jobs Act on 2017 EPS was excluded from the 2017 EPS goals. Actual EPS was $1.66 after a $0.25 charge to revalue the Company’s net deferred tax assets.

 

 

For 2017, based on these EPS results, the following incentive payments were made:

 


Name

 

2017 Base
Salary

   

Incentive
Percentage

   

Incentive
Payment

 

Heintzman

  $ 561,000       60%     $ 336,600  

Davis

  $ 280,000       36%     $ 100,800  

Hillebrand

  $ 400,000       48%     $ 192,000  

 

 

Ms. Thompson

 

Ms. Thompson’s short-term incentive includes three components: departmental gross revenues, income before overhead allocations, and consolidated EPS of the Company.

 

We believe it is important for Ms. Thompson to have both line of business and overall bank performance components to her short-term incentive plan as growth in departmental profitability directly affects the profitability of the Company and significantly enhances shareholder value. Not only is the WM&T department a significant contributor to EPS, but the business referrals from this department to other lines of business are significant; therefore, the Committee believes Ms. Thompson should share in the overall success of the Company. Ms. Thompson’s incentive is weighted 75% for her line of business and 25% for overall Company performance, and the Compensation Committee considers her line of business goals to be appropriately challenging to attain. The matrix used to compute the incentive award, shown below, is structured such that achievement of target performance in all categories results in a cash incentive equal to 35% of base salary. Respective targets and corresponding bonus percentages for Ms. Thompson’s line of business components are as follows:

 

32

 

 

Line of Business Component

 

   

Gross revenues

   

Income before overhead allocation and taxes

 
   

Percentage

   

Bonus as

   

Percentage

   

Bonus as

 
   

Increase over

   

Percentage

   

Increase over

   

Percentage

 
   

Prior Year

   

of Base Salary

   

Prior Year

   

of Base Salary

 

Threshold

    1%         2.625%         1%         2.625%    
      3%         5.250%         2%         5.250%    
      4%         7.875%         3%         7.875%    
      5%         10.500%         4%         10.500%    

Target

    6%         13.125%         5%         13.125%    
      7%         15.750%         6%         15.750%    
      8%         18.375%         7%         18.375%    
      9%         21.000%         8%         21.000%    
      10%         23.625%         9%         23.625%    

Maximum

 

 

11%  or greater       26.250%      

10%

 or greater       26.250%    

Actual Results

    7%         15.750%         5%         13.125%    

 

 

EPS Component

 

                Bonus as  
   

Bancorp

   

EPS

   

Percentage of

 
   

EPS (1)

   

Growth

   

Base Salary

 

Threshold

  $ 1.80       0.0%         1.75%    
    $ 1.82       1.1%         3.50%    
    $ 1.84       2.2%         5.25%    
    $ 1.86       3.3%         7.00%    

Target

  $ 1.88       4.4%         8.75%    
    $ 1.90       5.6%         10.50%    
    $ 1.92       6.7%         12.25%    
    $ 1.94       7.8%         14.00%    
    $ 1.96       8.9%         15.75%    

Maximum

 

$

1.98 or greater       10.0%         17.50%    

Actual Results

  $ 1.91       6.1%         10.50%    

 

(1) Per plan parameters detailed above, the net income effect of the Tax Cuts and Jobs Act on 2017 EPS was excluded from the 2017 EPS goals. Actual EPS was $1.66 after a $0.25 charge to revalue the Company’s net deferred tax assets.

 

 

In summary, the following details the components of Ms. Thompson’s 2017 short term cash incentive.

 

Line of business gross revenue

    15.750 %

Line of business income before overhead allocation and taxes

    13.125 %

EPS component

    10.500 %

Total

    39.375 %

 

For 2017, Ms. Thompson received a cash incentive of $141,750.

 

 

Mr. Poindexter

 

The Committee believes its incentive matrix plan for Mr. Poindexter drives achievement of the Company’s annual performance goals to support its strategic business objectives and promote the attainment of specific financial goals while encouraging teamwork, policy compliance and risk avoidance. Mr. Poindexter’s incentive is weighted 75% for his line of business and 25% for overall Company performance. Having a bank wide goal encourages referrals across department lines which ultimately return a higher EPS to the Bancorp.

 

33

 

 

Line of Business Component 

 

Mr. Poindexter’s line of business bonus consists of a matrix of all areas of his responsibility including: Commercial Banking, Private Banking, Corporate Cash Management, International, and Correspondent Banking. The Commercial Banking areas are the source of significant loan and deposit growth. Net interest income comprises approximately two-thirds of the Company’s consolidated revenues. Growth in these areas significantly impacts the profitably of the Company. Mr. Poindexter’s matrix assigns various weights to several categories including: net loan and deposit growth, related fee income, credit quality and overall management. The program requires attainment of a minimum of 50 points in aggregate for any incentive bonus to be paid. Additionally, certain point deductions are considered to promote asset quality including deductions for higher than expected loan provisioning and non-compliance with established customer service standards. Conversely, better than expected credit quality provides additional points. The matrix used to compute the incentive award, shown below, is structured such that achievement of target performance in all categories results in a cash incentive for his line of business component equal to 26.25% of base salary. Goals are considered appropriately challenging and difficult to achieve.

 

The loan growth component of Mr. Poindexter’s incentive plan is weighted the highest. This goal is based on growth of loans outstanding rather than gross loan production. More specifically, loan growth is measured as average loans outstanding year over year. While the Company had excellent loan production in 2017 of approximately $665 million, average loan balance growth for the year was only 5%, with most of that increase occurring in the fourth quarter and thus affecting average balances minimally.

 

The following is a summary of Mr. Poindexter’s performance under the short-term incentive plan.

 

Specific

Components

 

Component Weight at

Target Performance

   

Departmental

Points Earned

 

Loan growth

    50 %     16.49  

Non-interest deposit growth

    15 %     0.00  

Interest bearing deposit growth

    5 %     0.00  

Loan fees

    5 %     6.28  

Deposit service charge revenue

    5 %     1.04  

Corporate cash management revenue

    5 %     5.11  

Credit card revenue

    5 %     5.84  

Credit quality

    10 %     20.00  

Total

    100 %     59.83  

 

 

The following summarizes the line of business component of Mr. Poindexter’s parameter of the plan.

 

Bonus as a Percentage of Salary

 

Threshold

   

Target

   

Maximum

   

Actual

 
50       100       200       59.83  
13.125%       26.25%       52.50%       15.71%  

 

34

 

 

EPS Component

 

With commercial banking being the largest contributor to earnings, the Committee believes it is important to keep Mr. Poindexter not only focused on growth but on expense control as well. Additionally, this component is extremely sensitive to asset quality as higher provisioning and chargeoffs directly impact EPS.

 

   

Bancorp
EPS (1)

   

EPS
Growth

   

Bonus as

Percentage of Base

Salary

 

Threshold

  $ 1.80       0.0%         1.75%    
    $ 1.82       1.1%         3.50%    
    $ 1.84       2.2%         5.25%    
    $ 1.86       3.3%         7.00%    

Target

  $ 1.88       4.5%         8.75%    
    $ 1.90       5.6%         10.50%    
    $ 1.92       6.7%         12.25%    
    $ 1.94       7.8%         14.00%    
    $ 1.96       8.9%         15.75%    

Maximum

 

$

1.98 or greater       10.0%         17.50%    

Actual Results

  $ 1.91       6.1%         10.50%    

 

(1)

Per plan parameters detailed above, the net income effect of the Tax Cuts and Jobs Act on 2017 EPS was excluded from the 2017 EPS goals. Actual EPS was $1.66 after a $0.25 charge to revalue the Company’s net deferred tax assets.

 

 

For 2017, Mr. Poindexter achieved 59.83 points under his line of business matrix plan resulting in a bonus equal to 15.71% of salary. Additionally, Mr. Poindexter received a bonus under his EPS component equal to 10.5% of salary. In aggregate, Mr. Poindexter earned a cash incentive of 26.21% of base salary, or $78,630.

 

 

Long-Term Incentives

 

The Committee believes that long-term incentive stock awards effectively align executives with interests of shareholders by providing individuals who have responsibility for management and growth of the Company with an opportunity to increase their ownership of the Company's Common Stock and to have a meaningful interest in the future of the Company.  In addition, equity awards allow Bancorp to effectively compete for executive talent both with other publicly traded banks, that regularly offer equity as part of the executive compensation program, and non-public banks whose lack of equity awards can put them at a competitive disadvantage.

 

Committee’s Equity Award Philosophy

 

The Company’s 2015 Omnibus Equity Compensation Plan is aligned with shareholders’ interests in the following ways:

 

 

Includes a double-trigger for accelerated vesting upon a change in control;

 

Includes a clawback policy;

 

Requires a minimum vesting period of one year;

 

Excludes liberal share recycling; and

 

Prohibits repricing of SARs or options or buy-out of underwater awards without shareholder approval.

 

35

 

 

In addition, our grant practices demonstrate a commitment to performance-based compensation tied to long-term shareholder value.

 

 

The Committee will generally require a minimum post-vesting holding period of one year in certain grant agreements for executive officers (net of a portion which may be sold to pay income taxes);

 

Executives receive stock appreciation rights which gain value only through stock price appreciation;

 

Vesting of annual performance unit grants to executives is based on three-year measurements of earnings per share growth and return on assets relative to peers, both of which should contribute to increases in shareholder value;

 

Stock appreciation rights vest over five years; and

 

No dividends are accrued or paid on performance unit grants until grants are earned.

 

 

2017 Equity Awards

 

In 2017, the Committee continued its historical practice of having performance-based awards at target constitute 75% of the grant date value of the total long-term award and stock appreciation rights represent 25% of the total long-term award. The Committee favors continuing the use of SARs because they directly align the interests of executives with shareholders’ interests as value is only realized through a rising stock price.

 

The long-term incentive award was determined as a percentage of the participant’s 2017 base salary and was expressed as a number of shares of Company Common Stock valued on the date of grant. Fractional shares are not distributable. The table below summarizes the equity awards made to NEOs under the 2015 Omnibus Equity Compensation Plan.

 

2017 Grant Summary

                         
                                 
   

PSUs at Target (1)

   

SARs (2)

 
   

Number
Granted

   

Fair Value

   

Number
Granted

   

Fair Value

 

Heintzman

    7,080     $ 252,473       13,273     $ 84,151  

Davis

    2,120     $ 75,599       3,975     $ 25,202  

Hillebrand

    4,039     $ 144,031       7,571     $ 48,000  

Thompson

    3,180     $ 113,399       5,962     $ 37,799  

Poindexter

    2,650     $ 94,499       4,968     $ 31,497  

 

(1)

Because grantees are not entitled to dividend payments during the performance period and have a one-year post vesting holding period, the fair value of these PSUs is estimated based upon the fair value of the underlying shares on the date of the grant, which was $40.00, adjusted for non-payment of dividends and illiquidity discounts. The resulting fair value was $35.66 per share.

 

(2)

SARs are valued using Black-Scholes option pricing model.

 

36

 

 

Performance Stock Units (“PSUs”)

 

In 2017, the Committee granted PSUs to each of the NEOs under the following terms:

 

Performance period:    Three years, beginning January 1, 2017 through December 31, 2019.
   
Performance goals at  

50% weighting each:

1. Cumulative EPS over the three-year performance period, excluding one-time acquisition costs and the effect, if any, on tax law legislation changes that become effective during the performance period.

   
  2. ROAA over the three-year performance period compared to all public banks $1.5-$6.0 billion in assets as calculated by S&P Global Market Intelligence. Performance will be measured by calculating the simple average of the Company’s ROAAs for the three years in performance period and determining the percentile ranking as compared to peers.
   
Performance ranges: The PSUs provide for minimum, target and maximum performance goals as follows:
   
  Minimum     Target     Maximum
   
  Three year cumulative EPS                                                      See Below
  Peer bank ROAA performance percentile             >50%         75%                90%

  

Three-year EPS performance goals have been established by the Compensation Committee and consider Bancorp’s strategic plan as well as projected growth targets in order to maintain our standard as a top-performing community bank. The EPS goal has defined Minimum, Target and Maximum performance levels. We have elected not to disclose these performance levels for competitive reasons.     

 

The table below summarizes the design of the PSU portion of the 2017 long-term incentive plan (all percentages relate to each executive’s 2017 base salary):

 

   

EPS

   

Bancorp ROAA vs. Peers

   

Total Value of PSUs that may be

Earned, Based on Grant-Date Value,

as a % of Base Salary

 
   

Minimum

   

Target

   

Maximum

   

Minimum

   

Target

   

Maximum

   

Minimum

   

Target

   

Maximum

 

Heintzman

    9.0 %     22.5 %     56.25 %     9.0 %     22.5 %     56.25 %     18.0 %     45.0 %     112.50 %

Davis

    5.4 %     13.5 %     33.75 %     5.4 %     13.5 %     33.75 %     10.8 %     27.0 %     67.50 %

Hillebrand

    7.2 %     18.0 %     45.00 %     7.2 %     18.0 %     45.00 %     14.4 %     36.0 %     90.00 %

Thompson

    6.3 %     15.75 %     39.375 %     6.3 %     15.75 %     39.375 %     12.6 %     31.5 %     78.75 %

Poindexter

    6.3 %     15.75 %     39.375 %     6.3 %     15.75 %     39.375 %     12.6 %     31.5 %     78.75 %

 

Shares certified as earned by the Compensation Committee at the end of the performance period will be distributed to PSU participants by March 31 of the year following the performance period. All payouts of PSUs will be made in shares of Bancorp Common Stock based on the percentage earned of the maximum number of shares per participant determined at the beginning of the performance period.

 

PSUs generally require the executive to remain employed until the end of a performance cycle in order to vest and be paid in shares of Common Stock, with prorated awards still paid to those who leave Bancorp mid-cycle due to death, disability or retirement (age 60).  PSUs also vest at the target level (50% of the maximum) if a change in control occurs before a performance cycle ends. Executives do not receive the benefit of any dividends or other distributions paid on stock related to PSUs until after the stock is actually issued. In addition, executives are required to observe a one-year holding period after vesting, net of any shares sold to pay income taxes.

 

PSUs granted in 2015 vested as of December 31, 2017 and will be certified and distributed by March 31, 2018. Based on preliminary data, recipients will be awarded grants on the EPS portion at “Minimum” and ROAA portion at “Maximum”.

 

37

 

 

Stock Appreciation Rights (“SARs”)

 

SARs provide an executive with the right to receive Stock Yards Bancorp Common Stock equal in value to the appreciation in Bancorp stock, if any, over the stock price as of the grant date as compared with the stock price during the exercise period. The vesting period of the SARs granted to executives in 2017 is five years and the exercise period is ten years.

 

 

Other Executive Benefits

 

Post-Employment Compensation and Benefits To enhance the objective of retaining key executives, the Company established Change in Control Severance (“CICS”) Agreements, concluding it to be in the best interests of Bancorp, its shareholders and the Bancorp to take reasonable steps to compensate key executives, including all NEOs, in the event of a change in control or similar event. With these agreements in place, if Bancorp should receive takeover or acquisition proposals from third parties, Bancorp will be able to call upon these key executives for their advice and assessment of whether such proposals are in the best interests of shareholders, free of the influences of their personal employment situations. The CICS Agreements were updated in 2013 to require a both a significant change in Bancorp’s ownership and termination of employment before executives would receive any payment under the agreements. This approach is commonly referred to as a double-trigger.

 

Supplemental Retirement Benefits The Bank has a nonqualified deferred compensation plan which, until 2006, merely provided all executive officers, including all NEOs, with the ability to defer a portion of their cash compensation and related taxes, and instead receive such compensation after their employment with the Bank ends or, in certain cases, while still employed by the Bank through in-service distributions. Amendments in 2006 provided executives with Bank contributions for the amount of match they do not receive under the KSOP because of certain limits under the Internal Revenue Code.

 

In the 1980's, the Bank created a plan (called the Senior Officer Security Plan (“SOSP”)) to enhance the retirement security of certain NEOs by granting them a fixed annual benefit per year after retirement. This fixed amount was originally designed to supplement broader-based retirement programs and bring the executives' retirement income from combined sources of the tax-qualified employer retirement programs, social security and this plan to a level of approximately 70% of their pre-retirement income. Once implemented, the benefit amounts were never adjusted and therefore the plan is not expected to yield the level of income replacement contemplated. This plan still covers two current executive officers, Mr. Heintzman and Ms. Thompson, and there are no intentions to adjust their payments or add additional participants.

 

Stock Ownership Guidelines

 

The Committee believes that the executive officers of Bancorp should maintain meaningful equity interests in Bancorp to ensure that their interests are aligned with those of our shareholders. We adopted stock ownership guidelines that require our executive officers to own directly or indirectly a minimum level of Bancorp Common Stock, depending upon the executive’s position. Shares held by the executive, the executive’s spouse, or minor children, including, without limitation, shares held for the account of the executive in the Dividend Reinvestment Plan, the Bancorp KSOP plan, an IRA, or unvested time-based stock grants are deemed owned by the executive under the guidelines. The CEO is required to maintain ownership of Common Stock worth three (3) times his base salary. Each of the other executive officers is required to maintain ownership of Common Stock worth two (2) times his or her base salary. The valuation is based on the closing price on the last trading day of the preceding calendar year.

 

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All officers in the summary compensation table exceeded the applicable guidelines as evidenced below.

 

 

Base salary

Multiplier

Goal

Actual at December 31, 2017

Mr. Heintzman

$561,000

3

$1,683,000

$7,039,000

Ms. Davis

$280,000

2

$ 560,000

$3,904,000

Mr. Hillebrand

$400,000

2

$ 800,000

$3,321,000

Ms. Thompson

$360,000

2

$ 720,000

$2,609,000

Mr. Poindexter

$300,000

2

$ 600,000

$1,328,000

 

 

Clawbacks

 

The Committee maintains a general clawback policy to give Bancorp the flexibility to require the return of paid compensation in certain circumstances, and amended its two primary performance-based compensation vehicles—the cash incentive plan under which NEO annual bonuses are awarded, and the PSU award agreements described above, to add the clawback provision.

 

The policy allows the Company to recover some or all of the amounts paid with respect to awards that were based on achievement of performance criteria, at any time in the three calendar years following payment, if and to the extent that the Committee concludes that (i) federal or state law or the listing requirements of the exchange on which the Company’s stock is listed for trading so require, (ii) the performance criteria required for the award were not met, or not met to the extent necessary to support the amount of the award that was paid, or (iii) as required by Section 304 of the Sarbanes-Oxley Act of 2002, after a restatement of the Company’s financial results as reported to the Securities and Exchange Commission.

 

Hedging and Pledging of Company Stock

 

Under our insider trading policy, no employee or director is permitted to engage in securities transactions that would allow them either to insulate themselves from, or profit from, a decline in the Company stock price. Similarly, no employee or director may enter into hedging transactions in the Company’s stock. Such transactions include (without limitation) short sales as well as any hedging transactions in derivative securities (e.g. puts, calls, swaps or collars) or other speculative transactions related to the Company’s stock. Pledging of Company stock is also generally prohibited.

 

Income Tax Considerations

 

Section 162(m) of the Internal Revenue Code generally limits the deductibility of compensation in excess of $1 million paid by a public company to its CEO or any of its other three most highly paid executive officers (other than the CFO). For 2017 and prior years, this limitation did not apply to compensation that qualified as “performance-based”, as defined by the tax code to mean compensation that was based on the achievement of pre-established objective performance goals and paid under a plan pre-approved by our shareholders. For 2017 and prior years, the Committee monitored the effect of Section 162(m) on the deductibility of the Company’s compensation. The Committee weighed the benefits of full deductibility with the other objectives of the executive compensation program and, accordingly, could have from time to time paid compensation that was not tax-deductible. For 2017, no compensation paid to executives was limited as to deductibility under Section 162(m).

 

In December 2017, the Tax Cuts and Jobs Act was enacted. Under the Tax Cuts and Jobs Act, the qualified performance-based compensation exception to Section 162(m) that generally provided for the continued deductibility of performance-based compensation was repealed, effective for tax years commencing on or after January 1, 2018. Accordingly, commencing with our fiscal year ending December 31, 2018, compensation to our NEOs in excess of $1,000,000 not awarded prior to November 2, 2017, will generally not be deductible. Performance-based compensation awarded to our Named Executive Officers for periods prior to November 2, 2017, such as our performance-based RSUs granted in 2017 and prior years that have not yet been settled into shares of Common Stock, are expected to continue to qualify for the performance-based compensation exemption under Section 162(m). The United States Treasury has not yet issued any guidance on any limitations on the continued deductibility of these awards. Accordingly, the future deductibility of these grandfathered awards cannot be guaranteed.

 

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REPORT OF THE COMPENSATION COMMITTEE

 

The Committee has reviewed and discussed with management the Compensation Discussion and Analysis and based on such review and discussions the Committee has recommended to the Board that the Compensation Discussion and Analysis be included in Stock Yards Bancorp, Inc.’s Annual Report on Form 10-K and the Proxy Statement.

 

The Compensation Committee of the Board of Directors of Stock Yards Bancorp, Inc.

Richard A. Lechleiter, Chairman

Charles R. Edinger III

Norman Tasman

 

The report of the Compensation Committee shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed soliciting material or subject to Regulation 14A of the Exchange Act or incorporated by reference in any filing under the Exchange Act or the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

 

40

 

 

Executive Compensation Tables and Narrative Disclosure

 

The following table sets forth information concerning the compensation of our Chief Executive Officer, Chief Financial Officer, and the three most highly compensated executive officers other than the Chief Executive Officer and Chief Financial Officer. Throughout this section, we refer to executives named in this table individually as the "executive" and collectively as the "executives".

 

Summary Compensation Table

Name and

 

Salary

Bonus

Stock
Awards

Option
Awards

Non-Equity

Incentive Plan

Compensation

Change in Pension

Value and

Nonqualified

Deferred

Compensation

Earnings

All Other

Compensation

Total

Principal Position

Year

($)

($)

($) (1)

($) (2)

($) (3)

($) (4)

($) (5)  (6)

($)

                   

David P. Heintzman

2017

561,000

-

252,473

84,151

336,600

125,915

98,947

1,459,086

Chairman and Chief Executive Officer

2016

550,000

-

177,511

88,119

440,000

73,789

97,146

1,426,565

 

2015

545,000

-

174,318

86,245

272,500

-

98,245

1,176,308

                   

Nancy B. Davis

2017

280,000

-

75,599

25,202

100,800

-

48,054

529,655

Chief Financial Officer

2016

270,000

-

52,297

25,957

129,600

-

46,821

524,675

 

2015

249,000

-

47,784

23,639

74,700

-

43,471

438,594

                   

James A. Hillebrand

2017

400,000

-

144,031

48,000

192,000

-

66,649

850,680

President

2016

400,000

-

103,271

51,267

256,000

-

68,380

878,918

 

2015

386,000

-

98,775

48,867

154,400

-

71,481

759,523

                   

Kathy C. Thompson

2017

360,000

-

113,399

37,799

141,750

76,852

63,575

793,375

Senior EVP and Manager

2016

360,000

-

81,328

40,373

173,268

67,048

63,547

785,564

of Wealth Management and Trust

2015

354,000

-

79,255

39,211

30,975

6,471

63,342

573,254

                   

Phillip S. Poindexter

2017

300,000

-

94,499

31,497

78,630

-

51,276

555,902

EVP and Chief Lending Officer

2016

300,000

-

67,762

33,646

165,180

-

51,558

618,146

 

2015

290,000

-

64,937

32,124

94,656

-

49,799

531,516

 

(1)

Stock awards include PSUs entitling executives to the issuance of one share of Common Stock for each vested PSU after the expiration of a three-year performance period. The value of the PSU grants measured at the grant date value was $35.66 in 2017, $22.61 in 2016 and $20.02 in 2015. The amount of related compensation included in the table above is that associated with the most probable performance outcome at the time of the grant. The table below reflects first the amount of compensation included in the Summary Compensation Table and second, the maximum amount achievable under these grants (in dollars).

 

 

   

2017

   

2016

   

2015

 
   

Most Probable

on

Date of Grant

   

Maximum

   

Most Probable

on

Date of Grant

   

Maximum

   

Most Probable

on

Date of Grant

   

Maximum

 
                                                 

Heintzman

    252,473       631,218       177,511       443,778       174,318       435,795  

Davis

    75,599       189,034       52,297       130,708       47,784       119,460  

Hillebrand

    144,031       360,059       103,271       258,229       98,775       246,938  

Thompson

    113,399       283,533       81,328       203,320       79,255       198,138  

Poindexter

    94,499       236,283       67,762       169,439       64,937       162,343  

 

(2)

Stock appreciation rights were granted with an exercise price equal to the closing price of the Common Stock on the applicable grant date, or $40.00, $25.76 and $22.95 in 2017, 2016 and 2015, respectively. The fair value of each SAR was $6.34, $3.55 and $3.97, respectively. For assumptions used in valuation of stock appreciation rights and other information regarding stock-based compensation, refer to Note 17 to the 2017 consolidated financial statements.

 

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(3)

In the earlier section of this proxy statement captioned “Compensation Discussion and Analysis”, we refer to Non-Equity Incentive Plan Compensation as “short-term cash incentives” or “cash incentives.”

 

(4)

Assumptions used in calculating the change in actuarial value of the defined benefit above include a discount rate of 3.59% for December 31, 2017, 4.10% for December 31, 2016 and 4.28% for December 31, 2015, retirement age of 65, and payments occurring for 15 years, with no pre- or post-retirement mortality.

   
  Earnings on the executives' nonqualified deferred compensation balances are not included above. The investment alternatives of the nonqualified plan do not and have not offered above-market rates of interest or preferential returns.
   
(5) All Other Compensation in 2017 consists of the following (in dollars):   

 

   

Heintzman

   

Davis

   

Hillebrand

   

Thompson

   

Poindexter

 

Matching contribution to 401(k)

    16,200       16,200       16,200       16,200       16,200  

Contribution to ESOP

    5,400       5,400       5,400       5,400       5,400  

Contribution to nonqualified plan (a)

    68,160