8-K: Lake Shore Bancorp CEO Kim Liddell Secures New Employment and Retirement Agreements

Lake Shore Bancorp's subsidiary, Lake Shore Savings Bank, has entered into a new three-year employment agreement and a supplemental executive retirement plan with its President and CEO, Kim C. Liddell.

Summary

• Lake Shore Savings Bank has formalized a new employment agreement with Kim C. Liddell, who serves as President and CEO of both the bank and its parent company, Lake Shore Bancorp.
• The employment agreement has an initial three-year term, with automatic one-year extensions possible based on board performance reviews.
• Mr. Liddell's annual base salary is set at $550,000, with potential for increases, performance-based bonuses, and long-term incentive compensation.
• He will also receive an annual executive perquisites allotment of $26,400 and a monthly housing allowance of $2,500.
• The agreement outlines severance packages for various termination scenarios, including a lump sum payment equal to one to three times his base salary plus bonuses, and continued health coverage.
• A supplemental executive retirement plan (SERP) was also approved, providing benefits upon retirement at age 67 or earlier under certain conditions.
• The SERP will pay an annual amount based on annuity contracts, payable in monthly installments for 15 years, with potential lifetime payments.

Sentiment

Score: 7

Explanation: The document reflects a positive and stable outlook for the company, with clear terms for executive compensation and retirement. The agreements are standard and do not indicate any significant issues or concerns.

Positives

• The employment agreement provides stability and clarity for the CEO's role for the next three years.
• The potential for annual extensions based on performance reviews aligns management interests with company performance.
• The compensation package, including base salary, bonuses, and perquisites, is competitive and incentivizes strong performance.
• The severance package provides financial security for the CEO in various termination scenarios.
• The SERP offers a structured retirement plan, ensuring long-term financial security for the executive.

Negatives

• The agreement includes restrictions on competition and solicitation for one year after termination, which could limit the CEO's future career options.
• The SERP benefits are subject to regulatory approvals, which could introduce uncertainty.
• The severance payments are subject to a release agreement, which may include terms that the executive may not agree with.
• The SERP benefits are not payable if the executive is terminated for cause.

Risks

• The automatic renewal of the employment agreement is contingent on the board's performance evaluation and approval, which could lead to uncertainty.
• The long-term incentive compensation is at the discretion of the compensation committee, which could lead to variability in compensation.
• The severance payments are subject to regulatory approvals, which could delay or prevent payments.
• The SERP benefits are subject to the bank's financial health and regulatory compliance, which could impact the availability of benefits.
• The change in control provisions could incentivize the CEO to seek a change in control event.

Future Outlook

The employment agreement includes provisions for annual extensions, subject to performance reviews, indicating a potential long-term commitment between the bank and the CEO. The SERP provides a framework for the CEO's retirement, ensuring long-term financial planning.

Management Comments

• The document does not contain direct quotes from management, but the agreements themselves reflect the board's commitment to retaining and incentivizing the CEO.

Industry Context

The agreements are typical for executive compensation in the banking industry, including base salary, performance-based bonuses, and retirement benefits. The change in control provisions are also common, designed to protect executives during potential mergers or acquisitions.

Comparison to Industry Standards

• The base salary of $550,000 is within the range for CEOs of similar-sized community banks. For example, CEOs of banks with similar asset sizes such as First National Bank of Pennsylvania (FNB) and Northwest Bancshares (NWBI) have base salaries in the $400,000 to $700,000 range.
• The inclusion of performance-based bonuses and long-term incentive compensation is standard practice in the industry, aligning executive pay with company performance. Many banks use a mix of cash bonuses and stock options or restricted stock units.
• The severance package, including one to three times base salary plus bonuses, is also typical for executive agreements in the financial sector. Companies like M&T Bank (MTB) and KeyCorp (KEY) have similar severance provisions for their top executives.
• The SERP is a common tool for attracting and retaining top talent in the banking industry, providing a supplemental retirement benefit beyond traditional 401(k) plans. Many banks offer similar plans to their senior executives.
• The non-compete and non-solicitation clauses are standard in executive agreements to protect the bank's interests. These clauses are generally enforceable for a period of one to two years.

Stakeholder Impact

• Shareholders may view the agreements positively, as they provide stability and align management interests with company performance.
• Employees may see the agreements as a sign of the company's commitment to its leadership.
• Customers and suppliers are unlikely to be directly impacted by these agreements.

Next Steps

• The board will conduct annual performance evaluations of the CEO to determine whether to extend the employment agreement.
• The compensation committee will determine the long-term incentive compensation for the CEO.
• The bank will administer the SERP according to its terms, including making payments upon retirement or other qualifying events.

Key Dates

Keywords

employment agreement, executive compensation, supplemental executive retirement plan, CEO, severance, change in control, Lake Shore Bancorp, Kim C. Liddell, retirement benefits, banking