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EMPLOYEE BENEFIT PLANS
 12 Months Ended
Dec. 31, 2012
Employee Benefit Plans [Abstract]  
EMPLOYEE BENEFIT PLANS

NOTE 13 - EMPLOYEE BENEFIT PLANS

 

In April 2000, the Lakeland Financial Corporation Pension Plan was frozen. The Company also maintains a Supplemental Executive Retirement Plan (“SERP”) for select officers that was established as a funded, non-qualified deferred compensation plan. Seven retired officers are the only participants in the SERP. The measurement date for both the pension and SERP plans is December 31, 2012 and 2011.

 

Information as to the Company’s employee benefit plans at December 31, 2012 and 2011 is as follows:

 

    Pension Benefits     SERP Benefits  
    2012     2011     2012     2011  
    (in thousands)     (in thousands)  
Change in benefit obligation:                                
Beginning benefit obligation   $ 3,005     $ 2,430     $ 1,194     $ 1,130  
Interest cost     127       140       51       61  
Actuarial loss     200       675       33       140  
Benefits paid     (465 )     (240 )     (137 )     (137 )
Ending benefit obligation     2,867       3,005       1,141       1,194  
                                 
Change in plan assets (primarily equity and fixed income investments and money market funds), at fair value:                                
                                 
Beginning plan assets     1,618       1,848       877       923  
Actual return     195       10       111       1  
Employer contribution     180       0       113       90  
Benefits paid     (465 )     (240 )     (137 )     (137 )
Ending plan assets     1,528       1,618       964       877  
                                 
Funded status at end of year   $ (1,339 )   $ (1,387 )   $ (177 )   $ (317 )

 

Amounts recognized in the consolidated balance sheets consist of:

 

    Pension Benefits     SERP Benefits  
    2012     2011     2012     2011  
    (in thousands)     (in thousands)  
Funded status included in other liabilities   $ (1,339 )   $ (1,387 )   $ (177 )   $ (317 )

 

Amounts recognized in accumulated other comprehensive income consist of:

 

    Pension Benefits     SERP Benefits  
    2012     2011     2012     2011  
    (in thousands)     (in thousands)  
Net actuarial loss   $ 2,301     $ 2,547     $ 773     $ 859  

 

The accumulated benefit obligation for the pension plan was $2.9 million and $3.0 million, respectively, for December 31, 2012 and 2011. The accumulated benefit obligation for the SERP plan was $1.1 million and $1.2 million, respectively, for December 31, 2012 and 2011.

 

Net pension expense and other amounts recognized in other comprehensive income include the following:

 

      Pension Benefits           SERP Benefits      
  2012     2011     2010     2012     2011     2010  
    (in thousands)     (in thousands)  
Net pension expense                                                
                                                 
Service cost   $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
Interest cost     127       141       142       51       61       67  
Expected return on plan assets     (138 )     (158 )     (166 )     (75 )     (80 )     (81 )
Recognized net actuarial loss     137       106       83       83       69       59  
Settlement cost     252       0       0       0       0       0  
Net pension expense   $ 378     $ 89     $ 59     $ 59     $ 50     $ 45  
                                                 
Net loss/(gain)   $ (109 )   $ 823     $ 112     $ (3 )   $ 220     $ (76 )
Amortization of net loss     (137 )     (106 )     (83 )     (83 )     (69 )     (59 )
Total recognized in other comprehensive income   $ (246 )   $ 717     $ 29     $ (86 )   $ 151     $ (135 )
Total recognized in net pension expense and other comprehensive income   $ 132     $ 806     $ 88     $ (27 )   $ 201     $ (90 )

 

The estimated net loss (gain) for the defined benefit pension plan and SERP plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $151,000 for the pension plan and $93,000 for the SERP plan. The settlement cost was related to participants taking lump sum distributions from the plan during 2012.

 

    Pension Benefits     SERP Benefits  
    2012     2011     2010     2012     2011     2010  
                                                 
The following assumptions were used in calculating the net benefit obligation:                                                
                                                 
Weighted average discount rate     4.00 %     4.50 %     5.50 %     4.00 %     4.50 %     5.50 %
Rate of increase in future compensation     N/A       N/A       N/A       N/A       N/A       N/A  
                                                 
The following assumptions were used in calculating the net pension expense:                                                
                                                 
Weighted average discount rate     4.50 %     5.50 %     6.00 %     4.50 %     5.50 %     6.00 %
Rate of increase in future compensation     N/A       N/A       N/A       N/A       N/A       N/A  
Expected long-term rate of return     7.75 %     7.75 %     8.25 %     7.75 %     7.75 %     8.25 %

 

Plan Assets

 

The Company's investment strategies are to invest in a prudent manner for the purpose of providing benefits to plan participants. The investment strategies are targeted to maximize the total return of the portfolio net of inflation, spending and expenses. Risk is controlled through diversification of asset types and investments in domestic and international equities and fixed income securities. The target allocations for plan assets are shown in the tables below. Equity securities primarily include investments in common stocks. Debt securities include government agency and commercial bonds. Other investments consist of money market mutual funds.

 

The weighted average expected long-term rate of return on plan assets is developed in consultation with the plan actuary. It is primarily based upon industry trends and consensus rates of return which are then adjusted to reflect the specific asset allocations and historical rates of return of the Company's plan assets. The following assumptions were used in determining the total long term rate of return: equity securities were assumed to have a long-term rate of return of approximately 9.5% and debt securities were assumed to have a long-term rate of return of approximately 4.5%. These rates of return were adjusted to reflect an approximate target allocation of 60% equity securities and 40% debt securities with a small downward adjustment due to investments in the “Other” category, which consist of low yielding money market mutual funds.

 

Certain asset types and investment strategies are prohibited including: commodities, options, futures, short sales, margin transactions and non-marketable securities.

 

The Company's pension plan asset allocation at year-end 2012 and 2011, target allocation for 2013, and expected long-term rate of return by asset category are as follows:

 

          Percentage of Plan     Weighted  
    Target     Assets     Average Expected  
    Allocation     at Year End     Long-Term Rate  
Asset Category   2013     2012     2011     of Return  
                         
Equity securities     55-65 %     63 %     64 %     9.65 %
Debt securities     35-45 %     33 %     30 %     4.80 %
Other     5-10 %     4 %     6 %     0.25 %
Total             100 %     100 %     7.75 %

 

The Company's SERP plan asset allocation at year-end 2012 and 2011, target allocation for 2013, and expected long-term rate of return by asset category are as follows:

 

          Percentage of Plan     Weighted  
    Target     Assets     Average Expected  
    Allocation     at Year End     Long-Term Rate  
Asset Category   2013     2012     2011     of Return  
                         
Equity securities     55-65 %     63 %     66 %     9.65 %
Debt securities     35-45 %     34 %     27 %     4.79 %
Other     5-10 %     3 %     7 %     0.25 %
Total             100 %     100 %     7.75 %

 

Fair Value of Plan Assets

 

Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date. Also a fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

 

Equity and debt securities: The fair values of securities are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or pricing models, which utilize significant observable inputs such as matrix pricing. This is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

 

The fair values of the Company's pension plan assets at December 31, 2012, by asset category are as follows:

 

          Quoted Prices in     Significant     Significant  
          Active Markets for     Observable     Unobservable  
          Identical Assets     Inputs     Inputs  
Asset Category   Total     (Level 1)     (Level 2 )     (Level 3)  
    (in thousands)  
Equity securities - US large cap common stocks   $ 457     $ 457     $ 0     $ 0  
Equity securities - US large cap stock mutual funds     205       205       0       0  
Equity securities - US mid cap stock mutual funds     121       121       0       0  
Equity securities - US small cap stock mutual funds     56       56       0       0  
Equity securities - international stock mutual funds     104       104       0       0  
Equity securities - emerging markets stock mutual funds     22       22       0       0  
Debt securities - intermediate term bond mutual funds     183       183       0       0  
Debt securities - short term bond mutual funds     152       152       0       0  
Debt securities - world bond mutual funds     48       48       0       0  
Debt securities - commercial     114       0       114       0  
Cash - money market account     61       61       0       0  
Total   $ 1,523     $ 1,409     $ 114     $ 0  

 

Total pension plan assets available for benefits also include $5,000 in accrued interest and dividend income.

 

The fair values of the Company's pension plan assets at December 31, 2011, by asset category are as follows:

 

          Quoted Prices in     Significant     Significant  
          Active Markets for     Observable     Unobservable  
          Identical Assets     Inputs     Inputs  
Asset Category   Total     (Level 1)     (Level 2 )     (Level 3)  
    (in thousands)  
Equity securities - US large cap common stocks   $ 403     $ 403     $ 0     $ 0  
Equity securities - US large cap stock mutual funds     369       369       0       0  
Equity securities - US mid cap stock mutual funds     108       108       0       0  
Equity securities - US small cap stock mutual funds     49       49       0       0  
Equity securities - international stock mutual funds     88       88       0       0  
Equity securities - emerging markets stock mutual funds     22       22       0       0  
Debt securities - intermediate term bond mutual funds     118       118       0       0  
Debt securities - short term bond mutual funds     169       169       0       0  
Debt securities - world bond mutual funds     91       91       0       0  
Debt securities - commercial     112       0       112       0  
Cash - money market account     84       84       0       0  
Total   $ 1,613     $ 1,501     $ 112     $ 0  

 

Total pension plan assets available for benefits also include $5,000 in accrued interest and dividend income.

 

There were no significant transfers between Level 1 and Level 2 during 2012.

 

The fair values of the Company's SERP plan assets at December 31, 2012, by asset category are as follows:

 

          Quoted Prices in     Significant     Significant  
          Active Markets for     Observable     Unobservable  
          Identical Assets     Inputs     Inputs  
Asset Category   Total     (Level 1)     (Level 2 )     (Level 3)  
    (in thousands)  
Equity securities - US large cap common stocks   $ 161     $ 161     $ 0     $ 0  
Equity securities - US large cap stock mutual funds     301       301       0       0  
Equity securities - US mid cap stock mutual funds     63       63       0       0  
Equity securities - US small cap stock mutual funds     30       30       0       0  
Equity securities - international stock mutual funds     52       52       0       0  
Debt securities - intermediate term bond mutual funds     127       127       0       0  
Debt securities - short term bond mutual funds     101       101       0       0  
Debt securities - world bond mutual funds     34       34       0       0  
Debt securities - commercial     65       0       65       0  
Cash - money market account     27       27       0       0  
Total   $ 961     $ 896     $ 65     $ 0  

 

Total SERP plan assets available for benefits also include $3,000 in accrued interest and dividend income.

 

The fair values of the Company's SERP plan assets at December 31, 2011, by asset category are as follows:

 

          Quoted Prices in     Significant     Significant  
          Active Markets for     Observable     Unobservable  
          Identical Assets     Inputs     Inputs  
Asset Category   Total     (Level 1)     (Level 2 )     (Level 3)  
    (in thousands)  
Equity securities - US large cap common stocks   $ 149     $ 149     $ 0     $ 0  
Equity securities - US large cap stock mutual funds     266       266       0       0  
Equity securities - US mid cap stock mutual funds     74       74       0       0  
Equity securities - US small cap stock mutual funds     34       34       0       0  
Equity securities - international stock mutual funds     44       44       0       0  
Equity securities - emerging markets stock mutual funds     14       14       0       0  
Debt securities - intermediate term bond mutual funds     25       25       0       0  
Debt securities - short term bond mutual funds     119       119       0       0  
Debt securities - world bond mutual funds     32       32       0       0  
Debt securities - commercial     64       0       64       0  
Cash - money market account     53       53       0       0  
Total   $ 874     $ 810     $ 64     $ 0  

 

Total SERP plan assets available for benefits also include $3,000 in accrued interest and dividend income.

 

There were no significant transfers between Level 1 and Level 2 during 2012.

 

Contributions

 

The Company expects to contribute $211,000 to its pension plan and $80,000 to its SERP plan in 2013.

 

Estimated Future Benefit Payments

 

The following benefit payments are expected to be paid over the ten years:

 

    Pension     SERP  
Plan Year   Benefits     Benefits  
    (in thousands)  
2013   $ 113     $ 136  
2014     112       132  
2015     123       128  
2016     136       124  
2017     143       118  
2018-2022     823       488  

  

Other Employee Benefit Plans

 

The Company maintains a 401(k) profit sharing plan for all employees meeting age and service requirements. The plan allows employees to contribute up to the maximum amount allowable under the Internal Revenue Code, which are matched based upon the percentage of budgeted net income earned during the year on the first 6% of the compensation contributed. The expense recognized from matching was $1.4 million, $1.3 million and $1.2 million in 2012, 2011and 2010.

 

Effective January 1, 2004, the Company adopted the Lake City Bank Deferred Compensation Plan. The purpose of the deferred compensation plan is to extend full 401(k) type retirement benefits to certain individuals without regard to statutory limitations under tax qualified plans. A liability is accrued by the Company for its obligation under this plan. The expense recognized for each of the last three years was $137,000, $5,000 and $123,000 resulting in a deferred compensation liability of $1.4 million, $1.2 million and $1.0 million as of year-end 2012, 2011 and 2010. The plan is funded solely by participant contributions and does not receive a Company match.

 

Under employment agreements with certain executives, certain events leading to separation from the Company could result in cash payments totaling $4.1 million as of December 31, 2012. On December 31, 2012, no amounts were accrued on these contingent obligations.