NOTE 11 – PENSION AND OTHER POSTRETIREMENT 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. Currently, seven retired officers are the only participants in the SERP. The measurement date for both the pension plan and SERP is December 31, 2013 and 2012.

Information as to the Company’s employee benefit plans at December 31, 2013 and 2012 is as follows:

	Pension Benefits						SERP Benefits
(dollars in thousands)	2013			2012			2013			2012
Change in benefit obligation:
Beginning benefit obligation	$	2,867		$	3,005		$	1,141		$	1,194
Interest cost		116			127			45			51
Actuarial (gain)/loss		(276	)		200			47			33
Benefits paid		(253	)		(465	)		(137	)		(137	)
Ending benefit obligation		2,454			2,867			1,096			1,141

Change in plan assets (primarily equity and fixed income investments and money market funds), at fair value:
Beginning plan assets		1,528			1,618			964			877
Actual return		265			195			161			111
Employer contribution		160			180			80			113
Benefits paid		(253	)		(465	)		(137	)		(137	)
Ending plan assets		1,700			1,528			1,068			964
Funded status at end of year	$	(754	)	$	(1,339	)	$	(28	)	$	(177	)

Amounts recognized in the consolidated balance sheets consist of:

	Pension Benefits						SERP Benefits
(dollars in thousands)	2013			2012			2013			2012
Funded status included in other liabilities	$	(754	)	$	(1,339	)	$	(28	)	$	(177	)

Amounts recognized in accumulated other comprehensive income consist of:

	Pension Benefits				SERP Benefits
(dollars in thousands)	2013		2012		2013		2012
Net actuarial loss	$	1,640	$	2,301	$	640	$	773

The accumulated benefit obligation for the pension plan was $2.5 million and $2.9 million, respectively, for December 31, 2013 and 2012. The accumulated benefit obligation for the SERP was $1.1 million for both December 31, 2013 and 2012.

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

	Pension Benefits									SERP Benefits
(dollars in thousands)	2013			2012			2011			2013			2012			2011
Net pension expense:

Service cost	$	0		$	0		$	0		$	0		$	0		$	0

Interest cost		116			127			141			45			51			61

Expected return on plan assets		(121	)		(138	)		(158	)		(74	)		(75	)		(80	)

Recognized net actuarial loss		151			137			106			93			83			69

Settlement cost		91			252			0			0			0			0

Net pension expense	$	237		$	378		$	89		$	64		$	59		$	50

Net loss/(gain)	$	(510	)	$	(109	)	$	823		$	(40	)	$	(3	)	$	220

Amortization of net loss		(151	)		(137	)		(106	)		(93	)		(83	)		(69	)

Total recognized in other comprehensive income	$	(661	)	$	(246	)	$	717		$	(133	)	$	(86	)	$	151

Total recognized in net pension expense and other comprehensive income	$	(424	)	$	132		$	806		$	(69	)	$	(27	)	$	201

The estimated net loss (gain) for the defined benefit pension plan and SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $117,000 for the pension plan and $80,000 for the SERP. The settlement cost was related to participants taking lump sum distributions from the pension plan during 2013 and 2012.

For 2013, the assumed form of payment elected by active participants upon retirement was changed from a single life annuity to a lump sum to reflect participant trends. The lump sum assumed interest rates below reflect the mortality table in effect for 2014.

	Pension Benefits									SERP Benefits
	2013			2012			2011			2013			2012			2011
The following assumptions were used in calculating the net benefit obligation:

Weighted average discount rate		5.00	%		4.00	%		4.50	%		5.00	%		4.00	%		4.50	%
Rate of increase in future compensation		N/A			N/A			N/A			N/A			N/A			N/A
Lump sum assumed interest rates
First 5 years		1.24	%		N/A			N/A			N/A			N/A			N/A
Next 15 years		4.47	%		N/A			N/A			N/A			N/A			N/A
All future years		5.52	%		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		4.00	%		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
Expected long-term rate of return		7.75	%		7.75	%		7.75	%		7.75	%		7.75	%		7.75	%

Pension Plan and SERP Assets

The Company's investment strategies are to invest in a prudent manner for the purpose of providing benefits to participants in the pension plan and the SERP. 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 pension plan and SERP assets is developed in consultation with the plans 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 9.65% and debt securities were assumed to have a long-term rate of return of approximately 4.8%. 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, the investment in commodities, options, futures, short sales, margin transactions and non-marketable securities.

The Company's pension plan asset allocation at year-end 2013 and 2012, target allocation for 2014, and expected long-term rate of return by asset category are as follows:

			Percentage of Plan						Weighted Average
	Target Allocation		Assets at Year End						Expected Long-Term Rate
Asset Category	2014		2013			2012			of Return
Equity securities		55-65%		60	%		63	%		9.65	%
Debt securities		35-45%		25	%		33	%		4.80	%
Other		5-10%		15	%		4	%		0.25	%
Total				100	%		100	%		7.75	%

The Company's SERP plan asset allocation at year-end 2013 and 2012, target allocation for 2014, and expected long-term rate of return by asset category are as follows:

			Percentage of Plan						Weighted Average
			Assets						Expected
	Target Allocation		at Year End						Long-Term Rate
Asset Category	2014		2013			2012			of Return
Equity securities		55-65%		61	%		63	%		9.65	%
Debt securities		35-45%		30	%		34	%		4.79	%
Other		5-10%		9	%		3	%		0.25	%
Total				100	%		100	%		7.75	%

Fair Value of Pension Plan and SERP 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, 2013, by asset category are as follows:

			Quoted Prices
			in Active
			Markets for		Significant		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
Asset Category	Total		(Level 1)		(Level 2 )		(Level 3)
(dollars in thousands)
Equity securities - US large cap common stocks	$	484	$	484	$	0	$	0
Equity securities - US large cap stock mutual funds		258		258		0		0
Equity securities - US mid cap stock mutual funds		145		145		0		0
Equity securities - international stock mutual funds		119		119		0		0
Equity securities - emerging markets stock mutual funds		21		21		0		0
Debt securities - intermediate term bond mutual funds		127		127		0		0
Debt securities - short term bond mutual funds		211		211		0		0
Debt securities - world bond mutual funds		29		29		0		0
Debt securities - commercial		56		0		56		0
Cash - money market account		246		246		0		0
Total	$	1,696	$	1,640	$	56	$	0

Total pension plan assets available for benefits also include $4,000 in accrued interest and dividend income.

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

			Quoted Prices
			in Active
			Markets for		Significant		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
Asset Category	Total		(Level 1)		(Level 2 )		(Level 3)
(dollars 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.

There were no significant transfers between Level 1 and Level 2 during 2013 and 2012.

The fair values of the Company's SERP assets at December 31, 2013, by asset category are as follows:

			Quoted Prices
			in Active
			Markets for		Significant		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
Asset Category	Total		(Level 1)		(Level 2 )		(Level 3)
(dollars in thousands)
Equity securities - US large cap common stocks	$	140	$	140	$	0	$	0
Equity securities - US large cap stock mutual funds		374		374		0		0
Equity securities - US mid cap stock mutual funds		76		76		0		0
Equity securities - international stock mutual funds		59		59		0		0
Debt securities - intermediate term bond mutual funds		72		72		0		0
Debt securities - short term bond mutual funds		150		150		0		0
Debt securities - world bond mutual funds		34		34		0		0
Debt securities - commercial		62		0		62		0
Cash - money market account		98		98		0		0
Total	$	1,065	$	1,003	$	62	$	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 assets at December 31, 2012, by asset category are as follows:

			Quoted Prices
			in Active
			Markets for		Significant		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
Asset Category	Total		(Level 1)		(Level 2 )		(Level 3)
(dollars 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.

There were no significant transfers between Level 1 and Level 2 during 2013 and 2012.

Contributions

The Company expects to contribute $207,000 to its pension plan and $4,000 to its SERP plan in 2014

Estimated Future Benefit Payments

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

	Pension		SERP
Plan Year	Benefits		Benefits
(dollars in thousands)
2014	$	174	$	135

2015		220		132

2016		290		127

2017		211		122

2018		239		116

2019-2023		873		466