CENTRAL PACIFIC BANK
401(k) RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2012 and 2011
|
(1)
|
Description of the Plan
|
The following brief description of the Central Pacific Bank 401(k) Retirement Savings Plan (the plan) provides only general information. Participants should refer to the plan documents for a more complete description of the Plan’s provisions.
The Plan is a defined contribution retirement savings plan covering all employees of Central Pacific Bank and subsidiaries (the Bank), a wholly owned subsidiary of Central Pacific Financial Corp. (Company), and certain other affiliated companies. The Plan permits employees to make participant contributions and receive base matching contributions after six months of service. Additionally, employees who have completed one year of employment and 1,000 hours of service during the year are entitled to share in any excess matching, discretionary profit sharing, and Employee Stock Ownership plan (ESOP) contributions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.
|
(b)
|
Participant Contributions
|
Participant contributions to the Plan are based on an elected percentage of 1% to 100% of participant compensation. Participants who have attained age 50 before the end of the plan year are eligible to make catch-up contributions.
|
(c)
|
Employer Contributions – 401(k)
|
The Bank makes matching contributions to the Plan out of its own funds equal to 100% of the elective deferrals made by eligible participants, up to a limit of not less than 4% or more than 6% of the participant’s eligible compensation with the first 4% referred to as Base Matching Contributions and the balance, if any, referred to as Excess Matching Contributions. The Bank may also make discretionary contributions to eligible participant’s accounts. No discretionary contributions were made in 2012 or 2011.
|
(d)
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Employer Contributions – Profit Sharing
|
The Bank’s annual profit sharing contribution is at the discretion of the Bank’s board of directors. The annual contribution is limited to the maximum allowed deduction for federal income tax purposes and may not exceed 25% of the compensation earned by eligible participants during the plan year. The participant must be employed on the last day of the plan year to be eligible to share in any profit sharing contribution. The Bank made no profit sharing contributions for 2012 and 2011.
|
(e)
|
Employer Contributions – Employee Stock Ownership Plan
|
The Bank may make ESOP contributions to the Plan at the discretion of the Bank’s board of directors. The annual contribution is limited to the maximum allowed deduction for federal income tax purposes and may not exceed 25% of the compensation earned by eligible participants during the plan year. No ESOP contributions were made in 2012 or 2011.
|
(f)
|
Participants’ Accounts and Forfeitures
|
Each participant’s account is credited with the participant’s contribution, the employer matching contribution, and any specified discretionary contributions, and is credited or charged with an allocation of plan net earnings or losses and plan administrative expenses. Daily allocations of plan net earnings or losses are based on participants’ account balances at the end of the previous day. Forfeitures of employer contributions may be (1) reallocated to participants, (2) used to reduce employer contributions, or (3) used to offset plan expenses. The Bank uses forfeitures to offset plan expenses as allowed in the plan document. At December 31, 2012, there were no forfeited nonvested employer matching contributions and $1,490 of forfeited nonvested profit sharing contributions to be used to offset plan expenses. At December 31, 2011, there were $761 of forfeited nonvested employer matching contributions and $3,813 of forfeited nonvested profit sharing contributions to be used to offset plan expenses. In 2012 and 2011, plan expenses were paid by the application of forfeited nonvested accounts totaling $9,647 and $7,892, respectively.
Participant contributions and employer Base Matching Contributions plus actual earnings thereon are immediately vested. A participant’s balance of his or her employer Excess Matching Contribution account and the employer’s discretionary contributions are vested based on the participant’s years of service, at a rate of 20% per year.
|
(h)
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Notes Receivable from Participants
|
Participants may borrow from their account up to 50% of their vested 401(k) account balance up to a maximum of $50,000, provided that the loan is paid back with interest within 5 years (or 15 years for the purchase of a primary residence). The loans are secured by the balance in the participant’s account and bear interest at prevailing rates. Participant loans may be granted for any personal reason. At December 31, 2012, notes receivable from participants bear interest at various rates ranging from 2.34% to 8.38% and mature in years beginning in 2013 through 2023.
Upon a participant’s death, disability, retirement, or other termination of employment with the Bank, the participant will elect to be paid either a lump-sum amount, periodic installments over a fixed period, a direct rollover to another qualified plan or traditional individual retirement account, or a combination of these options equal to the value of his or her account. If a participant’s vested interest in his or her account is $1,000 or less, the participant’s vested interest may be distributed to the participant in a lump sum as soon as practicable after the participant’s severance from employment. No consent of the participant is required for this involuntary cash-out to be made.
The Plan is administered by an administrative committee, which is composed of certain appointed employees of the Bank. The administrative committee has the responsibility of selecting the investment options of the trust into which participants can direct their contributions.
Vanguard Fiduciary Trust Company (the Trustee) is the trustee of the Plan. The Trustee has the responsibilities of investing, holding, collecting, distributing, and accounting for the assets of the trust.
All expenses incurred in the administration of the Plan have been paid by the Bank to the extent not paid by the Plan.
|
(2)
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Summary of Significant Accounting Policies
|
The accompanying financial statements have been prepared on the accrual basis of accounting.
In accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 962, Plan Accounting – Defined Contribution Pension Plans, investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The statements of assets available for benefits present the fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The statements of changes in assets available for benefits are prepared on a contract-value basis.
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management of the Plan to make a number of estimates and assumptions relating to the reported amounts of assets and changes therein and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
|
(c)
|
Investment Valuation and Income Recognition
|
The Plan’s investments are stated at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 discusses acceptable valuation techniques and the related valuation inputs used. These inputs are assumptions market participants use in pricing investments. ASC 820 establishes a fair value hierarchy that prioritizes the inputs, which are summarized as follows:
Level 1 – Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities traded in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Plan’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of discounted cash flow models and similar techniques that require the use of significant judgment or estimation.
The common stock fund is valued at its year-end unit closing price (based on year-end market price). Quoted market prices in active markets are used to value the mutual funds. The collective trust fund invests primarily in guaranteed investment contracts and synthetic investment contracts with insurance companies which are fully benefit-responsive. This investment is presented at the fair value of units held by the Plan as of December 31 in the statements of assets available for benefits, including separate disclosure of the adjustment to contract value, which is equal to principal balance plus accrued interest. An investment contract is generally valued at contract value, rather than fair value, to the extent it is fully benefit-responsive. The fair value of fully benefit-responsive investment contracts is calculated using a discounted cash flow model which considers (i) recent fee bids as determined by recognized dealers, (ii) discount rate, and (iii) the duration of the underlying portfolio securities.
Net appreciation (depreciation) in fair value of investments includes realized and unrealized changes in the values of investments bought, sold, and held during the year.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
The following tables set forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2012 and 2011:
| |
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock – large cap funds
|
|
$ |
25,751,196 |
|
|
|
— |
|
|
|
— |
|
|
|
25,751,196 |
|
|
Balanced funds
|
|
|
26,096,220 |
|
|
|
— |
|
|
|
— |
|
|
|
26,096,220 |
|
|
Bond funds
|
|
|
10,911,229 |
|
|
|
— |
|
|
|
— |
|
|
|
10,911,229 |
|
|
International funds
|
|
|
6,197,117 |
|
|
|
— |
|
|
|
— |
|
|
|
6,197,117 |
|
|
Stock – small cap funds
|
|
|
3,194,106 |
|
|
|
— |
|
|
|
— |
|
|
|
3,194,106 |
|
| Other |
|
|
14,436 |
|
|
|
— |
|
|
|
— |
|
|
|
14,436 |
|
|
Total mutual funds
|
|
|
72,164,304 |
|
|
|
— |
|
|
|
— |
|
|
|
72,164,304 |
|
|
Common stock fund
|
|
|
1,230,603 |
|
|
|
— |
|
|
|
— |
|
|
|
1,230,603 |
|
|
Collective trust fund
|
|
|
— |
|
|
|
19,271,824 |
|
|
|
— |
|
|
|
19,271,824 |
|
| |
|
$ |
73,394,907 |
|
|
|
19,271,824 |
|
|
|
— |
|
|
|
92,666,731 |
|
| |
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock – large cap funds
|
|
$ |
23,169,515 |
|
|
|
— |
|
|
|
— |
|
|
|
23,169,515 |
|
|
Balanced funds
|
|
|
22,532,152 |
|
|
|
— |
|
|
|
— |
|
|
|
22,532,152 |
|
|
Bond funds
|
|
|
9,295,584 |
|
|
|
— |
|
|
|
— |
|
|
|
9,295,584 |
|
|
International funds
|
|
|
5,147,903 |
|
|
|
— |
|
|
|
— |
|
|
|
5,147,903 |
|
|
Stock – small cap funds
|
|
|
2,795,044 |
|
|
|
— |
|
|
|
— |
|
|
|
2,795,044 |
|
| Other |
|
|
15,134 |
|
|
|
— |
|
|
|
— |
|
|
|
15,134 |
|
|
Total mutual funds
|
|
|
62,955,332 |
|
|
|
— |
|
|
|
— |
|
|
|
62,955,332 |
|
|
Common stock fund
|
|
|
1,079,001 |
|
|
|
— |
|
|
|
— |
|
|
|
1,079,001 |
|
|
Collective trust fund
|
|
|
— |
|
|
|
19,071,299 |
|
|
|
— |
|
|
|
19,071,299 |
|
| |
|
$ |
64,034,333 |
|
|
|
19,071,299 |
|
|
|
— |
|
|
|
83,105,632 |
|
The Plan’s investment in balanced funds is comprised of a series of broadly diversified retirement funds, each with a different investment composition based on the respective target retirement-based objectives of the fund. Each fund’s investment composition will vary with more conservative portfolios for approaching retirement dates. Such funds are primarily comprised of an allocation of U.S. stocks and bonds, and international stocks in order to diversify risks.
The Plan’s investment in bond funds is primarily comprised of U.S. corporate and U.S. government bonds.
|
(d)
|
Notes Receivable from Participants
|
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are reclassified as distributions based upon the terms of the plan document.
Benefits are recorded when paid.
|
(f)
|
Risks and Uncertainties
|
The Plan may invest in various types of investment securities, including shares of Central Pacific Financial Corp. common stock held in the Central Pacific Financial Corp. stock fund (CPF Stock Fund). Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of assets available for benefits.
The following table presents investments as of December 31, 2012 and 2011. Investments that represent 5% or more of the Plan’s assets available for benefits are separately identified.
| |
|
2012
|
|
|
2011
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
Vanguard PRIMECAP Fund
|
|
$ |
9,839,623 |
|
|
|
9,391,825 |
|
|
Vanguard Target Retirement 2020 Fund
|
|
|
7,821,901 |
|
|
|
5,722,290 |
|
|
Vanguard Total Stock Market Index Fund
|
|
|
6,328,787 |
|
|
|
5,435,280 |
|
|
Vanguard Long-Term Investment Grade Fund
|
|
|
5,856,422 |
|
|
|
5,360,423 |
|
|
Vanguard Total International Stock Index Fund
|
|
|
6,197,117 |
|
|
|
5,147,903 |
|
|
Dodge and Cox Stock Fund
|
|
|
5,234,000 |
|
|
|
4,620,902 |
|
|
Vanguard Target Retirement 2015 Fund
|
|
|
4,750,374 |
|
|
|
4,258,412 |
|
|
Vanguard Total Bond Market Index Fund
|
|
|
5,054,807 |
|
|
|
3,935,161 |
|
| Others |
|
|
21,081,273 |
|
|
|
19,083,136 |
|
| |
|
|
72,164,304 |
|
|
|
62,955,332 |
|
|
Common stock fund – Central Pacific Financial Corp.
|
|
|
|
|
|
|
|
|
|
stock fund
|
|
|
1,230,603 |
|
|
|
1,079,001 |
|
|
Collective trust fund – Vanguard Retirement Savings
|
|
|
|
|
|
|
|
|
|
Trust, at fair value
|
|
|
19,271,824 |
|
|
|
19,071,299 |
|
|
Adjustment from fair value to contract value
|
|
|
(970,191 |
) |
|
|
(883,123 |
) |
|
Collective trust fund, at contract value
|
|
|
18,301,633 |
|
|
|
18,188,176 |
|
|
Total investments
|
|
$ |
91,696,540 |
|
|
|
82,222,509 |
|
During 2012 and 2011, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated (depreciated) in value as follows:
| |
|
2012
|
|
|
2011
|
|
|
Mutual funds
|
|
$ |
6,649,443 |
|
|
|
(1,944,626 |
) |
|
Central Pacific Financial Corp. stock fund
|
|
|
198,581 |
|
|
|
(847,576 |
) |
| |
|
$ |
6,848,024 |
|
|
|
(2,792,202 |
) |
|
(4)
|
Related-Party Transactions
|
Plan investments include shares of mutual funds and shares of a collective trust fund managed by an affiliate of the Trustee. Therefore, these transactions qualify as party-in-interest. Administrative expenses paid to the Trustee amounted to $45,190 and $32,572 for the years ended December 31, 2012 and 2011, respectively.
Plan investments also include 78,359 and 82,925 shares of Central Pacific Financial Corp. common stock held in the CPF Stock Fund as of December 31, 2012 and 2011, respectively.
Although it has not expressed any intent to do so, the Bank has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of plan termination, participants will become 100% vested in their employer contributions.
The Plan obtained its latest determination letter on March 21, 2013, in which the Internal Revenue Service (IRS) stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code (the Code). Although the Plan has been amended since receiving the determination letter, the Plan administrator and the Plan’s tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the Code. The Plan is exempt from income tax and therefore no provision for income taxes has been included in the Plan’s financial statements.
Accounting principles generally accepted in the United States of America require plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2012 and 2011, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 2008.
There were no material subsequent events that have occurred which would require recognition or disclosure in the financial statements.
| |
|
|
|
|
|
Schedule
|
|
| |
|
|
CENTRAL PACIFIC BANK
|
|
|
401(k) RETIREMENT SAVINGS PLAN
|
|
|
Schedule H, Line 4i – Schedule of Assets (Held at End of Year)
|
|
|
December 31, 2012
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
(c)
|
|
|
|
| |
|
|
|
Description of investment,
|
|
|
|
| |
|
(b)
|
|
including maturity date,
|
|
(d)
|
|
| |
|
Identity of issue, borrower,
|
|
rate of interest, collateral,
|
|
Current
|
|
|
(a)
|
|
lessor, or similar party
|
|
par, or maturity value
|
|
value
|
|
| * |
|
Vanguard PRIMECAP Fund
|
|
Mutual fund, 141,598 shares
|
|
$ |
9,839,623 |
|
| * |
|
Vanguard Target Retirement 2020 Fund
|
|
Mutual fund, 328,238 shares
|
|
|
7,821,901 |
|
| * |
|
Vanguard Total Stock Market Index Fund
|
|
Mutual fund, 177,575 shares
|
|
|
6,328,787 |
|
| * |
|
Vanguard Total International Stock
|
|
|
|
|
|
|
| |
|
Index Fund
|
|
Mutual fund, 413,693 shares
|
|
|
6,197,117 |
|
| * |
|
Vanguard Long-Term Investment Grade Fund
|
|
Mutual fund, 539,762 shares
|
|
|
5,856,422 |
|
| |
|
Dodge and Cox Stock Fund
|
|
Mutual fund, 42,937 shares
|
|
|
5,234,000 |
|
| * |
|
Vanguard Total Bond Market Index Fund
|
|
Mutual fund, 455,799 shares
|
|
|
5,054,807 |
|
| * |
|
Vanguard Target Retirement 2015 Fund
|
|
Mutual fund, 355,035 shares
|
|
|
4,750,374 |
|
| * |
|
Vanguard Growth and Income Fund
|
|
Mutual fund, 143,477 shares
|
|
|
4,348,786 |
|
| * |
|
Vanguard Target Retirement 2025 Fund
|
|
Mutual fund, 238,055 shares
|
|
|
3,235,162 |
|
| |
|
Schroder U.S. Opportunities Fund
|
|
Mutual fund, 139,177 shares
|
|
|
3,194,106 |
|
| * |
|
Vanguard Target Retirement 2030 Fund
|
|
Mutual fund, 116,149 shares
|
|
|
2,715,574 |
|
| * |
|
Vanguard Target Retirement 2010 Fund
|
|
Mutual fund, 80,476 shares
|
|
|
1,941,894 |
|
| * |
|
Vanguard Target Retirement 2035 Fund
|
|
Mutual fund, 134,706 shares
|
|
|
1,898,002 |
|
| * |
|
Vanguard Target Retirement Income
|
|
Mutual fund, 140,224 shares
|
|
|
1,709,332 |
|
| * |
|
Vanguard Target Retirement 2040 Fund
|
|
Mutual fund, 38,632 shares
|
|
|
895,481 |
|
| * |
|
Vanguard Target Retirement 2050 Fund
|
|
Mutual fund, 24,917 shares
|
|
|
575,345 |
|
| * |
|
Vanguard Target Retirement 2045 Fund
|
|
Mutual fund, 33,008 shares
|
|
|
480,269 |
|
| * |
|
Vanguard Target Retirement 2055 Fund
|
|
Mutual fund, 2,893 shares
|
|
|
71,740 |
|
| * |
|
Vanguard Prime Money Market Fund
|
|
Mutual fund, 14,436 shares
|
|
|
14,436 |
|
| * |
|
Vanguard Target Retirement 2060 Fund
|
|
Mutual fund, 53 shares
|
|
|
1,146 |
|
| |
|
|
Total mutual funds
|
|
|
|
|
72,164,304 |
|
| * |
|
Central Pacific Financial Corp.
|
|
|
|
|
|
|
| |
|
stock fund
|
|
Common stock fund, 78,935 units
|
|
|
1,230,603 |
|
| * |
|
Vanguard Retirement Savings Trust
|
|
Collective trust fund, 18,301,633
|
|
|
|
|
| |
|
|
|
units at contract value, fair
|
|
|
|
|
| |
|
|
|
value of $19,271,824
|
|
|
18,301,633 |
|
| * |
|
Notes receivable from participants
|
|
253 total loans, with interest rates
|
|
|
|
|
| |
|
|
|
from 2.34% to 8.38%, maturing
|
|
|
|
|
| |
|
|
|
in years beginning in 2013
|
|
|
|
|
| |
|
|
|
through 2023
|
|
|
1,940,903 |
|
| |
|
|
|
|
|
$ |
93,637,443 |
|
| |
|
|
|
|
|
|
|
|
| * |
|
Party-in-interest |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
See accompanying report of independent registered public accounting firm.
|
|
|
|
|