| þ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
| o | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
| A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
| B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: |
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KPMG LLP |
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Financial Statements: |
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| 4 - 9 | ||||||||
Supplemental Schedule: |
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| EX-23.1 | ||||||||
1
| 2008 | 2007 | |||||||
Assets |
||||||||
Cash and investments: |
||||||||
Cash |
$ | 3,220 | $ | 2,220 | ||||
Investments: |
||||||||
Money market instruments |
26,572 | 53,557 | ||||||
Common stock |
1,432,406 | 2,531,893 | ||||||
Insurance Company Investment Contracts: |
||||||||
Pooled separate accounts |
1,752,176 | 2,847,762 | ||||||
Stable value fund |
716,502 | 497,214 | ||||||
Total cash and investments |
3,930,876 | 5,932,646 | ||||||
Receivables: |
||||||||
Participants’ contributions |
— | 19,017 | ||||||
Employer’s contributions |
456 | — | ||||||
Dividends receivable |
33,090 | 26,433 | ||||||
Other |
85,218 | 82,682 | ||||||
Total receivables |
118,764 | 128,132 | ||||||
Total assets |
4,049,640 | 6,060,778 | ||||||
Liabilities |
||||||||
Excess contributions |
— | 27,642 | ||||||
Other |
— | 17,714 | ||||||
Total liabilities |
— | 45,356 | ||||||
Net assets available for benefits |
$ | 4,049,640 | $ | 6,015,422 | ||||
2
Investment
loss: |
||||
Net depreciation in fair value of investments |
$ | (2,423,389 | ) | |
Dividends |
111,797 | |||
Interest |
25,319 | |||
Total
investment loss |
(2,286,273 | ) | ||
Contributions: |
||||
Participants |
672,598 | |||
Employer |
152,996 | |||
Total
contributions |
825,594 | |||
Total |
(1,460,679 | ) | ||
Deductions
from net assets attributable to: |
||||
Benefits and withdrawals |
485,994 | |||
Administrative fees |
19,109 | |||
Total |
(505,103 | ) | ||
Net decrease |
(1,965,782 | ) | ||
Net assets available for benefits at beginning of year |
6,015,422 | |||
Net assets available for benefits at end of year |
$ | 4,049,640 | ||
3
| (1) | Description of the Plan | |
| The following description of Oriental Bank & Trust Cash or Deferred Arrangement Profit Sharing Plan (the Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions. |
| (a) | General | ||
| The Plan was organized on January 1, 1992 as a defined contribution plan originally maintained by Oriental Bank & Trust (the Bank) for the benefit of its employees and those of its affiliated companies, who are residents of Puerto Rico, have completed six months of service and are age 21 or older. It contains a cash or deferred arrangement qualifying under Section 1165(e) of the Puerto Rico Internal Revenue Code of 1994 (PRIRC), as amended, and is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended. | |||
| Effective January 1, 2005, the Plan was amended and restated in its entirety due to the acquisition of Caribbean Pensions Consultants, Inc. (CPC), a U.S.-based affiliated company. Effective on said date, Oriental Financial Group Inc. (the Employer) became the sponsor of the Plan. In addition, effective January 1, 2005, the Plan is intended to be a qualified plan pursuant to Section 401(a) and (k) of the U.S. Internal Revenue Code of 1986 (U.S. Code), as amended. | |||
| (b) | Contributions | ||
| Each year, participants may contribute an amount not to exceed the maximum deferral amount specified by the Puerto Rico tax law ($8,000 for tax years ended December 31, 2008 and 2007). Participants may also contribute amounts representing distributions from other Puerto Rico and U.S. qualified defined benefit or contribution plans. Participants direct the investment of their contributions into various investment options offered by the Plan. The Plan currently offers pooled separate accounts, a stable value fund, and a fund that invests in common stock of the Employer as investment options for participants. The Employer currently contributes 80% of the first $1,040 of the participant’s contributions as discretionary matching contributions. The Employer’s matching contributions are invested directly in the Employer’s common stock. Contributions are subject to certain limitations. | |||
For tax years: |
Amount | |||
Ending on or before December 31, 2008 |
$ | 8,000 | ||
Ending on or before December 31, 2009 |
$ | 9,000 | ||
Ending on or before December 31, 2011 |
$ | 10,000 | ||
Ending on or before December 31, 2013 |
$ | 11,000 | ||
| (c) | Participant Accounts | ||
| Each participant’s account is credited with the participant’s contribution and allocations of (a) the Employer’s contribution and (b) Plan earnings, and charged with an allocation of administrative fees. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account. | |||
| (d) | Vesting | ||
| Participants are immediately vested in their contributions plus actual earnings thereon. The Employer’s contribution portion of their accounts plus actual earnings thereon vest upon the occurrence of any of the following events: completion of three years of credited service; attaining age 65; total disability while employed by the Employer; or death while employed by the Employer. |
4
| (e) | Payment of Benefits | ||
| On termination of service due to death, disability, or retirement, a participant may elect to receive the value of the vested interest in his or her account in either a lump-sum distribution or a fixed period that may not exceed the participant’s life expectancy. For termination of service for other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution. | |||
| (f) | Loans to Participants | ||
| Participants may borrow up to the lesser of 50% of the present value of nonforfeited accrued benefit of the Participant under the Plan or $50,000, reduced by the difference between the participant’s highest loan balance during the previous 12-month period and current outstanding balance, if any. Loan repayments may be scheduled for up to five years (or reasonable period of time to be determined at the time the loan is made for a home purchase). The plan administrator determines a reasonable rate of interest for each loan by identifying rates charged by institutions in the business of making similar loans. The specific terms and conditions of such loans are also established by the plan administrator. No loans to participants were outstanding as of December 31, 2008 or 2007. | |||
| (g) | Forfeited Accounts | ||
| Employer contributions that are not vested upon termination of employment are forfeited and may be used to reduce future contributions to the Plan by the Employer. For the years ended December 31, 2008 and 2007, forfeitures totaling approximately $52,000 and $16,000, respectively, were used to offset employer contributions for 2008 and 2007, respectively. | |||
| (h) | Plan Termination | ||
| Although it has not expressed any intent to do so, the Employer 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’s contributions. | |||
| (i) | Reclassifications | ||
| Certain amounts in prior year have been reclassified to conform to the presentation adopted in the current year. |
| (2) | Summary of Significant Accounting Policies | |
| Following are the significant accounting policies followed by the Plan: |
| (a) | Basis of Presentation | ||
| The accompanying financial statements have been prepared under the accrual method of accounting. | |||
| As described in Financial Accounting Standards Board (FASB) Staff Position, FSP AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies subject to the AICPA Investment Company Guide and Defined Contribution Health and Welfare and Pension Plans (the FSP), 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 net assets available for plan 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. As required by the FSP, the statement of net assets available for benefits presents the fair value of the investment contracts. The contract value of each participant account approximates the fair value of its share of the stable value fund. |
5
| (b) | Use of Estimates | ||
| The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the plan administrator to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosures of contingent assets and liabilities. Actual results could differ from those estimates. | |||
| (c) | Risks and Uncertainties | ||
| The Plan utilizes various investment instruments. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is 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 net assets available for plan benefits. | |||
| (d) | Investments Valuation and Income Recognition | ||
| The pooled separate accounts with Transamerica are stated at fair value as reported to the plan by Transamerica Life Insurance Company (Transamerica), based on the quoted market prices of the underlying mutual funds. The unit value of the pooled separate account is calculated by dividing the total value of the assets of the separate account by the number of units in the separate account. For separate accounts that invest exclusively in mutual funds, the total value of the assets of the separate account is based on the net asset value (NAV), or price per share, of the underlying mutual fund. The mutual fund calculates its NAV by dividing the mutual fund’s net assets by the mutual fund’s outstanding number of shares. Those separate accounts investing in mutual funds or equity securities are measured using quoted prices in active markets for identical assets. Those separate accounts directly investing in fixed maturity securities are measured based on the pricing data provided by outside valuation service providers who in turn generally use the mean of bid and ask prices but may also use alternative observable pricing inputs for certain securities. The stable value fund is valued at contract value, and is based on its beginning balance plus any deposit and credited interest, less any withdrawals, charges, or expenses, a measurement which approximates fair value. Shares of common stock are valued at quoted closing market prices. Money market instruments are stated at fair value, which approximates cost plus accumulated interest earnings less distributions to date. | |||
| 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. | |||
| Effective January 1, 2008, the Plan determines the fair value of its financial instruments based on the fair value framework established in Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (“SFAS 157”), which establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are described below: |
| Level 1-Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; | |||
| Level 2-Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly; | |||
| Level 3-Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. | |||
| A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. | |||
| (e) | Payments of Benefits | ||
| Benefits are recorded when paid. | |||
| (f) | Plan Expenses | ||
| Under the group annuity contract entered with Transamerica, the contract asset charges are assessed each month based on the actual combined balance of all separate accounts and the stable value fund. These charges are presented as administrative fees in the Statement of Changes in Net Assets Available for Benefits. | |||
| Administrative expenses, including trustee, legal, auditing, and other fees, may be paid out of the invested assets unless paid by the Employer. Expenses paid and absorbed by the Employer during the year ended December 31, 2008 amounted to approximately $16,000. |
6
| (3) | Investments | |
| The following presents investments as of December 31, 2008 and 2007 that represent 5% or more of the Plan’s net assets. |
| 2008 | 2007 | |||||||
Nonparticipant-directed investments: |
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Oriental Financial Group Inc. — common stock;
236,761 and 193,689 shares, respectively |
$ | 1,432,406 | 2,531,893 | |||||
Participant-directed investments: |
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Pooled separate accounts: |
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Loomis Sayles Inv Grade Bond
13,232 and 14,765 units, respectively |
280,176 | 354,387 | ||||||
Columbia Marsico 21st Century
54,518 and 65,756 units, respectively |
525,229 | 1,144,041 | ||||||
Stable value fund: |
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Transamerica Stable Value
42,722 and 30,693 units, respectively |
716,502 | 497,214 | ||||||
Oriental Financial Group Inc. — common stock |
$ | (1,253,574 | ) | |
Pooled separate accounts |
(1,169,815 | ) | ||
Total |
$ | (2,423,389 | ) | |
7
| (4) | Nonparticipant-Directed Investments | |
| Information about the net assets and the significant components of the changes in net assets relating to the nonparticipant-directed investment (that are invested in Employer’s common stock) is as follows: |
Net assets at December 31, 2007, Oriental Financial Group
Inc. common stock of 193,689 shares |
$ | 2,531,893 | ||
Changes in net assets during the year: |
||||
Contributions |
218,614 | |||
Transfers in |
405,396 | |||
Dividends |
102,604 | |||
Net depreciation |
(1,253,574 | ) | ||
Benefits paid to participants |
(224,898 | ) | ||
Transfers out |
(347,629 | ) | ||
Net decrease in net
assets |
(1,099,487 | ) | ||
Net assets at December 31, 2008, Oriental Financial Group
Inc. common stock of 236,671 shares |
$ | 1,432,406 | ||
| (5) | Related-Party Transactions | |
| Certain plan investments are shares of the Employer’s common stock. The Employer is the plan sponsor and, therefore, qualifies as a party-in-interest. At December 31, 2008 and 2007, the Plan held an investment of 236,761 and 193,689 shares of the Employer’s common stock, respectively. The fair value of the common stock at December 31, 2008 and 2007 was $1,432,406 and $2,531,893, respectively. | ||
| The Plan has a money market account with the Bank amounting to $26,572 at December 31, 2008 ($53,557 at December 31, 2007), earning interest at 1.04% at December 31, 2008 (2.82% at December 31, 2007). The Bank, who is also the Trustee, is a subsidiary of the plan sponsor and, therefore, qualifies as a party-in-interest. | ||
| The recordkeeper of the Plan is CPC, an affiliate of the Employer. Fees charged by CPC for services provided were absorbed by the Employer. | ||
| (6) | Income Taxes | |
| The Plan is intended to be exempt from Puerto Rico and U.S. income taxes under the PRIRC and the U.S. Code. The Plan is required to operate in conformity with the PRIRC and the U.S. Code to maintain its qualification. | ||
| The Plan was amended and restated effective January 1, 2005. The Puerto Rico Treasury Department has determined and informed the Employer by a letter dated November 8, 2007 that effective June 1, 2007, the Plan and the related trust were qualified in accordance with the applicable sections of the PRIRC. The Plan is in the process of obtaining a determination letter from the U.S. Internal Revenue Service. It is the Employer’s legal counselor’s position that, the Plan is designed and is currently being operated in compliance with the applicable requirements of the U.S. income tax law. Therefore, no provision for income taxes has been included in the Plan’s financial statements. |
| (7) | Fair Value | |
| As discussed in Note 2, effective January 1, 2008, the Plan adopted SFAS 157, which provides a framework for measuring fair value under U.S. GAAP. | ||
| Fair Value Measurement | ||
| SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: |
8
| December 31, 2008 | ||||||||||||
| Fair Value Measurements | ||||||||||||
| (In thousands) | Level 1 | Level 2 | Level 3 | |||||||||
Money market instruments |
$ | 26,572 | $ | — | $ | — | ||||||
Common stock |
1,432,406 | — | — | |||||||||
Pooled separate accounts |
— | 1,752,176 | — | |||||||||
Stable value fund |
— | 716,502 | — | |||||||||
| $ | 1,458,978 | $ | 2,468,678 | $ | — | |||||||
| The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes it valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. |
| (8) | Other | |
| Income taxes were erroneously withheld on dividends paid to participants during the years 2008, 2007, and 2006 and the years 1994 through 2003. The balance of taxes withheld totals $85,218 and $82,682 as of December 31, 2008 and 2007, respectively, and has been recorded as other receivables in the accompanying statements of net assets available for benefits. No interest has been reimbursed to the Plan. On June 25, 2009, the Bank remitted to the Plan the amount erroneously withheld on dividends paid. | ||
| (9) | Reconciliation with Form 5500 | |
| The following is a reconciliation of net assets available for benefits per the financial statements at December 31, 2008 to Form 5500: |
Net assets available for benefits per financial statements |
$ | 4,049,640 | ||
Amounts allocated to withdrawing participants |
(5,672 | ) | ||
Net assets available for benefits per form 5500 |
$ | 4,043,968 | ||
Deductions from net assets attributable to benefits
and withdrawals per financial statements |
$ | 485,994 | ||
Amounts allocated to withdrawing participants |
5,672 | |||
Deductions from net assets attributable to benefits
and withdrawals per form 5500 |
$ | 491,666 | ||
9
| (c) | ||||||||||||||||
| (b) | Description of investment, | |||||||||||||||
| Identity of issue, | including maturity date, rate | |||||||||||||||
| borrower, lessor, | of interest, collateral, par, | (d) | (e) | |||||||||||||
| (a) | or similar party | or maturity value | Cost | Current value | ||||||||||||
| Nonparticipant directed: | ||||||||||||||||
| * | Oriental Financial Group, Inc. |
Oriental Financial Group Inc.: |
||||||||||||||
Common Stock; 236,761 shares |
N/A | $ | 1,432,406 | |||||||||||||
| Participant directed: | ||||||||||||||||
Transamerica |
Pooled Separate Accounts: |
|||||||||||||||
Columbia Marsico 2lst Century;
54,518 units |
** | 525,229 | ||||||||||||||
Loomis Sayles Inv Grade Bond;
13,232 units |
** | 280,176 | ||||||||||||||
Thornburg Core Growth; 16,316 units |
** | 135,609 | ||||||||||||||
Transamerica Core Equity; 9,313 units |
** | 112,649 | ||||||||||||||
Janus Adviser Intl Growth; 2,538 units |
** | 87,390 | ||||||||||||||
Pioneer Cullen Value; 10,842 units |
** | 168,064 | ||||||||||||||
Alliance Bernstein Intl Value; 5,384 units |
** | 71,168 | ||||||||||||||
SSgA Dow Jones Sml Cp Val Ind;
3,405 units |
** | 96,086 | ||||||||||||||
Loomis Sayles Bond; 1,673 units |
** | 53,576 | ||||||||||||||
TA IDEX AA — Moderate Growth;
6,238 units |
** | 63,845 | ||||||||||||||
AIM Technology; 1,300 units |
** | 23,299 | ||||||||||||||
TA IDEX AA — Moderate; 4,627 units |
** | 50,634 | ||||||||||||||
Diversified Inv High Yield Opp; 1,436 units |
** | 22,331 | ||||||||||||||
TA IDEX AA — Growth; 2,845 units |
** | 26,521 | ||||||||||||||
TA IDEX AA — Conservative; 3,120 units |
** | 35,599 | ||||||||||||||
| 1,752,176 | ||||||||||||||||
Money Market Instruments: |
||||||||||||||||
Money Market |
AIM Short Term Liquid Asset |
** | 10 | |||||||||||||
| * | Oriental Bank & Trust |
Money Market (1.04% yield) |
** | 26,562 | ||||||||||||
| 26,572 | ||||||||||||||||
Stable Value Fund: |
||||||||||||||||
Transamerica |
Transamerica Stable Value; 42,722 units |
** | 716,502 | |||||||||||||
Total |
$ | 3,927,656 | ||||||||||||||
| * | Party in interest as defined by ERISA. | |
| ** | Not applicable as these are participant directed. | |
| N/A | Not available |
10
| ORIENTAL BANK & TRUST CASH OR DEFERRED ARRANGEMENT PROFIT SHARING PLAN (Name of Plan) |
||||
| Date: June 25, 2009 | /s/ Norberto González | |||
| Norberto González | ||||
| Executive Vice President and Chief Financial Officer |
||||
| /s/ José Gabriel Díaz | ||||
| José Gabriel Díaz | ||||
| First Senior Vice President and Executive Trust Officer |
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11
| Exhibit No. | Description of Document | |
23.1
|
Consent of KPMG LLP |
12