UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 11-K
FOR ANNUAL REPORT OF EMPLOYEE STOCK
REPURCHASE SAVINGS AND SIMILAR PLANS
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to ____________
Commission file number: 000-16421
Employees’ Retirement Savings Plan of Provident Bank
(Title of Plan)
Provident Bankshares Corporation
(Name of Issuer)
114 East Lexington Street
Baltimore, Maryland 21202
(Address of Plan and of Principal Executive Office of Issuer)
REQUIRED INFORMATION
Financial Statements
The Employees’ Retirement Savings Plan of Provident Bank (the “Plan”) is subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and files plan financial statements and schedules prepared in accordance with the financial reporting requirements of ERISA. The following Plan financial statements and schedules are attached hereto immediately after the Signatures to this report:
1. Report of Independent Registered Public Accounting Firm
2. Statements of Net Assets Available for Benefits as of December 31, 2006 and 2005
3. Statements of Changes in Net Assets Available for Benefits for the Years ended December 31, 2006 and 2005
4. Notes to Financial Statements
5. Supplemental Schedule of Assets (Held at End of Year) - December 31, 2006
Exhibits
The following exhibits required to be filed by Item 601 of Regulation S-K are listed below and are filed as a part hereof:
23.1 Consent of KPMG LLP (filed herewith)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this Annual Report to be signed on its behalf by the undersigned hereunto duly authorized.
| | Employees’ Retirement Savings Plan of Provident Bank |
| | | |
| | | |
| | | |
| Date: June 26, 2007 | By: | /s/ Lisa Punt |
| | | Lisa Punt, Managing Director, Human |
| | | Resources, for the Retirement Benefits |
| | | Committee, Plan Administrator |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AND FINANCIAL STATEMENTS
EMPLOYEES’ RETIREMENT SAVINGS PLAN
OF PROVIDENT BANK
Financial Statements
December 31, 2006 and 2005
(With Report of Independent Registered Public Accounting Firm Thereon)
EMPLOYEES’ RETIREMENT SAVINGS PLAN
OF PROVIDENT BANK
Table of Contents
| | Page |
| Report of Independent Registered Public Accounting Firm | F-3 |
| | |
| Financial Statements: | |
| | |
| Statements of Net Assets Available for Benefits | F-4 |
| | |
| Statements of Changes in Net Assets Available for Benefits | F-5 |
| | |
| Notes to Financial Statements | F-6 |
| | |
| Supplemental Schedule: | |
| | |
| Schedule H, Line 4(i) - Schedule of Assets (Held at End of Year) - December31, 2006 | F-12 |
The other schedules required by Department of Labor Form 5500, Annual Return/Report of Employee Benefit Plan, are not applicable and are therefore omitted.
Report of Independent Registered Public Accounting Firm
The Retirement Benefits Committee
Employees’ Retirement Savings Plan of Provident Bank:
We have audited the accompanying statements of net assets available for benefits of the Employees’ Retirement Savings Plan of Provident Bank (the Plan) as of December 31, 2006 and 2005, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2006 and 2005, and the changes in net assets available for benefits for the years then ended in conformity with U.S. generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) as of December 31, 2006 is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ KPMG LLP
Baltimore, Maryland
June 22, 2007
EMPLOYEES’ RETIREMENT SAVINGS PLAN
OF PROVIDENT BANK
Statements of Net Assets Available for Benefits
December 31, 2006 and 2005
| | | 2006 | | 2005 | |
| Investments, at fair value (note 3) | | $ | 92,341,014 | | | 82,630,221 | |
| Receivables: | | | | | | | |
| Participant contributions | | | 141,902 | | | 158,649 | |
| Employer contributions | | | 252,192 | | | 657,999 | |
| Due from broker for securities sold | | | 234,387 | | | — | |
| Accrued investment income | | | 5,228 | | | 4,833 | |
| Total receivables | | | 633,709 | | | 821,481 | |
| Net assets available for benefits at fair value | | | 92,974,723 | | | 83,451,702 | |
| Adjustment from fair value to contract value for | | | | | | | |
| fully benefit-responsive investment contracts (note 2) | | | 156,040 | | | 176,226 | |
| Net assets available for benefits | | $ | 93,130,763 | | | 83,627,928 | |
See accompanying notes to financial statements.
EMPLOYEES’ RETIREMENT SAVINGS PLAN
OF PROVIDENT BANK
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 2006 and 2005
| | | 2006 | | 2005 | |
| Additions: | | | | | |
| Investment income: | | | | | |
| Interest and dividends | | $ | 2,887,181 | | | 1,526,744 | |
| Net appreciation (depreciation) in fair value of investments | | | | | | | |
| (note 3) | | | 4,815,609 | | | (368,212 | ) |
| | | | 7,702,790 | | | 1,158,532 | |
| Contributions: | | | | | | | |
| Participants | | | 5,755,182 | | | 4,402,490 | |
| Employer | | | 2,584,220 | | | 2,565,244 | |
| | | | 8,339,402 | | | 6,967,734 | |
| Total additions | | | 16,042,192 | | | 8,126,266 | |
| Deductions: | | | | | | | |
| Benefits paid to participants | | | 6,522,482 | | | 4,323,611 | |
| Administrative expenses | | | 16,875 | | | 13,511 | |
| Total deductions | | | 6,539,357 | | | 4,337,122 | |
| Net increase in net assets available for benefits | | | 9,502,835 | | | 3,789,144 | |
| Net assets available for benefits: | | | | | | | |
| Beginning of year | | | 83,627,928 | | | 79,838,784 | |
| End of year | | $ | 93,130,763 | | | 83,627,928 | |
See accompanying notes to financial statements.
EMPLOYEES’ RETIREMENT SAVINGS PLAN
OF PROVIDENT BANK
Notes to Financial Statements
December 31, 2006 and 2005
| (1) | Description of the Plan |
The following description of the Employees’ Retirement Savings Plan of Provident Bank (the Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
The Plan is a defined contribution plan sponsored by Provident Bank (the Company) and covering all full-time and certain part-time employees of the Company after completion of six months of service. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
Effective March 28, 2005, the prototype plan document sponsored by the Fidelity Management & Research Company (Fidelity) was amended to reduce the automatic cash-out threshold from $5,000 to $1,000. This amendment was intended as good faith compliance with the requirements of the Economic Growth and Tax Relief Reconciliation Act of 2001.
Each year, participants may contribute up to 50% of eligible annual compensation, as defined in the Plan, subject to the limits established by the Internal Revenue Code. Participants who have attained age 50 before the end of the Plan year are eligible to make catchup contributions. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. Participants direct the investment of their contributions into various investment options offered by the Plan.
The Company contributes a matching amount equal to 100% of the employee’s contributions up to the first 3% of the employee’s compensation and 50% of the employee’s contributions on the next 3% of the employee’s compensation. The Company’s contributions are allocated in the same manner as the participant’s contributions.
Each participant’s account is credited with the participant’s contribution, the matching Company contribution and an allocation of Plan earnings. Allocations are based on participant account balances. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Participants are immediately vested in their contributions plus actual earnings thereon. Company contributions plus earnings thereon become vested at the time the contributions are made to the Plan.
(Continued)
EMPLOYEES’ RETIREMENT SAVINGS PLAN
OF PROVIDENT BANK
Notes to Financial Statements
December 31, 2006 and 2005
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. The loans are secured by the balance in the participant’s account and bear interest at a rate commensurate with local prevailing rates as determined quarterly by the plan administrator. Loan terms range from 1-10 years. Principal and interest is paid ratably through monthly payroll deductions.
Upon termination of service due to death, retirement, disability or other reasons, a participant may elect to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her account or annual installments. Certain participants may elect a lump-sum payment in cash or Company stock.
In accordance with the terms of the Plan, any forfeitures of Company contributions will be used to reduce future Company contributions. In 2006 and 2005, Company contributions were reduced by $13,115 and $116,755, respectively, from forfeited nonvested accounts.
| (2) | Summary of Significant Accounting Policies |
The accompanying financial statements of the Plan have been prepared on the accrual basis of accounting.
| (b) | Investment Valuation and Income Recognition |
The Plan’s investments are stated at fair value. Investments in mutual funds are based on quoted market information. Shares of common stock of the Company are valued at the last sale price on the principal exchange on which they are traded. The Plan’s investment in the common/collective trust is carried at fair value using the value of the underlying securities and is adjusted from fair value to contract value because the investment in the common/collective trust is a fully benefit-responsive investment contract. Participant loans are valued at their outstanding balances, which approximate fair value. Purchases and sales of investments are recorded on a trade-date basis. Appreciation and depreciation in the fair values of investments are recognized in the financial statements in the period in which such changes occur. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
| (c) | Administrative Expenses |
The Company pays all of the Plan’s administrative expenses except for the loan administration expenses, which are deducted directly from the individual participants’ accounts.
(Continued)
EMPLOYEES’ RETIREMENT SAVINGS PLAN
OF PROVIDENT BANK
Notes to Financial Statements
December 31, 2006 and 2005
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of net assets and changes therein and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Benefits are recorded when paid.
| (f) | New Accounting Pronouncements |
As of December 31, 2006, the Plan adopted Financial Accounting Standards Board Staff Position FSP AAG INV-1 and Statement of Position No. 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). The FSP requires the statement of net assets available for benefits present the fair value of the Plan’s investments as well as the adjustment from fair value to contract value for the fully benefit-responsive investment contracts. The statement of changes in net assets available for benefits is prepared on a contract value basis for the fully benefit-responsive investments contracts. The FSP was applied retroactively to the prior period presented on the statement of net assets available for benefits as of December 31, 2005.
(Continued)
EMPLOYEES’ RETIREMENT SAVINGS PLAN
OF PROVIDENT BANK
Notes to Financial Statements
December 31, 2006 and 2005
The following table presents the fair values of investments at December 31, 2006 and 2005. Those investments that represent 5% or more of the Plan’s net assets at December 31, 2006 and/or 2005 are indicated by an “*”:
| | | 2006 | | 2005 | |
| Money market fund | | $ | 1,011,915 | | | 1,369,549 | |
| Common stock: | | | | | | | |
| Provident Bankshares Corporation Stock* | | | 29,430,306 | | | 31,456,856 | |
| Common/collective trust: | | | | | | | |
| Fidelity Advisor Stable Value Portfolio* | | | 15,443,911 | | | 12,984,344 | |
| Mutual funds: | | | | | | | |
| Fidelity Advisor Balanced Fund* | | | 5,771,873 | | | 4,788,052 | |
| Fidelity Advisor Dividend Growth Fund* | | | 9,787,583 | | | 8,170,877 | |
| Fidelity Advisor Small Cap Fund* | | | 5,125,221 | | | 1,816,485 | |
| Legg Mason Value Trust, Inc.* | | | 8,749,229 | | | 7,655,127 | |
| Other | | | 15,602,546 | | | 12,940,671 | |
| Participant loans | | | 1,418,430 | | | 1,448,260 | |
| | | $ | 92,341,014 | | | 82,630,221 | |
The contract value of the common/collective trust was $15,599,951 and $13,160,570 at December 31, 2006 and 2005, respectively.
During 2006 and 2005, 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:
| | | 2006 | | 2005 | |
| Common stock of Provident Bankshares | | $ | 2,938,640 | | | (1,011,371 | ) |
| Mutual funds | | | 1,876,969 | | | 643,159 | |
| | | $ | 4,815,609 | | | (368,212 | ) |
| (4) | Transactions with Parties-in-Interest |
During the years ended December 31, 2006 and 2005, the Plan invested in a common/collective trust fund and several mutual funds managed by Fidelity Management Trust Company (FMTC). FMTC is the trustee and custodian of the Plan and, therefore, these transactions qualify as party-in-interest transactions. Fees paid by the Company for services provided by FMTC totaled $5,607 for the year ended December 31, 2005. There were no fees paid to FMTC in 2006.
EMPLOYEES’ RETIREMENT SAVINGS PLAN
OF PROVIDENT BANK
Notes to Financial Statements
December 31, 2006 and 2005
The Plan also invests in shares of Provident Bankshares Corporation Stock.
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA, resulting in 100% vesting of the interests of all participants.
The Plan has adopted a nonstandardized prototype plan sponsored by Fidelity. A favorable opinion letter issued by the Internal Revenue Service and dated October 9, 2003 has been received for the prototype plan. The Company is relying on the opinion letter as provided for in Announcement 2001-77. The Plan has been amended since the opinion letter was issued, but the Company and the Plan’s legal counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the Internal Revenue Code (IRC).
| (7) | Risks and Uncertainties |
The Plan invests in various investment securities. 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 participants’ account balances and the amounts reported in the statement of net assets available for benefits.
EMPLOYEES’ RETIREMENT SAVINGS PLAN
OF PROVIDENT BANK
Notes to Financial Statements
December 31, 2006 and 2005
| (8) | Reconciliation to Form 5500 |
In 2006 and 2005, deemed distributions were excluded from participant loans receivable in the Form 5500 but included in the accompanying financial statements. The following is a reconciliation of participant loans receivable, investment income and benefits paid to participants:
| | | 2006 | | 2005 | |
| Participant loans receivable per financial statements | | $ | 1,418,430 | | | 1,448,260 | |
| Deemed distributions of participant loans | | | (33,677 | ) | | (30,846 | ) |
| Participant loans receivable per Form 5500 | | $ | 1,384,753 | | | 1,417,414 | |
| Investment income per financial statements | | $ | 7,702,790 | | | 1,158,532 | |
| Interest on deemed distributions of participant loans | | | (2,233 | ) | | (2,074 | ) |
| Adjustment from fair value to contract value for fully | | | | | | | |
| benefit-responsive investment contracts | | | (156,040 | ) | | — | |
| Investment income per Form 5500 | | $ | 7,544,517 | | | 1,156,458 | |
| Benefits paid to participants per financial statements | | $ | 6,522,482 | | | 4,323,611 | |
| Deemed distributions of participant loans | | | 599 | | | — | |
| Benefit payments and certain deemed distributions of | | | | | | | |
| participant loans per Form 5500 | | $ | 6,523,081 | | | 4,323,611 | |
EMPLOYEES’ RETIREMENT SAVINGS PLAN
OF PROVIDENT BANK
Schedule H, Line 4(i) – Schedule of Assets (Held at End of Year)
December 31, 2006
| | | (b) Identity of issue, borrower, | | (c) Description of investment including maturity date, | | (d) Current |
(a) | | lessor or similar party | | number of shares or units, rate of interest | | value |
| | | Money market fund: | | | | | |
| * | | Fidelity Investments | | Fidelity Institutional Fund | | $ | 1,011,915 |
| | | Common stock: | | | | | |
| * | | Provident Bankshares Corporation | | Common stock; 826,694 shares | | | 29,430,306 |
| | | Common/collective trust: | | | | | |
| * | | Fidelity Investments | | Fidelity Advisor Stable Value Portfolio; 15,599,951 units | | | 15,443,911 |
| | | Mutual funds: | | | | | |
| | | AIM Investments | | AIM Basic Value Fund; 68,466 shares | | | 2,505,861 |
| | | Columbia Funds | | Columbia Marsico Growth Fund; 200,026 shares | | | 4,020,517 |
| * | | Fidelity Investments | | Fidelity Advisor Balanced Fund; 352,158 shares | | | 5,771,873 |
| * | | Fidelity Investments | | Fidelity Advisor Dividend Growth Fund; 727,161 shares | | | 9,787,583 |
| * | | Fidelity Investments | | Fidelity Advisor Diversified International Fund; 136,024 shares | | | 3,098,629 |
| * | | Fidelity Investments | | Fidelity Advisor Freedom 2005; 1,349 shares | | | 15,652 |
| * | | Fidelity Investments | | Fidelity Advisor Freedom 2010; 8,489 shares | | | 102,298 |
| * | | Fidelity Investments | | Fidelity Advisor Freedom 2015; 15,449 shares | | | 187,856 |
| * | | Fidelity Investments | | Fidelity Advisor Freedom 2020; 34,121 shares | | | 450,733 |
| * | | Fidelity Investments | | Fidelity Advisor Freedom 2025; 3,695 shares | | | 47,076 |
| * | | Fidelity Investments | | Fidelity Advisor Freedom 2030; 19,583 shares | | | 273,578 |
| * | | Fidelity Investments | | Fidelity Advisor Freedom 2035; 1,395 shares | | | 18,357 |
| * | | Fidelity Investments | | Fidelity Advisor Freedom 2040; 3,598 shares | | | 51,700 |
| * | | Fidelity Investments | | Fidelity Advisor Freedom 2045; 1,237 shares | | | 13,358 |
| * | | Fidelity Investments | | Fidelity Advisor Freedom 2050; 1,352 shares | | | 14,588 |
| * | | Fidelity Investments | | Fidelity Advisor Freedom Inc; 79 shares | | | 835 |
| * | | Fidelity Investments | | Fidelity Advisor Intermediate Bond Fund; 222,650 shares | | | 2,409,069 |
| * | | Fidelity Investments | | Fidelity Advisor Small Cap Fund; 225,980 shares | | | 5,125,221 |
| * | | Fidelity Investments | | Fidelity Advisor Value Strategies Fund; 80,962 shares | | | 2,392,439 |
| * | | Legg Mason, Inc. | | Legg Mason Value Trust, Inc.; 120,314 shares | | | 8,749,229 |
| | | | | | | | 45,036,452 |
| | | Participant loans: | | | | | |
| * | | Participant loans | | Interest rates ranging from 4% to 10.5% | | | 1,418,430 |
| | | | | | | $ | 92,341,014 |
| * | | Party-in-interest. | | | | | |
See accompanying report of independent registered public accounting firm.
EXHIBIT INDEX
Exhibit No. | Description |
| | |
| 23.1 | Consent of KPMG LLP (filed herewith) |
