Provident Bankshares 10K/A 2001 Annual report (amended)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A

/X/	Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For Fiscal Year Ended December 31, 2001

/ /	Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the Transition Period

Commission File Number 0-16421

PROVIDENT BANKSHARES CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Maryland
(State or Other Jurisdiction of
Incorporation or Organization)

52-1518642
(I.R.S. Employer
Identification Number)

114 East Lexington Street, Baltimore, Maryland 21202
(Address of Principal Executive Offices)

(410) 277-7000
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
None

Name of each exchange on which registered
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. / /

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of January 31, 2002 was $602,923,257. For purposes of this calculation, officers and directors of the Registrant are considered affiliates.

At January 31, 2002, the Registrant had 25,139,472 shares of $1.00 par value common stock outstanding.

Documents Incorporated by Reference

Portions of the Proxy Statement for the 2002 Annual Meeting of Stockholders (Part III)

TABLE OF CONTENTS

		Page
PART II
Item 8. Financial Statements and Supplementary Data (As Amended)		33
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K		72
Signatures		73

Statements contained in this Form 10-K/A which are not historical facts are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risk and uncertainties which could cause actual results to differ materially from those projected. Such risk and uncertainties include potential changes in interest rates, competitive factors in the financial services industry, general economic conditions, the effect of new legislation and other risks detailed in documents filed by the Company with the SEC from time to time.

Item 8. Financial Statements and Supplementary Data

This Form 10-K/A is being filed to correct a typographical error that appeared in the Report of Independent Accountants as part of Item 8 of the Form 10-K filed by the Company on March 8, 2002. Specifically, the Report of Independent Accountants included therein has been corrected to reflect that such Report covers the results of the operations and cash flows of the Company and its subsidiaries for each of the three years in the period ended December 31, 2001.

Index to Consolidated Financial Statements

Provident Bankshares Corporation and Subsidiaries

		Page
Report of Independent Accountants		35
For the Three Years Ended December 31, 2001, 2000 and 1999 Consolidated Statement of Income		36
	Consolidated Statement of Changes in Stockholders' Equity	38
	Consolidated Statement of Cash Flows	39
	Consolidated Statement of Comprehensive Income	40
Consolidated Statement of Condition at December 31, 2001 and 2000		37
Notes to Consolidated Financial Statements		41-70

Financial Reporting Responsibility

Consolidated Financial Statements

Provident Bankshares Corporation (the "Corporation") is responsible for the preparation, integrity and fair presentation of its published consolidated financial statements as of December 31, 2001, and the year then ended. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and, as such, include amounts, some of which are based on judgments and estimates of management.

Internal Control Structure over Financial Reporting

Management maintains a system of internal control over financial reporting, including controls over safeguarding of assets against unauthorized acquisition, use or disposition which is designed to provide reasonable assurance to the Corporation's management and board of directors regarding the preparation of reliable published financial statements and such asset safeguarding. The system contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. This system encompasses activities that control the preparation of the Corporation's Annual Report on Form 10-K financial statements prepared in accordance with generally accepted accounting principles.

There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of an internal control system may vary over time.

Management assessed its internal control structure over financial reporting as of December 31, 2001. This assessment was based on criteria for effective internal control over financial reporting described in "Internal Control—Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that Provident Bankshares Corporation maintained an effective internal control structure over financial reporting as of December 31, 2001.

Compliance with Laws and Regulations

Management is also responsible for compliance with the federal and state laws and regulations concerning dividend restrictions and federal laws and regulations concerning loans to insiders designated by the FDIC as safety and soundness laws and regulations.

Management assessed its compliance with the designated laws and regulations relating to safety and soundness. Based on this assessment, management believes that Provident Bank, the wholly owned subsidiary of Provident Bankshares Corporation complied, in all significant respects, with the designated laws and regulations related to safety and soundness for the year ended December 31, 2001.

(This page has been left blank intentionally.)

Report of Independent Accountants

To the Board of Directors and Stockholders of Provident Bankshares Corporation

In our opinion, the accompanying consolidated statement of condition and the related consolidated statement of income, changes in stockholders' equity, cash flows, and comprehensive income present fairly, in all material respects, the financial position of Provident Bankshares Corporation and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Baltimore, Maryland
January 16, 2002

Consolidated Statement of Income

Provident Bankshares Corporation and Subsidiaries

		Year Ended December 31,
(in thousands, except per share data)		2001			2000		1999
Interest Income
Interest and Fees on Loans		$	231,573		$	281,942	$	261,837
Interest on Securities			114,036			128,402		88,094
Tax-Advantaged Interest			2,176			2,092		2,337
Interest on Short-Term Investments			309			262		109

	Total Interest Income		348,094			412,698		352,377

Interest Expense
Interest on Deposits			142,642			177,696		151,071
Interest on Borrowings			66,291			80,981		56,350

	Total Interest Expense		208,933			258,677		207,421

	Net Interest Income		139,161			154,021		144,956
Less: Provision for Loan Losses			17,940			29,877		11,570

	Net Interest Income after Provision for Loan Losses		121,221			124,144		133,386

Non-Interest Income
Service Charges on Deposit Accounts			60,331			50,544		39,420
Mortgage Banking Activities			858			3,613		9,652
Commissions and Fees			4,836			4,737		5,280
Net Securities Gains			11,442			8,499		312
Other Non-Interest Income			9,960			7,687		6,674

	Total Non-Interest Income		87,427			75,080		61,338

Non-Interest Expense
Salaries and Employee Benefits			70,307			71,207		66,394
Occupancy Expense, Net			13,634			12,951		11,376
Furniture and Equipment Expense			10,249			10,073		8,927
External Processing Fees			16,867			16,080		14,762
Other Non-Interest Expense			35,166			32,159		27,916

	Total Non-Interest Expense		146,223			142,470		129,375

Income before Income Taxes			62,425			56,754		65,349
Income Tax Expense			19,800			17,819		21,199

Income before Extraordinary Item and Cumulative Effect of Change in Accounting Principle			42,625			38,935		44,150
Extraordinary Item — Gain on Debt Extinguishment, Net			—			770		—
Cumulative Effect of Change in Accounting Principle, Net			(1,160	)		—		—

Net Income		$	41,465		$	39,705	$	44,150

Basic Earnings Per Share
Income before Extraordinary Item and Cumulative Effect of Change in Accounting Principle		$	1.65		$	1.42	$	1.58
Extraordinary Item — Gain on Debt Extinguishment, Net			—			.02		—
Cumulative Effect of Change in Accounting Principle, Net			(.04	)		—		—

Net Income		$	1.61		$	1.44	$	1.58

Diluted Earnings Per Share
Income before Extraordinary Item and Cumulative Effect of Change in Accounting Principle		$	1.60		$	1.39	$	1.53
Extraordinary Item — Gain on Debt Extinguishment, Net			—			.02		—
Cumulative Effect of Change in Accounting Principle, Net			(.04	)		—		—

Net Income		$	1.56		$	1.41	$	1.53

The accompanying notes are an integral part of these statements.

Consolidated Statement of Condition

Provident Bankshares Corporation and Subsidiaries

(dollars in thousands, except share amounts)			December 31, 2001			December 31, 2000
Assets
Cash and Due From Banks			$	105,986		$	84,166
Short-Term Investments				11,798			12,378
Mortgage Loans Held for Sale				6,932			8,243
Securities Available for Sale				1,804,234			1,876,509
Loans:
	Consumer			1,561,717			1,990,436
	Commercial Business			379,616			356,041
	Real Estate — Construction			308,568			265,918
	Real Estate — Mortgage			526,992			725,799

		Total Loans		2,776,893			3,338,194
Less: Allowance for Loan Losses				34,611			38,374

		Net Loans		2,742,282			3,299,820

Premises and Equipment, Net				45,687			45,805
Accrued Interest Receivable				34,057			47,281
Other Assets				148,741			125,241

Total Assets			$	4,899,717		$	5,499,443

Liabilities
Deposits:
	Noninterest-Bearing		$	384,009		$	327,334
	Interest-Bearing			2,972,038			3,627,436

		Total Deposits		3,356,047			3,954,770

Short-Term Borrowings				366,321			397,833
Long-Term Debt				860,106			792,942
Other Liabilities				30,961			43,592

	Total Liabilities			4,613,435			5,189,137

Stockholders' Equity
Common Stock (Par Value $1.00) Authorized 100,000,000 Shares, Issued 31,405,793 and 29,708,943 Shares; at December 31, 2001 and 2000, respectively				31,406			29,709
Capital Surplus				284,457			251,184
Retained Earnings				97,749			104,488
Net Accumulated Other Comprehensive Income (Loss)				(6,458	)		(10,695	)
Treasury Stock at Cost — 6,294,201 and 3,861,969 Shares at December 31, 2001 and 2000, respectively				(120,872	)		(64,380	)

	Total Stockholders' Equity			286,282			310,306

Total Liabilities and Stockholders' Equity			$	4,899,717		$	5,499,443

The accompanying notes are an integral part of these statements.

Consolidated Statement of Changes in Stockholders' Equity

Provident Bankshares Corporation and Subsidiaries

(in thousands, except per share data)			Common Stock		Capital Surplus		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock at Cost			Comprehensive Income (Loss)			Total Stockholders' Equity
Balance at January 1, 1999			$	24,811	$	172,239	$	103,496		$	5,308		$	(9,777	)				$	296,077
	Net Income — 1999			—		—		44,150			—			—		$	44,150			44,150
	Other Comprehensive Loss, Net of Tax:
		Unrealized Loss on Debt Securities, Net of Reclassification Adjustment (see Note 18)		—		—		—			(49,631	)		—			(49,631	)		(49,631	)

	Comprehensive Loss															$	(5,481	)

	Dividends Paid ($.54 per share)			—		—		(15,232	)		—			—						(15,232	)
	Exercise of Stock Options (172,271 shares)			172		1,900		—			—			—						2,072
	Stock Dividend (1,216,219 shares)			1,216		28,611		(29,827	)		—			—						—
	Purchase of Treasury Shares (168,100 shares)			—		—		—			—			(3,478	)					(3,478	)
	Common Stock Issued under Dividend Reinvestment Plan (27,726 shares)			27		614		—			—			—						641

Balance at December 31, 1999			$	26,226	$	203,364	$	102,587		$	(44,323	)	$	(13,255	)				$	274,599
	Net Income — 2000			—		—		39,705			—			—		$	39,705			39,705
	Other Comprehensive Income, Net of Tax:
		Unrealized Gain on Debt Securities, Net of Reclassification Adjustment (see Note 18)		—		—		—			33,628			—			33,628			33,628

	Comprehensive Income															$	73,333

	Dividends Paid ($.64 per share)			—		—		(17,716	)		—			—						(17,716	)
	Exercise of Stock Options (82,220 shares)			82		803		—			—			—						885
	Stock Dividend (1,256,017 shares)			1,256		18,832		(20,088	)		—			—						—
	Purchase of Treasury Shares (3,168,103 shares)			—		—		—			—			(51,125	)					(51,125	)
	Issuance of Stock for Acquisition of Harbor Federal Bancorp (2,098,006 shares)			2,098		27,519		—			—			—						29,617
	Common Stock Issued under Dividend Reinvestment Plan (46,948 shares)			47		666		—			—			—						713

Balance at December 31, 2000			$	29,709	$	251,184	$	104,488		$	(10,695	)	$	(64,380	)				$	310,306
	Net Income — 2001			—		—		41,465			—			—		$	41,465			41,465
	Other Comprehensive Income, Net of Tax:
		Unrealized Gain on Debt Securities, Net of Reclassification Adjustment (see Note 18)		—		—		—			4,237			—			4,237			4,237

	Comprehensive Income															$	45,702

	Dividends Paid ($.75 per share)			—		—		(19,545	)		—			—						(19,545	)
	Exercise of Stock Options (444,422 shares)			444		5,111		—			—			—						5,555
	Stock Dividend (1,219,530 shares)			1,220		27,439		(28,659	)		—			—						—
	Purchase of Treasury Shares (2,432,232 shares)			—		—		—			—			(56,492	)					(56,492	)
	Common Stock Issued under Dividend Reinvestment Plan (32,898 shares)			33		723		—			—			—						756

Balance at December 31, 2001			$	31,406	$	284,457	$	97,749		$	(6,458	)	$	(120,872	)				$	286,282

The accompanying notes are an integral part of these statements.

Consolidated Statement of Cash Flows

Provident Bankshares Corporation and Subsidiaries

			Year Ended December 31
(in thousands)			2001			2000			1999
Operating Activities
	Net Income		$	41,465		$	39,705		$	44,150
	Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities:
		Depreciation and Amortization		40,344			20,527			29,230
		Provision for Loan Losses		17,940			29,877			11,570
		Provision for Deferred Income Tax (Benefit)		(10,652	)		12,043			2,833
		Realized Net Securities Gains		(11,442	)		(8,499	)		(312	)
		Loans Originated or Acquired and Held for Sale		(46,827	)		(155,544	)		(556,072	)
		Proceeds from Sales of Loans Held for Sale		48,469			179,009			755,228
		Gain on Sales of Loans Held for Sale		(331	)		(1,173	)		(4,984	)
		Other Operating Activities		27,272			(28,890	)		286

	Total Adjustments			64,773			47,350			237,779

Net Cash Provided by Operating Activities				106,238			87,055			281,929

Investing Activities
	Principal Collections and Maturities of Securities Available for Sale			661,822			246,709			197,055
	Proceeds on Sales of Securities Available for Sale			786,915			255,775			22,820
	Purchases of Securities Available for Sale			(1,135,321	)		(265,034	)		(400,702	)
	Loan Originations and Purchases Less Principal Collections			242,636			(339,594	)		(492,222	)
	Purchases of Bank Owned Life Insurance			—			(51,620	)		—
	Proceeds from Business Acquisition			—			2,451			—
	Purchases of Premises and Equipment			(8,551	)		(8,343	)		(11,657	)

Net Cash Provided (Used) by Investing Activities				547,501			(159,656	)		(684,706	)

Financing Activities
	Net Increase (Decrease) in Deposits			(598,723	)		(27,188	)		388,971
	Net Increase (Decrease) in Short-Term Borrowings			(31,511	)		43,080			155,960
	Proceeds from Long-Term Debt			101,900			729,917			26,000
	Payments and Maturities of Long-Term Debt			(34,439	)		(602,020	)		(134,121	)
	Issuance of Stock			6,311			1,598			2,713
	Purchase of Treasury Stock			(56,492	)		(51,125	)		(3,478	)
	Cash Dividends on Common Stock			(19,545	)		(17,716	)		(15,232	)

Net Cash Provided (Used) by Financing Activities				(632,499	)		76,546			420,813

Increase in Cash and Cash Equivalents				21,240			3,945			18,036
	Cash and Cash Equivalents at Beginning of Year			96,544			92,599			74,563

Cash and Cash Equivalents at End of Year			$	117,784		$	96,544		$	92,599

Supplemental Disclosures
Interest Paid, Net of Amount Credited to Deposit Accounts			$	154,403		$	194,595		$	138,841
Income Taxes Paid				20,398			10,059			17,631
Stock Dividend				28,659			20,088			29,827
Loans Securitized and Converted to Securities Available for Sale				238,874			309,998			373,332
Stock Issued for Acquired Company				—			29,617			—

The accompanying notes are an integral part of these statements.

Consolidated Statement of Comprehensive Income

Provident Bankshares Corporation and Subsidiaries

		Year Ended December 31,
(in thousands)		2001			2000		1999
Net Income		$	41,465		$	39,705	$	44,150
Other Comprehensive Income (Loss):
	Loss on Derivatives Due to SFAS No. 133 Transition Adjustment, Net of Tax		(452	)		—		—
	Loss on Derivatives Recognized in Other Comprehensive Income, Net of Tax		(165	)		—		—
	Net Unrealized Gain (Loss) on Debt Securities		12,291			39,152		(49,428	)
	Less: Reclassification Adjustment for Securities Gains Included in Net Income		7,437			5,524		203

Other Comprehensive Income (Loss)			4,237			33,628		(49,631	)

Comprehensive Income (Loss)		$	45,702		$	73,333	$	(5,481	)

The accompanying notes are an integral part of these statements.

Notes to Consolidated Financial Statements

Provident Bankshares Corporation and Subsidiaries

Note 1—Summary of Significant Accounting Policies

Provident Bankshares Corporation ("the Corporation") offers a wide range of banking services through its wholly owned subsidiary, Provident Bank, and its subsidiaries ("the Bank"). Product offerings include deposit products, cash management services, commercial and consumer loans and personal investment products. These services are provided through a network of 100 offices and 185 ATMs located primarily in the greater Baltimore/Washington metropolitan area, northern Virginia and southern Pennsylvania.

The following summary of significant accounting policies of the Corporation is presented to assist the reader in understanding the financial and other data presented in this report.

The accounting and reporting policies of the Corporation are in accordance with generally accepted accounting principles and conform to general practice within the banking industry. Certain prior years' amounts in the Consolidated Financial Statements have been reclassified to conform with the presentation used for the current year. These reclassifications have no effect on stockholders' equity or net income as previously reported.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Provident Bankshares Corporation and its wholly owned subsidiary, Provident Bank and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. Results of operations from entities purchased are included from the date of acquisition. Assets and liabilities of purchased companies are stated at estimated fair values at the date of acquisition.

Use of Estimates

In preparation of the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the financial statements and accompanying notes and the reported amounts of income and expense during the reporting periods. Estimates and assumptions are used in areas, such as pension liability, valuation of other real estate owned, recourse liabilities, allowance for loan losses and other than temporary impairment of securities. Actual results could differ from these estimates.

Investment Securities

Investment portfolios are to be divided among three categories: securities available for sale, and if applicable, securities held to maturity and trading account securities. Securities available for sale are securities the Corporation intends to hold for an indefinite period of time, including securities used to manage asset/liability strategy, that may be sold to respond to changes in interest rates, prepayment risks, liquidity needs, manage capital or other similar factors. Available for sale securities are reported at fair value with any unrealized appreciation or depreciation in value reported directly as a separate component of stockholders' equity as net accumulated other comprehensive income (loss), which is reflected net of applicable taxes, and therefore, has no effect on the reported earnings of the Corporation. Gains and losses from sales of securities available for sale are recognized by the specific identification method and are reported in non-interest income. Any securities that the Corporation has the intent and ability to hold to maturity would be included in securities held to maturity and, accordingly, carried at cost adjusted for amortization of premiums and accretion of discounts using the interest method. Securities are evaluated periodically to determine whether a decline in their value is

other than temporary. The Corporation uses criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline to determine whether the loss in value is other than temporary. The term other than temporary is not intended to indicate that the decline is permanent, but indicates that the prospects for a near term recovery of value is not necessarily favorable or there is a lack of evidence to support realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

The Corporation securitizes second mortgage loans out of its acquired loan portfolio with Federal National Mortgage Association ("FNMA"), and the respective securities are placed in the securities portfolio. The retention of the securities represents a retained interest. No gain or loss is recorded on these transactions until the securities are sold. The securities are valued at fair market value along with the Corporation's remaining securities. Credit losses do not affect the valuation due to FNMA's full guarantee to the Corporation for losses on loans collateralizing the securities. These loans were securitized with full recourse back to the Corporation for any credit and interest losses, collectively referred to as losses. The recourse exposure based on the expected losses on these loans over the life of the loans is recognized as a liability. The recourse liability is evaluated periodically for adequacy by estimating the recourse liability based on the present valuation of estimated future losses. This estimate determines if additional amounts need to be provided to the recourse reserve to absorb losses on the securitized loans through a charge to earnings. Any loans that are determined to be losses by FNMA are charged against the recourse reserve.

Loans and Allowance for Loan Losses

All interest on loans is accrued at the contractual rate and credited to income based upon the principal amount outstanding. The Corporation defers and amortizes certain loan fees and costs over the life of the loan using the interest method. Net amortization of these fees and costs are recognized into interest income as a yield adjustment and are, accordingly reported as Interest and Fees on Loans in the Consolidated Statement of Income.

Management places a commercial loan in non-accrual status and discontinues the accrual of interest and reverses previously accrued but unpaid interest when the quality of a commercial credit has deteriorated to the extent that collectibility of all interest and/ or principal cannot be reasonably expected or when it is 90 days past due unless the loan is well secured and in the process of collection. At times commercial loans secured by real estate are charged-off and the underlying collateral is repossessed. At the time of repossession, the loan is reclassified as other real estate owned and carried at lower of cost or fair market value less cost to sell (net realizable value). The difference between the loan balance and the net realizable value at time of foreclosure is recorded as a charge-off. Other real estate owned is evaluated periodically for impairment of value. Impairment of value is recognized through a charge to earnings.

Consumer credit secured by residential property is evaluated for collectibility at 120 days past due. If the loan is in a first lien position and the ratio of the loan to collateral value, less cost to sell, exceeds 90% the loan will be placed in non-accrual status and all accrued but unpaid interest will be reversed against interest income. If the loan is in a junior lien position, all other liens will be considered in calculating the loan to value ratio. No loan will continue to accrue interest after reaching 210 days past due. In general, charge-offs of delinquent loans secured by residential real estate will be recognized when losses are reasonably estimable and probable. No later than 180 days delinquent, any portion of an outstanding loan balance in excess of the collateral's net realizable balance will be charged-off. Subsequent to any partial charge-offs, loans will be carried in non-accrual status until the collateral is liquidated or the loan is charged-off in its entirety. Properties with partial charge-offs will be periodically evaluated to determine whether additional charge-offs are warranted. Subsequent to the liquidation of the property, any deficiencies between proceeds and the recorded balance of the loan will

result in additional charge-offs. Any excess proceeds will be recognized as a loan recovery. Generally, non-residential secured closed end consumer loans that become past due 120 days are charged-off in full. Unsecured open-end consumer loans will be charged-off in full at 180 days past due.

Individual loans are considered impaired when, based on available information, it is probable that the Corporation will be unable to collect principal and interest when due in accordance with the contractual terms of the loan agreement. All non-accrual loans and troubled debt restructurings are considered impaired loans. The measurement of impaired loans may be based on the present value of expected cash flows discounted at the historical effective interest rate, the market price of the loan or based on the fair value of the underlying collateral. Impairment criteria are applied to the loan portfolio exclusive of smaller balance homogeneous loans such as residential mortgage and consumer loans which are evaluated collectively for impairment.

Restructured loans are considered impaired in the year of restructuring. In subsequent years each restructured loan is evaluated for impairment. The allowance for loan losses includes reserves for the impaired loans. Collections of interest and principal on all loans in non-accrual status and/or considered impaired are generally applied as a reduction to the outstanding principal balance of the loan. Once future collectibility has been established, interest income may be recognized on a cash basis.

The Corporation's allowance for loan losses is based on management's continuing review and evaluation of the loan portfolio and intended to maintain an allowance adequate to absorb probable inherent losses on outstanding loans. The level of the allowance is based on an evaluation of the risk characteristics of the loan portfolio and considers such factors as past loan loss experience, non-accrual and delinquent trends, the financial condition of the borrower, current economic conditions and other relevant factors. Adjustments to the allowance due to changes in measurement of impaired loans are incorporated in the provision for loan losses.

Unearned income on loans at December 31, 2001 and 2000 was not material with respect to the respective financial statements. Premiums and discount associated with purchased loans are amortized over the expected life of the loans using the interest method and recognized in interest income as a yield adjustment.

Premises and Equipment

Premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the assets or, for leasehold improvements, the lives of the related leases, if shorter. Major improvements are capitalized while maintenance and repairs are charged to expense as incurred.

Mortgage Banking Activities

The Corporation underwrites and settles mortgage loans with the intent to sell them within a short-term period of time. A contract exists between the Corporation and a third party in which the third party processes the loan then purchases the settled loan at a guaranteed fee, less their cost to process the loan. Amounts reflected as loans held for sale bear no market risk with regards to their sale price as the third party purchases the loans at their face amount, resulting in no gain or loss. Net fee income is recognized in non-interest income as mortgage banking activities in the Consolidated Statement of Income.

In the fourth quarter of 2000 the Corporation repositioned its mortgage lending business by eliminating its operation and outsourcing the loan origination process. Prior to January 1, 2001 the Corporation engaged in sales of mortgage loans, which were originated internally or purchased from third parties. Accordingly, at December 31, 2000 mortgage loans held for sale were carried at the

aggregate lower of cost or market value. Gains or losses on sales of these mortgage loans were recorded as a component of Non-Interest Income in the Consolidated Statement of Income.

The Corporation carries any retained interest in a transferred asset on the Statement of Condition as a servicing asset. The servicing assets represent the fair value of the servicing contracts associated with the purchase or origination and subsequent securitization of the mortgage loans. Servicing assets are amortized in proportion to and over the period of estimated net servicing income. Servicing assets are evaluated periodically for impairment based on their fair value and impairment, if any, is recognized through a valuation allowance and a charge to operations. At December 31, 2001, the Corporation did not have any servicing assets.

Income Taxes

The Corporation uses the liability method to determine deferred tax amounts and the related income tax expense or benefit. Using this method, deferred taxes are calculated by applying enacted statutory tax rates to temporary differences consisting of items of income and expense that are accounted for in financial reporting periods which differ from income tax reporting periods. The resultant deferred tax assets and liabilities represent future taxes to be recovered or remitted when the related assets and liabilities are recovered or settled. The deferred tax assets are reduced by a valuation allowance for that portion of the tax deferred assets which are unlikely to be realized.

Intangible Assets

The Corporation's intangible assets are composed of goodwill and deposit base intangibles which are amortized over 20 years and 7 years, respectively, using the straight line method which estimates the remaining term of the benefit. Intangible assets are reviewed for potential impairment when events or circumstances may affect the basis of the asset.

Derivative Financial Instruments

Effective January 1, 2001, the Corporation adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), as amended by SFAS Nos. 137 and 138 (collectively, "SFAS No. 133"). The statement establishes the accounting and reporting standards for derivative instruments embedded in other contracts and for hedging activities. All derivatives are required to be measured at fair value and recognized as either assets or liabilities in the financial statements. The accounting for changes in fair value (gains or losses) of a derivative is dependent on the intended use of the derivative and its designation. Derivatives may be used to: 1) hedge exposure to change in the fair value of a recognized asset or liability or a firm commitment, referred to as a fair value hedge, 2) hedge exposure to variable cash flows of a recognized asset or liability or of a forecasted transaction, referred to as a cash flow hedge, or 3) hedge foreign currency exposure. The Corporation only engages in fair value and cash flow hedges.

The Corporation uses a variety of derivative financial instruments as part of its interest rate risk management strategy to manage its interest rate risk exposure. This strategy aims to stabilize net interest income through periods of changing interest rates. Derivative products in use by the Corporation are interest rate swaps and caps or floors, used separately or in combination. These derivatives are used to suit the particular hedge objective and all qualify as hedges. Risks in these hedge transactions involve nonperformance by counterparties under the terms of the contract (counterparty credit risk) and the possibility that interest rate movements or general market volatility could result in a loss in effectiveness and necessitate the recognition of a loss (market risk). Counterparty credit risk is controlled by dealing with well-established brokers that are highly rated by independent sources and by establishing exposure limits for individual counterparties. Additionally, credit risk is controlled by entering into bilateral collateral agreements with brokers. These are

agreements in which the parties pledge collateral to indemnify the counterparty in the case of default. Market risk on interest rate swaps is minimized by using these instruments as hedges and continually monitoring the positions to ensure on-going effectiveness. Additionally, the Corporation engages only in hedges which are highly effective. The Corporation's hedging activities are monitored by its Asset/Liability Committee (ALCO) as part of the committee's oversight of the treasury function which is responsible for implementing the hedging strategies. ALCO is responsible for reviewing hedging strategies that are developed through financial analysis and modeling.

All relationships between hedging instruments and hedged items are documented by the Corporation. Risk management objectives, strategies and the use of certain types of derivatives used to hedge specific risks are also documented. At inception, and on a periodic basis, the Corporation assesses whether the hedges have been highly effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. The majority of the derivatives retained by the Corporation to hedge exposures met the requisite effectiveness criteria necessary to qualify for the short cut method. Under the short cut method, an entity may conclude that the change in the derivative's fair value is equal to the change in the hedge item's fair value attributable to the hedged risk, resulting in no ineffectiveness. The Corporation uses benchmark interest rates such as LIBOR to hedge the interest rate risk associated with interest earning assets or interest bearing liabilities. Using these benchmark rates and complying with specific criteria set forth in SFAS No. 133, the Corporation has concluded that changes in fair value or cash flows that are attributable to risks being hedged will be completely offset at the hedges inception and on an ongoing basis.

Fair value hedges which meet the criteria of SFAS No. 133 for effectiveness have changes in the fair value of the derivative and the designated hedged item recognized in earnings. Cash flow hedges have the effective portion of changes in the fair value of the derivative recorded in other comprehensive income (OCI). Amounts recorded in OCI are recognized into earnings concurrent with the impact of the hedged item on earnings.

When it is determined that a derivative is not or ceases to be effective as a hedge, the Corporation discontinues hedge accounting prospectively. When a fair value hedge is discontinued due to ineffectiveness the Corporation will continue to carry the derivative on the balance sheet at its fair value but cease to adjust the hedged asset or liability for changes in value. All ineffective portions of hedges are reported in and affect net earnings immediately.

Gains and losses on derivatives that arose prior to the initial application of SFAS No. 133 and that were previously deferred as adjustments of the carrying amount of hedged items were not adjusted and accordingly were not included in the transition adjustment described in Note 13.

Pension Plan

The Corporation has a defined benefit pension plan which covers substantially all employees. The cost of this noncontributory pension plan was computed and accrued using the projected unit credit method.

Prior service cost is amortized on a straight-line method over the average remaining service period of employees expected to receive benefits under the plan. Annual contributions are made to the plan in an amount equal to the minimum requirements, but no greater than the maximum allowed by regulatory authorities.

Statement of Cash Flows

For purposes of reporting cash flows, cash equivalents are composed of cash and due from banks and short-term investments.

Note 2—Business Combination

On August 31, 2000 the Corporation completed its acquisition of Harbor Federal Bancorp, the parent of Harbor Federal Savings Bank, issuing approximately 2.1 million shares of common stock valued at approximately $29.6 million. The purchase method of accounting was used for the acquisition, accordingly, the purchase price was allocated to the fair value of net assets acquired. This allocation resulted in $9.3 million of goodwill and $2.6 million of deposit based intangibles, which are being amortized over twenty and seven years, respectively. Intangible amortization expense totaled $929 thousand and $280 thousand for the years ended December 31, 2001 and 2000, respectively. Refer to Note 24 in these consolidated financial statements concerning future treatment of goodwill. The results of operations from the date of acquisition are included in the accompanying consolidated financial statements. This acquisition was not considered significant and therefore, pro-forma statements have been excluded.

Note 3—Extraordinary Item

During the first quarter of 2000, the Corporation liquidated $78 million of Federal Home Loan Bank Advances due in 2001 through 2003. Accordingly, a net gain of $770 thousand, or $.02 per share was recognized. This gain was net of $415 thousand in taxes.

Note 4—Change in Accounting Principle

The adoption of SFAS No. 133 resulted in a pre-tax reduction of net earnings of $1.8 million ($1.2 million after-tax) reflected as Cumulative Effect of Change in Accounting Principle on the Consolidated Statement of Income. This represented the difference between the derivative's previous carrying amount and the fair value of the derivatives at January 1, 2001. At adoption of SFAS No. 133, OCI reflected a $452 thousand loss, net of tax, to recognize the net fair value of the derivatives used in its cash flow hedges on that date.

Note 5—Restrictions on Cash and Due From Banks

The Federal Reserve requires banks to maintain cash reserves against certain categories of deposit liabilities. Such reserves averaged approximately $35.4 million and $30.3 million during the years ended December 31, 2001 and 2000, respectively.

In order to cover the costs of services provided by correspondent banks, the Corporation maintains compensating balance arrangements at these correspondent banks or elects to pay a fee in lieu of such arrangements. During 2001 and 2000, the Corporation maintained average compensating balances of approximately $21.4 million and $15.0 million, respectively. In addition, the Corporation paid fees totaling $749 thousand in 2001, $533 thousand in 2000 and $556 thousand in 1999 in lieu of maintaining compensating balances.

Note 6—Investment Securities

The aggregate amortized cost and market values of the available for sale securities portfolio at December 31 were as follows:

(in thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
December 31, 2001
Securities Available for Sale
U.S. Treasury and Government Agencies and Corporations		$	100,390	$	1	$	3,694	$	96,697
Mortgage-Backed Securities			1,514,396		10,220		5,144		1,519,472
Municipal Securities			22,461		701		1		23,161
Other Debt Securities			175,769		201		11,066		164,904

	Total Securities Available for Sale	$	1,813,016	$	11,123	$	19,905	$	1,804,234

December 31, 2000
Securities Available for Sale
U.S. Treasury and Government Agencies and Corporations		$	83,069	$	4,349	$	13	$	87,405
Mortgage-Backed Securities			1,645,398		10,585		11,781		1,644,202
Municipal Securities			25,842		271		33		26,080
Other Debt Securities			138,653		11		19,842		118,822

	Total Securities Available for Sale	$	1,892,962	$	15,216	$	31,669	$	1,876,509

The aggregate amortized cost and market values of the investment securities portfolio by contractual maturity at December 31, 2001 and 2000, are shown below. Expected maturities on mortgage-backed securities may differ from the contractual maturities as borrowers have the right to prepay the obligation without prepayment penalties.

			2001				2000
(in thousands)			Amortized Cost		Market Value		Amortized Cost		Market Value
Securities Available for Sale
	In One Year or Less		$	3,943	$	3,976	$	8,889	$	8,883
	After One Year Through Five Years			55,009		55,336		11,653		11,757
	After Five Years Through Ten Years			71,181		67,666		10,142		10,278
	Over Ten Years			168,487		157,784		216,880		201,389
	Mortgage-Backed Securities			1,514,396		1,519,472		1,645,398		1,644,202

		Total Securities Available for Sale	$	1,813,016	$	1,804,234	$	1,892,962	$	1,876,509

Proceeds from sales of securities available for sale during 2001 were $786.9 million. Gross gains of $14.9 million and gross losses of $3.5 million were realized on such sales and write-downs of securities. For 2000, sales of securities yielded proceeds of $255.8 million which resulted in gross realized gains of $8.8 million and gross losses of $328 thousand. Securities sold in 1999 produced proceeds of $22.8 million resulting in gross gains of $380 thousand and gross losses of $68 thousand.

At December 31, 2001, a net unrealized after tax loss of $5.8 million on the securities portfolio was reflected as the net accumulated other comprehensive income in the Consolidated Statement of Condition. This compares to a net unrealized loss of $10.7 million at December 31, 2000.

Securities with a market value of $1.0 billion at December 31, 2001 and 2000, respectively, were pledged as collateral for public funds, certain short-term borrowings and for other purposes required by law.

During the fourth quarter of 2001, debt securities amounting to $4.3 million were determined to be other than temporarily impaired as a result of potential liquidity difficulties faced by the issuer. Accordingly, the Corporation recorded a pre-tax charge of $1.9 million in net security gains in the Consolidated Statement of Income and reduced the basis of the security. Accrued interest of $188 thousand was reversed, however interest payments received are recognized as income on a cash basis as the issuer has continued to pay interest on these securities on a timely basis. During 2001 the Corporation recognized $263 thousand in interest income on these securities.

Note 7—Allowance for Loan Losses

A summary of the activity in the allowance for loan losses for the three years ended December 31 is presented below:

(in thousands)			2001			2000			1999
Balance at Beginning of the Year			$	38,374		$	36,445		$	42,739
	Allowance of Acquired Company			—			404			—
	Provision for Loan Losses			17,940			29,877			11,570
	Allowance Related to Securitized Loans			(690	)		(950	)		(1,500	)
	Loans Charged-Off			(22,623	)		(29,200	)		(17,892	)
	Less: Recoveries of Loans Previously Charged-Off			1,610			1,798			1,528

		Net Loans Charged-Off		(21,013	)		(27,402	)		(16,364	)

Balance at End of the Year			$	34,611		$	38,374		$	36,445

At December 31, 2001, 2000 and 1999, the recorded investment in commercial loans which are in non-accrual status and therefore considered impaired totaled $3.8 million, $13.6 million and $21.3 million, respectively. There was no additional allowance required for these loans. Had these loans performed in accordance with their original terms, interest income of $626 thousand in 2001, $2.1 million in 2000 and $1.6 million in 1999 would have been recorded. Interest income of $152 thousand was recognized on these loans during 2001. The average recorded investment in impaired commercial loans was approximately $6.5 million in 2001 and $18.9 million in 2000.

Note 8—Premises and Equipment

Real estate and equipment holdings at December 31 are presented in the table below. Real estate owned and used by the Corporation consists of 14 branches and other facilities in the Baltimore/Washington metropolitan area which are used primarily for the operations of the Bank.

(in thousands)		2001		2000
Land		$	8,471	$	1,736
Buildings and Leasehold Improvements			28,534		28,027
Furniture & Equipment			57,169		50,649
Property Held for Future Expansion			—		7,184

Total Premises & Equipment			94,174		87,596
Less: Accumulated Depreciation And Amortization			48,487		41,791

	Net Premises and Equipment	$	45,687	$	45,805

During 2001, the Corporation entered into a 50 year land lease for the property adjacent to the Corporation's headquarters. Under the agreement, the lessee will construct office and parking facilities on the property. The lease provides for discounted parking for the Corporation's employees in addition to office space adequate to meet the Corporation's future incremental operational requirements. Accordingly the property has been reclassified from property held for expansion to land. The lease provides for annual payments of $340 thousand with an annual escalation provision of 1% per annum.

In December 1990, the Corporation entered into a sale and leaseback agreement whereby its headquarters building was sold to an unrelated third party which then leased the building back to the Corporation. During 2000 the lease was renegotiated. At December 31, 2001 the lease has 11 years remaining on the term. The remaining associated deferred gain of $266 thousand from the sale will be recognized in proportion to the gross rental expense incurred over the outstanding term of the lease. The associated lease payments and sublease rental income are included in the table below.

The Corporation also maintains non-cancelable operating leases associated with Bank premises. Most of these leases provide for the payment of property taxes and other costs by the Bank and include one or more renewal options ranging up to ten years. Some of the leases also contain purchase options at market value. Annual rental commitments under all long-term non-cancelable operating lease agreements consisted of the following at December 31, 2001.

(in thousands)		Real Property Leases		Sublease Income		Equipment Leases		Total
2002		$	8,407	$	65	$	261	$	8,603
2003			7,777		45		202		7,934
2004			6,813		14		151		6,950
2005			5,215		—		134		5,349
2006			3,726		—		—		3,726
2007 and Thereafter			16,613		—		—		16,613

	Total	$	48,551	$	124	$	748	$	49,175

Rental expense for premises and equipment was $9.3 million in 2001, $8.8 million in 2000 and $7.7 million in 1999.

Note 9—Mortgage Banking Activities

Mortgage servicing rights ("MSRs") are assets acquired through loan origination. The value of the servicing rights is based on the present value of estimated future cash flows. The MSRs are amortized over the period of estimated net servicing income and take into account appropriate prepayment assumptions. The following is an analysis of the original mortgage loan servicing asset balance, net of accumulated amortization, during each of the respective years.

(in thousands)		2001			2000			1999
Balance at Beginning of Year		$	333		$	1,086		$	2,608
	Additions		69			1,984			13,573
	Amortization		(108	)		(85	)		(137	)
	Sales of Servicing Assets		(294	)		(2,652	)		(14,958	)

Balance at End of Year		$	—		$	333		$	1,086

Unpaid principal balances of loans serviced for others not included in the accompanying Consolidated Statement of Condition were $49 million and $84 million at December 31, 2001 and 2000, respectively.

Note 10—Borrowings

At December 31, short-term borrowings were as follows:

(in thousands)		2001		2000
Securities Sold Under Repurchase Agreements and Federal Funds Purchased		$	364,278	$	315,851
Other Short-Term Borrowings			2,043		81,982

	Total Short-Term Borrowings	$	366,321	$	397,833

The following table sets forth various data on securities sold under repurchase agreements and federal funds purchased.

(dollars in thousands)	2001			2000			1999
Balance at December 31	$	364,278		$	315,851		$	289,426
Average Balance During the Year		320,301			446,892			232,195
Maximum Month-End Balance		423,068			745,849			337,116
Weighted Average Rate During the Year		3.53	%		6.20	%		5.22	%
Weighted Average Rate at December 31		1.55	%		6.03	%		4.97	%

Note 11—Long-Term Debt

Long-term debt consisted of Federal Home Loan Bank Advances of $664.9 million, $69.6 million in trust preferred securities and $125.6 million of five year term repurchase agreements at December 31, 2001. At December 31, 2000 long-term debt was composed of $654.6 million in Federal Home Loan Bank advances and $68.0 million in trust preferred securities and $70.4 million of five year term repurchase agreements. The principal maturities of the components of long-term debt at December 31, 2001, are presented below.

(in thousands)
2002		$	113,511
2003			191,116
2004			205,002
2005			178,364
2006			61,337
After 2006			110,776

	Total Long-Term Debt	$	860,106

The Federal Home Loan Bank ("FHLB") Advances to the Bank mature in varying amounts through 2016. These advances are composed of $330.1 million fixed rate advances with an average interest rate of 6.91% and $334.8 million variable rate advances with an average rate of 5.33%. The term repurchase agreements are all variable rate agreements with an average rate of 5.50% with varying amounts maturing through 2006. The FHLB Advances and the term repurchase agreements are collateralized by investment securities and certain real estate loans with carrying values of $546.3 million and $313.1 million, respectively, at December 31, 2001.

During the second quarter of 1998 and first quarter of 2000, the Corporation formed new wholly owned statutory business trusts, Provident Trust I ("Trust I") and Provident Trust II ("Trust II"). Trust I issued $40.0 million 8.29% and Trust II issued $30.0 million 10.0% trust preferred securities to outside third parties. The sole purpose of the trusts is to invest the proceeds in an equivalent amount of 8.29% and 10% junior subordinated debentures of the Corporation due in 2028 and 2030, respectively. These subordinated debentures, which are the sole assets of the trusts, are subordinate and junior in right of

payment to all present and future senior and subordinated indebtedness and certain other financial obligations of the Corporation. The Corporation fully and unconditionally guarantees each trust's securities obligations. For financial reporting purposes, each trust is treated as a subsidiary of the Corporation and consolidated in the corporate financial statements and are presented net of unamortized issuance costs as long-term debt in the Consolidated Statement of Condition. The trust preferred securities are not included as a component of total stockholders' equity on the Consolidated Statement of Condition. The trust preferred securities are, however, accorded Tier 1 capital status by the Federal Reserve. The treatment of the trust preferred securities as Tier 1 capital in addition to the ability to deduct the expense of the subordinated debentures for income tax purposes provides the Corporation with a cost-effective method to raise regulatory capital. The proceeds of the trust preferred securities were used for general corporate uses.

The trust preferred securities pay cash distributions which are payable semiannually for Trust I and quarterly for Trust II are based on their applicable rate and liquidation preference of $1,000 per security. Distributions to the holders of the trust preferred securities are included in interest expense. Under the provisions of the subordinated debt, the Corporation has the right to defer payment of interest on the subordinated debentures at any time, or from time to time, for periods not exceeding five years. If interest payments on the subordinated debentures are deferred, the distributions on the trust preferred securities are also deferred. Interest on the subordinated debentures is cumulative.

The securities of Trust I are redeemable in whole or in part on or after April 15, 2008. Trust II securities are redeemable in whole or in part on or after February 28, 2005. Either of the securities is redeemable at any time in whole, but not in part, from the date of issuance on the occurrence of certain events.

Note 12—Stockholders' Equity

During 2001 and 2000, the Corporation declared a five percent stock dividend for each year to the stockholders of record as of April 30, 2001 and May 1, 2000, respectively. The 2001 stock dividend was paid on May 11, 2001, resulting in the distribution of 1,219,542 common shares with a par value of $1.00 per share. Accordingly, $1.2 million and $27.5 million were transferred from retained earnings to common stock and capital surplus, respectively. The 2000 stock dividend was paid May 12, 2000 with the distribution of 1,256,017 common shares with a $1.00 par value per share. This dividend resulted in the transfer of $1.3 million to common stock and $18.8 million to capital surplus from retained earnings. The impact of these stock dividends has been retroactively reflected in the earnings and dividends per share and stock option data in the financial statements and accompanying notes.

During 1998, the Corporation approved a stock repurchase program for up to 5% of its outstanding stock. These purchases may occur in the open market from time to time and on an ongoing basis, depending upon market conditions. The Corporation repurchased 2,432,232 and 3,168,103 shares of common stock at a cost of $56.5 million and $51.1 million during 2001 and 2000, respectively. At December 31, 2001, the Corporation had remaining authority to repurchase up to 83,000 shares under the program. In early 2002 the Corporation approved an extension of this program which enables the Corporation to repurchase an additional 1.0 million shares.

The Corporation's Stock Option Plan (the "Option Plan") covers a maximum of 6.7 million shares of common stock that has been reserved for issuance under the Option Plan described below. Under the provisions of Statement of Financial Accounting Standards No. 123—"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Corporation had the option of accruing a compensation expense for stock options granted to employees, or applying the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), which does not require compensation expense to be recognized. The Corporation has elected to continue to apply APB No. 25 to account for the Option Plan. Under the Option Plan, stock options are granted at an exercise price not less than the market

value of the underlying shares of common stock on the date of the grant. As such, the Option Plan is classified as a fixed stock option plan. Accordingly, no compensation expense has been recognized from 1999 through 2001.

The Option Plan provides for the granting of non-qualified stock options to certain key employees and directors of the Corporation and the Bank, as designated by the Corporation's board of directors. All options have a maximum duration of ten years from the date of grant. Beginning in 1999, options granted have a five year or a three year vesting schedule. A minority of options have vesting provisions which may be accelerated on the attainment of specific benchmarks related to the Corporation's performance. Regardless of the vesting schedule all options vest immediately upon a change in control.

The following table presents a summarization of the activity related to the options for the periods indicated:

	2001				2000				1999
	Common Shares		Weighted Average Option Price		Common Shares		Weighted Average Option Price		Common Shares		Weighted Average Option Price
Outstanding, January 1	2,809,208		$	13.97	2,326,420		$	13.77	2,009,536		$	11.72
Granted	84,175			22.02	653,809			14.61	522,475			19.18
Exercised	(452,722	)		6.43	(119,577	)		11.03	(189,929	)		5.82
Cancelled or Expired	(116,413	)		19.20	(51,444	)		20.04	(15,662	)		27.40

Outstanding, December 31	2,324,248		$	15.47	2,809,208		$	13.97	2,326,420		$	13.77

Options Exercisable at Year-end	1,602,451				1,535,868				1,344,393
Weighted Average Fair Value of Options Granted During the Year			$	.53			$	.27			$	.60
Options Available for Granting Under the Option Plan	969,156				170,840				768,776

The table below provides information on the stock options outstandings at December 31, 2001.

		Options Outstanding				Options Exercisable
Exercise Price Range of		Common Shares	Weighted Average Option Price		Weighted Average Remaining Contractual Life	Common Shares	Weighted Average Option Price
$	.00- 2.88	18,938	$	.73	.4	18,938	$	.73
	2.89- 5.76	77,189		4.18	3.3	77,189		4.18
	5.77- 8.65	259,727		7.54	2.9	259,727		7.54
	8.66-11.54	79,497		9.78	4.9	79,497		9.78
	11.55-14.42	829,854		12.85	6.4	594,175		12.72
	14.43-17.30	140,259		15.62	5.4	130,735		15.58
	17.31-20.19	539,591		18.84	8.0	227,488		19.16
	20.20-23.07	64,051		20.95	9.0	4,376		20.98
	23.08-25.96	66,314		24.36	7.8	34,158		24.30
	25.97-28.84	248,828		27.73	6.1	176,168		27.72

		2,324,248	$	15.47	6.2	1,602,451	$	14.25

The weighted average fair value of all of the options granted during the period 1999 through 2001 has been estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2001	2000	1999
Dividend Growth Rate	13.03%	14.24%	14.45%
Weighted Average Risk-free Interest Rate	4.81%	4.83%	6.39%
Weighted Average Expected Volatility	25.11%	25.60%	24.24%
Weighted Average Expected Life in Years	7 years	10 years	7 years

The provisions of SFAS No. 123, require pro forma disclosure of compensation expense for the Corporation based on the fair value of the awards at the date of grant. Under those provisions, the Corporation's net income and earnings per share would have been reduced to the following pro forma amounts below:

(in thousands, except per share data)		2001		2000		1999
Net Income:
	As Reported	$	41,465	$	39,705	$	44,150
	Pro Forma		41,436		39,592		43,947
Basic Earnings Per Share:
	As Reported		$1.61		$1.44		$1.58
	Pro Forma		1.61		1.44		1.57
Diluted Earnings Per Share:
	As Reported		$1.56		$1.41		$1.53
	Pro Forma		1.55		1.41		1.52

Note 13—Derivative Financial Instruments

The Bank enters into various derivative financial instruments to manage its interest rate risk exposure which aims to stabilize net interest income through periods of changing interest rates. (see Note 1). The two major types used are interest rate swaps and interest rate floor/cap/corridor arrangements. These derivative financial instruments use notional amounts to represent a unit of measure but not the amount subject to accounting loss, which is much smaller. Risks in these transactions involve nonperformance by counterparties under the terms of the contract (counterparty credit risk) and, for interest rate swaps, the possibility that interest rate movements or general market volatility could result in losses on balance sheet positions (market risk) should the hedge cease to be highly effective. The counterparty credit risk that results from interest rate swaps, interest rate floors, and interest rate caps is represented by the fair value of contracts that have a positive value at the reporting date. At December 31, 2001 the total amount of credit risk was $357 thousand; however, this

amount can increase or decrease if interest rates change. Credit risk is controlled by dealing with well-established brokers which are highly rated by independent sources and by establishing exposure limits for individual counterparties. Market risk on interest rate swaps is minimized by using these instruments as hedges, actively managing interest rate risk and by continually monitoring these positions. Market risk associated with the interest rate floor/cap/corridor arrangements only exist when premiums are amortized into interest expense without receiving any compensation from third parties. At December 31, 2001 the Bank has entered into $64.2 million pay fixed/receive variable and $70 million pay variable/receive fixed interest rate swaps. Variable rates for the swaps are based upon LIBOR. For the year ended December 31, 2001, $115.0 million and $19.2 million were used to hedge the interest rate risk in borrowings and various interest-earning assets, respectively. The interest rate caps and corridors protect the net interest margin from the impact of increases in borrowing rates during periods of rising interest rates. Unamortized premiums paid and outstanding for floor/cap/corridor arrangements were $965 thousand at December 31, 2001. At December 31, 2001, the Corporation has deferred gains of $5.0 million and deferred losses of $4.5 million related to terminated contracts which are being amortized as a yield adjustment in various amounts through 2010.

The adoption of SFAS No. 133 resulted in a pre-tax reduction of net earnings of $1.8 million ($1.2 million after-tax). This represented the difference between the derivative's previous carrying amount and the fair value of the derivatives at January 1, 2001. At adoption of SFAS No. 133, OCI reflected a $452 thousand loss, net of tax, to recognize the net fair value of the derivatives used in its cash flow hedges on that date.

At December 31, 2001, the derivatives designated as fair value hedges were proven to be effective. Accordingly, the designated hedges and the associated hedged items were marked to fair value by an equal and offsetting amount of $1.1 million, resulting in no net earnings impact for the year ended December 31, 2001. At December 31, 2001, the Corporation has recorded a decline in the fair value of derivatives of $949 thousand, net of taxes, in OCI to reflect the effective portion of cash flow hedges. For the year ending December 31, 2001, the Corporation had no ineffective hedges.

The fair value of cash flow derivatives reflected in OCI are determined using the projected cash flows of these derivatives over the respective lives. This amount may or may not exceed the amount expected to be recognized into earnings out of OCI in the next twelve months, depending on the remaining time to maturity of the position. The Corporation expects the amount to be recognized into earnings out of OCI in the next twelve months will be approximately $1.8 million, before taxes. This amount represents amortization of $550 thousand for interest rate caps and corridors, in addition to $1.3 million recognized from interest rate swaps. The amount associated with the interest rate swaps is projected based on the anticipated forward yield curve. The amount currently reflected in OCI represents the earnings impact over the life of the derivatives, or $550 thousand in interest rate caps and corridors and $400 thousand on the interest rate swaps.

Prior to January 2001

The Corporation used a variety of derivative financial instruments as part of its interest rate risk management strategy and the Corporation did not hold or issue derivative financial instruments for trading purposes. The derivative products used were interest rate swaps and caps or floors, used separately or in combination to suit the hedge objective. All were currently classified as hedges. To qualify as a hedge, 1) the asset or liability to be hedged exposes the Corporation to interest rate risk, 2) the derivatives act to move the Corporation to a rate insensitive position should interest rates change, and 3) the derivative is designated and is effective as a hedge of a balance sheet item.

The notional amounts were not reflected on the Consolidated Statement of Condition because they were merely a unit of measure to determine the effect of the swap. Income and expense on interest rate swaps associated with designated balance sheet items was recognized using the accrual

method over the life of the agreement(s) as an adjustment to the income or expense on the designated balance sheet item. Premiums associated with interest rate floor/cap/corridor arrangements were reflected in the Consolidated Statement of Condition and amortized over their life using the straight-line method and included as an adjustment to interest income/expense associated with the balance sheet item. Payments due to or from counterparties under these agreements were accrued as an adjustment to interest income or expense associated with the designated balance sheet item.

Any significant divergence between this relationship which resulted in interest income or expense exceeding projected parameters resulted in the hedge being marked-to-market with the resultant gain or loss included in earnings. Terminated derivative positions with the designated assets or liabilities retained had the resulting gain or loss deferred and amortized over the estimated remaining life of the hedge into interest income/expense associated with the balance sheet item. Derivatives associated with liquidated hedged assets or liabilities were marked-to-market and had subsequent changes in their fair value reflected in earnings as the derivative is considered speculative in nature.

Accounting treatment of derivative positions was consistent with the accounting treatment of the underlying asset or liability. Interest rate swaps used to hedge available for sale debt securities had their fair value included in stockholders' equity which was consistent with the fair value treatment of the available for sale securities. Interest accruals associated with the swap were included as an adjustment to interest income on the associated securities. Derivative products terminated prior to the sale of the related security had the respective gain or loss deferred and amortized into interest income as yield adjustments to the designated asset over the shorter of the remaining life of the agreement or the designated asset. Upon sale of the security, the deferred gain or loss on the derivative was reflected in income at the time of sale.

At December 31, 2000 the Corporation had entered into $15.0 million pay fixed/receive variable and $524.8 million pay variable/receive fixed interest rate swaps. Variable rates for the swaps were based on indices of either LIBOR or 10 year treasuries. Unamortized premiums paid and outstanding for floor/cap/corridor arrangements were $1.6 million at December 31, 2000. At December 31, 2000, the Corporation had deferred gains of $7.1 million and deferred losses of $10.0 million related to terminated contracts which were being amortized as a yield adjustment in various amounts through 2010.

Note 14—Commitments, Guarantees and Credit Risk

Credit Risk

In the normal course of business, the Bank offers various financial products to its customers to meet their credit and liquidity needs. These instruments involve, to varying degrees, elements of credit and market risk which may exceed any amount recognized in the financial statements. Risks that are inherent in normal banking services also exist in some of these financial instruments. Contract amounts of the instruments indicate the maximum exposure the Bank has in each class of financial instruments discussed in the following paragraphs. These commitments and contingencies are not reflected in the accompanying financial statements. Unless noted otherwise, the Bank does not require collateral or other securities to support financial instruments with credit risk.

Subject to its normal credit standards and risk monitoring procedures, the Bank makes contractual commitments to extend credit. Commitments to extend credit in the form of consumer, commercial real estate and commercial business loans amounted to $582.8 million and $547.6 million at December 31, 2001 and 2000, respectively. Commitments typically have fixed expiration dates or other termination clauses. The total of commitments does not necessarily represent future cash requirements as many commitments may expire without being exercised. Collateral and amounts thereof are obtained, if necessary, based upon management's evaluation of each borrower's financial condition. Required

collateral may be in the form of cash, accounts receivable, inventory, property, plant and equipment and income generating commercial properties and residential properties.

Conditional commitments are issued by the Bank in the form of performance stand-by letters of credit which guarantee the performance of a customer to a third party. These letters of credit are typically included in the amount of funds committed by the Bank to complete associated construction projects. At December 31, commitments under outstanding performance stand-by letters of credit aggregated $41.9 million in 2001 and $34.5 million in 2000. The credit risk of issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Securitizations and Recourse Provision

During 2001 and 2000 the Corporation securitized $239 million and $324 million of its acquired loan portfolio. These loans were securitized with FNMA and the respective securities were placed into the Corporation's investment portfolio. Accordingly, no gain or loss was recorded on these transactions. These securities are valued at fair market value along with the remaining securities. These assets were securitized with full recourse back to the Corporation for any credit losses. The maximum potential recourse obligation was $426.6 million and $588.3 million at December 31, 2001 and 2000, respectively.

A recourse liability was established by the Corporation based upon the credit risk inherent in these loans. This recourse liability amounted to $3.4 million and $2.1 million at December 31, 2001 and 2000, respectively. This recourse liability is evaluated periodically for adequacy. Net charges to the recourse liability totaled $1.9 million during 2001. No losses were incurred during 2000. At December 31, 2001, $1.8 million of loans with potential recourse were 90 days or more past due. Credit losses do not affect the valuation due to FNMA's full guarantee to the Corporation for losses on loans collaterallizing the securities.

Valuation of Retained Interests

The Corporation determined the current fair value of the retained interest using certain key assumptions and calculated the sensitivity of the projected cash flows to immediate 10 percent and 20 percent adverse changes in prepayment and discount rate assumptions. The results are presented in the table below as of December 31, 2001.

(in thousands)		Retained FNMA Securities
Carrying Amount/Fair Value of Retained Interests		$	448,792
Weighted-Average Life in Years			2.5
Annual Prepayment Assumption			29.7%
	Impact on Fair Value of Retained Interest of 10% Adverse Change in Prepayment Assumption	$	(559	)
	Impact on Fair Value of Retained Interest of 20% Adverse Change in Prepayment Assumption		(2,047	)
Annual Cash Flow Discount Rate			7.18%
	Impact on Fair Value of Retained Interest of 10% Adverse Change in Discount Rate	$	(9,576	)
	Impact on Fair Value of Retained Interest of 20% Adverse Change in Discount Rate		(19,151	)

The sensitivities presented above are hypothetical and are presented for informational purposes only. As the amounts indicate, the fair values due to a variation in any assumption generally cannot be extrapolated because the relationship of the change in any assumption to the change in fair value may not be linear. The effect of a change in a particular assumption on the fair value of the retained interest is calculated without considering the changes in other assumptions. However, changes in one assumption may result in changes in another.

Concentrations of Credit Risk

Commercial construction and mortgage loan receivables from real estate developers represent $452.8 million and $382.4 million of the total loan portfolio at December 31, 2001 and 2000, respectively. Substantially all loans are collateralized by real property or other assets. These loans are expected to be repaid from the proceeds received by the borrowers from the retail sales or rentals of these properties to third parties. Consumer loan receivables include $730.6 million and $1.3 billion in portfolio acquisition loans at December 31, 2001 and 2000, respectively. Additionally, the consumer portfolio contains boat loans purchased through brokers of $320.8 million and $217.8 million at December 31, 2001 and 2000, respectively.

The Corporation's investment portfolio contains mortgage-backed securities amounting to $1.52 billion and $1.64 billion at December 31, 2001 and 2000, respectively. The underlying collateral for these securities is in the form of pools of mortgages on residential properties. The majority of the securities are either directly or indirectly guaranteed by U.S. Government agencies or corporations. Management is of the opinion that credit risk is minimal.

Related Party Transactions

Loans to directors and members of executive management are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. Credit criteria used to evaluate each loan is the same as required of any Bank customer. The schedule below presents data on these loans:

(in thousands)		Balance at December 31, 2000			Additions			Reductions			Balance December 31, 2001
Loan Activity		$	15,204		$	10,691		$	10,298		$	15,597

Note 15—Other Non-Interest Income and Expense

The components of other non-interest income and other non-interest expense for the three years ended December 31 were as follows:

(in thousands)		2001		2000		1999
Other Non-Interest Income:
	Other Loan Fees	$	2,614	$	2,390	$	3,355
	Cash Surrender Value Income		3,921		2,065		413
	Other Non-Interest Income		3,425		3,232		2,906

Total Other Non-Interest Income		$	9,960	$	7,687	$	6,674

Other Non-Interest Expense:
	Advertising and Promotion	$	7,579	$	7,582	$	6,806
	Communication and Postage		5,605		5,673		5,231
	Printing and Supplies		2,775		2,715		2,463
	Regulatory Fees		1,707		1,217		1,120
	Professional Services		2,227		2,731		2,706
	Other Non-Interest Expense		15,273		12,241		9,590

Total Other Non-Interest Expense		$	35,166	$	32,159	$	27,916

Note 16—Income Taxes

The components of income tax expense and the sources of deferred income taxes for the three years ended December 31 are presented below.

(in thousands)			2001			2000		1999
Current Income Tax Expense (Benefit):
	Federal		$	29,829		$	6,120	$	18,803
	State			5			71		(437	)

		Total Current		29,834			6,191		18,366
Deferred Income Tax Expense (Benefit)				(10,652	)		12,043		2,833

Total Income Tax Expense			$	19,182		$	18,234	$	21,199

The adoption of SFAS No. 133 on January 1, 2001 resulted in a tax expense of $618 thousand which is included in total income tax expense. Exclusive of the tax impact of SFAS No. 133 tax expense from continuing operations was $19.8 million as reflected in the Consolidated Statement of Income.

Tax expense associated with investment securities gains was $4.0 million in 2001, $3.0 million in 2000 and $109 thousand in 1999.

The primary sources of temporary differences that give rise to significant portions of the deferred tax asset and liability at December 31, 2001 and 2000 are presented below.

(in thousands)		Deferred Assets		Deferred Liabilities
2001:
Loan Loss Reserve Recapture		$	—	$	6,633
Reserve for Loan Loss			10,531		—
Deferred State Tax Receivable			5,577		—
Depreciation			—		6,242
Deferred Federal Tax Liability for State Receivable			—		1,952
Deferred Tax Asset on Unrealized Losses in Debt Securities			3,145		—
Leasing Activities			3,746		—
REIT Dividend Deferral			2,783		—
Employee Benefits			2,741		—
Deferred Tax Liability on Securities Transactions			—		4,093
Purchase Accounting Adjustments			1,122		—
Write-down of Property Held for Sale			700		—
SFAS No. 133 Related Adjustments			671		—
Deposit Intangible			—		717
Deferred Tax Asset on Cash Flow Hedges			332		—
Harbor Federal Expenses			94		—
Deferred Gain on Sale/Leaseback			93		—
Capitalized Real Estate Owned Costs			42		—
All Other			515		1,473

	Total	$	32,092	$	21,110

2000:
Loan Loss Reserve Recapture		$	—	$	9,153
Reserve for Loan Loss			12,199		—
Deferred State Tax Receivable			5,577		—
Depreciation			—		3,850
Deferred Federal Tax Liability for State Receivable			—		1,952
Deferred Tax Asset on Unrealized Losses in Debt Securities			5,759		—
Leasing Activities			1,688		—
Mortgage Servicing Rights			—		70
REIT Dividend Deferral			—		4,978
Employee Benefits			2,682		—
Deferred Tax Liability on Securities Transactions			—		6,282
Purchase Accounting Adjustments			1,947		—
Write-down of Property Held for Sale			700		—
Harbor Federal Expenses			—		406
Deferred Gain on Sale/Leaseback			184		—
Capitalized Real Estate Owned Costs			146		—
All Other			509		1,177

	Total	$	31,391	$	27,868

At December 31, 2001 and 2000 the Corporation had valuation allowances with respect to deferred tax assets for assets not included above, of $11.4 million and $8.9 million, respectively.

The combined federal and state effective income tax rate for each year is different than the statutory federal income tax rate. The reasons for these differences are set forth below:

		2001		2000		1999
Statutory Federal Income Tax Rate		35.0	%	35.0	%	35.0	%
Increases (Decreases) in Tax Rate Resulting From:
	Tax-Advantaged Income	(3.3	)	(3.1	)	(1.1	)
	Disallowed Interest Expense	.4		.2		.2
	Employee Benefits	(.2	)	(.1	)	(.2	)
	Low Income Housing Credit	(.5	)	(.2	)	—
	State and Local Income Taxes, Net of Federal Income Tax Benefit	—		.1		(.7	)
	Tax Benefit of State Refund Claim	—		—		(.7	)
	Other	.2		(.4	)	(.1	)

Total Combined Effective Income Tax Rate		31.6	%	31.5	%	32.4	%

Note 17—Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Basic earnings per share does not include the effect of any potentially dilutive transactions or conversions. Diluted earnings per share reflects the potential dilution of earnings per share under the treasury stock method which could occur if contracts to issue common stock were exercised, such as stock options, and shared in corporate earnings. All prior period data has also been restated to provide for the effects of the stock dividends issued in 1999, 2000 and 2001.

The following table presents a summary of per share data and amounts for the periods indicated:

(dollars in thousands, except per share data)	2001		2000		1999
Qualifying Net Income	$	41,465	$	39,705	$	44,150
Basic EPS Shares		25,767		27,489		28,010
Basic EPS		$1.61		$1.44		$1.58
Dilutive Shares		895		595		847
Diluted EPS Shares		26,662		28,084		28,857
Diluted EPS		$1.56		$1.41		$1.53

Note 18—Other Comprehensive Income

Comprehensive income is defined as net income plus transactions and other occurrences which are the result of non-owner changes in equity. For financial statements presented for the Corporation, the only non-owner equity change is comprised of unrealized gains or losses on available for sale debt securities and unrealized gains or losses attributable to derivatives that will be accumulated with net income from operations. This does not have an impact on the Corporation's results of operations. Below are the components of Other Comprehensive Income and the related tax effects allocated to each component:

			Year Ended December 31,
(in thousands)			2001			2000		1999
Unrealized Holding Gains (Losses) Arising During the Year			$	18,909		$	60,237	$	(76,659	)
Tax Expense (Benefit) Attributable to Unrealized Holding Gains (Losses) Arising During the Year				6,618			21,085		(27,231	)

Net Unrealized Holding Gains (Losses)			$	12,291		$	39,152	$	(49,428	)

	Less: Reclassification Adjustments
		Gains Realized in Net Income		11,442			8,499		312
		Tax Expense on Realized Gains Included in Net Income		4,005			2,975		109

Net Reclassification Adjustment				7,437			5,524		203

Losses on Derivatives Recognized in Other Comprehensive Income Arising During the Year				(949	)		—		—
Tax Expense Attributable to Derivative Losses Arising During the Year				332			—		—

Net Losses on Derivatives Recognized in Other Comprehensive Income				(617	)		—		—

Other Comprehensive Income (Loss)			$	4,237		$	33,628	$	(49,631	)

Note 19—Employee Benefit Plans

Pension Plan

The Corporation's non-contributory defined benefit pension plan covers substantially all full-time employees with at least one year of service and provides an optional lump sum or monthly benefits upon retirement to participants based on average career earnings and length of service. The Corporation's policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, as amended, plus such additional amounts as the Corporation deems appropriate.

Postretirement Benefits

In addition to providing pension benefits, the Corporation provides certain health care and life insurance benefits to retired employees. Substantially all employees of the Corporation that reach age 60 may become eligible for these benefits, contingent upon the completion of twenty years of service. The health care plan is contributory where the retiree is responsible for all premiums in excess of the Corporation's contribution. The Corporation's contribution is capped at a growth rate of 4% per year. Under the prospective transition approach, the transition obligation is amortized over a twenty-year period. The cost of life insurance benefits provided to the retiree is borne by the Corporation. At December 31, 2001 and 2000, this plan is unfunded.

The following tables set forth the activity for each benefit plan's projected benefit obligation, plan assets and funded status at January 1.

	Pension Plan									Postretirement Benefits
(in thousands)	2001			2000			1999			2001			2000			1999
Actuarial Present Value of Accumulated Benefit Obligation:	$	25,197		$	23,528		$	23,098		$	1,450		$	1,428		$	1,216

Projected Benefit Obligation at January 1	$	26,941		$	23,634		$	26,614		$	1,428		$	1,216		$	1,363
Service Cost		1,336			1,284			976			138			114			114
Interest Cost		1,921			1,970			1,740			99			98			85
Benefit Payments		(2,688	)		(2,479	)		(1,323	)		(182	)		(162	)		(88	)
Actuarial Loss (Gain)		244			2,532			(4,373	)		(33	)		162			(258	)

Projected Benefit Obligation at December 31	$	27,754		$	26,941		$	23,634		$	1,450		$	1,428		$	1,216

(in thousands)	2001			2000			1999			2001			2000			1999
Plan Assets Fair Value at January 1	$	28,464		$	30,228		$	30,434		$	—		$	—		$	—
Employer Contributions		—			—			—			182			162			88
Benefit Payments		(2,687	)		(2,479	)		(1,323	)		(182	)		(162	)		(88	)
Actual Return on Plan Assets		1,119			715			1,117			—			—			—

Plan Assets Fair Value at December 31	$	26,896		$	28,464		$	30,228		$	—		$	—		$	—

(in thousands)	2001			2000			1999			2001			2000			1999
Plan Assets in Excess of Less Than Projected Benefit Obligation	$	(858	)	$	1,523		$	6,594		$	(1,450	)	$	(1,428	)	$	(1,216	)
Unrecognized Net Gain from Past Experience Different from that Assumed		(210	)		(2,202	)		(4,914	)		(213	)		(196	)		(373	)
Unrecognized Prior Service Cost		881			867			(1,401	)		62			69			76
Unrecognized Net Obligation (Asset) Arising at Transition at January 1		(153	)		(288	)		(424	)		594			648			702

Accrued Pension Cost Included in Other Liabilities	$	(340	)	$	(100	)	$	(145	)	$	(1,007	)	$	(907	)	$	(811	)

The actuarially estimated net benefit cost for the year ended December 31 includes the following components:

(in thousands)	2001			2000			1999			2001		2000		1999
Service Cost—Benefits Earned During the Year	$	1,336		$	1,284		$	976		$	138	$	113	$	114
Interest Cost on Projected Benefit Obligation		1,921			1,970			1,740			99		98		85
Expected Return on Plan Assets		(2,791	)		(2,953	)		(2,977	)		—		—		—
Net Amortization and Deferral of Loss (Gain)		(227	)		(346	)		(370	)		45		46		50

Net Pension Cost (Benefit) Included in Employee Benefits Expense	$	239		$	(45	)	$	(631	)	$	282	$	257	$	249

The Corporation revises the rates applied in the determination on the actuarial present value of the projected benefit obligation to reflect the anticipated performance of the plan and changes in compensation levels. The vast majority of the rate of returns for plan asset classes over 5, 10, 15, 20, 25 and 30 year periods for the years ended December 31, 1999, 2000 and 2001 were greater than or equal to 10%. The assumption is reflected in the following table.

		2001		2000		1999		2001		2000		1999
Rates Used in Determining Actuarial Present Value of Projected Benefit Obligation:
	Weighted Average Discount Rate	7.25	%	7.75	%	8.0	%	7.25	%	7.75	%	8.0	%
	Expected Rate of Increase in Future Compensation	4.0	%	4.0	%	4.0	%
Expected Long-Term Rate of Return on Plan Assets		10.0	%	10.0	%	10.0	%

The contribution to the Corporation's postretirement benefit plan has been capped at a growth rate of 4% in 2000 and 1999 and is expected to remain at that level in the future.

The assumed health care cost trend rates could have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	1%		1%
(in thousands)	Increase		Decrease
Effect on Total of Service and Interest Cost Components	$	29	$	(25	)
Effect on Postretirement Benefit Obligation		145		(123	)

Retirement Savings Plan

The Retirement Savings Plan is a defined contribution plan which is qualified under Section 401(a) of the Internal Revenue Code of 1986. The plan generally allows all employees who complete 500 hours of employment during a six month period and elect to participate, to receive matching funds from the Corporation for pre-tax retirement contributions made by the employee. The annual contribution to this plan is at the discretion of and determined by the Board of Directors of the Corporation. Under provisions of the plan, the maximum contribution is 75% of an employee's contribution up to 4.5% of the individual's salary. Contributions to this plan amounted to $1.4 million, $1.5 million and $1.3 million for the years ended December 31, 2001, 2000 and 1999, respectively.

Note 20—Regulatory Capital

The Corporation is subject to various capital adequacy guidelines imposed by federal and state regulatory agencies. Under these guidelines, the Corporation must meet specific capital adequacy requirements which are quantitative measures of the Corporation's assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. Additionally, the Corporation's capital amounts and classifications are subject to qualitative judgments by these agencies about components, risk weightings and other factors. The quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain amounts and ratios of total and tier 1 capital to risk-weighted assets and tier 1 capital to average assets, known as the leverage ratio. The Corporation's tier 1 capital is equal to its capital securities (see Note 11), common stock, capital surplus and retained earnings less treasury stock. Equity for regulatory purposes does not include market value adjustments for available for sale securities nor the impact of cash flow derivatives. The calculation of the Corporation's total capital is equal to tier 1 capital plus the allowance for loan losses subject to certain limitations. Risk-weighted assets are determined by applying weighting to asset categories and certain off-balance sheet commitments based on the level of credit risk inherent in the assets. At December 31, 2001 and 2000, the Corporation exceeded all regulatory capital requirements. The most recent notification from the Corporation's primary regulators categorized the Corporation as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Corporation's category. If the Corporation is unable to comply with the minimum capital requirements, it could result in regulatory actions which could have a material impact on the Corporation.

The minimum regulatory guidelines for total capital and tier 1 capital to risk-weighted assets are 8% and 4%, respectively. Guidelines for the leverage ratio require the ratio of tier 1 capital to average

assets to be 100 to 200 basis points above a 3% minimum, depending on risk profiles and other factors. The table below presents the various components used to calculate the capital adequacy ratios.

		December 31,						December 31,
(dollars in thousands)		2001			2000			2001			2000
								Provident Bank
Qualifying Capital
	Tier 1 Capital	$	351,971		$	380,348		$	350,315		$	378,501
	Total Capital		386,582			418,772			384,926			416,875
	Risk-Weighted Assets		3,487,428			4,060,447			3,484,777			4,060,245
	Quarterly Average Assets		4,939,690			5,615,490			4,943,151			5,612,604
Ratios
	Leverage Capital		7.13	%		6.77	%		7.09	%		6.74	%
	Tier 1 Capital		10.09			9.37			10.05			9.32
	Total Capital		11.09			10.31			11.05			10.27

Note 21—Business Segment Information

The Corporation's lines of business are structured according to customer group served. For management purposes the lines are divided into the following segments: Retail Banking, Commercial Banking, and Treasury and Administration.

The Corporation offers consumer and commercial banking products and services through its wholly owned subsidiary, Provident Bank ("the Bank"). Provident operates in the Baltimore-Washington corridor, northern Virginia and southern York County, Pennsylvania. The Bank offers its services to customers in our expanding market area through 58 traditional and 42 in-store branches. Additionally, the Bank offers its customers 24-hour banking services through 185 ATMs, telephone banking and the Internet. Retail Banking services include a broad array of small business and consumer loans, deposit and investment products and a complete range of mortgage lending activities. Commercial Banking provides an array of commercial financial services including asset-based lending, equipment leasing, real estate financing, cash management and structured financing. Treasury and Administration is comprised of balance sheet management activities that include managing the investment portfolio, discretionary funding, utilization of derivative financial instruments and optimizing the Corporation's equity position.

The financial performance of each business segment is monitored using an internal profitability measurement system. This system utilizes policies that ensure the results reflect the economics for each segment and that they are compiled on a consistent basis. Line of business information is based on management accounting practices that support the current management structure. This information is not necessarily comparable with similar information for other financial institutions. This profitability measurement system uses internal management accounting policies that generally follow the policies described in Note 1. The Corporation's funds transfer pricing system utilizes a matched maturity methodology that assigns a costs of funds to earning assets and a value to the liabilities of each business segment with an offset in the Treasury and Administration business segment. Provision for loan losses is charged to the retail and commercial segments based on actual charge-offs with the balance to the Treasury and Administration segment. Operating expense is charged on a fully absorbed basis. Income tax expense is calculated based on the segments fully taxable equivalent income and the Corporation's effective tax rate. Revenues from no individual customer exceeded 10% of consolidated total revenues.

The table below summarizes 2001, 2000 and 1999 results by each business segment.

(in thousands)	Commercial Banking		Retail Banking		Treasury & Administration			Total
2001:
Net Interest Income	$	24,642	$	97,280	$	17,239		$	139,161
Provision for Loan Losses		5,010		16,004		(3,074	)		17,940

Net Interest Income After Provision for Loan Losses		19,632		81,276		20,313			121,221
Non-Interest Income		5,758		68,456		13,213			87,427
Non-Interest Expense		14,979		109,009		22,235			146,223

Income Before Income Taxes		10,411		40,723		11,291			62,425
Income Tax Expense		3,302		12,917		3,581			19,800

Income Before Extraordinary Item		7,109		27,806		7,710			42,625
Extraordinary Item		—		—		(1,160	)		(1,160	)

Net Income	$	7,109	$	27,806	$	6,550		$	41,465

Average Total Assets	$	822,120	$	2,994,190	$	1,312,668		$	5,128,978

2000:
Net Interest Income	$	21,311	$	115,115	$	17,595		$	154,021
Provision for Loan Losses		12,398		16,015		1,464			29,877

Net Interest Income After Provision for Loan Losses		8,913		99,100		16,131			124,144
Non-Interest Income		4,946		61,804		8,330			75,080
Non-Interest Expense		13,340		109,187		19,943			142,470

Income Before Income Taxes		519		51,717		4,518			56,754
Income Tax Expense		177		17,565		77			17,819

Income Before Extraordinary Item		342		34,152		4,441			38,935
Extraordinary Item		—		—		770			770

Net Income	$	342	$	34,152	$	5,211		$	39,705

Average Total Assets	$	779,692	$	3,132,817	$	1,570,237		$	5,482,746

1999:
Net Interest Income	$	20,474	$	99,395	$	25,087		$	144,956
Provision for Loan Losses		5,927		7,009		(1,366	)		11,570

Net Interest Income After Provision for Loan Losses		14,547		92,386		26,453			133,386
Non-Interest Income		5,500		56,246		(408	)		61,338
Non-Interest Expense		12,268		100,374		16,733			129,375

Income Before Income Taxes		7,779		48,258		9,312			65,349
Income Tax Expense		2,653		16,456		2,090			21,199

Income Before Extraordinary Item		5,126		31,802		7,222			44,150
Extraordinary Item		—		—		—			—

Net Income	$	5,126	$	31,802	$	7,222		$	44,150

Average Total Assets	$	722,406	$	2,679,611	$	1,510,626		$	4,912,643

Note 22—Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107 "Disclosure about Fair Value of Financial Instruments" ("SFAS No. 107") requires all entities to disclose the fair value of recognized and unrecognized financial instruments on a prospective basis, where feasible, in an effort to provide financial statement users with information in making rational investment and credit decisions. To estimate the fair value of each class of financial instrument the Corporation applied the following methods using the indicated assumptions:

Cash and Due from Banks and Short-Term Investments

Carrying amount of those investments is used to estimate fair value.

Mortgage Loans Held for Sale

At December 31, 2001, fair value for Mortgage loans held for sale was determined using contract pricing for these loans. Prior to January 1, 2001, the fair value was determined using forward contract commitment pricing.

Securities Available for Sale

The fair values of the securities are based on quoted market prices or dealer quotes for those investments.

Loans

Fair value of loans which have homogeneous characteristics, such as residential mortgages and installment loans, was estimated using discounted cash flows. All other loans were valued using discount rates which reflected credit risks of the borrower, types of collateral and remaining maturities.

Deposit Liabilities

Fair value of demand deposits, savings accounts and money market deposits was the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Borrowings

Rates currently available to the Corporation for borrowings and debt with similar terms and remaining maturities are used to estimate fair value of the existing debt.

Interest Rate Arrangements

The fair value of interest rate swaps and floor/cap/corridor arrangements, which the Corporation uses for hedging purposes, is the estimated amount the Corporation would receive or pay to terminate the arrangements at the reporting date, taking into account the current interest rates and the current credit worthiness of the counterparties. Prior to January 1, 2001 interest rate swaps were considered off-balance sheet instruments.

Interest rate swaps/caps carrying amounts indicate amounts paid for cap arrangements attached to interest rate swaps. The fair value is the net of the fair value of the swaps and the caps.

Commitments to Extend Credit

The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the credit worthiness of the

borrowers. Fixed-rate loan commitments also take into account the difference between current levels of interest rates and committed rates.

The estimated fair values of the Corporation's financial instruments at December 31 are as follows:

		2001				2000
(in thousands)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
	Cash and Due From Banks	$	105,986	$	105,986	$	84,166	$	84,166
	Short-Term Investments		11,798		11,798		12,378		12,378
	Mortgage Loans Held for Sale		6,932		6,932		8,243		8,257
	Securities Available for Sale		1,804,234		1,804,234		1,876,509		1,876,509
	Loans, Net of Allowance		2,742,282		2,803,737		3,299,820		3,411,088
Liabilities:
	Deposits	$	3,356,047	$	3,405,554	$	3,954,770	$	3,861,643
	Short-Term Borrowings		366,321		366,683		397,833		398,011
	Long-Term Debt		860,106		879,239		792,942		798,649
Recognized Derivative Financial Instruments:
	Interest Rate Swaps	$	358	$	358	$	—	$	1,928
	Interest Rate Corridors		234		234		—		—
	Interest Rate Caps		657		657		1,575		(239	)
Commitments to Extend Credit			—		—		—		—

The calculations represent estimates and do not represent the underlying value of the Corporation. The information presented is based on fair value calculations and market quotes as of December 31, 2001 and 2000. These amounts are based on the relative economic environment at the respective year-ends, therefore, the valuations may have been affected by economic movements since year-end.

Note 23—Parent Company Financial Information

The condensed statements of income, financial condition and cash flows for Provident Bankshares Corporation (parent only) are presented below.

Statement of Income

		Year Ended December 31,
(in thousands)		2001			2000			1999
Interest Income From Bank Subsidiary		$	25		$	86		$	34
Dividend Income From Subsidiaries			75,986			76,559			20,242

	Total Income		76,011			76,645			20,276

Operating Expenses			6,521			6,869			4,105

Income Before Income Taxes and Equity in Undistributed Income of Subsidiaries			69,490			69,776			16,171
Income Tax Benefit			(2,179	)		(2,053	)		(1,277	)

			71,669			71,829			17,448
Equity in Undistributed Income of Subsidiaries			(30,204	)		(32,124	)		26,702

Net Income		$	41,465		$	39,705		$	44,150

Statement of Condition

		December 31,
(in thousands)		2001			2000
ASSETS
Interest Bearing Deposit with Bank Subsidiary		$	90		$	108
Investment in Bank Subsidiary			347,992			372,428
Other Assets			11,433			8,530

	Total Assets	$	359,515		$	381,066

LIABILITIES
Long Term Debt		$	71,796		$	70,135
Other Liabilities			1,545			724

	Total Liabilities		73,341			70,859

STOCKHOLDERS' EQUITY
Common Stock			31,406			29,709
Capital Surplus			284,359			251,085
Retained Earnings			97,739			104,488
Net Accumulated Other Comprehensive Income of Bank Subsidiary			(6,458	)		(10,695	)
Treasury Stock at Cost			(120,872	)		(64,380	)

	Total Stockholders' Equity		286,174			310,207

Total Liabilities and Stockholders' Equity		$	359,515		$	381,066

Statement of Cash Flows

			Year Ended December 31,
(in thousands)			2001			2000			1999
Operating Activities:
	Net Income		$	41,465		$	39,705		$	44,150
	Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities:
		Equity in Undistributed Income from Subsidiaries		30,204			32,124			(26,702	)
		Other Operating Activities		(2,878	)		86			(2,056	)

	Total Adjustments			27,326			32,210			(28,758	)

Net Cash Provided by Operating Activities				68,791			71,915			15,392

Investing Activities:
	Investment in Bank Subsidiary			(1,521	)		(33,500	)		—
	Investment in Trust Subsidiary			—			(928	)		—

Net Cash Used by Investing Activities				(1,521	)		(34,428	)		—

Financing Activities:
	Issuance of Common Stock			6,311			1,499			2,713
	Purchase of Treasury Stock			(56,492	)		(51,125	)		(3,478	)
	Cash Dividends on Common Stock			(19,563	)		(17,707	)		(15,232	)
	Other Financing Activities			2,456			(1,193	)		(76	)
	Issuance of Corporation-Obligated Mandatorily Redeemable Trust Preferred Securities			—			30,928			—

Net Cash Provided (Used) by Financing Activities				(67,288	)		(37,598	)		(16,073	)

Increase (Decrease) in Cash and Cash Equivalents				(18	)		(111	)		(681	)
Cash and Cash Equivalents at Beginning of Year				108			219			900

Cash and Cash Equivalents at End of Year			$	90		$	108		$	219

Supplemental Disclosures
	Income Taxes Paid (Received)		$	(2,563	)	$	(3,419	)	$	344
	Stock Dividend			28,659			20,088			29,827
	Stock Issued for Acquired Company			—			29,617			—

Note 24—Future Changes in Accounting Principles

In June 2001, the Financial Accounting Standards Board approved Statements of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS No. 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142") which are effective July 1, 2001 and January 1, 2002, respectively, for the Corporation. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Under SFAS No. 142, amortization of goodwill, including goodwill recorded in past business combinations, will be discontinued upon adoption of this standard. In addition, goodwill recorded as a result of business combinations completed during the six-month period ending December 31, 2001 will not be amortized. All goodwill and intangible assets will be tested for impairment in accordance with the provisions of the statement. Beginning January 1, 2002, the Corporation will discontinue the amortization of goodwill, which totaled $520 thousand for the year ended December 31, 2001.

In October 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 provides new guidance on recognition of impairment losses on

long-lived assets to be held and used and broadens the definition of what constitutes a discontinued operation and how the results of discontinued operations are to be measured. The provisions of SFAS No. 144 are effective for the Corporation on January 1, 2002. Management does not expect SFAS No.144 to have a significant impact on the Corporation.

Note 25—Unaudited Quarterly Summary Results of Operations for 2001 and 2000

		2001									2000
(in thousands, except per share data)		Fourth Quarter		Third Quarter		Second Quarter		First Quarter			Fourth Quarter		Third Quarter		Second Quarter		First Quarter
Interest Income		$	76,053	$	85,325	$	88,822	$	97,894		$	106,763	$	107,148	$	101,545	$	97,242
Interest Expense			43,321		50,645		54,313		60,654			67,650		68,688		63,760		58,579

Net Interest Income			32,732		34,680		34,509		37,240			39,113		38,460		37,785		38,663
Provision for Loan Losses			2,770		2,100		4,895		8,175			5,257		7,285		13,035		4,300

Net Interest Income After Provision
	For Loan Losses		29,962		32,580		29,614		29,065			33,856		31,175		24,750		34,363
Non-Interest Income			20,699		19,370		18,634		17,282			18,713		17,081		16,529		14,258
Net Securities Gains			3,686		167		1,622		5,967			641		—		7,779		79
Non-Interest Expense			36,181		36,257		38,195		35,590			37,378		35,691		35,388		34,013

Income Before Income Taxes			18,166		15,860		11,675		16,724			15,832		12,565		13,670		14,687
Income Tax Expense			5,731		5,030		3,640		5,399			4,857		4,030		4,610		4,322

Income Before Extraordinary Item			12,435		10,830		8,035		11,325			10,975		8,535		9,060		10,365
Extraordinary Item			—		—		—		—			—		—		—		770
Cumulative Effect Of Accounting Change			—		—		—		(1,160	)		—		—		—		—

Net Income		$	12,435	$	10,830	$	8,035	$	10,165		$	10,975	$	8,535	$	9,060	$	11,135

Per Share Amounts:*
Net Income—Basic		$	.49	$	.42	$	.31	$	.39		$	.40	$	.31	$	.33	$	.40
Net Income—Diluted			.48		.41		.30		.37			.39		.31		.32		.39
Market Prices: High			24.59		25.40		25.00		23.27			20.06		16.07		15.76		16.10
Low			19.62		20.61		20.95		19.94			15.60		12.68		12.56		12.59
Cash Dividends Paid			.200		.195		.181		.176			.171		.167		.154		.150

*: Income before extraordinary item for first quarter 2001 was $.43 and $.41 for basic and diluted earnings per share respectively.

PART IV

Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K

(a)

The following documents are filed as a part of this report:

(1): The Consolidated Financial Statements of Provident Bankshares Corporation and Subsidiaries are included in Item 8.
(2): Financial statement schedules—none applicable or required.
(3): Exhibits

The following is an index of the exhibits included in this report:

		(3.1)		Articles of Incorporation of Provident Bankshares Corporation.(1)
		(3.2)		Articles of Amendment to the Articles of Incorporation of Provident Bankshares Corporation.(1)
		(3.3)		Fourth Amended and Restated By-Laws of Provident Bankshares Corporation.(2)
		(4.1)		Amendment No. 1 to Stockholder Protection Rights Agreement.(7)
		(10.1)		1994 Supplemental Executive Incentive Plan of Provident Bank of Maryland.(3)
		(10.2)		Supplemental Executive Retirement Income Plan of Provident Bank of Maryland.(4)
		(10.3)		Amended and Restated Stock Option and Appreciation Rights Plan of Provident Bankshares Corporation.(5)
		(10.4)		Form of Change in Control Agreement between Provident Bankshares Corporation and Certain Executive Officers.(6)
		(10.5)		Form of Change in Control Agreement between Provident Bank of Maryland and Certain Executive Officers.(6)
		(10.6)		Deferred Compensation Plan for Outside Directors.(7)
		(10.7)		Provident Bankshares Corporation Non-Employee Directors' Severance Plan.(7)
		(10.9)		2001 Group Manager Incentive Plan of Provident Bankshares.
		(11)		Statement re: Computation of Per Share Earnings.
		(21)		Subsidiaries of Provident Bankshares Corporation.(8)
		(23)		Consent of Independent Accountants.
		(24)		Power of Attorney.(8)

(b): Reports on Form 8-K were filed with the Securities and Exchange Commission in the last quarter of 2001 as follows:

October 23, 2001—Telephone conference call on October 18, 2001 relating to its October 18,
2001 earnings release.

(1): Incorporated by reference from Registrant's Registration Statement on Form S-8 (File No. 33-58881) filed with the Commission on July 10, 1998.
(2): Incorporated by reference from Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed with the Commission on May 10, 2000.
(3): Incorporated by reference from the Registrant's 1994 Annual Report on Form 10-K (File No. 0-16421) filed with the Commission on February 17, 1995.
(4): Incorporated by reference from Registrant's 1993 Form 10-K (File No. 0-16421) filed with the Commission on March 14, 1994.
(5): Incorporated by reference from Registrant's definitive 2001 Proxy Statement for the Annual Meeting of Stockholders held on April 18, 2001.
(6): Incorporated by reference from Registrant's 1995 Form 10-K (File No. 0-16421) filed with the Commission on March 18, 1996.
(7): Incorporated by reference from Registrant's 1998 Form 10-K (File No. 0-16421) filed with the Commission on March 3, 1999.
(8): Incorporated by reference from Registrant's 2000 Form 10-K (File No. 0-16421) filed with the Commission on March 9, 2001.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		PROVIDENT BANKSHARES CORPORATION (Registrant)
May 31, 2002		By	/s/ PETER M. MARTIN Peter M. Martin Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.

	Principal Executive Officer:
May 31, 2002	By	/s/ PETER M. MARTIN Peter M. Martin Chairman of the Board and Chief Executive Officer
	Principal Financial Officer:
May 31, 2002	By	/s/ DENNIS A. STARLIPER Dennis A. Starliper Group Manager and Chief Financial Officer
	Principal Accounting Officer:
May 31, 2002	By	/s/ R. WAYNE HALL R. Wayne Hall Treasurer
		A Majority of the Board of Directors* Melvin A. Bilal, Thomas S. Bozzuto, Dr. Calvin W. Burnett, Ward B. Coe, III, Charles W. Cole, Jr., Pierce B. Dunn, Enos K. Fry, Gary N. Geisel, Herbert W. Jorgensen, Mark K. Joseph, Barbara B. Lucas, Peter M. Martin, Frederick W. Meier, Jr., Sister Rosemarie Nassif, Francis G. Riggs, Sheila K. Riggs, Carl W. Stearn

* Pursuant to the Power of Attorney incorporated by reference.

May 31, 2002

/s/ R. WAYNE HALL

R. Wayne Hall
Attorney-in-fact

EXHIBIT 23—CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements and Prospectuses on Form S-3 (No. 333-30678), Forms S-4 (Nos. 333-39788 and 333-58959), and Forms S-8 (Nos. 333-45651 and 333-58881) of Provident Bankshares Corporation of our report dated January 16, 2002 relating to the financial statements, which appears in this Form 10-K/A.

/s/ PricewaterhouseCoopers

PricewaterhouseCoopers
Baltimore, Maryland
March 7, 2002

QuickLinks

TABLE OF CONTENTS

Item 8. Financial Statements and Supplementary Data

Report of Independent Accountants
Consolidated Statement of Income Provident Bankshares Corporation and Subsidiaries
Consolidated Statement of Condition Provident Bankshares Corporation and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity Provident Bankshares Corporation and Subsidiaries
Consolidated Statement of Cash Flows Provident Bankshares Corporation and Subsidiaries
Consolidated Statement of Comprehensive Income Provident Bankshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements Provident Bankshares Corporation and Subsidiaries
PART IV

Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K

Signatures

Provident Bankshares (PBKS) Inactive 10-K/A2001 FY Annual report (amended)