PROVIDENT BANKSHARES CORP, PRE 14A, 1998-02-27

PROVIDENT BANKSHARES CORP
PRE 14A, 1998-02-27
STATE COMMERCIAL BANKS

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<PAGE> 1

SCHEDULE 14-A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ____)

Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12

Provident Bankshares Corporation
--------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

Douglas P. Faucette, Muldoon, Murphy & Faucette
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)

Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11

1) Title of each class of securities to which transaction applies:
................................................................
2) Aggregate number of securities to which transaction applies:
................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
................................................................
4) Proposed maximum aggregate value of transaction:
................................................................

5) Total fee paid: $125.00

................................................................

<PAGE> 2

[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:
............................................
2) Form, Schedule or Registration Statement No.:
............................................
3) Filing Party:
............................................
4) Date Filed:
............................................

<PAGE> 3

PRELIMINARY COPY

NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD APRIL 15, 1998

TO THE STOCKHOLDERS:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Provident Bankshares Corporation ("Bankshares") will be held on Wednesday, April
15, 1998, at 10:00 a.m. local time, at the offices of Bankshares, 114 East
Lexington Street, Baltimore, Maryland 21202, for the following purposes:

(1) To elect eight directors.

(2) To approve an amendment to the Articles of Incorporation of
Bankshares to increase the total number of authorized shares of all
classes of stock to 105,000,000, of which 100,000,000 are shares of
Common Stock, par value $1.00 per share.

(3) To approve an amendment to Bankshares' Amended and Restated Stock
Option Plan ("Stock Option Plan") to increase the aggregate number
of shares of common stock authorized for issuance under such plan by
500,000.

(4) To approve the selection of Coopers & Lybrand LLP as independent
auditors for 1998.

(5) To transact any other business that may properly come before the
meeting, and at any adjournments thereof, including whether or not
to adjourn the meeting.

Only those holders of record of Common Stock as of the close of business
on February 18, 1998, are entitled to notice of and to vote at the 1998 Annual
Meeting of Stockholders and any adjournments or postponements thereof.

Please sign, date and mail the accompanying proxy in the enclosed,
self-addressed, stamped envelope, whether or not you expect to attend the
meeting in person. You may withdraw your proxy at the meeting should you be
present and desire to vote your shares in person. Your cooperation is
respectfully requested.

By Order of the Board of Directors

CARL W. STEARN
Chairman of the Board

March 16, 1998

<PAGE> 4

PRELIMINARY COPY

PROVIDENT BANKSHARES CORPORATION
114 EAST LEXINGTON STREET
BALTIMORE, MARYLAND 21202

PROXY STATEMENT

SOLICITATION OF PROXIES

This Proxy Statement is being mailed on or about March 16, 1998, to the
stockholders of Provident Bankshares Corporation ("Bankshares") in connection
with the solicitation by the Board of Directors of proxies to be used at the
Annual Meeting of Stockholders to be held on Wednesday, April 15, 1998, at 10:00
a.m. local time, and at any adjournments or postponements thereof, at the
offices of Bankshares, 114 East Lexington Street, Baltimore, Maryland 21202.

The Board of Directors has selected Dennis A. Starliper and Robert L.
Davis, or either of them, to act as proxies with full power of substitution. Any
stockholder giving the enclosed proxy may revoke it at any time prior to its
exercise by giving the Secretary of Bankshares a signed instrument revoking the
proxy or a signed proxy of a later date. If no instructions are specified in the
proxy, it is the intention of the persons named therein to vote FOR the election
of the nominees named herein as directors of Bankshares, and FOR the matters
described in Items 2, 3 and 4 of the Notice of Annual Meeting. Execution of a
proxy confers on the designated proxyholders discretionary authority to vote the
shares in accordance with their best judgment on such other business, if any,
that may properly come before the Annual Meeting, including without limitation,
a motion to adjourn or postpone the Annual Meeting to another time and/or place
for the purpose of soliciting additional proxies.

EXPENSES OF SOLICITATION

The cost of the solicitation of proxies will be borne by Bankshares. In
addition to the use of the mails, Corporate Investor Communications, Inc., a
proxy solicitation firm, will assist Bankshares in soliciting proxies for the
Annual Meeting and will be paid a fee estimated to be $4,500, plus out-of-pocket
expenses. Proxies may also be solicited personally, or by telephone or
telegraph, by officers, directors and regular employees of Bankshares or of
Provident Bank of Maryland (the "Bank"), none of whom will receive additional
compensation for such services. Brokers and other persons will be reimbursed for
their reasonable expenses in forwarding proxy materials to customers who have a
beneficial interest in the Common Stock of Bankshares registered in names of
nominees.

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

Stockholders are entitled to one vote for each share of common stock, par
value $1.00 per share (the "Common Stock") registered in their names on the
stock transfer books of Bankshares at the close of business on February 18,
1998, the record date fixed by the Board of Directors. At February 18, 1998,
Bankshares had outstanding 23,106,449 shares of Common Stock entitled to vote at
the Annual Meeting.1

- --------
1 Effective February 13, 1998, Bankshares Board of Directors approved a two for
one stock dividend to all holders of Bankshares Common Stock as of February
2, 1998. All shares stated herein have been adjusted to reflect this stock
dividend.

<PAGE> 5

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information as to those persons believed by
management to be beneficial owners of more than 5% of the Company's outstanding
shares of Common Stock on the Record Date or as disclosed in certain reports
received to date regarding such ownership filed by such persons with the Company
and with the Securities and Exchange Commission ("SEC"), in accordance with
Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Other than those persons listed below, the Company is not aware
of any person, as such term is defined in the Exchange Act, that owns more than
5% of the Company's Common Stock as of the Record Date.

NAME AND ADDRESS OF NUMBER OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER SHARES (1) CLASS
- ------------------ --------------------------------- ------------- -----------

<S> <C> <C> <C>
Common Stock The Capital Group Companies, Inc. 1,191,800 5.2
333 South Hope Street
Los Angeles, California 90071

- ----------------------------
(1) Based upon information disclosed in Schedule 13G filed with the SEC on
February 11, 1998. The Capital Group Companies, Inc. disclosed that it had
sole power to vote 624,800 shares of Common Stock and sole power to
dispose of 1,191,800 shares of Common Stock. According to the Schedule
13G, The Capital Group Companies, Inc. is the parent holding company of a
group of investment management companies that hold investment power and,
in some cases, voting power over the securities reported in the Schedule
13G. The investment management companies, which include a "bank" as
defined in Section 3(a)6 of the Exchange Act and several investment
advisors registered under Section 203 of the Investment Advisors Act of
1940, provide investment advisory and management services for their
respective clients which include registered investment companies and
institutional accounts. According to the Schedule 13G, The Capital Group
Companies, Inc. does not have investment power or voting power over any of
the securities reported in the Schedule 13G; however, The Capital Group
Companies, Inc. may be deemed to "beneficially own" such securities by
virtue of Rule 13d-3 under the Exchange Act.

</TABLE>

<PAGE> 6

PROPOSALS TO BE VOTED ON AT THE MEETING

PROPOSAL 1. ELECTION OF DIRECTORS

The Board of Directors of Bankshares currently consists of 17 directors.
Bankshares' Articles of Incorporation provide that the Board of Directors shall
be divided into three classes, as nearly equal in number as possible, with a
class of approximately one-third of the directors being elected at each Annual
Meeting of Stockholders. The terms of four directors of Bankshares will expire
at the time of the Annual Meeting of Stockholders. The positions of these four
directors are to be filled at the Annual Meeting of Stockholders. Therefore,
four incumbent directors have been nominated to be elected to hold office until
the 2001 Annual Meeting of Stockholders or until their respective successors are
elected and qualified or until their earlier resignation or removal. The
nominees are Robert B. Barnhill, Jr., Melvin A. Bilal, M. Jenkins Cromwell, Jr.
and Sister Rosemarie Nassif.

At Board of Directors meetings on February 19, 1997 and August 20, 1997,
pursuant to authority contained under Bankshares Articles of Incorporation and
Bylaws, the Board of Directors voted to expand the Board by a total of four
positions. Ward B. Coe, III, Esquire, Frederick W. Meier, Jr., Enos K. Fry and
Herbert W. Jorgensen were elected by the Board to fill those positions.
Consistent with the laws of the State of Maryland, Messrs. Coe, Meier, Jr., Fry
and Jorgensen will stand for election by the stockholders at this Annual
Meeting. Messrs. Coe and Meier, Jr. have been nominated to be elected and hold
office as members of the class of directors whose terms are expected to expire
at the 2001 Annual Meeting of Stockholders. Messrs. Fry and Jorgensen have been
nominated to be elected and hold office as members of the class of directors
whose terms are expected to expire at the 1999 Annual Meeting of Stockholders.

The proxies solicited hereby, unless directed to the contrary, will be
voted FOR the election as directors of all eight nominees listed in the
following table. In order to be elected, a majority of the shares voted must be
voted FOR the election of each nominee. Each nominee has consented to serve as a
director, if elected. The Board of Directors has no reason to believe that any
nominee will be unwilling or unable to serve as a director but, if for any
reason any nominee is not willing or able to serve as a director, the
accompanying proxy will be voted FOR a substitute nominee chosen by the Board of
Directors.

<PAGE> 7

INFORMATION CONCERNING NOMINEES

The following table presents information concerning persons nominated by
the Board of Directors for election as directors of Bankshares to serve until
the 2001 Annual Meeting of Stockholders or until their successors have been
elected and qualified or until their earlier resignation or removal. Except as
indicated, the nominees have been officers of the organizations named below or
of affiliated organizations as their principal occupations for more than five
years.

AGE, PRINCIPAL OCCUPATION, POSITION WITH BANKSHARES AND THE BANK, AND
NAME OF DIRECTORS BENEFICIAL OWNERSHIP OF COMMON STOCK AT DECEMBER 31, 1997 (PERCENTAGE OF CLASS)(#)
- -------------------------- ----------------------------------------------------------------------------------

<S> <C>
Robert B. Barnhill, Jr.... Mr. Barnhill, age 53, has been a director of the Bank and Bankshares since
1992. He is Chairman, Chief Executive Officer and founder of TESSCO
Technologies, Incorporated, a supplier to the wireless communication
industry.
8,836 shares (*)(1)
Melvin A. Bilal........... Mr. Bilal, age 55, has been a director of the Bank and Bankshares since
1992. He is President of the Employment Group, a provider of long and
short term staffing needs. Prior to being elected to this position in 1996, he
was President and founder of Security America Services, Inc., a security
consulting firm.
6,954 shares (*)(1)
Ward B. Coe, III, Esquire. Mr. Coe, age 52, was elected as a
director of the Bank and Bankshares subsequent to the
1997 Annual Meeting of Stockholders. He is Managing
Partner of the law firm of Whiteford, Taylor & Preston LLP.
6,354 shares (*)(2)
M. Jenkins Cromwell, Jr... Mr. Cromwell, age 67, has been a
director of the Bank since 1977 and of Bankshares since
its organization. Mr. Cromwell is a retired Vice
President and former director of T. Rowe Price
Associates, Inc. He is a principal of Maryland Capital
Management, Inc., an investment advisory firm, and also
serves as Chairman of the Board of the Baltimore
Equitable Society.
7,276 shares (*)(3)
Frederick W. Meier, Jr.... Mr. Meier, age 54, was elected as a director of the Bank and Bankshares
subsequent to the 1997 Annual Meeting of Stockholders. He is President
of ATAPCO Capital Management Group. Prior to being elected to this
position in 1996, he was an Executive Vice President of First National
Bank of Maryland and First Maryland Bancorp.
7,350 shares (*)(2)
Sister Rosemarie Nassif... Sister Nassif, age 56, has been a
director of the Bank and Bankshares since 1992. She is
the Executive Director of the Fund for Educational
Excellence and the former President of the College of
Notre Dame of Maryland.
6,830 shares (*)(4)

</TABLE>

<PAGE> 8

The following table presents information concerning the people elected as
directors of Bankshares by the Board of Directors subsequent to the 1997 Annual
Meeting of Stockholders. These people have been nominated by the Board of
Directors for election as members of the class of directors of Bankshares whose
terms are expected to expire at the 1999 Annual Meeting of Stockholders or until
their successors have been elected and qualified or until their earlier
resignation or removal.

<S> <C>
Enos K. Fry............... Mr. Fry, age 54, served in various executive capacities with Citizens Savings
Bank, F.S.B. ("Citizens Savings") from 1974 until it was acquired by the Bank
in August 1997. In 1974, he became Vice President of the Loan Division, and
in 1978 he was elected Executive Vice President. He was promoted to
President of Citizens Savings in 1982. Mr. Fry was elected a director of
Citizens Savings in 1987. Mr. Fry served as President and a Director of First
Citizens Financial Corporation ("First Citizens") since its inception in 1989.
He was named a Vice Chairman of the Board of Directors of First Citizens
and Citizens Savings in April 1994.
127,066 shares (*)(5)

Herbert W. Jorgensen...... Mr. Jorgensen, age 69, served as Chairman of the Board and Chief Executive
Officer of First Citizens and Citizens Savings from April 1994 until they were
acquired by Bankshares and the Bank in August 1997. Prior thereto, he served
as Vice Chairman of the Boards of Directors of First Citizens and Citizens
Savings. From 1989 until April 1994, Mr. Jorgensen also served as First
Citizens' outside General Counsel and from 1968 until April 1994 he served as
Citizens Savings' outside General Counsel.
128,340 shares (*)(6)

</TABLE>

<PAGE> 9

INFORMATION CONCERNING CONTINUING DIRECTORS AND NAMED EXECUTIVE OFFICER

The following table presents information concerning directors of
Bankshares whose terms of office will continue after the 1998 Annual Meeting of
Stockholders and one named executive officer who is not a director of
Bankshares. As indicated, some directors will serve until the 1999 Annual
Meeting of Stockholders, and other directors will serve until the 2000 Annual
Meeting of Stockholders. Except as indicated, the directors have been officers
of the organizations named below or of affiliated organizations as their
principal occupations for more than five years.

AGE, PRINCIPAL OCCUPATION, POSITION WITH BANKSHARES AND THE BANK, AND
NAME OF DIRECTORS BENEFICIAL OWNERSHIP OF COMMON STOCK AT DECEMBER 31, 1997 (PERCENTAGE OF CLASS)(#)
- ----------------------------- ----------------------------------------------------------------------------------
<S> <C>
DIRECTORS SERVING UNTIL 1999

Charles W. Cole, Jr.......... Mr. Cole, age 62, has been a director of the Bank and Bankshares since
1995. Mr. Cole is Vice Chairman of the Board and Managing Director of
Alex. Brown Capital Advisory and Trust Co., an investment advisory and
trust company. Prior to being elected to this position in 1994, he was the
President and Chief Executive Officer of First Maryland Bancorp and the
First National Bank of Maryland. Mr. Cole serves as Chairperson of
Bankshares' Nominating Committee.
9,266 shares (*)(7)

Barbara B. Lucas............. Ms. Lucas, age 52, is Senior Vice President - Public Affairs and Corporate
Secretary of The Black & Decker Corporation. She was elected a director
of the Bank and Bankshares by the Board of Directors during 1996.
8,376 shares (*)(8)

Francis G. Riggs............. Mr. Riggs, age 60, has been a director of the Bank since 1972 and of
Bankshares since its organization. Mr. Riggs is an Executive Vice
President and director of Riggs, Counselman, Michaels & Downes, Inc., an
insurance brokerage company located in Baltimore, Maryland.
78,078 shares (*)(1)(9)

Carl W. Stearn............... Mr. Stearn, age 65, Chairman of the Board and Chief Executive Officer of
Bankshares and the Bank, has been employed with Bankshares and the
Bank since 1990. Mr. Stearn became a director of Bankshares and the
Bank in 1990.
232,898 shares (1.0 %)(10)

</TABLE>

<PAGE> 10

AGE, PRINCIPAL OCCUPATION, POSITION WITH BANKSHARES AND THE BANK, AND
NAME OF DIRECTORS BENEFICIAL OWNERSHIP OF COMMON STOCK AT DECEMBER 31, 1997 (PERCENTAGE OF CLASS)(#)
- ----------------------------- ----------------------------------------------------------------------------------
<S> <C>
DIRECTORS SERVING UNTIL 2000

Dr. Calvin W. Burnett......... Dr. Burnett, age 65, has been a director of the Bank since 1984 and of
Bankshares since its organization. He is President of Coppin State College,
Baltimore, Maryland.
6,370 shares (*)(11)

Pierce B. Dunn................ Mr. Dunn, age 47, has been a director of the Bank since 1988 and of
Bankshares since its organization. He is Chairman of the Board of
MIRCON, Inc., an environmental and engineering company.
41,322 shares(*)(1)(12)

Mark K. Joseph................ Mr. Joseph, age 59, has been a director of the Bank and Bankshares since
1993. He is Chairman and Chief Executive Officer of Municipal Mortgage
and Equity, LLC, a lender which invests in real estate backed tax exempt
bonds. Mr. Joseph is also Chairman of the Board and founder of The
Shelter Group, a real estate development, property and asset management
company. Mr. Joseph serves as Chairperson of Bankshares' Audit
Committee.
17,534 shares (*)(1)

Peter M. Martin............... Mr. Martin, age 60, President and Chief Operating Officer of Bankshares
and the Bank, has been employed with the Bank since 1990. Mr. Martin
became a director of the Bank and Bankshares in 1990.
296,758 shares (1.3 %)(13)

Sheila K. Riggs............... Mrs. Riggs, age 54, has been a director of the Bank since 1982 and of
Bankshares since its organization. Mrs. Riggs is the Chairperson of the
Maryland Health and Higher Education Facilities Authority, which issues
bonds to finance health care and higher education facilities. Ms. Riggs
serves as Chairperson of Bankshares' Compensation Committee.
34,710 shares (*)(1)(14)
</TABLE>

<PAGE> 11

AGE, PRINCIPAL OCCUPATION, POSITION WITH BANKSHARES AND THE BANK, AND
NAME OF DIRECTORS BENEFICIAL OWNERSHIP OF COMMON STOCK AT DECEMBER 31, 1997 (PERCENTAGE OF CLASS)(#)
- ----------------------------- ----------------------------------------------------------------------------------

NAMED EXECUTIVE OFFICER
WHO IS NOT A DIRECTOR

<S> <C>
James R. Wallis............... Mr. Wallis, age 49, has been Executive Vice President and Chief Financial
Officer of Bankshares and Group Manager--Administration and Chief
Financial Officer of the Bank since July 10, 1995. Prior to joining the
Bank and Bankshares, he was an independent consultant. Mr. Wallis was
Executive Vice President and Chief Financial Officer of a savings and loan
association and its holding company in Atlanta, Georgia until 1993.
57,238 shares (*)(15)
- ----------------------------
(#) Unless otherwise indicated by footnote, each individual has sole voting and dispositive powers as to
all shares indicated.
(*) Owns less than one percent of the outstanding Common Stock.
(1) Includes 2,314 shares subject to a currently exercisable stock option and 4,410 shares subject to a
stock option not currently exercisable.
(2) Includes 1,050 shares subject to a currently exercisable stock option and 5,250 shares subject to a
stock option not currently exercisable.
(3) Includes 2,646 shares subject to a stock option not currently exercisable.
(4) Includes 1,264 shares subject to a currently exercisable stock option and 4,410 shares subject to a
stock option not currently exercisable.
(5) Includes 93,542 shares subject to a currently exercisable stock option and 5,366 shares held in an
individual retirement account for the benefit of Mr. Fry and 28,158 shares held by spouse.
(6) Includes 93,562 shares subject to a currently exercisable stock option; 2,600 shares subject to a stock
option not currently exercisable; 18,032 shares held as trustee; and 6,368 held by spouse.
(7) Includes 1,156 shares subject to a currently exercisable stock option and 4,410 shares subject to a
stock option not currently exercisable.
(8) Includes 2,100 shares subject to a currently exercisable stock option and 4,200 shares subject to a
stock option not currently exercisable.
(9) Includes 4,410 shares subject to a stock option not currently exercisable; 10,896 shares held as
custodian and 4,630 shares which represent Mr. Riggs' beneficial interest of shares owned by Riggs,
Counselman, Michaels & Downes, Inc.
(10) Includes 57,880 shares subject to a currently exercisable stock option; 143,324 shares subject to a
stock option not currently exercisable; and 8,538 shares held in the Retirement Savings Plan for the
benefit of Mr. Stearn.
(11) Includes 3,528 shares subject to a stock option not currently exercisable.
(12) Includes 23,152 shares held as trustee; 1,410 shares held as custodian; and 112 shares held by spouse.
(13) Includes 57,880 shares subject to a currently exercisable stock option; 143,324 shares subject to a
stock option not currently exercisable; and 13,496 shares held in the Retirement Savings Plan for the
benefit of Mr. Martin.
(14) Includes 4,410 shares subject to a stock option not currently exercisable; 27,734 shares with shared
voting and dispositive powers; and 1,964 shares held as custodian.
(15) Includes 45,124 shares subject to a currently exercisable stock option.

</TABLE>
8

<PAGE> 12

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth, as of December 31, 1997, the number of
shares of Common Stock beneficially owned by all directors and executive
officers of Bankshares and its subsidiaries as a group.

AMOUNT AND NATURE(1) PERCENT
OF BENEFICIAL OF CLASS
OWNERSHIP
-------------------- -----------

<S> <C> <C>
All directors and executive officers as a group (18 persons)... 1,081,556 4.7 %

- --------------------
(1) Shares subject to currently exercisable options which are held by directors and officers
are deemed to be outstanding for the purpose of computing the percentage of outstanding
Common Stock beneficially owned by all directors and executive officers as a group.

</TABLE>

COMMITTEES

Bankshares has standing Audit, Compensation and Nominating Committees of
the Board of Directors. The members of each of the named committees serve at the
discretion of the Board of Directors.

The Audit Committee (Messrs. Joseph, Barnhill, Jr., Cole, Jr., Dunn,
Jorgensen and Meier, Jr.) reviews and reports to the Board of Directors on
examinations of the Bank and its subsidiaries by regulatory authorities,
recommends independent accountants for appointment by the Boards of Bankshares
and the Bank, reviews the scope of the work of the independent accountants and
their reports, and reviews the activities and actions of the Bank's internal
auditors. The Audit Committee met five (5) times during 1997.

The Compensation Committee (Mrs. Riggs, Sister Nassif and Messrs. Cole,
Jr., Cromwell, and Riggs), reviews and determines salaries and other benefits
for executive and senior management of Bankshares and its subsidiaries, reviews
and determines employees to whom stock options are to be granted and the terms
of such grants, and reviews the selection of officers who participate in
incentive and other compensatory plans and arrangements. The Compensation
Committee met four (4) times during 1997.

The Nominating Committee (Messrs. Cole, Jr., Bilal, Burnett, Coe, Cromwell
and Mrs. Lucas) nominates persons for election to the Board of Directors of
Bankshares and the Bank. The Nominating Committee will consider shareholder
recommendations submitted to it in writing in care of Bankshares. The Nominating
Committee met four (4) times during 1997.

DIRECTORS' COMPENSATION

The Board of Directors of Bankshares held twelve (12) meetings during
1997. The Board of Directors of the Bank met twelve (12) times during 1997. All
of the directors of Bankshares attended at least 75% of the total number of
Bankshares' board meetings held and committee meetings on which such director
served during 1997. Each outside director of Bankshares and the Bank receives an
annual

<PAGE> 13

retainer of $12,000 for service on either or both of the Boards of Directors.
Each outside director also receives a fee of $650 for attendance at regular or
special Board meetings, except that a single fee is paid if Board meetings for
Bankshares and the Bank are held on the same day. Finally, outside directors who
are members of committees of the Board receive a fee of $650 for attendance at
committee meetings while the chairpersons of such committees receive a fee of
$800. Total directors' fees paid by Bankshares and the Bank during 1997 were
$319,700.

The Bank and Bankshares have a deferred compensation plan for outside
directors. Each year, a director may elect to defer payment of all or part of
the director's fees for that year until the individual ceases to be a director.
Interest is earned on the deferred amount at the prime rate. Payment of the
deferred amount may be made to the director or to his or her beneficiary. In
addition, non-employee directors are eligible to receive options under the
Provident Bankshares Corporation Amended and Restated Stock Option Plan (the
"Stock Option Plan"). Finally, a Non-Employee Directors' Severance Plan exists
which provides that if a director's service is terminated following a "change in
control" of Bankshares or the Bank, as defined in the Plan, such director is
entitled to receive a payment equal to five times the directors' annual
retainer.

EXECUTIVE COMPENSATION AND OTHER INFORMATION

The report of the Compensation Committee and the stock performance graph
shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except as to the
extent that Bankshares specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Recommendations regarding all of the components of the compensation of the
Executive Officers of Bankshares are made by the five member Compensation
Committee of the Board and are approved by the Board of Directors. The Board of
Directors did not reject or modify in any material way any of the
recommendations of the Compensation Committee during fiscal year 1997. Each
member of the Compensation Committee is a non-employee director. The following
report has been prepared by the Compensation Committee and addresses the
compensation policies of Bankshares for 1997 as they affected Mr. Stearn, the
Chief Executive Officer, and the two other named Executive Officers.

EXECUTIVE OFFICER COMPENSATION POLICIES AND OBJECTIVES

The policies and objectives of the Compensation Committee are designed to
assist Bankshares and its subsidiaries in attracting and retaining qualified
executives, to recognize individual contributions toward the achievement of
short-term and long-term performance goals, and to closely align the financial
interests of the senior managers of Bankshares and its subsidiaries with those
of its shareholders. In furtherance of these objectives, Bankshares maintains a
compensation program for Executive Officers which consists of both cash and
equity-based compensation. From time to time the Compensation Committee retains
independent compensation consultants to work with it on executive compensation
matters. Such consultants report directly to the Compensation Committee. The
Compensation Committee also has access to competitive data regarding executive
compensation levels and practices.

<PAGE> 14

EXECUTIVE COMPENSATION PROGRAMS AND RELATIONSHIP TO PERFORMANCE

The annual compensation of the Executive Officers of Bankshares consists
of a base salary and an annual bonus determined under the terms of the Provident
Bankshares Corporation Executive Incentive Plan ("EIP") or, in the case of Mr.
Wallis, the Group Management Incentive Plan ("GMIP"). The Compensation Committee
has discretion to establish, relative to performance and peer group comparisons,
the base salaries of the executive officers. This is done once a year. The
Compensation Committee itself determines the level of annual salary for the
Chief Executive Officer, generally based upon a review of the performance of the
Chief Executive Officer during the prior year and competitive data for that
position. The Chief Executive Officer recommends to the Compensation Committee a
salary level for each of the other named Executive Officers based upon a
performance review of each executive. The Compensation Committee is then
responsible for approving or modifying the recommendations it receives. The
Compensation Committee also approves the participation of key executives in the
EIP and the GMIP and is responsible for the granting of options under the Stock
Option Plan.

EXECUTIVE INCENTIVE PLAN

Under the EIP, for purposes of establishing incentive awards, three
after-tax net income targets for the upcoming year are established: threshold,
budget and maximum. Additionally, the Compensation Committee sets a percentage
of base salary to be eligible to be received as incentive compensation at each
of the threshold, budget and maximum targets. If actual after-tax net income
reaches the threshold, budget or maximum targets, Messrs. Stearn and Martin will
automatically receive 75% of the designated percentage of base salary as
incentive compensation. If the actual after-tax net income is less than the
maximum, but greater than the threshold or budget after-tax net income targets,
the percentage of base salary which may be received as incentive compensation is
increased proportionately. The remaining 25% of the award potential is based on
individual performance against goals, namely: management of the company with
emphasis on development and retention of key personnel; implementation of new
initiatives; financial progress in addition to net earnings; and risk
management. In the event that actual after-tax net income is less than the
threshold after-tax net income target, no incentive compensation is payable. The
Compensation Committee reviews the terms of the EIP each year to assure that, in
operation, it is furthering the Committee's compensation policy objectives.
Incentive compensation earned under the EIP is paid within one month of the end
of the fiscal year of the Bank. Payment of all or any part of the incentive
compensation earned under the Executive Incentive Plan may be deferred.

GROUP MANAGEMENT INCENTIVE PLAN

Under the GMIP, for purposes of establishing incentive awards, after-tax
net income targets for the upcoming year are established with a threshold and a
maximum, based on the annual budget of Bankshares as approved by the Board of
Directors. Additionally, the Compensation Committee sets a sliding scale
percentage of base salary eligible to be received as incentive compensation. If
actual after-tax net income reaches the threshold or maximum targets, Group
Managers will receive 10-40% of the designated percentage of base salary as
incentive compensation. If the actual after-tax net income is less than the
maximum, but greater than the threshold or budgeted after-tax net income
targets, the percentage of base salary which may be received as incentive
compensation is increased proportionately. The award potential is based on
corporate and individual performance goals. In the event that actual

<PAGE> 15

after-tax net income is less than the threshold after-tax income target, no
incentive compensation is payable. The Compensation Committee reviews the terms
of the GMIP each year to assure that, in operation, it is furthering the
Committee's compensation policy objectives. Incentive compensation earned under
the GMIP is paid within one month of the end of the fiscal year of the Bank.
Payment of all or any part of the incentive compensation earned under the GMIP
may be deferred.

STOCK OPTION PLAN

Long-term incentives for the Executive Officers are provided through the
Stock Option Plan. The Stock Option Plan authorizes the issuance of
non-qualified stock options to key officers and certain employees of Bankshares
and its subsidiaries. Subject to the general limits prescribed by the Stock
Option Plan, the Compensation Committee has the authority to determine the
individuals to whom stock options are awarded, the term for which option grants
shall be made, the terms of the options and the number of shares subject to each
option. Although the Compensation Committee's decisions are discretionary and no
specific formula is used in the decision making, the number of options granted
is based generally upon position level and performance. Through the award of
stock options, the objective of aligning the long-range interests of the
Executive Officers with those of the stockholders is met by providing the
Executive Officers with the opportunity to build a meaningful ownership stake in
Bankshares.

OTHER COMPENSATION PLANS

The Executive Officers participate in the corporation's health and welfare
and qualified retirement plans on the same terms as non-executive employees who
meet the applicable eligibility criteria, subject to any legal limitations on
the amounts that may be contributed or the benefits that may be payable under
these plans.

In addition to the qualified retirement plans, the Bank maintains a
Supplemental Executive Retirement Income Plan ("Supplemental Plan") in which
Messrs. Stearn and Martin participate. The Supplemental Plan provides additional
benefits to these Executive Officers upon retirement equal to 35% of final pay,
reduced by Social Security and the age-65 benefit accrued under the Bank's
Pension Plan and then proportionately reduced for less than 25 years of service.
In Mr. Stearn's case, any benefits paid before the year 2000 will equal 70% of
final pay, reduced as noted above. Thereafter, any benefits paid will be 35% of
final pay, also reduced as noted above. The Supplemental Plan is unfunded, so
that amounts payable represent unsecured liabilities of the Bank, subject to the
claims of secured creditors. The Bank reduced these unfunded Supplemental
Benefits in 1993 from 70% to 35% of final pay. The amount of this benefit
reduction has been replaced by a split-dollar insurance arrangement. The Bank
has purchased four insurance policies on the lives of Messrs. Stearn and Martin.
Two policies are split-dollar arrangements, subject to collateral assignment
agreements. The other two are corporate-owned life insurance policies.

CHIEF EXECUTIVE OFFICER COMPENSATION

The Compensation Committee set Mr. Stearn's base compensation for the
fiscal year 1997 at $425,000, which represents a 9.4% increase over his 1996
base salary. In establishing his base salary, the Compensation Committee
reviewed Mr. Stearn's performance for the prior year and also considered the
compensation of chief executive officers of banking organizations in the
Baltimore metropolitan

<PAGE> 16

area. The increase for 1997 reflects the Compensation Committee's recognition of
Mr. Stearn's contribution to the successful implementation of measures to
improve the efficiency of the Bank, as demonstrated by the earnings growth of
Bankshares and increase in the return on and value of shareholder equity. The
budget target for 1997 was exceeded, resulting in a formula and performance
driven proportional payout of $127,500.

COMPENSATION OF OTHER EXECUTIVE OFFICERS

Recommendations regarding the base salary of the Executive Officers, other
than the Chief Executive Officer, are made to the Compensation Committee by the
Chief Executive Officer and are either approved or modified by the Compensation
Committee. The recommendation as to the salaries of the Executive Officers is
based upon a review of the performance of these officers during the prior year
by the Chief Executive Officer. The Compensation Committee did not reject or
modify in any material way any of the recommendations of the Chief Executive
Officer concerning the base salary of the other Executive Officers for 1997. Mr.
Martin participates in the EIP and Mr. Wallis participates in the GMIP. Awards
under each plan are based upon the formula contained in the Plans.

SUBMITTED BY THE COMPENSATION COMMITTEE OF THE PROVIDENT BANKSHARES
CORPORATION BOARD OF DIRECTORS.

SHEILA K. RIGGS (CHAIRPERSON)
CHARLES W. COLE, JR.
M. JENKINS CROMWELL
SISTER ROSEMARIE NASSIF
FRANCIS G. RIGGS

<PAGE> 17

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth the compensation paid or allocated for
services rendered to Bankshares and the Bank in all capacities during the years
ended December 31, 1995, 1996 and 1997 (i) to the Chief Executive Officer of
Bankshares and (ii) to the two members of executive management whose 1997
compensation exceeded $100,000 (collectively hereinafter referred to as the
named executive officers).

SUMMARY COMPENSATION TABLE

LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------- ---------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
SALARY BONUS COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) SARS(#) ($)
- ------------------------------ ------ -------- -------- ------------ ----------- ------------

<S> <C> <C> <C> <C> <C> <C>
Carl W. Stearn................ 1997 $425,000 $127,500 $4,960(1) -- $103,499(3)
Chairman of the Board and 1996 388,346 118,770 5,454 136,500(2) 52,389
Chief Executive Officer 1995 355,708 110,889 4,949 -- 10,993

Peter M. Martin............... 1997 $375,000 $112,500 $ 4,823(1) -- $68,150(3)
President and Chief 1996 325,371 99,510 4,952 136,500(2) 37,689
Operating Officer 1995 297,167 92,907 4,096 -- 9,015

James R. Wallis(5)............ 1997 $180,000 $42,000 $ -- -- $7,125(3)
Executive Vice President 1996 165,667 47,800 -- -- 1,125
and Chief Financial Officer 1995 77,026 16,776 16,882(4) 45,124(2) --

- ---------------------------------------
(1) Represents grossed-up reimbursement for the tax effect of reportable incremental imputed income for the split
dollar insurance agreements.
(2) None of the disclosed options held by Messrs. Stearn and Martin are currently exercisable. The number of
options disclosed reflects adjustment pursuant to the Stock Option Plan for 5% stock dividends. See "Stock
Option Grants."
(3) The amounts shown in this column for the last fiscal year are derived from the following figures:
(i) Mr. Stearn: $7,125 allocated under the Bank's 401(k) plan, and $96,374 in economic value of Bank-paid
split-dollar life insurance premiums; (ii) Mr. Martin: $7,125 allocated under the Bank's 401(k) plan, and
$61,025 in economic value of Bank-paid split-dollar life insurance premiums; and (iii) Mr. Wallis: $7,125
allocated under the Bank's 401(k) plan.
(4) Represents gross-up for the tax effect of reportable income for reimbursement of relocation expenses.
(5) Mr. Wallis became Executive Vice President on July 10, 1995.

</TABLE>

<PAGE> 18

CHANGE IN CONTROL AGREEMENTS

Bankshares and the Bank have entered into Change in Control Agreements
with Messrs. Stearn, Martin and Wallis (the "Executives") as well as other
officers of Bankshares and the Bank. Each Change in Control Agreement with the
Executives (the "Agreement") provides for a 36-month term. Each Agreement
provides that commencing on the date of the Agreement's execution, the term of
the Agreement will be extended for one day each day until such time as the board
of directors or Executive elects not to extend the term of the Agreement by
giving written notice to the other party.

Each Agreement provides that at any time following a "change in control"
of Bankshares or the Bank, as defined in the Change in Control Agreements, if
Bankshares or the Bank terminates the employee's employment for any reason other
than cause, or if the employee terminates his employment following demotion,
loss of title, office or significant authority, a reduction in annual
compensation or benefits, or relocation of the principal place of employment by
more than 20 miles following a change in control, the employee, or in
the event of death, the employee's beneficiary would be entitled to receive a
payment equal to 2.99 times the Executive's average annual taxable compensation
as reported on Form W-2 with the Internal Revenue Service for the five preceding
taxable years or such lesser number of years in the event that the Executive has
been employed by Bankshares or the Bank for less than five years. Bankshares and
the Bank will also continue the Executive's life, medical, and disability
coverage. Such coverage shall cease upon the expiration of 36 full calendar
months following the date of termination or the date the Executive secures
comparable employment by an employer other than Bankshares or the Bank, which
ever comes first. If the Executive voluntarily resigns from Bankshares or the
Bank within one year following a change in control, but prior to an event of
termination described above, the Executive would be entitled to receive a payout
equal to six (6) times his then current monthly taxable compensation. Payments
to the Executive under the Bank's change in control agreements will be
guaranteed by Bankshares in the event that payments or benefits are not paid by
the Bank.

Payments and benefits under the Change in Control Agreements may
constitute an excess parachute payment under Section 280G of the Internal
Revenue Code, resulting in the imposition of an excise tax on the recipient and
denial of the deduction for such excess amount to Bankshares and the Bank.

<PAGE> 19

STOCK OPTION GRANTS

As discussed above and as an inducement to attract and retain qualified
managers and employees, Bankshares maintains the Stock Option Plan. During 1997,
there were no stock options granted to any of the Named Executive Officers.

STOCK OPTION EXERCISES AND HOLDINGS

The following table reflects all stock option exercises by the Named
Executive Officers during 1997 and includes the number of shares covered by all
remaining unexercised stock options as of December 31, 1997. Also reported are
the values for "in-the-money" options which represent the difference between the
exercise price of any such remaining unexercised options and the year-end market
price of the Common Stock.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE

SHARES
ACQUIRED NUMBER OF SECURITIES VALUE OF UNEXERCISED
ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
EXERCISE(#) REALIZED OPTIONS/SARS AT FY-END(#) AT FY-END($)(1)
-------------------------- -------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carl W. Stearn..................... 324,134 $6,788,783 57,880 143,324 $1,633,518(2) $2,400,319(3)
Chairman of the Board and Chief
Executive Officer

Peter M. Martin.................... 106,500 $2,634,160 57,880 143,324 $1,633,518(2) $2,400,319(3)
President and Chief
Operating Officer

James R. Wallis.................... 10,000 $ 178,675 45,124 -- $ 868,299(4) --
Executive Vice President and Chief
Financial Officer

- --------------------------------
(1)The closing price of the Common Stock on December 31, 1997 was $63.875.
(2)The weighted average option exercise price is $7.43.
(3)The weighted average option exercise price is $30.38.
(4)The option exercise price is $25.39.

</TABLE>

<PAGE> 20

PENSION PLANS

The following table sets forth the estimated annual pension benefits
payable to a participant at normal retirement age (age 65) under the Bank's
Pension Plan and its Supplemental Plan, based on both the remuneration that is
covered under such plans and years of service with Bankshares and its
subsidiaries.

YEARS OF SERVICE
------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- --------------- --------- --------- ---------- ----------- ---------

<S> <C> <C> <C> <C> <C>
125,000 26,250 35,000 43,750 43,750 43,750
150,000 31,500 42,000 52,500 52,500 52,500
175,000 36,750 49,000 61,250 61,250 61,250
200,000 42,000 56,000 70,000 70,000 70,000
225,000 47,250 63,000 78,750 78,750 78,750
250,000 52,500 70,000 87,500 87,500 87,500
275,000 57,750 77,000 96,250 96,250 96,250
300,000 63,000 84,000 105,000 105,000 105,000
325,000 68,250 91,000 113,750 113,750 113,750
350,000 73,500 98,000 122,500 122,500 122,500
375,000 78,750 105,000 131,250 131,250 131,250
400,000 84,000 112,000 140,000 140,000 140,000
425,000 89,250 119,000 148,750 148,750 148,750

</TABLE>

Bankshares maintains the Supplemental Executive Retirement Income Plan for
certain executive officers which will pay 50% of the difference between 70% of
final pay and the amounts paid by the pension plan and Social Security benefits,
except in the case of Mr. Stearn where Bankshares will pay 100% of the
difference prior to the year 2000. Compensation used in calculating the annual
normal retirement benefit amounts reflected in the Pension Plan Table is the
executive's highest rate of base annual salary, reported in the third column of
the Summary Compensation Table, and does not include bonuses or other amounts
reported in any of the remaining columns of the Summary Compensation Table.

The following table sets forth the respective years of service credited
for Pension Plan purposes as of December 31, 1997, and the estimated years of
service at the respective normal retirement dates for each of the named
executive officers.

YEARS OF SERVICE YEARS OF SERVICE
NAME AT 12/31/97 AT NORMAL RETIREMENT
- ----------------------- ------------- ----------------------
<S> <C> <C>
Carl W. Stearn......... 7.9 8.1
Peter M. Martin........ 7.8 12.4
James R. Wallis........ 2.4 18.2

</TABLE>

<PAGE> 21

The Pension Plan Table reflects the annual benefit payable at the
executive's 65th birthday in the form of an annuity for the executive's life
with a 15-year guarantee in favor of the executive's spouse. Under this form,
should the executive die within 15 years after the benefits start, the
executive's surviving spouse, if any, will continue to receive the same pension
benefits until the end of that 15-year period.

The Pension Plan Table reflects the maximum benefit payable under the
Provident Bank of Maryland Pension Plan, a tax-qualified funded plan and certain
Supplemental Retirement Income Agreements providing 50% of the excess (unfunded
benefits). The benefits reflected in the Table are offset or reduced by 100% of
the executive's estimated primary Social Security benefit.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Francis G. Riggs is a director of Bankshares and the Bank, and a member of
the Compensation Committee. Mr. Riggs is Executive Vice President and a director
of Riggs, Counselman, Michaels & Downes, Inc. From January l to December 31,
1997, the Bank paid Riggs, Counselman, Michaels & Downes, Inc. $425,224 for
premiums related to insurance services.

<PAGE> 22

PERFORMANCE GRAPH

The SEC requires that Bankshares include in this proxy statement a
line-graph comparing cumulative stockholder returns as of December 31 for each
of the last five years among the Common Stock, a broad market index and either a
nationally-recognized industry standard or an index of peer companies selected
by Bankshares, assuming in each case both an initial $100 investment and
reinvestment of dividends. Consistent with past practice, the Board of Directors
has selected the Nasdaq Market Index as the relevant broad market index because
prices for the Common Stock are quoted on Nasdaq National Market. Additionally,
the Board of Directors has selected the Middle Atlantic Banks Index as the
relevant industry standard because such index consists of financial institutions
which are headquartered in the mid-Atlantic region and the Board believes that
such institutions generally possess assets, liabilities and operations more
similar to those of Bankshares and its subsidiaries than other
publicly-available indices.

[GRAPH APPEARS HERE]

COMPARATIVE FIVE-YEAR TOTAL RETURNS
PROVIDENT BANKSHARES CORPORATION, NASDAQ MARKET INDEX AND MG GROUP INDEX

Summary

1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Provident Bankshares Corporation 100.00 137.54 158.20 230.37 311.54 547.50
Middle Atlantic Bank Index 100.00 124.23 117.94 179.10 253.66 375.28
Nasdaq Market Index 100.00 119.95 125.94 163.35 202.99 248.30

Notes:
A. The lines represent yearly index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the yearly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
D. The index level for all series was set to $100.00 in 1992.

</TABLE>

<PAGE> 23

CERTAIN TRANSACTIONS WITH MANAGEMENT

Periodically, the Bank may engage in lending transactions in the ordinary
course of business with its officers and directors, as well as entities
associated with such persons. Such transactions are made in the ordinary course
of business and on substantially the same terms, including interest rate and
collateral, as those prevailing at the time for comparable transactions with
other persons. Loans to such persons do not involve more than the normal risk of
collectability or present other unfavorable features.

PROPOSAL 2. TO APPROVE AN AMENDMENT TO BANKSHARES'
ARTICLES OF INCORPORATION INCREASING THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

The Board of Directors unanimously approved, declared advisable and
recommends to the shareholders an amendment to the Articles of Incorporation to
increase the number of shares of Common Stock authorized for issuance from
30,000,000 to 100,000,000. The Board of Directors believes that this proposal is
in the best interests of Bankshares and its shareholders and recommends a vote
FOR the proposed amendment.

Article SIXTH of the Articles of Incorporation states:

"The total number of shares of stock of all classes which the Corporation
has authority to issue is Thirty-Five Million (35,000,000) shares, having an
aggregate par value of Thirty-Five Million Dollars ($35,000,000), and divided
into Thirty Million (30,000,000) shares of common stock with a par value of One
Dollar ($1.00) per share, and Five Million (5,000,000) shares of preferred stock
with a par value of One Dollar ($1.00) per share."

The proposed amendment would change Article SIXTH of the Articles of
Incorporation to increase the total the total number of authorized shares of all
classes of stock to 105,000,000 with an aggregate par value of One Hundred Five
Million Dollars ($105,000,000) and to provide that 100,000,000 of such shares
shall be shares of Common Stock. The par value of the Common Stock and Preferred
Stock will remain $1.00 per share. The proposed amendment is subject to the
approval of shareholders of Bankshares.

PURPOSE OF AMENDMENT

The Articles of Incorporation currently authorizes the issuance of up to
30,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. As of
the Record Date, February 18, 1998, Bankshares had 23,106,449 shares of Common
Stock outstanding and 228,066 shares of Common Stock held in Treasury and
1,886,190 shares of Common Stock reserved for issuance to directors and officers
under various compensation and benefit plans and 1,318,582 shares of Common
Stock reserved for issuance under the Dividend Reinvestment Plan, with the
remaining 3,460,713 shares being authorized, unissued and unreserved shares
available for other corporate purposes. There were no shares of Preferred Stock
outstanding as of the Record Date. On February 13, 1998, Bankshares issued
11,536,875 shares of Common Stock, pursuant to a two-for-one stock dividend
effective on that date. These shares are included in the outstanding shares as
of the Record Date. While Bankshares currently does not have any plans to issue
or reserve additional Common Stock (other than pursuant to various compensation
and benefit plans), the Board of Directors considers the proposed increase in
the number of authorized shares

<PAGE> 24

desirable as it would give the Board the necessary flexibility to issue Common
Stock in connection with stock dividends and splits, acquisitions, financing,
employee benefits and for other general corporate purposes. Without an increase
in the number of authorized shares of Common Stock, the number of available
shares for issuance may be insufficient to consummate one or more of the above
transactions.

Approving an increase in the number of authorized shares at this time
would also avoid the expense and delay incidental to obtaining shareholder
approval of an amendment to the Articles of Incorporation increasing the number
of authorized shares at the time of occurrence of one of the transactions
described above, except as may be required for a particular issuance by
applicable law. As a result, the Board is proposing an amendment of the Articles
of Incorporation to increase the number of authorized shares of Common Stock
from 30,000,000 to 100,000,000 which would increase the authorized, unissued and
unreserved shares of Common Stock available for issuance from 3,460,713 to
73,460,713 shares. Authorized, unissued and unreserved Common Stock may be
issued from time to time for any proper purpose without further action of the
shareholders, except as may be required by the Articles of Incorporation,
applicable law or the listing requirements for the NASDAQ, on which the Common
Stock is listed.

Each share of Common Stock authorized for issuance has the same rights and
is identical in all respects with each other share of Common Stock. The newly
authorized shares of Common Stock will not affect the rights, such as voting and
liquidation rights, or the shares of Common Stock currently outstanding.
Shareholders will not have preemptive rights to purchase any subsequently issued
shares of Common Stock. Bankshares currently has no plans to issue the newly
authorized shares of Common Stock.

The ability of the Board of Directors to issue additional shares of Common
Stock without additional shareholder approval may be deemed to have an
anti-takeover effect since unissued and unreserved shares of Common Stock could
be issued by the Board of Directors in circumstances that may have the effect of
deterring takeover bids. Because shareholders do not have preemptive rights
under the Articles of Incorporation, the rights of existing shareholders may
(depending on the particular circumstances in which the additional shares of
Common Stock are issued) be diluted by any such issuance. The Board of Directors
does not intend to issue any additional shares of Common Stock except on terms
that it deems in the best interests of Bankshares and its shareholders.

UNLESS MARKED TO THE CONTRARY, THE SHARES PRESENTED BY THE ENCLOSED PROXY
WILL BE VOTED FOR THE APPROVAL OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 30,000,000 TO
100,000,000.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE
AN AMENDMENT TO THE ARTICLES OF INCORPORATION
INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

<PAGE> 25

PROPOSAL 3. TO RATIFY THE PROVIDENT BANKSHARES CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN

On January 21, 1998, the Board of Directors adopted an amendment to the
Provident Bankshares Corporation Amended and Restated Stock Option Plan (the
"Option Plan") which requires stockholder approval. The amendment will increase
the number of shares of Common Stock available for issuance under the Option
Plan by 500,000. On February 13, 1998, Bankshares effectuated a two-for-one
stock split in the form of a stock dividend. All shares referenced herein are
expressed on a "post-split" basis.

The Option Plan authorized the granting of options to purchase the Common
Stock of Bankshares (the "Options"). All officers, other employees and
non-employee directors are eligible to receive options under the Option Plan.
The Option Plan is administered by Bankshares' Compensation Committee (the
"Committee"), as appointed by the Board of Directors. As of January 21, 1998,
options covering 1,686,708 shares of Bankshares' Common Stock were outstanding
and 278,308 shares remained available to satisfy options granted in the future
under the Option Plan. The proposed amendment would enhance the flexibility in
granting stock options to Bankshares' officers, employees and directors by
increasing the number of shares available to satisfy options granted in the
future under the Option Plan to 778,308. This will ensure that Bankshares can
continue to grant stock options at levels determined appropriate by the Board to
attract and retain qualified and competent employees and directors.

The following is a summary of the Stock Option Plan, which is qualified in
its entirety by the complete provisions of the Plan attached as Appendix A.

AWARDS TO EMPLOYEES

TYPES OF AWARDS

The Stock Option Plan authorizes the grant of options to non-employee
directors, officers and employees in the form of options which do not afford
income tax benefits to recipients, but which may provide tax deductions to
Bankshares, referred to as "Non-Statutory Stock Options" or "NSOs." The
Committee may award only NSOs to the directors, officers and employees to whom
Options shall be granted. The Committee can determine the officers, employees
and directors to whom Options shall be granted, the number of shares for which
Options shall be granted, the price to be paid upon the exercise of each option
and the termination date of such Options subject to the approval of the Board of
Directors, in each case.

TERMINATION OF EMPLOYMENT

In the event an optionee ceases to be a director, officer or employee of
Bankshares or a subsidiary thereof due to death or disability, all of the
optionee's Options shall immediately become fully vested and exercisable and
shall remain so for a period of sixty (60) days from the date of termination of
service as a director or officer or of employment, but in no event after their
respective expiration dates.

<PAGE> 26

In the event an optionee ceases to be director, officer or employee of
Bankshares or a subsidiary thereof as a result of retirement, all of the
optionee's Options that were fully vested and exercisable on the date of
termination of service as a director or officer or of employment shall remain
fully vested and exercisable and shall remain so until their respective
termination dates. All of the optionee's Options that were not fully vested and
exercisable on such date shall be terminated immediately.

In the event an optionee ceases to be a director, officer or employee of
Bankshares or a subsidiary thereof for any reason whatsoever other than death,
disability or retirement, all of the optionee's Options that were fully vested
and exercisable on the date of termination of service as director or officer or
of employment shall remain fully vested and shall be exercisable for a period of
thirty (30) days from said date of termination of service, but in no event later
than the termination period of the Option. All of the optionee's Options that
were not fully vested and exercisable on said date of termination shall be
terminated immediately.

TAX TREATMENT

Upon the exercise of an Option, an optionee will be deemed to have
received ordinary income upon exercise of the Option in an amount equal to the
aggregate amount by which the per share exercise price is exceeded by the fair
market value of the Common Stock. The amount of any ordinary income deemed to
have been received by an optionee upon the exercise of a Non-Statutory Stock
Option or due to a disqualifying disposition will be a deductible expense of
Bankshares for tax purposes.

PAYOUT ALTERNATIVES

The Committee has the sole discretion to determine the form of payment for
the exercise of an Option. The Committee may indicate acceptable forms in the
award agreement covering such options or may reserve its decision to the time of
exercise. No Option is to be considered exercised until payment in full is
accepted by the Committee. The Committee may permit the following forms of
payment for Options: (a) in cash or by certified check; (b) through borrowed
funds, to the extent permitted by law; or (c) by tendering previously acquired
shares of Common stock. Any shares of Common Stock tendered in payment of the
exercise price of an option shall be valued at the Fair Market Value of the
Common Stock on the date prior to the date of exercise.

AMENDMENT

The Board of Directors may amend the Option Plan in any respect, at any
time, provided that no amendment may adversely affect the rights of an optionee.

ADJUSTMENTS

In the event of any change in the outstanding shares of Common Stock of
Bankshares by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by Bankshares, the Committee, in its
discretion, may make such adjustments to previously granted awards, to prevent
dilution, diminution or enlargement of the rights of the participants. All
awards under this Option Plan shall be binding upon any successors or assigns of
Bankshares.

<PAGE> 27

NONTRANSFERABILITY

No award under the Option Plan shall be transferable by the recipient
other than by will or the laws of descent and distribution. With the consent of
the Committee, an optionee may designate a person or his or her estate as
beneficiary of any award to which the recipient would then be entitled, in the
event of the death of the employee.

UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED
PROXY CARD, IF EXECUTED AND RETURNED, WILL BE VOTED "FOR" PROPOSAL 3.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
AMENDMENT TO THE PROVIDENT BANKSHARES CORPORATION AMENDED AND
RESTATED STOCK OPTION PLAN

PROPOSAL 4. TO APPROVE THE SELECTION OF
INDEPENDENT AUDITORS FOR THE YEAR 1998

The Board of Directors of Bankshares has appointed the firm of Coopers &
Lybrand LLP, certified public accountants, as independent auditors for
Bankshares for the year 1998, subject to the approval of the stockholders.
Coopers & Lybrand LLP, which has served as independent auditors for Bankshares
and the Bank since 1990, has advised Bankshares that neither the firm nor any of
its partners or associates has any direct financial interest in or any
connection with Bankshares or any of its subsidiaries other than as independent
auditors. Representatives of Coopers & Lybrand LLP are expected to be present at
the Annual Meeting and will have the opportunity to make a statement if they
desire to do so and to respond to appropriate questions.

The Board of Directors seeks stockholder approval of its selection of
Coopers & Lybrand LLP as its independent auditors to Bankshares for the year
1998.

The Board of Directors recommends a vote FOR the Proposal. Proxies will be
voted FOR the Proposal unless otherwise instructed by the Stockholders.

OTHER BUSINESS

The Board of Directors is not aware of any matters to be presented for
action at the meeting, other than the matters set forth herein. If any other
business should properly come before the meeting, the persons named in the
accompanying proxy will vote such proxy in accordance with their best judgment
with respect thereto.

<PAGE> 28

VOTING PROCEDURES

As to the election of directors, the proxy card being provided by the
Board of Directors enables a shareholder to vote "FOR" the election of nominees
proposed by the Board, or to "WITHHOLD" authority to vote for one or more of the
nominees being proposed. Under Bankshares' Bylaws, directors are elected by a
majority of the votes present, without regard to either: (i) broker non-votes or
(ii) proxies as to which authority to vote for one or more of the nominees being
proposed is withheld.

As to the ratification of Coopers & Lybrand LLP as independent auditors of
Bankshares, by checking the appropriate box, a shareholder may: (i) vote "FOR"
the item; (ii) vote "AGAINST" the item, or (iii) "ABSTAIN" from voting on such
item. Under Bankshares' Bylaws, all such matters shall be determined by a
majority of the votes present, without regard to either: (i) broker non-votes or
(ii) proxies marked "ABSTAIN" as to that matter.

Proposal 2 submitted to Bankshares' stockholders for a vote to amend the
Articles of Incorporation of Bankshares to increase the total number of
authorized shares will be deemed approved if two-thirds of the issued and
outstanding shares of Common Stock of Bankshares entitled to vote at a meeting
at which a quorum is present votes in favor of the proposal. Abstentions and
broker non-votes are included as shares entitled to vote on Proposal 2 and will
count as a vote against Proposal 2. The presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum. A stockholder is entitled to one vote for each
share owned.

Stockholders are also being requested under Proposal 3 to approve the
proposed January 21, 1998 Amendment to the Option Plan that would increase the
number of shares available to satisfy options granted in the future under the
Option Plan. If stockholders fail to approve Proposal 3, the Option Plan in the
form attached hereto will remain in full force and effect and the number of
shares available to satisfy options granted in the future will not be increased
but will remain at 278,308 shares (other than increases attributable to
adjustments discussed above). The affirmative vote of a majority of the shares
present at the Annual Meeting on Proposal 3 is required to ratify and approve
the Stock Option Plan as amended without regard to: (i) broker non-votes or (ii)
proxies marked "ABSTAIN" as to this matter.

Stockholder votes are tabulated manually by Bankshares. Proxies received
by Bankshares, if such proxy is properly executed and delivered, will be voted
in accordance with the voting specifications made on such proxy. Proxies
received by Bankshares on which no voting specification has been made by the
stockholder will be voted for all items discussed in the Proxy Statement, in the
manner slated on the proxy card. Stockholders who execute and deliver proxies
retain the right to revoke them by notice in writing delivered to Bankshares'
Secretary at any time before such proxies are voted. Under applicable Maryland
corporate law and the Articles of Incorporation and Bylaws of Bankshares,
proxies received by Bankshares specifying an abstention as to any proposal will
cause the shares so represented to be counted toward a quorum, but not counted
as favorable votes and, therefore, have the same effect as a vote against the
proposal. To the extent holders or brokers having the right to vote shares do
not attend the meeting or return a proxy, such shares will not count toward a
quorum and, if a quorum is otherwise achieved, will have no effect on the vote
of the proposals considered at the meeting.

STOCKHOLDER PROPOSALS -- 1999 ANNUAL MEETING

Any proposal of a stockholder intended to be presented at the 1999 Annual
Meeting of Bankshares must be received by Bankshares at 114 East Lexington
Street, Baltimore, Maryland 21202

<PAGE> 29

prior to November 18, 1998, to be eligible for inclusion in the proxy statement
and form of proxy. In order to curtail controversy as to compliance with this
requirement, stockholders are urged to submit proposals to the Secretary of
Bankshares by Certified Mail-Return Receipt Requested.

ANNUAL REPORTS

BANKSHARES' 1997 ANNUAL REPORT TO STOCKHOLDERS AND ANNUAL REPORT ON FORM
10-K ACCOMPANY THIS PROXY STATEMENT. COPIES OF THE REPORTS MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF BANKSHARES, 114 EAST LEXINGTON STREET,
BALTIMORE, MARYLAND 21202, AND WILL BE AVAILABLE AT THE ANNUAL MEETING.

By Order of the Board of Directors

CARL W. STEARN
Chairman of the Board

Baltimore, Maryland
March 16, 1998

<PAGE> 1

APPENDIX A

PROVIDENT BANKSHARES CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN

1. Purpose. This Stock Option Plan (herein the "Plan") is intended as an
-------
employment incentive and to encourage stock ownership by certain directors, key
officers and employees of the Corporation and any Subsidiary, so that they may
increase their proprietary interest in the Corporation's success. In this way,
the Corporation will be assisted in its efforts to attract and retain highly
qualified management personnel.

2. Administration. The Plan shall be administered, construed and
--------------
interpreted by the Compensation Committee, as appointed by the Board of
Directors of the Corporation as defined under Section 6(f) (herein the
"Committee"). The Committee is authorized, subject to the provisions of the
Plan, to establish such rules and regulations as it sees necessary for the
proper administration of the Plan and to make whatever determinations and
interpretations in connection with the Plan it sees as necessary or advisable.
All determinations and interpretations made by the Committee shall be binding
and conclusive on all participants in the Plan and on their legal
representatives and beneficiaries. The Board of Directors may from time to time
remove members from, or add members to, the Committee, and vacancies on the
Committee, however caused, shall be filled by the Board of Directors. Subject to
the provisions of the Plan, the Committee shall determine:

(a) The directors, officers and employees to who options shall be
granted;

(b) The number of shares on which options shall be granted to each
director, officer and employee;

(d) The termination date of such options; and

(e) All other matters deemed necessary or advisable for the
administration of the Plan.

No member of the Board of Directors or the Committee shall be liable for
any action or determination made in good faith, and the members shall be
entitled to indemnification and reimbursement in the manner provided in the
Corporation's Articles of Incorporation or otherwise provided by law. The
Committee shall furnish the Board with copies of all decisions, orders and
determinations made by the Committee.

3. Eligibility. Subject to the terms herein, directors, key salaried
-----------
officers and employees of the Corporation, or of any present or future
Subsidiary, as the Committee shall

<PAGE> 2

determine from time to time shall be eligible to participate in the Plan. An
Optionee may hold more than one (1) option, but only on the terms and conditions
herein set forth.

4. Stock. The stock subject to the options and other provisions of the
-----
Plan shall be shares of the Corporation's $1.00 par value common stock which is
authorized but unissued, or reacquired common stock (herein sometimes "Common
Stock"). The maximum aggregate number of shares issued under the Plan shall be
2,024,301 (as of January 21, 1998) shares, subject to adjustment in accordance
with the provisions of Section 5(g) hereof. This authorization shall be
increased automatically on each succeeding annual anniversary of the adoption of
the Plan so that the number of shares authorized under the Plan equals 17% of
the then outstanding shares of Corporation Common Stock.

In the event that any outstanding option under the Plan for any reason
expires or is terminated prior to the end of the period during which options may
be granted under the Plan, the shares of Common Stock allocable to the
unexercised portion of such option may again be subjected to an option under the
Plan.

No participant under this Plan may receive awards with respect to shares
of Common Stock that exceeds 350,000 shares in any calendar year.

5. Terms and Conditions of Options. Stock options granted pursuant to the
-------------------------------
Plan to eligible employees shall be evidenced by agreements in such form as the
Committee shall, from time to time, approve, which agreements shall in substance
include and comply with and be subject to the following terms and conditions:

(a) Medium and Time of Payment. The option price shall be payable in
--------------------------
United States dollars upon the exercise of the option and may be paid in cash or
by certified check, bank draft or money order payable to the order of the
Corporation. Stock options may be exercised pursuant to a "cashless exercise" of
an option in accordance with applicable securities laws. Payment of the purchase
price may be made, in whole or in part, through the surrender of shares of the
Common Stock of the Corporation at the Fair Market Value of such shares on the
date of surrender determined in the manner described in Section 6(g).

(b) Number of Shares. The option shall state the total number of
----------------
shares to which it pertains. No option may be exercised for less than one
hundred (100) shares unless the issue of a lesser number is enough to exhaust
the option.

(c) Option Price. The option price shall not be less than the fair
------------
market value of the shares of Common Stock of the Corporation on the date that
the option is granted. The Fair Market Value is defined under Section 6(g),
except that for the initial grant of options under the Plan, the "public
offering price" as defined in the Form S-1 Registration Statement filed by the
Corporation with the Securities and Exchange Commission shall be deemed to be
Fair Market Value per share of the Common Stock. The "date that the option is
granted" shall be the

<PAGE> 3

date identified in the stock option agreement; provided, however, that the
Optionee shall have no rights under such option until he executes the option
agreement described in this Section.

(d) Expiration of Options. Each option granted under the Plan shall
---------------------
expire not more than ten (10 ) years from the date such option is granted, as
determined by the Committee.

(e) Date of Exercise. Except as may otherwise be determined by the
----------------
Committee at the time such option is granted, an option is fully vested and may
be exercised at any time immediately after: (i) a Change in Control, as defined
in Paragraph 6(a) hereof; or (ii) the date that the option or right is granted
as to not more than one-half (1/2) of the shares of Common Stock to which it
pertains. As of the first anniversary of the date that the option is granted,
the option may be exercised as to the remaining one-half (1/2) of the shares of
Common Stock to which it pertains. Notwithstanding the above, the Committee may,
in its sole discretion, accelerate the time at which any stock option may be
exercised in whole or in part.

Except as herein otherwise provided, any option may be exercised in whole
at any time, or in part from time to time, during its term.

(f) Termination of Employment.
-------------------------

(i) In the event an Optionee ceases to be a director, officer
or employee of the Corporation or a Subsidiary due to death or Disability, all
of the Optionee's options shall immediately become fully vested and exercisable
and shall remain so for a period of sixty (60) days from the date of termination
of service as a director or officer or of employment, but in no event after
their respective expiration dates.

(ii) In the event an Optionee ceases to be director, officer
or employee of the Corporation or a Subsidiary as a result of Retirement, all of
the Optionee's options that were fully vested and exercisable on the date of
termination of service as a director or officer or of employment shall remain
fully vested and exercisable and shall remain so until their respective
termination dates. All of the Optionee's options that were not fully vested and
exercisable on such date shall be terminated immediately. Notwithstanding the
above, in the event an Optionee ceases to be a director of the Corporation as a
result of Retirement within one (1) year of the effective date of the Plan, all
of such Optionee's options shall immediately become fully vested and exercisable
and shall remain so until the respective termination period of the option.

(iii) In the event an Optionee ceases to be a director,
officer or employee of the Corporation or a Subsidiary for any reason whatsoever
other than death, Disability or Retirement, all of the Optionee's options that
were fully vested and exercisable on the date of termination of service as
director or officer or of employment shall remain fully vested and shall be
exercisable for a period of thirty (30) days from said date of termination of
service, but in no event later than the termination period of the option. All of
the Optionee's

<PAGE> 4

options that were not fully vested and exercisable on said date of termination
shall be terminated immediately.

(g) Adjustments on Changes in Stock. In the event of any change in
-------------------------------
the outstanding shares of Common Stock of the Corporation by reason of any stock
dividend or split, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of shares, or other similar corporate
change, or other increase or decrease in such shares without receipt or payment
of consideration by the Corporation, the Committee, in its discretion, may deem
it appropriate to adjust previously granted awards, to prevent dilution or
enlargement of the rights of the Participant, including any or all of the
following:

(i) adjustments in the aggregate number or kind of shares of
Common Stock which may be awarded under the Plan;

(ii) adjustments in the aggregate number or kind of shares of
Common Stock covered by awards already made under the Plan; or

(iii) adjustments in the purchase price of outstanding Stock
Options.

(h) Assignability. No option shall be assignable or transferable
-------------
except by will or by the laws of descent and distribution. During the lifetime
of an Optionee, an option shall be exercisable only by him, his legal
representative or his guardian.

(i) Tax Withholding. The Optionee may remit to the Corporation at
---------------
the time of exercise of any option any taxes required to be withheld by the
Corporation under federal, state or local law as a result of the exercise of
such option or right. If the Optionee does not remit such taxes at the time of
exercise of an option, the Optionee will be deemed to have authorized the
Corporation to withhold such taxes in accordance with applicable law from any
regular cash compensation payable to him. If this Plan is qualified under 17
C.F.R. Section 240.16b-3 ("Rule 16b-3") under the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), then any withholding shall comply with 17
C.F.R. Section 240.166-3(e).

(j) Other Conditions. The option agreements authorized under the
----------------
Plan may contain such other provisions as the Committee shall deem advisable.

6. Certain Definitions. For purpose of the Plan, the following terms shall
-------------------
have the meanings set forth below:

(a) "Change in Control" means an event of nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Corporation within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal

<PAGE> 5

Deposit Insurance Corporation ("FDIC") at 12 C.F.R. Section 303.4(a) with
respect to the Bank, and the Board of Governors of the Federal Reserve System
("FRB") at 12 C.F.R. Section 225.41(b) with respect to the Corporation, as in
effect on the date hereof; or (iii) without limitation such a Change in Control
shall be deemed to have occurred at such time as (A) any "person" (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Bank or the Corporation representing 10% or
more of the Bank's or the Corporation's outstanding securities except for any
securities of the Bank purchased by the Corporation or any securities of the
Bank or the Corporation purchased by any employee benefit plan of the Bank or
the Corporation, or (B) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least 75% of the directors
comprising the Incumbent Board, or whose nomination for election by the
Corporation stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (C), considered
as though he were a member of the Incumbent Board, or (D) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Corporation or similar transaction occurs in which the
Bank or Corporation is not the resulting entity, or (E) a solicitation of
stockholders of the Corporation, by someone other than the current management of
the Corporation, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Corporation or Bank with one or more
corporations, a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Corporation, or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or Corporation then outstanding.

(b) "Disability" shall mean a permanent and total disability as
defined by Section 72(m)(7) of the Internal Revenue Code of 1986, as from time
to time amended, or any successor thereto of similar import.

(c) "Optionee" shall mean a director, officer or employee of the
Corporation or of any Subsidiary to whom an option is granted under the Plan.

(d) "Retirement" shall mean the termination of employment of an
individual upon his attaining age 65 or other normal or early retirement age
pursuant to the regular retirement plan of the Corporation or any Subsidiary.

(e) "Subsidiary" shall mean: (i) a member of a controlled group of
corporations of which the Corporation is a member or (ii) an unincorporated
trade or business which is under common control with the Corporation as
determined in accordance with Section 414(c) of the Internal Revenue Code (the
"Code") and the regulations issued thereunder. For purposes hereof, a
"controlled group of corporations" shall mean a controlled group of corporations
as defined in Section 1563(a) of the Code determined without regard to Sections
1563(a)(4) and (3)(3)(C).

<PAGE> 6

(f) "Committee" means a committee consisting of two or more
disinterested directors of the Corporation, who shall be appointed by the Board
of Directors. A member of the Board of Directors shall be deemed to be
"disinterested" only if he satisfies (i) such requirements as the Securities and
Exchanges Commission may establish for non-employee directors administering
plans intended to qualify for exemption under Rule 16b-3 (or its successor)
under the Exchange Act and (ii) such requirements as the Internal Revenue
Service may establish for outside directors acting under plans intended to
qualify for exemption under Section 162(m)(4)(C) of the Code.

(g) "Fair Market Value" shall mean, when used in connection with the
Common Stock on a certain date, the average of the reported highest bid and
lowest ask price of the Common Stock as reported on the Nasdaq National Market
(as published by The Wall Street Journal, if published) on such date or if the
Common Stock was not traded on such date, on the next preceding day on which the
Common Stock was traded thereon or the last previous date on which a sale is
reported.

7. Modification of Options. Subject to the terms and conditions and within
-----------------------
the limitations of the Plan, the Committee may modify, extend or renew
outstanding options (to the extent not theretofore exercised) and authorized the
granting of new options in substitution therefor; provided, however, that any
such modifications shall be limited to those which are not adverse to the
interests of the Optionee or are necessary to cause the Plan, options to comply
with any applicable legal requirements.

8. Amendment of the Plan. The Board of Directors may, from time to time,
---------------------
with respect to any shares reserved under the Plan but not subject to options,
revise or amend the Plan in any respect. However, the Board of Directors may
not, without stockholder approval, (a) increase the number of shares of Common
Stock which may be reserved for issuance under the Plan, except as provided in
Paragraph 5(g) hereof, (b) fix the option price at less than the Fair Market
Value of the Common Stock of the Corporation on the date the option is granted,
(c) change the provisions relating to the administration of the Plan by a
Committee, (d) extend the period during which options may be granted or
exercised beyond the times originally prescribed, or (e) change the persons
eligible to participate in the Plan.

Notwithstanding the above stated paragraph, sections of the Plan governing
the grants to Non-Employee Directors shall not be amended more than once every
six months other than to comport with the Code or the Employee Retirement Income
Security Act, as amended ("ERISA"), if applicable.

9. Termination. The Board of Directors may terminate the Plan at any time,
-----------
and no option shall be granted thereafter. Such termination shall not affect the
validity of any option agreement then outstanding.

<PAGE> 7

10. Effective Date. The Plan shall become effective when it is approved by
--------------
the holders of a majority of the Common Stock of the Corporation.

11. Designation of Beneficiary. An Optionee may, with the consent of the
--------------------------
Committee, designate a person or persons to receive, in the event of death, any
stock option to which the Optionee would then be entitled. Such designation will
be made upon forms supplied by and delivered to the Corporation and may be
revoked in writing. If a Participant fails to effectively designate a
beneficiary, then the Participant's estate will be deemed to be the beneficiary.

12. Rights of Shareholder. No Participant shall have any rights as a
---------------------
shareholder with respect to any shares covered by a stock option until the date
of issuance of a stock certificate for such shares. Nothing in this Plan or in
any award granted confers on any person any right to continue in the employ of
the Corporation or its Subsidiary or interferes in any way with the right of the
Corporation or its Subsidiary to terminate a Optionee's services as an officer
or other employee at any time.

13. Applicable Law. The Plan will be administered in accordance with the
--------------
laws of Maryland.

14. Compliance with Section 16. If this Plan is qualified under Rule
--------------------------
16b-3, with respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of the Rule 16b-3 or its successors under the Exchange Act. To the
extent any provisions of the Plan or action by the Committee fail to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.

15. Options Continue as a Result of a Successor. The obligations of the
-------------------------------------------
Corporation under the Plan shall be binding upon any organization which shall
succeed to all or substantially all of the assets of the Corporation, and the
term "Corporation," whenever used in the Plan, shall mean and include any such
organization after the succession.