##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 10-Q/A

Amendment No. 2 to Form 10-Q



---



|x | Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



For the Quarterly Period Ended March 31, 2005



or



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



For the Transition Period From             to
            .



Commission File Number 0-16421



---



PROVIDENT BANKSHARES CORPORATION

(Exact Name of Registrant as Specified in its Charter)



---



|                                                              |  |                                       
|------------------------------------------------------------- |  | --------------------------------------
|Maryland                                                      |  | 52-1518642                            
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification Number)



114 East Lexington
Street, Baltimore, Maryland 21202

(Address of Principal Executive Offices)



(410) 277-7000

(Registrants Telephone Number, Including Area Code)



---



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 whether the Registrant
is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No ̈



Indicate by check mark whether the Registrant
is a shell company (as defined in Rule 12b-2 of the Act).    Yes ̈No  x



At May 6, 2005, the Registrant had
32,962,067 shares of $1.00 par value common stock outstanding.



---



---

##### Table of Contents

Explanatory Note



This Amendment to Form 10-Q (this Amendment) is being filed by Provident Bankshares Corporation (the Corporation) to
amend its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 filed with the Securities and Exchange Commission (the SEC) on May 10, 2005, and as subsequently amended on May 13, 2005 (the
Initial Form 10-Q). As previously reported in the Corporations Form 10-Q for the period ended September 30, 2005, this Amendment is required due to the restatement of financial statements included in the Initial Form 10-Q
related to corrections of errors related to the Corporations accounting for derivatives under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133). As a result of errors in the application of the short-cut method, the Corporation was precluded from applying hedge accounting to various derivative instruments as described in Note 2. This Amendment restates unaudited
Condensed Consolidated Financial Statements at and for the three months ended March 31, 2005 and 2004. For information regarding the restatement, see Note 2 to our unaudited Consolidated Financial Statements contained herein. This Amendment
includes a restatement which changes Part I  Items 1, 2 and 4, including related changes to the disclosures in Managements Discussion and Analysis of Financial Condition and Results of Operations. This Amendment also
includes changes in Controls and Procedures to reflect managements revised assessment of the Corporations disclosure controls and procedures as of March 31, 2005.



Except as otherwise specifically noted, all information contained herein is as of
March 31, 2005 and does not reflect any events or changes that have occurred subsequent to that date. We are not required to and we have not updated any forward-looking statements previously included in the Initial Form 10-Q.



1



---

##### Table of Contents

TABLE OF CONTENTS



|                                                                                                             |  |     
|------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                             |  | Page
|PART I -
FINANCIAL INFORMATION                                                                               |  |     
|                                                                                                             | 
|Item 1.
Financial Statements                                                                                 |  |     
|                                                                                                             | 
|Condensed Consolidated Statements of Condition - UnauditedMarch 31, 2005 and 2004 and December 31, 2004      |  | 4   
|                                                                                                             | 
|Condensed Consolidated Statements of Income - UnauditedThree month periods ended March 31, 2005 and 2004     |  | 5   
|                                                                                                             | 
|Condensed Consolidated Statements of Cash Flows - UnauditedThree month periods ended March 31, 2005 and 2004 |  | 6   
|                                                                                                             | 
|Notes to Condensed Consolidated Financial Statements - Unaudited                                             |  | 7   
|                                                                                                             | 
|Item 2.
Managements Discussion and Analysisof Financial Condition and Results of Operations                 |  | 23  
|                                                                                                             | 
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                           |  | 43  
|                                                                                                             | 
|Item 4.
Controls and Procedures                                                                              |  | 43  
|                                                                                                             | 
|PART II -
OTHER INFORMATION                                                                                  |  |     
|                                                                                                             | 
|Item 1.
Legal Proceedings                                                                                    |  | 44  
|                                                                                                             | 
|Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                          |  | 44  
|                                                                                                             | 
|Item 3.
Defaults upon Senior Securities                                                                      |  | 44  
|                                                                                                             | 
|Item 4.
Submission of Matters to a Vote of Security Holders                                                  |  | 44  
|                                                                                                             | 
|Item 5.
Other Information                                                                                    |  | 45  
|                                                                                                             | 
|Item 6.
Exhibits                                                                                             |  | 45  
|                                                                                                             | 
|SIGNATURES                                                                                                   |  | 46  



Forward-looking Statements



This report, as well as other
written communications made from time to time by Provident Bankshares Corporation and its subsidiaries (the Corporation) (including, without limitation, the Corporations 2004 Annual Report to Stockholders) and oral communications
made from time to time by authorized officers of the Corporation, may contain statements relating to the future results of the Corporation (including certain projections and business trends) that are considered forward-looking statements
as defined in the Private Securities Litigation Reform Act of 1995 (the PSLRA). Such forward-looking statements may be identified by the use of such words as believe, expect, anticipate,
should, planned, estimated, intend and potential. Examples of forward-looking statements include, but are not limited to, possible or assumed estimates with respect to the financial
condition, expected or anticipated revenue, and results of operations and business of the Corporation, including earnings growth determined using U.S. generally accepted accounting principles (GAAP); revenue growth in retail banking,
lending and other areas; origination volume in the Corporations consumer, commercial and other lending businesses; asset quality and levels of non-performing assets;



2



---

##### Table of Contents

current and future capital management programs; non-interest income levels, including fees from services and product
sales; tangible capital generation; market share; expense levels; and other business operations and strategies. For these statements, the Corporation claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.



The Corporation cautions you that a number of important factors could cause
actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: the factors identified in the Corporations Form 10-K for the fiscal year ended
December 31, 2004 under the headings Forward-Looking Statements and Risk Factors, prevailing economic conditions, either nationally or locally in some or all areas in which the Corporation conducts business or conditions
in the securities markets or the banking industry; changes in interest rates, deposit flows, loan demand, real estate values and competition, which can materially affect, among other things, consumer banking revenues, revenues from sales on
non-deposit investment products, origination levels in the Corporations lending businesses and the level of defaults, losses and prepayments on loans made by the Corporation, whether held in portfolio or sold in the secondary markets; changes
in the quality or composition of the loan or investment portfolios; the Corporations ability to successfully integrate any assets, liabilities, customers, systems and management personnel the Corporation may acquire into its operations and its
ability to realize related revenue synergies and cost savings within expected time frames; the Corporations timely development of new and competitive products or services in a changing environment, and the acceptance of such products or
services by customers; operational issues and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems, on which it is highly dependent; changes in accounting principles, policies, and
guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; risks and uncertainties related to mergers and related integration and restructuring activities; conditions in the securities markets or the
banking industry; changes in the quality or composition of the investment portfolio; litigation liabilities, including costs, expenses, settlements and judgments; or the outcome of other matters before regulatory agencies, whether pending or
commencing in the future; and other economic, competitive, governmental, regulatory and technological factors affecting the Corporations operations, pricing, products and services. Additionally, the timing and occurrence or non-occurrence of
events may be subject to circumstances beyond the Companys control. Readers are cautioned not to place undue reliance on these forward-looking statements which are made as of the date of this report, and, except as may be required by
applicable law or regulation, the Corporation assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.



3



---

##### Table of Contents

PART I  FINANCIAL INFORMATION



Item 1. Financial Statements



Provident Bankshares Corporation and Subsidiaries

Condensed Consolidated Statements of Condition - Unaudited



|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | --------- | - | ------------------------ | - | --------- | --------------------- |  | - | --------- | -
|(dollars in thousands, except per share and share amounts)                                                                                                                              |  | March 31,Restated2005 |           |   | December 31,Restated2004 |   |           | March 31,Restated2004 | 
|Assets:                                                                                                                                                                                 |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Cash and due from banks                                                                                                                                                                 |  | $                     | 155,562   |   |                          | $ | 124,664   |                       |  | $ | 116,006   |  
|Short-term investments                                                                                                                                                                  |  |                       | 5,347     |   |                          |   | 9,658     |                       |  |   | 1,903     |  
|Mortgage loans held for sale                                                                                                                                                            |  |                       | 4,441     |   |                          |   | 6,520     |                       |  |   | 5,456     |  
|Securities available for sale                                                                                                                                                           |  |                       | 2,031,290 |   |                          |   | 2,186,395 |                       |  |   | 2,127,047 |  
|Securities held to maturity                                                                                                                                                             |  |                       | 114,091   |   |                          |   | 114,671   |                       |  |   |          |  
|Loans                                                                                                                                                                                   |  |                       | 3,541,175 |   |                          |   | 3,559,880 |                       |  |   | 2,829,936 |  
|Less allowance for loan losses                                                                                                                                                          |  |                       | 45,639    |   |                          |   | 46,169    |                       |  |   | 36,126    |  
|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Net loans                                                                                                                                                                               |  |                       | 3,495,536 |   |                          |   | 3,513,711 |                       |  |   | 2,793,810 |  
|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Premises and equipment, net                                                                                                                                                             |  |                       | 63,379    |   |                          |   | 63,413    |                       |  |   | 49,481    |  
|Accrued interest receivable                                                                                                                                                             |  |                       | 29,627    |   |                          |   | 28,669    |                       |  |   | 25,202    |  
|Goodwill                                                                                                                                                                                |  |                       | 255,973   |   |                          |   | 256,241   |                       |  |   | 7,692     |  
|Intangible assets                                                                                                                                                                       |  |                       | 12,167    |   |                          |   | 12,649    |                       |  |   | 1,138     |  
|Other assets                                                                                                                                                                            |  |                       | 257,269   |   |                          |   | 254,825   |                       |  |   | 140,824   |  
|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Total assets                                                                                                                                                                            |  | $                     | 6,424,682 |   |                          | $ | 6,571,416 |                       |  | $ | 5,268,559 |  
|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Liabilities:                                                                                                                                                                            |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Deposits:                                                                                                                                                                               |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Noninterest-bearing                                                                                                                                                                     |  | $                     | 876,766   |   |                          | $ | 811,917   |                       |  | $ | 646,765   |  
|Interest-bearing                                                                                                                                                                        |  |                       | 3,052,120 |   |                          |   | 2,968,070 |                       |  |   | 2,555,553 |  
|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Total deposits                                                                                                                                                                          |  |                       | 3,928,886 |   |                          |   | 3,779,987 |                       |  |   | 3,202,318 |  
|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Short-term borrowings                                                                                                                                                                   |  |                       | 719,228   |   |                          |   | 917,893   |                       |  |   | 555,637   |  
|Long-term debt                                                                                                                                                                          |  |                       | 1,125,465 |   |                          |   | 1,205,833 |                       |  |   | 1,134,963 |  
|Accrued expenses and other liabilities                                                                                                                                                  |  |                       | 39,566    |   |                          |   | 49,280    |                       |  |   | 30,197    |  
|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Total liabilities                                                                                                                                                                       |  |                       | 5,813,145 |   |                          |   | 5,952,993 |                       |  |   | 4,923,115 |  
|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Stockholders Equity:                                                                                                                                                                   |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Common stock (par value $1.00) authorized 100,000,000 shares; issued 40,966,829, 40,870,602 and 32,410,354 shares at March 31,
2005, December 31, 2004 and March 31, 2004, respectively |  |                       | 40,967    |   |                          |   | 40,871    |                       |  |   | 32,410    |  
|Additional paid-in capital                                                                                                                                                              |  |                       | 554,244   |   |                          |   | 552,671   |                       |  |   | 303,049   |  
|Retained earnings                                                                                                                                                                       |  |                       | 191,226   |   |                          |   | 184,069   |                       |  |   | 158,207   |  
|Net accumulated other comprehensive income (loss)                                                                                                                                       |  |                       | (12,600   | ) |                          |   | (1,635    | )                     |  |   | 5,111     |  
|Treasury stock at cost - 7,904,541, 7,768,217 and 7,651,317 shares at March 31, 2005, December 31, 2004 and March 31,
2004, respectively                                                |  |                       | (162,300  | ) |                          |   | (157,553  | )                     |  |   | (153,333  | )
|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Total stockholders equity                                                                                                                                                              |  |                       | 611,537   |   |                          |   | 618,423   |                       |  |   | 345,444   |  
|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  
|Total liabilities and stockholders equity                                                                                                                                              |  | $                     | 6,424,682 |   |                          | $ | 6,571,416 |                       |  | $ | 5,268,559 |  
|                                                                                                                                                                                        |  |                       |           |   |                          |   |           |                       |  |   |           |  



The accompanying notes
are an integral part of these statements.



4



---

##### Table of Contents

Provident Bankshares Corporation and Subsidiaries

Condensed Consolidated Statements of Income 
Unaudited



|                                                    |  |                             |        |   |              |   |        |  
|--------------------------------------------------- |  | --------------------------- | ------ | - | ------------ | - | ------ | -
|                                                    |  | Three Months EndedMarch 31, |       
|(dollars in thousands, except per share data)       |  | Restated2005                |        |   | Restated2004 |  
|Interest Income:                                    |  |                             |        |   |              |   |        |  
|Loans, including fees                               |  | $                           | 50,504 |   |              | $ | 36,985 |  
|Investment securities                               |  |                             | 24,321 |   |              |   | 22,534 |  
|Tax-advantaged loans and securities                 |  |                             | 319    |   |              |   | 342    |  
|Short-term investments                              |  |                             | 43     |   |              |   | 2      |  
|                                                    |  |                             |        |   |              |   |        |  
|Total interest income                               |  |                             | 75,187 |   |              |   | 59,863 |  
|                                                    |  |                             |        |   |              |   |        |  
|Interest Expense:                                   |  |                             |        |   |              |   |        |  
|Deposits                                            |  |                             | 11,328 |   |              |   | 8,614  |  
|Short-term borrowings                               |  |                             | 4,473  |   |              |   | 1,578  |  
|Long-term debt                                      |  |                             | 10,670 |   |              |   | 8,752  |  
|                                                    |  |                             |        |   |              |   |        |  
|Total interest expense                              |  |                             | 26,471 |   |              |   | 18,944 |  
|                                                    |  |                             |        |   |              |   |        |  
|Net interest income                                 |  |                             | 48,716 |   |              |   | 40,919 |  
|Less provision for loan losses                      |  |                             | 1,575  |   |              |   | 2,391  |  
|                                                    |  |                             |        |   |              |   |        |  
|Net interest income after provision for loan losses |  |                             | 47,141 |   |              |   | 38,528 |  
|                                                    |  |                             |        |   |              |   |        |  
|Non-Interest Income:                                |  |                             |        |   |              |   |        |  
|Service charges on deposit accounts                 |  |                             | 19,349 |   |              |   | 18,531 |  
|Commissions and fees                                |  |                             | 1,210  |   |              |   | 1,224  |  
|Net gains (losses)                                  |  |                             | (776   | ) |              |   | 816    |  
|Net derivative losses on swaps                      |  |                             | (3,820 | ) |              |   | (3,752 | )
|Net cash settlement on swaps                        |  |                             | 1,579  |   |              |   | (2,134 | )
|Other non-interest income                           |  |                             | 5,502  |   |              |   | 3,012  |  
|                                                    |  |                             |        |   |              |   |        |  
|Total non-interest income                           |  |                             | 23,044 |   |              |   | 17,697 |  
|                                                    |  |                             |        |   |              |   |        |  
|Non-Interest Expense:                               |  |                             |        |   |              |   |        |  
|Salaries and employee benefits                      |  |                             | 22,698 |   |              |   | 20,421 |  
|Occupancy expense, net                              |  |                             | 5,274  |   |              |   | 4,050  |  
|Furniture and equipment expense                     |  |                             | 3,464  |   |              |   | 3,144  |  
|External processing fees                            |  |                             | 5,197  |   |              |   | 5,302  |  
|Merger expenses                                     |  |                             |       |   |              |   | 184    |  
|Other non-interest expense                          |  |                             | 10,841 |   |              |   | 7,509  |  
|                                                    |  |                             |        |   |              |   |        |  
|Total non-interest expense                          |  |                             | 47,474 |   |              |   | 40,610 |  
|                                                    |  |                             |        |   |              |   |        |  
|Income before income taxes                          |  |                             | 22,711 |   |              |   | 15,615 |  
|Income tax expense                                  |  |                             | 6,961  |   |              |   | 4,918  |  
|                                                    |  |                             |        |   |              |   |        |  
|Net income                                          |  | $                           | 15,750 |   |              | $ | 10,697 |  
|                                                    |  |                             |        |   |              |   |        |  
|Net Income Per Share Amounts:                       |  |                             |        |   |              |   |        |  
|Basic                                               |  | $                           | 0.48   |   |              | $ | 0.43   |  
|Diluted                                             |  |                             | 0.47   |   |              |   | 0.42   |  



The accompanying notes
are an integral part of these statements.



5



---

##### Table of Contents

Provident Bankshares Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows 
Unaudited



|                                                                                  |  |                             |          |   |              |   |          |  
|--------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ------------ | - | -------- | -
|                                                                                  |  | Three Months EndedMarch 31, |         
|(in thousands)                                                                    |  | Restated2005                |          |   | Restated2004 |  
|Operating Activities:                                                             |  |                             |          |   |              |   |          |  
|Net income                                                                        |  | $                           | 15,750   |   |              | $ | 10,697   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |          |   |              |   |          |  
|Depreciation and amortization                                                     |  |                             | 6,569    |   |              |   | 7,184    |  
|Provision for loan losses                                                         |  |                             | 1,575    |   |              |   | 2,391    |  
|Provision for deferred income tax (benefit)                                       |  |                             | 171      |   |              |   | (917     | )
|Net (gains) losses                                                                |  |                             | 776      |   |              |   | (816     | )
|Net derivative losses                                                             |  |                             | 3,820    |   |              |   | 3,752    |  
|Originated loans held for sale                                                    |  |                             | (15,880  | ) |              |   | (12,497  | )
|Proceeds from sales of loans held for sale                                        |  |                             | 18,097   |   |              |   | 12,111   |  
|Net decrease in accrued interest receivable and other assets                      |  |                             | 3,123    |   |              |   | 827      |  
|Net increase (decrease) in accrued expenses and other liabilities                 |  |                             | (1,534   | ) |              |   | 7,825    |  
|                                                                                  |  |                             |          |   |              |   |          |  
|Total adjustments                                                                 |  |                             | 16,717   |   |              |   | 19,860   |  
|                                                                                  |  |                             |          |   |              |   |          |  
|Net cash provided by operating activities                                         |  |                             | 32,467   |   |              |   | 30,557   |  
|                                                                                  |  |                             |          |   |              |   |          |  
|Investing Activities:                                                             |  |                             |          |   |              |   |          |  
|Principal collections and maturities of securities available for sale             |  |                             | 83,480   |   |              |   | 92,899   |  
|Proceeds from sales of securities available for sale                              |  |                             | 129,900  |   |              |   | 113,042  |  
|Purchases of securities available for sale                                        |  |                             | (87,235  | ) |              |   | (227,720 | )
|Loan principal collections less originations and purchases                        |  |                             | 11,206   |   |              |   | (48,307  | )
|Purchases of premises and equipment                                               |  |                             | (3,007   | ) |              |   | (2,532   | )
|                                                                                  |  |                             |          |   |              |   |          |  
|Net cash provided (used) by investing activities                                  |  |                             | 134,344  |   |              |   | (72,618  | )
|                                                                                  |  |                             |          |   |              |   |          |  
|Financing Activities:                                                             |  |                             |          |   |              |   |          |  
|Net increase in deposits                                                          |  |                             | 150,315  |   |              |   | 122,769  |  
|Net decrease in short-term borrowings                                             |  |                             | (198,665 | ) |              |   | (72,224  | )
|Proceeds from long-term debt                                                      |  |                             | 30,000   |   |              |   |         |  
|Payments and maturities of long-term debt                                         |  |                             | (110,203 | ) |              |   | (17,042  | )
|Proceeds from issuance of stock                                                   |  |                             | 1,669    |   |              |   | 4,317    |  
|Purchase of treasury stock                                                        |  |                             | (4,747   | ) |              |   |         |  
|Cash dividends paid on common stock                                               |  |                             | (8,593   | ) |              |   | (6,035   | )
|                                                                                  |  |                             |          |   |              |   |          |  
|Net cash provided (used) by financing activities                                  |  |                             | (140,224 | ) |              |   | 31,785   |  
|                                                                                  |  |                             |          |   |              |   |          |  
|Increase (decrease) in cash and cash equivalents                                  |  |                             | 26,587   |   |              |   | (10,276  | )
|Cash and cash equivalents at beginning of period                                  |  |                             | 134,322  |   |              |   | 128,185  |  
|                                                                                  |  |                             |          |   |              |   |          |  
|Cash and cash equivalents at end of period                                        |  | $                           | 160,909  |   |              | $ | 117,909  |  
|                                                                                  |  |                             |          |   |              |   |          |  
|Supplemental Disclosures:                                                         |  |                             |          |   |              |   |          |  
|Interest paid, net of amount credited to deposit accounts                         |  | $                           | 19,882   |   |              | $ | 13,322   |  
|Income taxes paid                                                                 |  |                             | 28       |   |              |   | 96       |  



The accompanying notes
are an integral part of these statements.



6



---

##### Table of Contents

Provident Bankshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements -
Unaudited

March 31, 2005



NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Provident Bankshares Corporation (the Corporation), a Maryland corporation, is the bank holding company for Provident Bank (the Bank); a Maryland
chartered stock commercial bank. The Bank serves individuals and businesses through a network of banking offices and ATMs in Maryland, Virginia, and southern York County, Pennsylvania. Related financial services are offered through its wholly owned
subsidiaries. Securities brokerage, investment management and related insurance services are available through Provident Investment Company and leases through Court Square Leasing and Provident Lease Corporation.



The accounting and reporting policies of the Corporation conform with U.S. generally accepted
accounting principles (GAAP) and prevailing practices within the banking industry for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete
financial statements and prevailing practices within the banking industry. 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. Operating results for the three month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for any future quarters or for the year ending December 31, 2005. For further information, refer
to the Consolidated Financial Statements and notes thereto included in the Corporations Annual Report on Form 10-K/A for the year ended December 31, 2004 as filed with the Securities and Exchange Commission (SEC).



Principles of Consolidation and Basis of Presentation



The unaudited Condensed Consolidated Financial Statements include the accounts of the
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 purchased companies are included from the
date of merger. Assets and liabilities of purchased companies are stated at estimated fair values at the date of merger.



Certain prior years amounts in the unaudited Condensed Consolidated Financial Statements have been reclassified to conform to the presentation used for the current
period. These reclassifications have no effect on stockholders equity or net income as previously reported or restated.



Use of Estimates



The Condensed Consolidated financial statements of the Corporation are prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities for the reporting periods. Management bases its estimates on historical experience and various other factors and
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management
evaluates estimates on an on-going basis, including those related to the allowance for loan losses, non-accrual loans, other real estate owned, goodwill and intangible assets, other than temporary impairment of investment securities, pension and
post-retirement benefits, asset prepayment rates, stock-based compensation, derivative positions, recourse liabilities, litigation and income taxes. Management believes the following critical accounting policies affect its more significant judgments
and estimates used in preparation of its Condensed Consolidated financial statements: allowance for loan losses, other than temporary impairment of investment securities, derivative financial instruments, goodwill and intangible assets, asset
prepayment rates and income taxes. Each estimate and its financial impact, to the extent significant to financial results, is discussed in the Consolidated Financial Statements or in the notes to the Consolidated Financial Statements as included in
the Corporations 2004 Annual Report on Form 10-K/A. It is at least reasonably possible that each of the Corporations estimates could change in the near term or that actual results may differ from these estimates under different
assumptions or conditions, resulting in a change that could be material to the unaudited Condensed Consolidated Financial Statements.



7



---

##### Table of Contents

Changes in Accounting Principles



In December 2003, the Accounting Standards Executive Committee (AcSEC) issued Statement of Position 03-3, Accounting for
Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 is effective for loans acquired in fiscal years beginning after December 15, 2004. SOP 03-3 addresses accounting for differences between contractual
cash flows and cash flows expected to be collected from an investors initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 does not apply to
loans originated by the Bank. The Corporation did not acquire any assets in the first quarter of 2005 that where within the scope of SOP 03-3.



In December 2004, the FASB issued SFAS No. 123R (a revision of SFAS No. 123) Accounting for Stock-Based Compensation (SFAS
No. 123R) effective for interim and annual periods beginning after June 15, 2005. In April 2005, the SEC deferred the effective date of the provisions of SFAS No. 123R until the beginning of the first annual period beginning
after June 15, 2005. Accordingly, the Corporation will adopt SFAS No. 123R beginning January 1, 2006. SFAS No. 123R requires companies to recognize the grant-date fair value of stock options and other equity-based compensation
issued to employees as a cost of employee services in the Condensed Consolidated Statements of Income. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting
period). As of the required effective date, the Corporation intends to use the modified prospective method as defined in SFAS No. 123R. Under this method, awards that are granted, modified or settled after the date of adoption should be
measured and accounted for in accordance with SFAS No. 123R. Unvested awards that were granted prior to the effective date should be valued in accordance with SFAS No. 123R. Compensation expense must be recognized in the Condensed
Consolidated Statements of Income subsequent to the effective date of SFAS No. 123R.



Derivative Financial Instruments



The
Corporation uses various derivative financial instruments as part of its interest rate risk management strategy to mitigate the exposure to changes in market interest rates. The derivative financial instruments used separately or in combination are
interest rate swaps, caps and floors. Derivative financial instruments are required to be measured at fair value and recognized as either assets or liabilities in the financial statements. Fair value represents the payment the Corporation would
receive or pay if the item were sold or bought in a current transaction. Fair values are generally based on market quotes. The accounting for changes in fair value (gains or losses) of a derivative is dependent on whether the derivative is
designated and qualifies for hedge accounting. In accordance with Statement of Financial Accounting Standard No. 133,  Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), the
Corporation assigns derivatives to one of these categories at the purchase date: fair value hedge, cash flow hedge or non-designated hedge. SFAS No. 133 requires an assessment of the expected and ongoing hedge effectiveness of any derivative
designated a fair value hedge or cash flow hedge. Derivatives are included in other assets and other liabilities in the Condensed Consolidated Statements of Condition.



Fair Value Hedges For derivatives designated as fair value hedges, the derivative instrument and related hedge
item are marked-to-market through the related interest income or expense, as applicable, except for the ineffective portion which is recorded in non-interest income.



Cash Flow Hedges  For derivatives designated as cash flow hedges, mark-to-market adjustments are recorded net
of income taxes as a component of Other Comprehensive Income in Shareholders Equity, except for the ineffective portion which is recorded in non-interest income. Amounts recorded in OCI are recognized into earnings concurrent with the hedged
items impact on earnings.



Non-Designated Derivatives
Certain economic hedges are not designated as cash flow or as fair value hedges for accounting purposes. As a result, changes in the fair value are recorded in non-interest income in the Condensed Consolidated Statements of Operations.
Interest income or expense related to non-designated derivatives is also recorded in non-interest income.



8



---

##### Table of Contents

All qualifying relationships between hedging instruments and hedged items are fully documented by the Corporation. Risk
management objectives, strategies and the projected effectiveness of the chosen derivatives to hedge specific risks are also documented. At inception of the hedging relationship and periodically as required under SFAS No. 133, the Corporation
evaluates the effectiveness of its hedging instruments. For hedges qualifying for short-cut treatment at inception, the ongoing effectiveness testing includes a review of the hedge and the hedged item to determine if the hedge continues
to qualify for short-cut treatment. An assumption of no hedge ineffectiveness is allowed for derivatives qualifying for short-cut treatment. For all other derivatives qualifying for hedge accounting, a quantitative assessment of the effectiveness of
the hedge is required at each reporting date. The Corporation performs effectiveness testing quarterly for all of its hedges. 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 benchmark rates and complying with specific criteria set forth in SFAS No.133, the Corporation has concluded that for qualifying hedges, changes in fair value or cash flows that are
attributable to risks being hedged will be highly effective at the hedges inception and on an ongoing basis.



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 continues to carry the derivative on the Condensed Consolidated Statements of Condition at its fair value, as a non-designated hedge but discontinues marking-to-market the hedged asset or
liability for changes in fair value. Any previous mark-to-market adjustments recorded to the hedged item are amortized over the remaining life of the asset or liability. All ineffective portions of fair value hedges are reported in and affect net
income immediately. When a cash flow hedge is discontinued due to termination of the derivative, the Corporation continues to carry the previous mark-to-market adjustments in OCI and recognizes the amount into earnings in the same period or periods
during which the hedged item affects earnings. If the cash flow hedge is discontinued due to ineffectiveness, the derivative would be considered a non-designated hedge and would continue to be marked-to-market in the Condensed Consolidated Statement
of Condition as an asset or liability. Additionally, the Condensed Consolidation Statements of Income would record the mark-to-market through current period earnings and not through OCI.



Counter-party credit risk associated with derivatives is controlled by dealing with well-established brokers that are highly rated by credit
rating agencies and by establishing exposure limits for individual counter-parties. Market risk on interest rate swaps is minimized by using these instruments as hedges and by continually monitoring the positions to ensure ongoing effectiveness.
Credit risk is controlled by entering into bilateral collateral agreements with brokers, in which the parties pledge collateral to indemnify the counter-party in the case of default. The Corporations hedging activities and strategies are
monitored by the Banks Asset / Liability Committee (ALCO) as part of its oversight of the treasury function.



Stock-Based Compensation



The Corporation may grant employees and/or directors stock-based compensation in the form of stock options or restricted stock priced at the fair market value on the
grant date.



The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions
involving Stock Compensation (FIN No. 44), an interpretation of APB Opinion No. 25, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. FASB Statement 123, Accounting for Stock-Based Compensation and FASB Statement No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, and amendment of FASB Statement No. 123, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As permitted by existing accounting
standards, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of Statement 123, as amended.



The Corporation recognized pre-tax compensation expense of $46 thousand relating to
restricted stock grants for the three months ended March 31, 2005.



9



---

##### Table of Contents

The following table illustrates the pro forma effect on net income and earnings per share if the Corporation had applied
the fair value provisions of SFAS No. 123 Accounting for Stock-Based Compensation (SFAS No. 123) to stock-based compensation for the periods indicated.



|                                                                                                                         |  |                             |        |   |              |   |        |  
|------------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | ------ | - | ------------ | - | ------ | -
|                                                                                                                         |  | Three Months EndedMarch 31, |       
|(in thousands, except per share data)                                                                                    |  | Restated2005                |        |   | Restated2004 |  
|Net Income:                                                                                                              |  |                             |        |   |              |   |        |  
|Net income as reported                                                                                                   |  | $                           | 15,750 |   |              | $ | 10,697 |  
|Addition for total stock-based compensation expense included in reported net income, net of tax                          |  |                             | 30     |   |              |   |       |  
|Deduction for total stock-based compensation expense determined under fair value based method for all awards, net of tax |  |                             | (508   | ) |              |   | (250   | )
|                                                                                                                         |  |                             |        |   |              |   |        |  
|Pro forma net income                                                                                                     |  | $                           | 15,272 |   |              | $ | 10,447 |  
|                                                                                                                         |  |                             |        |   |              |   |        |  
|Basic Earnings Per Share:                                                                                                |  |                             |        |   |              |   |        |  
|As reported                                                                                                              |  | $                           | 0.48   |   |              | $ | 0.43   |  
|Pro forma                                                                                                                |  |                             | 0.46   |   |              |   | 0.42   |  
|                                                                                                                         |  |                            
|Diluted Earnings Per Share:                                                                                              |  |                             |        |   |              |   |        |  
|As reported                                                                                                              |  | $                           | 0.47   |   |              | $ | 0.42   |  
|Pro forma                                                                                                                |  |                             | 0.45   |   |              |   | 0.41   |  



Stock options granted in February,
2005 have an eight year life and vest over a four period. Options granted in 2004 have a ten year life and vest over a three year period. These pro forma amounts may not be representative of future expense since the estimated fair value of stock
options is amortized to expense over the various vesting periods and additional options may be granted in future periods. Beginning in 2006, under SFAS No. 123R the Corporation will be required to recognize compensation expense related to the
fair value of stock options as they vest, which will reduce net income.



The
weighted average fair value of all of the options granted during the periods indicated have been estimated using the Black-Scholes option-pricing model with the following assumptions:



|                                         |  |                             |   |  |       |  
|---------------------------------------- |  | --------------------------- | - |  | ----- | -
|                                         |  | Three Months EndedMarch 31, |  
|                                         |  | 2005                        |   |  | 2004  |  
|Dividend yield                           |  | 3.49                        | % |  | 3.33  | %
|Weighted average risk-free interest rate |  | 4.29                        | % |  | 3.20  | %
|Weighted average expected volatility     |  | 23.59                       | % |  | 25.86 | %
|Weighted average expected life in years  |  | 5.50                        |   |  | 7.00  |  



Effective April 1, 2005, the
Board of Directors approved the acceleration, by one year, of the vesting of all the currently outstanding options to purchase 766,575 shares of the Corporations common stock granted prior to 2005 including those options held by certain
members of senior management. This effectively reduces the three year vesting period on these options from three to two years. The acceleration of the vesting will result in an aggregate compensation expense of $142,000 ($79,000 in 2005, $48,000 in
2006, $15,000 in 2007) over the modified vesting periods. The amount that would have been expensed for the unvested options granted prior to 2005 had the Corporation not accelerated the vesting would have been approximately $1.8 million over the
original vesting periods (i.e. 2006 and 2007). Stock options granted in 2005 have an eight year life and vest over a four year period. The other terms of each of the option grants remained unchanged.



10



---

##### Table of Contents

NOTE 2  RESTATEMENT OF PREVIOUSLY REPORTED RESULTS OF OPERATIONS



On November 7, 2005, management of Provident Bankshares Corporation
(Provident or the Corporation) determined that Providents financial statements for the quarters ended June 30, 2005 and March 31, 2005, should no longer be relied upon as a result of the accounting treatment
applied by Provident to interest rate swaps associated with Providents interest rate risk hedging program. Subsequently, management made a similar determination with respect to the financial statements for the year ended December 31,
2004.



As a result, the Corporation has restated the financial statements for
quarters ended June 30, 2005 and March 31, 2005, and for the year ended December 31, 2004. The restatements are primarily the result of corrections of errors related to the Corporations accounting for derivatives under SFAS
No. 133. Historically, Provident has entered into various interest rate swaps to hedge the interest rate risk inherent in certain of its brokered Certificates of Deposits (CDs), FHLB Borrowings (FHLB Borrowings) and
Junior Subordinated Debentures (Junior Subordinated Debentures) (which are owned by trusts which issue trust preferred securities with identical terms to outside third parties). From the inception of hedge accounting, Provident has
applied the short-cut method of fair value and cash flow hedge accounting under SFAS No. 133 to the swaps associated with CDs, FHLB Borrowings and Junior Subordinated Debentures transactions, allowing Provident to assume no hedge
ineffectiveness for these derivatives. Provident has determined that the CD swaps, a portion of the FHLB swaps, and the swaps associated with the debt transaction did not qualify for the short-cut method in the first and second quarter of 2005 and
for calendar year ended December 31, 2004. The CD swaps did not qualify for short-cut application because a related CD broker placement fee was determined (in retrospect) to be imbedded in the swap contracts, causing the swap to have a value
other than zero at inception. A portion of the FHLB swaps did not qualify because the maturity of the swaps exceed the maturity of the FHLB Borrowings. Regarding the debt swaps, the swaps were documented as hedging the trust preferred securities,
and were not redesignated as hedging the Junior Subordinated Debentures upon adoption of FIN 46R. As a result of these errors in the application of the short cut method, the Corporation is precluded from applying hedge accounting to these derivative
instruments for these periods. The financial results beginning January 1, 2004 have therefore been restated for the affected derivatives and their related hedged items. Certain current year amounts in the unaudited Condensed Consolidated
Statements of Condition have been reclassified to conform to the presentation used for subsequent periods. These reclassifications have no effect on stockholders equity or net income.



Management believes the financial statement impact of applying the long-haul
method of effectiveness testing using SFAS No. 133 and the results under the short-cut method would have indicated no material difference in the effectiveness of the swaps. However, hedge accounting under SFAS No. 133 is not
allowed for the affected periods because the hedge documentation required for the long-haul method was not in place at the inception of the hedges. Fair value hedge accounting allows a company to record changes in the fair value of a
hedged item (in this case, the brokered CDs and the Junior Subordinated Debentures) as an adjustment to income that offsets the fair value adjustment of the related interest rate swaps. Cash flow hedge accounting allows a company to record changes
in the fair value, net of income taxes, as a component of Other Comprehensive Income in Stockholders Equity. Amounts recorded in OCI are recognized into earnings concurrent with the hedged items impact on earnings. Under fair value and
cash flow hedge accounting, net cash flows associated with the swapped interest payments are included in interest expense.



Elimination of hedge accounting reverses fair value adjustments made on the brokered CDs so that they are carried at par, net of the unamortized balance of the CD broker
placement fee. The net swap interest rate payments were reclassified from an adjustment to interest expense on the brokered CDs to non-interest income. The CD broker placement fees, which were incorporated into the swap, adjusted the par amount of
the brokered CDs and will be amortized through the maturity date of the related CDs as an adjustment to the rate paid. The interest expense on the FHLB Borrowings was treated in a manner similar to the CD interest expense. Hedge accounting for cash
flow hedges allows a company to record the effective portion of the hedge into other comprehensive income, net of tax. Elimination of the hedge accounting reversed the fair value adjustments recorded to OCI and recorded the fair value adjustment
directly to non-interest income in the Condensed Consolidated Statements of Income.



Prior to January 1, 2004, the interest expense on trust preferred securities was netted with the interest payments received from the designated swaps. However, the adoption of FASB Interpretation No. 46  Consolidation
of Variable Interest Entities (FIN 46) on January 1, 2004 and the resultant deconsolidation of the trusts which issued the securities, required



11



---

##### Table of Contents

redesignation of the swaps to the Junior Subordinated Debentures issued by the Corporation in order to continue to apply
hedge accounting. The lack of documented redesignation resulted in the elimination of hedge accounting for the Junior Subordinated Debentures. The fair value basis adjustment of the trust preferred securities at the adoption date, was deferred as a
basis adjustment to the Junior Subordinated Debentures. This basis adjustment is being amortized into interest expense over the life of the Junior Subordinated Debentures as a result of the elimination of hedge accounting. Fair value adjustments on
the swaps subsequent to the date of adoption of FIN 46 have been reflected as derivative gains (losses).



Accordingly, the financial statements for first and second quarters of 2005 and the year ended December 31, 2004 have been restated to reflect the required accounting treatment. The Condensed Consolidated
Statements of Income for the three months ended March 31, 2005 and March 31, 2004 reflect these adjustments. The three months ended amounts reflect the impact of restating the first quarters of 2005 and 2004. Adjustments to the Condensed
Consolidated Statements of Income for amounts previously reported affect interest expense on deposits and long-term debt through the reversal of the swap income that offset interest expense on the brokered CDs, FHLB Borrowings and the Junior
Subordinated Debentures, affect non-interest income for the fair value adjustments related to the associated swaps and affect the net cash settlements on the swaps, and affect the related tax impact of the respective adjustments.



12



---

##### Table of Contents

The table below summarizes the restated periods:



|                                              |      |                             |           |      |                        |   |           |   |  |   |          
|--------------------------------------------- | ---- | --------------------------- | --------- | ---- | ---------------------- | - | --------- | - |  | - | ---------
|(dollars in thousands, except per share data) |      | Three Months EndedMarch 31, |           |      | Year EndedDecember 31,
|                                              | 2005 |                             |           | 2004 |                        |   | 2004     
|Net Income                                    |      | $                           | 18,108    |      |                        | $ | 12,875    |   |  | $ | 60,325   
|Impact of restated items, net:                |      |                             |           |      |                        |   |           |   |  |   |          
|Premium/Fee Amortization                      |      |                             | (16       | )    |                        |   | 37        |   |  |   | 197      
|Change in market value of derivatives         |      |                             | (2,342    | )    |                        |   | (2,215    | ) |  |   | 1,458    
|                                              |      |                             |           |      |                        |   |           |   |  |   |          
|Total increase (decrease) in Net Income       |      |                             | (2,358    | )    |                        |   | (2,178    | ) |  |   | 1,655    
|                                              |      |                             |           |      |                        |   |           |   |  |   |          
|Total restated Net Income                     |      | $                           | 15,750    |      |                        | $ | 10,697    |   |  | $ | 61,980   
|                                              |      |                             |           |      |                        |   |           |   |  |   |          
|Basic earnings per share                      |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 0.55      |      |                        | $ | 0.52      |   |  | $ | 1.99     
|As restated                                   |      | $                           | 0.48      |      |                        | $ | 0.43      |   |  | $ | 2.05     
|                                              |      |                             |          
|Diluted earnings per share                    |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 0.54      |      |                        | $ | 0.51      |   |  | $ | 1.95     
|As restated                                   |      | $                           | 0.47      |      |                        | $ | 0.42      |   |  | $ | 2.00     
|                                              |      |                             |          
|Interest Income on loans, including fees      |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 50,565    |      |                        | $ | 36,985    |   |  | $ | 177,961  
|As restated                                   |      | $                           | 50,504    |      |                        | $ | 36,985    |   |  | $ | 177,961  
|                                              |      |                             |          
|Interest Expense on deposits                  |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 10,188    |      |                        | $ | 8,614     |   |  | $ | 36,953   
|As restated                                   |      | $                           | 11,328    |      |                        | $ | 8,614     |   |  | $ | 41,235   
|                                              |      |                             |          
|Interest Expense on long-term debt            |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 10,266    |      |                        | $ | 10,948    |   |  | $ | 41,686   
|As restated                                   |      | $                           | 10,670    |      |                        | $ | 8,752     |   |  | $ | 40,546   
|                                              |      |                             |          
|Net cash settlement on swaps                  |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           |          |      |                        | $ |          |   |  | $ |         
|As restated                                   |      | $                           | 1,579     |      |                        | $ | (2,134    | ) |  | $ | 3,469    
|                                              |      |                             |          
|Derivative gains(losses) on swaps             |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           |          |      |                        | $ |          |   |  | $ |         
|As restated                                   |      | $                           | (3,820    | )    |                        | $ | (3,752    | ) |  | $ | 2,432    
|                                              |      |                             |          
|Loans                                         |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 3,546,286 |      |                        | $ | 2,829,936 |   |  | $ | 3,559,880
|As restated                                   |      | $                           | 3,541,175 |      |                        | $ | 2,829,936 |   |  | $ | 3,559,880
|                                              |      |                             |          
|Other assets                                  |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 256,305   |      |                        | $ | 141,008   |   |  | $ | 255,569  
|As restated                                   |      | $                           | 257,269   |      |                        | $ | 140,824   |   |  | $ | 254,825  
|                                              |      |                             |          
|Total assets                                  |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 6,428,829 |      |                        | $ | 5,268,743 |   |  | $ | 6,572,160
|As restated                                   |      | $                           | 6,424,682 |      |                        | $ | 5,268,559 |   |  | $ | 6,571,416
|                                              |      |                             |          
|Noninterest-bearing deposits                  |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 884,840   |      |                        | $ | 646,765   |   |  | $ | 811,917  
|As restated                                   |      | $                           | 876,766   |      |                        | $ | 646,765   |   |  | $ | 811,917  
|                                              |      |                             |          
|Interest-bearing deposits                     |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 3,047,348 |      |                        | $ | 2,555,553 |   |  | $ | 2,970,083
|As restated                                   |      | $                           | 3,052,120 |      |                        | $ | 2,555,553 |   |  | $ | 2,968,070
|                                              |      |                             |          
|Long-term debt                                |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 1,124,530 |      |                        | $ | 1,136,121 |   |  | $ | 1,205,548
|As restated                                   |      | $                           | 1,125,465 |      |                        | $ | 1,134,963 |   |  | $ | 1,205,833
|                                              |      |                             |          
|Accrued expenses and other liabilities        |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 39,504    |      |                        | $ | 30,197    |   |  | $ | 49,280   
|As restated                                   |      | $                           | 39,566    |      |                        | $ | 30,197    |   |  | $ | 49,280   
|                                              |      |                             |          
|Retained earnings                             |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 191,929   |      |                        | $ | 160,385   |   |  | $ | 182,414  
|As restated                                   |      | $                           | 191,226   |      |                        | $ | 158,207   |   |  | $ | 184,069  
|                                              |      |                             |          
|Total stockholders equity                    |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 613,379   |      |                        | $ | 344,470   |   |  | $ | 617,439  
|As restated                                   |      | $                           | 611,537   |      |                        | $ | 345,444   |   |  | $ | 618,423  
|                                              |      |                             |          
|Total liabilities and stockholders equity    |      |                             |           |      |                        |   |           |   |  |   |          
|As reported                                   |      | $                           | 6,428,829 |      |                        | $ | 5,268,743 |   |  | $ | 6,572,160
|As restated                                   |      | $                           | 6,424,682 |      |                        | $ | 5,268,559 |   |  | $ | 6,571,416



13



---

##### Table of Contents

NOTE 3BUSINESS COMBINATION



On April 30, 2004, the Corporation acquired 100 percent of the outstanding common shares of Southern Financial Bancorp, Inc.
(Southern Financial), headquartered in Warrenton, Virginia, which was the holding company for Southern Financial Bank. Southern Financial had previously completed the acquisition of Essex Bancorp, Inc., based in Norfolk, Virginia.
Southern Financial operated 33 banking offices in the northern Virginia counties of Fairfax, Loudoun and Prince William; as well as Richmond, Charlottesville and the Tidewater areas.



Southern Financial was merged with and into the Corporation. Southern Financial shareholders received 1.0875 shares of the
Corporations common stock and $11.125 in cash for each Southern Financial share outstanding. As a result, Southern Financials shareholders received 8.2 million shares of the Corporations common stock amounting to $251.2
million and $83.8 million in cash, for an aggregate purchase price of $335.1 million. The cash portion of the purchase price was substantially funded by $71 million in trust preferred securities which were issued in the fourth quarter of 2003. The
value of the shares issued was based on the average market closing price of the Corporations common stock from October 29, 2003 through November 6, 2003.



The following table summarizes the estimated fair values of the assets acquired and liabilities assumed for Southern Financial at the merger
date. A significant portion of the purchase price allocation has been finalized. Certain assets and liabilities are still pending analysis and valuation. Adjustments to the initial allocation of the purchase price were due to final settlement of
asset dispositions, evaluation of tax matters and settlement of contingencies. Pending valuation matters will not affect operating results of the Corporation.



|                          |  |               |          
|------------------------- |  | ------------- | ---------
|(in thousands)            |  | April 30,2004
|Assets:                   |  |               |          
|Cash                      |  | $             | 47,142   
|Short-term investments    |  |               | 64,544   
|Investment securities     |  |               | 564,964  
|Net loans                 |  |               | 664,489  
|Other assets              |  |               | 72,201   
|Goodwill                  |  |               | 248,296  
|Deposit-based intangible  |  |               | 12,829   
|                          |  |               |          
|Total assets acquired     |  | $             | 1,674,465
|                          |  |               |          
|Liabilities:              |  |               |          
|Deposits                  |  | $             | 1,022,271
|Borrowings                |  |               | 300,308  
|Other liabilities         |  |               | 16,796   
|                          |  |               |          
|Total liabilities assumed |  |               | 1,339,375
|                          |  |               |          
|Net assets acquired       |  | $             | 335,090  
|                          |  |               |          



The merger with Southern Financial
resulted in the recognition of $261.1 million of intangible assets, of which $12.8 million was allocated to a deposit-based intangible. The remaining intangible was allocated to goodwill.



The results of operations from Southern Financial have been included in the Condensed Consolidated Financial Statements since the date of
merger.



14



---

##### Table of Contents

NOTE 4INVESTMENT SECURITIES



The following table presents the aggregate amortized cost and fair values of the investment securities portfolio as of the dates indicated:



|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|------------------------------------------------------ |  | ------------- | --------- | -------------------- | - | --------------------- |  | ---------- | ------ |  | - | ---------
|(in thousands)                                         |  | AmortizedCost |           | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Fair Value
|March 31, 2005                                         |  |               |           |                      |   |                       |  |            |        |  |   |          
|Securities available for sale:                         |  |               |           |                      |   |                       |  |            |        |  |   |          
|U.S. Treasury and government agencies and corporations |  | $             | 102,781   |                      | $ |                      |  | $          | 2,754  |  | $ | 100,027  
|Mortgage-backed securities                             |  |               | 1,473,870 |                      |   | 2,910                 |  |            | 23,663 |  |   | 1,453,117
|Municipal securities                                   |  |               | 12,568    |                      |   | 302                   |  |            |       |  |   | 12,870   
|Other debt securities                                  |  |               | 463,857   |                      |   | 1,925                 |  |            | 506    |  |   | 465,276  
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|Total securities available for sale                    |  |               | 2,053,076 |                      |   | 5,137                 |  |            | 26,923 |  |   | 2,031,290
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|Securities held to maturity:                           |  |               |           |                      |   |                       |  |            |        |  |   |          
|Other debt securities                                  |  |               | 114,091   |                      |   | 383                   |  |            | 1,421  |  |   | 113,053  
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|Total securities held to maturity                      |  |               | 114,091   |                      |   | 383                   |  |            | 1,421  |  |   | 113,053  
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|Total investment securities                            |  | $             | 2,167,167 |                      | $ | 5,520                 |  | $          | 28,344 |  | $ | 2,144,343
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|December 31, 2004                                      |  |               |           |                      |   |                       |  |            |        |  |   |          
|Securities available for sale:                         |  |               |           |                      |   |                       |  |            |        |  |   |          
|U.S. Treasury and government agencies and corporations |  | $             | 118,018   |                      | $ |                      |  | $          | 3,637  |  | $ | 114,381  
|Mortgage-backed securities                             |  |               | 1,647,047 |                      |   | 10,754                |  |            | 11,523 |  |   | 1,646,278
|Municipal securities                                   |  |               | 13,608    |                      |   | 434                   |  |            |       |  |   | 14,042   
|Other debt securities                                  |  |               | 411,169   |                      |   | 1,020                 |  |            | 495    |  |   | 411,694  
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|Total securities available for sale                    |  |               | 2,189,842 |                      |   | 12,208                |  |            | 15,655 |  |   | 2,186,395
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|Securities held to maturity:                           |  |               |           |                      |   |                       |  |            |        |  |   |          
|Other debt securities                                  |  |               | 114,671   |                      |   | 482                   |  |            | 686    |  |   | 114,467  
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|Total securities held to maturity                      |  |               | 114,671   |                      |   | 482                   |  |            | 686    |  |   | 114,467  
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|Total investment securities                            |  | $             | 2,304,513 |                      | $ | 12,690                |  | $          | 16,341 |  | $ | 2,300,862
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|March 31, 2004                                         |  |               |           |                      |   |                       |  |            |        |  |   |          
|Securities available for sale:                         |  |               |           |                      |   |                       |  |            |        |  |   |          
|U.S. Treasury and government agencies and corporations |  | $             | 115,270   |                      | $ | 1                     |  | $          | 3,184  |  | $ | 112,087  
|Mortgage-backed securities                             |  |               | 1,712,373 |                      |   | 14,534                |  |            | 7,605  |  |   | 1,719,302
|Municipal securities                                   |  |               | 16,412    |                      |   | 851                   |  |            |       |  |   | 17,263   
|Other debt securities                                  |  |               | 267,164   |                      |   | 11,396                |  |            | 165    |  |   | 278,395  
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          
|Total securities available for sale                    |  | $             | 2,111,219 |                      | $ | 26,782                |  | $          | 10,954 |  | $ | 2,127,047
|                                                       |  |               |           |                      |   |                       |  |            |        |  |   |          



At March 31, 2005, a net
unrealized after-tax loss of $14.2 million on the securities portfolio was reflected in net accumulated other comprehensive income (loss). This compared to net unrealized after-tax gains of $10.3 million and $2.2 million at March 31, 2004 and
December 31, 2004, respectively.



During the third quarter of 2004, the
Corporation transferred $108 million in securities available for sale to securities held to maturity. The unrealized gains of $7.4 million associated with these securities included in net accumulated other comprehensive income at the date of
transfer will continue to be reflected in stockholders equity and be reflected as a premium. The premium and amount reflected in net accumulated other comprehensive income are amortized over the remaining life of the securities using the
interest method. These amortization amounts will offset with no net income impact on the Corporation.



15



---

##### Table of Contents

Management reviews the investment portfolio on a periodic basis to determine the cause of declines in the fair value of
each security. Thorough evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other than temporary in nature. Considerations such as recoverability of invested amount over a reasonable
period of time, the length of time the security is in a loss position and receipt of amounts contractually due, for example, are applied in determining other than temporary impairment. At March 31, 2005, the unrealized losses contained within
the Corporations investment portfolio were considered temporary because the declines in fair value were due to changes in market interest rates, not in estimated cash flows.



For further details regarding investment securities at December 31, 2004, refer to Notes 1 and 4 of the Consolidated Financial
Statements in the Corporations Form 10-K/A as of and for the year ended December 31, 2004.



NOTE 5LOANS



A summary of loans outstanding as of the dates indicated is shown in the table below.



|                                |  |                       |           |                  |   |               |  |   |          
|------------------------------- |  | --------------------- | --------- | ---------------- | - | ------------- |  | - | ---------
|(in thousands)                  |  | March 31,Restated2005 |           | December 31,2004 |   | March 31,2004
|Residential real estate:        |  |                       |           |                  |   |               |  |   |          
|Originated residential mortgage |  | $                     | 90,355    |                  | $ | 100,909       |  | $ | 71,854   
|Home equity                     |  |                       | 745,996   |                  |   | 705,126       |  |   | 536,244  
|Acquired residential            |  |                       | 536,597   |                  |   | 560,040       |  |   | 598,517  
|Other consumer:                 |  |                       |           |                  |   |               |  |   |          
|Marine                          |  |                       | 431,381   |                  |   | 436,262       |  |   | 461,200  
|Other                           |  |                       | 35,482    |                  |   | 42,121        |  |   | 40,766   
|                                |  |                       |           |                  |   |               |  |   |          
|Total consumer                  |  |                       | 1,839,811 |                  |   | 1,844,458     |  |   | 1,708,581
|                                |  |                       |           |                  |   |               |  |   |          
|Commercial real estate:         |  |                       |           |                  |   |               |  |   |          
|Commercial mortgage             |  |                       | 483,256   |                  |   | 483,636       |  |   | 322,605  
|Residential construction        |  |                       | 264,906   |                  |   | 242,246       |  |   | 171,864  
|Commercial construction         |  |                       | 282,092   |                  |   | 279,347       |  |   | 219,287  
|Commercial business             |  |                       | 671,110   |                  |   | 710,193       |  |   | 407,599  
|                                |  |                       |           |                  |   |               |  |   |          
|Total commercial                |  |                       | 1,701,364 |                  |   | 1,715,422     |  |   | 1,121,355
|                                |  |                       |           |                  |   |               |  |   |          
|Total loans                     |  | $                     | 3,541,175 |                  | $ | 3,559,880     |  | $ | 2,829,936
|                                |  |                       |           |                  |   |               |  |   |          



16



---

##### Table of Contents

NOTE 6  ALLOWANCE FOR LOAN LOSSES



The following table reflects the activity in the allowance for loan losses for the periods indicated:



|                                                |  |                             |        |   |      |   |       
|----------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------
|                                                |  | Three Months EndedMarch 31,
|(in thousands)                                  |  | 2005                        |        |   | 2004
|Balance at beginning of period                  |  | $                           | 46,169 |   |      | $ | 35,539
|Provision for loan losses                       |  |                             | 1,575  |   |      |   | 2,391 
|Less loans charged-off, net of recoveries:      |  |                             |        |   |      |   |       
|Originated residential mortgage and home equity |  |                             | 12     |   |      |   | 9     
|Acquired residential                            |  |                             | 628    |   |      |   | 1,236 
|Marine and other consumer                       |  |                             | (10    | ) |      |   | 252   
|Commercial business                             |  |                             | 1,475  |   |      |   | 307   
|                                                |  |                             |        |   |      |   |       
|Net charge-offs                                 |  |                             | 2,105  |   |      |   | 1,804 
|                                                |  |                             |        |   |      |   |       
|Balance at end of period                        |  | $                           | 45,639 |   |      | $ | 36,126
|                                                |  |                             |        |   |      |   |       



NOTE 7INTANGIBLE ASSETS



The table below presents an analysis of the goodwill and deposit-based
intangible activity for the three months ended March 31, 2005.



|                                                |  |                         |         |   |                         |   |        |             |  |   |         |  
|----------------------------------------------- |  | ----------------------- | ------- | - | ----------------------- | - | ------ | ----------- |  | - | ------- | -
|(in thousands)                                  |  | Goodwill                |         |   | AccumulatedAmortization |   |        | NetGoodwill | 
|Balance at December 31, 2004                    |  | $                       | 256,863 |   |                         | $ | (622   | )           |  | $ | 256,241 |  
|Adjustment of intangible related to 2004 merger |  |                         | (268    | ) |                         |   |       |             |  |   | (268    | )
|                                                |  |                         |         |   |                         |   |        |             |  |   |         |  
|Balance at March 31, 2005                       |  | $                       | 256,595 |   |                         | $ | (622   | )           |  | $ | 255,973 |  
|                                                |  |                         |         |   |                         |   |        |             |  |   |         |  
|                                                |  |                         |        
|(in thousands)                                  |  | Deposit-basedIntangible |         |   | AccumulatedAmortization |   |        | Total       | 
|Balance at December 31, 2004                    |  | $                       | 15,429  |   |                         | $ | (2,780 | )           |  | $ | 12,649  |  
|Amortization expense                            |  |                         |        |   |                         |   | (482   | )           |  |   | (482    | )
|                                                |  |                         |         |   |                         |   |        |             |  |   |         |  
|Balance at March 31, 2005                       |  | $                       | 15,429  |   |                         | $ | (3,262 | )           |  | $ | 12,167  |  
|                                                |  |                         |         |   |                         |   |        |             |  |   |         |  



17



---

##### Table of Contents

NOTE 8DEPOSITS



The table below presents a summary of deposits as of the dates indicated:



|                                    |  |                       |           |                          |   |                       |  |   |          
|----------------------------------- |  | --------------------- | --------- | ------------------------ | - | --------------------- |  | - | ---------
|(in thousands)                      |  | March 31,Restated2005 |           | December 31,Restated2004 |   | March 31,Restated2004
|Interest-bearing deposits:          |  |                       |           |                          |   |                       |  |   |          
|Interest-bearing demand             |  | $                     | 531,382   |                          | $ | 531,622               |  | $ | 482,620  
|Money market                        |  |                       | 580,038   |                          |   | 525,744               |  |   | 465,678  
|Savings                             |  |                       | 760,165   |                          |   | 743,937               |  |   | 731,248  
|Direct time certificates of deposit |  |                       | 793,000   |                          |   | 812,904               |  |   | 665,001  
|Brokered certificates of deposit    |  |                       | 387,535   |                          |   | 353,863               |  |   | 211,006  
|                                    |  |                       |           |                          |   |                       |  |   |          
|Total interest-bearing deposits     |  |                       | 3,052,120 |                          |   | 2,968,070             |  |   | 2,555,553
|Noninterest-bearing deposits        |  |                       | 876,766   |                          |   | 811,917               |  |   | 646,765  
|                                    |  |                       |           |                          |   |                       |  |   |          
|Total deposits                      |  | $                     | 3,928,886 |                          | $ | 3,779,987             |  | $ | 3,202,318
|                                    |  |                       |           |                          |   |                       |  |   |          



NOTE 9SHORT-TERM BORROWINGS



The table below presents a summary of
short-term borrowings as of the dates indicated:



|                                                |  |               |         |                  |   |               |  |   |        
|----------------------------------------------- |  | ------------- | ------- | ---------------- | - | ------------- |  | - | -------
|(in thousands)                                  |  | March 31,2005 |         | December 31,2004 |   | March 31,2004
|Securities sold under repurchase agreements     |  | $             | 412,071 |                  | $ | 396,263       |  | $ | 273,561
|Federal funds purchased                         |  |               | 140,000 |                  |   | 329,500       |  |   | 140,000
|Federal Home Loan Bank advances - variable rate |  |               | 165,000 |                  |   | 190,000       |  |   | 140,000
|Other short-term borrowings                     |  |               | 2,157   |                  |   | 2,130         |  |   | 2,076  
|                                                |  |               |         |                  |   |               |  |   |        
|Total short-term borrowings                     |  | $             | 719,228 |                  | $ | 917,893       |  | $ | 555,637
|                                                |  |               |         |                  |   |               |  |   |        



NOTE 10LONG-TERM DEBT



The table below presents a summary of
long-term debt as of the dates indicated:



|                                                |  |                       |           |                          |   |                       |  |   |          
|----------------------------------------------- |  | --------------------- | --------- | ------------------------ | - | --------------------- |  | - | ---------
|(in thousands)                                  |  | March 31,Restated2005 |           | December 31,Restated2004 |   | March 31,Restated2004
|Federal Home Loan Bank advances - fixed rate    |  | $                     | 163,228   |                          | $ | 169,833               |  | $ | 127,038  
|Federal Home Loan Bank advances - variable rate |  |                       | 800,000   |                          |   | 834,555               |  |   | 810,000  
|Junior Subordinated Debentures                  |  |                       | 142,237   |                          |   | 173,320               |  |   | 144,567  
|Term repurchase agreements                      |  |                       | 20,000    |                          |   | 28,125                |  |   | 53,358   
|                                                |  |                       |           |                          |   |                       |  |   |          
|Total long-term debt                            |  | $                     | 1,125,465 |                          | $ | 1,205,833             |  | $ | 1,134,963
|                                                |  |                       |           |                          |   |                       |  |   |          



On March 31, 2005, the
Corporation redeemed $30.0 million in aggregate principal amount of 10% Junior Subordinated Debentures to Provident Trust II. The Junior Subordinated Debentures had a final stated maturity of March 31, 2030, but were callable at par beginning
on March 31, 2005.



18



---

##### Table of Contents

NOTE 11DERIVATIVE FINANCIAL INSTRUMENTS



Fair value hedges that meet the criteria for effectiveness have changes in the fair value of the derivative and the designated hedged item
recognized in earnings. At and during all periods presented, the derivatives designated as fair value hedges were determined 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 and $956 thousand for the three months ended March 31, 2005 and 2004, respectively. Cash flow hedges have the effective portion of changes in the fair value of the derivative recorded in accumulated other
comprehensive income (loss). For three months ending March 31, 2005, the Corporation recorded an increase in the fair value of derivatives of $1.3 million compared to a decline of $1.6 million for the same period in 2004, net of taxes, in
accumulated other comprehensive income (loss) to reflect the effective portion of cash flow hedges. Amounts recorded in accumulated other comprehensive income (loss) are recognized into earnings concurrent with the impact of the hedged item on
earnings. For the three months ended March 31, 2005 and 2004, the Corporation had no ineffective hedges.



Non-designated derivatives are marked to market and the gains or losses are recorded in non-interest income at the end of each reporting period. For the three months ended March 31, 2005 and 2004, the Corporation
recorded a pre-tax loss of $3.8 million and a pre-tax loss of $3.8 million, respectively, to reflect the increase or decrease in value of the non-designated interest rate swaps for the quarter.



19



---

##### Table of Contents

The table below presents the Corporations open derivative positions as of the
dates indicated:



|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|-------------------------------- |  | -------------------- |  | -------------- | --------- | ----------------- | - | ---------- |  | - | ------ | -
|(in thousands) Derivative
Type   |  | Objective            |  | NotionalAmount |           | Credit RiskAmount |   | MarketRisk | 
|March 31, 2005 Restated          |  |                      |  |                |           |                   |   |            |  |   |        |  
|Designated Derivatives           |  |                      |  |                |           |                   |   |            |  |   |        |  
|Interest rate swaps:             |  |                      |  |                |           |                   |   |            |  |   |        |  
|Pay fixed/receive variable       |  | Hedge borrowing cost |  | $              | 95,000    |                   | $ | 1,586      |  | $ | 1,585  |  
|Pay fixed/receive variable       |  | Hedge loan rate risk |  |                | 55,985    |                   |   | 1,255      |  |   | 1,157  |  
|Interest rate caps/corridors     |  | Hedge borrowing cost |  |                | 300,000   |                   |   | 3,008      |  |   | 3,008  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Total designated derivatives     |  |                      |  |                | 450,985   |                   |   | 5,849      |  |   | 5,750  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Non-designated Derivatives       |  |                      |  |                |           |                   |   |            |  |   |        |  
|Interest rate swaps:             |  |                      |  |                |           |                   |   |            |  |   |        |  
|Pay fixed/receive variable       |  |                      |  | $              | 30,000    |                   | $ | 738        |  | $ | 737    |  
|Receive fixed/pay variable       |  |                      |  |                | 368,500   |                   |   | 5,347      |  |   | (1,313 | )
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Total non-designated derivatives |  |                      |  |                | 398,500   |                   |   | 6,085      |  |   | (576   | )
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Total derivatives                |  |                      |  | $              | 849,485   |                   | $ | 11,934     |  | $ | 5,174  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|December 31, 2004 Restated       |  |                      |  |                |           |                   |   |            |  |   |        |  
|Designated Derivatives           |  |                      |  |                |           |                   |   |            |  |   |        |  
|Interest rate swaps:             |  |                      |  |                |           |                   |   |            |  |   |        |  
|Pay fixed/receive variable       |  | Hedge borrowing cost |  | $              | 95,000    |                   | $ | 682        |  | $ | 682    |  
|Pay fixed/receive variable       |  | Hedge loan rate risk |  |                | 59,776    |                   |   |           |  |   | (167   | )
|Interest rate caps/corridors     |  | Hedge borrowing cost |  |                | 300,000   |                   |   | 2,778      |  |   | 2,778  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Total designated derivatives     |  |                      |  |                | 454,776   |                   |   | 3,460      |  |   | 3,293  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Non-designated Derivatives       |  |                      |  |                |           |                   |   |            |  |   |        |  
|Interest rate swaps:             |  |                      |  |                |           |                   |   |            |  |   |        |  
|Pay fixed/receive variable       |  |                      |  | $              | 150,000   |                   | $ | 845        |  | $ | 845    |  
|Receive fixed/pay variable       |  |                      |  |                | 357,500   |                   |   | 5,506      |  |   | 3,655  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Total non-designated derivatives |  |                      |  |                | 507,500   |                   |   | 6,351      |  |   | 4,500  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Total derivatives                |  |                      |  | $              | 962,276   |                   | $ | 9,811      |  | $ | 7,793  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|March 31, 2004 Restated          |  |                      |  |                |           |                   |   |            |  |   |        |  
|Designated Derivatives           |  |                      |  |                |           |                   |   |            |  |   |        |  
|Interest rate swaps:             |  |                      |  |                |           |                   |   |            |  |   |        |  
|Pay fixed/receive variable       |  | Hedge borrowing cost |  | $              | 230,000   |                   | $ |           |  | $ | (2,445 | )
|Pay fixed/receive variable       |  | Hedge loan rate risk |  |                | 47,438    |                   |   |           |  |   | (956   | )
|Interest rate caps/corridors     |  | Hedge borrowing cost |  |                | 400,000   |                   |   | 4,215      |  |   | 4,215  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Total designated derivatives     |  |                      |  |                | 677,438   |                   |   | 4,215      |  |   | 814    |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Non-designated Derivatives       |  |                      |  |                |           |                   |   |            |  |   |        |  
|Interest rate swaps:             |  |                      |  |                |           |                   |   |            |  |   |        |  
|Pay fixed/receive variable       |  |                      |  | $              | 280,000   |                   | $ |           |  | $ | (5,642 | )
|Receive fixed/pay variable       |  |                      |  |                | 70,000    |                   |   | 8,597      |  |   | 8,597  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Total non-designated derivatives |  |                      |  |                | 350,000   |                   |   | 8,597      |  |   | 2,955  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  
|Total derivatives                |  |                      |  | $              | 1,027,438 |                   | $ | 12,812     |  | $ | 3,769  |  
|                                 |  |                      |  |                |           |                   |   |            |  |   |        |  



20



---

##### Table of Contents

NOTE 12OFF BALANCE SHEET RISK



Commitments to extend credit in the form of consumer, commercial real estate and business loans at the date indicated were as follows:



|                                      |  |               |          
|------------------------------------- |  | ------------- | ---------
|(in thousands)                        |  | March 31,2005
|Commercial business and real estate   |  | $             | 773,919  
|Consumer revolving credit             |  |               | 544,030  
|Residential mortgage credit           |  |               | 23,756   
|Performance standby letters of credit |  |               | 103,035  
|Commercial letters of credit          |  |               | 1,262    
|                                      |  |               |          
|Total loan commitments                |  | $             | 1,446,002
|                                      |  |               |          



Historically, many of the commitments
expire without being fully drawn; therefore, the total commitment amounts do not necessarily represent future cash requirements.



NOTE 13NET GAINS (LOSSES)



Net gains (losses) include the following components for the periods indicated:



|                    |  |                             |      |   |      |   |      |  
|------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                    |  | Three Months EndedMarch 31, |     
|(in thousands)      |  | 2005                        |      |   | 2004 |  
|Net gains (losses): |  |                             |      |   |      |   |      |  
|Securities sales    |  | $                           | (876 | ) |      | $ | 954  |  
|Asset sales         |  |                             | 151  |   |      |   | (138 | )
|Debt extinguishment |  |                             | (51  | ) |      |   |     |  
|                    |  |                             |      |   |      |   |      |  
|Net gains (losses)  |  | $                           | (776 | ) |      | $ | 816  |  
|                    |  |                             |      |   |      |   |      |  



NOTE 14EARNINGS PER SHARE



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



|                                      |  |                             |        |              |   |       
|------------------------------------- |  | --------------------------- | ------ | ------------ | - | ------
|                                      |  | Three Months EndedMarch 31,
|(in thousands, except per share data) |  | Restated2005                |        | Restated2004
|Qualifying net income                 |  | $                           | 15,750 |              | $ | 10,697
|Basic EPS shares                      |  |                             | 33,029 |              |   | 24,664
|Basic EPS                             |  | $                           | 0.48   |              | $ | 0.43  
|Dilutive shares                       |  |                             | 691    |              |   | 686   
|Diluted EPS shares                    |  |                             | 33,720 |              |   | 25,350
|Diluted EPS                           |  | $                           | 0.47   |              | $ | 0.42  
|Antidilutive shares                   |  |                             | 2      |              |   | 205   



21



---

##### Table of Contents

NOTE 15COMPREHENSIVE INCOME



Presented below is a reconciliation of net income to comprehensive income including the components of other comprehensive income (loss) for
the periods indicated:



|                                                                           |  |                             |         |   |              |   |        |  
|-------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ------------ | - | ------ | -
|                                                                           |  | Three Months EndedMarch 31, |        
|(in thousands)                                                             |  | Restated2005                |         |   | Restated2004 |  
|Net income                                                                 |  | $                           | 15,750  |   |              | $ | 10,697 |  
|Other comprehensive income (loss):                                         |  |                             |         |   |              |   |        |  
|Net unrealized gains (losses) on derivatives                               |  |                             | 1,934   |   |              |   | (2,494 | )
|Net unrealized holding gains (losses) on debt securities                   |  |                             | (19,561 | ) |              |   | 21,447 |  
|Less reclassification adjustment for gains (losses) realized in net income |  |                             | (757    | ) |              |   | 954    |  
|                                                                           |  |                             |         |   |              |   |        |  
|Other comprehensive income (loss) before tax                               |  |                             | (16,870 | ) |              |   | 17,999 |  
|Related income tax expense (benefit)                                       |  |                             | (5,905  | ) |              |   | 6,299  |  
|                                                                           |  |                             |         |   |              |   |        |  
|Other comprehensive income (loss) after tax                                |  |                             | (10,965 | ) |              |   | 11,700 |  
|                                                                           |  |                             |         |   |              |   |        |  
|Comprehensive income                                                       |  | $                           | 4,785   |   |              | $ | 22,397 |  
|                                                                           |  |                             |         |   |              |   |        |  



NOTE 16EMPLOYEE BENEFIT PLANS



The actuarially estimated net benefit
cost includes the following components for the periods indicated:



|                                                       |      |                             |      |      |                             |   |                             |   |  |      |        |      |  |      |    |  |   |     |  |   |    
|------------------------------------------------------ | ---- | --------------------------- | ---- | ---- | --------------------------- | - | --------------------------- | - |  | ---- | ------ | ---- |  | ---- | -- |  | - | --- |  | - | ---
|                                                       |      | QualifiedPension Plan       |      |      | PostretirementBenefits      |   | Non-qualifiedPension Plan  
|(in thousands)                                         |      | Three Months EndedMarch 31, |      |      | Three Months EndedMarch 31, |   | Three Months EndedMarch 31,
|                                                       | 2005 |                             |      | 2004 |                             |   | 2005                        |   |  | 2004 |        | 2005 |  | 2004
|Service costbenefits earned during the period         |      | $                           | 304  |      |                             | $ | 293                         |   |  | $    | 39     |      |  | $    | 26 |  | $ | 75  |  | $ | 33 
|Interest cost on projected benefit obligation          |      |                             | 387  |      |                             |   | 374                         |   |  |      | 27     |      |  |      | 18 |  |   | 209 |  |   | 91 
|Expected return on plan assets                         |      |                             | (445 | )    |                             |   | (430                        | ) |  |      |       |      |  |      |   |  |   |    |  |   |   
|Net amortization and deferral of loss                  |      |                             | 50   |      |                             |   | 48                          |   |  |      | 13     |      |  |      | 9  |  |   | 88  |  |   | 38 
|                                                       |      |                             |      |      |                             |   |                             |   |  |      |        |      |  |      |    |  |   |     |  |   |    
|Subtotal                                               |      |                             | 296  |      |                             |   | 285                         |   |  |      | 79     |      |  |      | 53 |  |   | 372 |  |   | 162
|Reversal of liability                                  |      |                             |     |      |                             |   |                            |   |  |      | (1,641 | )    |  |      |   |  |   |    |  |   |   
|                                                       |      |                             |      |      |                             |   |                             |   |  |      |        |      |  |      |    |  |   |     |  |   |    
|Net pension cost included in employee benefits expense |      | $                           | 296  |      |                             | $ | 285                         |   |  | $    | (1,562 | )    |  | $    | 53 |  | $ | 372 |  | $ | 162
|                                                       |      |                             |      |      |                             |   |                             |   |  |      |        |      |  |      |    |  |   |     |  |   |    



On March 31, 2005, the
Corporation announced that the pension plan will be frozen for new entrants. Employees who are already participants in the plan will not be affected by this change. Also on March 31, 2005, the Corporation communicated to retirees under the age
of 65 currently receiving postretirement health benefits that these benefits will be eliminated and no longer offered, effective January 1, 2006. This action resulted in the reversal of the actuarially determined liability of $1.6 million at
March 31, 2005.



No contributions were made to the qualified pension plan
in the months ended March 31, 2005. The minimum required contribution in 2005 for the qualified plan is estimated to be zero. At Mach 31, 2005, the maximum deductible contribution under the Internal Revenue Code was $4.9 million. The decision
to contribute the maximum amount is dependent on other factors including the actual investment performance of plan assets. Given these uncertainties, the Corporation is not able to reliably estimate the maximum deductible contribution or the amount
that will be contributed in 2005 to the qualified plan. For the unfunded non-qualified pension and postretirement benefit plans, the Corporation contribute the minimum required amount in 2005, which is equal to the benefits paid under the plans.



22



---

##### Table of Contents

NOTE 17BUSINESS SEGMENT INFORMATION



|The | table below summarizes results by each business segment for the periods indicate
|--- | --------------------------------------------------------------------------------



|                                                    |                   |               |                 |  |       |                            |               |  |   |                   |   |                 |   |                            |  |   |           |  |   |           |  |   |           |   |  |   |          
|--------------------------------------------------- | ----------------- | ------------- | --------------- |  | ----- | -------------------------- | ------------- |  | - | ----------------- | - | --------------- | - | -------------------------- |  | - | --------- |  | - | --------- |  | - | --------- | - |  | - | ---------
|Three Months Ended March 31, (in thousands)         |                   | Restated 2005 |                 |  | Total |                            | Restated 2004 |  |   | Total            
|                                                    | CommercialBanking |               | ConsumerBanking |  |       | Treasury andAdministration |               |  |   | CommercialBanking |   | ConsumerBanking |   | Treasury andAdministration |  |  
|Net interest income                                 |                   | $             | 14,847          |  | $     | 26,205                     |               |  | $ | 7,664             |   |                 | $ | 48,716                     |  | $ | 9,543     |  | $ | 20,485    |  | $ | 10,891    |   |  | $ | 40,919   
|Provision for loan losses                           |                   |               | 1,515           |  |       | (52                        | )             |  |   | 112               |   |                 |   | 1,575                      |  |   | 307       |  |   | 262       |  |   | 1,822     |   |  |   | 2,391    
|                                                    |                   |               |                 |  |       |                            |               |  |   |                   |   |                 |   |                            |  |   |           |  |   |           |  |   |           |   |  |   |          
|Net interest income after provision for loan losses |                   |               | 13,332          |  |       | 26,257                     |               |  |   | 7,552             |   |                 |   | 47,141                     |  |   | 9,236     |  |   | 20,223    |  |   | 9,069     |   |  |   | 38,528   
|Non-interest income                                 |                   |               | 3,550           |  |       | 21,227                     |               |  |   | (1,733            | ) |                 |   | 23,044                     |  |   | 2,844     |  |   | 20,069    |  |   | (5,216    | ) |  |   | 17,697   
|Non-interest expense                                |                   |               | 5,705           |  |       | 35,139                     |               |  |   | 6,630             |   |                 |   | 47,474                     |  |   | 4,392     |  |   | 30,154    |  |   | 6,064     |   |  |   | 40,610   
|                                                    |                   |               |                 |  |       |                            |               |  |   |                   |   |                 |   |                            |  |   |           |  |   |           |  |   |           |   |  |   |          
|Income (loss) before income taxes                   |                   |               | 11,177          |  |       | 12,345                     |               |  |   | (811              | ) |                 |   | 22,711                     |  |   | 7,688     |  |   | 10,138    |  |   | (2,211    | ) |  |   | 15,615   
|Income tax expense (benefit)                        |                   |               | 3,425           |  |       | 3,784                      |               |  |   | (248              | ) |                 |   | 6,961                      |  |   | 2,421     |  |   | 3,193     |  |   | (696      | ) |  |   | 4,918    
|                                                    |                   |               |                 |  |       |                            |               |  |   |                   |   |                 |   |                            |  |   |           |  |   |           |  |   |           |   |  |   |          
|Net income (loss)                                   |                   | $             | 7,752           |  | $     | 8,561                      |               |  | $ | (563              | ) |                 | $ | 15,750                     |  | $ | 5,267     |  | $ | 6,945     |  | $ | (1,515    | ) |  | $ | 10,697   
|                                                    |                   |               |                 |  |       |                            |               |  |   |                   |   |                 |   |                            |  |   |           |  |   |           |  |   |           |   |  |   |          
|Total Assets                                        |                   | $             | 1,636,519       |  | $     | 3,067,711                  |               |  | $ | 1,720,452         |   |                 | $ | 6,424,682                  |  | $ | 1,119,606 |  | $ | 2,595,666 |  | $ | 1,553,287 |   |  | $ | 5,268,559
|                                                    |                   |               |                 |  |       |                            |               |  |   |                   |   |                 |   |                            |  |   |           |  |   |           |  |   |           |   |  |   |          



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



GENERAL



Provident Bankshares Corporation (the Corporation), a Maryland corporation, is the bank holding company for Provident Bank (Provident or the Bank), a Maryland chartered stock
commercial bank. At March 31, 2005, the Bank was the second largest independent commercial bank, in asset size, headquartered in Maryland, with $6.4 billion in assets. Provident is a regional bank serving Maryland and Virginia, with emphasis on
the key urban centers within these states  the Baltimore, Washington and Richmond metropolitan areas.



Providents principal business is to acquire deposits from individuals and businesses and to use these deposits to fund loans to individuals and businesses. Provident focuses on providing its products and
services to three segments of customers  individuals, small businesses and middle market businesses. The Bank offers consumer and commercial banking products and services through the Consumer Banking group and the Commercial Banking group.
Provident also offers related financial services through wholly owned subsidiaries. Securities brokerage, investment management and related insurance services are available through Provident Investment Company (PIC) and leases through
Court Square Leasing and Provident Lease Corporation.



Providents key
business strategies provide it with a unique opportunity in its marketplace. An overview of these strategies are discussed below:



| |  | Maximize Providents position as the right size bank in the marketplace.Providents position as the second largest bank headquartered in Maryland provides a unique
opportunity as the right size bank in its footprint. The Bank seeks to provide the service of a small institution combined with the convenience and wide array of products and services that a strong regional bank offers. In addition, the
60 in-store branches throughout its footprint reinforce its right size strategy through convenient locations, hours and full line of products and services. Provident currently has 149 branches concentrated in the Baltimore-Washington corridor and
beyond to Richmond, Virginia. Of the 149 banking offices, 44% are located in the Baltimore metropolitan region and 56% are located in the metro Washington and Virginia regions, reflecting the successful development of the Bank into a highly
competitive regional commercial bank. Provident also offers its customers 24-hour banking services through ATMs, telephone banking and the Internet. The network of 242 ATMs enhances the banking office network by providing customers increased
opportunities to access their funds.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



---

##### Table of Contents

| |  | Grow and deepen consumer and small business relationships in Maryland and Virginia. Consumer banking continues to be an important component of the Banks business
strategy. Consumer banking services include a broad array of consumer and small business loan, lease, deposit and investment products offered to consumer and commercial customers through Providents banking office network and ProvidentDirect,
the Banks direct channel sales center that serves consumers via the Internet and in-bound and out-bound telephone operations. The small business segment is further supported by relationship managers who provide comprehensive business product
and sales support to expand existing customer relationships and acquire new clients.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Grow and deepen commercial and real estate relationships in Maryland and Virginia. Commercial banking is the other key component to the Corporations regional presence
in its market area. The Commercial Banking group provides an array of commercial financial services to middle market commercial customers. The Bank has an experienced team of loan officers with expertise in real estate and business lending to
companies in various industries in the region. It also has a suite of cash management products managed by responsive account teams that deepen customer relationships through consistently priced deposit based services. The Banks increased
commercial loan and deposit portfolios reflect the benefits derived from Southern Financials focus on commercial banking in Virginia.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Move from a product driven organization to a customer relationship focused sales culture.The Corporations transition to a customer relationship driven sales culture
requires deepening relationships through cross-sell and the continuing emphasis on retention of valued customers. The Bank has segmented its customers to better understand and anticipate their financial needs and provide Providents sales force
with a targeted approach to customers and prospects. The successful execution of this strategy will be centered on the right size bank commitment - providing the service of a small institution combined with the convenience and wide array of products
and services that a strong regional bank offers.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Create a high performance culture that focuses on employee development and retention.Provident has always placed a high priority on its employees and has approached employee
development and training with renewed emphasis. Their development is viewed as a critical part of executing its strategy as the right size bank and transforming the Companys sales culture. The focus is on the employees development and
their approach with Providents customers.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



RESTATEMENT
OF PREVIOUSLY REPORTED RESULTS OF OPERATIONS



On November 7, 2005,
management of Provident Bankshares Corporation (Provident or the Corporation) determined that Providents financial statements for the quarters ended June 30, 2005 and March 31, 2005, should no longer be relied
upon as a result of the accounting treatment applied by Provident to interest rate swaps associated with Providents interest rate risk hedging program. Subsequently, management made a similar determination with respect to the financial
statements for the year ended December 31, 2004.



As a result, the
Corporation has restated the financial statements for quarters ended June 30, 2005 and March 31, 2005, and for the year ended December 31, 2004. The restatements are primarily the result of corrections of errors related to the
Corporations accounting for derivatives under SFAS No. 133. Historically, Provident has entered into various interest rate swaps to hedge the interest rate risk inherent in certain of its brokered Certificates of Deposits
(CDs), FHLB Borrowings (FHLB Borrowings) and Junior Subordinated Debentures (Junior Subordinated Debentures) (which are owned by trusts which issue trust preferred securities with identical terms to outside third
parties). From the inception of hedge accounting, Provident has applied the short-cut method of fair value and cash flow hedge accounting under SFAS No.133 to the swaps associated with CDs, FHLB Borrowings and Junior Subordinated
Debentures transactions, allowing Provident to assume no hedge ineffectiveness for these derivatives. Provident has determined that the CD swaps, a portion of the FHLB swaps, and the swaps associated with the debt transaction did not qualify for the
short-cut method in the first and second quarter of 2005 and for calendar year ended December 31, 2004. The CD swaps did not qualify for short-cut application because a related CD broker placement fee was determined (in retrospect) to be
imbedded in the swap contracts, causing the swap to have a value other than zero at inception. A portion of the FHLB swaps did not qualify because the maturity of the swaps exceed the maturity of the



24



---

##### Table of Contents

FHLB Borrowings. Regarding the debt swaps, the swaps were documented as hedging the trust preferred securities, and were
not redesignated as hedging the Junior Subordinated Debentures upon adoption of FIN 46R. As a result of these errors in the application of the short cut method, the Corporation is precluded from applying hedge accounting to these derivative
instruments for these periods. The financial results beginning January 1, 2004 have therefore been restated for the affected derivatives and their related hedged items. Certain current year amounts in the unaudited Condensed Consolidated
Statements of Condition have been reclassified to conform to the presentation used for subsequent periods. These reclassifications have no effect on stockholders equity or net income.



Management believes the financial statement impact of applying the long-haul
method of effectiveness testing using SFAS No. 133 and the results under the short-cut method would have indicated no material difference in the effectiveness of the swaps. However, hedge accounting under SFAS No. 133 is not
allowed for the affected periods because the hedge documentation required for the long-haul method was not in place at the inception of the hedges. Fair value hedge accounting allows a company to record changes in the fair value of a
hedged item (in this case, the brokered CDs and the Junior Subordinated Debentures) as an adjustment to income that offsets the fair value adjustment of the related interest rate swaps. Cash flow hedge accounting allows a company to record changes
in the fair value, net of income taxes, as a component of Other Comprehensive Income in Stockholders Equity. Amounts recorded in OCI are recognized into earnings concurrent with the hedged items impact on earnings. Under fair value and
cash flow hedge accounting, net cash flows associated with the swapped interest payments are included in interest expense.



Elimination of hedge accounting reverses fair value adjustments made on the brokered CDs so that they are carried at par, net of the unamortized balance of the CD broker
placement fee. The net swap interest rate payments were reclassified from an adjustment to interest expense on the brokered CDs to non-interest income. The CD broker placement fees, which were incorporated into the swap, adjusted the par amount of
the brokered CDs and will be amortized through the maturity date of the related CDs as an adjustment to the rate paid. The interest expense on the FHLB Borrowings was treated in a manner similar to the CD interest expense. Hedge accounting for cash
flow hedges allows a company to record the effective portion of the hedge into other comprehensive income, net of tax. Elimination of the hedge accounting reversed the fair value adjustments recorded to OCI and recorded the fair value adjustment
directly to non-interest income in the Condensed Consolidated Statements of Income.



Prior to January 1, 2004, the interest expense on trust preferred securities was netted with the interest payments received from the designated swaps. However, the adoption of FASB Interpretation No. 46  Consolidation
of Variable Interest Entities (FIN 46) on January 1, 2004 and the resultant deconsolidation of the trusts which issued the securities, required redesignation of the swaps to the Junior Subordinated Debentures issued by the
Corporation in order to continue to apply hedge accounting. The lack of documented redesignation resulted in the elimination of hedge accounting for the Junior Subordinated Debentures. The fair value basis adjustment of the trust preferred
securities at the adoption date, was deferred as a basis adjustment to the Junior Subordinated Debentures. This basis adjustment is being amortized into interest expense over the life of the Junior Subordinated Debentures as a result of the
elimination of hedge accounting. Fair value adjustments on the swaps subsequent to the date of adoption of FIN 46 have been reflected as derivative gains (losses).



Accordingly, the financial statements for first and second quarters of 2005 and the year ended December 31, 2004 have been restated to
reflect the required accounting treatment. The Condensed Consolidated Statements of Income for the three months ended March 31, 2005 and March 31, 2004 reflect these adjustments. The three months ended amounts reflect the impact of
restating the first quarters of 2005 and 2004. Adjustments to the Condensed Consolidated Statements of Income for amounts previously reported affect interest expense on deposits and long-term debt through the reversal of the swap income that offset
interest expense on the brokered CDs, FHLB Borrowings and the Junior Subordinated Debentures, affect non-interest income for the fair value adjustments related to the associated swaps and affect the net cash settlements on the swaps, and affect the
related tax impact of the respective adjustments.



25



---

##### Table of Contents

FINANCIAL REVIEW



The principal objective of this Financial Review is to provide an overview of the financial condition and results of operations of Provident Bankshares Corporation
(the Corporation) and its subsidiaries for the periods indicated. This discussion and tabular presentations should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and Notes as well as
the other information herein.



Discussion and analysis of the financial
condition and results of operations are based on the consolidated financial statements of the Corporation, which are prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these financial
statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates estimates on an on-going
basis, including those related to the allowance for loan losses, non-accrual loans, other real estate owned, goodwill and intangible assets, other than temporary impairment of investment securities, pension and post-retirement benefits, asset
prepayment rates, stock-based compensation, derivative positions, recourse liabilities, litigation and income taxes. Management bases its estimates on historical experience and various other factors and assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.



Management believes the following critical
accounting policies affect its more significant judgments and estimates used in preparation of its Condensed Consolidated financial statements: allowance for loan losses, other than temporary impairment of investment securities, derivative financial
instruments goodwill and intangible assets, asset prepayment rates and income taxes. Each estimate and its financial impact, to the extent significant to financial results, is discussed in the notes to unaudited Condensed Consolidated Financial
Statements. It is at least reasonably possible that each of the Corporations estimates could change in the near term and the effect of the change could be material to the unaudited Condensed Consolidated Financial Statements.



FINANCIAL CONDITION



The financial condition of the Corporation reflects the continued balance sheet transition towards growing loans and deposits in the
Banks business segments. The Banks commitment to its business strategies in the key markets of Baltimore, Washington and Richmond, coupled with the impact of the Southern Financial merger, led to increases in average loans and deposits
of 26% and 23%, respectively, over the first quarter of 2004. The April 30, 2004 strategic merger with Southern Financial Bancorp, Inc. added 30 branches in the Northern Virginia, Richmond, Charlottesville and Washington D.C. areas. At
March 31, 2005, total assets were $6.4 billion as compared to $6.6 billion at December 31, 2004. The basis for financial comparison for the first quarter of 2005 includes the impact of the Southern Financial merger.



26



---

##### Table of Contents

Lending



Total average loan balances increased to $3.5 billion in first quarter 2005, an increase of $733 million, or 26%, from first quarter 2004 (prior year
quarter). While commercial loans acquired with the Southern Financial merger contributed to the increase, organic loan production from existing Provident units continued to grow at a double digit pace. The following table summarizes the
composition of the Banks average loans for the periods indicated.



|                                |      |                             |           |            |   |           |            |   |         |   |  |       |  
|------------------------------- | ---- | --------------------------- | --------- | ---------- | - | --------- | ---------- | - | ------- | - |  | ----- | -
|(dollars in thousands)          |      | Three Months EndedMarch 31, |           | $ Variance |   |           | % Variance |  
|                                | 2005 |                             | 2004      |            |  
|Residential real estate:        |      |                             |           |            |   |           |            |   |         |   |  |       |  
|Originated residential mortgage |      | $                           | 97,550    |            | $ | 74,932    |            | $ | 22,618  |   |  | 30.2  | %
|Home equity                     |      |                             | 724,721   |            |   | 519,019   |            |   | 205,702 |   |  | 39.6  |  
|Acquired residential            |      |                             | 542,295   |            |   | 604,064   |            |   | (61,769 | ) |  | (10.2 | )
|Other consumer:                 |      |                             |           |            |   |           |            |   |         |   |  |       |  
|Marine                          |      |                             | 432,891   |            |   | 463,706   |            |   | (30,815 | ) |  | (6.6  | )
|Other                           |      |                             | 38,250    |            |   | 44,361    |            |   | (6,111  | ) |  | (13.8 | )
|                                |      |                             |           |            |   |           |            |   |         |   |  |       |  
|Total consumer                  |      |                             | 1,835,707 |            |   | 1,706,082 |            |   | 129,625 |   |  | 7.6   |  
|                                |      |                             |           |            |   |           |            |   |         |   |  |       |  
|Commercial real estate:         |      |                             |           |            |   |           |            |   |         |   |  |       |  
|Commercial mortgage             |      |                             | 484,661   |            |   | 321,943   |            |   | 162,718 |   |  | 50.5  |  
|Residential construction        |      |                             | 259,940   |            |   | 169,767   |            |   | 90,173  |   |  | 53.1  |  
|Commercial construction         |      |                             | 281,705   |            |   | 216,648   |            |   | 65,057  |   |  | 30.0  |  
|Commercial business             |      |                             | 680,837   |            |   | 395,614   |            |   | 285,223 |   |  | 72.1  |  
|                                |      |                             |           |            |   |           |            |   |         |   |  |       |  
|Total commercial                |      |                             | 1,707,143 |            |   | 1,103,972 |            |   | 603,171 |   |  | 54.6  |  
|                                |      |                             |           |            |   |           |            |   |         |   |  |       |  
|Total loans                     |      | $                           | 3,542,850 |            | $ | 2,810,054 |            | $ | 732,796 |   |  | 26.1  |  
|                                |      |                             |           |            |   |           |            |   |         |   |  |       |  



Providents expanded presence in
the Washington and Richmond metropolitan regions was the primary contributor to the achievement of the 26% growth in average loans. The average loan growth of $733 million in the last twelve months is comprised of $130 million, or 8%, in consumer
loans and $603 million, or 55%, in commercial loans. The result is a balanced mix of revenue sources between the two business segments with $1.8 billion, or 52%, in consumer loans, and $1.7 billion, or 48%, in commercial loans. Geographically,
average loan balances of $1.3 billion originated in the Washington and Richmond metropolitan regions were more than twice the level in first quarter 2004 and represented 36% of total average loans in first quarter 2005. This growth emphasizes the
Corporations commitment to the Virginia market as well as the benefits of the merger.



Consumer banking continues to be an important component of the Banks business strategy. Average consumer loan balances increased $130 million, or 8%, over the prior year quarter. Home equity loans averaged $725
million, and increased 40% over the prior year. The strong growth in home equity lending was partially offset by managed declines in marine loans and purchased residential loans totaling $93 million. This shift indicates the Banks focus on its
key business segments. Average residential mortgage loans also increased $23 million over the prior year quarter as a result of loans acquired from Southern Financial.



Commercial banking is the other key component to the Corporations regional presence in its market area. Average commercial and real
estate loans increased 72% and 45%, respectively. Commercial mortgage loans and commercial and residential construction loans each posted increases during the quarter. The increase in the commercial loan portfolios over the 2004 first quarter also
reflects the benefits derived from Southern Financials focus on commercial banking in Virginia.



27



---

##### Table of Contents

Asset Quality



The following table presents information with respect to non-performing assets and 90-day delinquencies as of the dates indicated.



|                                                  |  |               |        |   |                  |   |        |  
|------------------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|(dollars in thousands)                            |  | March 31,2005 |        |   | December 31,2004 |  
|Non-Performing Assets:                            |  |               |        |   |                  |   |        |  
|Originated residential mortgage                   |  | $             | 1,230  |   |                  | $ | 1,934  |  
|Home equity                                       |  |               | 275    |   |                  |   | 103    |  
|Acquired residential                              |  |               | 8,900  |   |                  |   | 8,393  |  
|Other consumer                                    |  |               |       |   |                  |   | 147    |  
|Commercial mortgage                               |  |               | 1,598  |   |                  |   | 1,612  |  
|Residential real estate contstruction             |  |               |       |   |                  |   |       |  
|Commercial real estate construction               |  |               | 195    |   |                  |   | 1,063  |  
|Commercial business                               |  |               | 11,008 |   |                  |   | 12,461 |  
|                                                  |  |               |        |   |                  |   |        |  
|Total non-accrual loans                           |  |               | 23,206 |   |                  |   | 25,713 |  
|Total renegotiated loans                          |  |               |       |   |                  |   |       |  
|                                                  |  |               |        |   |                  |   |        |  
|Total non-performing loans                        |  |               | 23,206 |   |                  |   | 25,713 |  
|Total other assets and real estate owned          |  |               | 1,578  |   |                  |   | 1,616  |  
|                                                  |  |               |        |   |                  |   |        |  
|Total non-performing assets                       |  | $             | 24,784 |   |                  | $ | 27,329 |  
|                                                  |  |               |        |   |                  |   |        |  
|90-Day Delinquencies:                             |  |               |        |   |                  |   |        |  
|Originated residential mortgage                   |  | $             | 3,315  |   |                  | $ | 5,442  |  
|Home equity                                       |  |               | 348    |   |                  |   | 126    |  
|Acquired residential                              |  |               | 4,834  |   |                  |   | 3,655  |  
|Other consumer                                    |  |               | 1,033  |   |                  |   | 1,108  |  
|Commercial business                               |  |               | 1,244  |   |                  |   | 1,883  |  
|                                                  |  |               |        |   |                  |   |        |  
|Total 90-day delinquencies                        |  | $             | 10,774 |   |                  | $ | 12,214 |  
|                                                  |  |               |        |   |                  |   |        |  
|Asset Quality Ratios:                             |  |               |        |   |                  |   |        |  
|Non-performing loans to loans                     |  |               | 0.66   | % |                  |   | 0.72   | %
|Non-performing assets to loans                    |  |               | 0.70   | % |                  |   | 0.77   | %
|Allowance for loan losses to loans                |  |               | 1.29   | % |                  |   | 1.30   | %
|Net charge-offs in quarter to average loans       |  |               | 0.24   | % |                  |   | 0.28   | %
|Allowance for loan losses to non-performing loans |  |               | 196.67 | % |                  |   | 179.56 | %



Credit conditions in first quarter
2005 reflect continuation of the asset quality within the Corporations loan portfolios. Non-performing assets were $24.8 million at March 31, 2005, a decline of $2.5 million from the level at December 31, 2004. The decline in
non-performing assets was due to the resolution of non-performing commercial business and commercial real estate construction loans during the quarter. Non-performing commercial business loans include $1.3 million of loans that have U.S. government
guarantees.



The level of non-performing assets to total loans was 0.70% at
March 31, 2005 compared to 0.77% at December 31, 2004. The level of 90-day delinquent loans also declined during the quarter, decreasing $1.4 million, or 12%, to $10.8 million. No assurance can be given regarding the level of
non-performing assets in the future.



28



---

##### Table of Contents

The Corporation maintains an allowance for loan losses (the allowance), which is intended to be
managements best estimate of probable inherent losses in the outstanding loan portfolio. The allowance is reduced by actual credit losses and is increased by the provision for loan losses and recoveries of previous losses. The provisions for
loan losses are charges to earnings to bring the total allowance to a level considered necessary by management.



The allowance is based on managements continuing review and evaluation of the loan portfolio. This process provides an allowance consisting of two components,
allocated and unallocated. To arrive at the allocated component of the allowance, the Corporation combines estimates of the allowances needed for loans analyzed individually and on a pooled basis. The allocated component of the allowance is
supplemented by an unallocated component.



The portion of the allowance that is
allocated to individual internally criticized and non-accrual loans is determined by estimating the inherent loss on each problem credit after giving consideration to the value of underlying collateral. Management emphasizes loan quality and close
monitoring of potential problem credits. Credit risk identification and review processes are utilized in order to assess and monitor the degree of risk in the loan portfolio. The Corporations lending and credit administration staff are charged
with reviewing the loan portfolio and identifying changes in the economy or in a borrowers circumstances which may affect the ability to repay debt or the value of pledged collateral. A loan classification and review system exists that
identifies those loans with a higher than normal risk of uncollectibility. Each commercial loan is assigned a grade based upon an assessment of the borrowers financial capacity to service the debt and the presence and value of collateral for
the loan.



In addition to being used to categorize risk, the Banks
internal ten-point risk rating system is used to determine the allocated allowance for the commercial portfolio. Reserve factors, based on the actual loss history for a 5-year period for criticized loans, are assigned. If the factor, based on loss
history for classified credits is lower than the minimum established factor, the higher factor is applied. For pass rated credits, the factors are based on the rating profile of the portfolio and the consequent historic losses of bonds with
equivalent ratings.



For the consumer portfolios, the determination of the
allocated allowance is conducted at an aggregate, or pooled, level. Each quarter, historical rolling loss rates for homogenous pools of loans in these portfolios provide the basis for the allocated reserve. For any portfolio where the Bank lacks
sufficient historic experience, industry loss rates are used. If recent history is not deemed to reflect the inherent losses existing within a portfolio, older historic loss rates during a period of similar economic or market conditions are used.



The Banks credit administration group adjusts the indicated loss rates
based on qualitative factors. Factors that are considered in adjusting loss rates include risk characteristics, credit concentration trends and general economic conditions, including job growth and unemployment rates. For commercial and real estate
portfolios, additional factors include the level and trend of watched and criticized credits within those portfolios; historic loss rates, commercial real estate vacancy, absorption and rental rates; and the number and volume of syndicated credits,
construction loans, or other portfolio segments deemed to carry higher levels of risk. Upon completion of the qualitative adjustments, the overall allowance is allocated to the components of the portfolio based on the adjusted loss factors.



The unallocated component of the allowance exists to mitigate the imprecision
inherent in managements estimates of expected credit losses and includes its judgmental determination of the amounts necessary for concentrations, economic uncertainties and other subjective factors that may not have been fully considered in
the allocated allowance. The relationship of the unallocated component to the total allowance may fluctuate from period to period. Although management has allocated the majority of the allowance to specific loan categories, the evaluation of the
allowance is considered in its entirety.



Lending management meets at least
quarterly with executive management to review the credit quality of the loan portfolios and to evaluate the allowance. The Corporation has an internal risk analysis and review staff that continuously reviews loan quality and reports the results of
its reviews to executive management and the Board of Directors. Such reviews also assist management in establishing the level of the allowance.



Management believes that it uses the best information available to make determinations about the allowance and that it has established its existing allowance in
accordance with GAAP. If circumstances differ substantially from the



29



---

##### Table of Contents

assumptions used in making determinations, adjustments to the allowance may be necessary and results of operations could
be affected. Because events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that increases to the allowance will not be necessary should the quality of any loans deteriorate as a result of the factors
discussed above.



The FDIC examines the Bank periodically and, accordingly, as
part of this exam, the allowance is reviewed for adequacy utilizing specific guidelines. Based upon their review, the regulators may from time to time require reserves in addition to those previously provided.



At March 31, 2005, the allowance was $45.6 million, or 1.29% as a percentage of total
loans outstanding, compared to an allowance at December 31, 2004 of $46.2 million, or 1.30% as a percentage of total loans outstanding. The allowance coverage increased to 197% of non-performing loans at March 31, 2005 compared to 180% at
December 31, 2004. Portfolio-wide net charge-offs represented 0.24% of average loans in first quarter 2005, down from 0.26% in first quarter 2004 and 0.28% in fourth quarter 2004.



Deposits



The following table summarizes the composition of the Corporations average deposit balances for the periods indicated.



|                         |  |                             |           |            |   |            |  |   |         |  |      |  
|------------------------ |  | --------------------------- | --------- | ---------- | - | ---------- |  | - | ------- |  | ---- | -
|                         |  | Three Months EndedMarch 31, |           | $ Variance |   | % Variance | 
|(dollars in thousands)   |  | 2005                        |           | 2004       |   |           
|Transaction accounts:    |  |                             |           |            |   |            |  |   |         |  |      |  
|Noninterest-bearing      |  | $                           | 791,747   |            | $ | 567,530    |  | $ | 224,217 |  | 39.5 | %
|Interest-bearing         |  |                             | 520,013   |            |   | 449,735    |  |   | 70,278  |  | 15.6 |  
|Savings/money market:    |  |                             |           |            |   |            |  |   |         |  |      |  
|Savings                  |  |                             | 749,080   |            |   | 715,265    |  |   | 33,815  |  | 4.7  |  
|Money market             |  |                             | 533,176   |            |   | 467,537    |  |   | 65,639  |  | 14.0 |  
|Certificates of deposit: |  |                             |           |            |   |            |  |   |         |  |      |  
|Direct                   |  |                             | 798,065   |            |   | 652,280    |  |   | 145,785 |  | 22.4 |  
|Brokered                 |  |                             | 373,809   |            |   | 218,863    |  |   | 154,946 |  | 70.8 |  
|                         |  |                             |           |            |   |            |  |   |         |  |      |  
|Total deposits           |  | $                           | 3,765,890 |            | $ | 3,071,210  |  | $ | 694,680 |  | 22.6 |  
|                         |  |                             |           |            |   |            |  |   |         |  |      |  
|Deposits by source:      |  |                             |           |            |   |            |  |   |         |  |      |  
|Consumer                 |  | $                           | 2,660,397 |            | $ | 2,358,903  |  | $ | 301,494 |  | 12.8 |  
|Commercial               |  |                             | 731,684   |            |   | 493,444    |  |   | 238,240 |  | 48.3 |  
|Brokered                 |  |                             | 373,809   |            |   | 218,863    |  |   | 154,946 |  | 70.8 |  
|                         |  |                             |           |            |   |            |  |   |         |  |      |  
|Total deposits           |  | $                           | 3,765,890 |            | $ | 3,071,210  |  | $ | 694,680 |  | 22.6 |  
|                         |  |                             |           |            |   |            |  |   |         |  |      |  



Average deposits increased $695
million, or 23%, in first quarter 2005 over the same quarter last year. Demand accounts represented the largest increase of $294 million, or 29%. Average money market, savings, and time deposits accounts represented the remaining increase over the
prior years quarter. Average brokered deposits also increased over the 2004 first quarter, driven by an increase in callable brokered deposits acquired in the merger, as well as brokered deposits issued during the year as a less expensive
alternative to borrowing.



Providents Virginia franchise continues to be
a significant component of its business focus. For the quarter, consumer and commercial deposits in the Washington metropolitan and Virginia markets increased 54% and 104%, respectively, representing increases in all deposit categories. The 30
branches added from the Southern Financial merger facilitated the growth in deposits for the year. The Virginia franchise has grown to 83 branches, or 56% of total branches, in the key metropolitan markets of Washington and Richmond.



Total average consumer deposits increased 13% in first quarter 2005 over first quarter 2004.
Average consumer demand account balances increased 18%, from $670 million in the 2004 first quarter, to $793 million in 2005. Average consumer



30



---

##### Table of Contents

certificates of deposit increased 18% and average consumer money market and savings deposits increased 6% over the prior
year quarter. Commercial deposits increased 48% over the prior year quarter with average demand account balances, money market balances and certificates of deposit representing the areas of growth. The increase in the commercial deposit portfolios
over the 2004 first quarter also reflects the benefits derived from Southern Financials focus on commercial banking in Virginia.



Treasury Activities



The Treasury Division manages the wholesale segments of the balance sheet, including investments, purchased funds, long-term debt and derivatives. Managements objective is to achieve the maximum level of stable
earnings over the long term, while controlling the level of interest rate and liquidity risk, and optimizing capital utilization.



At March 31, 2005, the investment securities portfolio was $2.1 billion, or 33% of total assets. The portfolio objective is to obtain the maximum sustainable
interest margin over match-funded borrowings, subject to liquidity, credit and interest rate risk, as well as capital, regulatory and economic considerations. Typically, management classifies securities as available for sale to maximize management
flexibility, although securities may be purchased with the intention of holding to maturity.



To achieve its stated objective, the Corporation invests predominately in U.S. Treasury and Agency securities, mortgage-backed securities (MBS) and other debt securities, which include corporate bonds and
asset-backed securities (ABS). At March 31, 2005, 68% of the investment portfolio was invested in MBS. The allocation to floating rate ABS and corporate bonds was increased to 22%, in anticipation of rising short-term interest
rates. The ABS portfolio, representing 20% of the total portfolio, consists predominately of Aaa and single A rated tranches of pooled trust preferred securities. Other debt securities primarily include investments in single issuer corporate bonds
rated investment-grade by Moodys or S&P, and U.S. Treasury, Agency, and municipal securities.



The primary risk in the investment portfolio is duration risk. Duration measures the expected change in the market value of an investment for a 100 basis point (or 1%) change in interest rates. The higher an
investments duration, the longer the time until its rate is reset to current market rates. The Banks risk tolerance, as measured by the duration of the investment portfolio, is typically between 2% and 4%. In the current economic
environment, the duration is targeted for the middle of that range. Another risk in the investment portfolio is credit risk. At March 31, 2005, over 78% of the entire investment portfolio was rated AAA, 21% was investment grade below AAA, and
1% was rated below investment grade or was not rated.



Investment securities
are evaluated periodically to determine whether a decline in their value is other than temporary. Management utilizes 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. If 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 had a limited number of securities
in a continuous loss position for 12 months or more at March 31, 2005. Because the declines in fair value were due to changes in market interest rates, not in estimated cash flows, no other than temporary impairment was recorded at
March 31, 2005.



Providents funds management objectives are
two-fold: to minimize the cost of borrowings while assuring sufficient funding availability to meet current and future borrowing requirements; and to contribute to interest rate risk management goals through match-funding loan and investment
activity. Management utilizes a variety of sources to raise borrowed funds at competitive rates, including federal funds purchased (fed funds), Federal Home Loan Bank (FHLB) borrowings, securities sold under repurchase
agreements (repos), and brokered and jumbo certificates of deposit (CDs). FHLB borrowings and repos typically are borrowed at rates approximating the LIBOR rate for the equivalent term because they are secured with
investments or high quality real estate loans. Fed funds, which are generally overnight borrowings, are typically purchased at the Federal Reserve target rate. Brokered CDs are generally added when market conditions permit issuance at rates
favorable to other funding sources.



The Corporation formed wholly owned
statutory business trusts in 1998, 2000 and 2003. In 2004, the Corporation acquired three wholly owned statutory business trusts from Southern Financial as part of the merger. In all cases, the



31



---

##### Table of Contents

trusts issued trust preferred securities that were sold to outside third parties. The trust preferred securities are
presented net of unamortized issuance costs as Long-Term Debt in the Condensed Consolidated Statements of Condition and are includable in Tier 1 capital for regulatory capital purposes, subject to certain limitations. Any of the trust preferred
securities are redeemable at any time in whole, but not in part, from the date of issuance on the occurrence of certain events. On March 31, 2005, the Corporation redeemed $30 million aggregate value of capital securities issued by Provident
Trust II at an annual rate of 10%.



Average borrowings increased $207 million
in first quarter 2005 from first quarter 2004. Average repo balances increased $149 million, representing commercial customer cash management products. Average trust preferred balances increased $23 million due to trust preferred securities acquired
as part of the merger. Average fed funds decreased $27 million, reflecting managements intentions to match fund more of the Banks prime-based loan portfolio with these borrowings. Average FHLB borrowings increased $92 million; offsetting
runoff of higher cost pre-merger brokered CDs. During first quarter 2005, the Bank restructured $36 million of debt, extinguishing FHLB borrowings. A loss of $51 thousand was incurred in connection with the transactions.



Liquidity



An important component of the Banks asset/liability structure is the level of liquidity available to meet the needs of customers and
creditors. Traditional sources of bank liquidity include deposit growth, loan repayments, investment maturities, asset sales, borrowings and interest received. Management believes the Bank has sufficient liquidity to meet funding needs in the
foreseeable future.



The Banks primary source of liquidity beyond the
traditional sources is the assets it possesses, which can either be pledged as collateral for secured borrowings or sold outright. The Banks primary sources for raising secured borrowings are the FHLB and securities broker/dealers. At
March 31, 2005, $1.6 billion of secured borrowings were employed, with sufficient collateral available to immediately raise an additional $655 million. An excess liquidity position of $464 million remains after covering $191 million of
unsecured funds that mature in the next three months. Additionally, over $300 million of assets are maintained as collateral with the Federal Reserve that is available as a contingent funding source.



The Bank also has several unsecured funding sources available should the need arise. At
March 31, 2005, the Bank possessed over $880 million of overnight borrowing capacity, of which only $140 million was in use at period-end. The brokered CD and unsecured debt markets, which generally are more expensive than secured funds of
similar maturity, are also viable funding alternatives. In first quarter 2005, the Bank issued $41 million of brokered CDs at favorable pricing levels.



As an alternative to raising secured funds, the Bank can raise liquidity through asset sales. At March 31, 2005, over $500 million of the Banks investment
portfolio was immediately saleable at a market value equaling or exceeding its amortized cost basis. Additionally, over a 90-day time frame, a majority of the Banks $1.8 billion consumer loan portfolio is saleable in an efficient market.



A significant use of the Corporations liquidity is the dividends it pays
to shareholders. The Corporation is a one-bank holding company that relies upon the Banks performance to generate capital growth through Bank earnings. A portion of the Banks earnings is passed to the Corporation in the form of cash
dividends. As a commercial bank under the Maryland Financial Institution Law, the Bank may declare cash dividends from undivided profits or, with the prior approval of the Commissioner of Financial Regulation, out of paid-in capital in excess of
100% of its required capital stock, and after providing for due or accrued expenses, losses, interest and taxes. These dividends paid to the holding company are utilized to pay dividends to stockholders, repurchase shares and pay interest on trust
preferred securities. The Corporation and the Bank, in declaring and paying dividends, are also limited insofar as minimum capital requirements of regulatory authorities must be maintained. The Corporation and the Bank comply with such capital
requirements. If the Corporation or the Bank were unable to comply with the minimum capital requirements, it could result in regulatory actions that could have a material impact on the Corporation.



32



---

##### Table of Contents

Contractual Obligations, Commitments and Off Balance Sheet Arrangements



The Corporation has various contractual obligations, such as long-term borrowings, that are
recorded as liabilities in the Condensed Consolidated Financial Statements. Other items, such as certain minimum lease payments for the use of banking and operations offices under operating lease agreements, are not recognized as liabilities in the
Condensed Consolidated Financial Statements, but are required to be disclosed. Each of these arrangements affects the Corporations determination of sufficient liquidity.



The following table summarizes significant contractual obligations at March 31, 2005 and the future periods in which such obligations
are expected to be settled in cash. In addition, the table reflects the timing of principal payments on outstanding borrowings.



|                  |                 |                                             |           |  |           |         |              |   |         |  |   |         |  |   |          
|----------------- | --------------- | ------------------------------------------- | --------- |  | --------- | ------- | ------------ | - | ------- |  | - | ------- |  | - | ---------
|(in thousands)    |                 | Restated Contractual Payments Due by Period
|                  | Less than 1Year |                                             | 1-3 Years |  | 4-5 Years |         | After 5Years |   | Total  
|Lease obligations |                 | $                                           | 13,266    |  | $         | 23,488  |              | $ | 18,910  |  | $ | 30,842  |  | $ | 86,506   
|Long-term debt    |                 |                                             | 365,128   |  |           | 493,173 |              |   | 111,977 |  |   | 155,187 |  |   | 1,125,465
|                  |                 |                                             |           |  |           |         |              |   |         |  |   |         |  |   |          
|Total             |                 | $                                           | 378,394   |  | $         | 516,661 |              | $ | 130,887 |  | $ | 186,029 |  | $ | 1,211,971
|                  |                 |                                             |           |  |           |         |              |   |         |  |   |         |  |   |          



Arrangements to fund credit products
or guarantee financing take the form of loan commitments (including lines of credit on revolving credit structures) and letters of credit. Approvals for these arrangements are obtained in the same manner as loans. Generally, cash flows, collateral
value and a risk assessment are considered when determining the amount and structure of credit arrangements. Commitments to extend credit in the form of consumer, commercial real estate and business loans at March 31, 2005 were as follows:



|                                      |  |               |          
|------------------------------------- |  | ------------- | ---------
|(in thousands)                        |  | March 31,2005
|Commercial business and real estate   |  | $             | 773,919  
|Consumer revolving credit             |  |               | 544,030  
|Residential mortgage credit           |  |               | 23,756   
|Performance standby letters of credit |  |               | 103,035  
|Commercial letters of credit          |  |               | 1,262    
|                                      |  |               |          
|Total loan commitments                |  | $             | 1,446,002
|                                      |  |               |          



Historically, many of the commitments
expire without being fully drawn; therefore, the total commitment amounts do not necessarily represent future cash requirements.



33



---

##### Table of Contents

Risk Management



The nature of the banking business, which involves paying interest on deposits at varying rates and terms and charging interest on loans at other rates and terms, creates
interest rate risk. As a result, earnings and the market value of assets and liabilities are subject to fluctuations, which arise due to changes in the level and directions of interest rates. Managements objective is to minimize the
fluctuation in the net interest margin caused by changes in interest rates using cost-effective strategies and tools. The Bank manages several forms of interest rate risk, including asset/liability mismatch, basis and prepayment risk.



The Corporation purchases amortizing loan pools and investment securities in which the
underlying assets are residential mortgage loans subject to prepayments. The actual principal reduction on these assets varies from the expected contractual principal reduction due to principal prepayments resulting from borrowers elections to
refinance the underlying mortgages based on market and other conditions. Prepayment rate projections utilize actual prepayment speed experience and available market information on like-kind instruments. The prepayment rates form the basis for income
recognition of premiums or discounts on the related assets. Changes in prepayment estimates may cause the earnings recognized on these assets to vary over the term that the assets are held, creating volatility in the net interest margin. Prepayment
rate assumptions are monitored and updated monthly to reflect actual activity and the most recent market projections. Basis risk exists as a result of having much of the Banks earning assets priced using either the Prime rate or the U.S.
Treasury yield curve, while much of the liability portfolio is priced using the CD yield curve or LIBOR yield curve. These different yield curves typically do not move in lock-step with one another.



Measuring and managing interest rate risk is a dynamic process that management performs
continually to meet the objective of maintaining a stable net interest margin. This process relies chiefly on simulation modeling of shocks to the balance sheet under a variety of interest rate scenarios, including parallel and non-parallel rate
shifts, such as the forward yield curves for both short and long term interest rates. The results of these shocks are measured in two forms: first, the impact on the net interest margin and earnings over one and two year time frames; and second, the
impact on the market value of equity. In addition to measuring the basis risks and prepayment risks noted above, simulations also quantify the earnings impact of rate changes and the cost / benefit of hedging strategies.



The following table shows the anticipated effect on net interest income in parallel shift (up
or down) interest rate scenarios. These shifts are assumed to begin on April 1, 2005 for the March 31, 2005 data and on January 1, 2005 for the December 31, 2004 data and evenly ramp-up or down over a six-month period. The effect
on net interest income would be for the next twelve months. Given the interest environment in the periods presented, a 200 basis point drop in rate is unlikely and has not been shown.



|                       |  |                                                                   |   |  |                                                                      |  
|---------------------- |  | ----------------------------------------------------------------- | - |  | -------------------------------------------------------------------- | -
|Interest Rate Scenario |  | At March 31, 2005ProjectedPercentage Change inNet Interest Income |   |  | At December 31,2004 ProjectedPercentage Change inNet Interest Income |  
|-100 basis points      |  | -4.0                                                              | % |  | -3.4                                                                 | %
|No change              |  |                                                                  |   |  |                                                                     |  
|+100 basis points      |  | +3.0                                                              | % |  | +1.4                                                                 | %
|+200 basis points      |  | +4.0                                                              | % |  | +1.6                                                                 | %



The percentage changes displayed in
the table above relate to the Corporations projected net interest income. Managements intent is for derivative interest income to mitigate risk to the Corporations net interest income stemming from changes in interest rates. For
comparison purposes, these projections include all interest earned on derivatives in net interest income. The analysis includes the interest income and expense relating to non-designated interest rate swaps that is classified in non-interest income
as Net Cash Settlement on Swaps.



The isolated modeling environment, assuming
no action by management, shows that the Corporations net interest income volatility is less than 4.1% under probable single direction scenarios. The Corporations one-year forward earnings are slightly asset sensitive, which will result
in net interest income moving in the same direction as future interest rates. The Corporation increased its asset sensitivity position slightly from year-end 2004 by replacing fixed rate mortgage backed securities with floating rate ABS.



34



---

##### Table of Contents

The Corporation maintains an overall interest rate management strategy that incorporates structuring of investments,
purchased funds, variable rate loan products, and derivatives in order to minimize significant fluctuations in earnings or market values. The Bank continues to employ hedges to mitigate interest rate risk. Borrowings totaling over $400 million have
been employed which reset their rates monthly or quarterly based on the level of long-term interest rates  specifically, the 10-year constant maturity swap rate  rather than short-term rates, to offset the effect of mortgage prepayments
on asset yields. There is a high correlation between changes in the 10-year constant maturity swap rate and the 30-year mortgage rate. Additionally, $549 million notional amount in interest rate swaps were in force to reduce interest rate risk, and
$300 million of interest rate caps were employed to protect the interest margin from rising interest rates.



In addition to managing interest rate risk, which applies to both assets and liabilities, the Corporation must understand and manage risks specific to lending. Much of the fundamental lending business of Provident is
based upon understanding, measuring and controlling credit risk. Credit risk entails both general risks, which are inherent in the process of lending, and risk specific to individual borrowers. Each consumer and residential lending product has a
generally predictable level of credit loss based on historical loss experience. Home mortgage and home equity loans and lines generally have the lowest credit loss experience. Loans with medium credit loss experience are primarily secured products
such as auto and marine loans. Unsecured loan products such as personal revolving credit have the highest credit loss experience, therefore the Bank has chosen not to engage in a significant amount of this type of lending. Credit risk in commercial
lending varies significantly, as losses as a percentage of outstanding loans can shift widely from period to period and are particularly sensitive to changing economic conditions. Generally improving economic conditions result in improved operating
results on the part of commercial customers, enhancing their ability to meet debt service requirements. However, this improvement in operating cash flow is often at least partially offset by rising interest rates often seen in an improving economic
environment. In addition, changing economic conditions often impact various business segments differently, giving rise to the need to manage industry concentrations within the loan portfolio.



Other lending risks include liquidity risk and specific risk. The liquidity risk of the
Corporation arises from its obligation to make payment in the event of a customers contractual default. The evaluation of specific risk is a basic function of underwriting and loan administration, involving analysis of the borrowers
ability to service debt as well as the value of pledged collateral. In addition to impacting individual lending decisions, this analysis may also determine the aggregate level of commitments the Corporation is willing to extend to an individual
customer or a group of related customers.



Capital Resources



Total stockholders equity was $611.5 million at March 31, 2005, a decline of
$6.9 million from December 31, 2004. The change in stockholders equity for the period was attributable to $15.8 million in earnings that was more than offset by dividends paid of $8.6 million and a decrease of $11.0 million in net
accumulated other comprehensive income (loss). Net accumulated other comprehensive income (loss) decreased due primarily to a decrease in market value of available for sale securities. Capital was also reduced by $4.7 million from the repurchase of
136,324 shares of the Corporations common stock at an average price of $34.77. The Corporation is authorized to repurchase an additional 472,891 shares under its stock repurchase program.



35



---

##### Table of Contents

The Corporation is required to maintain minimum amounts and ratios of core capital to adjusted quarterly average assets
(leverage ratio) and of tier 1 and total regulatory capital to risk-weighted assets. The actual regulatory capital ratios and required ratios for capital adequacy purposes under FIRREA and the ratios to be categorized as well
capitalized under prompt corrective action regulations are summarized in the following table.



|                                                           |  |                       |           |   |                          |   |           |                               |  |      |                         |  |       |  
|---------------------------------------------------------- |  | --------------------- | --------- | - | ------------------------ | - | --------- | ----------------------------- |  | ---- | ----------------------- |  | ----- | -
|(dollars in thousands)                                     |  | March 31,Restated2005 |           |   | December 31,Restated2004 |   |           |                               |  |      |                         | 
|Total equity capital per consolidated financial statements |  | $                     | 611,537   |   |                          | $ | 618,423   |                               |  |      |                         |  |       |  
|Qualifying trust preferred securities                      |  |                       | 134,000   |   |                          |   | 164,000   |                               |  |      |                         |  |       |  
|Minimum pension liablity                                   |  |                       | (1,365    | ) |                          |   | (1,365    | )                             |  |      |                         |  |       |  
|Accumulated other comprehensive loss                       |  |                       | 12,600    |   |                          |   | 1,635     |                               |  |      |                         |  |       |  
|                                                           |  |                       |           |   |                          |   |           |                               |  |      |                         |  |       |  
|Adjusted capital                                           |  |                       | 756,772   |   |                          |   | 782,693   |                               |  |      |                         |  |       |  
|Adjustments for tier 1 capital:                            |  |                       |           |   |                          |   |           |                               |  |      |                         |  |       |  
|Goodwill and disallowed intangible assets                  |  |                       | (268,315  | ) |                          |   | (269,078  | )                             |  |      |                         |  |       |  
|                                                           |  |                       |           |   |                          |   |           |                               |  |      |                         |  |       |  
|Total tier 1 capital                                       |  |                       | 488,457   |   |                          |   | 513,615   |                               |  |      |                         |  |       |  
|                                                           |  |                       |           |   |                          |   |           |                               |  |      |                         |  |       |  
|Adjustments for tier 2 capital:                            |  |                       |           |   |                          |   |           |                               |  |      |                         |  |       |  
|Allowance for loan losses                                  |  |                       | 45,639    |   |                          |   | 46,169    |                               |  |      |                         |  |       |  
|Allowance for letter of credit losses                      |  |                       | 514       |   |                          |   | 474       |                               |  |      |                         |  |       |  
|                                                           |  |                       |           |   |                          |   |           |                               |  |      |                         |  |       |  
|Total tier 2 capital adjustments                           |  |                       | 46,153    |   |                          |   | 46,643    |                               |  |      |                         |  |       |  
|                                                           |  |                       |           |   |                          |   |           |                               |  |      |                         |  |       |  
|Total regulatory capital                                   |  | $                     | 534,610   |   |                          | $ | 560,258   |                               |  |      |                         |  |       |  
|                                                           |  |                       |           |   |                          |   |           |                               |  |      |                         |  |       |  
|Risk-weighted assets                                       |  | $                     | 4,344,894 |   |                          | $ | 4,346,229 |                               |  |      |                         |  |       |  
|Quarterly regulatory average assets                        |  |                       | 6,171,886 |   |                          |   | 6,198,284 |                               |  |      |                         |  |       |  
|                                                           |  |                       |           |  
|                                                           |  |                       |           |   |                          |   |           | MinimumRegulatoryRequirements |  |      | To be WellCapitalized | 
|Ratios:                                                    |  |                       |           |   |                          |   |           |                               |  |      |                         |  |       |  
|Tier 1 leverage                                            |  |                       | 7.91      | % |                          |   | 8.29      | %                             |  | 4.00 | %                       |  | 5.00  | %
|Tier 1 capital to risk-weighted assets                     |  |                       | 11.24     |   |                          |   | 11.82     |                               |  | 4.00 |                         |  | 6.00  |  
|Total regulatory capital to risk-weighted assets           |  |                       | 12.30     |   |                          |   | 12.89     |                               |  | 8.00 |                         |  | 10.00 |  



On April 30, 2004, as a result of
the Southern Financial merger, regulatory capital increased as a result of the $251 million of equity capital issued as part of the merger transaction, the inclusion of $23 million of Southern Financials Junior Subordinated Debentures and the
increased allowance for loan losses. These additions were partially offset by the $261 million of additional goodwill and other intangible assets arising from the merger that are deducted from regulatory capital.



On March 31, 2005, the Corporation redeemed $30.0 million in aggregate principal amount
of 10% Junior Subordinated Debentures to Provident Trust II. The Junior Subordinated Debentures had a final stated maturity of March 31, 2030, but were callable at par beginning on March 31, 2005.



36



---

##### Table of Contents

RESULTS OF OPERATIONS



DISCUSSION AND RECONCILIATION OF NET INCOME AND OPERATING INCOME



As a result of the restatement, management has included a reconciliation of net income and operating income. Although operating income is not a measure of
performance calculated in accordance with GAAP, the Corporation believes that operating income measures are important because they provide readers with a more meaningful presentation of the Corporations core results of operations from period
to period. The Corporation calculates operating income by adding or subtracting, as the case may be, income gains and losses on sales of securities and gains and losses associated with corrections to the Corporations derivative accounting
method as described in Note 2 to the Condensed Consolidated Financial Statements (which are included in the net income measures) because the Corporation believes those items are not reflective of the Corporations core results of operations.
The Corporation believes that operating income measures are useful to investors seeking to evaluate its operating performance and to compare its performance with other companies in the banking industry that also report operating income. Operating
income should not be considered in isolation or as a substitute for net income, cash flows from operating activities, or other income or cash flow statement data prepared in accordance with GAAP. Moreover, the manner in which the Corporation
calculates operating income may differ from that of other companies reporting measures with similar names. A reconciliation of the Corporations net income and operating income for the three months ended March 31, 2005 and March 31,
2004 follows below:



37



---

##### Table of Contents

For Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004



|                                  |  |                             |        |   |               |   |        |  
|--------------------------------- |  | --------------------------- | ------ | - | ------------- | - | ------ | -
|                                  |  | Three Months EndedMarch 31, |       
|(dollars in thousands)            |  | Restated2005                |        |   | Restated 2004 |  
|Net income                        |  | $                           | 15,750 |   |               | $ | 10,697 |  
|Gains (losses) net of tax:        |  |                             |        |   |               |   |        |  
|Net gains (losses)                |  |                             | (776   | ) |               |   | 816    |  
|Net derivative losses on swaps    |  |                             | (3,820 | ) |               |   | (3,752 | )
|Tax effect                        |  |                             | 1,409  |   |               |   | 925    |  
|                                  |  |                             |        |   |               |   |        |  
|Total losses net of tax           |  |                             | (3,187 | ) |               |   | (2,011 | )
|                                  |  |                             |        |   |               |   |        |  
|Operating net income              |  | $                           | 18,937 |   |               | $ | 12,708 |  
|                                  |  |                             |        |   |               |   |        |  
|Non-interest income               |  | $                           | 23,044 |   |               | $ | 17,697 |  
|Gains (losses):                   |  |                             |        |   |               |   |        |  
|Net gains (losses)                |  |                             | (776   | ) |               |   | 816    |  
|Net derivative losses on swaps    |  |                             | (3,820 | ) |               |   | (3,752 | )
|                                  |  |                             |        |   |               |   |        |  
|Total losses net of tax           |  |                             | (4,596 | ) |               |   | (2,936 | )
|                                  |  |                             |        |   |               |   |        |  
|Operating non-interest income     |  | $                           | 27,640 |   |               | $ | 20,633 |  
|                                  |  |                             |        |   |               |   |        |  
|Return on assets                  |  |                             | 0.99   | % |               |   | 0.82   | %
|Total losses net of tax           |  |                             | (0.21  | ) |               |   | (0.16  | )
|                                  |  |                             |        |   |               |   |        |  
|Operating return on assets        |  |                             | 1.20   | % |               |   | 0.98   | %
|                                  |  |                            
|Return on equity                  |  |                             | 10.33  | % |               |   | 12.98  | %
|Total losses net of tax           |  |                             | (2.09  | ) |               |   | (2.44  | )
|                                  |  |                             |        |   |               |   |        |  
|Operating return on equity        |  |                             | 12.42  | % |               |   | 15.42  | %
|                                  |  |                            
|Return on common equity           |  |                             | 10.31  | % |               |   | 12.94  | %
|Total losses net of tax           |  |                             | (2.08  | ) |               |   | (2.44  | )
|                                  |  |                             |        |   |               |   |        |  
|Operating return on common equity |  |                             | 12.39  | % |               |   | 15.38  | %



Overview



Providents continued focus on financial fundamentals produced strong results for the
quarter. The Corporation recorded net income of $15.8 million or $0.47 per diluted share in the quarter ended March 31, 2005 compared to $10.7 million and $0.42 per diluted share in first quarter 2004, representing increases over first quarter
2004 of 47% and 12%, respectively. Operating results from the merger with Southern Financial have been included for the entire first quarter 2005.



Return on assets and return on common equity was 0.99% and 10.31%, respectively at March 31, 2005 compared to 0.82% and 12.94%, respectively, at March 31, 2004.
The Corporations key performance measurements such as operating return on assets and operating return on common equity were 1.20% and 12.39% respectively, in the quarter ended March 31, 2005 compared to 0.98% and 15.38%, respectively over
the prior year quarter.



Solid loan growth in key business segments and the
effects of the Southern Financial merger augmented first quarter results. Improved earnings included an increase of $7.8 million in the net interest margin, a $0.8 million decrease in the provision for loan losses and a $5.3 million increase in
non-interest income, which were partially offset by a $6.9 million increase in non-interest expense and a $2.0 million increase in income tax expense, resulting in a $5.1 million increase in net income from first quarter 2004.



38



---

##### Table of Contents

Net Interest Income



The Corporations principal source of revenue is net interest income, which is the difference between interest income on earning assets and interest expense on
deposits and borrowings. Interest income is presented on a tax-equivalent basis to recognize associated tax benefits in order to provide a basis for comparison of yields with taxable earning assets. The table on the following pages analyzes the
reasons for the changes from period-to-period in the principal elements that comprise net interest income. Rate and volume variances presented for each component will not total the variances presented on totals of interest income and interest
expense because of shifts from period-to-period in the relative mix of interest-earning assets and interest-bearing liabilities.



39



---

##### Table of Contents

Condensed Consolidated Average Balances and Analysis of Changes in Tax Equivalent Net Interest Income



Three Months Ended March 31, 2005 and 2004



|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|--------------------------------------------- |  | ------------------------------------------ | --------- | - | ------------------------------------------ | - | ------ | ---------- |  | ---- | -------------- |  | - | -------------- | - |  | ---------- | ------ | - |  | ---- | -
|                                              |  | Three Months Ended Restated March 31, 2005 |           |   | Three Months Ended Restated March 31, 2004 |  
|(dollars in thousands) (tax-equivalent
basis) |  | AverageBalance                             |           |   | Income/Expense                             |   |        | Yield/Rate |  |      | AverageBalance |  |   | Income/Expense |   |  | Yield/Rate |       
|Assets:                                       |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Interest-earning assets:                      |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Originated and acquired residential           |  | $                                          | 639,845   |   |                                            | $ | 9,485  |            |  | 6.01 | %              |  | $ | 678,996        |   |  | $          | 10,318 |   |  | 6.11 | %
|Home equity                                   |  |                                            | 724,721   |   |                                            |   | 9,352  |            |  | 5.23 |                |  |   | 519,019        |   |  |            | 6,132  |   |  | 4.75 |  
|Marine                                        |  |                                            | 432,891   |   |                                            |   | 5,583  |            |  | 5.23 |                |  |   | 463,706        |   |  |            | 6,047  |   |  | 5.24 |  
|Other consumer                                |  |                                            | 38,250    |   |                                            |   | 771    |            |  | 8.17 |                |  |   | 44,361         |   |  |            | 870    |   |  | 7.89 |  
|Commercial mortgage                           |  |                                            | 484,661   |   |                                            |   | 7,172  |            |  | 6.00 |                |  |   | 321,943        |   |  |            | 4,340  |   |  | 5.42 |  
|Residential construction                      |  |                                            | 259,940   |   |                                            |   | 3,886  |            |  | 6.06 |                |  |   | 169,767        |   |  |            | 2,026  |   |  | 4.80 |  
|Commercial construction                       |  |                                            | 281,705   |   |                                            |   | 3,914  |            |  | 5.63 |                |  |   | 216,648        |   |  |            | 2,015  |   |  | 3.74 |  
|Commercial business                           |  |                                            | 680,837   |   |                                            |   | 10,529 |            |  | 6.27 |                |  |   | 395,614        |   |  |            | 5,420  |   |  | 5.51 |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Total loans                                   |  |                                            | 3,542,850 |   |                                            |   | 50,692 |            |  | 5.80 |                |  |   | 2,810,054      |   |  |            | 37,168 |   |  | 5.32 |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Loans held for sale                           |  |                                            | 6,093     |   |                                            |   | 88     |            |  | 5.86 |                |  |   | 4,149          |   |  |            | 64     |   |  | 6.20 |  
|Short-term investments                        |  |                                            | 8,671     |   |                                            |   | 43     |            |  | 2.01 |                |  |   | 1,592          |   |  |            | 2      |   |  | 0.51 |  
|Taxable investment securities                 |  |                                            | 2,156,984 |   |                                            |   | 24,321 |            |  | 4.57 |                |  |   | 2,076,516      |   |  |            | 22,534 |   |  | 4.36 |  
|Tax-advantaged investment securities          |  |                                            | 12,995    |   |                                            |   | 231    |            |  | 7.21 |                |  |   | 16,799         |   |  |            | 298    |   |  | 7.13 |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Total investment securities                   |  |                                            | 2,169,979 |   |                                            |   | 24,552 |            |  | 4.59 |                |  |   | 2,093,315      |   |  |            | 22,832 |   |  | 4.39 |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Total interest-earning assets                 |  |                                            | 5,727,593 |   |                                            |   | 75,375 |            |  | 5.34 |                |  |   | 4,909,110      |   |  |            | 60,066 |   |  | 4.92 |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Less: allowance for loan losses               |  |                                            | (46,051   | ) |                                            |   |        |            |  |      |                |  |   | (35,576        | ) |  |            |        |   |  |      |  
|Cash and due from banks                       |  |                                            | 127,760   |   |                                            |   |        |            |  |      |                |  |   | 118,671        |   |  |            |        |   |  |      |  
|Other assets                                  |  |                                            | 616,048   |   |                                            |   |        |            |  |      |                |  |   | 238,582        |   |  |            |        |   |  |      |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Total assets                                  |  | $                                          | 6,425,350 |   |                                            |   |        |            |  |      |                |  | $ | 5,230,787      |   |  |            |        |   |  |      |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Liabilities and Stockholders Equity:         |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Interest-bearing liabilities:                 |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Demand/money market deposits                  |  | $                                          | 1,053,189 |   |                                            |   | 2,208  |            |  | 0.85 |                |  | $ | 917,273        |   |  |            | 1,330  |   |  | 0.58 |  
|Savings deposits                              |  |                                            | 749,080   |   |                                            |   | 540    |            |  | 0.29 |                |  |   | 715,265        |   |  |            | 510    |   |  | 0.29 |  
|Direct time deposits                          |  |                                            | 798,065   |   |                                            |   | 4,476  |            |  | 2.27 |                |  |   | 652,280        |   |  |            | 3,322  |   |  | 2.05 |  
|Brokered time deposits                        |  |                                            | 373,809   |   |                                            |   | 4,104  |            |  | 4.45 |                |  |   | 218,863        |   |  |            | 3,452  |   |  | 6.34 |  
|Short-term borrowings                         |  |                                            | 837,946   |   |                                            |   | 4,473  |            |  | 2.16 |                |  |   | 670,194        |   |  |            | 1,578  |   |  | 0.95 |  
|Long-term debt                                |  |                                            | 1,174,439 |   |                                            |   | 10,670 |            |  | 3.68 |                |  |   | 1,135,984      |   |  |            | 8,752  |   |  | 3.10 |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Total interest-bearing liabilities            |  |                                            | 4,986,528 |   |                                            |   | 26,471 |            |  | 2.15 |                |  |   | 4,309,859      |   |  |            | 18,944 |   |  | 1.77 |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Noninterest-bearing demand deposits           |  |                                            | 791,747   |   |                                            |   |        |            |  |      |                |  |   | 567,530        |   |  |            |        |   |  |      |  
|Other liabilities                             |  |                                            | 27,336    |   |                                            |   |        |            |  |      |                |  |   | 20,974         |   |  |            |        |   |  |      |  
|Stockholders equity                          |  |                                            | 619,739   |   |                                            |   |        |            |  |      |                |  |   | 332,424        |   |  |            |        |   |  |      |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Total liabilities and stockholders equity    |  | $                                          | 6,425,350 |   |                                            |   |        |            |  |      |                |  | $ | 5,230,787      |   |  |            |        |   |  |      |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Net interest-earning assets                   |  | $                                          | 741,065   |   |                                            |   |        |            |  |      |                |  | $ | 599,251        |   |  |            |        |   |  |      |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Net interest income (tax-equivalent)          |  |                                            |           |   |                                            |   | 48,904 |            |  |      |                |  |   |                |   |  |            | 41,122 |   |  |      |  
|Less: tax-equivalent adjustment               |  |                                            |           |   |                                            |   | (188   | )          |  |      |                |  |   |                |   |  |            | (203   | ) |  |      |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Net interest income                           |  |                                            |           |   |                                            | $ | 48,716 |            |  |      |                |  |   |                |   |  | $          | 40,919 |   |  |      |  
|                                              |  |                                            |           |   |                                            |   |        |            |  |      |                |  |   |                |   |  |            |        |   |  |      |  
|Net yield on interest-earning assets          |  |                                            |           |   |                                            |   |        |            |  | 3.46 | %              |  |   |                |   |  |            |        |   |  | 3.37 | %



40



---

##### Table of Contents

Condensed Consolidated Average Balances and Analysis of Changes in Tax Equivalent Net Interest Income (Continued)



Three Months Ended March 31, 2005 and 2004



|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|--------------------------------------------- |  | -------------------------------------- | --------- | - | --------------------------------------------------------- | ----- | -- | -------------- | - | ------ | ------- |  | ------- | ----------- |  | - | ------------- | - |  | - | ------ | -
|                                              |  | Restated                               |           |   | Quarter to QuarterIncome/ExpenseVariance Due to Change In |      
|                                              |  | Quarter to Quarter Increase/(Decrease) |           |  
|(dollars in thousands) (tax-equivalent
basis) |  | AverageBalance                         |           |   | %Change                                                   |       |    | Income/Expense |   |        | %Change |  |         | AverageRate |  |   | AverageVolume |  
|Assets:                                       |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Interest-earning assets:                      |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Originated and acquired residential           |  | $                                      | (39,151   | ) |                                                           | (5.8  | )% |                | $ | (833   | )       |  | (8.1    | )%          |  | $ | (184          | ) |  | $ | (649   | )
|Home equity                                   |  |                                        | 205,702   |   |                                                           | 39.6  |    |                |   | 3,220  |         |  | 52.5    |             |  |   | 656           |   |  |   | 2,564  |  
|Marine                                        |  |                                        | (30,815   | ) |                                                           | (6.6  | )  |                |   | (464   | )       |  | (7.7    | )           |  |   | (18           | ) |  |   | (446   | )
|Other consumer                                |  |                                        | (6,111    | ) |                                                           | (13.8 | )  |                |   | (99    | )       |  | (11.4   | )           |  |   | 29            |   |  |   | (128   | )
|Commercial mortgage                           |  |                                        | 162,718   |   |                                                           | 50.5  |    |                |   | 2,832  |         |  | 65.3    |             |  |   | 494           |   |  |   | 2,338  |  
|Residential construction                      |  |                                        | 90,173    |   |                                                           | 53.1  |    |                |   | 1,860  |         |  | 91.8    |             |  |   | 616           |   |  |   | 1,244  |  
|Commercial construction                       |  |                                        | 65,057    |   |                                                           | 30.0  |    |                |   | 1,899  |         |  | 94.2    |             |  |   | 1,192         |   |  |   | 707    |  
|Commercial business                           |  |                                        | 285,223   |   |                                                           | 72.1  |    |                |   | 5,109  |         |  | 94.3    |             |  |   | 822           |   |  |   | 4,287  |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Total loans                                   |  |                                        | 732,796   |   |                                                           | 26.1  |    |                |   | 13,524 |         |  | 36.4    |             |  |   |               |   |  |   |        |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Loans held for sale                           |  |                                        | 1,944     |   |                                                           | 46.9  |    |                |   | 24     |         |  | 37.5    |             |  |   | (4            | ) |  |   | 28     |  
|Short-term investments                        |  |                                        | 7,079     |   |                                                           | 444.7 |    |                |   | 41     |         |  | 2,050.0 |             |  |   | 16            |   |  |   | 25     |  
|Taxable investment securities                 |  |                                        | 80,468    |   |                                                           | 3.9   |    |                |   | 1,787  |         |  | 7.9     |             |  |   | 986           |   |  |   | 801    |  
|Tax-advantaged investment securities          |  |                                        | (3,804    | ) |                                                           | (22.6 | )  |                |   | (67    | )       |  | (22.5   | )           |  |   | 3             |   |  |   | (70    | )
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Total investment securities                   |  |                                        | 76,664    |   |                                                           | 3.7   |    |                |   | 1,720  |         |  | 7.5     |             |  |   |               |   |  |   |        |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Total interest-earning assets                 |  |                                        | 818,483   |   |                                                           | 16.7  |    |                |   | 15,309 |         |  | 25.5    |             |  |   | 5,150         |   |  |   | 10,159 |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Less: allowance for loan losses               |  |                                        | (10,475   | ) |                                                           | 29.4  |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Cash and due from banks                       |  |                                        | 9,089     |   |                                                           | 7.7   |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Other assets                                  |  |                                        | 377,466   |   |                                                           | 158.2 |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Total assets                                  |  | $                                      | 1,194,563 |   |                                                           | 22.8  |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Liabilities and Stockholders Equity:         |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Interest-bearing liabilities:                 |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Demand/money market deposits                  |  | $                                      | 135,916   |   |                                                           | 14.8  |    |                |   | 878    |         |  | 66.0    |             |  |   | 663           |   |  |   | 215    |  
|Savings deposits                              |  |                                        | 33,815    |   |                                                           | 4.7   |    |                |   | 30     |         |  | 5.9     |             |  |   | 9             |   |  |   | 21     |  
|Direct time deposits                          |  |                                        | 145,785   |   |                                                           | 22.4  |    |                |   | 1,154  |         |  | 34.7    |             |  |   | 382           |   |  |   | 772    |  
|Brokered time deposits                        |  |                                        | 154,946   |   |                                                           | 70.8  |    |                |   | 652    |         |  | 18.9    |             |  |   | (1,243        | ) |  |   | 1,895  |  
|Short-term borrowings                         |  |                                        | 167,752   |   |                                                           | 25.0  |    |                |   | 2,895  |         |  | 183.5   |             |  |   | 2,423         |   |  |   | 472    |  
|Long-term debt                                |  |                                        | 38,455    |   |                                                           | 3.4   |    |                |   | 1,918  |         |  | 21.9    |             |  |   | 1,627         |   |  |   | 291    |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Total interest-bearing liabilities            |  |                                        | 676,669   |   |                                                           | 15.7  |    |                |   | 7,527  |         |  | 39.7    |             |  |   | 4,374         |   |  |   | 3,153  |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Noninterest-bearing demand deposits           |  |                                        | 224,217   |   |                                                           | 39.5  |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Other liabilities                             |  |                                        | 6,362     |   |                                                           | 30.3  |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Stockholders equity                          |  |                                        | 287,315   |   |                                                           | 86.4  |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Total liabilities and stockholders equity    |  | $                                      | 1,194,563 |   |                                                           | 22.8  |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Net interest-earning assets                   |  | $                                      | 141,814   |   |                                                           | 23.7  |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Net interest income (tax-equivalent)          |  |                                        |           |   |                                                           |       |    |                |   | 7,782  |         |  | 18.9    |             |  | $ | 776           |   |  | $ | 7,006  |  
|Less: tax-equivalent adjustment               |  |                                        |           |   |                                                           |       |    |                |   | 15     |         |  | (7.4    | )           |  |   |               |   |  |   |        |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  
|Net interest income                           |  |                                        |           |   |                                                           |       |    |                | $ | 7,797  |         |  | 19.1    |             |  |   |               |   |  |   |        |  
|                                              |  |                                        |           |   |                                                           |       |    |                |   |        |         |  |         |             |  |   |               |   |  |   |        |  



41



---

##### Table of Contents

The net interest margin, on a tax-equivalent basis, increased 9 basis points to 3.46% and was driven by continued solid
growth in lending activities. Average loan growth of $733 million drove average earning assets up to $5.7 billion during the quarter. The yield on earning assets correspondingly increased as a result of the loan growth which more than offset the
increase in funding costs. In addition, higher yielding investment securities were purchased with proceeds from sales of investment securities during the quarter.



Net interest income on a tax-equivalent basis was $48.9 million in first quarter 2005, compared to $41.1 million in first quarter 2004.
Total interest income increased $15.3 million and total interest expense increased $7.5 million. The overall improvement in net interest income and the net yield is partially a result of the addition of Southern Financials assets and
liabilities for first quarter 2005.



The yield on earning assets was 5.34% in
first quarter 2005, a 42 basis point increase from 4.92% in first quarter 2004. A higher ratio of average loans to investment securities and the benefits derived from the addition of the Southern Financial loan portfolio resulted in the higher
interest income.



The average rate paid on interest-bearing liabilities
increased 38 basis points to 2.15% in first quarter 2005, from 1.77% in first quarter 2004. The decline in the average rate paid was primarily due to lower rate callable brokered CDs acquired in the merger that replaced higher rate brokered CDs that
matured during the period. Interest expense benefited further from a $224 million increase in average noninterest-bearing deposit balances during the quarter.



The corporation has an ongoing risk management strategy of using derivative transactions to maintain a stable net interest margin. As a result of derivative
transactions undertaken to mitigate the affect of interest rate risk on the Corporation, interest income decreased by $287 thousand and interest expense increased by $429 thousand, for a total decrease of $716 thousand in net interest income
relating to derivative transactions for the quarter ended March 31, 2005. Future growth in net interest income will depend upon consumer and commercial loan demand, growth in deposits and the general level of interest rates.



Provision for Loan Losses



The Corporations underwriting and collection efforts, as well as aggressive management
of potential problem loans resulted in a provision for loan losses of $1.6 million in first quarter 2005 compared to $2.4 million in first quarter 2004. Net charge-offs were $2.1 million, or 0.24% of average loans, in first quarter 2005 compared to
$1.8 million, or 0.26% of average loans, in first quarter 2004. Acquired residential loan net charge-offs as a percentage of average acquired residential loans continued to decline during the period, from 0.83% in first quarter 2004 to 0.47% in
first quarter 2005.



Non-Interest Income



Non-interest income grew 30% to $23.0 million, up from $17.7 million in the first quarter
2004. Operating non-interest income grew $7 million, or 34% from 2004. Deposit fee income increased 4%, reflecting increases in consumer and commercial deposit fees. Virtually all of the increase in consumer deposit fees was from the addition of the
Southern Financial account base, as well as debit card fee income, which increased 39%. As with many of the Banks peers, consumer deposit fees are being negatively impacted by decreases in checking transactions and decreases in NSF activity
during the quarter. Net cash settlement on swaps, representing interest income and expense on non-designated interest rate swaps, increased $3.7 million from first quarter 2004, due to the addition of over $300 million of received fixed/pay variable
swaps hedging brokered CDs, primarily acquired through the merger with Southern Financial. Other non-interest income also included $1.5 million of proceeds related to cash surrender value insurance policies maintained by the Corporation for the
quarter ended March 31, 2005.



Net losses were $776 thousand in first
quarter 2005, compared to net gains of $816 thousand in first quarter 2004. First quarter 2005 included investment/borrowing transactions that were focused on improving future interest yield performance. These transactions generated net losses of
$876 thousand from the sales of securities and net losses of $51 thousand from the extinguishment of $36 million of FHLB borrowings. The proceeds from the sales were used to purchase investment securities at higher yields. The disposition of loans
and foreclosed properties, which occur in the ordinary course of business, generated net gains of $151 thousand in 2005. Derivative losses increased $68 thousand over first quarter 2004.



42



---

##### Table of Contents

Non-Interest Expense



Non-interest expense of $47.5 million for first quarter 2005 was $6.9 million higher than first quarter 2004. Of this increase, approximately $4.4 million was
attributable to the Corporations expansion activities, including its merger with Southern Financial. The growth in non-interest expense, other than that which was impacted by expenses relating to expansion, was $2.5 million. Non-interest
expense included the impact of $1.4 million in professional fees for services rendered in first quarter 2005 relating to 2004 compliance with the Sarbanes-Oxley Act of 2002. Also included in non-interest expense was a reduction of $1.6 million
related to the termination of the Corporations postretirement benefits plan, which was communicated to participants in March 2005.



Income Taxes



The Corporation accounts for income taxes under the asset/liability method. Deferred tax assets and liabilities are recognized for the future consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, as well as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period indicated by the enactment date. A valuation
allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become realizable. The judgment about the level of future taxable income is dependent to a
great extent on matters that may at least in part, be beyond the Banks control. It is at least reasonably possible that managements judgment about the need for a valuation allowance for deferred taxes could change in the near term. The
valuation allowance was $1.8 million at March 31, 2005 versus $1.7 million at December 31, 2004.



The Corporation recorded income tax expense of $7.0 million based on pre-tax income of $22.7 million, representing an effective tax rate of 30.65% in first quarter 2005. In first quarter 2004, the Corporation recorded
a tax expense of $4.9 million on pre-tax income of $15.6 million, an effective tax rate of 31.5%. The effective tax rate declined due primarily to the impact of the Corporations increased investments in affordable housing credits and
bank-owned life insurance and its proceeds, as well as a decrease in state income tax expense.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



For information regarding market risk at December 31, 2004, see Interest Sensitivity Management and Note 15 to the Condensed Consolidated Financial Statements in the Corporations Form 10-K/A
filed with the Securities and Exchange Commission on December 22, 2005. The market risk of the Corporation has not experienced any material changes as of March 31, 2005 from December 31, 2004. Additionally, refer to Item 2 
Managements Discussion and Analysis of Financial Condition and Results of Operations for additional quantitative and qualitative discussions about market risk at March 31, 2005.



Item 4. Controls and Procedures



The
Corporations management, including the Corporations principal executive officer and principal financial officer, have evaluated the effectiveness of the Corporations disclosure controls and procedures, as such term is
defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the Exchange Act). This evaluation included consideration of a deficiency in the disclosure controls and procedures relating to the accounting
for derivatives. As a result of this deficiency (described in the paragraph below), errors occurred in the Corporations application of the short-cut method of fair value hedge accounting under Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) to certain of its derivative securities. This is described in Note 2 of the unaudited condensed consolidated financial
statements for the three month period ending March 31, 2005. The errors in the application of SFAS No. 133 resulted in the restatement of the Corporations financial statements at and for the quarters ended June 30, 2005 and
March 31, 2005; and at and for the year ended December 31, 2004. Based upon that evaluation, the Corporations principal executive officer and principal



43



---

##### Table of Contents

financial officer concluded that a material weakness existed in the Corporations internal control over financial
reporting and that, as of the end of the period covered by this report, the Corporations disclosure controls and procedures were not effective.



The Corporations policies and procedures did not provide for sufficient testing and verification of the criteria for the short-cut method to ensure
proper application of the provisions of SFAS No. 133 at inception for certain derivative financial instruments and did not provide for periodic timely review of the proper accounting for certain derivative financial instruments for periods
subsequent to inception. This material weakness has resulted in the restatement of the Companys financial statements for the first two quarters of 2005 and for the year ended December 31, 2004. The financial statement impacts to the
Unaudited Condensed Consolidated Financial Statements are described in Note 2.



No change in the Corporations internal control over financial reporting occurred during the quarter ended March 31, 2005 that has materially affected, or is reasonably likely to materially affect, the Corporations internal
control over financial reporting. However due to the above-referenced deficiency, subsequent to March 31, 2005, the Corporation will redesignate its derivative financial instruments as hedges utilizing the long haul method of
effectiveness testing, and as a result, will apply hedge accounting treatment for the derivatives for future periods. The Corporation is in the process of designing various modifications to its internal control over financial reporting for
derivatives that it acquires in the future, including introducing the necessary documentation to achieve fair value and cash flow hedge accounting treatment for those derivatives.



PART II  Other Information



Item 1. Legal Proceedings



The Corporation
is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Management believes such routine legal proceedings, in the aggregate, will not have a material adverse affect on the
Corporations financial condition or results of operation.



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds



During 1998, the Corporation initiated a stock repurchase program for its outstanding stock. Under this plan the Corporation approved the repurchase of specific additional amounts of shares without any specific
expiration date. As the Corporation fulfilled each specified repurchase amount, additional amounts were approved. Most recently, on January 15, 2003, the Corporation approved an additional stock repurchase of 1.0 million shares. Currently
the maximum number of shares remaining to be purchased under this plan is 472,891. All shares have been repurchased pursuant to the publicly announced plan.



The following table provides certain information with regard to shares repurchased by the Corporation in the first quarter of 2005.



|                         |  |                                |  |                            |       |                                           |         |                                                            |        
|------------------------ |  | ------------------------------ |  | -------------------------- | ----- | ----------------------------------------- | ------- | ---------------------------------------------------------- | -------
|Period                   |  | Total Numberof SharesPurchased |  | AveragePrice Paidper Share |       | Total Number ofShares PurchasedUnder Plan |         | Maximum Numberof Shares Remainingto be PurchasedUnder Plan
|January 1 - January 31   |  | 136,324                        |  | $                          | 34.77 |                                           | 136,324 |                                                            | 472,891
|February 1 - February 28 |  |                               |  |                            |      |                                           |        |                                                            | 472,891
|March 1 - March 31       |  |                               |  |                            |      |                                           |        |                                                            | 472,891
|                         |  |                                |  |                            |       |                                           |         |                                                            |        
|Total                    |  | 136,324                        |  | $                          | 34.77 |                                           | 136,324 |                                                            | 472,891



Item 3. Defaults Upon Senior Securities  None



Item 4. Submission of Matters to a Vote of Security Holders  None



44



---

##### Table of Contents

Item 5. Other Information



The following
disclosure would otherwise have been filed on Form 8-K under the heading: Item 1.01. Entry into a Material Definitive Agreement:



The Corporation has entered into change in control agreements with the following executive officers: Gary N. Geisel, Kevin G. Byrnes, Richard J. Oppitz and Dennis A.
Starliper. These agreements, as modified on May 6, 2005, replace the former agreements between the executives and the Corporation and the Bank. As in the former agreements, following a change in control, if the executives are involuntarily
terminated other than for just cause (as defined in the agreements) or if they terminate voluntarily under circumstances constituting constructive termination (as defined in the agreements), they become entitled to a cash payment equal to three
times their average annual taxable compensation for the five (5) consecutive taxable years preceding their termination date, as reported on Box 1 of Form W-2, as well as continued life and medical insurance for thirty-six months following
termination. As modified, however, the agreements exclude from the above definition of average annual compensation any taxable compensation realized upon the vesting of restricted stock and the exercise of stock options. The modified agreements also
provide that the executives may resign for any reason within one year after a change in control and receive a sum equal to one half their base salary and continued life and medical coverage for six months (or the cash equivalent).



Item 6. Exhibits



The exhibits and financial
statements filed as a part of this report are as follows:



|      |   |  |                                                                                                                                                                
|----- | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2.0  | ) |  | Agreement and Plan of Reorganization between Provident Bankshares Corporation and Southern Financial Bancorp, Inc. (1)                                         
|      |  
|(3.1  | ) |  | Articles of Amendment to the Articles of Incorporation of Provident Bankshares Corporation (2)                                                                 
|      |  
|(3.2  | ) |  | Fifth Amended and Restated By-Laws of Provident Bankshares Corporation (3)                                                                                     
|      |  
|(10.1 | ) |  | Form of Change in Control Agreement between Provident Bankshares Corporation and Gary N. Geisel, Kevin G. Byrnes, Richard J. Oppitz and Dennis A. Starliper (5)
|      |  
|(11.0 | ) |  | Statement re: Computation of Per Share Earnings (4)                                                                                                            
|      |  
|(31.1 | ) |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                                                                                              
|      |  
|(31.2 | ) |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                                                                                              
|      |  
|(32.1 | ) |  | Section 1350 Certification of Chief Executive Officer                                                                                                          
|      |  
|(32.2 | ) |  | Section 1350 Certification of Chief Financial Officer                                                                                                          

---

|(1) | Incorporated by reference from Registrants Form 8-K (File No. 0-16421) filed with the Commission on November 4, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference from Registrants Registration Statement on Form S-8 (File No. 33-58881) filed with the Commission on July 10, 1998.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference from Registrants Annual Report on Form 10-K (File No. 0-16421) for the year ended December 31, 2004, filed with the Commission on March 16,
2005.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Included in Note 14 to the Unaudited Condensed Consolidated Financial Statements.
|--- | ---------------------------------------------------------------------------------

|(5) | Incorporated by reference from Registrants Quarterly Report on Form10-Q (File No. 0-16421) for the quarter ended March 31, 2005, filed with the Commission on May 10, 2005.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



45



---

##### Table of Contents

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.



|                  |  |                              |  |                                                                         
|----------------- |  | ---------------------------- |  | ------------------------------------------------------------------------
|                  |  | Principal Executive Officer:
|                  |  |                             
|December 22, 2005 |  | By                           |  | /s/ GARY N. GEISEL                                                      
|                  |  |                              |  | Gary N. Geisel Chairman of the Board and Chief Executive Officer        
|                  | 
|                  |  | Principal Financial Officer:
|                  |  |                             
|December 22, 2005 |  | By                           |  | /s/ DENNIS A. STARLIPER                                                 
|                  |  |                              |  | Dennis A. Starliper Executive Vice President
and Chief Financial Officer



46



---

##### Table of Contents

EXHIBIT INDEX



|        |  |                                                                  
|------- |  | -----------------------------------------------------------------
|EXHIBIT |  | DESCRIPTION                                                      
|31.1    |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
|31.2    |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
|32.1    |  | Section 1350 Certification of Chief Executive Officer            
|32.2    |  | Section 1350 Certification of Chief Financial Officer