Baltimore's Sterling Bancorp, which took the unusual step of suing a much larger institution to force it to go through with a merger, is battling new charges that it hid bad loans and lied about a past merger attempt.

Provident Bankshares amended its May countersuit against $70-million-asset Sterling, charging that officials there tried to camouflage nearly $8 million in overdue loans because they weren't properly underwritten with updated financial information, appraisals, or other documentation, according to court records filed last week in Baltimore City Circuit Court.

The countersuit was filed after Sterling sued $1.8 billion-asset Provident in March for breach of contract, claiming that a December letter of intent to merge was binding on Provident. Provident pulled out of the deal in February and has asked the court formally to release it from die letter. Sterling official deny all of the allegations.

"We sued diem for breach of contract," said president and chief executive Arthur L. Silber. "When somebody doesn't have a case, they come back at you and sue you for fraudulent misrepresentation. They don't even try to argue on die basis of the contract because that's totally binding."

According to the updated Provident brief, Sterling officials knew the faulty underwriting prevented the bad loans from being extended and thus tried to convert them to "demand" loans with no maturity date so they could still be considered performing.

And, the countersuit alleges, three different reviews of Sterling's internal operations have found serious deficiencies - including outdated policies, poor management, conflicts of interest, and unsound banking practices.

"The counterclaims set forth in some detail problems that parties other than Provident have found in regard to Sterling," said Provident attorney Gerard J. Gaeng, of Whiteford, Taylor & Preston. "Those conclusions are consistent with what Provident found when it performed its, due diligence." The new brief also accuses Sterling officials of lying to Provident about the collapse of earlier merger talks with Mason-Dixon Bancshares of Westminster, Md.

The countersuit claims NU. Silber had told Provident that he had terminated the discussions because of Mason-Dixon's negative gap interest exposure. But, it continues, Provident learned that Mason-Dixon had actually cut off the talks because officials discovered Sterling's regulatory and loan problems.

Mr. Silber said Provident has "taken certain statements to totally twist and misrepresent what the actual documentary evidence of the case is at this particular point." Mr. Silber also attacked Carl Steam, Provident"s chairman and chief executive. "Carl Steam is an arrogant twit who is going to have one hell of a lesson taught to him," said Mr. Silber. "They're just trying to try this thing in the press and we have no alternative but to try to respond to it."

Mr. Steam brushed off Mr. Silbers comments with a laugh, saying, "It's a free country."

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