UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,
D.C. 20549



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FORM 10-Q



(MARK ONE)



xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



For the Quarterly Period Ended March 31, 2003



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 0-5127

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MERCANTILE BANKSHARES CORPORATION

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(Exact name of registrant as specified in its charter)



|Maryland                                                       |  | 52-0898572                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                              
|2 Hopkins Plaza, Baltimore, Maryland                           |  | 21201                               
|(Address of principal executive offices)                       |  | (Zip code)                          



(410)
237-5900

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(Registrants telephone number, including area code)



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(Former name, former address and former fiscal year, if changed since last report)



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 Exchange Act Rule
12b-2). Yes x    No ̈



APPLICABLE ONLY TO CORPORATE ISSUERS:



Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest practical date. As of April 16, 2003, registrant had outstanding 68,926,446 shares of Common Stock.



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Page 2



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)



MERCANTILE BANKSHARES CORPORATION

CONSOLIDATED BALANCE SHEETS



|(Dollars in thousands, except per share data)                                                                                                                                                                                      |  | March 31, 2003 |            |   | December 31,2002 |   |            | March 31,2002 | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | - | ---------------- | - | ---------- | ------------- | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|                                                                                                                                                                                                                                  
|ASSETS                                                                                                                                                                                                                             |  |                |            |   |                  |   |            |               | 
|Cash and due from banks                                                                                                                                                                                                            |  | $              | 307,404    |   |                  | $ | 281,130    |               | 
|Interest-bearing deposits in other banks                                                                                                                                                                                           |  |                | 358        |   |                  |   | 358        |               | 
|Federal funds sold                                                                                                                                                                                                                 |  |                | 245,513    |   |                  |   | 264,293    |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|Total cash and cash equivalents                                                                                                                                                                                                    |  |                | 553,275    |   |                  |   | 545,781    |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|                                                                                                                                                                                                                                  
|Investment securities available-for-sale (Note 3)                                                                                                                                                                                  |  |                | 2,641,976  |   |                  |   | 2,511,192  |               | 
|Investment securities held-to-maturity (Note 3)                                                                                                                                                                                    |  |                | 53,918     |   |                  |   | 53,391     |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|Loans held-for-sale                                                                                                                                                                                                                |  |                |           |   |                  |   |           |               | 
|Loans:                                                                                                                                                                                                                             |  |                |            |   |                  |   |            |               | 
|Commercial                                                                                                                                                                                                                         |  |                | 4,403,331  |   |                  |   | 4,317,263  |               | 
|Construction                                                                                                                                                                                                                       |  |                | 850,420    |   |                  |   | 810,985    |               | 
|Residential real estate                                                                                                                                                                                                            |  |                | 1,087,207  |   |                  |   | 1,066,694  |               | 
|Consumer                                                                                                                                                                                                                           |  |                | 1,011,637  |   |                  |   | 1,014,905  |               | 
|Lease financing                                                                                                                                                                                                                    |  |                | 93,958     |   |                  |   | 102,180    |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|Total loans                                                                                                                                                                                                                        |  |                | 7,446,553  |   |                  |   | 7,312,027  |               | 
|Less: allowance for loan losses                                                                                                                                                                                                    |  |                | (140,427   | ) |                  |   | (138,601   | )             | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|Loans, net                                                                                                                                                                                                                         |  |                | 7,306,126  |   |                  |   | 7,173,426  |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|Bank premises and equipment, less accumulated depreciation
of$122,073 (2003), $119,666 (December 2002) and $115,793 (March 2002)                                                                                                   |  |                | 103,847    |   |                  |   | 102,428    |               | 
|Other real estate owned, net                                                                                                                                                                                                       |  |                | 194        |   |                  |   | 132        |               | 
|Goodwill, net                                                                                                                                                                                                                      |  |                | 115,407    |   |                  |   | 102,705    |               | 
|Other intangible assets, net (Note 6)                                                                                                                                                                                              |  |                | 17,740     |   |                  |   | 7,530      |               | 
|Other assets                                                                                                                                                                                                                       |  |                | 226,138    |   |                  |   | 293,791    |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|Total assets                                                                                                                                                                                                                       |  | $              | 11,018,621 |   |                  | $ | 10,790,376 |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|LIABILITIES                                                                                                                                                                                                                        |  |                |            |   |                  |   |            |               | 
|Deposits:                                                                                                                                                                                                                          |  |                |            |   |                  |   |            |               | 
|Noninterest-bearing deposits                                                                                                                                                                                                       |  | $              | 2,121,444  |   |                  | $ | 2,086,745  |               | 
|Interest-bearing deposits                                                                                                                                                                                                          |  |                | 6,374,039  |   |                  |   | 6,174,195  |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|Total deposits                                                                                                                                                                                                                     |  |                | 8,495,483  |   |                  |   | 8,260,940  |               | 
|Short-term borrowings                                                                                                                                                                                                              |  |                | 768,476    |   |                  |   | 823,385    |               | 
|Accrued expenses and other liabilities                                                                                                                                                                                             |  |                | 111,792    |   |                  |   | 94,479     |               | 
|Long-term debt                                                                                                                                                                                                                     |  |                | 290,576    |   |                  |   | 287,214    |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|Total liabilities                                                                                                                                                                                                                  |  |                | 9,666,327  |   |                  |   | 9,466,018  |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|SHAREHOLDERS EQUITY                                                                                                                                                                                                               |  |                |            |   |                  |   |            |               | 
|Preferred stock, no par value; authorized 2,000,000 shares; issued and outstanding  None                                                                                                                                          |  |                |            |   |                  |   |            |               | 
|Common stock, $2 par value; authorized 130,000,000 shares; issued shares68,919,397
(2003), 68,836,092 (December 2002) and 69,891,078 (March 2002); restricted shares 91,127 (2003), 76,250 (December 2002) and None (March 2002) |  |                | 137,839    |   |                  |   | 137,672    |               | 
|Capital surplus                                                                                                                                                                                                                    |  |                | 124,029    |   |                  |   | 120,577    |               | 
|Retained earnings                                                                                                                                                                                                                  |  |                | 1,038,143  |   |                  |   | 1,010,248  |               | 
|Accumulated other comprehensive income (loss)                                                                                                                                                                                      |  |                | 52,283     |   |                  |   | 55,861     |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|Total shareholders equity                                                                                                                                                                                                         |  |                | 1,352,294  |   |                  |   | 1,324,358  |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 
|Total liabilities and shareholders equity                                                                                                                                                                                         |  | $              | 11,018,621 |   |                  | $ | 10,790,376 |               | 
|                                                                                                                                                                                                                                   |  |                |            |   |                  |   |            |               | 



See notes to
consolidated financial statements



Mercantile
Bankshares Corporation



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Page 3



MERCANTILE BANKSHARES CORPORATION

STATEMENT OF CONSOLIDATED INCOME



|                                                    |  | For the 3 Months Ended March 31, |        
|--------------------------------------------------- |  | -------------------------------- | -------
|(Dollars in thousands, except per share data)       |  | 2003                             |        
|                                                    |  |                                  |        
|                                                   
|INTEREST INCOME                                     |  |                                  |        
|Interest and fees on loans                          |  | $                                | 110,992
|                                                    |  |                                  |        
|Interest and dividends on investment securities:    |  |                                  |        
|Taxable interest income                             |  |                                  | 21,195 
|Tax-exempt interest income                          |  |                                  | 467    
|Dividends                                           |  |                                  | 229    
|Other investment income                             |  |                                  | 6,553  
|                                                    |  |                                  |        
|                                                    |  |                                  | 28,444 
|                                                    |  |                                  |        
|Other interest income                               |  |                                  | 726    
|                                                    |  |                                  |        
|Total interest income                               |  |                                  | 140,162
|                                                    |  |                                  |        
|INTEREST EXPENSE                                    |  |                                  |        
|Interest on deposits                                |  |                                  | 25,129 
|Interest on short-term borrowings                   |  |                                  | 1,545  
|Interest on long-term debt                          |  |                                  | 2,362  
|                                                    |  |                                  |        
|Total interest expense                              |  |                                  | 29,036 
|                                                    |  |                                  |        
|NET INTEREST INCOME                                 |  |                                  | 111,126
|Provision for loan losses                           |  |                                  | 3,016  
|                                                    |  |                                  |        
|NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES |  |                                  | 108,110
|                                                    |  |                                  |        
|NONINTEREST INCOME                                  |  |                                  |        
|Investment and wealth management                    |  |                                  | 17,365 
|Service charges on deposit accounts                 |  |                                  | 8,060  
|Mortgage banking related fees                       |  |                                  | 2,388  
|Investment securities gains and (losses)            |  |                                  | 815    
|Other income                                        |  |                                  | 9,225  
|                                                    |  |                                  |        
|Total noninterest income                            |  |                                  | 37,853 
|                                                    |  |                                  |        
|NONINTEREST EXPENSES                                |  |                                  |        
|Salaries                                            |  |                                  | 33,638 
|Employee benefits                                   |  |                                  | 9,428  
|Stock-based compensation expense                    |  |                                  | 102    
|Net occupancy expense of bank premises              |  |                                  | 4,096  
|Furniture and equipment expenses                    |  |                                  | 6,799  
|Communications and supplies                         |  |                                  | 3,436  
|Other expenses                                      |  |                                  | 12,282 
|                                                    |  |                                  |        
|Total noninterest expenses                          |  |                                  | 69,781 
|                                                    |  |                                  |        
|Income before income taxes                          |  |                                  | 76,182 
|Applicable income taxes                             |  |                                  | 27,196 
|                                                    |  |                                  |        
|NET INCOME                                          |  | $                                | 48,986 
|                                                    |  |                                  |        
|NET INCOME PER SHARE OF COMMON STOCK (Note 2):      |  |                                  |        
|Basic                                               |  | $                                | .71    
|                                                    |  |                                  |        
|Diluted                                             |  | $                                | .71    
|                                                    |  |                                  |        



See notes to
consolidated financial statements



Mercantile
Bankshares Corporation



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Page 4



MERCANTILE BANKSHARES CORPORATION

STATEMENT OF CONSOLIDATED CASH FLOWS



|Increase (decrease) in cash and cash equivalents                                  |  | For the 3 Months Ended March 31, |         
|--------------------------------------------------------------------------------- |  | -------------------------------- | --------
|(Dollars in thousands)                                                            |  | 2003                             |         
|                                                                                 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                                  |         
|Net income                                                                        |  | $                                | 48,986  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                  |         
|Provision for loan losses                                                         |  |                                  | 3,016   
|Depreciation and amortization                                                     |  |                                  | 3,122   
|Amortization of intangible assets                                                 |  |                                  | 560     
|Investment securities (gains) and losses                                          |  |                                  | (815    
|Write-downs of investments in private equity funds                                |  |                                  | 103     
|Write-downs of other real estate owned                                            |  |                                  |        
|Gains on sales of other real estate owned                                         |  |                                  | (268    
|Gains on sales of buildings                                                       |  |                                  | (142    
|Net (increase) decrease in assets:                                                |  |                                  |         
|Interest receivable                                                               |  |                                  | 238     
|Other receivables                                                                 |  |                                  | (1,817  
|Other assets                                                                      |  |                                  | 378     
|Loans held-for-sale                                                               |  |                                  |        
|Net increase (decrease) in liabilities:                                           |  |                                  |         
|Interest payable                                                                  |  |                                  | 3,189   
|Accrued expenses                                                                  |  |                                  | (2,654  
|Taxes payable                                                                     |  |                                  | 18,721  
|                                                                                  |  |                                  |         
|Net cash provided by operating activities                                         |  |                                  | 72,617  
|                                                                                  |  |                                  |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                                  |         
|Proceeds from maturities of investment securities held-to-maturity                |  |                                  | 71      
|Proceeds from maturities of investment securities available-for-sale              |  |                                  | 245,816 
|Proceeds from sales of investment securities available-for-sale                   |  |                                  | 107,995 
|Purchases of investment securities held-to-maturity                               |  |                                  | (598    
|Purchases of investment securities available-for-sale                             |  |                                  | (414,155
|Net increase in customer loans                                                    |  |                                  | (135,778
|Proceeds from sales of other real estate owned                                    |  |                                  | 268     
|Capital expenditures                                                              |  |                                  | (4,603  
|Proceeds from sales of buildings                                                  |  |                                  | 205     
|Acquisition of asset management company                                           |  |                                  | (24,211 
|Other investing activity                                                          |  |                                  | (810    
|                                                                                  |  |                                  |         
|Net cash used in investing activities                                             |  |                                  | (225,800
|                                                                                  |  |                                  |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                                  |         
|Net increase (decrease) in noninterest-bearing deposits                           |  |                                  | 34,699  
|Net increase in checking plus interest and savings accounts                       |  |                                  | 41,788  
|Net increase (decrease) in certificates of deposit                                |  |                                  | 158,056 
|Net decrease in short-term borrowings                                             |  |                                  | (54,909 
|Proceeds from issuance of shares                                                  |  |                                  | 1,892   
|Repurchase of common shares                                                       |  |                                  | (212    
|Dividends paid                                                                    |  |                                  | (20,637 
|                                                                                  |  |                                  |         
|Net cash provided by financing activities                                         |  |                                  | 160,677 
|                                                                                  |  |                                  |         
|Net increase (decrease) in cash and cash equivalents                              |  |                                  | 7,494   
|Cash and cash equivalents at beginning of period                                  |  |                                  | 545,781 
|                                                                                  |  |                                  |         
|Cash and cash equivalents at end of period                                        |  | $                                | 553,275 
|                                                                                  |  |                                  |         



See notes to
consolidated financial statements



Mercantile
Bankshares Corporation



---

Page 5



MERCANTILE BANKSHARES CORPORATION

STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS EQUITY



FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002



|(Dollars in thousands, except per share data)                                                                         |  | Total |           |   | Common Stock |   |         | Capital Surplus |  |   | Retained Earnings |   |  | Accumulated Other Comprehensive Income (Loss) |          
|--------------------------------------------------------------------------------------------------------------------- |  | ----- | --------- | - | ------------ | - | ------- | --------------- |  | - | ----------------- | - |  | --------------------------------------------- | ---------
|                                                                                                                      |  |       |           |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|                                                                                                                     
|BALANCE, DECEMBER 31, 2001                                                                                            |  | $     | 1,230,206 |   |              | $ | 139,551 |                 |  | $ | 159,947           |   |  | $                                             | 904,479  
|                                                                                                                     
|Net income                                                                                                            |  |       | 46,175    |   |              |   |         |                 |  |   |                   |   |  |                                               | 46,175   
|Unrealized gains (losses) on securities available-for-sale, net of
reclassification adjustment, net of taxes          |  |       | (14,337   | ) |              |   |         |                 |  |   |                   |   |  |                                               |          
|                                                                                                                      |  |       |           |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|Comprehensive income                                                                                                  |  |       | 31,838    |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|                                                                                                                      |  |       |           |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|Cash dividends paid:                                                                                                  |  |       |           |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|Common stock ($.28 per share)                                                                                         |  |       | (19,507   | ) |              |   |         |                 |  |   |                   |   |  |                                               | (19,507  
|Issuance of 28,003 shares for dividend reinvestment and stock purchase
plan                                           |  |       | 897       |   |              |   | 56      |                 |  |   | 841               |   |  |                                               |          
|Issuance of 5,133 shares for employee stock purchasedividend reinvestment
plan                                        |  |       | 219       |   |              |   | 10      |                 |  |   | 209               |   |  |                                               |          
|Issuance of 82,232 shares for employee stock option plan                                                              |  |       | 1,402     |   |              |   | 165     |                 |  |   | 1,237             |   |  |                                               |          
|Vested stock options                                                                                                  |  |       | 487       |   |              |   |         |                 |  |   | 487               |   |  |                                               |          
|                                                                                                                      |  |       |           |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|BALANCE, MARCH 31, 2002                                                                                               |  | $     | 1,245,542 |   |              | $ | 139,782 |                 |  | $ | 162,721           |   |  | $                                             | 931,147  
|                                                                                                                      |  |       |           |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|BALANCE, DECEMBER 31, 2002                                                                                            |  | $     | 1,324,358 |   |              | $ | 137,672 |                 |  | $ | 120,577           |   |  | $                                             | 1,010,248
|                                                                                                                     
|Net income                                                                                                            |  |       | 48,986    |   |              |   |         |                 |  |   |                   |   |  |                                               | 48,986   
|Unrealized gains (losses) on securities available-for-sale, net of
reclassification adjustment, net of taxes (Note 7) |  |       | (3,578    | ) |              |   |         |                 |  |   |                   |   |  |                                               |          
|                                                                                                                      |  |       |           |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|Comprehensive income                                                                                                  |  |       | 45,408    |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|                                                                                                                      |  |       |           |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|Cash dividends paid:                                                                                                  |  |       |           |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|Common stock ($.30 per share)                                                                                         |  |       | (20,637   | ) |              |   |         |                 |  |   |                   |   |  |                                               | (20,637  
|Issuance of 31,759 shares for dividend reinvestment and stock purchase
plan                                           |  |       | 1,029     |   |              |   | 64      |                 |  |   | 965               |   |  |                                               |          
|Issuance of 5,728 shares for employee stock purchasedividend reinvestment
plan                                        |  |       | 207       |   |              |   | 11      |                 |  |   | 196               |   |  |                                               |          
|Issuance of 31,023 shares for employee stock option plan                                                              |  |       | 656       |   |              |   | 62      |                 |  |   | 594               |   |  |                                               |          
|Issuance of 20,295 shares for restricted stock awards                                                                 |  |       | 750       |   |              |   | 41      |                 |  |   | 709               |   |  |                                               |          
|Deferred compensationrestricted stock awards                                                                         |  |       | (454      | ) |              |   |         |                 |  |   |                   |   |  |                                               | (454     
|Purchase of 5,500 shares under stock repurchase plan                                                                  |  |       | (212      | ) |              |   | (11     | )               |  |   | (201              | ) |  |                                               |          
|Vested stock options                                                                                                  |  |       | 1,189     |   |              |   |         |                 |  |   | 1,189             |   |  |                                               |          
|                                                                                                                      |  |       |           |   |              |   |         |                 |  |   |                   |   |  |                                               |          
|BALANCE, MARCH 31, 2003                                                                                               |  | $     | 1,352,294 |   |              | $ | 137,839 |                 |  | $ | 124,029           |   |  | $                                             | 1,038,143
|                                                                                                                      |  |       |           |   |              |   |         |                 |  |   |                   |   |  |                                               |          



See notes to
consolidated financial statements



Mercantile
Bankshares Corporation



---

Page 6





MERCANTILE BANKSHARES
CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.    Basis of Presentation



The consolidated financial statements, which include the accounts of Mercantile Bankshares Corporation (Bankshares) and all
of its affiliates, are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practice within the banking industry. In the opinion of management, the consolidated financial statements
include all adjustments necessary for a fair presentation of the results for the interim period. These adjustments are of a normal recurring nature and include adjustments to eliminate all significant intercompany transactions. In view of the
changing conditions in the national economy, the effect of actions taken by regulatory authorities and normal seasonal factors, the results for the interim period are not necessarily indicative of annual performance. For comparability, certain prior
period amounts have been reclassified to conform with current period presentation.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and contingent assets and liabilities at the date of the financial statements, and the disclosure of revenues and expenses during the reporting period. These estimates and assumptions are based on information available as of
the date of the financial statements and could differ from actual results.



2.    Earnings Per Share



Basic earnings per share (EPS) is computed by dividing income available to common shareholders by weighted average common shares outstanding. Diluted EPS is computed using the same components as in basic EPS with the denominator
adjusted for the dilutive effect of stock options and restricted stock awards. The following tables provide a reconciliation between the computation of basic EPS and diluted EPS for the quarters ended March 31, 2003 and 2002:



|                                                             |  | For the 3 Months Ended March 31, 2003
|------------------------------------------------------------ |  | -------------------------------------
|(In thousands, except per share data)                        |  | Net Income                           
|                                                            
|Basic EPS                                                    |  | $48,986                              
|Dilutive effect of stock options and restricted stock awards |  |                                      
|                                                             |  |                                      
|Diluted EPS                                                  |  | $48,986                              
|                                                             |  |                                      

|                                     
|-------------------------------------
|                                     
|(In thousands, except per share data)
|                                     
|Basic EPS                            
|Dilutive effect of stock options     
|                                     
|Diluted EPS                          
|                                     



Antidilutive options
excluded in the computation of diluted earnings per share were 265,505 and none for the three months ended March 31, 2003 and 2002, respectively.



Mercantile Bankshares Corporation



---

Page 7





3.    Investment
Securities



The amortized cost and fair value of investment
securities at March 31, 2003, December 31, 2002 and March 31, 2002, are shown below:



|                                  |  | March 31, 2003 |           | December 31, 2002 |   | March 31, 2002
|--------------------------------- |  | -------------- | --------- | ----------------- | - | --------------
|(Dollars in thousands)            |  | Amortized Cost |           | Fair Value        |   | Amortized Cost
|                                 
|Securities available-for-sale     |  |                |           |                   |   |               
|U.S. Treasury                     |  | $              | 1,076,879 |                   | $ | 1,117,943     
|U.S. Government agencies          |  |                | 665,629   |                   |   | 693,685       
|States and political subdivisions |  |                | 549       |                   |   | 576           
|Other investments                 |  |                | 815,322   |                   |   | 829,772       
|                                  |  |                |           |                   |   |               
|Total                             |  | $              | 2,558,379 |                   | $ | 2,641,976     
|                                  |  |                |           |                   |   |               
|                                 
|Securities held-to-maturity       |  |                |           |                   |   |               
|States and political subdivisions |  | $              | 38,231    |                   | $ | 41,040        
|Other investments                 |  |                | 15,687    |                   |   | 15,687        
|                                  |  |                |           |                   |   |               
|Total                             |  | $              | 53,918    |                   | $ | 56,727        
|                                  |  |                |           |                   |   |               



4.    Impaired Loans



A loan is considered impaired, based on current information and events, if it is probable that Bankshares will not collect all principal and interest payments according to the contractual terms of the loan agreement. Generally, a
loan is considered impaired once either principal or interest payments become 90 days past due at the end of a calendar quarter. A loan may be considered impaired sooner if, in managements judgement, such action is warranted. The impairment of
a loan is measured based on the present value of expected future cash flows discounted at the loans effective interest rate, or the fair value of the collateral if the repayment is expected to be provided predominantly by the underlying
collateral. A majority of Bankshares impaired loans are measured by reference to the fair value of the collateral. Accrued interest on impaired loans is reversed and is recognized on the cash basis. Information with respect to impaired loans
and the related valuation allowance (if the measure of the impaired loan is less than the recorded investment) at March 31, 2003 and at the end of December and March, 2002 is shown below. See Form 10-K for more details.



|(Dollars in thousands)                                                          |  | March 31, 2003 |         | December 31, 2002 |   | March 31, 2002
|------------------------------------------------------------------------------- |  | -------------- | ------- | ----------------- | - | --------------
|                                                                               
|Impaired loans with a specific valuation allowance                              |  | $              | 8,189   |                   | $ | 13,751        
|All other impaired loans                                                        |  |                | 15,865  |                   |   | 16,813        
|                                                                                |  |                |         |                   |   |               
|Total impaired loans                                                            |  | $              | 24,054  |                   | $ | 30,564        
|                                                                                |  |                |         |                   |   |               
|Specific allowance for loan losses applicable to impaired loans                 |  | $              | 4,857   |                   | $ | 5,251         
|General allowance for loan losses applicable to other than impaired loans       |  |                | 135,570 |                   |   | 133,350       
|                                                                                |  |                |         |                   |   |               
|Total allowance for loan losses                                                 |  | $              | 140,427 |                   | $ | 138,601       
|                                                                                |  |                |         |                   |   |               
|Year-to-date interest income on impaired loans recorded on the cash basis       |  | $              | 97      |                   | $ | 563           
|                                                                                |  |                |         |                   |   |               
|Year-to-date average recorded investment in impaired loans during the period    |  | $              | 24,054  |                   | $ | 53,777        
|                                                                                |  |                |         |                   |   |               
|Quarter-to-date interest income on impaired loans recorded on the cash basis    |  | $              | 97      |                   | $ | 143           
|                                                                                |  |                |         |                   |   |               
|Quarter-to-date average recorded investment in impaired loans during the period |  | $              | 24,054  |                   | $ | 44,263        
|                                                                                |  |                |         |                   |   |               



Note:Impaired
loans do not include large groups of smaller balance homogeneous loans that are evaluated collectively for impairment (e.g., residential mortgages and consumer installment loans). The allowance for loan losses related to these loans is included in
the allowance for loan losses applicable to other than impaired loans.



Mercantile Bankshares Corporation



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5.    Commitments



Various commitments to extend credit (lines of credit) are
made in the normal course of banking business. Total unused lines of credit approximated $3,049,900,000, $2,984,302,000 and $2,882,000,000 at March 31, 2003, December 31, 2002 and March 31, 2002, respectively. In addition, letters of credit are
issued for the benefit of customers by affiliated banks. Outstanding letters of credit were $243,500,000 at March 31, 2003, $241,142,000 at December 31, 2002 and $210,840,000 at March 31, 2002.



Bankshares has committed to invest funds in third-party private equity
investments. At March 31, 2003, December 31, 2002 and March 31, 2002, $18,033,000, $15,243,000 and $13,283,000, respectively, remained unfunded.



6.    Intangible Assets



The following table discloses the gross carrying amount and accumulated amortization of intangible assets subject to amortization at March 31, 2003 and
December 31, 2002:



|                          |  | March 31, 2003        |        | December 31, 2002       
|------------------------- |  | --------------------- | ------ | ------------------------
|(Dollars in thousands)    |  | Gross Carrying Amount |        | Accumulated Amortization
|                         
|Deposit intangibles       |  | $                     | 13,846 |                         
|Mortgage servicing rights |  |                       | 1,543  |                         
|Other                     |  |                       | 10,820 |                         
|                          |  |                       |        |                         
|Total                     |  | $                     | 26,209 |                         
|                          |  |                       |        |                         



Other intangible assets
at March 31, 2003, include intangible assets associated with the Boyd Watterson Asset Management LLC acquisition.



The aggregate amortization expense was $560,000 for the three months ended March 31, 2003 and $1,972,000 for the year ended December 31, 2002. The
estimated aggregate amortization expense for each of the next five years is: 2004  $3,033,000; 2005  $3,033,000; 2006  $3,033,000; 2007  $2,818,000; 2008  $1,736,000.



7.    Comprehensive Income



The following table summarizes the related tax effect of unrealized gains
(losses) on securities available-for-sale for the three months ended March 31, 2003 and 2002. The net amount is included in accumulated other comprehensive income (loss) in the Statement of Changes in Consolidated Shareholders Equity on Page
5.



|                                                                      |  | For the 3 Months Ended March 31, |       
|--------------------------------------------------------------------- |  | -------------------------------- | ------
|                                                                      |  | 2003                             |       
|(Dollars in thousands)                                                |  | Pretax Amount                    |       
|                                                                     
|Unrealized gains (losses) on securities available-for-sale:           |  |                                  |       
|Unrealized holding gains (losses) arising during the period           |  | $                                | (5,073
|Reclassification adjustment for (gains) losses included in net income |  |                                  | (815  
|                                                                      |  |                                  |       
|Total                                                                 |  | $                                | (5,888
|                                                                      |  |                                  |       



8.    Capital Adequacy



Bankshares and its bank affiliates are subject to various regulatory capital requirements administered by the federal and state banking agencies. These requirements include maintaining certain capital ratios above minimum levels.
These capital ratios include Tier I capital and Total risk-based capital as percents of net risk-weighted assets and Tier I capital as a percent of adjusted average total assets (leverage ratio). The minimum ratios for capital adequacy purposes are
4.00%, 8.00% and 4.00%, for the Tier 1 capital, Total capital and leverage ratios, respectively. To be categorized as well capitalized, a bank must maintain minimum ratios of 6.00%, 10.00% and 5.00%, for its Tier 1 capital, Total capital and
leverage ratios, respectively. Management believes that, as of March 31, 2003, Bankshares and its bank affiliates exceeded all capital adequacy requirements to which they are subject and are well capitalized.



Mercantile Bankshares Corporation



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Capital ratios and the amounts
used to calculate them are presented in the following table for Bankshares and Mercantile  Safe Deposit & Trust Company (MSD&T), the lead bank, as of March 31, 2003 and December 31, 2002.



|                              |  | March 31, 2003 |            |   | December 31, 2002 |  
|----------------------------- |  | -------------- | ---------- | - | ----------------- | -
|(Dollars in thousands)        |  | Bankshares     |            |   | MSD&T             |  
|                             
|Tier I capital                |  | $              | 1,160,273  |   |                   | $
|Total risk-based capital      |  |                | 1,262,271  |   |                   |  
|Net risk-weighted assets      |  |                | 7,955,443  |   |                   |  
|Adjusted average total assets |  |                | 10,306,596 |   |                   |  
|                              |  |                |            |   |                   |  
|Tier I capital ratio          |  |                | 14.58      | % |                   |  
|Total capital ratio           |  |                | 15.87      | % |                   |  
|Leverage ratio                |  |                | 11.26      | % |                   |  



9.    Segment Reporting



Operating segments are defined as components of an enterprise about which separate financial information is available that management relies on for decision making and performance assessment. Bankshares has three reportable segments
 its 19 Community Banks, the Banking Division of Mercantile  Safe Deposit & Trust Company (MSD&T) and the Investment and Wealth Management (IWM) Division of MSD&T.



The following tables present selected segment information for the three months ended March 31, 2003 and 2002. The components
in the Other column consist of amounts for the nonbank affiliates and intercompany eliminations. Certain expense amounts such as operations overhead have been reclassified from internal financial reporting in order to provide for full
cost absorption. These reclassifications are shown in the Adjustments line.



|                                  |  | For the 3 Months Ended March 31, 2003 |        
|--------------------------------- |  | ------------------------------------- | -------
|(Dollars in thousands)            |  | MSD&T  Banking                       |        
|                                  |  |                                       |        
|                                 
|Net interest income               |  | $                                     | 35,185 
|Provision for loan losses         |  |                                       | (1,404 
|Noninterest income                |  |                                       | 10,444 
|Noninterest expenses              |  |                                       | (21,677
|Adjustments                       |  |                                       | 3,760  
|                                  |  |                                       |        
|Income (loss) before income taxes |  |                                       | 26,308 
|Income tax (expense) benefit      |  |                                       | (9,476 
|                                  |  |                                       |        
|Net income (loss)                 |  | $                                     | 16,832 
|                                  |  |                                       |        
|Average assets                    |  |                                       |        
|Average equity                    |  |                                       |        



|                                 
|---------------------------------
|                                 
|(Dollars in thousands)           
|                                 
|                                 
|Net interest income              
|Provision for loan losses        
|Noninterest income               
|Noninterest expenses             
|Adjustments                      
|                                 
|Income (loss) before income taxes
|Income tax (expense) benefit     
|                                 
|Net income (loss)                
|                                 
|Average assets                   
|Average equity                   



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10.    Derivative
Instruments and Hedging Activities



Bankshares maintains an
overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. Derivative instruments that are used as part
of the interest rate risk management strategy have been restricted to interest rate swaps. Interest rate swaps generally involve the exchange of fixed-rate and variable-rate interest payments between two parties, based on a common notional principal
amount and maturity date. Bankshares has entered into interest rate swaps to convert fixed-rate loans made to borrowers to floating-rate loans and convert its nonprepayable fixed-rate debt to floating-rate debt.



The fair value of derivative instruments recorded in other assets was
$14,797,000 and $11,424,000 at March 31, 2003 and December 31, 2002, respectively. For the quarter ended March 31, 2003, Bankshares recognized a net gain of $29,000, included in interest and fees on loans, which represented the ineffective portion
of the fair-value hedge of fixed-rate loans made to borrowers. For the year ended December 31, 2002, Bankshares recognized a net loss of $40,000. The fair-value hedge of the nonrepayable fixed-rate debt was 100% effective for the reported periods.







Mercantile Bankshares Corporation



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



MERCANTILE BANKSHARES CORPORATION



Consolidated
Financial Results



Net income for the quarter ended March
31, 2003 was $48,986,000, a 6.1% increase over net income of $46,175,000 for the same period in 2002. For the quarter ended March 31, 2003, diluted net income per share was $.71, an increase of 7.6% from the $.66 reported for the first quarter last
year. The increase in earnings per share was favorably impacted by a decline in weighted average shares outstanding from 70,427,000 for the quarter ended March 31, 2002, to 69,190,000 for the quarter ended March 31, 2003.



Return on average assets for the first quarter of 2003 was 1.89%, return on
average tangible equity was 16.72% and average tangible equity to average assets was 11.41%. Comparable performance ratios for the first quarter 2002 were 1.92% for return on average assets, 16.64% for return on average tangible equity and 11.64%
for average tangible equity to average assets.



Net Interest Income and
Net Interest Margin



Net interest income for the quarter
ended March 31, 2003 increased 3.7% to $111,126,000 from $107,188,000 for the first quarter last year. The growth in net interest income was attributable to growth in average earning assets, particularly investment securities. Average investment
securities increased 12.8% to $2,576,730,000 compared to $2,284,655,000 in the prior year, and increased 5.5% since last quarter. Average total loans increased 6.2% to $7,359,645,000 compared to the prior year and 1.8% (7.2% annualized) from the
fourth quarter 2002 average. While the growth in the average loan portfolio shows signs of improvement, the local economy remains anemic. The one exception has been construction, especially residential, which is reflected in the 22.8% growth in the
average construction loan portfolio. Average commercial loans grew 5.8% over the prior years average, while consumer and residential real estate loans were up slightly.



After two straight quarters of decline, the net interest margin increased 2 basis points (bp) to 4.57% from the 4.55%
reported in the fourth quarter 2002. On a year-over-year basis, however, the net interest margin declined by 15 bp. This decline is attributable to the reduced benefit derived from noninterest-bearing funding sources, such as demand deposits and
capital. The positive effect of these funds declined 20 bp from 66 bp in 2002 to 46 bp in 2003. The net interest spread, the differential between the yield on earning assets and the expense rate paid on interest-bearing liabilities, increased 8 bp
from the fourth quarter 2002 and 5 bp from the first quarter last year. At 4.11%, the net interest spread had steadily improved since falling to a low of 3.71% during the second quarter 2001. The improvement this quarter from the fourth quarter is
primarily attributable to a more effective allocation of earning assets. Approximately $200 million in lower yielding federal funds sold was shifted into higher yielding loans and investment securities. The company is asset sensitive, with assets
repricing more quickly than liabilities in response to changes in interest rates. As a result, Mercantiles net interest margin tends to compress and growth in net interest income tends to slow in a falling interest rate environment, as
occurred during the last two years. The actions referenced above reduced the negative effect of the Federal Reserves 50 bp reduction in short term interest rates during the fourth quarter last year. Managements ability to offset the
effect of any further reductions in short-term interest rates by the Federal Reserve may be limited by, among other factors, the growth in loans, deposits and competitive factors influencing the pricing of these products. See the Analysis of
Interest Rates and Interest Differentials on page 16 for further details.



The tax-equivalent yield on the loan portfolio declined from 6.90% last year to 6.18% in the current quarter. The lower yield more than offset the growth in the loan portfolio, resulting in a reduction in interest income.



Reflective of lower interest rates, total interest expense was
reduced by $10,238,000. The rate paid on total interest-bearing funds decreased 73 bp from 2.37% a year ago to 1.64% for the quarter ended March 31, 2003. Average deposits were $8,069,338,000 in the current quarter, a $829,868,000, or 11.5% increase
from a year ago. The rate paid on average interest- bearing deposits was 1.67%, a decrease of 20 bp from 1.87% at December 31, 2002. The rate paid on short-term borrowings and long-term debt decreased by 25 bp and 13 bp, respectively.



Mercantile Bankshares Corporation



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On April 15, 2003, Mercantile
issued $300 million in 10-year subordinated notes at an interest rate of 45/8%. The notes will be our unsecured
obligations and will not be guaranteed by any of our subsidiaries. The notes will rank junior in right of payment to our senior indebtedness and secured indebtedness and will be structurally subordinated to creditors of our subsidiaries.



Issuance of the notes is expected to reduce net interest
income by approximately $2 million and net income by $0.02 per share for the second quarter of 2003. We will use the net proceeds from the sale of the notes for general corporate purposes. Our general corporate purposes may include acquisitions of
other companies or their assets, including our acquisition of F&M Bancorp, repurchasing shares of our common stock, and extending credit to or funding investments in our subsidiaries. The precise amounts and timing of our use of the net proceeds
will depend upon our and our subsidiaries funding requirements and the availability of other funds.



Noninterest Income





|                                          |        | For the 3 Months Ended March 31,2003 vs.
2002 |      
|----------------------------------------- | ------ | --------------------------------------------- | -----
|Noninterest Income (Dollars in thousands) |        | Increase/(Decrease)                           |      
|                                          | Amount |                                               |      
|                                         
|Investment and wealth management          |        | $                                             | 838  
|Service charges on deposit accounts       |        |                                               | 597  
|Mortgage banking related fees             |        |                                               | (786 
|Investments securities gains and (losses) |        |                                               | 817  
|Other income                              |        |                                               | 1,548
|                                          |        |                                               |      
|Total noninterest income                  |        | $                                             | 3,014
|                                          |        |                                               |      



Noninterest income
increased 8.7% to $37,853,000 for the first quarter 2003 versus the comparable period in 2002. Excluding the $815,000 investment securities gains realized in the first quarter of 2003 in connection with an ongoing repositioning of the securities
portfolio, the growth rate was 6.3% year-over-year. Investment and wealth management revenues increased 5.1% to $17,365,000 for the quarter ended March 31, 2003. Revenues for the first quarter 2003 benefited $624,000 from the inclusion of Boyd
Watterson Asset Management LLC, which affiliated with Mercantile on March 1, 2003. Other income for the first quarter of 2003 reflected income from bank-owned life insurance of $429,000 and lower write-downs of investments in third-party equity
funds. Such write-downs were $103,000 and $898,000 for the first quarters of 2003 and 2002, respectively.



Noninterest Expenses



|                                            |        | For the 3 Months Ended March 31,2003
vs. 2002 |      
|------------------------------------------- | ------ | --------------------------------------------- | -----
|Noninterest Expenses (Dollars in thousands) |        | Increase/(Decrease)                           |      
|                                            | Amount |                                               |      
|                                           
|Salaries                                    |        | $                                             | 1,992
|Employee benefits                           |        |                                               | 897  
|Stock-based compensation expense            |        |                                               | (301 
|Net occupancy expense of bank premises      |        |                                               | 191  
|Furniture and equipment expenses            |        |                                               | 367  
|Communications and supplies                 |        |                                               | 180  
|Other expenses                              |        |                                               | 264  
|                                            |        |                                               |      
|Total noninterest expenses                  |        | $                                             | 3,590
|                                            |        |                                               |      



Noninterest expenses for
the quarter ended March 31, 2003, increased 5.4% to $69,781,000 from $66,191,000 for the first quarter of 2002. The principal contributors to the year-over-year increase were salaries, due to the reorganization of the Investment and Wealth
Management business, and higher incentive compensation expenses. Employee benefits expense increased due to rising pension costs, which was offset primarily by a $500,000 rebate due to favorable experience in medical claims expense. The decrease in
stock-based compensation expense was due to declines in the value of the deferred compensation plan for directors, which fluctuates with the value of Mercantiles stock.



Mercantile Bankshares Corporation



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The efficiency ratio, a key
measure of expense management, was 46.7% for the first quarter of 2003 versus 46.2% for the comparable period in 2002.



Analysis of Financial Condition



At March 31, 2003, total assets increased 10.3% to $11,018,621,000 compared to $9,988,341,000 one year earlier. Total assets at December 31, 2002 were
$10,790,376,000. Total loans increased 7.3% to $7,446,553,000 at March 31, 2003, compared to $6,941,615,000 at March 31, 2002. Loans increased 1.8% compared to last quarter end from $7,312,027,000.



Total deposits at March 31, 2003, were $8,495,483,000, an increase of 13.4%
from $7,491,665,000 at the end of the first quarter 2002, and a 2.8% increase from December 31, 2002. The growth from a year earlier is consistent with what we are seeing across the industry. Interest-bearing deposits were $6,374,039,000, an
increase of 13.0% from March 31, 2002, and a 3.2% increase from last quarter. Interest-bearing deposits were 75.0% of total deposits at March 31, 2003, which is relatively unchanged from the last quarter end and a year ago. Noninterest-bearing
deposits increased 14.6% to $2,121,444,000 as of March 31, 2003, compared to $1,850,927,000 at March 31, 2002 and $2,086,745,000 at December 31, 2002.



Shareholders equity at March 31, 2003, was $1,352,294,000, an increase of 8.6% from $1,245,542,000 for the prior year. Mercantile repurchased 5,500
shares during the three months ended March 31, 2003, and has authorization enabling it to repurchase up to 1.5 million additional shares. Management expects share repurchases will resume after the close of its proposed acquisition of F&M
Bancorp. For more details, see the Statement of Changes in Consolidated Shareholders Equity on page 5.



Asset Quality



Nonperforming Assets



Nonperforming
assets consist of nonaccrual loans, renegotiated loans and other real estate owned (i.e., real estate acquired in foreclosure or in lieu of foreclosure). With respect to nonaccrual loans, the Corporations policy is that, regardless of the
value of the underlying collateral and/or guarantees, no interest is accrued on the entire balance once either principal or interest payments on any loan become 90 days past due at the end of a calendar quarter. All accrued and uncollected interest
on such loans is eliminated from the income statement and is recognized only as collected. A loan may be put on nonaccrual status sooner than this standard if, in managements judgement, such action is warranted. During the three months ended
March 31, 2003, nonperforming assets decreased $6,054,000 to $27,449,000.



Nonperforming loans, one of the components of nonperforming assets, decreased $6,116,000 while other real estate owned, the other component increased $62,000. Nonperforming assets as a percent of period-end loans and other real
estate owned was .37% at March 31, 2003 and .46% at December 31, 2002, respectively. The leasing companys portfolio accounted for 9.8% of nonperforming loans at March 31, 2003, but only 1.3% of the outstanding portfolio of loans and leases. As
a result of credit quality concerns about the leasing portfolio, management previously announced it was narrowing the focus of the leasing business and discontinuing certain activities. Excluding the leasing portfolio, nonperforming loans are .33%
of period-end loans.



The level of monitored loans,
or loans with characteristics suggesting that they could be classified as nonperforming in the near future, increased by $10,067,000 during the quarter. At March 31, 2003, monitored loans were $34,917,000 compared to $24,850,000 at December 31,
2002. The increase is attributable to one longstanding commercial loan customer at the lead bank. The customer, which is involved in the construction equipment business, has two asset-based loans totaling approximately $11,800,000. The largest
component of monitored loans continues to be the two commercial aircraft-related loans added to this category during the fourth quarter of 2002. These two loans are performing and current with a balance of approximately $19,800,000 at March 31,
2003, but remain in the monitored category because of continuing pressure on the airline industry overall. The amount of loans past due 30-89 days improved from $104,162,000 at December 31, 2002 to $54,899,000 at March 31, 2003.



Mercantile Bankshares Corporation



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The table below presents a
comparison of nonperforming assets at March 31, 2003 and at the end of December and March 2002.



|Nonperforming Assets(Dollars in thousands)                                        |  | March 31,2003 |        |   | December 31,2002 |   |        | March 31, 2002 | 
|--------------------------------------------------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -------------- | 
|                                                                                 
|Nonaccrual loans (1)                                                              |  |               |        |   |                  |   |        |                | 
|Commercial                                                                        |  | $             | 19,993 |   |                  | $ | 25,260 |                | 
|Construction                                                                      |  |               | 1,383  |   |                  |   | 1,365  |                | 
|Residential real estate                                                           |  |               | 2,967  |   |                  |   | 2,479  |                | 
|Consumer                                                                          |  |               | 234    |   |                  |   | 261    |                | 
|Lease financing                                                                   |  |               | 2,678  |   |                  |   | 4,006  |                | 
|                                                                                  |  |               |        |   |                  |   |        |                | 
|Total nonaccrual loans                                                            |  |               | 27,255 |   |                  |   | 33,371 |                | 
|Renegotiated loans (1)                                                            |  |               |       |   |                  |   |       |                | 
|Loans contractually past due 90 days or more and still accruing interest          |  |               |       |   |                  |   |       |                | 
|                                                                                  |  |               |        |   |                  |   |        |                | 
|Total nonperforming loans                                                         |  |               | 27,255 |   |                  |   | 33,371 |                | 
|Other real estate owned                                                           |  |               | 194    |   |                  |   | 132    |                | 
|                                                                                  |  |               |        |   |                  |   |        |                | 
|Total nonperforming assets                                                        |  | $             | 27,449 |   |                  | $ | 33,503 |                | 
|                                                                                  |  |               |        |   |                  |   |        |                | 
|Nonperforming assets as a percent of period-end loans and other real estate owned |  |               | .37    | % |                  |   | .46    | %              | 
|                                                                                  |  |               |        |   |                  |   |        |                | 



|(1) |  | Aggregate gross interest income of $548,000, $2,790,000 and $968,000 for the first quarter of 2003, the year 2002 and first quarter 2002, respectively, on nonaccrual
and renegotiated loans, would have been recorded if these loans had been accruing on their original terms throughout the period or since origination if held for part of the period. The amount of interest income on the nonaccrual and renegotiated
loans that was recorded totalled $55,000, $641,000 and $263,000 for the first three months of 2003, the year 2002 and first quarter 2002, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note:The Corporation was monitoring loans estimated to aggregate $34,917,000 at March 31, 2003, $24,850,000 at
December 31, 2002 and $30,294,000 at March 31, 2002, not classified as nonaccrual or renegotiated loans. These loans had characteristics which indicated they might result in such classification in the future.



Allowance and Provision for Loan Losses



Each Bankshares affiliate is required to maintain an allowance for loan
losses adequate to absorb losses inherent in the loan portfolio. Management at each affiliate, along with Bankshares management, maintains a regular overview to assure that adequacy. On a periodic basis, significant credit exposures, nonperforming
loans, impaired loans, historical losses by loan type and various statistical measurements of asset quality are examined to assure the adequacy of the allowance for loan losses.



The allowance for loan losses has been established through provisions for loan losses charged against income. The provision
for loan losses for the first quarter of 2003 was $3,016,000 and $3,083,000 for the same period last year. Loans deemed uncollectible are charged against the allowance for loan losses and any subsequent recoveries are credited to the allowance.
Intensive collection efforts continue after charge-off in order to maximize recovery amounts. Net charge-offs were $1,190,000 for the first three months of 2003 compared to $1,041,000 for the same period in 2002. The allowance for loans as a percent
of period-end loans was 1.89% at March 31, 2003 and 2.07% at the end of the first quarter last year.



Mercantile Bankshares Corporation



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The following table presents a
summary of the activity in the Allowance for Loan Losses for the three months ended March 31, 2003 and 2002:



|                                                           |      | For the 3 Months Ended |          
|---------------------------------------------------------- | ---- | ---------------------- | ---------
|Allowance for Loan Losses(Dollars in thousands)            |      | March 31,              |          
|                                                           | 2003 |                        |          
|                                                           |      |                        |          
|                                                          
|Allowance balance  beginning                              |      | $                      | 138,601  
|Charge-offs:                                               |      |                        |          
|Commercial                                                 |      |                        | (447     
|Construction                                               |      |                        |         
|Residential real estate                                    |      |                        |         
|Consumer                                                   |      |                        | (851     
|Lease financing                                            |      |                        | (641     
|                                                           |      |                        |          
|Total                                                      |      |                        | (1,939   
|                                                           |      |                        |          
|Recoveries:                                                |      |                        |          
|Commercial                                                 |      |                        | 222      
|Construction                                               |      |                        | 135      
|Residential real estate                                    |      |                        | 4        
|Consumer                                                   |      |                        | 388      
|Lease financing                                            |      |                        |         
|                                                           |      |                        |          
|Total                                                      |      |                        | 749      
|                                                           |      |                        |          
|Net charge-offs                                            |      |                        | (1,190   
|Provision for loan losses                                  |      |                        | 3,016    
|                                                           |      |                        |          
|Allowance balance  ending                                 |      | $                      | 140,427  
|                                                           |      |                        |          
|Average loans                                              |      | $                      | 7,359,645
|                                                           |      |                        |          
|Net charge-offs (annualized) as a percent of average loans |      |                        | .07      
|                                                           |      |                        |          
|Period-end loans                                           |      | $                      | 7,446,553
|                                                           |      |                        |          
|Allowance for loan losses as a percent of period-end loans |      |                        | 1.89     
|                                                           |      |                        |          



Cautionary Statement



This report contains forward-looking statements within the
meaning of and pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. A forward-looking statement encompasses any estimate, prediction, opinion or statement of belief contained in this report, and the
underlying management assumptions. Such statements in this report include identification of trends, loan growth, comments on adequacy of the allowance for loan losses, credit quality, changes in leasing activities, effects of asset sensitivity and
interest rate changes, and information concerning market risk referenced in Item 3. Forward-looking statements are based on current expectations and assessments of potential developments affecting market conditions, interest rates and other economic
conditions, and results may ultimately vary from the statements made in this report.



Mercantile Bankshares Corporation



---

Page 16



MERCANTILE BANKSHARES CORPORATION



ANALYSIS OF INTEREST RATES AND INTEREST DIFFERENTIALS



The following table presents the distribution of the average consolidated
balance sheets, interest income/expense and annualized yields earned and rates paid through the first three months of 2003 and 2002.

|                                           |  | 2003           |            |   | 2002            |  
|------------------------------------------ |  | -------------- | ---------- | - | --------------- | -
|(Dollars in thousands)                     |  | AverageBalance |            |   | Income*/Expense |  
|                                           |  |                |            |   |                 |  
|                                          
|Earning assets                             |  |                |            |   |                 |  
|Loans:**                                   |  |                |            |   |                 |  
|Commercial                                 |  | $              | 4,449,636  |   |                 | $
|Construction                               |  |                | 823,547    |   |                 |  
|Residential real estate                    |  |                | 1,077,721  |   |                 |  
|Consumer                                   |  |                | 1,008,741  |   |                 |  
|                                           |  |                |            |   |                 |  
|Total loans                                |  |                | 7,359,645  |   |                 |  
|                                           |  |                |            |   |                 |  
|Federal funds sold, et al                  |  |                | 56,500     |   |                 |  
|Securities:***                             |  |                |            |   |                 |  
|Taxable securities                         |  |                |            |   |                 |  
|U.S. Treasury securities                   |  |                | 1,241,058  |   |                 |  
|U.S. Agency securities                     |  |                | 686,987    |   |                 |  
|Other stocks and bonds                     |  |                | 609,891    |   |                 |  
|Tax-exempt securities                      |  |                |            |   |                 |  
|States and political subdivisions          |  |                | 38,794     |   |                 |  
|                                           |  |                |            |   |                 |  
|Total securities                           |  |                | 2,576,730  |   |                 |  
|                                           |  |                |            |   |                 |  
|Interest-bearing deposits in other banks   |  |                | 358        |   |                 |  
|                                           |  |                |            |   |                 |  
|Total earning assets                       |  |                | 9,993,233  |   |                 |  
|                                           |  |                |            |   |                 |  
|Cash and due from banks                    |  |                | 225,975    |   |                 |  
|Bank premises and equipment, net           |  |                | 103,706    |   |                 |  
|Other assets                               |  |                | 341,538    |   |                 |  
|Less: allowance for loan losses            |  |                | (140,243   | ) |                 |  
|                                           |  |                |            |   |                 |  
|Total assets                               |  | $              | 10,524,209 |   |                 |  
|                                           |  |                |            |   |                 |  
|Interest-bearing liabilities               |  |                |            |   |                 |  
|Deposits:                                  |  |                |            |   |                 |  
|Savings                                    |  | $              | 1,029,033  |   |                 |  
|Checking plus interest                     |  |                | 953,243    |   |                 |  
|Money market                               |  |                | 1,185,071  |   |                 |  
|Certificates of deposit $100,000 and over  |  |                | 1,223,688  |   |                 |  
|Other time deposits                        |  |                | 1,716,941  |   |                 |  
|                                           |  |                |            |   |                 |  
|Total interest-bearing deposits            |  |                | 6,107,976  |   |                 |  
|Short-term borrowings                      |  |                | 779,200    |   |                 |  
|Long-term debt                             |  |                | 275,838    |   |                 |  
|                                           |  |                |            |   |                 |  
|Total interest-bearing funds               |  |                | 7,163,014  |   |                 |  
|                                           |  |                |            |   |                 |  
|Noninterest-bearing deposits               |  |                | 1,961,362  |   |                 |  
|Other liabilities and accrued expenses     |  |                | 104,493    |   |                 |  
|                                           |  |                |            |   |                 |  
|Total liabilities                          |  |                | 9,228,869  |   |                 |  
|Shareholders equity                       |  |                | 1,295,340  |   |                 |  
|                                           |  |                |            |   |                 |  
|Total liabilities and shareholders equity |  | $              | 10,524,209 |   |                 |  
|                                           |  |                |            |   |                 |  
|Net interest income                        |  |                |            |   |                 | $
|                                           |  |                |            |   |                 |  
|Net interest rate spread                   |  |                |            |   |                 |  
|Effect of noninterest-bearing funds        |  |                |            |   |                 |  
|                                           |  |                |            |   |                 |  
|Net interest margin on earning assets      |  |                |            |   |                 |  
|                                           |  |                |            |   |                 |  
|Tax-equivalent adjustment included in:     |  |                |            |   |                 |  
|Loan income                                |  |                |            |   |                 | $
|Investment securities income               |  |                |            |   |                 |  
|                                           |  |                |            |   |                 |  
|Total                                      |  |                |            |   |                 | $
|                                           |  |                |            |   |                 |  

* Presented on a tax-equivalent basis using the statutory federal corporate
income tax rate of 35%.

** Nonaccrual loans are included in average loans.

*** Balances reported at amortized cost; excludes pretax unrealized gains (losses) on securities available-for-sale.



Mercantile Bankshares Corporation



---

Page 17





MERCANTILE BANKSHARES
CORPORATION



RATE/VOLUME ANALYSIS



A rate/volume analysis, which demonstrates changes in interest income and
expense for significant assets and liabilities, appears below:



|                                          |  | For the 3 Months Ended March 31, 2003 vs.
2002 Due to variances in |        
|----------------------------------------- |  | ------------------------------------------------------------------ | -------
|(Dollars in thousands)                    |  | Rates                                                              |        
|                                         
|Interest earned on:                       |  |                                                                    |        
|Loans:                                    |  |                                                                    |        
|Commercial (1)                            |  | $                                                                  | (7,656 
|Construction (2)                          |  |                                                                    | (1,445 
|Residential real estate                   |  |                                                                    | (1,769 
|Consumer                                  |  |                                                                    | (1,800 
|                                          |  |                                                                    |        
|Total loans                               |  |                                                                    | (12,670
|Taxable securities (3)                    |  |                                                                    | (3,248 
|Tax-exempt securities (3)                 |  |                                                                    | (16    
|Federal funds sold, et al                 |  |                                                                    | (57    
|Interest-bearing deposits in other banks  |  |                                                                    | (1     
|                                          |  |                                                                    |        
|Total interest income                     |  |                                                                    | (15,992
|                                          |  |                                                                    |        
|Interest paid on:                         |  |                                                                    |        
|Savings deposits                          |  |                                                                    | (1,097 
|Checking plus interest deposits           |  |                                                                    | (277   
|Money market accounts                     |  |                                                                    | (1,594 
|Certificates of deposit $100,000 and over |  |                                                                    | (3,118 
|Other time deposits                       |  |                                                                    | (4,323 
|Short-term borrowings                     |  |                                                                    | (1,293 
|Long-term debt                            |  |                                                                    | (391   
|                                          |  |                                                                    |        
|Total interest expense                    |  |                                                                    | (12,093
|                                          |  |                                                                    |        
|Net interest earned                       |  | $                                                                  | (3,899 
|                                          |  |                                                                    |        



|(1) |  | Year-to-date tax-equivalent adjustments of $876,000 and $905,000 for 2003 and 2002, respectively, are included in the commercial loan rate variances.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Year-to-date tax-equivalent adjustments of $339,000 and $255,000 for 2003 and 2002, respectively, are included in the construction loan rate variances.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Year-to-date tax-equivalent adjustments of $333,000 and $347,000 for 2003 and 2002, respectively, are included in the investment securities rate variances.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



Item 3. Quantitative and Qualitative Disclosures About
Market Risk



Information responsive to this Item as of
December 31, 2002 appears under the captions Risk Management, Interest Rate Sensitivity Analysis and Earnings Simulation Model Projections on pages 24-27 of the registrants 2002 Annual Report to
Shareholders, filed as Exhibit 13 to registrants Annual Report on Form 10-K for the year ended December 31, 2002. There was no material change in such information as of March 31, 2003.



Item 4. Controls and Procedures



Within the ninety days prior to the filing of this report, the Companys
management, under the supervision and with the participation of the Companys Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design



Mercantile
Bankshares Corporation



---

Page 18



and operation of the Companys disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and procedures are effective. There were no significant changes in the Companys internal controls or in other factors subsequent to the date of the evaluation that could
significantly affect those controls.



PART II. OTHER INFORMATION



Item 6. Exhibits and Reports on Form 8-K



(a) Exhibits



|    
|----
|99.1
|    
|99.2



(b)
Reports on Form 8-K

Form 8-K filed, dated January 22, 2003, Item 5.

Form 8-K filed, dated January 28, 2003, Item 5.

Form 8-K filed, dated February 5, 2003, Item 5.

Form 8-K filed, dated February 25, 2003, Item 5.

Form 8-K filed, dated March 12, 2003, Item 5.

Form 8-K filed, dated March 13, 2003, Item 5.



Mercantile Bankshares Corporation



---

Page 19



SIGNATURES



Pursuant to the requirements 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.



|               |  |  |  | MERCANTILE BANKSHARES CORPORATION                                                    
|-------------- |  |  |  | -------------------------------------------------------------------------------------
|April 23, 2003 |  |  |  | Principal Executive Officer                                                          
|              
|               |  |  |  | /s/ Edward J. Kelly, III                                                             
|               |  |  |  | By: Edward J. Kelly, III Chairman of the Board, President and Chief Executive Officer
|               |  |  |  |                                                                                      
|April 23, 2003 |  |  |  | Principal Financial Officer                                                          
|              
|               |  |  |  | /s/ Terry L. Troupe                                                                  
|               |  |  |  | By: Terry L. Troupe Chief Financial Officer                                          
|               |  |  |  |                                                                                      
|April 23, 2003 |  |  |  | Chief Accounting Officer                                                             
|              
|               |  |  |  | /s/ William T. Skinner, Jr.                                                          
|               |  |  |  | By: William T. Skinner, Jr, Controller                                               









Mercantile Bankshares Corporation



---

Page 20





I, Edward J. Kelly, III,
certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Mercantile Bankshares Corporation;
|-- |  | ----------------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a  14 and 15d-14) for the registrant and we have:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                             
|-------------------------------------------------------------------------------------------------------------
|/s/     EDWARD J. KELLY,
IIIEdward J. Kelly,
III Chairman of the Board, President and Chief Executive Officer



Mercantile Bankshares Corporation



---

Page 21





I, Terry L. Troupe, certify
that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Mercantile Bankshares Corporation;
|-- |  | ----------------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a  14 and 15d-14) for the registrant and we have:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                           
|---------------------------------------------------------------------------
|/s/    TERRY L.
TROUPETerry L. Troupe Chief Financial Officer and Treasurer





Mercantile Bankshares Corporation