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                                   Exhibit 13

                         Annual Report to Stockholders
                      For the Year Ended December 31, 2002

<PAGE>

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                       Mercantile Bankshares Corporation
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                               ANNUAL REPORT 2002
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                                         THE ANNAPOLIS BANKING AND TRUST COMPANY

                                                         BALTIMORE TRUST COMPANY

                                                       BANK OF SOUTHERN MARYLAND

                                                  CALVERT BANK AND TRUST COMPANY

                                                THE CHESTERTOWN BANK OF MARYLAND

                                                      THE CITIZENS NATIONAL BANK

                                                  COUNTY BANKING & TRUST COMPANY

                                          FARMERS & MERCHANTS BANK-EASTERN SHORE

                                                               THE FIDELITY BANK

                                           THE FIRST NATIONAL BANK OF ST. MARY'S

                                                      THE FOREST HILL STATE BANK

                                              FREDERICKTOWN BANK & TRUST COMPANY

                                        MARSHALL NATIONAL BANK AND TRUST COMPANY

                                       MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY

                                             THE NATIONAL BANK OF FREDERICKSBURG

                                                                  PENINSULA BANK

                                                    THE PEOPLES BANK OF MARYLAND

                                                             POTOMAC VALLEY BANK

                                                               ST. MICHAELS BANK

                                                          WESTMINSTER UNION BANK

                                                 MERCANTILE MORTGAGE CORPORATION

OUR HISTORY OF

PROFITABILITY AND CAPITAL

STRENGTH HAS ALLOWED US

TO INCREASE TOTAL

CASH DIVIDENDS PAID PER

SHARE FOR 26

consecutive years.

                    [LOGO] MERCANTILE BANKSHARES CORPORATION

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                        Mercantile Bankshares Corporation
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   We are a family of community banks serving Maryland, Virginia and Delaware.
     Each bank operates with its own name, management, board of directors and
                         historic ties to its community.
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                                    [GRAPHIC]

                            Headquarters, since 1970:
                                Two Hopkins Plaza
                            Baltimore, Maryland 21203

Organized in 1969 to combine the benefits of community banking with the
resources of a regional organization, Mercantile Bankshares continues to build
on its traditional strengths.

Local Perspective

Each bank is dedicated to its own market and responds directly to its customers'
banking needs. Customer-related decisions are made at the local level by
employees who know their customers and understand the local business
environment.

Value-Added, Relationship Service

Relationships are based on services tailored to the particular needs of the
customer and are nurtured through all phases of the economic cycle.

Community Commitment

Each member bank works to support its community, contributing dollars and
volunteering skills to the civic and charitable organizations that make the
community a better place to live and work.

Combined Resources

Backed by the Corporation's outstanding financial strength, Mercantile
Bankshares members benefit from the resources of a larger organization. They are
able to offer their customers specialized wealth management and commercial
banking services provided by the largest affiliate, Mercantile-Safe Deposit and
Trust Company; an array of electronic information and account management
services; and the convenience of a large network of banking offices.

<PAGE>


Consolidated Financial Highlights

<TABLE>
<CAPTION>
                                                                              Increase
(Dollars in thousands, except per share data)        2002          2001      (Decrease)
----------------------------------------------   -----------   -----------   ----------
<S>                                              <C>           <C>           <C>
FOR THE YEAR
Net interest income ..........................   $   441,804   $   418,241          5.6%
Net income ...................................       190,238       181,295          4.9
Cash dividends paid ..........................        81,909        77,597          5.6
Basic net income per share ...................          2.74          2.57          6.6
Diluted net income per share .................          2.72          2.55          6.7
Dividends paid per common share ..............          1.18          1.10          7.3
Average loans ................................     7,088,844     6,832,856          3.7
Average investment securities ................     2,367,414     1,816,039         30.4
Average assets ...............................    10,123,457     9,227,202          9.7
Average deposits .............................     7,632,410     7,048,670          8.3
Average shareholders' equity .................     1,257,967     1,197,058          5.1
                                                 -----------   -----------   ----------
AT YEAR END
Loans, net ...................................   $ 7,173,426   $ 6,764,783          6.0%
Investment securities ........................     2,564,583     2,340,963          9.6
Assets .......................................    10,790,376     9,928,786          8.7
Deposits .....................................     8,260,940     7,447,372         10.9
Shareholders' equity .........................     1,324,358     1,230,206          7.7
Book value per common share ..................         19.24         17.63          9.1
Market value per common share ................         38.59         43.04        (10.3)
                                                 -----------   -----------   ----------
RATIOS
Return on average assets .....................          1.88%         1.96%
Return on average shareholders' equity .......         15.12         15.15
Average shareholders' equity/average assets ..         12.43         12.97
                                                 -----------   -----------   ----------
STATISTICS
Banking offices ..............................           185           188           (3)
Employees ....................................         2,885         2,949          (64)
Shareholders .................................         9,177         8,817          360
Weighted average common shares outstanding ...    69,545,591    70,573,594   (1,028,003)
Common shares outstanding ....................    68,836,092    69,775,710     (939,618)
                                                 -----------   -----------   ----------
</TABLE>

Contents

Consolidated Financial Highlights .........................................    1
To Our Shareholders .......................................................    2
Review of Services ........................................................    5
Management's Discussion and Analysis of Financial Condition
   and Results of Operations ..............................................    8
Management's Statement of Responsibility ..................................   30
Report of Independent Accountants .........................................   31
Consolidated Balance Sheets ...............................................   32
Statement of Consolidated Income ..........................................   33
Statement of Consolidated Cash Flows ......................................   34
Statement of Changes in Consolidated Shareholders' Equity .................   35
Notes to Consolidated Financial Statements ................................   36
Five-Year Statistical Summary .............................................   56
Five-Year Selected Financial Data .........................................   58
Five-Year Summary of Consolidated Income ..................................   59
Principal Affiliates ......................................................   60
Mercantile Bankshares Corporation .........................................   67
Corporate Information .....................................................   68

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To Our Shareholders

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For the 27th consecutive year, Mercantile Bankshares Corporation reported an
increase in consolidated net income. Despite challenges posed by historically
low interest rates and a sluggish economy, total consolidated net income for
2002 increased 4.9% to $190,238,000, compared to $181,295,000 in 2001. Diluted
net income per share was $2.72, a 6.7% increase over the $2.55 per share in
2001. As a result of newly adopted rules under Generally Accepted Accounting
Principles, amortization of goodwill was discontinued in 2002. Had the same
rules been in effect in 2001, net income would have been $.12 per share higher
in 2001. The adjusted weighted average common shares outstanding were 70,067,000
for 2002 and 71,199,000 for 2001.

     Our history of profitability and capital strength has allowed us to
increase total cash dividends paid per share for 26 consecutive years. In June
2002, the cash dividend was increased to $.30 per share for the quarter. Total
cash dividends paid per share in 2002 were $1.18, a 7.3% increase over 2001. The
compound growth rate of per share dividends paid to shareholders over the last
10 years is 11.8%.

     In 2002, return on average assets, a key measure of profitability, was
1.88%. Although this was down from 1.96% in 2001, it continued to place us in
the top tier of U.S. banks. The return on average equity, which is affected by
our large equity base, decreased to 15.12% in 2002 from 15.15% in 2001.
Adjusting 2001 net income for goodwill amortization, return on average assets
and return on average equity for the prior year would have been 2.06% and
15.89%, respectively.

     Management has been pursuing a strategy to enhance shareholder value by
using capital to finance growth, both internal and external, and when capital is
not needed for that purpose, returning it to shareholders in dividends and
repurchasing shares. During 2002, we repurchased 1,384,200 shares of common
stock under the share buy-back program.

     Average shareholders' equity increased 5.1% to $1.258 billion for 2002. The
ratio of average equity to average assets, a measure of capital strength, was
12.43% for 2002. Although this ratio is lower than the 12.97% for 2001, it
remains among the strongest of the nation's largest banking organizations. At
December 31, 2002,total shareholders' equity was $1.324 billion, compared to
$1.230 billion at the end of 2001, a 7.6% increase. The positive effect of net
income was largely offset by dividends paid and shares repurchased.

     The market price of Mercantile Bankshares Corporation common stock was
$38.59 at December 31, 2002. This equates to approximately $2.7 billion in
market capitalization.

     At December 31,2002, total assets at Mercantile Bankshares Corporation were
$10.790 billion, compared to $9.929 billion at December 31, 2001. On a daily
average basis, total assets rose 9.7% to $10.123 billion. Average total loans
rose 3.7% to $7.089 billion, while average total investment securities increased
30.4% to $2.367 billion. Loans were 73.6% and 77.7% of earning assets for 2002
and 2001, respectively; and investment securities were 24.6% and 20.7% of
earning assets for 2002 and 2001, respectively. This shift in earning assets
reflects the lower demand for loans experienced during 2002.

     The ratios of loan types to total loans remained much the same as in
previous years. Average commercial loans, which increased 7.7%, were 61% of the
average total loan portfolio, up from 58% of the total in 2001. Average
construction loans decreased 7.9% and were 10% of the total,

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down from 12% in 2001. Average residential real estate loans, which increased
1.2%, remained 15% of average total loans. Growth was flat for average consumer
loans, which were 14% of the total, down from 15% in 2001.

     Credit quality at Mercantile Bankshares remains high. At December 31, 2002,
total nonperforming assets, which include nonperforming loans and other real
estate owned, were $33,503,000, slightly higher than the $33,100,000 at prior
year end. Nonperforming assets as a percent of period-end loans and other real
estate owned were .46% at year-end 2002, compared to .48% in 2001.

     The allowance for loan losses at December 31, 2002, was $138,601,000 versus
$141,463,000 in the prior year. The allowance for loan losses as a percent of
total period-end loans was 1.90% at year-end 2002 and 2.05% at year-end 2001.
Provisions made for loan losses totaled $16,378,000 in 2002 and $13,434,000 in
2001. Loans charged off, net of recoveries, totaled $19,240,000 for 2002,
compared to net charge-offs of $10,583,000 for 2001. The higher net charge-offs
in 2002 were mainly the result of actions taken to address credit quality
issues, particularly in the leasing business, which has been discontinued.

     Average total deposits for the year ended December 31, 2002, were $7.632
billion, an 8.3% increase over 2001. The ratio of average demand deposits to
average total deposits increased from 23% in 2001 to 24% in 2002. The
combination of savings, checking plus interest and money market accounts
increased from 35% to 39% of average total deposits. Certificates of deposit
were 37% of average total deposits in 2002, compared to 42% the previous year.
The move to savings deposits, particularly money market accounts, reflected
customers' shift to more conservative investments given the market
uncertainties.

     Net interest income for 2002 increased 5.6% over 2001 to $441,804,000. This
was due to an increase in average earning assets of 9.6% to $9.635 billion,
consisting mainly of growth in investment securities. Partially offsetting the
benefit from the growth in average earning assets was a decline in the net
interest margin to 4.65%, from 4.83% at year-end 2001. The net interest margin
was affected adversely by deposit growth that significantly exceeded loan demand
and a decline in the yield on the securities portfolio, which reflected general
market conditions and the relatively short duration of the portfolio.

     Total noninterest income declined 1.2% in 2002 to $143,750,000. Included in
noninterest income were gains from the sale of investment securities of $846,000
in 2002 and $4,248,000 in 2001. Excluding these securities gains, noninterest
income would have increased 1.2%. The largest component of noninterest income is
revenues from investment and wealth management, which is undergoing a
reorganization. Investment and wealth management revenues decreased 1.3%
compared to 2001. Mortgage banking revenues decreased 21.0% to $9,945,000 due to
lower volumes in commercial mortgage loan originations and the outsourcing of
the retail origination business. Service charges on deposit accounts increased
12.0%, or $3,369,000, in 2002 and other income increased 5.8%, or $1,826,000,
partly due to earnings from our bank-owned life insurance program initiated in
2002.

     Total noninterest expense increased 3.3% in 2002 to $272,608,000. Excluding
goodwill amortization, noninterest expenses for 2002 increased 7.0% over 2001.
Salary and employee benefit expenses are the largest part of noninterest expense
and were $163,310,000, an increase of 7.2% over 2001. This increase was due
mainly to the reorganization of the investment and wealth management business.

     For the year ended December 31, 2002, Mercantile Bankshares achieved an
efficiency ratio of 46.2%. This continues to place us near the top in a ranking
of efficiency ratios of the nation's 50 largest banking organizations conducted
by a nationally recognized bank database analyst. The efficiency ratio for the
prior year was 45.1%.

ON MARCH 13, 2003, Mercantile Bankshares Corporation announced plans to acquire
F&M Bancorp (F&M), a bank holding company headquartered in Frederick, Maryland.
At December 31, 2002, F&M had $2.1 billion in assets, $1.3 billion in loans and
$1.6 billion in deposits. The merger is subject to regulatory approval and is
expected to be completed by the end of this year. For more information related
to the transaction, please see Footnote No. 22 to the financial statements.

THE YEAR 2002 PRESENTED NUMEROUS CHALLENGES. The economy remained sluggish, and
the Federal Reserve cut short-term interest rates yet again in November. This
was only the most recent in a series of 12 cuts totaling 5.25%. The

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securities markets also remained persistently bearish. For the first time in 60
years, the broad market has been down for three consecutive years. These
conditions, of course, are attributable in part to continuing geopolitical
uncertainty and the looming prospect of military action in Iraq.

     For reasons that I have discussed before, conditions like those that
prevailed in 2002 make it difficult for Bankshares, in particular, to flourish.
We are dependent on lending, and net interest income, for the vast majority of
our revenues. A slow economy, combined with historically low interest rates,
affects the core of our business. We did our best to offset this earnings drag
by growing loans and our portfolio of investment securities, but there were
limits to what we could do. We did take steps to mitigate our vulnerability to
low, or falling, rates and have been engaged in an ongoing repositioning of our
investment securities portfolio.

     Bearish securities markets do not help our other principal
business--investment and wealth management. Like the commercial banking
business, however, it performed well under the circumstances, particularly as we
continued to restructure and rebuild the organization.

     Our ability to deal with less than ideal conditions is reflected in
Bankshares having achieved its 27th consecutive year of increased earnings and
its 26th consecutive year of increased dividends. We also avoided any serious
credit problems and addressed quickly those that did emerge in the leasing
portfolio--a business we have abandoned. We maintained capital and reserves at
their customarily high levels.

     For 2003 we have hopes for a more hospitable environment. But even if our
hopes are not rewarded, we will continue to focus intently on our core business
of commercial banking. In this respect, we are very pleased to announce an
agreement to acquire F&M. There is a strong geographic fit and the acquisition
should create real opportunities to generate growth.

     In investment and wealth management we have added capacity, not only
organically but also by forging alliances and making acquisitions. Recently, we
announced the acquisitions of Boyd Watterson Asset Management LLC and Peremel &
Company. Boyd Watterson brings to us very strong asset management capability,
particularly in fixed income but in equities as well, and a client focus that is
similar to ours. Peremel, a well-established Baltimore-based firm, allows us to
provide clients with brokerage services and, hopefully, to provide Peremel's
clients with the broader range of services we offer.

     Building the investment and wealth management business is a key initiative
for us. We are not only capitalizing on a strong Mercantile legacy in the
business, but also building for the future by seeking growth and trying to
strike a better balance between our interest and noninterest income. If we
succeed, I believe we will be rewarded with a more highly valued stock.

     On February 25, 2003, we announced that H. Furlong Baldwin had retired as
Chairman and as a director effective March 1. We all owe him an enormous debt of
gratitude for the extraordinary contributions he made to Mercantile, and to all
of the communities we serve, during his decades of service. He will be
missed, but never forgotten.

     In 2003 we will all do our best to continue to build on the great
traditions that we have been fortunate to inherit and to make Mercantile an even
better firm for the future.


/s/ Ned Kelly
-----------------------------
Edward J. Kelly III, Chairman
March 14, 2003

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Review of Services

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Mercantile Bankshares Corporation, along with its consolidated subsidiaries,
(Bankshares) is a regional multibank holding company with headquarters in
Baltimore, Maryland. With $10.79 billion in assets for the year ended December
31, 2002, Bankshares is comprised of Mercantile-Safe Deposit and Trust Company
(MSD&T), 19 community banks and a mortgage banking company. Sixteen banks are
located in Maryland, three are in Virginia and one is in southern Delaware.
Bankshares' largest bank, MSD&T, represents approximately 40% of total assets
and operates 22 offices in Maryland and one commercial office in Pennsylvania.

     Nearly all of Bankshares' substantial trust operations and more specialized
corporate banking services are provided by MSD&T.

     Bankshares places particular emphasis on long-term customer relationships
by providing value-added services through its extensive affiliate bank network.
Each community bank has its own name, management team and board of directors.
Perhaps most importantly, each bank has strong historical ties to the families
and businesses in the community it serves. Through its association with
Bankshares, each bank is able to provide its customers with the sophisticated
banking services and financial resources of a major banking organization.

CONSUMER BANKING SERVICES

Personal Banking

Each Bankshares banking affiliate offers numerous services to meet the checking,
savings, investment and credit needs of the individuals in its community.
Personal banking services include Individual Retirement Accounts, certificates
of deposit and various checking and savings plans, including an indexed money
market account. The banks offer home equity loans and lines of credit, as well
as installment loans, to meet a variety of borrowing needs.

     The affiliate network provides customers with no-fee access to 163 ATMs,
and customers can perform many routine transactions at any of the 185 affiliate
banking offices. For added convenience, substantially all Bankshares affiliates
provide customers with toll-free telephone access to a centralized Customer
Service Center and a voice-response account information system. In May,
Bankshares introduced Banking Twenty-Four Online, enabling customers to access
their personal accounts online to verify account balances, track recent account
activity and perform selected transactions. In October, online banking was
enhanced with bill payment capabilities.

Home Mortgages

Residential mortgages are provided through Mercantile Mortgage LLC, a joint
venture between Mercantile Mortgage Corporation, a subsidiary of MSD&T, and
Wells Fargo Ventures LLC. A wide variety of competitively priced fixed- and
variable-rate products are available, including jumbo loans. Residential
mortgage loans also are available through the affiliate banks.

COMMERCIAL BANKING SERVICES

Lending

General Commercial Lending

With their local knowledge and focus, our community banks are well-suited to
meet the traditional credit needs of businesses in their market areas. Each bank
works closely with customers to extend credit for general business purposes,
such as working capital, plant expansion or equipment purchases, and for
financing industrial and commercial real estate. Where appropriate, affiliate
banks are adept at employing government guarantee programs, such as those
available from the Small Business Administration.

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     In addition to supplying credit to the businesses in its own market
area, MSD&T works in collaboration with other affiliates when their
customers' credit needs exceed the affiliate bank's lending limit or when there
is a more specialized commercial banking need.

     Applying its experience in delivering services through community banks,
Bankshares continues to offer an array of banking services to independent banks.
The primary focus is to provide these independent banks with greater lending
capacity, enabling them to enhance the service they provide to their local
customers.

Specialized Lending

When local commercial customers do not qualify for traditional financing, the
Asset-Based Lending Group at MSD&T can help them convert the value of their
accounts receivable, inventory and equipment into cash for operations. MSD&T
lenders also work with the affiliate banks to arrange more sophisticated
financing in the areas of acquisitions and management buyouts.

Real Estate Lending

     The Real Estate Group at MSD&T provides land acquisition and development,
construction and interim financing to commercial real estate investors and
developers.

     Mercantile Mortgage Corporation makes loans for land acquisition,
development and construction of single and multifamily housing.

     Mercantile Mortgage also provides permanent financing for multifamily
projects as one of the nation's few Fannie Mae Delegated Underwriting and
Servicing lenders. Permanent financing for multifamily projects and long-term,
nonrecourse financing for commercial real estate are provided through Columbia
National Real Estate Finance LLC, a subsidiary of Mercantile Mortgage. Columbia
National is a Freddie Mac Program Plus Seller Servicer. It has correspondent
relationships with approximately 12 life insurance companies and services a loan
portfolio in excess of $5.2 billion.

Cash Management

Centered at MSD&T, Cash Management helps business customers of all affiliate
banks collect, transfer and invest their cash. Nonprofit institutions such as
unions, charities and philanthropic organizations also find Cash Management
services useful.

     Early this year, the affiliate banks began offering a Banking Twenty-Four
Business Check Card, enabling businesses to more conveniently make and monitor
business-related purchases and ATM transactions.

INVESTMENT AND WEALTH MANAGEMENT SERVICES

     Bankshares offers investment and wealth management services through MSD&T.
Continuing to build on its nearly 140-year tradition, MSD&T provides premier
investment and wealth management services to private individuals, family groups
and institutions. During the past year, Bankshares has invested significantly in
investment and wealth management activities in order to grow the business and
bring the highest quality of professionalism and uncompromising service to its
clients.

     Today, Bankshares provides a range of wealth management services from an
open architecture platform that includes proprietary investment management and
access to carefully selected outside managers. Clients are offered a
comprehensive approach to equity and bond investments complemented by uniquely
structured alternative investments. Bankshares' proprietary investment platform
includes both separate account management and top-rated mutual funds. Investment
and wealth management services are available throughout the affiliate network
and through two recently announced acquisitions: Cleveland-based Boyd Watterson
Asset Management LLC and Baltimore-based Peremel & Company Inc. Boyd Watterson
has an extensive Midwest client base and is the largest independent investment
manager in Cleveland. Peremel functionally complements Bankshares' strategic
investments and fills an important niche by offering brokerage capabilities and
account services. Including these new acquisitions, Bankshares has $20 billion
of discretionary assets under management and $40 billion in assets under
administration.

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Private Wealth Management

When managing a client's assets as part of an investment management or trustee
relationship, Bankshares focuses on consistent investment performance and an
asset allocation that is individually designed to meet each client's risk/return
parameters and investment objectives. Professional investors, working in
partnership with our clients, provide access to separately managed accounts,
Mercantile Funds, nonproprietary funds and a variety of alternative investments.
Clients have access to full-service brokerage capabilities through Peremel &
Company. MSD&T provides a wide range of sophisticated fiduciary and client
administrative services, including trust administration, protection and
continuity of trust structures, estate settlement, estate advice and planning,
tax advice and planning, and charitable giving programs. MSD&T also acts in a
custodial capacity for its clients, providing safekeeping of assets, transaction
execution, income collection, preparation of tax returns and record keeping.

Family Office

Designed to service the unique needs of families with substantial means, the
MSD&T Family Office team works with more than 50 families whose total assets
exceed $4 billion. The Family Office is comprised of leading professionals
including CFAs, CFPs and lawyers. The group integrates the full range of
services required to seamlessly manage its clients' complex, multigenerational
financial circumstances. Bankshares offers an innovative family governance
program in addition to the normal services associated with Family Offices, such
as investment management, trust structuring and administration, tax planning,
estate planning, closely held business planning, credit, and charitable giving
and administration. The team of specialists within Family Office also provides
expert guidance in sophisticated, nontraditional investment strategies, such as
private equity, real estate and hedge fund investing.

Private Banking

The Private Banking Group provides one point of contact for its clients' deposit
and credit needs, ensuring that these services are delivered within an overall
asset management plan. Private bankers can coordinate cash flows, arrange
investment of short- and long-term funds and structure credit arrangements to
meet short- to long-term plans.

Institutional Asset Management

Bankshares, through its affiliate banks and Boyd Watterson, works to provide
businesses and eleemosynary organizations with sophisticated investment
management and administrative services for their employee retirement plans,
profit sharing plans and endowments. Clients include state and local government
entities, unions, charitable organizations and military institutions. For
example, Bankshares is trustee for a group trust that focuses on commercial real
estate investments for Taft-Hartley pension plans. Bankshares can also help
nonprofit organizations, such as charitable and philanthropic groups, with
annual giving and capital campaigns, pooled income funds, gift annuities and
charitable remainder trusts.

Risk Management and Reporting

MSD&T employs a disciplined investment process and advanced technology to
provide clients with high quality risk management and comprehensive reporting.
Performance analytic tools employ sophisticated statistical modeling to assess
risk and adherence to investment guidelines. Through a strategic alliance with
Bloomberg, we deliver daily performance analytics and reporting to clients via
the Web. Digital certificates installed on client computers ensure the highest
level of data security. The Unitized Fund Accounting System (UFACS) enables
endowment and institutional clients to efficiently manage multiple donor or
restricted funds via the Internet.

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<PAGE>

Management's Discussion
and Analysis of Financial Condition and Results of Operations

I. PERFORMANCE SUMMARY

Mercantile Bankshares Corporation (Bankshares) recorded a 4.9% increase in net
income for 2002, representing the 27th consecutive year of increased net income.
Net income for Bankshares was $190,238,000 for the year ended December 31, 2002,
compared to $181,295,000 and $175,230,000 for the years ended December 31, 2001
and 2000, respectively. Basic net income per common share for 2002 was $2.74,
compared to $2.57 reported for 2001, an increase of 6.6%. Basic net income per
share reported for 2000 was $2.53. Diluted net income per common share increased
6.7% to $2.72 from the reported $2.55 in 2001. The diluted net income per share
in 2000 was $2.51. Excluding goodwill amortization, net income would have been
$.12 per share higher and $.08 per share higher for 2001 and 2000, respectively.

     Earnings results for 2001 include operations from the March 1, 2001,
acquisition by Mercantile Mortgage Corporation of Columbia National Real Estate
Finance LLC (Columbia), the former commercial financing subsidiary of Columbia
National Incorporated. In addition to significantly enhancing Mercantile
Mortgage Corporation's commercial mortgage origination capabilities, this
acquisition added a commercial real estate loan servicing portfolio of nearly $5
billion, of which $1 billion was servicing owned. Intangibles of $6,800,000
resulted from this acquisition.

     Earnings results for 2001 also include a full year of operations for Union
National Bancorp and The Bank of Fruitland, which were affiliated on July 14,
2000, and December 1, 2000, respectively, and were merged into existing
affiliates of Bankshares. The bank acquisitions were accounted for as purchases,
resulting in the recording of intangible assets of $46,306,000 for Union
National Bancorp and $24,780,000 for The Bank of Fruitland.

     Although declining slightly, 2002 proved to be another year of relatively
solid performance, as indicated by the standard industry measures of return on
average assets (ROA) and return on average shareholders' equity (ROE). The 2002
ROA was 1.88%, compared to 1.96% and 2.11% for the years ended December 31, 2001
and 2000, respectively. Bankshares' 2002 ROE decreased to 15.12%, compared to
the 15.15% reported for 2001 and 16.62% reported for 2000. Average assets
increased by 9.7% to $10,123,457,000, average deposits increased by 8.3% to
$7,632,410,000 and average loans increased by 3.7% to $7,088,844,000 for the
year ended December 31, 2002, compared to the prior year.

     Average shareholders' equity to average assets remained a very strong
12.43%, decreasing slightly from 12.97% reported for 2001 and 12.70% for 2000.
The growth rate of average shareholders' equity for 2002 was 5.1%, which
included shares repurchased under Bankshares' buyback plan. The buyback plan
retired 1,384,200 shares, 1,594,500 shares and 1,223,000 shares during the years
ended December 31, 2002, 2001 and 2000, respectively.

     The remaining sections of Management's Discussion and Analysis of Financial
Condition and Results of Operations will provide a more detailed explanation of
the important trends and material changes in components of our financial
statements. The discussion suggests that sustaining future earnings growth
comparable to our experience in recent years will require, among other things,
efficient generation of loan growth in a competitive market, while maintaining
an adequate spread between yields on earning assets and the cost of funds. Our
degree of success in meeting these goals depends on unpredictable factors such
as possible changes in prevailing interest rates, the mix of deposits, credit
quality and general economic conditions. This discussion and analysis should be
read in conjunction with the consolidated financial statements and other
financial information presented in this report.

                                     [CHART]

                                   Area Chart

NET INCOME
--------------------------------------------------------------------------------
(Dollars in millions)
Five-Year Compound Growth Rate: 7.6%

 1998     1999     2000     2001     2002
------   ------   ------   ------   ------
$147.1   $157.7   $175.2   $181.3   $190.2

                                     [CHART]

                                   Area Chart

DILUTED EARNINGS PER SHARE
--------------------------------------------------------------------------------
(In dollars)
Five-Year Compound Growth Rate: 8.1%

 1998    1999    2000    2001    2002
-----   -----   -----   -----   -----
$2.04   $2.25   $2.51   $2.55   $2.72

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

8

<PAGE>

II. ANALYSIS OF OPERATING RESULTS

Segment Reporting

Bankshares has identified three operating components for which financial
information is segregated for use in assessing performance and allocating
resources. These consist of the group of 19 Community Banks and the lead bank,
Mercantile-Safe Deposit and Trust Company (MSD&T), which consists of the Banking
Division and the Investment and Wealth Management (IWM) Division. Mortgage
banking activities are not viewed as a separate business line and, accordingly,
are included in the MSD&T Banking Division. A schedule disclosing the details of
these operating segments can be found in Footnote No. 15 to the financial
statements. Certain expense amounts, such as operations overhead, have been
reclassified from internal financial reporting in order to provide for proper
allocation of costs in the data reported herein. For comparability with the
current period presentation, prior period amounts have been reclassified to
reflect the merger of The Sparks State Bank, previously reported under Community
Banks, into MSD&T.

     Net income for the Community Banks for 2002 was $119,642,000, compared to
$98,486,000 and $91,310,000 for 2001 and 2000, respectively. Excluding goodwill
amortization expense, net income would have been $106,337,000 and $95,677,000
for 2001 and 2000, respectively. Net income, adjusted for goodwill amortization
expense, increased 12.5% in 2002 and 11.1% in 2001. Net interest income for the
Community Banks was $297,882,000, $278,421,000 and $256,990,000 for 2002, 2001
and 2000, respectively. Net interest income increased 7.0% in 2002 and 8.3% in
2001. The growth in net interest income in 2002 was attributable to a 9.5%
increase in average earning assets, which offset a 12 basis point decline in the
net interest margin from 5.17% to 5.05%. Net interest income increased in 2001
due to a 12.2% increase in average earning assets which offset an 18 basis point
decline in the net interest margin.

     MSD&T-Banking recorded net income of $64,092,000 in 2002, compared to
$63,263,000 in 2001 and $67,796,000 in 2000. Net interest income for
MSD&T-Banking increased 3.9% in 2002 to $146,249,000 from $140,764,000 in 2001.
The increase was due to a 9.7% increase in average earning assets, consisting
mainly of growth in investment securities. Partially offsetting the benefit from
the growth in average earning assets was a decline in the net interest margin to
3.81% from 4.04%. Net interest income decreased 7.7% in 2001. Although average
earning assets grew 11.8%, it was not enough to offset the decline in the net
interest margin.

     Net income for IWM was $12,077,000 in 2002, versus $16,328,000 and
$17,453,000 in 2001 and 2000, respectively. Profit margins were 29.6%, 39.4% and
41.7% for 2002, 2001 and 2000, respectively. The decrease in net income and the
profit margin in 2002 reflects the ongoing reorganization of the investment and
wealth management business, while the decrease in 2001 was driven by the decline
in the equity markets and its negative impact on income from principal fees.

     The reorganization of IWM began in 2002. The most significant investment
resulting from the IWM reorganization will be in people. As the infrastructure
for the wealth management organization is developed, significant sums are being
invested in high quality, forward looking personnel. This investment began in
2002 and will continue throughout 2003. Enhanced revenue streams through new
business development are not expected to be realized until sometime in 2004.
Management expects that IWM profit margins will decline further before starting
to rebuild towards targeted profit margins of 32% to 35%.

     Average assets for the Community Banks increased 10.5% to $6,252,720,000 in
2002. Increases of 17.9% and

                                     [CHART]

                                   Area Chart

TOTAL ASSETS
--------------------------------------------------------------------------------
(Dollars in millions) December 31

 1998     1999     2000     2001      2002
------   ------   ------   ------   -------
$7,610   $7,895   $8,938   $9,929   $10,790

                                     [CHART]

                                   Area Chart

INTEREST YIELDS AND RATES
--------------------------------------------------------------------------------
(Tax-equivalent basis)

                                              1998   1999   2000   2001   2002
                                              ----   ----   ----   ----   ----
Average yield earned on earning assets        8.13%  7.79%  8.26%  7.46%  6.15%
Average rate paid on interest-bearing funds   4.05%  3.64%  4.16%  3.68%  2.10%

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                               9

<PAGE>

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.

<TABLE>
<CAPTION>
                                                       2002                           2001                           2000
                                        ------------------------------  -----------------------------  -----------------------------
                                         Average     Income*/  Yield*/   Average    Income*/  Yield*/   Average    Income*/  Yield*/
(Dollars in thousands)                   Balance**    Expense    Rate    Balance**   Expense    Rate    Balance**   Expense    Rate
--------------------------------------  -----------  --------  -------  ----------  --------  -------  ----------  --------  -------
<S>                                     <C>          <C>        <C>     <C>         <C>        <C>     <C>         <C>        <C>
Earning assets
   Loans:
      Commercial .....................  $ 4,283,322  $278,995   6.51%   $3,978,335  $317,769   7.99%   $3,534,898  $323,108   9.14%
      Construction ...................      733,237    44,667   6.09       795,931    63,359   7.96       738,393    71,348   9.66
      Residential real estate ........    1,072,297    78,233   7.30     1,059,798    84,102   7.94       950,531    75,828   7.98
      Consumer .......................      999,988    71,225   7.12       998,792    82,740   8.28       945,810    82,264   8.70
                                        -----------  --------           ----------  --------           ----------  --------
            Total loans ..............    7,088,844   473,120   6.67     6,832,856   547,970   8.02     6,169,632   552,548   8.96
                                        -----------  --------           ----------  --------           ----------  --------
   Federal funds sold, et al .........      178,624     5,213   2.92       141,245     6,190   4.38        29,434     1,857   6.31
   Securities:
      Taxable securities
         U.S. Treasury securities ....    1,478,387    67,531   4.57     1,366,245    73,653   5.39     1,537,888    86,266   5.61
         U.S. Agency securities ......      610,617    30,072   4.92       339,298    19,812   5.84        90,589     6,110   6.74
         Other stocks and bonds ......      239,611    13,493   5.63        70,137     5,249   7.48        40,579     3,240   7.98
      Tax-exempt securities
         States and political
            subdivisions .............       38,799     3,135   8.08        40,359     3,298   8.17        25,170     2,080   8.26
                                        -----------  --------           ----------  --------           ----------  --------
            Total securities .........    2,367,414   114,231   4.83     1,816,039   102,012   5.62     1,694,226    97,696   5.77
                                        -----------  --------           ----------  --------           ----------  --------
   Interest-bearing deposits
      in other banks .................          358        15   4.12           365        18   4.98           178         9   5.21
                                        -----------  --------           ----------  --------           ----------  --------
            Total earning assets .....    9,635,240   592,579   6.15     8,790,505   656,190   7.46     7,893,470   652,110   8.26
                                                     --------                       --------                       --------
Cash and due from banks ..............      227,034                        215,852                        219,219
Bank premises and equipment, net .....      101,660                        102,993                         98,552
Other assets .........................      300,422                        260,333                        215,261
Less: allowance for loan losses ......     (140,899)                      (142,481)                      (127,186)
                                        -----------                     ----------                     ----------
            Total assets .............  $10,123,457                     $9,227,202                     $8,299,316
                                        ===========                     ==========                     ==========
Interest-bearing liabilities
   Deposits:
      Savings ........................  $   966,283     8,405    .87    $  853,911    12,899   1.51    $  854,035    16,524   1.93
      Checking plus interest .........      873,497     2,908    .33       771,186     5,255    .68       718,669     7,500   1.04
      Money market ...................    1,096,417    14,223   1.30       846,577    21,839   2.58       773,104    24,338   3.15
      Certificates of deposit--
         $100,000 and over ...........    1,080,347    34,671   3.21     1,145,569    62,350   5.44       852,495    51,525   6.04
      Other time deposits ............    1,759,160    62,362   3.54     1,812,589    97,360   5.37     1,559,973    82,561   5.29
                                        -----------  --------           ----------  --------           ----------  --------
            Total interest-bearing
               deposits ..............    5,775,704   122,569   2.12     5,429,832   199,703   3.68     4,758,276   182,448   3.83
   Short-term borrowings .............      845,938    11,259   1.33       744,907    25,120   3.37       860,241    48,711   5.66
   Long-term debt ....................      279,471    10,754   3.85       117,823     6,702   5.69        87,679     5,951   6.79
                                        -----------  --------           ----------  --------           ----------  --------
            Total interest-bearing
               funds .................    6,901,113   144,582   2.10     6,292,562   231,525   3.68     5,706,196   237,110   4.16
                                                     --------                       --------                       --------
Noninterest-bearing deposits .........    1,856,706                      1,618,838                      1,438,578
Other liabilities and accrued
   expenses ..........................      107,671                        118,744                        100,471
                                        -----------                     ----------                     ----------
            Total liabilities ........    8,865,490                      8,030,144                      7,245,245
Shareholders' equity .................    1,257,967                      1,197,058                      1,054,071
                                        -----------                     ----------                     ----------
            Total liabilities and
               shareholders' equity ..  $10,123,457                     $9,227,202                     $8,299,316
                                        ===========                     ==========                     ==========
Net interest income ..................               $447,997                       $424,665                       $415,000
                                                     ========                       ========                       ========
Net interest rate spread .............                          4.05%                          3.78%                          4.10%
Effect of noninterest-bearing funds ..                           .60                           1.05                           1.16
                                                                ----                           ----                           ----
Net interest margin on earning
   assets ............................                          4.65%                          4.83%                          5.26%
                                                                ====                           ====                           ====
Taxable-equivalent adjustment
   included in:
      Loan income ....................               $  4,822                       $  4,950                       $  4,606
      Investment securities income ...                  1,371                          1,474                          1,009
                                                     --------                       --------                       --------
            Total ....................               $  6,193                       $  6,424                       $  5,615
                                                     ========                       ========                       ========
</TABLE>

*    Presented on a tax-equivalent basis using the statutory federal corporate
     income tax rate of 35%.
**   Average investment securities are reported at amortized cost and exclude
     pretax unrealized gains (losses) on securities available-for-sale.
     Nonaccrual loans are included in average loans.

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

10

<PAGE>

6.6% were recorded in the investment and loan portfolios, respectively. Average
assets for the Community Banks increased 11.9% to $5,657,733,000 in 2001,
compared to 2000. Average assets for MSD&T increased 10.5% to $4,138,932,000
mainly as a result of growth in the investment portfolio in 2002. Average assets
for MSD&T increased 11.0% to $3,746,151,000 in 2001. Average deposits for the
Community Banks increased 10.3% to $5,054,201,000 in 2002, while average
deposits for MSD&T increased 3.5% to $2,749,227,000. Average deposits increased
12.0% for the Community Banks and 16.8% for MSD&T in 2001.

     At December 31, 2002, 60.0% of average total loans were at the Community
Banks, compared to 58.3% in 2001. Commercial loans, including commercial
mortgages, accounted for 51.5% of the Community Banks' average total loans,
slightly higher than the 49.8% for 2001. These loans increased 10.3% from the
2001 average. Residential real estate and consumer loans accounted for
approximately the same portion of Community Bank loans in 2002 as in 2001, at
22.0% and 21.4%, respectively. Residential real estate increased 2.2%, while
consumer loans increased 1.9%, from 2001 levels. Construction loans, which were
5.1% and 4.9% of average total loans for 2002 and 2001, respectively, increased
11.8%.

     At the end of 2002, commercial loans, at 73.7%, was the largest sector of
average total MSD&T loans, up from 70.0% for 2001. MSD&T's commercial loans,
which increased 5.0% over 2001, was the only loan category to experience any
growth. MSD&T's construction loans comprised 18.2% of MSD&T's average total
loans, down from 21.1% for 2001. Residential real estate and consumer loans were
4.9% and 3.2% of the average total loan portfolio, respectively, which was
relatively the same proportion to total loans as in 2001.

     The Community Banks provided 66.2% of the average total deposit base of
Bankshares, a slight increase from 2001 when 65.0% was provided at the Community
Bank level. The Community Banks generated 72.0% of average noninterest-bearing
deposits in 2002, an increase from 70.0% in 2001. For 2002, 64.3% of average
interest-bearing deposits were at the Community Banks, slightly higher than the
63.5% for 2001.

Net Interest Income

Net interest income represents the largest source of Bankshares' revenue. It is
affected by both changes in the level of interest rates and changes in the
amount and composition of interest-earning assets and interest-bearing
liabilities. Interest rate risk (see Interest Rate Risk Management discussion
beginning on page 24) represents one of the more significant risks facing
financial institutions like Bankshares. It is measured in terms of the effect
changes in market interest rates have on net interest income. During the year
2001, in response to a slowing economy, the Federal Reserve took action to
reduce short-term interest rates by 475 basis points. The magnitude and time
frame for this action were unprecedented. The continued slow economy prompted
the Federal Reserve to reduce short-term interest rates by 50 basis points in
the fourth quarter 2002. Bankshares is asset sensitive, with assets repricing
more quickly than liabilities in response to changes in interest rates. In a
falling rate environment, Bankshares' net interest margin (net interest income
expressed as a percent of average earning assets) tends to compress, and growth
in net interest income tends to slow. Net interest income, on a fully
tax-equivalent basis, was $447,997,000 for 2002. This represents an increase of
5.5%, or $23,332,000, over the prior year's $424,665,000. This compares
favorably to the performance in 2001 when fully tax-equivalent net interest
income increased by only $9,665,000,or 2.3%,over 2000. As previously noted, net
interest income is affected by changes in the volume of earning assets and the
net interest margin earned thereon. The Rate/Volume Analysis on page 12 presents
further details supporting this discussion.

     Average earning assets increased 9.6% in 2002, a slight decrease from the
11.4% growth experienced in 2001. Average total loans grew $255,988,000, or
3.7%, during 2002. Despite the slowing economy, loan growth was fairly
consistent throughout the year. While average total loans grew by $663,224,000,
or 10.7%, during 2001, substantially all of the growth occurred during the first
half of the year. The 2001 growth rate also benefited from two acquisitions
consummated during the second half of 2000. Average securities, the other major
component of earning assets, increased by $551,375,000, or 30.4%, in 2002
compared to an increase of $121,813,000, or 7.2%, in the prior year. The overall
growth in average earning assets added $37,690,000 to net interest income in
2002.

     Offsetting the increase in net interest income from the growth in average
earning assets was an 18 basis point decline in the net interest margin from
4.83% in 2001 to 4.65% in 2002. The decline in the net interest margin reduced
net interest income by $14,358,000.

     While the net interest margin declined for the second straight year, the
net interest spread increased by 27 basis points to 4.05% in 2002 from 3.78% in
2001. This left the net interest rate spread only 5 basis points below the 4.10%
reported in 2000, the year prior to the Federal Reserve's actions to reduce
short-term interest rates. The net interest rate spread is the difference
between the yield earned on total earning assets and the rate paid on total
interest-bearing liabilities.

     The average yield on earning assets declined 131 basis points to 6.15% in
2002. In comparison, the average rate paid on interest-bearing funds declined
158 basis points in 2002, from 3.68% in 2001.The average rate paid in 2000 was
4.16%. Approximately 22% of the funding of average earning assets is derived
from sources that are noninterest-bearing.

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              11

<PAGE>

RATE/VOLUME ANALYSIS

A rate/volume analysis, which demonstrates changes in tax-equivalent interest
income and expense for significant assets and liabilities, appears below. The
calculation of rate and volume variances is based on a procedure established for
banks by the Securities and Exchange Commission.

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                         --------------------------------------------------------------
                                                  2002 vs. 2001                   2001 vs. 2000
                                               Due to variances in             Due to variances in
                                         ------------------------------   -----------------------------
(Dollars in thousands)                     Total      Rates     Volumes     Total      Rates    Volumes
--------------------------------------   --------   ---------   -------   --------   --------   -------
<S>                                      <C>        <C>         <C>       <C>        <C>        <C>
Interest earned on:
   Loans:
      Commercial (1) .................   $(38,774)  $ (63,135)  $24,361   $ (5,339)  $(45,871)  $40,532
      Construction (2) ...............    (18,692)    (13,701)   (4,991)    (7,989)   (13,549)    5,560
      Residential real estate ........     (5,869)     (6,861)      992      8,274       (443)    8,717
      Consumer .......................    (11,515)    (11,614)       99        476     (4,132)    4,608
   Taxable securities (3) ............     12,382     (18,357)   30,739      3,098     (3,010)    6,108
   Tax-exempt securities (3) .........       (163)        (36)     (127)     1,218        (37)    1,255
   Federal funds sold, et al .........       (977)     (2,615)    1,638      4,333     (2,721)    7,054
   Interest-bearing deposits in
      other banks ....................         (3)         (3)       --          9         (1)       10
                                         --------   ---------   -------   --------   --------   -------
         Total interest income .......    (63,611)   (116,322)   52,711      4,080    (69,764)   73,844
                                         --------   ---------   -------   --------   --------   -------
Interest paid on:
   Savings deposits ..................     (4,494)     (6,191)    1,697     (3,625)    (3,623)       (2)
   Checking plus interest deposits ...     (2,347)     (3,044)      697     (2,245)    (2,793)      548
   Money market accounts .............     (7,616)    (14,061)    6,445     (2,499)    (4,548)    2,049
   Certificates of deposit--
      $100,000 and over ..............    (27,679)    (24,129)   (3,550)    10,825     (6,888)   17,713
   Other time deposits ...............    (34,998)    (32,128)   (2,870)    14,799      1,429    13,370
   Short-term borrowings .............    (13,861)    (17,268)    3,407    (23,591)   (17,060)   (6,531)
   Long-term debt ....................      4,052      (5,143)    9,195        751     (1,295)    2,046
                                         --------   ---------   -------   --------   --------   -------
         Total interest expense ......    (86,943)   (101,964)   15,021     (5,585)   (34,778)   29,193
                                         --------   ---------   -------   --------   --------   -------
Net interest earned ..................   $ 23,332   $ (14,358)  $37,690   $  9,665   $(34,986)  $44,651
                                         ========   =========   =======   ========   ========   =======
</TABLE>

(1)  Tax-equivalent adjustments of $3,624,000 for 2002, $4,083,000 for 2001 and
     $3,949,000 for 2000 are included in the calculation of commercial loan rate
     variances.
(2)  Tax-equivalent adjustments of $1,198,000 for 2002, $867,000 for 2001 and
     $657,000 for 2000 are included in the calculation of construction loan rate
     variances.
(3)  Tax-equivalent adjustments of $1,371,000 for 2002,$1,474,000 for 2001 and
     $1,009,000 for 2000 are included in the calculation of investment
     securities rate variances.

NONINTEREST INCOME

A schedule of noninterest income over the past three years is presented below:

<TABLE>
<CAPTION>
                                                   Year Ended December 31,           % Change
                                               ------------------------------   ---------------------
(Dollars in thousands)                           2002       2001       2000     2002/2001   2001/2000
--------------------------------------------   --------   --------   --------   ---------   ---------
<S>                                            <C>        <C>        <C>         <C>         <C>
Investment and wealth management ...........   $ 68,435   $ 69,331   $ 69,850     (1.3)%       (.7)%
Service charges on deposit accounts ........     31,454     28,085     24,346     12.0        15.4
Mortgage banking related fees ..............      9,945     12,582      3,106    (21.0)      305.1
Investment securities gains and (losses) ...        846      4,248         69    (80.1)         --
Other income ...............................     33,070     31,244     28,170      5.8        10.9
                                               --------   --------   --------    -----       -----
   Total ...................................   $143,750   $145,490   $125,541     (1.2)%      15.9%
                                               ========   ========   ========    =====       =====
</TABLE>

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

12

<PAGE>

     The net interest margin decreased 43 basis points in 2001 from the 5.26%
reported in 2000. Bankshares' lead bank, MSD&T, has felt the greatest impact
from the overall decline in interest rates. MSD&T's net interest margin
decreased 23 basis points, from 4.04% in 2001 to 3.81% in 2002. The Community
Banks' net interest margin decreased 12 basis points, from 5.17% in 2001 to
5.05% in 2002. Over the two-year period ended December 31, 2002, MSD&T's net
interest margin declined 103 basis points as compared to a decline of 30 basis
points for the Community Banks.

     The combination of Bankshares' strong capital base and noninterest-bearing
deposits has consistently led to a lower dependence on interest-bearing funds
than that experienced by its peer group, as reported in data furnished by our
regulators. The effect that Bankshares' capital and noninterest-bearing
deposits have on the net interest margin changes with the relative level of
interest rates. During the past two years, with interest rates falling, the
benefit declined 45 basis points to 0.60% in 2002 following a benefit decline of
11 basis points to 1.05% in 2001. Factoring in these funds, the average cost of
funding earning assets was 1.50%, 2.63% and 3.00% for the years 2002, 2001 and
2000, respectively. For additional information regarding interest rate
sensitivity, see the discussion in the Interest Rate Risk Management section
beginning on page 24.

Interest Income

Fully taxable-equivalent interest income amounted to $592,579,000 in 2002, a
decrease of $63,611,000, or 9.7% from $656,190,000 in 2001. The increase in 2001
over 2000 was a modest $4,080,000. Reflecting the decline in market interest
rates, the lower yield on earning assets resulted in a $116,322,000 reduction in
interest income. This reduction was only partially offset by the $52,711,000 in
additional interest income generated by the growth in earning assets. During
2001, the $69,764,000 reduction in interest income resulting from the lower
yield on earning assets was more than offset by the $73,844,000 increase derived
from the growth in earning assets.

     At year-end 2002, the prime rate was 4.25%, compared to 4.75% and 9.50% at
year-end 2001 and 2000, respectively. The prime rate averaged 4.72% for 2002,
compared to 6.91% for 2001, a decline of 219 basis points. The yield on average
total loans in 2002 was 6.67%, a 135 basis point decline from 8.02% in 2001. In
comparison, the average prime rate was 233 basis points lower in 2001 than the
9.24% average for 2000. The most interest rate sensitive loan portfolios are the
commercial portfolio, which decreased 148 basis points in 2002, and the
construction portfolio, which declined 187 basis points from the prior year.

     The yield on investment securities, at 4.83% in 2002, declined 79 basis
points from 5.62% in 2001. The yield on the portfolio decreased 15 basis points
in 2001 from 5.77% in 2000. More than offsetting the negative impact on interest
income from reinvesting at lower yields has been the increasing size of the
portfolio. Additionally, Bankshares is continuing a strategy begun in 2001 to
shift from U.S. Treasury to higher yielding U.S. Agency securities.

                                     [CHART]

                                    Bar Chart

SOURCES OF INCOME
---------------------
(Dollars in millions)
                                      1998     1999     2000     2001     2002
                                     ------   ------   ------   ------   ------
Interest and fees on loans               67%      67%      71%      68%      65%
Other interest and dividend income       17%      15%      13%      13%      16%
Investment and wealth management          9%      10%       9%       9%       9%
Other income                              7%       8%       7%      10%      10%
Total                                   100%     100%     100%     100%     100%
Total of all sources of income       $664.1   $681.2   $772.0   $795.3   $730.1

                                     [CHART]

                                    Bar Chart

USES OF INCOME
---------------------
(Dollars in millions)
                                      1998     1999     2000     2001     2002
                                     ------   ------   ------   ------   ------
Interest expense                         30%      28%      31%      29%      20%
Provision for loan losses                 2%       2%       2%       2%       2%
Salaries and employee benefits           20%      20%      18%      19%      22%
Other expenses                           13%      14%      13%      14%      15%
Applicable income taxes                  13%      13%      13%      13%      15%
Net income                               22%      23%      23%      23%      26%
Total                                   100%     100%     100%     100%     100%
Total of all uses of income          $664.1   $681.2   $772.0   $795.3   $730.1

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                                                                              13

<PAGE>

Interest Expense

Total interest expense in 2002 was $144,582,000, a decrease of $86,943,000 from
$231,525,000 in 2001. The decrease in interest expense for 2002 was attributable
to a decrease in the rate paid on total interest-bearing funds of 158 basis
points, which was partially offset by a 9.7% growth in average balances. Total
interest expense in 2001 was $5,585,000 less than the $237,110,000 reported in
2000.

     The rate paid on average total interest-bearing deposits was 2.12% in
2002, a decline of 156 basis points from 3.68% for the prior year. The rate paid
on savings, checking plus interest and money market accounts declined 64 basis
points, 35 basis points and 128 basis points, respectively. Certificates of
deposit-$100,000 and over, declined 223 basis points, while the rate paid on
other time deposits decreased 183 basis points in 2002.

     The most interest rate sensitive source of funds is short-term borrowings.
This category is comprised of federal funds purchased, securities sold under
agreement to repurchase and commercial paper. The duration of these funds is
very short, with most repricing daily. Reflecting the rate environment, the rate
paid on short-term borrowings declined 204 basis points to 1.33% in 2002, after
having decreased by 229 basis points in 2001 to 3.37%. The rate paid on
long-term debt declined 184 basis points in 2002, following a decline of 110
basis points in the prior year. The decline is primarily related to the $200
million of 10-year debt issued by MSD&T in the fourth quarter 2001. These notes,
which were issued at a fixed rate of 5.70%, were converted to a floating rate
through an interest rate swap. The notes reprice quarterly and carried an
effective cost of 2.75% during 2002.

Noninterest Income

Total noninterest income was $143,750,000 in 2002. This represents a decrease of
$1,740,000, or 1.2%, from the 2001 level. Noninterest income for 2002 included
gains of $846,000 on the sale of equity securities held in the
available-for-sale portfolio and gains of $456,000 on the sale of bank-owned
buildings. Noninterest income for 2001 included gains of $4,248,000 on the sale
of equity securities held in the available-for-sale portfolio and gains of
$801,000 on the sale of bank-owned buildings. Noninterest income, excluding
these nonrecurring items, was $142,448,000 for 2002, an increase of $2,007,000,
or 1.4%, over the 2001 amount of $140,441,000. Growth in service charges on
deposit accounts and income from the purchase of bank-owned life insurance
accounted for the largest increases in 2002. Noninterest income for 2001 was
$145,490,000, an increase of $19,949,000, or 15.9%, above 2000. The increase in
2001 noninterest income was due to growth in mortgage banking fees and service
charges on deposit accounts.

     Revenues from IWM, representing the largest source of noninterest income at
48%, amounted to $68,435,000 for 2002, a decrease of 1.3%, or $896,000, from
2001. Revenues of $69,331,000 for 2001 represented a decrease of $519,000, or
..7%, from 2000. A significant portion of IWM fee income is sensitive to asset
valuations. Accordingly, the decline in the equity markets in 2002 had a
negative impact on IWM revenues. This decline is reflected in the changes in
several key indices such as the S&P 500 index, down 23.4%; the Dow Jones
Industrial Average, down 16.8%; and the Nasdaq, down 31.5%. At December 31,
2002, assets under administration by the IWM Division were $36.0 billion, a
decrease of $2.6 billion from the prior year. Bankshares had investment
management responsibility for $15.6 billion, up 6% from $14.7 billion at the end
of 2001. See the discussion under Segment Reporting beginning on page 9 for
additional information relating to the IWM Division.

     Service charges on deposit accounts increased 12.0%, or $3,369,000, to
$31,454,000. Service charges of $28,085,000 in 2001 represented an increase of
$3,739,000, or 15.4%, over 2000. The increase in service charges was largely
attributable to Bankshares' commercial customer base. Many commercial customers
receive an earnings credit, tied to short-term interest rates, that is applied
to deposit balances. Because the earnings credit decreased in 2002 and 2001,
commercial customers paid a larger portion of the service charges on their
accounts instead of increasing their balances on deposit.

     Mortgage banking fees decreased $2,637,000, or 21.0%, to $9,945,000 in
2002. During 2001, mortgage banking fees were $12,582,000, an increase of
$9,476,000, or 305.1%, from $3,106,000 in 2000. Loan origination fees remained
the largest category in 2002 at $5,141,000, down from $7,580,000 in 2001. The
decrease during 2002 was due to lower volumes in commercial mortgage loan
originations and the outsourcing of the retail origination business. In April
2002, Mercantile Mortgage Corporation entered into a joint venture with Wells
Fargo Ventures LLC (WFV) for the outsourcing of the retail mortgage origination
business. Mercantile Mortgage, which owns a 49% stake in the venture,
transferred its originators and administrative support staff to the newly formed
joint venture. As the primary beneficiary and managing partner, WFV is
responsible for consolidating the joint venture in its financial statements.
Bankshares is reporting its share of the net profits as mortgage banking related
fees. Although Bankshares' reported mortgage banking fees have decreased,
residential mortgage originations and the pre-tax contribution have improved as
a result of the joint venture. The financial risk for Bankshares is the capital
contributed to the new entity, Mercantile Mortgage LLC, which was minimal.
Either party may terminate the joint venture on 60 days notice. The second
largest category of mortgage banking related fees, loan servicing fees,
increased $74,000 in 2002 to $3,545,000. In 2001, almost 80% of the total loan
origination fees were commercial origination fees, reflecting the strong impact
of Columbia. Loan servicing fees increased $2,036,000 in 2001 to $3,471,000.

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14

<PAGE>

NONINTEREST EXPENSES

A schedule of noninterest expenses over the past three years is presented below:

<TABLE>
<CAPTION>
                                               Year Ended December 31,            % Change
                                           ------------------------------   ---------------------
(Dollars in thousands)                       2002       2001       2000     2002/2001   2001/2000
----------------------------------------   --------   --------   --------   ---------   ---------
<S>                                        <C>        <C>        <C>         <C>         <C>
Salaries ...............................   $131,139   $123,230   $114,077       6.4%        8.0%
Employee benefits ......................     32,171     29,175     25,292      10.3        15.4
Stock-based compensation expense .......      1,690       (119)     2,273        --      (105.2)
Net occupancy expense of bank premises .     15,904     14,440     12,019      10.1        20.1
Furniture and equipment expenses .......     24,464     24,008     22,588       1.9         6.3
Communications and supplies ............     13,375     13,086     12,212       2.2         7.2
Other expenses .........................     53,865     51,067     49,831       5.5         2.5
                                           --------   --------   --------
Noninterest expenses before amortization
   of goodwill .........................    272,608    254,887    238,292       7.0         7.0
Amortization of goodwill ...............         --      9,072      5,213    (100.0)       74.0
                                           --------   --------   --------
      Total ............................   $272,608   $263,959   $243,505       3.3%        8.4%
                                           ========   ========   ========    ======      ======
</TABLE>

Columbia again accounted for the largest component of the increase in 2001 at
$2,027,000.

     Other noninterest income in 2002 included earnings of $869,000 from the
bank-owned life insurance program initiated through two $25,000,000 investments
in July and August of 2002. Other noninterest income included increases for
letters of credit fees, merchant card fees, debit card fees and other loan fees
totaling $2,793,000 over 2001 levels. Letters of credit fees increased 30.8%, or
$680,000; merchant card fees increased 4.0%, or $312,000; and debit card fees
increased 20.9%, or $801,000, in 2002. For 2002, other loan fees increased
104.8%, or $1,000,000. In 2001, there were increases in other fee items totaling
$1,640,000 over 2000 levels. These included increases in merchant card fees of
6.8%, or $498,000; debit card fees of 28.4%, or $851,000; and foreign ATM
surcharge fees of 15.8%, or $291,000. These increases in other fees were
partially offset by an increase of 104.6%, or $1,102,000, in the amount of
write-downs of investments in third-party private equity funds during 2002.
Write-downs of these funds (net of reported operating earnings) totaled
$2,167,000 in 2002, $1,063,000 in 2001 and $807,000 in 2000. At December 31,
2002, Bankshares had committed $26,000,000 to these investments, of which
$10,757,000 had been advanced.

Noninterest Expenses

Total noninterest expenses in 2002 were $272,608,000, representing an increase
of $8,649,000, or 3.3%, over the prior year level of $263,959,000. After
excluding the amortization of goodwill in 2001, total noninterest expenses
increased $17,721,000, or 7.0%, over the 2001 total of $254,887,000. The largest
expense increases in 2002 were in salaries, employee benefits and stock-based
compensation expense.

     Management remains vigilant in its efforts to control costs and maintain
operational efficiency. A key measure that is closely monitored is Bankshares'
overall efficiency ratio. It is computed by dividing noninterest expenses,
excluding amortization expense for goodwill, by the sum of net interest income
on a tax-equivalent basis and noninterest income. For this calculation,
significant nonrecurring income and expenses, such as securities gains and
losses, are also excluded. Bankshares' efficiency ratio was 46.17%, 45.10% and
43.87% for the years ended December 31, 2002, 2001 and 2000, respectively. A
ratio of 50.0% or less is regarded as outstanding within the industry.

     Salaries, employee benefits and stock-based compensation expense totaled
$165,000,000 in 2002, $12,714,000, or 8.3%, over the $152,286,000 expense level
for 2001. The combined salaries, employee benefits and stock-based compensation
expenses for 2001 increased $10,644,000, or 7.5%, over the $141,642,000 reported
for 2000. Bankshares' staffing level on a full-time equivalent basis was 2,885
at December 31, 2002, a decrease from 2,949 at December 31, 2001. Full-time
equivalent employment was 2,979 at December 31, 2000. In 2002, overall staffing
was reduced by 64 employees. This reduction is primarily attributable to
efficiencies gained as a result of entering into the joint venture with WFV and
the IWM reorganization. In 2001, 27 additional employees were added through the
acquisition of Columbia, while staffing throughout the rest of the organization
was reduced by 57 employees.

     Included in salaries are incentive compensation expense and severance
costs. Incentive compensation expense in 2002 increased $2,489,000, or 61.0%, to
$6,570,000 primarily due to the attainment of performance-based objectives.
Incentive compensation expense was $4,081,000 and $4,496,000 in 2001 and 2000,
respectively. Severance costs totaled $1,700,000 in 2002 and were mostly
associated with the IWM reorganization.

     Employee benefits expense increased by $2,996,000, or 10.3%, during 2002.
This increase from the prior year is attributable to increased pension and
health insurance expense. Bankshares' qualified pension expense nearly doubled
during 2002 to $2,627,000 mainly due to lower returns on plan assets. Based on
actuarial estimates, Bankshares expects this expense to nearly double again in

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                                                                              15

<PAGE>

BOND INVESTMENT PORTFOLIO

The following summary shows the maturity distribution and average tax-equivalent
yields for the bond investment portfolio at December 31, 2002.

<TABLE>
<CAPTION>
                                        Within 1      1 - 5      5 - 10    After 10
(Dollars in thousands)                    Year        Years       Years      Years      Total
--------------------------------------  --------   ----------   --------   --------   ----------
<S>                                     <C>        <C>          <C>         <C>       <C>
Securities available for sale (1)
   U.S. Treasury and other
   U.S. Government agencies
      Fair value .....................  $637,294   $1,486,332   $ 25,781    $  110    $2,149,517
      Yield ..........................      4.96%        4.14%      5.15%     7.54%         4.41%

   States and political subdivisions
      Fair value .....................  $    103   $       --   $    474    $   --    $      577
      Yield ..........................      6.60%          --%      8.89%       --%         8.47%

   Mortgage-backed securities (2)
      Fair value .....................  $    308   $  155,106   $192,755    $  154    $  348,323
      Yield ..........................      7.40%        5.23%      4.94%     7.23%         5.07%

   Other bonds, notes and debentures
      Fair value .....................  $  1,534   $    1,077   $     --    $   --    $    2,611
      Yield ..........................      7.43%        7.45%        --%       --%         7.44%

   Total securities available-for-sale
      Fair value .....................  $639,239   $1,642,515   $219,010    $  264    $2,501,028
      Yield ..........................      4.97%        4.25%      4.97%     7.36%         4.51%

Securities held-to-maturity
   States and political subdivisions
      Amortized cost .................  $  3,568   $   16,103   $ 10,918    $7,710    $   38,299
      Yield ..........................      7.03%        7.14%      7.58%     7.84%         7.40%
</TABLE>

(1)  Investment securities available-for-sale are presented at estimated fair
     value. Yields on such securities are based on amortized cost.

(2)  Maturities are reflected based on projected maturities at time of purchase.
     Actual maturities are expected to be significantly shorter as a result of
     loan repayments in the underlying mortgage pools.

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16

<PAGE>

2003. In 2001, qualified pension plan expenses increased $911,000, or 175.2%,
over 2000. Health insurance costs increased $1,375,000, or 15.3%, in 2002 and
$1,495,000, or 20.0%, in 2001, a function of Bankshares absorbing a larger
portion of this employee benefit cost in both years.

     The increase in stock-based compensation expense reflects a shift toward a
larger equity component in overall compensation. Given this shift, and the
attention this issue has attracted, it is noteworthy that since 1995 Mercantile
has expensed the cost of stock options (under the Bankshares Omnibus Stock Plan)
when granted in accordance with the fair value provisions of Statement of
Financial Accounting Standards (SFAS) No.123. In addition to the stock option
component, stock-based compensation expense also includes the cost of restricted
shares and the deferred compensation plan for directors, which fluctuates with
the value of Bankshares' stock. In 2002, stock-based compensation expense
increased by $1,809,000 primarily due to higher expenses for stock options and
to restricted stock awards. Stock option expense was $1,189,000 in 2002 compared
to $482,000 in 2001 and $1,022,000 in 2000. The increase in 2002 was due to the
partial attainment of performance-based objectives while the 2001 expense level
decreased due to forfeiture of such performance-based grants. See Footnote No.
13 to the financial statements for a description of the option plans. As part of
the shift to more equity-based compensation, Bankshares began a program of
awarding restricted stock in 2002 and charged $872,000 to expense. The third
component of stock-based compensation, directors' deferred compensation expense,
fluctuates based on the market price of Bankshares' stock. As a result, this was
reported as a credit of ($401,000) and ($601,000) in 2002 and 2001,
respectively. In 2000 this component was reported as an expense of $1,251,000.

     Net occupancy expense increased $1,464,000, or 10.1%, during 2002 to
$15,904,000. This represented the second straight year of increased net
occupancy expenses as costs in 2001 increased by $2,421,000, or 20.1%, over the
prior year to $14,440,000. The increase in both years is a function of increases
in rental payments, repair and maintenance expenses associated with improvements
at some branch locations and insurance costs. Bankshares continued to expand its
internal use of its headquarters building, reducing the number of outside
tenants in that building.

     Furniture and equipment expenses were $24,464,000, an increase of $456,000,
or 1.9%, compared to 2001 expenses of $24,008,000. Higher software maintenance
and rental costs accounted for the majority of the increase. A substantial
portion of the increase was attributable to reorganization efforts undertaken by
IWM in 2002. The year 2001 reflected an increase of $1,420,000, or 6.3%,
compared to 2000 expenses of $22,588,000. Higher software maintenance and rental
costs accounted for the majority of the increase.

     Bankshares adopted SFAS No. 142 on January 1, 2002. For Bankshares the most
significant change made by SFAS No.142 is that goodwill will no longer be
amortized. Amortization expense for 2001 and 2000 was $9,072,000 and $5,213,000,
respectively. For more in-depth discussion of SFAS No. 142, see Footnote No. 20
to the financial statements.

     Other expenses for 2002 totaled $53,865,000, representing an increase of
$2,798,000, or 5.5%,from $51,067,000 recorded in 2001. Increases in professional
fees of 18.4%, or $1,742,000; charitable contributions of 92.0%, or $1,258,000;
and debit card processing fees of 38.5%, or $333,000, were slightly offset by
small reductions in various sundry operating expenses in 2002. Other expenses
for 2001 of $51,067,000 represented an increase of 2.5%, or $1,236,000, over the
$49,831,000 for 2000. Professional fees decreased 23.8%, or $3,122,000. More
than offsetting the decrease in professional fees were increases in several
other expense categories in 2001. Minority interest expense increased to
$1,217,000 from zero in 2000. Outsourcing expenses increased 29.0% to $5,126,000
and amortization of core deposit intangibles increased 75.8% to $1,792,000 in
2001. Debit card and merchant card processing fees also increased in 2001, by
80.2% to $865,000 and 6.6% to $6,198,000, respectively.

III. ANALYSIS OF FINANCIAL CONDITION

Investment Securities

Bankshares' investment securities portfolio is structured to serve both as a
source of liquidity and as a key component in the overall management of interest
rate risk. At December 31, 2002, the total investment securities portfolio was
$2,564,583,000, an increase of $223,620,000, or 9.6%, over 2001. At December 31,
2001, the total investment securities portfolio was $2,340,963,000, an increase
of $613,655,000, or 35.5%, above the prior year's $1,727,308,000. As in the
past, the portfolio is largely comprised of short-term and intermediate-term
U.S. Treasury and U.S. Agency obligations, and over 97% of the total investment
portfolio is classified as available-for-sale. In the available-for-sale
portfolio, U.S. Treasury obligations decreased $134,716,000, or 8.7%, in 2002
while U.S. Agency obligations increased $217,243,000, or 42.6%. The proportion
of U.S. Agency obligations to total available-for-sale securities increased from
22.3% in 2001 to 29.0% in 2002, reflecting a shift to higher yield investments.
U.S. Treasury obligations accounted for 56.6% of the available-for-sale
portfolio, a decrease from 68.0% in 2001. In 2002, additional investments were
made in higher yielding mortgage-backed securities, which increased $144,181,000
to $348,323,000 and accounted for 13.9% of the available-for-sale portfolio,
versus 8.9% in 2001.

     At year-end 2002, the average maturity of the bond component of the
available-for-sale portfolio was 2.4 years,

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                                                                              17

<PAGE>

unchanged from year-end 2001. The market value of the bond investment portfolio
as of December 31, 2002, was 103.6% of amortized cost, compared to 101.5% at
December 31, 2001. At December 31,2002, $2,439,824,000 of these investments had
unrealized gains of $87,543,000, and the remaining $14,963,000 of these
investment securities had unrealized losses of $152,000. More information on the
investment portfolio is shown in the table on page 16 and in Footnote No. 2 to
the financial statements.

Loans

Total loans averaged $7,088,844,000, an increase of 3.7%. Average total loans
increased by $663,224,000, or 10.7%, to $6,832,856,000 for the year ended
December 31, 2001. Average loans increased in three categories in 2002:
commercial (including industrial, financial, agricultural, leases and commercial
mortgages), residential real estate and consumer, while construction declined.
In 2001 increases were seen in all categories. Average commercial loans grew
7.7% in 2002 to an average balance of $4,283,322,000, compared to growth of
12.5% in 2001. Residential real estate loans grew 1.2% to $1,072,297,000 in
2002, following the 11.5% growth reported in 2001. Consumer loans were
relatively flat at $999,988,000 in 2002, as compared to the 5.6% growth
experienced in 2001. An average balance of $733,237,000 in construction loans
reflected a decrease of 7.9%, compared to growth of 7.8% in 2001. Part of the
change in commercial real estate and construction is a natural migration of
loans through the construction cycle to completion. This year, as a result of
the low interest rate environment, the cash flow needed to support a project was
reduced and loans were able to move into the permanent market more quickly.
Construction bookings increased but did not outpace this runoff.

     At December 31, 2002, commercial, industrial and agricultural loans
constituted 31.4% of the portfolio, a slight decline from 32.3% at December
2001. Commercial real estate, which is included as part of commercial, above,
accounted for 27.6% of the total loan portfolio in 2002, an increase from 26.3%
in 2001. Residential real estate loans accounted for 14.6% of the portfolio,
consumer 13.9% and leases 1.4%, compared to 15.4%, 14.4% and 2.2%, respectively,
for 2001. Construction and land development was 11.1% of the portfolio in 2002,
an increase from 9.4% in 2001.

     Loan growth remained stable at the community banks, at 6.6%, while at MSD&T
it declined to 0.3% in 2002. Management's decision to discontinue a large part
of the business at the leasing division at MSD&T also contributed to the
reduction in loan growth. The portfolio at the leasing division decreased
$69,047,000, or 31.7%, in 2002. As noted above, commercial real estate
experienced growth in 2002, both as a portion of total loans and as a 10.8%
increase over the prior year. A large percentage of the commercial real estate
mortgages and construction loan balances outstanding at December 31, 2002, were
for owner-occupied properties. Although it recognizes the risks associated with
some types of real estate loans, Bankshares believes it is consistent with sound
banking practices to continue to extend real estate credits to

                                    [CHART]

                                   Bar Chart

LOAN COMPOSITION AND GROWTH
--------------------------------------------------------------------------------
Average Loans (Dollars in millions)
Five-Year Compound Growth Rate: 8.0%

                            1998       1999       2000       2001       2002
                          --------   --------   --------   --------   --------
Commercial                      57%        58%        57%        58%        61%
Construction                    10%        11%        12%        12%        10%
Residential real estate         18%        16%        16%        15%        15%
Consumer                        15%        15%        15%        15%        14%
Total                          100%       100%       100%       100%       100%
Total average loans       $5,004.8   $5,377.4   $6,169.6   $6,832.9   $7,088.8

                                    [CHART]

                                   Bar Chart

ALLOWANCE AS A PERCENT OF PERIOD-END LOANS;
NONPERFORMING LOANS AS A PERCENT OF PERIOD-END LOANS
--------------------------------------------------------------------------------
                                    1998    1999    2000    2001    2002
                                    ----    ----    ----    ----    ----
Loan loss allowance as a percent
   of period-end loans              2.16%   2.07%   2.07%   2.05%   1.90%
Nonperforming loans as a percent
   of period-end loans               .41%    .33%    .45%    .48%    .46%

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18

<PAGE>

carefully selected customers. Bankshares' historical charge-off experience for
real estate loans compares favorably with loss experience in other portfolio
segments. For further comparative information on the components of the loan
portfolio, see the Five-Year Selected Financial Data table on page 58.

Credit Risk Analysis

Bankshares' loans and commitments are substantially to borrowers located in our
immediate region. We have restricted our participation in multibank credits
where we are not the managing or agent bank. Central to the operation of a sound
and successful financial institution is the balanced management of asset growth
and credit quality. Responsibility for loan underwriting and monitoring is
clearly fixed on key management personnel in each of our affiliates and,
ultimately, on the board of directors of each affiliate. These responsibilities
are supported at the holding company level by appropriate underwriting
guidelines and effective ongoing loan review. In addition, Bankshares has set an
internal limit for each affiliate bank, that is well below the regulatory limit,
on the maximum amount of credit that may be extended to a single borrower.

Allowance for Loan Losses

The allowance for loan losses and the provision for loan losses charged to
expense are based on credit loss experience and estimated inherent losses in the
current portfolio, which includes evaluation of impaired loans as required by
SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No.
118, Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosure. Also incorporated in determination of the allowance is SFAS No. 5,
Accounting for Contingencies; the recent guidance contained in the Securities
and Exchange Commission's SAB No. 102, Loan Loss Allowance Methodology and
Documentation; and the Federal Financial Institutions Examination Council's
Policy Statement on Allowance for Loan and Lease Losses Methodologies and
Documentation for Banks and Savings Institutions. An allowance for loan losses
is maintained sufficient to absorb losses in the existing loan portfolio. The
allowance is a function of specific loan allowances, general loan allowances
based on historic loan loss experience and current trends and, lastly,
allowances based on existing economic conditions that affect the collectibility
of the loan portfolio. These can include, but are not limited to, exposure to an
industry experiencing problems, changes in the nature or volume of the
portfolio, delinquency and nonaccrual trends. The portfolio review and the
calculation of the allowance is performed by management at each affiliate bank
based on its knowledge of its loans and risk factors operating in its market.
Other risk factors are reviewed by holding company management to determine their
impact on the allowance for loan losses, with final evaluation done at the
holding company.

     Each affiliate's reserve is dedicated to that affiliate only and is not
available to absorb losses from another affiliate. All loan loss reserves are
subject to annual regulatory examinations and determination as to their
methodology and adequacy. Management believes that the allowance for loan losses
is at an adequate level to absorb inherent losses in the portfolio.

     The specific allowance is based on analysis of the loan portfolio by each
affiliate bank. Each loan with an outstanding balance in excess of a specified
threshold that has either nonaccrual status or is on the Watchlist will be
evaluated. The Watchlist represents loans, identified and closely monitored by
management, which possess certain qualities or characteristics that may lead to
collection and loss issues. The identified loans are evaluated for potential
loss by analyzing current collateral values or present value of cash flows, as
well as the capacity of the guarantor, as applicable. The specific allowance
resulting from this review decreased 49.9% to $5,251,000 from $10,484,000 at
December 31, 2002 and 2001, respectively. The largest portion of this component
is from MSD&T's portfolio, at 87% and 73%, for 2002 and 2001, respectively.
Within that portfolio, approximately 36.2% of the specific allowance in 2002 can
be attributed to the leasing business, while in 2001 it was 30.2%. The specific
reserve has been reduced, primarily through charge-offs, as Bankshares works
through these credits.

     The general allowance calculation, which is also completed on a quarterly
basis, begins with segmentation of the remaining portfolio according to loan
types as presented in external reports. Historical loss factors are maintained,
providing the starting point of the analysis. Qualitative factors that may cause
credit losses to deviate from average historical experience are then developed.
These include but are not limited to: changes in the volume and severity of past
due loans; changes in the volume of Watchlist loans and nonaccruals;
concentrations in a specific industry or geographic location; administrative
risk concerns that include changes in the loan review and loan grading system;
changes in lending policies and procedures (which include underwriting,
collection, charge-off and recovery practices); changes in management or the
staff of any previously mentioned areas; and current economic conditions and
indicators. Management's judgment and experience are key to this process. These
factors are revised to address current conditions in the portfolio. The general
allowance was $133,350,000 and $111,502,000 at December 31, 2002 and 2001,
respectively. Increases in the general allowance and decreases in the
unallocated reserve can be attributed to further deterioration of the leasing
portfolio and the ongoing refinement of the methodology in quantifying risk
segments and estimation techniques used in the calculation. Allocation of a
portion of the allowance does not preclude its availability to absorb losses in
other categories.

     The allowance for loan losses as a percent of loans was 1.90% at December
31, 2002, compared to 2.05% at

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                                                                              19

<PAGE>

ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                  --------------------------------------------------------------
(Dollars in thousands)                               2002         2001         2000         1999         1998
-----------------------------------------------   ----------   ----------   ----------   ----------   ----------
<S>                                               <C>          <C>          <C>          <C>          <C>
Allowance balance--beginning ..................   $  141,463   $  138,612   $  117,997   $  112,423   $  106,097
Allowance of acquired banks ...................           --           --        5,868           --        1,434
Charge-offs:
   Commercial .................................      (13,864)      (3,799)      (2,875)      (3,733)      (5,950)
   Construction ...............................           --          (90)         (11)        (305)         (80)
   Residential real estate ....................         (251)        (104)        (322)        (676)      (1,022)
   Consumer ...................................       (3,306)      (3,507)      (2,998)      (2,614)      (2,956)
   Lease financing ............................       (4,800)      (5,828)          --       (2,000)          --
                                                  ----------   ----------   ----------   ----------   ----------
      Total ...................................      (22,221)     (13,328)      (6,206)      (9,328)     (10,008)
                                                  ----------   ----------   ----------   ----------   ----------
Recoveries:
   Commercial .................................          847          795        1,963        1,337        1,685
   Construction ...............................          226           78          177           24          177
   Residential real estate ....................          128          147          144          280          183
   Consumer ...................................        1,570        1,725        1,438        1,205        1,366
   Lease financing ............................          210           --           --           --           --
                                                  ----------   ----------   ----------   ----------   ----------
      Total ...................................        2,981        2,745        3,722        2,846        3,411
                                                  ----------   ----------   ----------   ----------   ----------
Net charge-offs ...............................      (19,240)     (10,583)      (2,484)      (6,482)      (6,597)
Provision for loan losses .....................       16,378       13,434       17,231       12,056       11,489
                                                  ----------   ----------   ----------   ----------   ----------
Allowance balance--ending .....................   $  138,601   $  141,463   $  138,612   $  117,997   $  112,423
                                                  ==========   ==========   ==========   ==========   ==========
Average loans .................................   $7,088,844   $6,832,856   $6,169,632   $5,377,367   $5,004,765
                                                  ==========   ==========   ==========   ==========   ==========
Percent of net charge-offs to average loans ...          .27%         .15%         .04%         .12%         .13%
                                                  ==========   ==========   ==========   ==========   ==========
Period-end loans ..............................   $7,312,027   $6,906,246   $6,693,294   $5,712,130   $5,195,467
                                                  ==========   ==========   ==========   ==========   ==========
Percent of allowance for loan losses
   to period-end loans ........................         1.90%        2.05%        2.07%        2.07%        2.16%
                                                  ==========   ==========   ==========   ==========   ==========
</TABLE>

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

The allowance for possible loan losses has been allocated to the various
categories of loans. This allocation does not limit the amount of the allowance
available to absorb losses from any type of loan and should not be viewed as an
indicator of the specific amount or specific loan categories in which future
charge-offs may ultimately occur. The tables below present this allocation,
along with the percentage distribution of loan amounts in each category, at the
dates shown. For a historical analysis of the allowance for loan losses, see
page 19, Allowance for Loan Losses.

<TABLE>
<CAPTION>
                                        Allowance amount allocated as of December 31,
                                    ----------------------------------------------------
(Dollars in thousands)                2002       2001       2000       1999       1998
---------------------------------   --------   --------   --------   --------   --------
<S>                                 <C>        <C>        <C>        <C>        <C>
Allowance amount allocated to:
   Commercial ...................   $109,386   $ 79,253   $ 55,400   $ 45,300   $ 33,100
   Construction .................      9,644      7,124     18,000     12,600     12,000
   Residential real estate ......      3,645      2,866      9,700      9,900      6,100
   Consumer .....................      6,565      6,149      5,500      4,800      6,000
   Lease financing ..............      9,361     26,594         --         --         --
Allowance amount not allocated...         --     19,477     50,012     45,397     55,223
                                    --------   --------   --------   --------   --------
      Total .....................   $138,601   $141,463   $138,612   $117,997   $112,423
                                    ========   ========   ========   ========   ========
</TABLE>

COMPOSITION OF LOAN PORTFOLIO

                                             December 31,
                                 -------------------------------------
                                  2002    2001    2000    1999    1998
                                 -----   -----   -----   -----   -----
Commercial ...................    59.0%   58.6%   54.2%   56.1%   56.5%
Construction .................    11.1     9.4    12.3    11.4    10.7
Residential real estate ......    14.6    15.4    16.3    15.4    16.7
Consumer .....................    13.9    14.4    14.9    15.0    14.6
Lease financing ..............     1.4     2.2     2.3     2.1     1.5
                                 -----   -----   -----   -----   -----
   Total .....................   100.0%  100.0%  100.0%  100.0%  100.0%
                                 =====   =====   =====   =====   =====

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20

<PAGE>

December 31, 2001 and 2.07% at December 31, 2000. The allowance for loan losses
as a percent of loans declined from December 31, 2000, to December 31, 2002,
principally as loans with specific reserves established were charged off. During
2002, the provision for loan loss expense was $16,378,000, compared to a 2001
expense of $13,434,000. The 2000 provision for loan losses was $17,231,000.

     Net charge-offs increased to $19,240,000 during 2002, compared to
$10,583,000 during 2001. The leasing portfolio represented the largest net
charge-off amount at $7,857,000, or 40.8% of total net charge-offs in 2002, as
management continues to work through the discontinuation of a large part of the
business. The level of net charge-offs in 2001 increased from $2,484,000 in
2000. Net charge-offs as a percent of average loans were .27%, .15% and .04% for
the years ended December 31, 2002, 2001 and 2000, respectively.

     Intensive collection efforts continue after a loan is charged off in order
to maximize the recovery of amounts previously charged off. Recoveries as a
percent of loans charged off were 13.4% in 2002, 20.6% in 2001 and 60.0% in
2000. In 2002, recoveries increased 8.6% over 2001, and charge-offs increased
66.7%, symptomatic of an economic downturn. In 2001, recoveries decreased 26.2%
from 2000 and charge-offs increased 114.8%. Recoveries in a given year may not
relate to loans charged off in that year. Further details related to the
allowance for loan losses are shown in the tables on page 20 and in Footnote
No. 3 to the financial statements.

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, our 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 judgment, such action is warranted.

     Nonperforming assets (nonaccrual loans and other real estate owned), as a
percent of period-end loans and other real estate owned, was .46% at December
31, 2002, compared to .48% and .47% in the two preceding years. At year-end
2002, nonperforming assets were $33,503,000, compared to $33,100,000 and
$31,370,000 in 2001 and 2000, respectively. Nonperforming loans totaled
$33,371,000 at December 31,2002,compared to $32,919,000 at December 31, 2001 and
$30,365,000 in 2000. Nonperforming loans increased in two categories of the
portfolio: commercial and industrial, and residential real estate. The largest
dollar increase in nonperforming loans was $1,976,000 in the commercial and
industrial category, which accounted for 75.7% of nonperforming loans at
December 31, 2002. The lease financing category accounted for 12.0% of the
nonperforming loans at December 2002 and only 1.4% of the total outstandings in
the portfolio of loans and leases. The leasing business generated credits in
both the lease financing category and loans included in the commercial and
industrial loan category at Bankshares. This business line contributed 19.8% of
the nonperforming loans at December 2002 and 31.8% in 2001, but only 2.0% and
3.2% of the outstanding loan and lease portfolio. As a result of large
charge-offs and credit quality concerns about the leasing portfolio, management
is narrowing the focus of the leasing business. Bankshares did not have any
renegotiated loans during or at the close of the three-year period ended
December 31, 2002.

     The level of "monitored loans," or loans with characteristics suggesting
that they may be classified as a nonperforming loan in the near future,
increased during the year. At December 31, 2002, monitored loans were
$24,850,000, compared to $15,940,000 a year before. Two loans at MSD&T
contributed $20,900,000 to the current total. These loans are secured by two
commercial aircraft, which are leased to a regional commercial airline. A
long-time customer of MSD&T holds a controlling interest in the airline. In
light of the prevailing conditions in the commercial airline industry,
management has included these loans in the "monitored" status. The balance of
the portfolio was also examined for additional exposure to this industry and it
was determined to be minimal. This exposure was factored into the general
reserve allocation for commercial loans.

     Other real estate owned decreased by $49,000 to $132,000 at December 31,
2002, compared to $181,000 at December 31, 2001 and $1,005,000 in 2000. These
properties are generally sold within the next operating cycle. Therefore,
regardless of the amount, the properties will generally have changed from year
to year. All other real estate owned is carried at the lower of cost or fair
market value. Refer to the data in the Nonperforming Assets chart on the
following page, which shows the changes in the amounts of various categories of
nonperforming assets over the last five years and sets forth the relationship
between nonperforming loans and total loans.

     The leasing business, which was less than 3% of the outstandings at
Bankshares, had a disproportionate impact on credit quality. The credit quality
ratios of the core banking business, if leasing is excluded, are substantially
improved. Nonperforming loans as a percent of period-end loans were .46%, .48%
and .45% for the years ending 2002, 2001 and 2000, respectively. Excluding the
leasing business, the percentages were .37%, .34% and .38%, respectively.
Charge-offs as a percent of period-end loans

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                                                                              21

<PAGE>

NONPERFORMING ASSETS

A five-year comparison of nonperforming assets is presented below:

<TABLE>
<CAPTION>
                                                                    December 31,
                                                  -----------------------------------------------
(Dollars in thousands)                              2002      2001      2000      1999      1998
-----------------------------------------------   -------   -------   -------   -------   -------
<S>                                               <C>       <C>       <C>       <C>       <C>
Nonaccrual loans (1)
   Commercial .................................   $25,260   $23,284   $22,736   $11,076   $14,701
   Construction ...............................     1,365     2,201     3,394     2,581     1,297
   Residential real estate ....................     2,479     2,251     3,123     3,373     4,705
   Consumer ...................................       261       408       249       258       600
   Lease financing ............................     4,006     4,775       863     1,841        --
                                                  -------   -------   -------   -------   -------
      Total ...................................    33,371    32,919    30,365    19,129    21,303

Renegotiated loans (1) ........................        --        --        --        --        --
Loans contractually past due 90 days or more
   and still accruing interest ................        --        --        --        --        --
                                                  -------   -------   -------   -------   -------
      Total nonperforming loans ...............    33,371    32,919    30,365    19,129    21,303
Other real estate owned .......................       132       181     1,005     1,663     1,281
                                                  -------   -------   -------   -------   -------
      Total nonperforming assets ..............   $33,503   $33,100   $31,370   $20,792   $22,584
                                                  =======   =======   =======   =======   =======
Nonperforming loans as a percent of
   period-end loans ...........................       .46%      .48%      .45%      .33%      .41%
Nonperforming assets as a percent of
   period-end loans and other real estate
   owned ......................................       .46%      .48%      .47%      .36%      .43%
</TABLE>

(1)  Aggregate gross interest income of $2,790,000 and $3,737,000 in 2002 and
     2001, 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 totaled $641,000 and $1,593,000 in 2002 and
     2001, respectively.

Note: The Corporation was monitoring loans estimated to aggregate $24,850,000 at
December 31, 2002, and $15,940,000 at December 31, 2001, that were not
classified as nonaccrual or renegotiated loans. These loans had characteristics
which indicated they might result in such classification in the future.

COMPOSITION OF EARNING ASSETS

<TABLE>
<CAPTION>
                                                                    Average Balances
                               ---------------------------------------------------------------------------------------------
(Dollars in thousands)               2002                2001              2000                1999               1998
-----------------------------  -----------------  -----------------  -----------------  -----------------  -----------------
<S>                            <C>         <C>    <C>         <C>    <C>         <C>    <C>         <C>    <C>         <C>
Loans .......................  $7,088,844   73.6% $6,832,856   77.7% $6,169,632   78.2% $5,377,367   74.3% $5,004,765   72.6%
Investment securities* ......   2,367,772   24.6   1,816,404   20.7   1,694,404   21.4   1,842,761   25.5   1,706,228   24.7
Federal funds sold, et al ...     178,624    1.8     141,245    1.6      29,434     .4      15,762     .2     185,204    2.7
                               ----------  -----  ----------  -----  ----------  -----  ----------  -----  ----------  -----
   Total ....................  $9,635,240  100.0% $8,790,505  100.0% $7,893,470  100.0% $7,235,890  100.0% $6,896,197  100.0%
                               ==========  =====  ==========  =====  ==========  =====  ==========  =====  ==========  =====
</TABLE>

*    Includes interest-bearing deposits in other banks.

DEPOSIT MIX

<TABLE>
<CAPTION>
                                                                    Average Balances
                                 ---------------------------------------------------------------------------------------------
(Dollars in thousands)                 2002                2001               2000               1999               1998
-------------------------------  -----------------  -----------------  -----------------  -----------------  -----------------
<S>                              <C>         <C>    <C>         <C>    <C>         <C>    <C>         <C>    <C>         <C>
Noninterest-bearing deposits...  $1,856,706   24.3% $1,618,838   23.0% $1,438,578   23.2% $1,334,282   22.6% $1,216,726   21.3%
Interest-bearing deposits:
   Savings ....................     966,283   12.7     853,911   12.2     854,035   13.8     887,624   15.1     866,552   15.2
   Checking plus interest .....     873,497   11.4     771,186   10.9     718,669   11.6     696,862   11.8     648,025   11.4
   Money market ...............   1,096,417   14.4     846,577   12.0     773,104   12.5     790,589   13.4     749,718   13.1
   Certificates of deposit-
      $100,000 and over .......   1,080,347   14.2   1,145,569   16.2     852,495   13.7     714,600   12.1     711,329   12.4
   Other time deposits ........   1,759,160   23.0   1,812,589   25.7   1,559,973   25.2   1,472,268   25.0   1,522,619   26.6
                                 ----------  -----  ----------  -----  ----------  -----  ----------  -----  ----------  -----
         Total ................  $7,632,410  100.0% $7,048,670  100.0% $6,196,854  100.0% $5,896,225  100.0% $5,714,969  100.0%
                                 ==========  =====  ==========  =====  ==========  =====  ==========  =====  ==========  =====
</TABLE>

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22

<PAGE>

were .30%, .19% and .09% for 2002, 2001 and 2000. When the leasing business is
excluded, the charge-offs decline to .20% and .09% for 2002 and 2001,
respectively.

Sources of Funds

Bankshares' primary source of funding comes from deposits gathered by the 185
branches of its banking affiliates. Raising core deposits through the branch
system is a high priority and a challenge for Bankshares and the banking
industry. Average total deposits in 2002 were $7,632,410,000, representing an
increase of $583,740,000, or 8.3%, over the prior year average of
$7,048,670,000. Average total deposits for 2000 amounted to $6,196,854,000. The
bank acquisitions in 2000 contributed to the 13.7% increase in deposits in 2001.
For the year ended December 31, 2002, 79.2% of the funding for average earning
assets was derived from deposits. This ratio was 80.2% for 2001 and 78.5% for
2000.

     Noninterest-bearing deposits averaged $1,856,706,000 in 2002, representing
24.3% of average total deposits. These deposits grew 14.7% over the prior year.
The noninterest-bearing deposit category averaged $1,618,838,000 for 2001, or
23.0% of average total deposits, and grew by 12.5% over the prior year's average
of $1,438,578,000. Bankshares continues to promote its cash management services
to its commercial customers in order to maintain and expand this key source of
funding.

     In 2002, interest-bearing deposits represented 75.7% of average total
deposits and were $5,775,704,000, reflecting growth of 6.4%. Total average
interest-bearing deposits for 2001 grew by 14.1%, or $671,556,000. Average
interest-bearing deposits amounted to $5,429,832,000 for 2001, up from the 2000
average of $4,758,276,000. In 2002, the combination of savings, checking plus
interest and money market accounts increased from 35.1% to 38.5% of average
deposits and grew 18.8% to $2,936,197,000 from $2,471,674,000 in 2001. These
deposits decreased 5.4% in 2001. The move to these deposit products,
particularly money market accounts, reflected customers' shift to more
conservative investments, given the uncertainties about the economy and the
equities market. Also, the drop in yield on money market mutual funds has made
these products more competitive.

     Certificates of deposit and other time deposits have decreased from 41.9%
of average total deposits in 2001 to 37.2% in 2002. Averaging $2,839,507,000 for
the year ended December 31, 2002, time deposits decreased by 4.0% from the
average of $2,958,158,000 for 2001. Certificates of deposit-$100,000 and over
decreased 5.7%, while other time deposits decreased 2.9%. Certificates of
deposit-$100,000 and over averaged $1,080,347,000, $1,145,569,000 and
$852,495,000 for the years ended December 31, 2002, 2001 and 2000, respectively.
The increase in 2001 was largely attributable to higher interest rates paid on
these funds.

     In 2002, the growth in average total deposits, at 8.3%, fell short of the
9.6% increase in average earning assets, resulting in an increase in short-term
borrowing needs. Short-term borrowings, which consist mainly of securities sold
under repurchase agreements, federal funds purchased and commercial paper,
averaged $845,938,000 during 2002, $101,031,000, or 13.6%, greater than in 2001.
Short-term borrowings averaged $744,907,000 during 2001, $115,334,000, or 13.4%,
less than the average balance of $860,241,000 in 2000.

     During 2002, $8,300,000 was repaid on previously existing long-term debt.
There were no other material changes in long-term debt. In 2001, in response to
the low interest rate environment, MSD&T, the lead bank, issued $200 million in
10-year fixed-rate debt, which was swapped to a floating rate to better match
the interest rate repricing characteristics of the loan portfolio. For a more
in-depth discussion of the impact of this issuance, see the section of
Management's Discussion on Interest Rate Risk Management.

     Another key source of funding is shareholders' equity. Bankshares has
consistently maintained a capital to asset ratio higher than that of its peers,
as reported in data furnished by our regulators. Shareholders' equity averaged
$1,257,967,000 during 2002, which represented an increase of $60,909,000,or 5.1%
over the prior year's average. The average was $1,197,058,000 in 2001, an
increase of 13.6% over the average in 2000 of $1,054,071,000. For a more
in-depth discussion of shareholders' equity and capital adequacy, see page 27
of Management's Discussion and Footnote No. 9 to the financial statements.

Critical Accounting Policies and Related Estimates

Set forth below is a discussion of the accounting policies and related estimates
that management believes are the most critical to understanding Bankshares'
consolidated financial statements, financial condition and results of
operations, and which require complex management judgments, uncertainties
and/or estimates. Information regarding Bankshares' other accounting policies is
included in Footnote No. 1 to the financial statements.

Allowance for Loan Losses

Arriving at an appropriate level of allowance for loan losses involves a high
degree of judgment. Bankshares' allowance for loan losses provides for probable
losses based on evaluations of known and inherent risks in the loan portfolio.
Management uses historical information to assess the adequacy of the allowance
for loan losses as well as information about the prevailing business environment
since it is affected by changing economic conditions and various external
factors, which may impact the portfolio in ways currently unforeseen. For a full
discussion of Bankshares' methodology for assessing the adequacy of the

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                                                                              23

<PAGE>

allowance for loan losses, see Management's Discussion and Analysis of Financial
Condition and Results of Operations and Footnote No. 1 to the financial
statements.

Income Taxes

Bankshares accounts for income taxes by deferring income taxes based on
estimated future tax effects of differences between the tax and book basis of
assets and liabilities considering the provisions of enacted tax laws. These
differences result in deferred tax assets and liabilities, which are included in
Bankshares' consolidated balance sheets. Bankshares must also assess the
likelihood that any deferred tax assets will be recovered from future taxable
income and establish a valuation allowance for those assets determined not
likely to be recoverable. Although Bankshares has determined that a valuation
allowance is not required for all deferred tax assets, there is no guarantee
that these assets are recognizable. For more information regarding Bankshares'
accounting for income taxes, see Footnote No. 10 to the financial statements.

Valuation of Goodwill/Intangible Assets and Analysis for Impairment

Bankshares has increased its market share, in part, through the acquisition of
entire financial institutions accounted for under the business combinations
method of accounting, as well as from the purchase of other financial
institutions' branches (not the entire institution). For acquisitions under the
purchase method, Bankshares is required to record assets acquired and
liabilities assumed at their fair value, which is an estimate determined by the
use of internal or other valuation techniques. See Footnote No. 20 to the
financial statements for further information on the accounting for goodwill and
other intangible assets.

Risk Management

Bankshares is exposed to a number of risks in the normal course of its
business. The primary risk exposures relate to credit quality, interest rate
movements, changes in market values and liquidity. Bankshares controls and
monitors these risks with policies, procedures and management oversight. The
review of credit risk was covered in a previous section of Management's
Discussion beginning on page 19. The following sections will review the other
three risks mentioned.

Interest Rate Risk

The objective of interest rate risk management is to contain the risks
associated with interest rate fluctuations. The process involves identification
and management of the sensitivity of net interest income to changing interest
rates and other market factors. Managing to mitigate interest rate risk,
however, is not an exact science. Not only does the interval between repricing
of interest rates of assets and liabilities change from day to day as the assets
and liabilities change, but also for some assets and liabilities, contractual
maturity and the actual cash flows experienced are not the same. For example,
residential mortgages may have contractual maturities well in excess of five
years, but depending on the interest rate carried by the specific mortgages and
the then currently prevailing rate of interest, such mortgages may be prepaid
much more rapidly. Similarly, savings, checking plus interest and money market
deposits may be withdrawn on seven days notice. While these contracts are
extremely short, it has been Bankshares' experience that these funding pools,
when considered as a whole, have a multiyear duration. The Interest Rate
Sensitivity Analysis or Static Gap on page 25 reflects the expected contractual
cash flows or maturities of assets and liabilities, along with the scheduled
opportunity to reset interest rates in a downward rate environment. As the table
reflects, Bankshares at December 31, 2002, is asset sensitive since more
interest-earning assets than interest-bearing liabilities are subject to
repricing within the next 12 months. The data in this table would suggest that
net interest income should tend to increase in a rising interest rate
environment and decrease in a declining rate environment. The absolute change in
the repricing of products varies greatly. As noted in the discussion of net
interest income, changes in short-term interest rates by the Federal Reserve
result in an almost similar change in the yield on Bankshares' prime rate based
loans. In contrast, the repricing characteristics of certain managed-rate
deposits, primarily savings, checking plus interest and money market accounts,
have proven to be much less sensitive during the current declining rate
environment than they were in prior rate cycles. The current experience has been
factored into the table.

     Because of the limitations of the Static Gap analysis, management primarily
utilizes an earnings simulation model to monitor Bankshares' risk exposure
associated with interest rate fluctuations. The model provides management with
the tools to reflect more reasonably how specific loan, investment, deposit and
debt products will respond to changes in market interest rates. This model
projects the effects on net income based on factors such as changes in interest
rates, the shape of the yield curve and interest rate relationships. As seen in
the Earnings Simulation Model Projections on page 26, within a one-year horizon,
the model forecasts that, compared to the net interest income projection under
stable rates, net interest income would increase by 1.6% and 3.0% if interest
rates increased by 100 and 200 basis points, respectively, and that net interest
income would decrease by 2.2% if interest rates decreased by 50 basis points.
Given the current low level of interest rates, Bankshares is limiting its
modeling to the 50 basis point decline in future interest rates. These results
are not necessarily indicative of future actual results, nor do they take into
account certain actions that management may undertake in response to future
changes in interest rates.

     From an interest rate risk standpoint, Bankshares is asset sensitive, with
assets repricing more quickly than liabilities

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24

<PAGE>

INTEREST RATE SENSITIVITY ANALYSIS (STATIC GAP)
Low/Falling Interest Rate Scenario

<TABLE>
<CAPTION>
                                                                            At December 31, 2002
                                              ------------------------------------------------------------------------------
                                                              Over                      Over          Over
                                                            3 months      1 year       1 year     5 years and
                                                Within       through    cumulative     through    nonsensitive
(Dollars in thousands)                         3 months      1 year        total       5 years       funds          Total
----------------------                        ----------   ----------   ----------   ----------   ------------   -----------
<S>                                           <C>          <C>          <C>          <C>           <C>           <C>
EARNING ASSETS
Loans ......................................  $3,887,370   $  870,217   $4,757,587   $2,009,477    $  544,963    $ 7,312,027
Investment securities (1) ..................     229,056      442,285      671,341    1,632,614       260,986      2,564,941
Other earning assets .......................     264,293           --      264,293           --            --        264,293
                                              ----------   ----------   ----------   ----------    ----------    -----------
      Total earning assets .................   4,380,719    1,312,502    5,693,221    3,642,091       805,949     10,141,261
                                              ----------   ----------   ----------   ----------    ----------    -----------

INTEREST-BEARING LIABILITIES
Managed-rate deposits (2)
   Savings .................................     201,764           --      201,764      807,055            --      1,008,819
   Checking plus interest ..................     154,192           --      154,192      873,756            --      1,027,948
   Money market ............................     348,284           --      348,284      941,657            --      1,289,941
Time deposits ..............................     882,783    1,069,080    1,951,863      882,873        12,751      2,847,487
Short-term borrowings ......................     823,385           --      823,385           --            --        823,385
Long-term debt .............................     199,641        8,400      208,041       42,500        36,673        287,214
                                              ----------   ----------   ----------   ----------    ----------    -----------
      Total interest-bearing liabilities ...   2,610,049    1,077,480    3,687,529    3,547,841        49,424    $ 7,284,794
                                              ----------   ----------   ----------   ----------    ----------    -----------
Gap ........................................  $1,770,670   $  235,022   $2,005,692   $   94,250    $  756,525
                                              ==========   ==========   ==========   ==========    ==========
Cumulative gap .............................  $1,770,670   $2,005,692                $2,099,942    $2,856,467
                                              ==========   ==========                ==========    ==========
Cumulative gap as a percent of
   earning assets ..........................       17.46%       19.78%       19.78%       20.71%        28.17%
                                              ==========   ==========   ==========   ==========    ==========
Cumulative rate sensitive assets/
   cumulative rate sensitive liabilities ...      167.84%      154.39%      154.39%      129.02%       139.21%
                                              ==========   ==========   ==========   ==========    ==========
</TABLE>

(1)  Includes interest-bearing deposits in other banks.

(2)  Reflects behavior experience in a declining rate environment, which often
     differs from legal withdrawal provisions.

LOAN MATURITY SCHEDULE

The following table illustrates loan diversity by maturity distribution for
commercial and construction loans as of December 31, 2002.

                                             Maturing
                         -------------------------------------------------
                                        Over 1
                            1 year      through      Over 5
(Dollars in thousands)     or less      5 years       years       Total
----------------------   ----------   ----------   ----------   ----------
Commercial ...........   $1,157,969   $1,816,427   $1,445,047   $4,419,443
Construction .........      268,033      360,805      182,147      810,985
                         ----------   ----------   ----------   ----------
   Total .............   $1,426,002   $2,177,232   $1,627,194   $5,230,428
                         ==========   ==========   ==========   ==========

Of the $3,804,426,000 loans maturing after one year, $1,745,392,000, or 45.9%,
have fixed interest rates and $2,059,034,000, or 54.1%, have variable interest
rates.

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                                                                              25

<PAGE>

EARNINGS SIMULATION MODEL PROJECTIONS

The following table summarizes the effect a positive 100 and 200 basis point
change and a negative 50 basis point change in interest rates would have on
Bankshares' net interest income over the next 12 months.

                                        Calculated increase/(decrease) in
                                          projected net interest income
                                        ---------------------------------
                                               As of December 31,
Change in interest rates                       ------------------
     (basis points)                               2002    2001
------------------------                          ----    ----
          +200                                     3.0%    2.2%
          +100                                     1.6%    1.2%
           -50                                    (2.2)%  (1.7)%

in response to rate changes. The Federal Reserve's 525 basis point reduction in
short-term interest rates over the two-year period ended December 31, 2002,
continued to compress the net interest margin. Beginning in 2001, management
started taking actions aimed at reducing the magnitude of Bankshares' risk to
further interest rate reductions or the compression in spreads from a sustained
low interest rate environment. These actions included expanding and
repositioning the investment portfolio and adding an indexed money market
account. This product is more rate sensitive than the traditional money market
product. Management took advantage of the lower rate environment to secure
long-term funding through the issuance in November 2001 of $200 million in
senior notes at MSD&T. The senior notes carried a fixed rate of 5.70%, which was
swapped to a floating rate as a fair value hedge. This resulted in an increase
in the amount of liabilities that reprice within the three-month time frame.
Management will continue to pursue any combination of these strategies as long
as interest rates remain low and the economy and customer borrowing needs remain
subdued. Despite these efforts, the increase in sensitivity from that reported
at December 31, 2001, is a function of the current low rate environment. It
reflects the inability to reduce rates on managed deposits to match a drop in
interest rates.

     At times, Bankshares' efforts to mitigate its exposure to changes in
interest rates have resulted in loan pricing policies that have not coincided
with its commercial customers' preferences. As a result, MSD&T entered into a
master agreement with another bank for the purpose of making interest rate swaps
and similar interest rate protection arrangements in connection with commercial
loans made to MSD&T's customers. This arrangement enables MSD&T's customers to
eliminate potential volatility of interest rates and associated risks. MSD&T
will only enter into specific interest rate protection arrangements under the
master agreement with respect to which it has approved a corresponding credit
facility with the customer, and as to which the customer is entering into a
corresponding interest rate protection arrangement with MSD&T. Management does
not anticipate that these arrangements will expose Bankshares to any risk beyond
the normal credit risks undertaken with any lending arrangement. As of December
31, 2002, one customer had entered into such an arrangement. This swap agreement
has not had a material impact on the financial performance of Bankshares.
Management anticipates that should interest rates reverse course and begin to
rise, customer interest in this availability will increase. As a matter of
policy, the Corporation does not use highly leveraged derivative instruments for
interest rate risk management.

Market Risk

Market risk is defined as the constraints imposed by lower market values of
assets and liabilities as interest rates and equity markets fluctuate. Changes
in market values also impact the fee income earned by the Investment and Wealth
Management Division, where a significant portion of the fee schedule is tied to
current asset values under management or administration. Bankshares has
designated substantially all of its investment portfolio as "available for sale"
and in accordance with financial reporting standards, this portfolio is reported
at fair value. Changes in fair value, net of tax, are reflected as a component
of shareholders' equity. Bankshares' maintenance of capital ratios well above
regulatory requirements (see Capital Resources and Adequacy) provides management
with the flexibility to utilize the available-for-sale portfolio for liquidity
and interest rate risk management needs, even during a period when valuations
are depressed. Market risk is also mitigated by maintaining a fairly short
duration in the portfolio.

Liquidity Risk

Liquidity risk is the possibility that Bankshares will not be able to fund
present and future financial obligations. The objective of liquidity management
is to maintain the ability to meet commitments to fund loans, purchase
securities and repay deposits and other liabilities in accordance with their
terms. Core deposits and the available-for-sale investment portfolio are key
elements in meeting this objective. For the year ended December 31, 2002, core
deposits, total deposits less certificates of deposit - $100,000 and over,
averaged $6,552,063,000. This represents an 11.0% increase over the
$5,903,101,000 average balance for 2001. The percentage of average loans funded
by core deposits improved to 92.4% in 2002 from 86.4% in 2001. Although not
viewed as core deposits, a substantial portion of short-term borrowings,
comprised of securities sold under agreements to repurchase and commercial
paper, originate from core deposit relationships tied to the overnight cash
management program offered to customers.

     By limiting the maturity of securities and maintaining a conservative
investment posture, management can look to the investment portfolio to help meet
any short-term funding needs. U.S. Treasury and Agency securities averaged
$2,089,004,000 in 2002, a 22.5% increase from the

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26

<PAGE>

average of $1,705,543,000 the prior year. These securities provide the greatest
liquidity and represented 21.7% of average earning assets for 2002, compared to
19.4% in 2001. In addition to these sources, Bankshares has access to national
markets for certificates of deposit, commercial paper and debt financing. Should
it need to supplement further its liquidity, Bankshares has $1,397,000,000 in
lines with the Federal Home Loan Bank and back-up commercial paper lines of
$40,000,000 with commercial banks.

Capital Resources and Adequacy

Maintenance of exceptional capital strength has long been a guiding principle of
Bankshares. Ample capital is necessary to sustain growth, to provide a measure
of protection against unanticipated declines in asset values and to safeguard
the funds of depositors. Capital also provides a source of funds to meet loan
demand and enables Bankshares to manage its assets and liabilities effectively.

     Shareholders' equity increased 7.7% to $1,324,358,000 at year-end 2002 from
$1,230,206,000 at year-end 2001. The increase can be attributed to earnings
growth offset by a repurchase of 1,384,200 shares and increased cash dividend
payments. The share repurchase plan is discussed in more detail in the next
paragraph. In 2001, shareholders' equity increased 4.8% from $1,173,301,000 in
2000. The increase in 2001 was a result of earnings growth offset by a
repurchase of 1,594,500 shares and increased cash dividend payments. Reflecting
a steady increase, book value per share was $19.24,$17.63 and $16.50 at December
31, 2002, 2001 and 2000, respectively. The ratio of average equity to average
assets was 12.43% in 2002, compared to 12.97% in 2001 and 12.70% in 2000,
ranking Bankshares among the most strongly capitalized banks in the industry
each year. Excluding goodwill, average tangible equity to average tangible
assets was 11.53% in 2002, 11.97% for 2001 and 12.02% for 2000. The ratio in
2002 was lower than in 2001 due to growth in assets, the share repurchase plan
and higher cash dividends, as previously discussed.

     While maintaining exceptional capital strength and financing growth of the
Corporation, Bankshares also has been pursuing a share repurchase program.
Through December 2002, the Board of Directors authorized the repurchase of up to
16,000,000 shares with 14,518,200 shares of common stock repurchased under these
programs. At December 31, 2002, remaining authorization to purchase common stock
was 1,481,800 shares. The share repurchase program has supported management's
strategy to enhance shareholder value. Management has repurchased shares and
returned capital to shareholders in the form of dividends during periods when
capital accumulates at a rate in excess of that required to support the growth
of earning assets. See Footnote No.9 and the Statement of Changes in
Consolidated Shareholders' Equity on page 35 for details related to the share
repurchase program.

     Various bank regulatory agencies have implemented stringent capital
guidelines, which are directly related to a bank's risk-based capital ratios. By
regulatory definition, a well-capitalized institution, such as Bankshares, faces
fewer regulatory constraints on its operations than institutions classified at
the other end of the spectrum as critically undercapitalized. For instance, only
well-capitalized banks can accept brokered deposits without regulatory approval
in advance. In addition, FDIC deposit insurance premium rates are significantly
lower for banks with higher capital levels, as compared to poorly capitalized
banks. The Risk-Based Capital Ratios graph below shows that

                                    [CHART]

                                   Bar Chart

RISK-BASED CAPITAL RATIOS*
--------------------------------------------------------------------------------
Regulatory Tier I Minimum: 4%
*Tier I and Tier II equity as percentages of risk-adjusted total assets at
December 31.

                   1998     1999    2000     2001    2002
                   ----     ----    ----     ----    ----
Tier II             1.4%     1.3%    1.3%     1.3%    1.3%
Tier I             17.9%    16.5%   15.8%    15.4%   15.0%

                                    [CHART]

                                   Bar Chart

DIVIDENDS PER SHARE
--------------------------------------------------------------------------------
Five-Year Compound Growth Rate: 8.9%

1998    1999     2000     2001     2002
----    ----    -----    -----    -----
$.86    $.94    $1.02    $1.10    $1.18

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                                                                              27

<PAGE>

DIVIDENDS
                                  2002                    2001
                         ---------------------   ---------------------
Quarter                  4th   3rd   2nd   1st   4th   3rd   2nd   1st
----------------------   ---   ---   ---   ---   ---   ---   ---   ---
Common dividends .....   .30   .30   .30   .28   .28   .28   .28   .26

Bankshares has paid quarterly cash dividends on its common stock since September
1970 when such stock was first issued. Bankshares intends to consider quarterly
payment of dividends on its common stock, but such payment is necessarily
dependent on many factors, including the future earnings and financial
requirements of Bankshares and its affiliates.

RECENT COMMON STOCK PRICES

Market Prices*

                                2002                            2001
                   -----------------------------   -----------------------------
Quarter             4th     3rd     2nd     1st     4th     3rd     2nd     1st
----------------   -----   -----   -----   -----   -----   -----   -----   -----
High ...........   40.39   41.40   44.80   45.36   43.41   43.94   40.10   44.50
Low ............   32.60   32.07   38.89   41.80   35.60   35.73   35.44   33.63

* The stock of Mercantile Bankshares Corporation is traded on the Nasdaq
National Market under the symbol MRBK. The quotations represent actual
transactions.

As of February 28, 2003, there were 9,166 shareholders of record.

Bankshares has maintained capital levels well in excess of the regulatory
minimum over each of the last five years. For a further discussion of the
regulatory capital requirements that apply to Bankshares, see Footnote No.9.
Bank regulatory agencies also impose certain restrictions on transactions among
and between subsidiaries of bank holding companies, including extensions of
credit, transfers of assets and payments of dividends. Historically, the
dividend restrictions have not limited dividend payments at Bankshares, and it
is not anticipated that they will have a constraining effect in the future. In
addition to dividend restrictions, capital requirements are also affected by
off-balance sheet risks. These include such items as letters of credit and
commitments to extend credit. Refer to Footnote No.8 for information regarding
Bankshares' commitments.

Dividends

For the 26th consecutive year, the annual dividend paid on common stock exceeded
the prior year's level. Effective with the June 2002 dividend, the quarterly
cash dividend was increased 7.1% to $.30 from $.28 per share. Over the last five
years, dividends have increased at a compound growth rate of 8.9%. Management
will periodically evaluate the dividend rate in light of Bankshares' capital
strength, profitability and conditions prevailing in the economy in general and
the banking industry in particular. The annual dividends paid per common share
were $1.18 in 2002, $1.10 in 2001 and $1.02 in 2000. Total cash dividends paid
were $81,909,000 in 2002, $77,597,000 in 2001 and $70,641,000 in 2000. The chart
above presents quarterly dividends paid over the last two years.

Commitments

Commitments for 2003 include budgeted requests for approximately $20,100,000 of
capital expenditures spread relatively evenly between improvements to existing
banking offices and replacement of furniture, equipment and technology. While
these items have been included in the budget for 2003, they are subject to a
review and approval process prior to funding. For further information on
commitments, see Footnotes No.4 and 8.

Recent FASB Pronouncements

SFAS No.145, Rescission of Financial Accounting Standards Board (FASB)
Statements No.4, 44 and 64, Amendment of FASB Statement No.13 and Technical
Corrections, was issued in April 2002. This Statement rescinds FASB Statement
No.4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment
of that Statement and FASB Statement No.64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB Statement
No.44, Accounting for Intangible Assets of Motor Carriers. This Statement amends
FASB Statement No.13, Accounting for Leases, to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This Statement also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings or describe their applicability under changed conditions. This
Statement is effective for financial statements issued on or after May 15, 2002.
SFAS No.145 did not have a material effect on Bankshares' financial statements.

     SFAS No.146, Accounting for Costs Associated with Exit or Disposal
Activities, was issued in June 2002. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No.94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). The provisions
of this Statement

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28

<PAGE>

are effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged. SFAS No.146 is not expected to have
a material effect on Bankshares' financial statements.

     SFAS No.147, Acquisitions of Certain Financial Institutions-an Amendment of
FASB Statements No.72 and 144 and FASB Interpretation No.9, was issued in
October 2002. This Statement amends certain aspects of FASB Statement No.72,
Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB
Interpretation No.9 by removing acquisitions of financial institutions from the
scope of this Statement and this Interpretation, and requires that those
transactions be accounted for in accordance with FASB Statements No.141,
Business Combinations, and No.142, Goodwill and Other Intangible Assets. This
Statement is effective for acquisitions on or after October 1, 2002. This
Statement has minimal impact on Bankshares since all recent acquisitions have
followed purchase accounting, in accordance with SFAS No.141, and SFAS No.142
was adopted at the beginning of 2002.

     SFAS No.148, Accounting for Stock-Based Compensation - Transition and
Disclosure - An Amendment of FASB Statement No.123, was issued in December
2002. This Statement amends FASB Statement No.123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No.123 to require prominent disclosures in both annual and interim
financial statements regarding the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
amendments to Statement No. 123 shall be effective for financial statements for
fiscal years ending after December 15, 2002. This Statement has minimal impact
on Bankshares since the fair value based method of accounting for stock-based
employee compensation was adopted in 1995.

     In November 2002, the FASB issued FASB Interpretation (FIN) No.45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others, an interpretation of FASB
Statements No.5, 57 and 107, and rescission of FASB Interpretation No.34,
Disclosure of Indirect Guarantees of Indebtedness of Others. FIN No.45
elaborates on the disclosures to be made by the guarantor in its interim and
annual financial statements about its obligations under certain guarantees that
it has issued. It also requires that a guarantor recognize, at the inception of
a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provisions of
this interpretation are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002, while the provisions of the disclosure
requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002. FIN No.45 is not expected to have a material
effect on Bankshares' financial statements.

     In January 2003, the FASB issued FIN No.46, Consolidation of Variable
Interest Entities, an interpretation of Accounting Research Bulletin No.51. FIN
No.46 requires that variable interest entities be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable
interest entity's activities or is entitled to receive a majority of the
entity's residual returns or both. FIN No.46 also requires disclosures about
variable interest entities that companies are not required to consolidate but in
which a company has a significant variable interest. The consolidation
requirements of FIN No.46 will apply immediately to variable interest entities
created after January 31, 2003. The consolidation requirements will apply to
entities established prior to January 31, 2003 in the first fiscal year or
interim period beginning after June 15, 2003. The disclosure requirements will
apply in all financial statements issued after January 31, 2003. Management has
not identified any variable interest entities that would qualify for
consolidation but continues to review its investments in nonconsolidated
entities to determine whether the disclosure provisions of this FIN will be
applicable after the effective date. FIN No.46 is not expected to have a
material effect on Bankshares' financial statements.

Cautionary Statement

This annual 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. These "forward-looking statements" include
such words as "believes," "expects," "anticipates," "intends" and similar
expressions. Forward-looking statements appear in the Letter to Shareholders,
the Review of Services, Management's Statement of Responsibility and in this
Management's Discussion concerning matters such as identification of trends,
loan growth, customer borrowing trends, business strategies and services,
geopolitical uncertainties, conditions in the market for acquisitions,
performance and prospects (including margins) of the IWM division, continuation
or development of specified lending and other activities, credit quality,
predictions or assessments related to determination and adequacy of loan loss
allowances, monitored loans, internal controls, tax accounting, importance and
effects of capital levels, effects of asset sensitivity and interest rates,
earnings simulation model projections, efforts to mitigate market and liquidity
risks, dividend payments and impact of FASB pronouncements. These 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.

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                                                                              29

<PAGE>

Management's Statement of Responsibility

Management of Mercantile Bankshares Corporation (Bankshares) is responsible for
the preparation and fair presentation of the financial statements and other
financial information contained in this report. The accompanying consolidated
financial statements were prepared in conformity with accounting principles
generally accepted in the United States of America and include, as necessary,
best estimates and judgments by management. Other financial information
contained in this annual report is presented on a basis consistent with the
consolidated financial statements.

     Management understands and recognizes the importance of safeguarding
Bankshares' assets. In connection with this, management believes that Bankshares
maintains a system of internal controls that is adequate to ensure that
transactions are properly authorized, that its assets are safeguarded against
unauthorized acquisition, use or disposition, and that its financial records are
reliable. Bankshares maintains systems of controls that it believes are
reasonably designed to provide management with timely and accurate information
about Bankshares' operations. The system of internal controls includes, but is
not limited to, maintaining internal audit, legal and compliance departments,
establishing formal written policies, procedures and codes of conduct, training
personnel and segregating key duties and functions, where appropriate.

     The Audit Committee of the Board of Directors participates in reviewing the
adequacy of the system of internal controls and financial reporting. The Audit
Committee consists of directors who are independent from Bankshares. They meet
regularly with management, the internal auditors and the independent accountants
to review the scope of their work and findings.

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

     The independent accounting firm of PricewaterhouseCoopers LLP (PwC) has
performed an audit of Bankshares' financial statements. As part of the audit,
management believes it has made available to PwC all of the financial records,
related data and minutes of shareholders' and directors' meetings that PwC
believed were necessary in order to render their independent audit report. As
part of its audit, PwC obtains specific representations from management of
Bankshares. Management believes that all representations made to PwC during its
audit were valid and accurate. A copy of the independent accountants' audit
report follows.


/s/ Ned Kelly
---------------------------------------
Edward J. Kelly III
President and Chief Executive Officer


/s/ Terry L. Troupe
---------------------------------------
Terry L. Troupe
Chief Financial Officer

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30

<PAGE>

Report of Independent Accountants

To the Board of Directors and
Shareholders of Mercantile Bankshares Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Mercantile Bankshares Corporation and its subsidiaries (the "Company") at
December 31, 2002 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP

Baltimore, Maryland
January 28, 2003
(Except with respect to Footnote No.22, as to which the date is March 14, 2003)

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                                                                              31

<PAGE>

Consolidated Balance Sheets

<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in thousands, except per share data)                                        2002          2001
-------------------------------------------------------------------------------   -----------   ----------
<S>                                                                               <C>           <C>
ASSETS
Cash and due from banks........................................................   $   281,130   $  290,177
Interest-bearing deposits in other banks.......................................           358          357
Federal funds sold.............................................................       264,293       23,813
                                                                                  -----------   ----------
      Cash and cash equivalents................................................       545,781      314,347
                                                                                  -----------   ----------

Investment securities held-to-maturity (1),(2).................................        53,391       52,269
Investment securities available-for-sale (1),(2)...............................     2,511,192    2,288,694

Loans held-for-sale (1)........................................................            --      137,950

Loans (3)......................................................................     7,312,027    6,906,246
Less: allowance for loan losses (1),(3)........................................      (138,601)    (141,463)
                                                                                  -----------   ----------
      Loans, net...............................................................     7,173,426    6,764,783
                                                                                  -----------   ----------

Bank premises and equipment, net (1),(4).......................................       102,428      101,295
Other real estate owned, net (1)...............................................           132          181
Goodwill, net (1)..............................................................       102,705      102,705
Other intangible assets, net (19)..............................................         7,530        9,319
Other assets...................................................................       293,791      157,243
                                                                                  -----------   ----------
Total..........................................................................   $10,790,376   $9,928,786
                                                                                  ===========   ==========

LIABILITIES
Deposits:
   Noninterest-bearing deposits................................................   $ 2,086,745   $1,883,878
   Interest-bearing deposits...................................................     6,174,195    5,563,494
                                                                                  -----------   ----------
      Total deposits ..........................................................     8,260,940    7,447,372
Short-term borrowings (6) .....................................................       823,385      853,278
Accrued expenses and other liabilities.........................................        94,479      128,493
Long-term debt (7).............................................................       287,214      269,437
                                                                                  -----------   ----------
      Total liabilities........................................................     9,466,018    8,698,580
                                                                                  -----------   ----------

COMMITMENTS AND CONTINGENCIES (4),(8)

SHAREHOLDERS' EQUITY (9)
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 -
   68,836,092 (2002) and 69,775,710 (2001); restricted shares - 76,250 (2002)
   and None (2001).............................................................       137,672      139,551
Capital surplus................................................................       120,577      159,947
Retained earnings..............................................................     1,010,248      904,479
Accumulated other comprehensive income (loss)..................................        55,861       26,229
                                                                                  -----------   ----------
      Total shareholders' equity...............................................     1,324,358    1,230,206
                                                                                  -----------   ----------
Total..........................................................................   $10,790,376   $9,928,786
                                                                                  ===========   ==========
</TABLE>

See notes to consolidated financial statements.

            [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

32

<PAGE>

Statement of Consolidated Income

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(Dollars in thousands, except per share data)               2002       2001       2000
-------------------------------------------------------   --------   --------   --------
<S>                                                       <C>        <C>        <C>
INTEREST INCOME
Interest and fees on loans (1) ........................   $468,298   $543,020   $547,942
                                                          --------   --------   --------

Interest and dividends on investment securities:
   Taxable interest income ............................     97,603     93,465     92,376
   Tax-exempt interest income .........................      1,895      1,993      1,257
   Dividends ..........................................      1,055      1,283      1,359
   Other investment income ............................     12,307      3,797      1,695
                                                          --------   --------   --------
                                                           112,860    100,538     96,687
                                                          --------   --------   --------
Other interest income .................................      5,228      6,208      1,866
                                                          --------   --------   --------
      Total interest income ...........................    586,386    649,766    646,495
                                                          --------   --------   --------

INTEREST EXPENSE
Interest on deposits (5) ..............................    122,569    199,703    182,448
Interest on short-term borrowings .....................     11,259     25,120     48,711
Interest on long-term debt ............................     10,754      6,702      5,951
                                                          --------   --------   --------
      Total interest expense ..........................    144,582    231,525    237,110
                                                          --------   --------   --------

NET INTEREST INCOME ...................................    441,804    418,241    409,385
Provision for loan losses (1),(3) .....................     16,378     13,434     17,231
                                                          --------   --------   --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ...    425,426    404,807    392,154
                                                          --------   --------   --------

NONINTEREST INCOME
Investment and wealth management (1) ..................     68,435     69,331     69,850
Service charges on deposit accounts ...................     31,454     28,085     24,346
Mortgage banking related fees .........................      9,945     12,582      3,106
Investment securities gains and (losses) (2) ..........        846      4,248         69
Other income ..........................................     33,070     31,244     28,170
                                                          --------   --------   --------
      Total noninterest income ........................    143,750    145,490    125,541
                                                          --------   --------   --------

NONINTEREST EXPENSES
Salaries ..............................................    131,139    123,230    114,077
Employee benefits (12) ................................     32,171     29,175     25,292
Stock-based compensation expense ......................      1,690       (119)     2,273
Net occupancy expense of bank premises (1),(4) ........     15,904     14,440     12,019
Furniture and equipment expenses (1),(4) ..............     24,464     24,008     22,588
Communications and supplies ...........................     13,375     13,086     12,212
Amortization of goodwill ..............................         --      9,072      5,213
Other expenses ........................................     53,865     51,067     49,831
                                                          --------   --------   --------
      Total noninterest expenses ......................    272,608    263,959    243,505
                                                          --------   --------   --------
         Income before income taxes ...................    296,568    286,338    274,190
         Applicable income taxes (1),(10) .............    106,330    105,043     98,960
                                                          --------   --------   --------
            NET INCOME ................................   $190,238   $181,295   $175,230
                                                          ========   ========   ========

NET INCOME PER SHARE OF COMMON STOCK (9):
   BASIC ..............................................   $   2.74   $   2.57   $   2.53
   DILUTED ............................................   $   2.72   $   2.55   $   2.51
</TABLE>

See notes to consolidated financial statements.

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              33

<PAGE>

Statement of Consolidated Cash Flows
Increase (decrease) in cash and cash equivalents

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,

(Dollars in thousands)                                                            2002         2001         2000
----------------------------------------------------------------------------   ---------   -----------   ---------
<S>                                                                            <C>         <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................   $ 190,238   $   181,295   $ 175,230
Adjustments to reconcile net income to net
   cash provided by operating activities:
      Provision for loan losses ............................................      16,378        13,434      17,231
      Depreciation and amortization ........................................      13,071        12,456      11,000
      Amortization of goodwill .............................................          --         9,072       5,213
      Amortization of other intangible assets ..............................       1,972         2,082       1,349
      Provision for deferred taxes (benefit) ...............................      11,093        14,723       1,671
      Investment securities (gains) and losses .............................        (846)       (4,248)        (69)
      Write-downs of investment in private equity funds ....................       2,167         1,063         807
      Write-downs of other real estate owned ...............................          54            50          27
      Write-downs of buildings .............................................          --            --         350
      Gains on sales of other real estate owned ............................         (51)         (272)       (615)
      Gains on sales of buildings ..........................................        (456)         (801)         --
   Net (increase) decrease in assets:
      Interest receivable ..................................................       1,792         1,039      (5,100)
      Other receivables ....................................................        (678)          902       1,439
      Other assets .........................................................     (17,306)      (20,434)     (6,605)
      Loans held-for-sale ..................................................     137,950      (131,355)        217
   Net increase (decrease) in liabilities:
      Interest payable .....................................................      (8,637)       (2,257)      8,736
      Accrued expenses .....................................................      (5,221)       (1,305)      4,610
      Taxes payable ........................................................      (5,896)       19,438       2,300
                                                                               ---------   -----------   ---------
         Net cash provided by operating activities .........................     335,624        94,882     217,791
                                                                               ---------   -----------   ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-to-maturity .........       3,553         3,870       8,074
Proceeds from maturities of investment securities available-for-sale........     568,491       642,747     553,602
Proceeds from sales of investment securities available-for-sale ............      79,293         4,248         700
Purchases of investment securities held-to-maturity ........................      (4,425)       (5,386)    (13,386)
Purchases of investment securities available-for-sale ......................    (822,769)   (1,237,534)   (352,886)
Net increase in customer loans .............................................    (425,202)     (224,062)   (701,810)
Proceeds from sales of other real estate owned .............................         227         1,573       2,215
Capital expenditures .......................................................     (14,723)      (12,828)    (12,597)
Proceeds from sales of buildings ...........................................         975         2,047          --
Acquisition of commercial mortgage company .................................          --        (7,000)         --
Purchase of bank-owned life insurance ......................................     (50,000)           --          --
Cash from acquired banks ...................................................          --            --      19,530
Other investing activity ...................................................     (87,906)       (1,476)     (4,281)
                                                                               ---------   -----------   ---------
         Net cash used in investing activities .............................    (752,486)     (833,801)   (500,839)
                                                                               ---------   -----------   ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing deposits ....................     202,867       290,375     130,798
Net increase (decrease) in checking plus interest and savings accounts .....     608,722       357,833     (55,175)
Net increase (decrease) in certificates of deposit .........................       1,978         2,623     452,245
Net increase (decrease) in short-term borrowings ...........................     (29,893)       71,810     (81,682)
Proceeds from issuance of long-term debt ...................................          --       200,000          --
Repayment of long-term debt ................................................      (8,300)       (8,347)    (15,136)
Proceeds from issuance of shares ...........................................       8,784         7,396       7,137
Repurchase of common shares ................................................     (53,953)      (65,572)    (37,109)
Dividends paid .............................................................     (81,909)      (77,597)    (70,641)
                                                                               ---------   -----------   ---------
         Net cash provided by financing activities .........................     648,296       778,521     330,437
                                                                               ---------   -----------   ---------
Net increase (decrease) in cash and cash equivalents (1) ...................     231,434        39,602      47,389
Cash and cash equivalents at beginning of year .............................     314,347       274,745     227,356
                                                                               ---------   -----------   ---------
Cash and cash equivalents at end of year ...................................   $ 545,781   $   314,347   $ 274,745
                                                                               =========   ===========   =========
</TABLE>

See notes to consolidated financial statements.

            [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

34

<PAGE>

Statement of Changes in Consolidated Shareholders' Equity

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                                                                                                   Accumulated
                                                                                                                    Other Com-
                                                                                 Common     Capital    Retained     prehensive
(Dollars in thousands, except per share data)                         Total      Stock      Surplus    Earnings    Income(Loss)
----------------------------------------------------------------   ----------   --------   --------   ----------   ------------
<S>                                                                <C>          <C>        <C>        <C>            <C>
BALANCE, DECEMBER 31, 1999 .....................................   $  974,040   $137,292   $ 47,798   $  796,192     $(7,242)

Net income .....................................................      175,230                            175,230
Unrealized gains (losses) on securities available-for-sale,
   net of reclassification adjustment, net of taxes ............       23,110                                         23,110
                                                                   ----------
Comprehensive income ...........................................      198,340
                                                                   ----------
Cash dividends paid:
   Common stock ($1.02 per share) ..............................      (70,641)                           (70,641)
Issuance of 119,195 shares for dividend
   reinvestment and stock purchase plan ........................        3,813        239      3,574
Issuance of 30,037 shares for employee stock
   purchase dividend reinvestment plan .........................          968         60        908
Issuance of 165,597 shares for employee stock option plan ......        2,356        331      2,025
Purchase of 1,223,000 shares under stock repurchase plan .......      (37,109)    (2,446)   (34,663)
Issuance of 3,361,162 shares for bank acquisitions .............      101,201      6,722     94,479
Vested stock options ...........................................          333                   333
Transfer to capital surplus ....................................           --               100,000     (100,000)
                                                                   ----------   --------   --------   ----------     -------
BALANCE, DECEMBER 31, 2000 .....................................    1,173,301    142,198    214,454      800,781      15,868

Net income .....................................................      181,295                            181,295
Unrealized gains (losses) on securities available-for-sale,
   net of reclassification adjustment, net of taxes ............       10,361                                         10,361
                                                                   ----------
Comprehensive income ...........................................      191,656
                                                                   ----------
Cash dividends paid:
   Common stock ($1.10 per share) ..............................      (77,597)                           (77,597)
Issuance of 108,094 shares for dividend
   reinvestment and stock purchase plan ........................        4,139        216      3,923
Issuance of 23,754 shares for employee stock
   purchase dividend reinvestment plan .........................          933         47        886
Issuance of 139,612 shares for employee stock option plan ......        2,324        279      2,045
Purchase of 1,594,500 shares under stock repurchase plan .......      (65,572)    (3,189)   (62,383)
Vested stock options ...........................................        1,022                 1,022
                                                                   ----------   --------   --------   ----------     -------
BALANCE, DECEMBER 31, 2001 .....................................    1,230,206    139,551    159,947      904,479      26,229

Net income .....................................................      190,238                            190,238
Unrealized gains (losses) on securities available-for-sale,
   net of reclassification adjustment, net of taxes ............       29,632                                         29,632
                                                                   ----------
Comprehensive income ...........................................      219,870
                                                                   ----------
Cash dividends paid:
   Common stock ($1.18 per share) ..............................      (81,909)                           (81,909)
Issuance of 107,680 shares for dividend
   reinvestment and stock purchase plan ........................        3,872        215      3,657
Issuance of 23,231 shares for employee stock
   purchase dividend reinvestment plan .........................          921         46        875
Issuance of 237,421 shares for employee stock option plan ......        3,994        475      3,519
Issuance of 76,250 shares for restricted stock awards ..........        3,430        153      3,277
Deferred compensation -- restricted stock awards ...............       (2,560)                            (2,560)
Purchase of 1,384,200 shares under stock repurchase plan .......      (53,953)    (2,768)   (51,185)
Vested stock options (13) ......................................          487                   487
                                                                   ----------   --------   --------   ----------     -------
BALANCE, DECEMBER 31, 2002(9) ..................................   $1,324,358   $137,672   $120,577   $1,010,248     $55,861
                                                                   ==========   ========   ========   ==========     =======
</TABLE>

See notes to consolidated financial statements.

            [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              35

<PAGE>

 Notes to Consolidated Financial Statements

1. SIGNIFICANT ACCOUNTING POLICIES

A. 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. All significant
intercompany transactions have been eliminated. For purposes of 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, such as the accounting for
loan losses, depreciation and pension obligations, are based on information
available as of the date of the financial statements and could differ from
actual results.

     Assets (other than cash deposits) held for others under fiduciary and
agency relationships are not included in the accompanying balance sheets since
they are not assets of Bankshares or its affiliates. Acquisitions accounted for
as purchases are included in the financial statements from the respective dates
of affiliation.

B. Securities

Investment securities consist mainly of U.S. Government securities. Investments
are classified as either "held-to-maturity" or "available-for-sale". Investment
securities classified as "held-to-maturity" are acquired with the intent and
ability to hold until maturity and are carried at cost, adjusted for
amortization of premiums and accretion of discounts. Investment securities
classified as "available-for-sale" are acquired to be held for indefinite
periods of time and may be sold in response to changes in interest rates and/or
prepayment risk or for liquidity management purposes. These securities are
carried at fair value, and any unrealized appreciation or depreciation in the
market value of available-for-sale securities is reported as accumulated other
comprehensive income, a separate component of shareholders' equity, net of
applicable taxes. Amortized cost is used to compute gains or losses on the sales
of securities, which are reported in the Statement of Consolidated Income.

C. Loans

Interest income on loans is accrued at the contractual rate on the principal
amount outstanding. When scheduled principal or interest payments are past due
90 days or more on any loan, the accrual of interest income is discontinued and
recognized only as collected. Previously accrued but uncollected interest on
these loans is charged against interest income. Generally, the loan is restored
to an accruing status when all amounts past due have been paid.

     Under Statements of Financial Accounting Standards (SFAS) Nos. 114 and
118, Accounting by Creditors for Impairment of a Loan, 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 judgment, such action is warranted. 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. 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.

D. Allowance for Loan Losses

The allowance for loan losses is maintained at a level considered by management
to be adequate to absorb inherent losses in the loan portfolio. Management's
assessment includes the systematic evaluation of several factors: current
economic conditions and their impact on specific borrowers and industry groups;
the level of classified and nonperforming loans; the historical loss experience
by loan type; the results of regulatory examinations; and, in specific cases,
the estimated value of underlying collateral. The assessments of economic
conditions, results of regulatory examinations and other risk elements are
determined primarily by management at each affiliate and reviewed by Bankshares.

     The allowance is increased by the loan loss provision charged to operating
expenses and reduced by loan charge-offs, net of recoveries. The provision for
loan losses is based on a continuing review of the loan portfolios, past loss
experience and current economic conditions which may affect borrowers' ability
to pay.

            [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

36

<PAGE>

E. Loans Held-for-Sale

The mortgage subsidiary of the lead bank enters into commitments to sell loans
which it has originated. Generally, these loans are held for a short term.
Amounts reported are at the lower of cost or fair value.

F. Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using both the
straight-line and accelerated methods over the estimated useful lives of the
properties. Expenditures for repairs and maintenance are charged to operating
expenses as incurred. Expenditures for improvements which extend the life of an
asset are capitalized and depreciated over the asset's remaining useful
life. Gains or losses realized on the disposition of properties are reflected in
consolidated income.

G. Other Real Estate Owned

Other real estate owned consists primarily of real estate obtained through
foreclosure or acceptance of deeds in lieu of foreclosure. Other real estate
owned is held for sale and is stated at the lower of cost or fair value.

H. Goodwill and Intangible Assets

Goodwill is the excess of the cost of Bankshares' investment over its equity in
the net assets of purchased acquisitions. Amortization of goodwill was
discontinued in 2002, in accordance with SFAS No. 142, which requires that
goodwill be reviewed at least annually for impairment. Prior to 2002, goodwill
was being amortized on a straight-line basis over a 15-year period from the
respective acquisition dates. Accumulated amortization amounted to $39,781,000
at December 31, 2002 and 2001.

     Intangible assets consist mainly of deposit intangibles which are being
amortized on a straight-line basis over 7.5 years. Accumulated amortization for
total intangible assets was $7,909,000 and $6,326,000 at year-end 2002 and
2001, respectively. These assets are reviewed annually for impairment.

I. Stock Options and Restricted Stock Awards

Bankshares' stock-based compensation plans are accounted for in accordance with
the provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under
this standard, compensation cost for options is determined based on the fair
value of each option and the number of options that are granted and expected to
vest. Compensation expense for restricted stock awards is based on the closing
market value of Bankshares stock on the date an award is granted.

J. Income Taxes

Deferred income taxes are calculated by applying enacted statutory tax rates to
temporary differences consisting of all significant items which are reported for
tax purposes in different years than for accounting purposes.

K. Earnings Per Share

Basic and diluted earnings per share (EPS) amounts are computed in accordance
with the provisions of SFAS No. 128, Earnings Per Share. Basic EPS is computed
by dividing income available to common shareholders by weighted average common
shares outstanding during the period. 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.

L. Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks, interest-bearing deposits in other banks, federal funds sold and
securities purchased under resale agreements. Generally, federal funds are
purchased and sold for one-day periods; securities purchased/sold under resale
agreements are purchased/sold for periods of one to sixty days.

M. Derivatives and Hedging Activities

Derivatives are recognized on the balance sheet at their fair value. Bankshares
has only entered into derivative contracts that are classified as interest rate
swaps. On the date that the derivative contracts were entered into, they were
designated as a hedge of the fair value of a recognized asset or liability.
Changes in the fair value of a derivative that is highly effective as a
fair-value hedge, along with changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, are recorded in current
period earnings.

     The relationship between hedging instruments and hedged items is formally
documented, as well as the risk management objective and strategy for
undertaking the hedge transactions. This process includes linking the fair-value
hedges to specific assets and liabilities on the balance sheet. Both at
inception and on an ongoing basis, an assessment is made as to whether the
derivatives used in hedging transactions have been highly effective in
offsetting changes in the fair value of hedged items, and whether those
derivatives may be expected to remain highly effective in future periods.

N. Third-Party Private Equity Investments

Bankshares invests funds in third-party private equity investments. These
investments are included in other assets and are carried at the lower of cost or
fair value. Bankshares' proportionate share of income or loss is included in
other income.

            [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              37

<PAGE>

2. INVESTMENT SECURITIES

The amortized cost and fair value of investment securities at December 31,2002
and 2001 were as follows:

<TABLE>
<CAPTION>
                                                        2002                                            2001
                                   ----------------------------------------------  ----------------------------------------------
                                                 Gross       Gross                               Gross       Gross
                                    Amortized  Unrealized  Unrealized     Fair     Amortized   Unrealized  Unrealized     Fair
(Dollars in thousands)                Cost       Gains       Losses       Value       Cost       Gains       Losses       Value
--------------------------------   ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
<S>                                <C>           <C>          <C>      <C>         <C>           <C>         <C>       <C>
Securities held-to-maturity
   States and political
      subdivisions..............   $   38,299    $ 2,852      $  1     $   41,150  $   38,815    $ 1,361     $     4   $   40,172
   Other investments ...........       15,092         --        --         15,092      13,454         --          --       13,454
                                   ----------    -------      ----     ----------  ----------    -------     --------  ----------
      Total ....................   $   53,391    $ 2,852      $  1     $   56,242  $   52,269    $ 1,361     $     4   $   53,626
                                   ==========    =======      ====     ==========  ==========    =======     ========  ==========
Securities available-for-sale
   U.S. Treasury ...............   $1,375,703    $46,187      $ --     $1,421,890  $1,530,808    $31,700     $ 5,902   $1,556,606
   U.S. Government agencies ....      695,970     31,659         2        727,627     498,874     15,111       3,601      510,384
   States and political
      subdivisions .............          549         28        --            577         649         18          --          667
   Other bonds, notes and
      debentures ...............      344,266      6,817       149        350,934     210,104      1,653       5,033      206,724
                                   ----------    -------      ----     ----------  ----------    -------     --------  ----------
      Total bonds ..............    2,416,488     84,691       151      2,501,028   2,240,435     48,482      14,536    2,274,381
   Other investments ...........        5,222      4,942        --         10,164       5,441      8,872          --       14,313
                                   ----------    -------      ----     ----------  ----------    -------     --------  ----------
      Total ....................   $2,421,710    $89,633      $151     $2,511,192  $2,245,876    $57,354     $14,536   $2,288,694
                                   ==========    =======      ====     ==========  ==========    =======     ========  ==========
</TABLE>

The amortized cost and fair value of the bond investment portfolio by
contractual maturity at December 31, 2002 and 2001 are shown below:

<TABLE>
<CAPTION>
                                            2002                     2001
                                   -----------------------   -----------------------
                                   Amortized      Fair        Amortized      Fair
(Dollars in thousands)                Cost        Value         Cost         Value
--------------------------------   ----------   ----------   ----------   ----------
<S>                                <C>          <C>          <C>          <C>
Securities held-to-maturity
   Within 1 year ...............   $    3,568   $    3,628   $    2,432   $    2,460
   1-5 years ...................       16,103       17,142       14,530       15,090
   5-10 years ..................       10,918       11,938       12,098       12,577
   After 10 years ..............        7,710        8,442        9,755       10,045
                                   ----------   ----------   ----------   ----------
      Total ....................   $   38,299   $   41,150   $   38,815   $   40,172
                                   ==========   ==========   ==========   ==========
Securities available-for-sale
   Within 1 year ...............   $  629,085   $  639,239   $  535,231   $  543,906
   1-5 years ...................    1,571,674    1,642,515    1,546,658    1,576,431
   5-10 years ..................      215,470      219,010      158,190      153,687
   After 10 years ..............          259          264          356          357
                                   ----------   ----------   ----------   ----------
      Total ....................   $2,416,488   $2,501,028   $2,240,435   $2,274,381
                                   ==========   ==========   ==========   ==========
</TABLE>

At December 31, 2002 and 2001, no single issue of investment securities exceeded
10% of shareholders' equity. At December 31, 2002 and 2001, securities with an
amortized cost of $1,011,587,000 and $966,813,000, respectively, were pledged as
collateral for certain deposits as required or permitted by law.

The gross realized gains and losses on debt and nondebt securities for 2002,
2001 and 2000 were as follows:

<TABLE>
<CAPTION>
                                           2002                 2001                   2000
                                   -------------------   -------------------   -------------------
                                     Gross      Gross      Gross     Gross       Gross     Gross
                                   Realized   Realized   Realized   Realized   Realized   Realized
(Dollars in thousands)               Gains     Losses      Gains     Losses      Gains     Losses
--------------------------------   --------   --------   --------   --------   --------   --------
<S>                                 <C>         <C>       <C>         <C>         <C>       <C>
Securities available-for-sale
   Debt ........................    $    1      $679      $   --      $67         $--       $--
   Nondebt .....................     1,524        --       4,315       --          69        --
                                    ------      ----      ------      ---         ---       ---
      Total ....................    $1,525      $679      $4,315      $67         $69       $--
                                    ======      ====      ======      ===         ===       ===
</TABLE>
            [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

38

<PAGE>

3. LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans at December 31, 2002 and 2001 were as follows:

(Dollars in thousands)                                      2002         2001
------------------------------------------------------   ----------   ----------
Commercial ...........................................   $4,317,263   $4,048,018
Construction .........................................      810,985      652,486
Residential real estate ..............................    1,066,694    1,060,519
Consumer .............................................    1,014,905      991,341
Lease financing ......................................      102,180      153,882
                                                         ----------   ----------
   Total .............................................   $7,312,027   $6,906,246
                                                         ==========   ==========

At December 31, 2002 and 2001, $33,371,000 and $32,919,000, respectively, were
considered nonaccrual loans (loans in which interest income is recognized only
as collected). Interest income on nonaccrual loans that would have been recorded
if accruing was $2,790,000 and $3,737,000 in 2002 and 2001, respectively.
Interest income on nonaccrual loans that was recorded totaled $641,000 and
$1,593,000 in 2002 and 2001, respectively. See Note 1C for an explanation of the
nonaccrual loan policy.

The changes in the allowance for loan losses follow:

(Dollars in thousands)                             2002       2001       2000
----------------------------------------------   --------   --------   --------
Allowance balance at beginning of year .......   $141,463   $138,612   $117,997
Allowance of acquired banks ..................         --         --      5,868
Charge-offs ..................................    (22,221)   (13,328)    (6,206)
Recoveries ...................................      2,981      2,745      3,722
Provision for loan losses ....................     16,378     13,434     17,231
                                                 --------   --------   --------
Allowance balance at end of year .............   $138,601   $141,463   $138,612
                                                 ========   ========   ========

Information with respect to impaired loans and the related valuation allowance
(if the measure of the impaired loan is less than the recorded investment) as of
December 31, 2002 and 2001 is shown below. Refer to Note 1C for an expanded
discussion on impaired loans.

<TABLE>
<CAPTION>
(Dollars in thousands)                                                               2002       2001
--------------------------------------------------------------------------------   --------   --------
<S>                                                                                <C>        <C>
Impaired loans with a specific valuation allowance .............................   $ 13,751   $ 47,963
All other impaired loans .......................................................     16,813      6,379
                                                                                   --------   --------
   Total impaired loans ........................................................   $ 30,564   $ 54,342
                                                                                   ========   ========

Specific allowance for loan losses applicable to impaired loans ................   $  5,251   $ 10,484
General allowance for loan losses applicable to other than impaired loans ......    133,350    130,979
                                                                                   --------   --------
   Total allowance for loan losses .............................................   $138,601   $141,463
                                                                                   ========   ========

Year-to-date interest income on impaired loans recorded on the cash basis ......   $    563   $    510
                                                                                   ========   ========

Year-to-date average recorded investment in impaired loans during the period ...   $ 53,777   $ 33,095
                                                                                   ========   ========
</TABLE>

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              39

<PAGE>

4. BANK PREMISES AND EQUIPMENT

Bank premises and equipment at December 31, 2002 and 2001 consisted of the
following:

(Dollars in thousands)                                       2002        2001
-------------------------------------------------------   ---------   ---------
Land ..................................................   $  21,010   $  21,120
Buildings and leasehold improvements ..................     121,180     117,364
Equipment .............................................      79,904      76,617
                                                          ---------   ---------
                                                            222,094     215,101
Accumulated depreciation and amortization .............    (119,666)   (113,806)
                                                          ---------   ---------
Bank premises and equipment, net ......................   $ 102,428   $ 101,295
                                                          =========   =========

Bankshares' bank affiliates conduct a part of their branch banking operations
from leased facilities. Generally, the initial terms of the leases range from a
period of 1 to 15 years. Most of the leases contain options for renewal at the
fair rental value for periods of 1 to 20 years. In addition to minimum
rentals, certain leases have escalation clauses based on various price indices
and include provisions for additional payments to cover taxes, insurance and
maintenance.

Total rental expense for 2002, 2001 and 2000 was:

(Dollars in thousands)                                 2002      2001      2000
--------------------------------------------------   -------   -------   -------
Bank premises* ...................................   $ 6,092   $ 5,949   $ 4,855
Equipment/software expense .......................     4,456     4,730     5,451
                                                     -------   -------   -------
   Total rental expense ..........................   $10,548   $10,679   $10,306
                                                     =======   =======   =======

*    Amounts do not reflect offset for rental income.

At December 31, 2002, the aggregate minimum rental commitments under
noncancelable operating leases were as follows: 2003-$9,760,000;
2004-$6,026,000; 2005-$4,849,000; 2006-$3,757,000; 2007-$3,285,000;
thereafter-$20,535,000.

5. DEPOSITS

Included in time deposits are certificates of deposit issued in denominations of
$100,000 and over, which totaled $1,144,361,000 and $1,050,579,000 at December
31, 2002 and 2001, respectively. At December 31, 2002, the amount outstanding
and maturity distribution of certificates of deposit issued in amounts of
$100,000 and over are presented in the following table:

<TABLE>
<CAPTION>
                                                                   Maturing
                                         -----------------------------------------------------------
                                                      Over 1    Over 2    Over 3    Over 4
                                          1 year     through   through   through   through     Over
(Dollars in thousands)         Total      or less    2 years   3 years   4 years   5 years   5 years
-------------------------   ----------   --------   --------   -------   -------   -------   -------
<S>                         <C>          <C>        <C>        <C>       <C>       <C>        <C>
Certificates of deposit--
   $100,000 and over ....   $1,144,361   $837,875   $156,418   $57,424   $28,733   $61,901    $2,010
                            ==========   ========   ========   =======   =======   =======   =======
</TABLE>

Interest on deposits for the years ended December 31, 2002, 2001 and 2000
consisted of the following:

(Dollars in thousands)                              2002       2001       2000
-----------------------------------------------   --------   --------   --------
Savings .......................................   $  8,405   $ 12,899   $ 16,524
Checking plus interest ........................      2,908      5,255      7,500
Money market ..................................     14,223     21,839     24,338
Time--$100,000 and over .......................     34,671     62,350     51,525
Other time ....................................     62,362     97,360     82,561
                                                  --------   --------   --------
   Total interest on deposits .................   $122,569   $199,703   $182,448
                                                  ========   ========   ========

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

40

<PAGE>

6. SHORT-TERM BORROWINGS

The following table provides selected information on Bankshares' short-term
borrowings and applicable weighted average interest rates at December 31, 2002
and 2001:

<TABLE>
<CAPTION>
                                              Year-end              During Year
                                          ---------------   --------------------------
2002 (Dollars in thousands)                Amount    Rate    Highest    Average   Rate
---------------------------------------   --------   ----   --------   --------   ----
<S>                                       <C>        <C>    <C>        <C>        <C>
Federal funds purchased and securities
   sold under repurchase agreements ...   $564,616    .88%  $777,798   $578,547   1.35%
Commercial paper ......................    258,769    .60    270,495    229,994   1.19
Other short-term borrowings ...........         --     --     50,000     37,397   1.90
                                          --------                     --------
      Total ...........................   $823,385    .79%             $845,938   1.33%
                                          ========   ====              ========   ====

2001 (Dollars in thousands)
---------------------------------------
Federal funds purchased and securities
   sold under repurchase agreements ...   $608,527   1.40%  $648,580   $512,784   3.40%
Commercial paper ......................    244,751   1.35    296,833    231,664   3.30
Other short-term borrowings ...........         --     --      2,500        459   6.78
                                          --------                     --------
      Total ...........................   $853,278   1.38%             $744,907   3.37%
                                          ========   ====              ========   ====
</TABLE>

     Other short-term borrowings consist of borrowings from the Federal Home
Loan Bank. During 2002 and 2001, commercial paper borrowings were partially
supported by back-up lines of credit of $40,000,000. Unused lines of credit at
December 31, 2002 were $40,000,000. These lines of credit are paid for annually
on a fee basis of .09%.

7. LONG-TERM DEBT

Long-term debt at December 31, 2002 and 2001 consisted of the following:

(Dollars in thousands)                                        2002        2001
---------------------------------------------------------   --------   --------
5.51% Federal Home Loan Bank borrowings .................   $ 10,000   $ 10,000
5.71% Federal Home Loan Bank borrowings .................      7,500      7,500
5.70% Unsecured senior notes
   Book value ...........................................    199,641    199,620
   Interest rate swap adjustment ........................     11,673    (14,383)
                                                            --------   --------
   Adjusted balance .....................................    211,314    185,237
                                                            ========   ========
6.72% Unsecured senior notes ............................     35,000     35,000
6.80% Unsecured senior notes ............................     15,000     15,000
6.94% Unsecured senior notes ............................      8,400     16,700
                                                            --------   --------
      Total .............................................   $287,214   $269,437
                                                            ========   ========

     The 5.51% Federal Home Loan Bank borrowings are due on June 23,2008.
Interest is payable quarterly, on March 23, June 23, September 23 and December
23, until maturity.

     The 5.71% Federal Home Loan Bank borrowings are due on September 28, 2004.
Interest is payable quarterly, on March 28, June 28, September 28 and December
28, until maturity.

     The 5.70% senior notes are due on November 15, 2011. Interest is payable
semiannually, on May 15 and November 15, until maturity. The debt has a face
value of $200 million, with an unamortized discount of $359,000 based on an
effective rate of 5.725%. These fixed-rate notes were converted to a floating
rate through an interest rate swap. This swap was designated as a hedge of the
fair value of the debt; therefore, the debt has been adjusted to reflect the
change in the fair value of the swap.

     The 6.72% senior notes are due on April 30, 2006. Interest is payable
semiannually, on April 30 and October 30, until maturity.

     The 6.80% senior notes are due on April 30, 2009. Interest is payable
semiannually, on April 30 and October 30, until maturity.

     The 6.94% senior notes are due on June 30, 2003. Interest is payable
semiannually, on June 30 and December 30, until maturity.

     The annual maturities on all long-term debt over the next five years are:
2003-$8,400,000; 2004-$7,500,000; 2005-$0; 2006-$35,000,000; 2007-$0.

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              41

<PAGE>

8. COMMITMENTS

Bankshares is a party to financial instruments that are not reflected in the
balance sheet, which include commitments to extend credit and standby letters of
credit. Various commitments to extend credit (lines of credit) are made in the
normal course of banking business. Letters of credit are issued for the benefit
of customers by affiliated banks. These commitments are subject to loan
underwriting standards and geographic boundaries consistent with Bankshares'
loans outstanding. Bankshares' lending activities are concentrated in Maryland,
Delaware and Virginia.

     Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Total commitments to extend credit were
$2,984,302,000 at December 31, 2002 and $3,055,291,000 at December 31, 2001.

     Standby letters of credit are commitments issued to guarantee the
performance of a customer to a third party. Outstanding letters of credit were
$241,142,000 at December 31, 2002 and $197,546,000 at December 31, 2001.

     Bankshares has committed to invest funds in third-party private equity
investments. At December 31, 2002 and 2001, $15,243,000 and $13,352,000,
respectively, remained unfunded.

9. SHAREHOLDERS' EQUITY

The Board of Directors has the authority to classify and reclassify any unissued
shares of preferred stock by fixing the preferences, rights, voting powers
(which may include separate class voting on certain matters), restrictions and
qualifications, dividends, times and prices of redemption and conversion rights.

     The Corporation has a Dividend Reinvestment and Stock Purchase Plan. The
Plan allows shareholders to automatically invest their cash dividends in
Bankshares stock at a price which is 5% less than the market price on the
dividend payment date. Plan participants also may make additional cash payments
to purchase stock through the Plan at the market price. The number of shares of
common stock which remain available for issuance under the Plan is 591,971
shares. The Corporation reserves the right to amend, modify, suspend or
terminate the Plan at any time at its discretion.

     The Corporation has an Employee Stock Purchase Plan. The Plan allows
employees (other than executive officers of the Corporation) to purchase stock
through payroll deduction and dividend reinvestment at the then current market
price for employee purchases and at 95% of market for dividend reinvestment. The
number of shares of common stock which remain available for issuance under the
Plan is 788,564 shares. The Corporation reserves the right to amend, modify,
suspend or terminate the Plan at any time at its discretion.

     The Board of Directors has approved plans authorizing the Corporation to
purchase shares of its common stock. Purchases may be made from time to time,
subject to regulatory requirements, in the open market or in privately
negotiated transactions. Purchased shares will be used from time to time for
corporate purposes including issuance under the Corporation's dividend
reinvestment plans and stock-based compensation plans. The number of shares
remaining available for purchase under the plans was 1,481,828 shares at
December 31, 2002.

     Pursuant to a Shareholders Protection Rights Agreement adopted in June
1999, each share of outstanding common stock carries a right, initially for the
purchase of 1/1,000 of a share of preferred stock at an exercise price of $150
(subject to adjustment). The rights, which do not carry voting or dividend
rights, may be redeemed by Bankshares at $.01 per right. The rights expire on
September 29, 2009 unless sooner exercised, exchanged or redeemed. The rights
will not become exercisable and will not trade separately from the common stock
until the tenth business day (or such other date as the Board of Directors
selects) after commencement of a tender or exchange offer for, or announcement
of the acquisition by a person or group of, 10% or more of the outstanding
common stock. Upon exercisability of the rights after acquisition by a person or
group (acquiring person) of 10% or more of the outstanding common stock or upon
certain business combinations or other defined transactions involving
Bankshares, each right (except rights of the acquiring person, which become
void) will entitle its holder to acquire common stock (or at Bankshares'
discretion, preferred stock) of Bankshares, or common stock of the acquiring
entity in a business combination or other defined transaction, with a value of
twice the then current exercise price of the right. In certain such cases,
Bankshares may exchange one share of common stock (or at Bankshares' discretion,
1/1,000 of a share of preferred stock) for each right which has not become void.
The Board of Directors has classified 1,600,000 shares of preferred stock as
Class A Preferred Stock for potential issuance on exercise of rights.

            [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

42

<PAGE>

     Cash dividends paid to the holding company (Bankshares) by its consolidated
subsidiaries for the years ended 2002, 2001 and 2000 were $135,743,000,
$126,933,000 and $127,270,000, respectively. The amount of dividends that
Bankshares' affiliates could have paid to the holding company without approval
from bank regulators at December 31, 2002 was $814,561,000.

Earnings Per Share

Basic earnings per share (EPS) is computed by dividing income available to
common shareholders by weighted average common shares outstanding, which were
69,545,591 for 2002, 70,573,594 for 2001 and 69,173,173 for 2000. 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
adjusted weighted average shares were 70,067,292 for 2002, 71,199,340 for 2001
and 69,718,871 for 2000. The following tables provide a reconciliation between
the computation of basic EPS and diluted EPS for the years ended December 31,
2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                     Net     Weighted Average
2002 (In thousands, except per share data)                         Income      Common Shares     EPS
---------------------------------------------------------------   --------   ----------------   -----
<S>                                                               <C>             <C>           <C>
Basic EPS......................................................   $190,238        69,546        $2.74
Dilutive effect of stock options and restricted stock awards...                      521
                                                                                  ------
Diluted EPS....................................................   $190,238        70,067        $2.72
                                                                                  ======
</TABLE>

<TABLE>
<CAPTION>
                                                                     Net     Weighted Average
2001 (In thousands, except per share data)                         Income      Common Shares     EPS
---------------------------------------------------------------   --------   ----------------   -----
<S>                                                               <C>             <C>           <C>
Basic EPS......................................................   $181,295        70,574        $2.57
Dilutive effect of stock options and restricted stock awards...                      625
                                                                                  ------
Diluted EPS....................................................   $181,295        71,199        $2.55
                                                                                  ======
</TABLE>

<TABLE>
<CAPTION>
                                                                     Net     Weighted Average
2000 (In thousands, except per share data)                         Income      Common Shares     EPS
---------------------------------------------------------------   --------   ----------------   -----
<S>                                                               <C>             <C>           <C>
Basic EPS......................................................   $175,230        69,173        $2.53
Dilutive effect of stock options and restricted stock awards...                      546
                                                                                  ------
Diluted EPS....................................................   $175,230        69,719        $2.51
                                                                                  ======
</TABLE>

Comprehensive Income

The two major components of comprehensive income are net income and other
comprehensive income. Other comprehensive income includes such items as net
unrealized gains and losses on securities available-for-sale. The following
table summarizes the related tax effect of unrealized gains (losses) on
securities available-for-sale for each of the three years in the period ended
December 31, 2002. The net amount is included in "Accumulated Other
Comprehensive Income (Loss)" in the Statement of Changes in Consolidated
Shareholders' Equity on page 35.

<TABLE>
<CAPTION>
                                                2002                             2001                           2000
                                    -----------------------------   -----------------------------   -----------------------------
                                                 Tax                             Tax                            Tax
                                    Pretax    (Expense)     Net     Pretax    (Expense)     Net     Pretax    (Expense)     Net
(Dollars in thousands)              Amount     Benefit    Amount    Amount     Benefit    Amount    Amount     Benefit    Amount
---------------------------------   -------   ---------   -------   -------   ---------   -------   -------   ---------   -------
<S>                                 <C>       <C>         <C>       <C>        <C>        <C>       <C>       <C>         <C>
Unrealized gains (losses) on
   securities available-for-sale:
Unrealized holding gains (losses)
   arising during the period.....   $47,512   $(17,369)   $30,143   $21,601    $(8,672)   $12,929   $37,327   $(14,175)   $23,152

Reclassification adjustment
   for (gains) losses included
   in net income.................      (846)       335       (511)   (4,248)     1,680     (2,568)      (69)        27        (42)
                                    -------   --------    -------   -------    -------    -------   -------   --------    -------
      Total......................   $46,666   $(17,034)   $29,632   $17,353    $(6,992)   $10,361   $37,258   $(14,148)   $23,110
                                    =======   ========    =======   =======    =======    =======   =======   ========    =======
</TABLE>

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              43

<PAGE>

Capital Adequacy

Bankshares and its bank affiliates are subject to various regulatory capital
requirements administered by the federal and state banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could have
a direct material effect on Bankshares' financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
Bankshares and its bank affiliates must meet specific capital guidelines that
involve quantitative measures of Bankshares' assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
Bankshares' capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

     Quantitative measures established by regulation to ensure capital adequacy
require Bankshares and its bank affiliates to maintain at least the minimum
amounts and ratios (set forth in the table below) of Tier I capital (as defined
in the regulations) to risk-weighted assets (as defined). Management believes
that, as of December 31, 2002, Bankshares and its bank affiliates exceeded all
capital adequacy requirements to which they are subject.

     As of December 31, 2002, the most recent notification from the primary
regulators for each of Bankshares' affiliate banking institutions categorized
them as well capitalized under the prompt corrective action regulations. To be
categorized as well capitalized, a bank must maintain certain capital ratios
above minimum levels, as set forth in the table below. 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). There are no conditions or events since the last
notifications that management believes have changed the affiliate banks'
category.

     Actual capital amounts and ratios are also presented in the table below for
Bankshares and Mercantile-Safe Deposit and Trust Company (MSD&T), the lead bank.
No deduction from capital is required for interest rate risk.

<TABLE>
<CAPTION>
                                                                                     Minimum Ratio to be
                                                                 Minimum Ratio     Well Capitalized Under
                                                                  for Capital       Prompt Corrective
                                                              Adequacy Purposes      Action Provisions
                                                              ------------------   ----------------------

(Dollars in thousands)             Bankshares       MSD&T     Bankshares   MSD&T   Bankshares     MSD&T
--------------------------------   -----------   ----------   ----------   -----   ----------   ---------
<S>                                <C>           <C>             <C>       <C>         <C>        <C>
As of December 31, 2002
Tier I capital..................   $ 1,151,831   $  430,375
Total risk-based capital........     1,250,550      473,185
Net risk-weighted assets........     7,677,476    3,407,691
Adjusted average total assets...    10,281,071    4,246,480

Tier I capital ratio............         15.00%       12.63%     4.00%     4.00%       (1)         6.00%
Total capital ratio.............         16.29%       13.89%     8.00%     8.00%       (1)        10.00%
Leverage ratio..................         11.20%       10.13%     4.00%     4.00%       (1)         5.00%

As of December 31, 2001
Tier I capital..................   $ 1,092,262   $  379,687
Total risk-based capital........     1,185,518      418,309
Net risk-weighted assets........     7,088,939    2,982,498
Adjusted average total assets...     9,413,946    3,593,194

Tier I capital ratio............         15.41%       12.73%     4.00%     4.00%       (1)         6.00%
Total capital ratio.............         16.72%       14.03%     8.00%     8.00%       (1)        10.00%
Leverage ratio..................         11.60%       10.57%     4.00%     4.00%       (1)         5.00%
</TABLE>

(1)  Bankshares is not subject to this requirement.

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

44

<PAGE>

10. INCOME TAXES

Applicable income taxes on net income for 2002, 2001 and 2000 consisted of the
following:

<TABLE>
<CAPTION>
                                      2002                           2001                         2000
                          ---------------------------   ----------------------------   --------------------------
(Dollars in thousands)    Federal    State    Total      Federal    State     Total    Federal    State    Total
-----------------------   -------   ------   --------   --------   ------   --------   -------   ------   -------
<S>                       <C>       <C>      <C>        <C>        <C>      <C>        <C>       <C>      <C>
Current tax expense ...   $90,308   $4,929   $ 95,237   $ 88,436   $1,884   $ 90,320   $94,636   $2,653   $97,289
Deferred tax expense ..     9,159    1,934     11,093     12,082    2,641     14,723     1,010      661     1,671
                          -------   ------   --------   --------   ------   --------   -------   ------   -------
   Total ..............   $99,467   $6,863   $106,330   $100,518   $4,525   $105,043   $95,646   $3,314   $98,960
                          =======   ======   ========   ========   ======   ========   =======   ======   =======
</TABLE>

Significant components of the Corporation's deferred tax assets and liabilities
as of December 31, 2002 and 2001 were as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                           2002      2001
------------------------------------------------------------   --------   -------
<S>                                                            <C>        <C>
Deferred tax assets:
   Allowance for loan losses ...............................   $ 52,659   $53,867
   Accrued employee benefits ...............................         --     2,158
   Accrued other expenses ..................................         --        --
   Write-downs of other real estate owned ..................        112        90
   Deferred income .........................................     38,468    29,249
   Purchase accounting adjustment ..........................      1,017     1,017
                                                               --------   -------
      Total deferred tax assets ............................     92,256    86,381
                                                               --------   -------
Deferred tax liabilities:
   Net unrealized gains on securities available-for-sale ...     33,623    16,589
   Depreciation ............................................     70,200    57,705
   Accrued employee benefits ...............................      4,939        --
   Premium paid on purchased deposits ......................      2,125     2,765
   Prepaid items ...........................................        152       152
   Other ...................................................        196        22
                                                               --------   -------
      Total deferred tax liabilities .......................    111,235    77,233
                                                               --------   -------
      Net deferred tax assets/(liabilities) ................   $(18,979)  $ 9,148
                                                               ========   =======
</TABLE>

A reconciliation between actual tax expense and taxes computed at the statutory
federal rate of 35% for each of the three years in the period ended December
31, 2002 follows:

<TABLE>
<CAPTION>
                                                      2002                2001               2000
                                               -----------------   -----------------   ----------------
                                                           % of                % of               % of
                                                          Pretax              Pretax             Pretax
(Dollars in thousands)                          Amount    Income    Amount    Income    Amount   Income
--------------------------------------------   --------   ------   --------   ------   -------   ------
<S>                                            <C>         <C>     <C>         <C>     <C>        <C>
Tax computed at statutory rate .............   $103,799    35.0%   $100,218    35.0%   $95,967    35.0%
Increases (decreases) in tax resulting from:
   Tax-exempt interest income ..............     (3,243)   (1.1)     (3,345)   (1.2)    (2,903)   (1.1)
   State income taxes, net of federal
      income tax benefit ...................      4,461     1.5       2,941     1.0      2,155      .8
   Nondeductible goodwill amortization .....         --      --       3,044     1.1      1,824      .7
   Other, net ..............................      1,313      .5       2,185      .8      1,917      .7
                                               --------    ----    --------    ----    -------    ----
      Actual tax expense ...................   $106,330    35.9%   $105,043    36.7%   $98,960    36.1%
                                               ========    ====    ========    ====    =======    ====
</TABLE>

11. RELATED PARTY TRANSACTIONS

In the normal course of banking business, loans are made to officers and
directors of Bankshares and its affiliates, as well as to their related
interests. In the opinion of management, these loans are consistent with sound
banking practices, are within regulatory lending limitations and do not involve
more than the normal risk of collectibility. At December 31, 2002 and 2001,
loans to executive officers and directors of Bankshares and its principal
affiliates, including loans to their related interests, totaled $64,306,000 and
$55,369,000, respectively. During 2002, loan additions and loan deletions were
$45,494,000 and $36,557,000, respectively.

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                                                                              45

<PAGE>

12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

Bankshares sponsors qualified and nonqualified pension plans and other
postretirement benefit plans for its employees. With regard to the pension
plans, there is no additional minimum pension liability required to be
recognized. Included in the other postretirement benefit plans are health care
and life insurance. All Bankshares affiliates have adopted the same health care
and life insurance plans, except for one affiliate which has separate benefit
plans. Employees were eligible for company-paid health care benefits if their
age plus length of service was equal to at least 65 as of December 31, 1990.
Employees may become eligible for company-paid life insurance benefits if they
qualify for retirement while working for Bankshares.

     The following table provides a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for each of the two years in the
period ended December 31, 2002:

<TABLE>
<CAPTION>
                                                                       Pension Benefits
                                               --------------------------------------------------------------
                                                            2002                            2001                 Other Benefits
                                               ------------------------------  ------------------------------  ------------------
                                                             Non-                           Non-
(Dollars in thousands)                         Qualified  qualified    Total   Qualified  qualified    Total     2002      2001
---------------------------------------------  ---------  ---------  --------  ---------  ---------  --------  --------  --------
<S>                                             <C>        <C>       <C>        <C>        <C>       <C>       <C>       <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year .....   $144,043   $ 4,217   $148,260   $122,965   $ 3,324   $126,289  $ 11,482  $ 10,986
Service cost ................................      4,058       390      4,448      3,650       223      3,873       182       171
Interest cost ...............................      9,731       332     10,063      9,236       243      9,479       939       872
Amendments ..................................         --        --         --      2,085        94      2,179        --        --
Actuarial (gain) loss .......................      5,213     1,074      6,287     11,465       429     11,894     1,805     1,014
Acquisition .................................         --        --         --      1,257        --      1,257        --        --
Benefits paid ...............................     (7,885)      (27)    (7,912)    (6,615)      (96)    (6,711)   (1,364)   (1,561)
                                                --------   -------   --------   --------   -------   --------  --------  --------
Benefit obligation at end of year ...........    155,160     5,986    161,146    144,043     4,217    148,260    13,044    11,482
                                                --------   -------   --------   --------   -------   --------  --------  --------

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
   year .....................................    155,285        --    155,285    145,212        --    145,212        --        --
Actual return on plan assets ................    (13,589)       --    (13,589)    (2,192)       --     (2,192)       --        --
Acquisition .................................         --        --         --      1,218        --      1,218        --        --
Employer contribution .......................     20,124        27     20,151     17,662        96     17,758     1,364     1,561
Plan participants' contributions ............         --        --         --         --        --         --     1,126       902
Benefits paid ...............................     (7,885)      (27)    (7,912)    (6,615)      (96)    (6,711)   (2,490)   (2,463)
                                                --------   -------   --------   --------   -------   --------  --------  --------
Fair value of plan assets at end of year ....    153,935        --    153,935    155,285        --    155,285        --        --
                                                --------   -------   --------   --------   -------   --------  --------  --------

Funded status ...............................     (1,225)   (5,986)    (7,211)    11,242    (4,217)     7,025   (13,044)  (11,482)
Unrecognized net actuarial (gain) loss ......     42,296     2,009     44,305     12,418     1,029     13,447     3,106     1,625
Unrecognized prior service cost .............      6,434       212      6,646      7,430       235      7,665        --        --
Unrecognized transition (asset)/obligation ..         --       193        193         --       292        292        --        --
                                                --------   -------   --------   --------   -------   --------  --------  --------
Prepaid (accrued) benefit cost ..............   $ 47,505   $(3,572)  $ 43,933   $ 31,090   $(2,661)  $ 28,429  $ (9,938) $ (9,857)
                                                ========   =======   ========   ========   =======   ========  ========  ========
</TABLE>

The components of net periodic benefit cost for the pension plans for 2002, 2001
and 2000 follow:

<TABLE>
<CAPTION>
                                                                    Pension Benefits
                                          -------------------------------------------------------------------
                                                        2002                               2001
                                          --------------------------------   --------------------------------
                                                         Non-                               Non-
(Dollars in thousands)                    Qualified   qualified     Total    Qualified   qualified     Total
---------------------------------------   ---------   ---------   --------   ---------   ---------   --------
<S>                                        <C>          <C>       <C>         <C>          <C>       <C>
Service cost ..........................    $  4,058     $390      $  4,448    $  3,650     $223      $  3,873
Interest cost .........................       9,731      332        10,063       9,236      243         9,479
Expected return on plan assets ........     (12,158)      --       (12,158)    (11,582)      --       (11,582)
Amortization of prior service cost ....         996       23         1,019         819       15           834
Recognized net actuarial (gain) loss ..          --       94            94          --       36            36
Amortization of transition asset ......          --       99            99        (692)      99          (593)
                                           --------     ----      --------    --------     ----      --------
Net periodic benefit cost .............    $  2,627     $938      $  3,565    $  1,431     $616      $  2,047
                                           ========     ====      ========    ========     ====      ========

<CAPTION>
                                                    Pension Benefits
                                          --------------------------------
                                                        2000
                                          --------------------------------
                                                        Non-
(Dollars in thousands)                    Qualified   qualified     Total
---------------------------------------   ---------   ---------   --------
<S>                                        <C>          <C>       <C>
Service cost ..........................    $  3,778     $230      $  4,008
Interest cost .........................       8,441      261         8,702
Expected return on plan assets ........     (11,631)      --       (11,631)
Amortization of prior service cost ....         819       15           834
Recognized net actuarial (gain) loss ..        (192)      48          (144)
Amortization of transition asset ......        (695)      99          (596)
                                           --------     ----      --------
Net periodic benefit cost .............    $    520     $653      $  1,173
                                           ========     ====      ========
</TABLE>

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46

<PAGE>

The components of net periodic benefit cost for the other postretirement benefit
plans for 2002, 2001 and 2000 follow:

                                                             Other Benefits
                                                          ----------------------
(Dollars in thousands)                                     2002     2001    2000
-------------------------------------------------------   ------   ------   ----
Service cost...........................................   $  182   $  171   $155
Interest cost..........................................      939      872    790
Expected return on plan assets.........................       --       --     --
Amortization of prior service cost.....................       --       --     --
Recognized net actuarial (gain) loss...................      324       16      3
Amortization of transition asset.......................       --       --     --
                                                          ------   ------   ----
Net periodic benefit cost..............................   $1,445   $1,059   $948
                                                          ======   ======   ====
The assumptions used in the measurement of the benefit obligation are shown in
the following table:

                                               Pension Benefits   Other Benefits
                                               ----------------   --------------
As of December 31,                               2002   2001       2002   2001
--------------------------------------------     ----   ----       ----   ----
Discount rate...............................     6.50%  7.00%      6.50%  7.00%
Expected return on plan assets..............     8.00%  8.00%       N/A    N/A
Rate of compensation increase...............     4.00%  4.50%      4.00%  4.50%

For measurement purposes, a 4.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2003 and assumed to remain at
that level thereafter. This rate represents Bankshares' portion of the annual
rate of increase. Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A 1% change in assumed health
care cost trend rates would have the following effects:

<TABLE>
<CAPTION>
                                                             1% Increase   1% Decrease
                                                             -----------   -----------
<S>                                                              <C>          <C>
Effect on total of service and interest cost components...       $ 69         $ (55)
Effect on postretirement benefit obligation...............       $697         $(564)
</TABLE>

13.  STOCK PLANS

Omnibus Stock Plan (1989)

The Omnibus Stock Plan adopted in 1989 permitted the grant of stock options and
other stock incentives to key employees of Bankshares and its affiliates. The
1989 Plan provided for the issuance of up to 2,902,500 shares of Bankshares
authorized but unissued common stock. Options outstanding were granted at market
value and include both stock options which become exercisable cumulatively at
the rate of 25% a year and those which are exercisable immediately on grant. If
certain levels of earnings per share of Bankshares and net income of affiliates
are not achieved, all or a portion of those options which become exercisable at
the rate of 25% a year are forfeited and become available for future grants. All
options will terminate 10 years from date of grant if not exercised. No further
grants will be made under the 1989 Plan.

1999 Omnibus Stock Plan

The 1999 Omnibus Stock Plan permits the grant of stock options and other stock
incentives, including restricted stock awards, to key employees of Bankshares
and its affiliates. The 1999 Plan provides for the issuance of up to 3,000,000
shares of Bankshares authorized but unissued common stock. Options outstanding
were granted at market value and include both performance-based and
nonperformance-based options. Options become exercisable ratably over three or
four years. If certain levels of earnings per share of Bankshares and net income
of affiliates are not achieved, all or a portion of the performance-based
options are forfeited and become available for future grants. All options will
terminate 10 years from date of grant if not exercised. Restricted stock awards
outstanding were granted at market value and vest ratably over three years or in
total at the end of a specified three-year period.

The table on the next page summarizes activity under the Omnibus Stock Plan and
the 1999 Omnibus Stock Plan during the three years ended December 31,2002:

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                                                                              47

<PAGE>

                                               Options Issued   Weighted Average
                                              and Outstanding    Exercise Price
                                              ---------------   ----------------
Balance, December 31, 1999.................      1,003,626           $15.554
Granted....................................      1,077,050            25.349
Terminated/forfeited.......................        (62,184)           25.494
Exercised..................................       (181,908)           16.130
                                                 ---------
Balance, December 31, 2000.................      1,836,584            20.904
Granted....................................        131,500            39.546
Terminated/forfeited.......................       (220,934)           27.350
Exercised..................................       (143,935)           17.311
                                                 ---------
Balance, December 31, 2001.................      1,603,215            21.868
Granted....................................        160,250            44.996
Terminated/forfeited.......................       (221,407)           25.360
Exercised..................................       (238,969)           17.587
                                                 ---------
Balance, December 31, 2002.................      1,303,089            24.903
                                                 =========
Options exercisable at December 31, 2002...        729,522            18.767
                                                 =========

The following table provides selected information on stock options outstanding
and exercisable at December 31, 2002:

<TABLE>
<CAPTION>
                               Options Outstanding                      Options Exercisable
                  -----------------------------------------------   ----------------------------
                                Weighted Average
                                   Remaining          Weighted                       Weighted
                    Number        Contractual         Average          Number        Average
Exercise Prices   Outstanding     Life (Years)     Exercise Price   Exercisable   Exercise Price
---------------   -----------   ----------------   --------------   -----------   --------------
<S>                 <C>               <C>             <C>             <C>            <C>
$14.583-$18.417     469,106           2.28            $14.782         469,106        $14.782
$25.344-$35.125     594,645           7.15             25.515         256,666         25.740
$36.813-$45.170     239,338           8.89             43.224           3,750         40.107
</TABLE>

The weighted average fair value of options granted during 2002, 2001 and 2000
was $11.10, $8.35 and $5.13, respectively. Compensation cost associated with the
options granted and expected to vest for 2002, 2001 and 2000 was $1,189,000,
$482,000 and $1,022,000, respectively.

     The weighted average fair value of options granted is estimated as of the
grant date using the Black-Scholes option pricing model. The following weighted
average assumptions were used as inputs to the Black-Scholes model for grants in
2002, 2001 and 2000, respectively:

..    Dividend yield of 2.49%, 2.71% and 3.79%

..    Volatility of 26.41%, 26.72% and 25.58%

..    Risk-free interest rate of 4.55%, 4.88% and 6.54%

..    Expected term of 5.4, 3.8 and 3.8 years

     Weighted averages are used because of varying assumed expected exercise
dates. Compensation cost is determined based on the fair value of each option
and the number of options that are granted and expected to vest.

     During 2002, 76,250 restricted stock awards were granted. There were no
restricted stock awards granted during 2001 and 2000. Total compensation expense
associated with the restricted stock awards for 2002 was $872,000 and none for
2001 and 2000. Compensation expense is recognized on a straight-line basis over
a three-year vesting period.

14.  ACQUISITIONS

The following table provides information concerning acquisitions completed
during the three years ended December 31, 2002. These acquisitions were
accounted for as purchases. The results of operations of these acquisitions
subsequent to the acquisition dates are included in Bankshares' Statements of
Consolidated Income. Individually, the results of operations of these
acquisitions prior to the acquisition dates were not material to Bankshares'
results of operations.

<TABLE>
<CAPTION>
                                         Common Shares    Cash     Asset                 Deposit
(Dollars in thousands)                      Issued        Paid      Size     Goodwill   Intangible
----------------------                   -------------   ------   --------   --------   ----------
<S>                                        <C>           <C>      <C>        <C>          <C>
Date            Acquisition
-------------   ----------------------
March 2001      Columbia National Real
                Estate Finance LLC                --     $7,000   $    200   $ 6,750      $   --
December 2000   The Bank of Fruitland      1,100,000         --    133,000    22,580       2,200
July 2000       Union National Bank        2,261,162         --    297,000    41,178       5,128
</TABLE>

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

48

<PAGE>

15. 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 and Trust Company (MSD&T) and the Investment and Wealth Management (IWM)
Division of MSD&T. The Community Banks operate in smaller geographic areas than
MSD&T, which operates in a large metropolitan area. The accounting policies of
the segments are the same as those described in Footnote No. 1. However, the
segment data reflect intersegment transactions and balances.

     The following tables present selected segment information for the years
ended December 31, 2002, 2001 and 2000. 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. Goodwill amortization
charges for the Community Banks were $0, $7,851,000 and $4,367,000 for 2002,
2001 and 2000, respectively. Goodwill amortization charges for MSD&T-Banking
were $0 for 2002, $1,221,000 for 2001 and $846,000 for 2000. For comparability
with the current period presentation, prior period amounts have been
reclassified to reflect the merger of The Sparks State Bank, previously reported
under Community Banks, into MSD&T.

<TABLE>
<CAPTION>
                                          MSD&T-      MSD&T-      Total      Community
2002 (Dollars in thousands)              Banking       IWM        MSD&T        Banks        Other        Total
-------------------------------------   ----------   --------   ----------   ----------   ---------   -----------
<S>                                     <C>          <C>        <C>          <C>          <C>         <C>
Net interest income .................   $  146,249   $     --   $  146,249   $  297,882   $  (2,327)  $   441,804
Provision for loan losses ...........      (11,735)        --      (11,735)      (4,643)         --       (16,378)
Noninterest income ..................       40,174     67,965      108,139       49,950     (14,339)      143,750
Noninterest expenses ................      (89,927)   (45,617)    (135,544)    (151,346)     14,282      (272,608)
Adjustments .........................       15,491     (2,219)      13,272       (8,419)     (4,853)           --
                                        ----------   --------   ----------   ----------   ---------   -----------
Income (loss) before income taxes ...      100,252     20,129      120,381      183,424      (7,237)      296,568
Income tax (expense) benefit ........      (36,160)    (8,052)     (44,212)     (63,782)      1,664      (106,330)
                                        ----------   --------   ----------   ----------   ---------   -----------
Net income (loss) ...................   $   64,092   $ 12,077   $   76,169   $  119,642   $  (5,573)  $   190,238
                                        ==========   ========   ==========   ==========   =========   ===========
Average assets ......................   $4,138,932         --   $4,138,932   $6,252,720   $(268,195)  $10,123,457
Average equity ......................      435,308         --      435,308      786,474      36,185     1,257,967
</TABLE>

<TABLE>
<CAPTION>
                                          MSD&T-      MSD&T-      Total      Community
2001 (Dollars in thousands)              Banking       IWM        MSD&T        Banks        Other        Total
-------------------------------------   ----------   --------   ----------   ----------   ---------   -----------
<S>                                     <C>          <C>        <C>          <C>          <C>         <C>
Net interest income .................   $  140,764   $     --   $  140,764   $  278,421   $    (944)  $   418,241
Provision for loan losses ...........       (7,238)        --       (7,238)      (6,196)         --       (13,434)
Noninterest income ..................       40,314     69,046      109,360       46,343     (10,213)      145,490
Noninterest expenses ................      (86,150)   (40,469)    (126,619)    (145,436)      8,096      (263,959)
Adjustments .........................       11,634     (1,363)      10,271      (17,968)      7,697            --
                                        ----------   --------   ----------   ----------   ---------   -----------
Income (loss) before income taxes ...       99,324     27,214      126,538      155,164       4,636       286,338
Income tax (expense) benefit ........      (36,061)   (10,886)     (46,947)     (56,678)     (1,418)     (105,043)
                                        ----------   --------   ----------   ----------   ---------   -----------
Net income (loss) ...................   $   63,263   $ 16,328   $   79,591   $   98,486   $   3,218   $   181,295
                                        ==========   ========   ==========   ==========   =========   ===========
Average assets ......................   $3,746,151         --   $3,746,151   $5,657,733   $(176,682)  $ 9,227,202
Average equity ......................      410,425         --      410,425      674,869     111,764     1,197,058
</TABLE>

<TABLE>
<CAPTION>
                                          MSD&T-      MSD&T-      Total      Community
2000 (Dollars in thousands)              Banking       IWM        MSD&T        Banks        Other        Total
-------------------------------------   ----------   --------   ----------   ----------   ---------   -----------
<S>                                     <C>          <C>        <C>          <C>          <C>         <C>
Net interest income .................   $  152,469   $     --   $  152,469   $  256,990   $     (74)  $   409,385
Provision for loan losses ...........       (8,541)        --       (8,541)      (8,690)         --       (17,231)
Noninterest income ..................       25,346     69,728       95,074       41,489     (11,022)      125,541
Noninterest expenses ................      (75,144)   (38,404)    (113,548)    (133,124)      3,167      (243,505)
Adjustments .........................       11,974     (2,236)       9,738      (12,879)      3,141            --
                                        ----------   --------   ----------   ----------   ---------   -----------
Income (loss) before income taxes ...      106,104     29,088      135,192      143,786      (4,788)      274,190
Income tax (expense) benefit ........      (38,308)   (11,635)     (49,943)     (52,476)      3,459       (98,960)
                                        ----------   --------   ----------   ----------   ---------   -----------
Net income (loss) ...................   $   67,796   $ 17,453   $   85,249   $   91,310   $  (1,329)  $   175,230
                                        ==========   ========   ==========   ==========   =========   ===========
Average assets ......................   $3,374,671         --   $3,374,671   $5,057,570   $(132,925)  $ 8,299,316
Average equity ......................      387,061         --      387,061      611,914      55,096     1,054,071
</TABLE>

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                                                                              49

<PAGE>

16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations:

<TABLE>
<CAPTION>
                                                                 Three months ended
                                                     -----------------------------------------
2002 (Dollars in thousands, except per share data)    Dec. 31   Sept. 30   June 30    March 31
--------------------------------------------------   --------   --------   --------   --------
<S>                                                  <C>        <C>        <C>        <C>
Net interest income ..............................   $112,277   $111,914   $110,425   $107,188
Provision for loan losses ........................      4,935      3,244      5,116      3,083
Net income .......................................     48,503     48,615     46,945     46,175
Per share of common stock:
   Basic .........................................        .70        .70        .67        .66
   Diluted .......................................        .70        .69        .67        .66
</TABLE>

<TABLE>
<CAPTION>
                                                                 Three months ended
                                                     -----------------------------------------
2001 (Dollars in thousands, except per share data)    Dec. 31   Sept. 30   June 30    March 31
--------------------------------------------------   --------   --------   --------   --------
<S>                                                  <C>        <C>        <C>        <C>
Net interest income ..............................   $104,764   $104,599   $103,908   $104,970
Provision for loan losses ........................      4,204      3,101      3,178      2,951
Net income .......................................     44,234     46,079     44,624     46,358
Per share of common stock:
   Basic .........................................        .63        .66        .63        .65
   Diluted .......................................        .63        .65        .62        .65
</TABLE>

17. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of Bankshares' financial instruments at December 31,
2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                 2002                       2001
                                      -------------------------   -----------------------
                                         Book          Fair          Book         Fair
(Dollars in thousands)                   Value         Value         Value        Value
-----------------------------------   -----------   -----------   ----------   ----------
<S>                                   <C>           <C>           <C>          <C>
ASSETS
Cash and short-term investments ...   $   545,781   $   545,781   $  314,347   $  314,347
Investment securities .............     2,564,583     2,567,434    2,340,963    2,342,320
Loans held-for-sale ...............            --            --      137,950      137,950

Loans .............................     7,312,027                  6,906,246
Less: allowance for loan losses ...      (138,601)                  (141,463)
                                      -----------                 ----------
   Loans, net .....................     7,173,426     7,377,495    6,764,783    7,029,905
Interest rate swaps ...............        11,424        11,424           --           --
                                      -----------   -----------   ----------   ----------
   Total financial assets .........   $10,295,214   $10,502,134   $9,558,043   $9,824,522
                                      ===========   ===========   ==========   ==========

LIABILITIES
Deposits ..........................   $ 8,260,940   $ 8,284,730   $7,447,372   $7,465,829
Short-term borrowings .............       823,385       823,385      853,278      853,278
Long-term debt ....................       287,214       301,451      269,437      273,449
Interest rate swaps ...............            --            --       14,625       14,625
                                      -----------   -----------   ----------   ----------
   Total financial liabilities ....   $ 9,371,539   $ 9,409,566   $8,584,712   $8,607,181
                                      ===========   ===========   ==========   ==========
</TABLE>

The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments as of December 31, 2002 and 2001:

Cash and Short-Term Investments

The amounts reported in the balance sheet approximate the fair values of these
assets. Short-term investments include interest-bearing deposits in other banks
and federal funds sold.

Investment Securities

Fair values of investment securities are based on quoted market prices.

Loans Held-for-Sale

Loans held-for-sale are at book value which approximates fair value.

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

50

<PAGE>

Loans

The fair value of loans is estimated using discounted cash flow analyses based
on contractual repayment schedules and discount rates which are believed to
reflect current credit quality and other related factors. These factors provide
for the effect of interest over time, as well as losses expected over the life
of the loan portfolio and recovery of other operating expenses.

Deposits

The fair value of demand deposits, savings accounts and money market deposits is
the amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using a discounted cash flow
calculation that applies interest rates and remaining maturities for currently
offered certificates of deposit.

Short-Term Borrowings

The amounts reported in the balance sheet approximate the fair values because of
the short duration of those instruments.

Long-Term Debt

The fair value of the long-term debt associated with the interest rate swap is
based on quoted market prices. For all other long-term debt, fair value is
estimated by discounting the future cash flows using estimates of rates
currently available to Bankshares and its affiliates for debt with similar terms
and remaining maturities.

Interest Rate Swaps

The fair value of existing agreements is based on quoted market prices.

Limitations

The valuation techniques employed above involve uncertainties and are affected
by assumptions used and by judgments regarding prepayments, credit risk, future
loss experience, discount rates, cash flows and other factors. Therefore,
derived fair values cannot be substantiated by comparison to independent markets
or to other financial institutions. The reported fair values do not necessarily
represent what Bankshares would realize in immediate sales or other
dispositions. Changes in assumptions could significantly affect the reported
fair values.

18. 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 was $11,424,000 at December 31,
2002, recorded in other assets, and $14,625,000 at December 31, 2001, recorded
in accrued expenses and other liabilities. For 2002 and 2001, Bankshares
recognized a net loss of $40,000 and $28,000, respectively, included in interest
and fees on loans, which represented the ineffective portion of the fair-value
hedge of fixed-rate loans made to borrowers. The impact of the hedge decreased
interest income $151,000 and $68,000 in 2002 and 2001, respectively. The
fair-value hedge of the nonprepayable fixed-rate debt was 100% effective, and
the impact of the hedge decreased interest expense $5,903,000 and $773,000 in
2002 and 2001, respectively.

19. INTANGIBLE ASSETS

The following table discloses the gross carrying amount and accumulated
amortization of intangible assets subject to amortization at December 31, 2002
and December 31, 2001:

<TABLE>
<CAPTION>
                                         December 31,2002                  December 31,2001
                                --------------------------------   --------------------------------
                                 Gross                              Gross
                                Carrying    Accumulated    Net     Carrying   Accumulated     Net
(Dollars in thousands)           Amount    Amortization   Amount    Amount    Amortization   Amount
-----------------------------   --------   ------------   ------   --------   ------------   ------
<S>                              <C>         <C>          <C>       <C>         <C>          <C>
Deposit intangibles .........    $13,846     $(6,581)     $7,265    $13,846     $(4,899)     $8,947
Mortgage servicing rights ...      1,543      (1,282)        261      1,749      (1,406)        343
Other .......................         50         (46)          4         50         (21)         29
                                 -------     -------      ------    -------     -------      ------
Total .......................    $15,439     $(7,909)     $7,530    $15,645     $(6,326)     $9,319
                                 =======     =======      ======    =======     =======      ======
</TABLE>

The aggregate amortization expense was $1,972,000 for the year ended December
31, 2002 and $2,082,000 for the year ended December 31, 2001. The estimated
aggregate amortization expense for each of the next five years is:
2003-$1,703,000; 2004-$1,584,000; 2005-$1,463,000; 2006-$1,463,000;
2007-$1,261,000.

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                                                                              51

<PAGE>

20. ACCOUNTING CHANGES

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Additionally, it further clarifies the criteria for the
initial recognition and measurement of intangible assets separate from goodwill.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 and
prescribes the accounting for goodwill and intangible assets subsequent to
initial recognition. The provisions of SFAS No. 142 discontinue the amortization
of goodwill and intangible assets with indefinite lives. Instead, these assets
will be subject to at least an annual impairment review, and more frequently if
certain impairment indicators are in evidence. SFAS No. 142 also requires that
reporting units be identified for the purpose of assessing potential future
impairments of goodwill.

     Mercantile Bankshares Corporation adopted SFAS No. 142 on January 1, 2002.
In preparing for its adoption of SFAS No. 142, the Corporation determined its
reporting units and the amounts of goodwill and intangible assets to be
allocated to those reporting units. The Corporation determined that any
reclassifications between goodwill and intangible assets or any changes in the
useful lives of intangible assets were unnecessary. Application of the
nonamortization provisions of the statement resulted in additional net income of
$8.4 million for the year ended December 31, 2002.

     SFAS No. 142 requires that goodwill be tested annually for impairment using
a two-step process. The first step, which the Corporation completed during the
first half of 2002, is to identify a potential impairment. The second step,
which the Corporation completed by the end of 2002, measures the amount of the
impairment loss, if any. No impairment charges for goodwill impacted the 2002
financial statements.

The following table presents a reconciliation of reported net income and
earnings per share to amounts adjusted to exclude goodwill amortization, net of
tax, for 2002, 2001 and 2000.

(Dollars in thousands,except per share data)        2002       2001       2000
-----------------------------------------------   --------   --------   --------

NET INCOME
Reported ......................................   $190,238   $181,295   $175,230
Add:goodwill amortization .....................         --      8,924      5,213
                                                  --------   --------   --------
Adjusted ......................................   $190,238   $190,219   $180,443
                                                  ========   ========   ========

BASIC EARNINGS PER SHARE
Reported ......................................   $   2.74   $   2.57   $   2.53
Add:goodwill amortization .....................         --        .13        .08
                                                  --------   --------   --------
Adjusted ......................................   $   2.74   $   2.70   $   2.61
                                                  ========   ========   ========

DILUTED EARNINGS PER SHARE
Reported ......................................   $   2.72   $   2.55   $   2.51
Add:goodwill amortization .....................         --        .12        .08
                                                  --------   --------   --------
Adjusted ......................................   $   2.72   $   2.67   $   2.59
                                                  ========   ========   ========

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52

<PAGE>

21.  MERCANTILE BANKSHARES CORPORATION (PARENT CORPORATION ONLY) FINANCIAL
     INFORMATION

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in thousands,except per share data)                                        2002         2001
------------------------------------------------------------------------------   ----------   ----------
<S>                                                                              <C>          <C>
ASSETS
Cash .........................................................................   $    3,950   $   18,370
Interest-bearing deposits with bank affiliate ................................       37,000       52,000
Securities purchased under resale agreements with bank affiliate .............      128,769      114,751
                                                                                 ----------   ----------
   Cash and cash equivalents .................................................      169,719      185,121
                                                                                 ----------   ----------
Investment in bank affiliates ................................................    1,315,369    1,198,950
Investment in bank-related affiliates ........................................       20,198       19,662
Loans and advances to affiliates .............................................       58,320      132,765
Investment securities available-for-sale .....................................        6,017        4,934
Goodwill, net ................................................................           --       28,734
Other assets.. ...............................................................       89,183        3,389
                                                                                 ----------   ----------
      Total.. ................................................................   $1,658,806   $1,573,555
                                                                                 ==========   ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
   Commercial paper ..........................................................   $  258,768   $  244,751
   Accounts payable and other liabilities ....................................       17,280       31,898
   Long-term debt ............................................................       58,400       66,700
                                                                                 ----------   ----------
      Total liabilities ......................................................      334,448      343,349
                                                                                 ----------   ----------
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
      68,836,092 shares in 2002 and 69,775,710 shares in 2001 ................      137,672      139,551
Capital surplus ..............................................................      120,577      159,947
Retained earnings ............................................................    1,010,248      904,479
Accumulated other comprehensive income (loss) ................................       55,861       26,229
                                                                                 ----------   ----------
      Total shareholders' equity .............................................    1,324,358    1,230,206
                                                                                 ----------   ----------
         Total ...............................................................   $1,658,806   $1,573,555
                                                                                 ==========   ==========
</TABLE>

                               STATEMENT OF INCOME
<TABLE>
<CAPTION>
                                                                                      (Dollars in thousands)
                                                                                  ------------------------------
For the Years Ended December 31,                                                    2002       2001       2000
-------------------------------------------------------------------------------   --------   --------   --------
<S>                                                                               <C>        <C>        <C>
INCOME
Dividends from bank affiliates ................................................   $134,838   $125,981   $125,701
Dividends from bank-related affiliates ........................................        905        952      1,569
Interest on interest-bearing deposits with bank affiliate .....................        819      2,855      3,079
Interest on securities purchased under resale agreements with bank affiliate...      1,224      2,787      2,217
Interest on loans to affiliates ...............................................      2,383      5,598      8,523
Other income ..................................................................        198      3,268        173
                                                                                  --------   --------   --------
      Total income ............................................................    140,367    141,441    141,262
                                                                                  --------   --------   --------
EXPENSES
Interest on short-term borrowings .............................................      2,732      7,635      8,742
Interest on long-term debt ....................................................      4,243      4,819      5,356
Amortization expense ..........................................................         --      6,793      5,798
Other expenses ................................................................      2,269        982      5,546
                                                                                  --------   --------   --------
      Total expenses ..........................................................      9,244     20,229     25,442
                                                                                  --------   --------   --------
Income before income tax benefit and equity in undistributed net income of
   affiliates .................................................................    131,123    121,212    115,820
Income tax (benefit) ..........................................................       (310)     2,272       (292)
                                                                                  --------   --------   --------
                                                                                   131,433    118,940    116,112
Equity in undistributed net income of:
   Bank affiliates ............................................................     58,269     61,589     58,411
   Bank-related affiliates ....................................................        536        766        707
                                                                                  --------   --------   --------
      NET INCOME ..............................................................   $190,238   $181,295   $175,230
                                                                                  ========   ========   ========
</TABLE>

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                                                                              53

<PAGE>

21.  MERCANTILE BANKSHARES CORPORATION (PARENT CORPORATION ONLY) FINANCIAL
     INFORMATION (cont.)

                             STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          (Dollars in thousands)
Increase (decrease) in cash and cash equivalents                     -------------------------------
For the Years Ended December 31,                                        2002       2001       2000
------------------------------------------------------------------   ---------   --------   --------
<S>                                                                  <C>         <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................   $ 190,238   $181,295   $175,230
Adjustments to reconcile net income to net cash provided
   by operating activities:
      Equity in undistributed net income of affiliates ...........     (58,805)   (62,355)   (59,118)
      Amortization expense .......................................          --      6,793      5,798
      Investment securities gains ................................          --     (3,138)        --
   Net (increase) decrease in other assets .......................     (83,772)       799     (2,853)
   Net increase (decrease) in liabilities:
      Interest payable ...........................................          --         --       (258)
      Accrued expenses ...........................................        (582)    (2,377)     3,568
      Taxes payable ..............................................     (15,065)    21,757         73
                                                                     ---------   --------   --------
         Net cash provided by operating activities ...............      32,014    142,774    122,440
                                                                     ---------   --------   --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans to affiliates ...................      74,445       (180)     1,215
Proceeds from sales of investment securities available-for-sale ..         500      3,138         --
Purchases of investment securities available-for-sale ............      (1,000)        --     (2,233)
Investment in affiliates .........................................          --       (150)        --
                                                                     ---------   --------   --------
         Net cash used in investing activities ...................      73,945      2,808     (1,018)
                                                                     ---------   --------   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in commercial paper .................................      14,017     46,806     23,706
Repayment of long-term debt ......................................      (8,300)    (8,300)    (7,500)
Proceeds from issuance of shares .................................       8,784      7,396      7,137
Repurchase of common shares ......................................     (53,953)   (65,572)   (37,109)
Dividends paid ...................................................     (81,909)   (77,597)   (70,641)
                                                                     ---------   --------   --------
         Net cash used in financing activities ...................    (121,361)   (97,267)   (84,407)
                                                                     ---------   --------   --------
Net increase (decrease) in cash and cash equivalents .............     (15,402)    48,315     37,015
Cash and cash equivalents at beginning of year ...................     185,121    136,806     99,791
                                                                     ---------   --------   --------
Cash and cash equivalents at end of year .........................   $ 169,719   $185,121   $136,806
                                                                     =========   ========   ========
</TABLE>

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54

<PAGE>

22.  SUBSEQUENT EVENT

On March 13, 2003, Bankshares announced plans to acquire F&M Bancorp (F&M), a
bank holding company headquartered in Frederick, Maryland. F&M is the parent
company to Farmers and Mechanics Bank and Home Federal and operates 48 banking
offices in Frederick County and six contiguous counties. At December 31, 2002,
F&M had $2.1 billion in assets, $1.3 billion in loans and $1.6 billion in
deposits. The merger, which is subject to regulatory and F&M shareholder
approval, is expected to be completed by the end of 2003.

     The aggregate consideration that Bankshares will pay upon consummation of
the merger has been fixed at approximately $123.5 million in cash and
approximately 10.3 million shares of Bankshares common stock. These fixed pools
of consideration were determined based on: (i) an agreed upon initial valuation
of F&M of $46.00 per share, (ii) an exchange ratio of 1.2831 based on such
valuation and an agreed upon value of Bankshares common stock of $35.85 (the
average of the closing sales price of Bankshares common stock on the NASDAQ
National Market System during the ten consecutive trading-day period ended on
the day prior to the date of the merger agreement), (iii) an aggregate of
10,740,357 shares of F&M common stock outstanding as of the date of the merger
agreement, and (iv) an agreement to fix 75% of such aggregate consideration in
the form of Bankshares common stock and 25% in cash. These pools would increase
only if, and to the extent that, outstanding options to purchase shares of F&M
common stock are exercised between March 13, 2003 and the third calendar day
immediately prior to the effective time of the merger. If all of such
outstanding options were exercised, the aggregate amount of consideration
payable in the merger would increase to approximately $130.7 million in cash and
approximately 10.9 million shares of Bankshares common stock.

     Under the terms of the merger agreement, each share of F&M common stock
will be converted into either (i) an amount in cash or (ii) an equivalent value
in shares of Bankshares common stock. The value of the cash or Bankshares common
stock that an F&M shareholder will receive for each share of F&M common stock
owned by it will be determined as of the end of the ten consecutive trading-day
period ending on the third calendar day immediately prior to the effective time
of the merger, in accordance with a formula (including the calculation of a new
exchange ratio) based on the average of the closing sales price of Bankshares
common stock on the NASDAQ National Market System during such ten-day period.
The formula is designed to provide that, regardless of whether an F&M
shareholder elects to receive cash or Bankshares common stock for each share of
F&M common stock owned by it, the per-share value of such cash or Bankshares
common stock received will be equal as of such determination date. Such
per-share value may be more or less than the $46.00 initial valuation used to
calculate the aggregate consideration to be paid upon consummation of the
merger, depending upon whether or not the average closing price of Bankshares
common stock during such ten-day period is more or less than $35.85.

     Each F&M shareholder may elect to receive all cash, all Bankshares common
stock, or any mixture of Bankshares common stock and cash in exchange for the
total number of shares of F&M common stock held by such shareholder. The fixed
pools of cash and stock consideration will be allocated among the F&M
shareholders in accordance with their individual elections; provided, however,
that to the extent there is an oversubscription for either the cash pool or the
stock pool, the shareholders electing the oversubscribed pool will have their
elections as to such pool reduced on a pro rata basis and replaced by an
equivalent value of consideration from the other pool. F&M shareholders who do
not make any election will receive all of their consideration from the pool that
has not been oversubscribed.

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                                                                              55

<PAGE>

Five-Year Statistical Summary

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(Dollars in thousands)                        2002         2001         2000         1999         1998
----------------------------------------   ----------   ----------   ----------   ----------   ----------
<S>                                        <C>          <C>          <C>          <C>          <C>
AVERAGE BALANCE SHEET STATISTICS
Loans:
   Commercial ..........................   $4,283,322   $3,978,335   $3,534,898   $3,094,713   $2,847,109
   Construction ........................      733,237      795,931      738,393      606,771      505,846
   Residential real estate .............    1,072,297    1,059,798      950,531      874,947      903,516
   Consumer ............................      999,988      998,792      945,810      800,936      748,294
                                           ----------   ----------   ----------   ----------   ----------
      Total loans ......................    7,088,844    6,832,856    6,169,632    5,377,367    5,004,765
                                           ----------   ----------   ----------   ----------   ----------
Federal funds sold,et al ...............      178,624      141,245       29,434       15,762      185,204

Securities:
   U.S. Government obligations .........    2,089,004    1,705,543    1,628,477    1,807,264    1,668,632
   States and political subdivisions ...       38,799       40,359       25,170       12,024       14,325
   Other investments* ..................      239,969       70,502       40,757       23,473       23,271
                                           ----------   ----------   ----------   ----------   ----------
      Total securities .................    2,367,772    1,816,404    1,694,404    1,842,761    1,706,228
                                           ----------   ----------   ----------   ----------   ----------
         Total earning assets ..........   $9,635,240   $8,790,505   $7,893,470   $7,235,890   $6,896,197
                                           ==========   ==========   ==========   ==========   ==========

Deposits:
   Noninterest-bearing deposits ........   $1,856,706   $1,618,838   $1,438,578   $1,334,282   $1,216,726
   Savings deposits** ..................    2,936,197    2,471,674    2,345,808    2,375,075    2,264,295
   Time deposits .......................    2,839,507    2,958,158    2,412,468    2,186,868    2,233,948
                                           ----------   ----------   ----------   ----------   ----------
      Total deposits ...................   $7,632,410   $7,048,670   $6,196,854   $5,896,225   $5,714,969
                                           ==========   ==========   ==========   ==========   ==========

Borrowed funds:
   Short-term borrowings ...............   $  845,938   $  744,907   $  860,241   $  594,106   $  439,936
   Long-term debt ......................      279,471      117,823       87,679       70,836       45,802
                                           ----------   ----------   ----------   ----------   ----------
      Total borrowed funds .............   $1,125,409   $  862,730   $  947,920   $  664,942   $  485,738
                                           ==========   ==========   ==========   ==========   ==========

AVERAGE RATES***
Loans:
   Commercial ..........................         6.51%        7.99%        9.14%        8.58%        9.04%
   Construction ........................         6.09         7.96         9.66         9.03         9.66
   Residential real estate .............         7.30         7.94         7.98         7.96         8.41
   Consumer ............................         7.12         8.28         8.70         8.50         8.94
      Total loans ......................         6.67         8.02         8.96         8.52         8.97
Federal funds sold, et al ..............         2.92         4.38         6.31         4.95         5.32

Securities:
   U.S. Government obligations .........         4.67         5.48         5.67         5.65         5.91
   States and political subdivisions ...         8.08         8.17         8.26         7.98         7.96
   Other investments* ..................         5.63         7.47         7.97         8.97         8.83
      Total securities .................         4.83         5.62         5.77         5.70         5.97
         Composite rate earned .........         6.15%        7.46%        8.26%        7.79%        8.13%
                                           ==========   ==========   ==========   ==========   ==========

Deposits:
   Savings deposits** ..................          .87%        1.62%        2.06%        2.04%        2.50%
   Time deposits .......................         3.42         5.40         5.56         5.01         5.44
      Total interest-bearing deposits ..         2.12         3.68         3.83         3.46         3.96
Borrowed funds:
   Short-term borrowings ...............         1.33         3.37         5.66         4.59         4.73
   Long-term debt ......................         3.85         5.69         6.79         6.80         6.73
      Total borrowed funds .............         1.96         3.69         5.77         4.83         4.92
         Composite rate paid ...........         2.10%        3.68%        4.16%        3.64%        4.05%
                                           ==========   ==========   ==========   ==========   ==========
</TABLE>

  *  Includes interest-bearing deposits in other banks.

 **  Includes savings, checking plus interest and money market deposit accounts.

***  Presented on a tax-equivalent basis.

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56

<PAGE>

<TABLE>
<CAPTION>
(Dollars in thousands)                              2002         2001         2000         1999         1998
---------------------------------------------   -----------   ----------   ----------   ----------   ----------
<S>                                             <C>           <C>          <C>          <C>          <C>
RETURN ON EQUITY AND ASSETS
Average total assets ........................   $10,123,457   $9,227,202   $8,299,316   $7,628,660   $7,260,777
                                                ===========   ==========   ==========   ==========   ==========
Average shareholders' equity ................   $ 1,257,967   $1,197,058   $1,054,071   $  971,837   $  967,325
                                                ===========   ==========   ==========   ==========   ==========
Return on average total assets ..............          1.88%        1.96%        2.11%        2.07%        2.03%
Return on average shareholders' equity ......         15.12%       15.15%       16.62%       16.23%       15.21%
Average shareholders' equity as a percent
   of average total assets ..................         12.43%       12.97%       12.70%       12.74%       13.32%
Dividends paid per share as a percent
   of basic net income per share ............          43.1%        42.8%        40.3%        41.4%        42.0%

SOURCES OF INCOME
Commercial loans ............................          37.7%        39.4%        41.3%        38.5%        38.1%
Construction loans ..........................           5.9          7.9          9.2          7.9          7.3
Residential real estate loans ...............          10.7         10.6          9.8         10.2         11.4
Consumer loans ..............................           9.8         10.4         10.7         10.0         10.1
Federal funds sold, et al ...................            .7           .8           .2           .1          1.5
Securities ..................................          15.5         12.6         12.5         15.4         15.2
                                                -----------   ----------   ----------   ----------   ----------
      Total interest income .................          80.3         81.7         83.7         82.1         83.6
Investment and wealth management ............           9.4          8.7          9.1          9.5          8.7
Other income ................................          10.3          9.6          7.2          8.4          7.7
                                                -----------   ----------   ----------   ----------   ----------
      Total income ..........................         100.0%       100.0%       100.0%       100.0%       100.0%
                                                ===========   ==========   ==========   ==========   ==========

NET INTEREST INCOME
   (Tax Equivalent)
Interest earned:
   Loans ....................................   $   473,120   $  547,970   $  552,548   $  457,936   $  449,044
   Federal funds sold, et al ................         5,213        6,190        1,857          781        9,851
   Taxable securities .......................       111,111       98,732       95,625      104,144      100,726
   Tax-exempt securities ....................         3,135        3,298        2,080          959        1,141
                                                -----------   ----------   ----------   ----------   ----------
      Total interest income .................       592,579      656,190      652,110      563,820      560,762
                                                -----------   ----------   ----------   ----------   ----------
Interest paid:
   Savings deposits .........................        25,536       39,993       48,362       48,442       56,720
   Time deposits ............................        97,033      159,710      134,086      109,555      121,424
                                                -----------   ----------   ----------   ----------   ----------
      Total interest-bearing deposits .......       122,569      199,703      182,448      157,997      178,144
   Short-term borrowings ....................        11,259       25,120       48,711       27,267       20,800
   Long-term debt ...........................        10,754        6,702        5,951        4,818        3,083
                                                -----------   ----------   ----------   ----------   ----------
      Total interest expense ................       144,582      231,525      237,110      190,082      202,027
                                                -----------   ----------   ----------   ----------   ----------
         Net interest income ................   $   447,997   $  424,665   $  415,000   $  373,738   $  358,735
                                                ===========   ==========   ==========   ==========   ==========
</TABLE>

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              57

<PAGE>

Five-Year Selected Financial Data

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(Dollars in thousands, except per share data)       2002         2001         2000         1999         1998
---------------------------------------------   -----------   ----------   ----------   ----------   ----------
<S>                                             <C>           <C>          <C>          <C>          <C>
NET INTEREST INCOME .........................   $   441,804   $  418,241   $  409,385   $  369,086   $  353,365
                                                ===========   ==========   ==========   ==========   ==========
NET INCOME ..................................   $   190,238   $  181,295   $  175,230   $  157,737   $  147,128
                                                ===========   ==========   ==========   ==========   ==========
NET INCOME PER SHARE OF COMMON STOCK
Basic .......................................   $      2.74   $     2.57   $     2.53   $     2.27   $     2.05
Diluted .....................................   $      2.72   $     2.55   $     2.51   $     2.25   $     2.04

TOTAL ASSETS ................................   $10,790,376   $9,928,786   $8,938,030   $7,895,024   $7,609,563
                                                ===========   ==========   ==========   ==========   ==========
LONG-TERM DEBT ..............................   $   287,214   $  269,437   $   92,547   $   82,683   $   40,934
                                                ===========   ==========   ==========   ==========   ==========
PROVISION FOR LOAN LOSSES ...................   $    16,378   $   13,434   $   17,231   $   12,056   $   11,489
                                                ===========   ==========   ==========   ==========   ==========
PER SHARE CASH DIVIDENDS
Common ......................................   $      1.18   $     1.10   $     1.02   $      .94   $      .86

CASH DIVIDENDS DECLARED AND PAID
On common stock .............................   $    81,909   $   77,597   $   70,641   $   65,113   $   61,538

YEAR-END LOAN DATA

Commercial ..................................   $ 2,300,956   $2,228,750   $2,215,039   $1,984,358   $1,863,580
Commercial real estate ......................     2,016,307    1,819,268    1,409,987    1,220,100    1,072,188
Construction ................................       810,985      652,486      824,752      650,745      556,763
Residential real estate .....................     1,066,694    1,060,519    1,086,674      878,900      869,539
Consumer ....................................       775,673      801,474      832,206      707,359      617,257
Home equity lines ...........................       239,232      189,867      168,944      147,560      140,233
Lease financing .............................       102,180      153,882      155,692      123,108       75,907
                                                -----------   ----------   ----------   ----------   ----------
      Total loans ...........................     7,312,027    6,906,246    6,693,294    5,712,130    5,195,467

Less:
   Allowance for loan losses ................      (138,601)    (141,463)    (138,612)    (117,997)    (112,423)
                                                -----------   ----------   ----------   ----------   ----------
      Loans, net ............................   $ 7,173,426   $6,764,783   $6,554,682   $5,594,133   $5,083,044
                                                ===========   ==========   ==========   ==========   ==========
</TABLE>

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

58

<PAGE>

Five-Year Summary of Consolidated Income

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(Dollars in thousands)                            2002       2001       2000       1999       1998
---------------------------------------------   --------   --------   --------   --------   --------
<S>                                             <C>        <C>        <C>        <C>        <C>
INTEREST INCOME
Interest and fees on loans ..................   $468,298   $543,020   $547,942   $453,825   $444,519
Interest and dividends on securities ........    112,860    100,538     96,687    104,556    101,017
Other interest income .......................      5,228      6,208      1,866        787      9,856
                                                --------   --------   --------   --------   --------
      Total interest income .................    586,386    649,766    646,495    559,168    555,392
                                                --------   --------   --------   --------   --------
INTEREST EXPENSE
Interest on deposits ........................    122,569    199,703    182,448    157,997    178,144
Interest on short-term borrowings ...........     11,259     25,120     48,711     27,267     20,800
Interest on long-term debt ..................     10,754      6,702      5,951      4,818      3,083
                                                --------   --------   --------   --------   --------
      Total interest expense ................    144,582    231,525    237,110    190,082    202,027
                                                --------   --------   --------   --------   --------

NET INTEREST INCOME .........................    441,804    418,241    409,385    369,086    353,365
Provision for loan losses ...................     16,378     13,434     17,231     12,056     11,489
                                                --------   --------   --------   --------   --------
NET INTEREST INCOME AFTER
   PROVISION FOR LOAN LOSSES ................    425,426    404,807    392,154    357,030    341,876
                                                --------   --------   --------   --------   --------
NONINTEREST INCOME
Investment and wealth management ............     68,435     69,331     69,850     65,036     58,018
Service charges on deposit accounts .........     31,454     28,085     24,346     23,043     19,666
Other income ................................     43,861     48,074     31,345     33,912     31,009
                                                --------   --------   --------   --------   --------
      Total noninterest income ..............    143,750    145,490    125,541    121,991    108,693
                                                --------   --------   --------   --------   --------
NONINTEREST EXPENSES
Salaries and employee benefits ..............    163,310    152,405    139,369    134,332    130,570
Net occupancy and equipment expenses ........     40,368     38,448     34,607     32,959     30,486
Amortization of goodwill ....................         --      9,072      5,213      3,832      3,444
Other expenses ..............................     68,930     64,034     64,316     59,297     54,505
                                                --------   --------   --------   --------   --------
      Total noninterest expenses ............    272,608    263,959    243,505    230,420    219,005
                                                --------   --------   --------   --------   --------
Income before income taxes ..................    296,568    286,338    274,190    248,601    231,564
Applicable income taxes .....................    106,330    105,043     98,960     90,864     84,436
                                                --------   --------   --------   --------   --------

NET INCOME ..................................   $190,238   $181,295   $175,230   $157,737   $147,128
                                                ========   ========   ========   ========   ========
</TABLE>

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              59

<PAGE>

Principal Affiliates

<TABLE>
<CAPTION>
                           EXECUTIVE OFFICERS           DIRECTORS
------------------------   --------------------------   ------------------------
<S>                        <C>                          <C>
[LOGO]                     Robert E. Henel Jr.          George R. Benson Jr.
THE ANNAPOLIS                President and              Clarence A. Blackwell
BANKING AND                  Chief Executive Officer    Ralph W. Crosby
TRUST COMPANY              Carolyn D. O'Leary           Francis E. Gardiner Jr.
                             Executive Vice President   Robert E. Henel Jr.
Main Street and            Ernest R. Amadio             John K. Hopkins
Church Circle                Senior Vice President      John R. Moses
Annapolis,                 William J. Bush              Patricia A. Roche, Ph.D.
Maryland 21401               Senior Vice President      Harry A. Seymour Jr.
410-268-4285               William A. Busik             Lawrence W. Ulvila Jr.
                             Senior Vice President
11 Offices                 Mary Jo Greenley
                             Senior Vice President
108 Employees              Mildred L. Henry
                             Senior Vice President,
Chartered in 1904            Secretary and Treasurer
                           M. John Miller Jr.
                             Senior Vice President
                           Charles E. Ruch Jr.
                             Senior Vice President
                           Ann W. Shymansky
                             Senior Vice President

<CAPTION>
BALANCE SHEET (Dollars in thousands)       December 31, 2002
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $344,495
   from banks    $ 11,684
                            Short-term borrowings     34,090
Earning assets    412,989
                            Other liabilities and
                               accrued expenses          947
Allowance for
   loan losses     (4,202)  Long-term debt                --

Other assets        5,035   Shareholders' equity      45,974
                 --------                           --------
                            Total liabilities
Total assets     $425,506      and equity           $425,506
                 ========                           ========

Net income       $  8,497
                 ========
</TABLE>

<TABLE>
<CAPTION>
------------------------   --------------------------   ------------------------
<S>                        <C>                          <C>
[LOGO]                     Robert E. Dickerson          R. Carol Campbell-Hansen
BALTIMORE TRUST              President and              Robert E. Dickerson
COMPANY                      Chief Executive Officer    David C. Doane
                           D. Brent Hurley              D. Brent Hurley
One West Church Street       Senior Vice President      Richard I. Lewis
Selbyville,                Kenneth R. Graham            Merrill C. Moore
Delaware 19975               Vice President             Jay C. Murray
302-436-8236               B. Philip Lynch Jr.          William O. Murray
                             Vice President and         John E. Willey Jr.
7 Offices                    Cashier

95 Employees

Chartered in 1903

<CAPTION>
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $265,491
  from banks     $ 10,214
                            Short-term borrowings     17,329
Earning assets    323,039
                            Other liabilities and
                               accrued expenses          998
Allowance for
   loan losses     (3,856)
                            Long-term debt                --

Other assets        5,765   Shareholders' equity      51,344
                 --------                           --------
                            Total liabilities
Total assets     $335,162      and equity           $335,162
                 ========                           ========

Net income       $  6,573
                 ========
</TABLE>

<TABLE>
<CAPTION>
------------------------   --------------------------   ------------------------
<S>                        <C>                          <C>
[LOGO]                     Wesley E. Hughes Jr.         Roy G. Hale
BANK OF                      President and              Wesley E. Hughes Jr.
SOUTHERN                     Chief Executive Officer    Evelyn Susan Hungerford
MARYLAND                   James F. DiMisa              Steven R. Mote
                             Vice President and         Edward L. Sanders Jr.
304 Charles Street           Cashier                    Robert J. Schick
La Plata,                  James M. Burke               John L. Sprague
Maryland 20646               Vice President             J. Blacklock Wills Jr.
301-934-1000               J. Wayne Welsh
                             Vice President
5 Offices                  Diane M. Kestler
                             Chief Financial Officer
60 Employees

Chartered in 1909

<CAPTION>
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $188,334
   from banks    $  5,279
                            Short-term borrowings         --
Earning assets    217,096
                            Other liabilities and
                               accrued expenses          439
Allowance for
   loan losses     (2,843)  Long-term debt                --

Other assets        3,515   Shareholders' equity      34,274
                 --------                           --------
                            Total liabilities
Total assets     $223,047      and equity           $223,047
                 ========                           ========

Net income       $  5,101
                 ========
</TABLE>

            [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

60

<PAGE>

<TABLE>
<CAPTION>
                           EXECUTIVE OFFICERS           DIRECTORS
------------------------   --------------------------   ------------------------
<S>                        <C>                          <C>
[LOGO]                     Lloyd B. Harrison III  S      Charles R. Bailey Jr.
CALVERT BANK AND             President and              Barbara J. Beers
TRUST COMPANY                Chief Executive Officer    Gordon F. Bowen
                           Christine L. Lewis           Lloyd B. Harrison III
Calvert Village              Senior Vice President      Dana M. Jones
Shopping Center            Donald M. Parsons Jr.        Larry D. Kelley, RPh
P.O. Box 590                 Senior Vice President      Maurice T. Lusby III
Prince Frederick,            Senior Credit Officer      John A. Simpson Jr.
Maryland 20678             Kathy A. Boyce               Guffrie M. Smith Jr.
410-286-5901                 Vice President             W. David Sneade
                           Leonard J. Clements
6 Offices                    Vice President
                           Kimberly H. Freeland
70 Employees                 Vice President
                             and Treasurer
Chartered in 1963          Kevin M. Frere
                             Vice President
                           Judith T. McManus
                             Vice President and
                             Assistant Corporate
                             Secretary
                           Andrew F. O'Mahoney
                             Vice President
                           Faye S. Shields
                             Vice President
                           Janice M. Lomax
                             Corporate Secretary

<CAPTION>
BALANCE SHEET (Dollars in thousands)       December 31, 2002
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $212,281
   from banks    $  5,860
                            Short-term borrowings      3,715
Earning assets    236,870
                            Other liabilities and
                               accrued expenses          749
Allowance for
   loan losses     (2,758)
                            Long-term debt                --

Other assets        4,450   Shareholders' equity      27,677
                 --------                           --------
                            Total liabilities
Total assets     $244,422      and equity           $244,422
                 ========                           ========

Net income       $  6,049
                 ========
</TABLE>

<TABLE>
<CAPTION>
------------------------   --------------------------   ------------------------
<S>                        <C>                          <C>
[LOGO]                     R. Raymond Tarrach           Edward M. Athey
THE CHESTERTOWN              President and              Alton E. Darling Sr.
BANK OF MARYLAND             Chief Executive Officer    George H. Godfrey
                                                        Clarence A. Hawkins
211 High Street                                         R. Raymond Tarrach
Chestertown,                                            Robert D. Willard
Maryland 21620                                          Eugenia C. Wootton
410-778-2400

8 Offices

62 Employees

Chartered in 1904

<CAPTION>
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $167,875
   from banks    $  5,784
                            Short-term borrowings      3,604
Earning assets    197,852
                            Other liabilities and
                               accrued expenses          840
Allowance for
   loan losses     (3,032)  Long-term debt                --

Other assets        6,055   Shareholders' equity      34,340
                 --------                           --------
                            Total liabilities
Total assets     $206,659      and equity           $206,659
                 ========                           ========

Net income       $  4,589
                 ========
</TABLE>

<TABLE>
<CAPTION>
------------------------   --------------------------   ------------------------
<S>                        <C>                          <C>
[LOGO]                     Peter W. Floeckher Jr.       Larry P. Bormel
THE CITIZENS                 President and              William H. Carter Jr.
NATIONAL BANK                Chief Executive Officer    Charles E. Castle Jr.
                           Glenn L. Wilson              John N. Faigle
517 Main Street              Executive Vice President   Peter W. Floeckher Jr.
Laurel,                      and Senior Credit          Martin L. Goozman
Maryland 20707               Officer                    Daniel H. Melvin
301-725-3100               Joseph F. Pipitone           Michele K. Ryan
Washington:                  Executive Vice President,
301-953-3044                 Community Banking, and
Baltimore:                   Secretary
410-792-7626               Lori M. Kremer
                             Senior Vice President,
18 Offices                   Bank Support

199 Employees

Chartered in 1890

<CAPTION>
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $678,792
   from banks    $ 22,263
                            Short-term borrowings     44,830
Earning assets    784,989
                            Other liabilities and
                               accrued expenses        4,772
Allowance for
   loan losses    (10,747)
                            Long-term debt                --

Other assets       21,483   Shareholders' equity      89,594
                 --------                           --------
                            Total liabilities
Total assets     $817,988      and equity           $817,988
                 ========                           ========

Net income       $ 16,461
                 ========
</TABLE>

<TABLE>
<CAPTION>
------------------------   --------------------------   ------------------------
<S>                        <C>                          <C>
[LOGO]                     S. Dell Foxx                 Thomas F. Bradlee
COUNTY BANKING               President and              S. Dell Foxx
& TRUST                      Chief Executive Officer    Samuel M. Gawthrop Jr.
COMPANY                    Raymond W. Hamm Jr.          Ruth N. Graybeal
                             Executive Vice President   Raymond W. Hamm Jr.
123 North Street           B. Keith Webster             Harry E. Hammond
P.O. Box 100                 Executive Vice President   Howard D. McFadden
Elkton,                                                 G. Eugene Mackie
Maryland 21921                                          Franklin T. Williams III
410-398-2600

9 Offices

107 Employees

Chartered in 1908

<CAPTION>
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $314,307
   from banks    $ 10,862
                            Short-term borrowings     16,110
Earning assets    356,511
                            Other liabilities and
                               accrued expenses        1,218
Allowance for
   loan losses     (5,637)
                            Long-term debt                --

Other assets       13,810   Shareholders' equity      43,911
                 --------                           --------
                            Total liabilities
Total assets     $375,546      and equity           $375,546
                 ========                           ========

Net income       $  7,025
                 ========
</TABLE>

            [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              61

<PAGE>

<TABLE>
<CAPTION>
                           EXECUTIVE OFFICERS           DIRECTORS
------------------------   --------------------------   ------------------------
<S>                        <C>                          <C>
[LOGO]                     Ted D. Duer                  Kelly B. Conklin
FARMERS &                    President and              Gene H. Crockett
MERCHANTS BANK-              Chief Executive Officer    Jeffery L. Davis
EASTERN SHORE              Julie M. Badger              M. Carter Davis Jr.
                             Senior Vice President      John H. Duer III
25275 Lankford Highway       and Chief Financial        Ted D. Duer
P.O. Box 623                 Officer                    Croxton Gordon
Onley,                     Robert J. Bloxom             W. Revell Lewis III
Virginia 23418               Senior Vice President      Thomas J. Mapp Jr.
757-787-4111                 and Senior Lending         Robert L. Simpson
757-824-3052                 Officer                    Michael T. Tolbert
                           Elizabeth A. Kerns           C. A. Turner III
6 Offices                    Senior Vice President      Richard W. Young
                             and Secretary
73 Employees

Chartered in 1909


<CAPTION>
BALANCE SHEET (Dollars in thousands)       December 31, 2002
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $197,941
   from banks    $  4,313
                            Short-term borrowings      5,864
Earning assets    235,978
                            Other liabilities and
                               accrued expenses          690
Allowance for
   loan losses     (3,998)  Long-term debt                --

Other assets       11,720   Shareholders' equity      43,518
                 --------                           --------
                            Total liabilities
Total assets     $248,013      and equity           $248,013
                 ========                           ========

Net income       $  3,738
                 ========
</TABLE>

<TABLE>
<CAPTION>
------------------------   --------------------------   ------------------------
<S>                        <C>                          <C>
[LOGO]                     C. Joseph Cunningham III     C. Joseph Cunningham III
THE FIDELITY BANK            President and              George W. Lapp Jr.
                             Chief Executive Officer    James A. Poland
59 East Main Street                                     F. Emmett Smith
Frostburg,                                              David W. Turnbull
Maryland 21532                                          Lynn H. Workmeister
301-689-1111
301-722-2100

3 Offices

23 Employees

Chartered in 1902

<CAPTION>
----------------------------------------------------------
ASSETS                     LIABILITIES AND EQUITY
------------------------   -------------------------------
<S>              <C>       <C>                     <C>
Cash and due               Total deposits          $40,773
   from banks    $ 1,648
                           Short-term borrowings       970
Earning assets    45,741
                           Other liabilities and
                              accrued expenses         230
Allowance for
   loan losses      (703)  Long-term debt               --

Other assets         953   Shareholders'equity       5,666
                 -------                           -------
                           Total liabilities
Total assets     $47,639      and equity           $47,639
                 =======                           =======

Net income       $   627
                 =======
</TABLE>

<TABLE>
<CAPTION>
------------------------   --------------------------   ------------------------
<S>                        <C>                          <C>
[LOGO]                     John A. Candela              Martin A. Barley
THE FIRST                    Chairman of the Board      Joseph E. Bell II
NATIONAL BANK              William T. Sturgis           Elmer J. Brown
OF ST. MARY'S                President and              Edward S. Burroughs
                             Chief Executive Officer    John A. Candela
41615 Park Avenue          Dan Kubican                  Ford L. Dean
P.O. Box 655                 Senior Vice President      Frances P. Eagan
Leonardtown,                 and Senior Loan Officer    George A. Ferguson
Maryland 20650             Marilyn L. Jumalon           Roger D. Hill
301-475-8081                 Senior Vice President,     Joseph F. Mitchell
                             Cashier and Secretary to   William T. Sturgis
6 Offices                    the Board                  Edmund W. Wettengel
                           Genevieve M. Hunt
97 Employees                 Senior Vice President
                             and Controller
Chartered in 1903          Linda P. Cross
                             Vice President,
                             Human Resources

<CAPTION>
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $330,138
   from banks    $ 10,417
                            Short-term borrowings      9,620
Earning assets    378,854
                            Other liabilities and
                               accrued expenses        1,113
Allowance for
   loan losses     (4,667)  Long-term debt                --

Other assets        8,106   Shareholders' equity      51,839
                 --------                           --------
                            Total liabilities
Total assets     $392,710      and equity           $392,710
                 ========                           ========
Net income       $  8,445
                 ========
</TABLE>

<TABLE>
<CAPTION>
------------------------   --------------------------   ------------------------
<S>                        <C>                          <C>
[LOGO]                     Paul E. Peak                 Henry S. Holloway
THE FOREST HILL              President and              Richard E. Kinard
STATE BANK                   Chief Executive Officer    C. Ray Mann
                           Michael F. Allen             Paul E. Peak
130 South Bond Street        Executive Vice President   Barbara Lee Rudolph
Bel Air,                   Russell R. Cullum            R. Edward Schueler Jr.
Maryland 21014               Executive Vice President   Gregory A. Szoka
410-838-6131                                            Craig A. Ward
Baltimore:                                              Farrell D. Whiteford
410-879-1475

7 Offices

98 Employees

Chartered in 1913

<CAPTION>
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $272,613
   from banks    $  8,550
                            Short-term borrowings     28,315
Earning assets    325,046
                            Other liabilities and
                               accrued expenses        1,034
Allowance for
   loan losses     (4,696)
                            Long-term debt                --

Other assets        8,965   Shareholders' equity      35,903
                 --------                           --------
                            Total liabilities
Total assets     $337,865      and equity           $337,865
                 ========                           ========

Net income       $  6,439
                 ========
</TABLE>

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

62

<PAGE>

<TABLE>
<CAPTION>
                          EXECUTIVE OFFICERS            DIRECTORS
-----------------------   ---------------------------   ----------------------
<S>                       <C>                           <C>
[LOGO]                    J. Brian Gaeng                W. Bert Anderson
FREDERICKTOWN               President and               Marvin E. Ausherman
BANK &                      Chief Executive Officer     David P. Chapin
TRUST COMPANY             David L. Hoffman              J. Brian Gaeng
                            Senior Vice President       Bradley C. Guyton
30 North Market Street    Frederick S. Genau Jr.        Richard L. Kessler
Frederick,                  Senior Vice President       Christopher T. Kline
Maryland 21701            Christopher A. Hesen          David C. Meadows
301-662-8231                Senior Vice President       Peter H. Plamondon Jr.
                          Richard C. Marshall III       Alfred P. Shockley
7 Offices                   Senior Vice President       Michael Smariga
                          Susan K. Favorite
77 Employees                Vice President and
                            Treasurer
                          Patricia M. Harris
Chartered in 1828           Vice President
                          Sue A. Sheffler
                            Vice President

<CAPTION>
BALANCE SHEET (Dollars in thousands)       December 31, 2002
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $224,595
   from banks    $  5,504
                            Short-term borrowings      7,485
Earning assets    259,691
                            Other liabilities and
                               accrued expenses        1,089
Allowance for
   loan losses     (3,753)  Long-term debt                --

Other assets        6,417   Shareholders' equity      34,690
                 --------                           --------
                            Total liabilities
Total assets     $267,859      and equity           $267,859
                 ========                           ========
Net income       $  4,613
                 ========
</TABLE>

<TABLE>
-----------------------   ---------------------------   --------------------------
<S>                       <C>                           <C>
[LOGO]                    Michael A. Ewing              George R. Thompson Jr.
MARSHALL NATIONAL           President and                 Chairman of the Board
BANK AND TRUST              Chief Executive Officer     Donald R. Yowell
COMPANY                   Kevin A. Lee                    Vice Chairman
                            Senior Vice President       Randolph S. E. Carter
8372 West Main Street     Jerry D. Medlock              Wm. Hunter deButts Jr.
P.O. Box 38                 Senior Vice President       Michael A. Ewing
Marshall,                 Caren M. Eastham              Thomas B. Glascock
Virginia 20116              Senior Vice President and   Richard C. Riemenschneider
540-364-1555                Chief Financial Officer     Norris A. L. Royston
                          Carol C. Merewether           Evelyn D. Trumbo
2 Offices                   Vice President and          Lewis S. Wiley
                            Corporate Secretary
40 Employees

Chartered in 1905

<CAPTION>
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $ 99,830
   from banks    $  6,542
                            Short-term borrowings         --
Earning assets    102,768
                            Other liabilities and
                               accrued expenses          347
Allowance for
   loan losses     (1,452)  Long-term debt                --

Other assets       13,963   Shareholders' equity      21,644
                 --------                           --------
                            Total liabilities
Total assets     $121,821      and equity           $121,821
                 ========                           ========

Net income       $  1,876
                 ========
</TABLE>

<TABLE>
-----------------------   ---------------------------   ------------------------
<S>                       <C>                           <C>
[LOGO]                    Edward J. Kelly III           Cynthia A. Archer
MERCANTILE-SAFE             Chairman of the Board and   H. Furlong Baldwin
DEPOSIT AND                 Chief Executive Officer     Richard O. Berndt
TRUST COMPANY             J. Marshall Reid              William R. Brody, M.D.
                            President and               George L. Bunting Jr.
Two Hopkins Plaza           Chief Operating Officer     Darrell D. Friedman
Baltimore,                Wallace Mathai-Davis          Freeman A. Hrabowski III
Maryland 21201              Chairman, Investment and    Edward J. Kelly III
410-237-5900                Wealth Management           Robert A. Kinsley
                          Kenneth A. Bourne Jr.         Wallace Mathai-Davis
23 Offices                  Executive Vice President,   Morton B. Plant
                            Banking Division            Christian H. Poindexter
1,079 Employees           Deborah A. Kakaris            J. Marshall Reid
                            Executive Vice President,   Clayton S. Rose
Chartered in 1864           Operations and Technology   James L. Shea
                          Kevin A. McCreadie            Donald J. Shepard
                            Executive Vice President,   Brian B. Topping
                            Chief Investment Officer,
                            Investmentand Wealth        Director Emeritus
                            Management                  Calman J. Zamoiski Jr.
                          David L. Meyer
                            Executive Vice President,
                            Chief Operating Officer,
                            Investment and Wealth
                            Management
                          John J. Pileggi
                            Executive Vice President,
                            Wealth Management and
                            Institutional Sales
                          Margaret M. V. Preston
                            Executive Vice President,
                            Private Wealth Management
                          Frank K. Turner Jr.
                            Executive Vice President,
                            Correspondent Banking
                          Terry L. Troupe
                            Chief Financial Officer
                          John L. Unger
                            Senior Vice President,
                            General Counsel and
                            Secretary

<CAPTION>
ASSETS                        LIABILITIES AND EQUITY
---------------------------   ----------------------------------
<S>              <C>          <C>                     <C>
Cash and due                  Total deposits          $3,095,130
   from banks    $  223,257
                              Short-term borrowings      603,889
Earning assets    4,093,811
                              Other liabilities and
                                 accrued expenses         50,020
Allowance for
   loan losses      (49,929   Long-term debt             211,314

Other assets        158,110   Shareholders' equity       464,896
                 ----------                           ----------
                              Total liabilities
Total assets     $4,425,249      and equity           $4,425,249
                 ==========                           ==========

Net income       $   69,374
                 ==========
</TABLE>

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              63

<PAGE>

<TABLE>
<CAPTION>
                          EXECUTIVE OFFICERS            DIRECTORS
-----------------------   ---------------------------   --------------------
<S>                       <C>                           <C>
[LOGO]                    J. William Poole              Leland L. Baker
THE NATIONAL                Chairman of the Board       John H. Chichester
BANK OF                   William B. Young              John F. Fick
FREDERICKSBURG              President and               Lewis W. Graves
                            Chief Executive Officer     Charles A. McCormack
2403 Fall Hill Avenue     William E. Milby              William E. Milby
Fredericksburg,             Executive Vice President    Gary M. Nuckols
Virginia 22401              and Cashier                 J. William Poole
540-899-3200              Stephanie A. Armstrong        William J. Vakos
                            Senior Vice President and   William B. Young
8 Offices                   Senior Trust Officer
                          John B. Daniel
93 Employees                Senior Vice President,
                            Retail Banking
Chartered in 1865         Marcia J. Hagwood
                            Senior Vice President,
                            Marketing and Retail
                            Services
                          Kevin M. Hopun
                            Senior Vice President and
                            Senior Credit Officer

<CAPTION>
BALANCE SHEET (Dollars in thousands)       December 31, 2002
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $285,301
   from banks    $  8,255
                            Short-term borrowings     14,418
Earning assets    321,250
                            Other liabilities and
                               accrued expenses        2,604
Allowance for
   loan losses     (3,449)  Long-term debt                --

Other assets       11,829   Shareholders' equity      35,562
                 --------                           --------
                            Total liabilities
Total assets     $337,885      and equity           $337,885
                 ========                           ========
Net income       $  5,586
                 ========
</TABLE>

<TABLE>
-----------------------   ---------------------------   ----------------------
<S>                       <C>                           <C>
[LOGO]                    Jeffrey F. Turner             William E. Esham Jr.
PENINSULA                   President and               Frank B. Hanna Sr.
BANK                        Chief Executive Officer     Henry H. Hanna III
                          Henry E. Tilman Jr.           Charles R. Jenkins Sr.
11738 Somerset Avenue       Executive Vice President,   John B. Long II
P.O. Box 219                Retail Banking              William C. Mariner
Princess Anne,            F. Winfield Trice             Hugh P. McLaughlin Jr.
Maryland 21853              Executive Vice President    George A. Purnell
410-651-2400                and Senior Loan Officer     John B. Robins IV
                          Deborah S. Abbott             E. Scott Tawes
25 Offices                  Senior Vice President and   Casey I. Todd
                            Regional Officer            Jeffrey F. Turner
237 Employees             Harry B. Gemmell              Robert B. Twilley Jr.
                            Senior Vice President and
Chartered in 1889           Regional Officer
                          W. Thomas Mears
                            Senior Vice President and
                            Regional Officer
                          F. Dennis Parker
                            Senior Vice President and
                            Regional Officer
                          Michael R. Walsh
                            Senior Vice President
                            and Secretary
                          Ronald L. Laws
                            Vice President

<CAPTION>
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $604,803
   from banks    $ 22,568
                            Short-term borrowings     25,294
Earning assets    689,700
                            Other liabilities and
                               accrued expenses        3,116
Allowance for
   loan losses    (11,977)  Long-term debt                --

Other assets       50,580   Shareholders' equity     117,658
                 --------                           --------
                            Total liabilities
Total assets     $750,871      and equity           $750,871
                 ========                           ========
Net income       $ 13,666
                 ========
</TABLE>

<TABLE>
-----------------------   ---------------------------   --------------------
<S>                       <C>                           <C>
[LOGO]                    Patrick M. Bilbrough          A. Curtis Andrew
THE PEOPLES                 President and               Patrick M. Bilbrough
BANK OF                     Chief Executive Officer     Richard A. Edwards
MARYLAND                                                Haines B. Holt
                                                        Frederick L. Hubbard
207 Market Street                                       Randolph P. Moore
Denton,                                                 Joseph D. Quinn
Maryland 21629                                          Philip G. Yost
410-479-2600

5 Offices

35 Employees

Chartered in 1919

<CAPTION>
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $ 84,500
   from banks    $  4,078
                            Short-term borrowings      9,655
Earning assets    101,605
                            Other liabilities and
                               accrued expenses          383
Allowance for
  loan losses      (1,574)  Long-term debt                --

Other assets        2,980   Shareholders' equity      12,551
                 --------                           --------
                            Total liabilities
Total assets     $107,089      and equity           $107,089
                 ========                           ========
Net income       $  1,948
                 ========
</TABLE>

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

64

<PAGE>

<TABLE>
<CAPTION>
                          EXECUTIVE OFFICERS            DIRECTORS
-----------------------   ---------------------------   --------------------
<S>                       <C>                           <C>
[LOGO]                    James J. Cromwell             Stephen E. Chase
POTOMAC                     Chairman of the Board       Jay Milton Clogg
VALLEY BANK               Kenneth C. Cook               Kenneth C. Cook
                            President and               James J. Cromwell
702 Russell Avenue          Chief Executive Officer     Bruce Mackey
Gaithersburg,             Andrew F. Flott               William C. Moyer
Maryland 20877              Executive Vice President,   Charlene Nunley
301-963-7600                Finance Division Manager    C. Clifton Veirs III
                            and Corporate Secretary
8 Offices                 William W. West
                            Executive Vice President
102 Employees               and Chief Lending Officer
                          John M. Bruning
Chartered in 1974           Senior Vice President
                          C. R. (Rick) Carder IV
                            Senior Vice President
                          Gary L. Coffman
                            Senior Vice President
                          Arrel E. Godfrey
                            Senior Vice President
                          Jack Green
                            Senior Vice President
                          Roy Green
                            Senior Vice President
                          Brett Kaplowitz
                            Senior Vice President
                          Anne R. Kline
                            Senior Vice President
                          Eugenia M. Long
                            Senior Vice President
                          Patricia S. Oliphant
                            Senior Vice President
                          Joan Price
                            Senior Vice President

<CAPTION>
BALANCE SHEET (Dollars in thousands)       December 31, 2002
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $439,265
   from banks    $ 17,631
                            Short-term borrowings     97,865
Earning assets    561,910
                            Other liabilities and
                               accrued expenses        2,472
Allowance for
   loan losses     (6,935)  Long-term debt                --

Other assets        8,200   Shareholders' equity      41,204
                 --------                           --------
                            Total liabilities
Total assets     $580,806      and equity           $580,806
                 ========                           ========
Net income       $  8,544
                 ========
</TABLE>

<TABLE>
-----------------------   ---------------------------   -----------------------
<S>                       <C>                           <C>
[LOGO]                    William W. Duncan Jr.         William W. Duncan Jr.
ST. MICHAELS                President and               Pamela P. Gardner
BANK                        Chief Executive Officer     Mary B. Hoff
                          Clifford L. Hilk              J. Brent Raughley
213 Talbot Street           Senior Vice President and   Norman M. Shannahan III
P.O. Box 70                 Senior Loan Officer         R. Ivan Thamert
St. Michaels,                                           John R. Valliant
Maryland 21663                                          Donald R. Young
410-745-5091

5 Offices

36 Employees

Chartered in 1890

<CAPTION>
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $148,177
   from banks    $  6,790
                            Short-term borrowings     42,322
Earning assets    207,149
                            Other liabilities and
                               accrued expenses        1,549
Allowance for
   loan losses     (4,639)  Long-term debt                --

Other assets        4,243   Shareholders' equity      21,495
                 --------                           --------
                            Total liabilities
Total assets     $213,543      and equity           $213,543
                 ========                           ========
Net income       $  4,385
                 ========
</TABLE>

<TABLE>
-----------------------   ---------------------------   -----------------------
<S>                       <C>                           <C>
[LOGO]                    Mark G. Pohlhaus              Glenn S. Bair
WESTMINSTER                 President and               David S. Bollinger
UNION BANK                  Chief Executive Officer     David L. Brauning
                          Charles H. Devaud Jr.         Daniel S. Dulany
117 East Main Street        Executive Vice President,   Todd L. Herring
Westminster,                Retail Banking/Operations   K.Wayne Lockard
Maryland 21157            M. Lynn Rill                  John T. Maguire II
410-848-9300                Executive Vice President    Mark G. Pohlhaus
                            and Senior Loan Officer     Marlin L. Rittase
16 Offices                Samuel W. Taylor              Ferdinand A. Ruppel Jr.
                            Vice President and          Robert T. Scott
170 Employees               Chief Financial Officer     Ethan A. Seidel
                                                        Larry A. Van Sant Sr.
Chartered in 1898

<CAPTION>
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $448,817
   from banks    $ 13,281
                            Short-term borrowings     15,620
Earning assets    528,126
                            Other liabilities and
                               accrued expenses        2,902
Allowance for
   loan losses     (7,757)  Long-term debt            17,500

Other assets       52,785   Shareholders' equity     101,596
                 --------                           --------
                            Total liabilities
Total assets     $586,435      and equity           $586,435
                 ========                           ========
Net income       $  9,572
                 ========
</TABLE>

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

                                                                              65

<PAGE>

<TABLE>
<CAPTION>
                          EXECUTIVE OFFICERS            DIRECTORS
-----------------------   ---------------------------   ------------------------
<S>                       <C>                           <C>
[LOGO]                    Paul W. Parks                 John D. Long
MERCANTILE                  President and               Paul W. Parks
MORTGAGE                    Chief Executive Officer     J. Marshall Reid
CORPORATION               Michael S. Cordes             John W. Renner*
                            Executive Vice President,
(a subsidiary of            Multifamily Finance
Mercantile-Safe Deposit   John D. Long
and Trust Company)          Senior Vice President,
                            Construction Lending
Two Hopkins Plaza         Kevin J. Michno
Suite 900                   President,
Baltimore,                  Mercantile Mortgage LLC
Maryland 21201            Joseph J. O'Brien Jr.
410-347-8940                Senior Vice President,
                            Construction Lending
45 Employees              John M. Schwanky
                            Senior Vice President,
Incorporated in 1972        Servicing
                          Nancy Hauprich
                            Vice President,
                            Construction Lending
                          Timothy P. Reynolds
                            Vice President,
                            Construction Lending

<CAPTION>
BALANCE SHEET (Dollars in thousands)       December 31, 2002
------------------------------------------------------------
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>              <C>        <C>                     <C>
Cash and due                Total deposits          $     --
   from banks    $  8,527
                            Short-term borrowings    210,000
Earning assets    221,301
                            Other liabilities and
Allowance for                  accrued expenses        5,592
   loan losses     (4,045)
                            Long-term debt                --

Other assets       12,778   Shareholders' equity      22,969
                 --------                           --------
                            Total liabilities
Total assets     $238,561      and equity           $238,561
                 ========                           ========

Net income       $  6,431
                 ========
</TABLE>

<TABLE>
<S>                       <C>                           <C>
-----------------------   ---------------------------   ------------------------
[LOGO]                    Stewart P. McEntee            Kenneth A. Bourne Jr.
MBC AGENCY, INC.            President                   Stewart P. McEntee
                          Dennis W. Kreiner             William T. Skinner Jr.
Two Hopkins Plaza           Secretary                   O. James Talbott II
Baltimore,                William T. Skinner Jr.        Terry L. Troupe
Maryland 21201              Vice President and
410-347-8294                Treasurer

<CAPTION>
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>                <C>      <C>                       <C>
Cash and due                Total deposits            $   --
   from banks      $  956
                            Short-term borrowings         --
Earning assets      3,319
                            Other liabilities and
Allowance for                  accrued expenses        1,758
   loan losses         --
                            Long-term debt                --

Other assets           56   Shareholders' equity       2,573
                   ------                             ------
                            Total liabilities
Total assets       $4,331      and equity             $4,331
                   ======                             ======

Net income         $  288
                   ======
</TABLE>

-----------------------   ---------------------------   ------------------------
<TABLE>
<S>                       <C>                           <C>
[LOGO]                    Ronald D. Mettam              Dennis W. Kreiner
MBC REALTY, LLC             President                   Ronald D. Mettam
                          W. Joseph Smith Jr.           J. Marshall Reid
Two Hopkins Plaza           Vice President              Charles E. Siegmann
Baltimore,                Edith J. Councilman           Terry L. Troupe
Maryland 21201              Assistant Vice President
410-237-5377              Edwin M. Donhauser Jr.
                            Assistant Vice President
24 Employees              Dennis W. Kreiner
                            Secretary
                          William T. Skinner Jr.
                            Treasurer
                          Kimberly L. Talley
                            Assistant Treasurer

<CAPTION>
ASSETS                      LIABILITIES AND EQUITY
-------------------------   --------------------------------
<S>               <C>       <C>                      <C>
Cash and due                Total deposits           $    --
   from banks     $    77
                            Short-term borrowings      3,320

Earning assets         --   Other liabilities and
                               accrued expenses        1,064
Allowance for
   loan losses         --   Long-term debt                --

Other assets       21,397   Shareholders' equity      17,090
                  -------                            -------
                            Total liabilities
Total assets      $21,474      and equity            $21,474
                  =======                            =======

Net income        $ 1,124
                  =======
</TABLE>

*    Manager of Operations of Columbia National Real Estate Finance LLC, a
     subsidiary of Mercantile Mortgage Corporation.

             [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

66

<PAGE>

Mercantile Bankshares Corporation

<TABLE>
<CAPTION>
OFFICERS                        DIRECTORS                                                            DIRECTORS EMERITUS
-----------------------------   -------------------------------                                      -----------------------------
<S>                             <C>                              <C>                                 <C>
Edward J. Kelly III              *o  Cynthia A. Archer               + Robert A. Kinsley              Calman J. Zamoiski Jr.
President and Chief                  Vice President of Marketing       Chairman of the Board and      Chairman of the Board of
Executive Officer                    and Development, Sunoco,          Chief Executive Officer of     Independent Distributors,
                                     Inc., a major oil refiner         Kinsley Construction, Inc.,    Incorporated, general whole-
Wallace Mathai-Davis                                                   a general and heavy            sale distributors
Chairman, Investment and          +  H. Furlong Baldwin                construction firm
Wealth Management                    Chairman of the Board of
                                     Mercantile Bankshares             Wallace Mathai-Davis           Morris W. Offit
Frank K. Turner Jr.                  Corporation                       Chairman, Investment and
Executive Vice President                                               Wealth Management of           Founder and former
                                  +  Richard O. Berndt                 Mercantile Bankshares          Chief Executive Officer of
John L. Unger                        Managing Partner in the           Corporation and Mercantile-    OFFITBANK, a private
Senior Vice President,               law firm of Gallagher,            Safe Deposit and Trust         bank offering integrated
General Counsel and Secretary        Evelius & Jones, LLP              Company                        investment services

Terry L. Troupe                   o  William R. Brody, M.D.          * Morton B. Plant                DIRECTOR CHANGES
Chief Financial Officer              President of The Johns            Vice Chairman of the
and Treasurer                        Hopkins University                Board of Keywell               In 2002, the Board lost the
                                                                       Corporation, a recycler        services of Mary Junck, who
Robert W. Johnson              +*/\  George L. Bunting Jr.             of stainless steel and high    did not stand for reelection.
Senior Vice President                President and Chief               temperature alloy scrap
                                     Executive Officer of              metal                          In February 2003, H.
O. James Talbott II                  Bunting Management                                               Furlong Baldwin announced
Senior Vice President                Group, a private financial  +/\   Christian H. Poindexter        his retirement effective
                                     management company                Chairman of the Executive      March 1. Edward J. Kelly III
Robert C. Smith                                                        Committee of the Board of      will succeed him as Chair-
General Auditor                      Darrell D. Friedman               Constellation Energy Group,    man of the Board of
                                     President and Chief               Inc., a public utility         Mercantile Bankshares
William T. Skinner Jr.               Executive Officer of THE          holding company                Corporation.
Controller                           ASSOCIATED: Jewish
                                     Community Federation of     */\   Clayton S. Rose
                                     Baltimore                         Managing Partner of Logan
                                                                       Pass Partners, LLC, a
                                     Freeman A.                        private consulting and
                                     Hrabowski III                     investment firm
                                     President of University of
                                     Maryland-Baltimore County       o James L. Shea
                                                                       Managing Partner of the
                                +    Edward J. Kelly III               law firm of Venable, Baetjer
                                     President and Chief               and Howard, LLP
                                     Executive Officer of
                                     Mercantile Bankshares
                                     Corporation and Chairman    +/\ o Donald J. Shepard
                                     of the Board and Chief            Chairman of the Executive
                                     Executive Officer of              Board and Chief
                                     Mercantile-Safe Deposit           Executive Officer of
                                     and Trust Company                 AEGON N.V., Inc., a
                                                                       holding company owning
                                                                       insurance and insurance
                                                                       related companies
</TABLE>

+    Member of Executive Committee
*    Member of Audit Committee
/\   Member of Compensation Committee
o    Member of Nominating Committee

     Listing as of February 2003

                                                                              67

<PAGE>

Corporate Information

<TABLE>
<S>                                        <C>                                      <C>
CORPORATE PROFILE                          ANNUAL MEETING OF SHAREHOLDERS           DIRECT DEPOSIT OF CASH DIVIDENDS
Mercantile Bankshares Corporation is a     10:30 a.m., Wednesday,                   Shareholders of Mercantile Bankshares
multibank holding company, organized in    April 30, 2003                           Corporation common stock may have their
1969 under the laws of Maryland. On        Two Hopkins Plaza                        cash dividends deposited automatically,
January 1, 2003, its principal             Baltimore, Maryland                      on date of payment, to a checking, savings
affiliates were 20 locally managed and                                              or money market account in a financial
directed community banks.                  ANNUAL REPORT TO SECURITIES & EXCHANGE   institution that participates in an
                                           COMMISSION                               Automated Clearing House.
     The affiliated banks are engaged in
a general personal and corporate banking   Form 10-K will be furnished to                Shareholders will receive confirmation
business. The Corporation's largest        shareholders without charge upon         by mail from the Dividend Disbursing Agent
bank, Mercantile-Safe Deposit and Trust    written request. Exhibits thereto        of the amount deposited. Shareholders who
Company, also provides a full range of     furnished upon payment of $3.00 per      wish to enroll in the direct deposit
investment and wealth management           set. Direct request to:                  service should contact the Dividend
services as well as specialized                                                     Disbursing Agent.
corporate banking services. Mortgage       Mercantile Bankshares Corporation
banking services are available through     P.O. Box 1477                            AUTOMATIC DIVIDEND REINVESTMENT AND STOCK
the affiliate banks and through            Baltimore, Maryland 21203                PURCHASE PLAN
Mercantile Mortgage Corporation, a         Attention: Corporate Secretary
subsidiary of Mercantile-Safe Deposit                                               Mercantile Bankshares Corporation offers
and Trust Company.                         STOCK INFORMATION                        its registered shareholders a Plan
                                                                                    whereby they may automatically invest
HEADQUARTERS                               The common stock of Mercantile           their cash dividends in Mercantile stock
                                           Bankshares Corporation is traded on      at a price that is 5% less than the
Two Hopkins Plaza, P.O. Box 1477           the Nasdaq National Market under the     closing market price on the dividend
Baltimore, Maryland 21203                  symbol MRBK.                             payment date. Plan participants also may
410-237-5900                                                                        make additional cash payments to
                                           DIVIDEND DISBURSING AGENT AND TRANSFER   purchase stock through the Plan at the
MERCANTILE BANKSHARES                      AGENT FOR STOCK                          same closing market price. Mercantile
COMMUNICATIONS                                                                      Bankshares Corporation absorbs all fees
                                           American Stock Transfer & Trust          and transaction costs.
P.O. Box 1477                              Company
Baltimore, Maryland 21203                                                                Shareholders who wish to enroll in the
410-237-5971                               For telephone inquiries:                 Plan should contact the Corporation's
MERCANTILE BANKSHARES                      800-937-5449                             Transfer Agent:
INVESTOR RELATIONS
                                           For written inquiries about Mercantile   American Stock Transfer & Trust Company
P.O. Box 1477                              Bankshares Corporation stock,            Mercantile Bankshares Corporation
Baltimore, Maryland 21203                  including questions about stock          Dividend Reinvestment and Stock
410-347-8039                               certificates and changes of address:     Purchase Plan
www.mercantile.com                                                                  59 Maiden Lane
                                           American Stock Transfer & Trust          New York, New York 10038
                                              Company                               800-937-5449
                                           Customer Service                         ACCOUNTANTS
                                           59 Maiden Lane
                                           New York, New York 10038                 PricewaterhouseCoopers, LLP
                                           www.amstock.com                          250 West Pratt Street
                                                                                    Baltimore, Maryland 21201
</TABLE>

            [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES

68

<PAGE>


                    [LOGO] MERCANTILE BANKSHARES CORPORATION

                               Baltimore, Maryland