Exhibit 99.1

The PNC Financial Services Group, Inc.

Pro Forma

Condensed Combined Financial Statements


PRO FORMA FINANCIAL INFORMATION

THE PNC FINANCIAL SERVICES GROUP, INC. AND MERCANTILE BANKSHARES

CORPORATION

The following unaudited pro forma condensed combined financial statements combine the historical consolidated financial statements of PNC and its subsidiaries and of Mercantile and its subsidiaries, as an acquisition by PNC of Mercantile using the purchase method of accounting and giving effect to the related pro forma adjustments described in the accompanying notes. The unaudited pro forma condensed combined balance sheet gives effect to the merger as if it had occurred on September 30, 2006. The unaudited pro forma condensed combined income statements for the nine months ended September 30, 2006 and the year ended December 31, 2005, give effect to the merger as if the merger had become effective at the beginning of each period presented.

The unaudited pro forma condensed combined financial statements included herein are presented for informational purposes only. This information does not reflect the benefits of the expected cost savings or opportunities to earn additional revenue and includes various estimates and may not necessarily be indicative of the financial position or results of operations that would have occurred if the merger had been consummated on the date or at the beginning of the period indicated or which may be attained in the future. The unaudited pro forma condensed combined financial statements and accompanying notes should be read in conjunction with and are qualified in their entirety by reference to the historical consolidated financial statements and related notes thereto of PNC and its subsidiaries and of Mercantile and its subsidiaries, such information and notes thereto are incorporated by reference herein.


THE PNC FINANCIAL SERVICES GROUP, INC.

Pro Forma Condensed Combined Income Statement

Year ended December 31, 2005

 

In millions, except per share data

  

PNC

as Reported (a)

   

MRBK

as Reported (b)

   Pro Forma
Adjustments
(Unaudited)
    Notes     Pro Forma
Combined
(Unaudited)
 

Net Interest Income

           

Loans

   $ 2,669     $ 701    $ 23     (A )   $ 3,393  

Securities available for sale and held to maturity

     822       113          935  

Other

     243       2          245  
                                 

Total interest income

     3,734       816      23         4,573  
                                 

Interest Expense

           

Deposits

     981       140      19     (D )     1,140  

Borrowed funds

     599       59      122     (E )     780  
                                 

Total interest expense

     1,580       199      141         1,920  
                                 

Net interest income

     2,154       617      (118 )       2,653  

Provision for credit losses

     21       1          22  
                                 

Net interest income less provision for credit losses

     2,133       616      (118 )       2,631  
                                 

Noninterest Income

           

Asset management

     1,443       96          1,539  

Fund servicing

     870              870  

Service charges on deposits

     273       44          317  

Brokerage

     225              225  

Consumer services

     293              293  

Corporate services

     485              485  

Equity management gains

     96              96  

Net securities gains (losses)

     (41 )            (41 )

Trading

     157              157  

Other

     372       103          475  
                           

Total noninterest income

     4,173       243          4,416  
                           

Noninterest Expense

           

Compensation

     2,061       200          2,261  

Employee benefits

     332       46          378  

Net occupancy

     313       29          342  

Equipment

     296       32          328  

Marketing

     106              106  

Other

     1,236       114      47     (C )     1,397  
                                 

Total noninterest expense

     4,344       421      47         4,812  
                                 

Income before minority and noncontrolling interests and income taxes

     1,962       438      (165 )       2,235  

Minority and noncontrolling interests in income of consolidated entities

     33              33  

Income taxes

     604       162      (62 )   (G )     704  
                                 

Net income

   $ 1,325     $ 276    ($ 103 )     $ 1,498  
                                 

Earnings Per Common Share

           

Basic

   $ 4.63            $ 4.42  

Diluted (c)

   $ 4.55            $ 4.36  

Average Common Shares Outstanding

           

Basic

     286          52     (E )     338  

Diluted

     290          52     (E )     342  

 

(a) Amounts derived from PNC’s audited consolidated financial statements as of, and for the year ended, December 31, 2005.

 

(b) Amounts derived from Mercantile Bankshare’s audited consolidated financial statements as of, and for the year ended, December 31, 2005.

 

(c) Net income applicable to diluted EPS includes a ($7) million BlackRock adjustment for common stock equivalents.

See accompanying Notes to Pro Forma Condensed Combined Financial Statements.


THE PNC FINANCIAL SERVICES GROUP, INC.

Pro Forma Condensed Combined Income Statement

Nine months ended September 30, 2006

 

In millions, except per share data

   PNC as
Reported (a)
(Unaudited)
    MRBK as
Reported (b)
(Unaudited)
   Pro Forma
Adjustments
(Unaudited)
    Notes     Pro Forma
Combined
(Unaudited)
 

Interest Income

           

Loans

   $ 2,382     $ 628    $ 17     (A )   $ 3,027  

Securities available for sale and held to maturity

     769       98          867  

Other

     244       3          247  
                                 

Total interest income

     3,395       729      17         4,141  
                                 

Interest Expense

           

Deposits

     1,140       176      15     (D )     1,331  

Borrowed funds

     576       67      92     (E )     735  
                                 

Total interest expense

     1,716       243      107         2,066  
                                 

Net interest income

     1,679       486      (90 )       2,075  

Provision for credit losses

     82              82  
                                 

Net interest income less provision for credit losses

     1,597       486      (90 )       1,993  
                                 

Noninterest Income

           

Asset management

     1,271       83          1,354  

Fund servicing

     644              644  

Service charges on deposits

     234       34          268  

Brokerage

     183              183  

Consumer services

     272              272  

Corporate services

     449              449  

Equity management gains

     82              82  

Net securities losses

     (207 )            (207 )

Trading

     150              150  

Gain on BlackRock transaction

     2,078              2,078  

Other

     202       68          270  
                           

Total noninterest income

     5,358       185          5,543  
                           

Noninterest Expense

           

Compensation

     1,686       148          1,834  

Employee benefits

     249       43          292  

Net occupancy

     241       24          265  

Equipment

     234       25          259  

Marketing

     81              81  

Other

     1,007       89      34     (C )     1,130  
                                 

Total noninterest expense

     3,498       329      34         3,861  
                                 

Income before minority and noncontrolling interests and income taxes

     3,457       342      (124 )       3,675  

Minority and noncontrolling interests in income of consolidated entities

     23              23  

Income taxes

     1,215       127      (47 )   (G )     1,295  
                                 

Net income

   $ 2,219     $ 215    ($ 77 )     $ 2,357  
                                 

Earnings Per Common Share

           

Basic

   $ 7.60            $ 6.84  

Diluted (c)

   $ 7.46            $ 6.73  

Average Common Shares Outstanding

           

Basic

     292          52     (E )     344  

Diluted

     297          52     (E )     349  

 

(a) Amounts derived from PNC’s unaudited interim consolidated financial statements as of, and for the nine months ended, September 30, 2006.

 

(b) Amounts derived from Mercantile Bankshare’s unaudited interim consolidated financial statements as of, and for the nine months ended, September 30, 2006.

 

(c) Net income applicable to diluted EPS includes a ($5) million BlackRock adjustment for common stock equivalents.

See accompanying Notes to Pro Forma Condensed Combined Financial Statements.


THE PNC FINANCIAL SERVICES GROUP, INC.

Pro Forma Condensed Combined Balance Sheet

At September 30, 2006

 

In millions, except par value

   PNC as
Reported (a)
(Unaudited)
    MRBK as
Reported (b)
(Unaudited)
    Pro Forma
Adjustments
(Unaudited)
    Notes     Pro Forma
Combined
(Unaudited)
 

Assets

          

Cash and due from banks

   $ 3,018     $ 318         $ 3,336  

Federal funds sold and resale agreements

     2,818       134           2,952  

Other short-term investments, including trading securities

     2,718             2,718  

Loans held for sale

     4,317       2           4,319  

Securities available for sale and held to maturity

     19,512       3,141           22,653  

Loans, net of unearned income

     48,900       12,534       ($120 )   (A )     61,314  

Allowance for loan and lease losses

     (566 )     (144 )         (710 )
                                  

Net loans

     48,334       12,390       (120 )       60,604  

Goodwill

     3,418       760       3,420     (B )     7,598  

Other intangible assets

     590       48       241     (C )     879  

Other

     13,711       782           14,493  
                                  

Total assets

   $ 98,436     $ 17,575     $ 3,541       $ 119,552  
                                  

Liabilities and Shareholders’ Equity

          

Deposits

          

Noninterest-bearing

   $ 14,840     $ 3,302         $ 18,142  

Interest-bearing

     49,732       9,473       (34 )   (D )     59,171  
                                  

Total deposits

     64,572       12,775       (34 )       77,313  

Borrowed funds

          

Federal funds purchased and repurchase agreements

     5,750       1,559           7,309  

Bank notes, senior debt and subordinated debt

     6,613       660       2,126     (E )     9,399  

Other

     2,332             2,332  
                                  

Total borrowed funds

     14,695       2,219       2,126         19,040  

Allowance for unfunded loan commitments and letters of credit

     117       17           134  

Accrued expenses and other liabilities

     7,886       171       77     (F )     8,134  
                                  

Total liabilities

     87,270       15,182       2,169         104,621  
                                  

Minority and noncontrolling interests in consolidated entities

     408             408  

Total shareholders’ equity

     10,758       2,393       1,372     (E )     14,523  
                                  

Total liabilities, minority and noncontrolling interests, and shareholders’ equity

   $ 98,436     $ 17,575     $ 3,541       $ 119,552  
                                  

 

(a) Amounts derived from PNC’s unaudited interim consolidated financial statements as of, and for the nine months ended, September 30, 2006.

 

(b) Amounts derived from Mercantile Bankshare’s unaudited interim consolidated financial statements as of, and for the nine months ended, September 30, 2006.

See accompanying Notes to Pro Forma Condensed Combined Financial Statements.


The PNC Financial Services Group, Inc.

Notes to Pro Forma Condensed Combined Financial Statements

Note 1 – Pro Forma Financial Information:

The merger will be accounted for as an acquisition by PNC of Mercantile using the purchase method of accounting. Accordingly, the assets and liabilities of Mercantile will be recorded at their respective fair values on the date the merger is completed. The share value of PNC common stock issued to effect the merger has been estimated at $71.72 per share. This amount was determined by averaging the price of shares of PNC common stock for a period beginning two trading days before the announcement of the merger and ending two trading days after the merger agreement (which includes the day of announcement).

The pro forma financial information includes estimated adjustments to record certain assets and liabilities of Mercantile at their respective fair values. The pro forma adjustments included herein are subject to change depending on changes in interest rates and the components of assets and liabilities and as additional information becomes available and additional analyses are performed. Certain other assets and liabilities of Mercantile, including fixed assets and debt, will also be subject to adjustment at their respective fair values. Pending more detailed analyses, no pro forma adjustments are included herein for these assets and liabilities.

The final allocation of the purchase price will be determined after the merger is completed and additional analyses are performed to determine the fair values of Mercantile’s tangible and identifiable intangible assets and liabilities as of the date the merger is completed. Changes in the fair value of the net assets of Mercantile as of the date of the merger, further refinement of transaction costs, and changes in Mercantile’s stockholders’ equity, including net income and dividends, between September 30, 2006 and the date of the merger will change the amount of goodwill recorded. The final adjustments may be materially different from the unaudited pro forma adjustments presented herein.

The pro forma financial information for the merger is included only as of and for the nine months ended September 30, 2006 and for the year ended December 31, 2005. The unaudited pro forma information is not necessarily indicative of the results of operations of the combined financial position that would have resulted had the merger been completed at the beginning of the applicable periods presented, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined company.

Note 2 – Purchase Price:

The pro forma financial information reflects the right of each Mercantile shareholder to receive (A) a number of shares of PNC common stock equal to the product of .4184 times the number of shares of Mercantile stock held on the record date, and (B) an amount of cash equal to the product of $16.45 times the number of Mercantile shares held on the record date. Each option outstanding will be exchanged for cash based on the total consideration ($16.45 in cash plus .4184 multiplied by PNC stock price) less the exercise price per share of option. The cash payment for the options is considered part of the purchase price. Based on these assumptions at September 30, 2006, the stock component will include the issuance of 52.5 million PNC shares and the cash component of the merger consideration is approximately $2.1 billion in the aggregate for stock and options.


The table below provides the calculation of the number of shares issued:

 

(In millions)    As of September 30, 2006

Mercantile Common Shares Outstanding

     125.5   

Exchange Ratio

     0.4184   
         

PNC Common Stock Issued

        52.5
         

The table below provides the calculation of the aggregate consideration:

     
(In millions, except per share amounts)          

Purchase Price:

     

Stock Consideration:

     

Mercantile Common Shares Outstanding

     125.5   

Exchange Ratio

     0.4184   

Average PNC Share Price over Days Surrounding Announcement

   $ 71.72   

Purchase Price per Mercantile Common Shares Outstanding

   $ 30.01    $ 3,765
         

Cash Consideration:

     

Mercantile Common Shares Outstanding

     125.5   

Cash Consideration per Share

   $ 16.45      2,064
         

Options Outstanding

     3.3   

Average Strike Price

   $ 27.46   

Average Purchase Price per Mercantile Option

   $ 18.99   

Estimated Purchase Price per Mercantile Options

        62
         

Total Cash Consideration

        2,126
         

Purchase Price

      $ 5,891
         

The pro forma financial information includes adjustments to stockholders’ equity to reflect the addition of 52.5 million shares of PNC stock with an aggregate value of $3.8 billion. The pro forma balance sheet adjustments include an increase to borrowings of $2.1 billion related to funding the cash component to be paid to each Mercantile shareholder and option holder.


The following table provides a summary of pro forma adjustments to stockholders’ equity:

 

(In millions, except per share amounts)    As of September 30, 2006  

Equity Adjustment:

    

PNC Shares of Common Stock Issued

     52.5    

Average PNC Share Price over Days Surrounding Announcement

   $ 71.72     $ 3,765  
          

Less: Mercantile equity

     2,393    
          

Total

     $ 1,372  
          
Note 3 – Pro Forma Adjustments:     
The following table provides the calculation and allocation of the purchase price in the pro forma financial statements at September 30, 2006:   
(In millions)             

Purchase Price

     $ 5,891  

Net Assets Acquired:

    

Mercantile Stockholders’ Equity

   $ 2,393    

Mercantile Goodwill and Other Intangibles

     808       1,585  
                

Excess of Purchase Price Over Carrying Value of Net Assets Acquired

       4,306  

Estimated Adjustments to Reflect Fair Value of Net Assets Acquired

    

Loans

     120 (A)  

Estimated Core Deposit Intangible

     (289 )(C)  

Deposits

     (34 )(D)  

Deferred Income Taxes (included in accrued expenses and other liabilities)

     77 (F)  
          

Goodwill Resulting from Merger

     $ 4,180  

Less: Mercantile Existing Goodwill

     (760 )  
          

Adjustment to Goodwill

     $ 3,420 (B)
          


The adjustments reflected in the pro forma condensed combined income statements are presented in the table below:

 

Increase/(Decrease) to Income (In millions)    Nine
Months
Ended
09/30/06
    Year
Ended
12/31/05
 

Accretion of Loan Purchase Accounting Adjustment

   $ 17 (A)   $ 23 (A)

Amortization of Deposit Purchase Accounting Adjustment

     (15 )(D)     (19 )(D)

Financing Costs on Cash Consideration

     (92 )(E)     (122 )(E)

Amortization of CDI Established Through Purchase Accounting

     (41 )(C)     (55 )(C)

Remove Amortization of Mercantile’s Intangibles

     7 (C)     8 (C)
                

Reduction in Income Before Income Taxes

     (124 )     (165 )

Income Tax Adjustment

     (47 )(G)     (62 )(G)
                

Reduction in Net Income

   $ (77 )   $ (103 )
                

 

(A) The fair value purchase accounting adjustment to loans is ($120) million. The adjustment will be recognized over the estimated remaining life of the related loan portfolio of approximately 6 years. The adjustment reflected is based upon preliminary valuations performed as of September 30, 2006. The preliminary impact of this adjustment will increase pretax interest income by $17 million and $23 million for the nine months ended September 30, 2006 and for the year ended December 31, 2005, respectively. The final adjustments may be significantly different.

 

(B) Adjustment to eliminate existing Mercantile goodwill and record the goodwill resulting from the merger.

 

(C) The purchase accounting adjustment to core deposit intangible assets is $241 million. The adjustment includes the establishment of a core deposit intangible asset of $289 million less Mercantile’s recorded other intangibles of $48 million. The $289 million was calculated by applying a premium of 3.6% to Mercantile’s core deposits. Core deposits are defined as all non-interest bearing deposits and interest-bearing transaction accounts excluding all time deposits. The amortization of the core deposit intangible in the pro forma income statements is assumed to be over a 9.5-year period using an accelerated method. The adjustment reflected is based upon preliminary valuations performed as of September 30, 2006. The preliminary net impact of this adjustment will increase pretax noninterest expenses by $34 million and $47 million for the nine months ended September 30, 2006 and for the year ended December 31, 2005, respectively. The final adjustments may be significantly different.

 

(D) The fair value purchase accounting adjustment to fixed-rate deposits is ($34) million. The adjustment will be recognized over the estimated remaining life of the related deposit liabilities of approximately 2.5 years. The adjustment reflected is based upon preliminary valuations performed as of September 30, 2006. The preliminary impact of this adjustment will increase pretax interest expense by $15 million and $19 million for the nine months ended September 30, 2006 and for the year ended December 31, 2005, respectively. The final adjustments may be significantly different.


(E) Adjustment to reflect stock and cash consideration for Mercantile outstanding shares and options. See Note 2 for further information. The financing costs on the cash consideration are based on an estimated current annual rate of 5.75%. The preliminary impact of the financing costs will increase pretax interest expense by $92 million and $122 million for the nine months ended September 30, 2006 and for the year ended December 31, 2005, respectively.

 

(F) Adjustment to accrued and other expenses represents additional net deferred tax liability of $77 million resulting from the pro forma adjustments, with the exception of goodwill. Deferred taxes were recorded based on an incremental tax rate (both federal and state taxes). (A deferred tax liability of $109 million relates to the CDI.)

 

(G) Adjustment to record the tax effect of the pro forma adjustments based on an incremental tax rate (both federal and state taxes).

Note 4 – Preliminary Plans of Consolidation:

In connection with the merger, PNC and Mercantile have begun to develop the preliminary plans to consolidate the operations of PNC and Mercantile. Over the next several months, the specific details of these plans will be refined. PNC and Mercantile are currently in the process of assessing the two companies’ personnel, benefit plans, premises, equipment, computer systems and service contracts to determine where they may take advantage of redundancies or where it will be beneficial or necessary to convert to one system. Certain decisions arising from these assessments may involve involuntary termination of Mercantile’s employees, vacating Mercantile’s leased premises, canceling contracts between Mercantile and certain service providers and selling or otherwise disposing of certain premises, furniture and equipment owned by Mercantile. The pretax costs associated with such decisions, which are currently estimated at $156 million, will be recorded as purchase accounting adjustments, which have the effect of increasing the amount of the purchase price allocable to goodwill. It is expected that all such costs will be identified and recorded within one year of completion of the merger and all such actions required to effect these decisions would be taken within one year after finalization of these plans. The pro forma condensed combined balance sheet does not include a preliminary estimate of such costs since these costs are not indicative of what the historical results of PNC would have been had PNC and Mercantile actually been combined during the periods presented.

PNC also expects to incur merger-related expenses including system conversion costs, employee retention arrangements and costs of incremental communications to customers and others. It is expected that the exit and disposal costs along with the merger-related costs will be incurred over a one-year period after completion of the merger. Preliminarily, we estimate these restructuring and merger-related pretax expenses will approximate $86 million. The estimate is not included in the pro forma income statements since these costs will be recorded in the combined results of operations as they are incurred after completion of the merger and are not indicative of what the historical results of PNC would have been had PNC and Mercantile actually been combined during the periods presented.


Additionally, PNC expects to realize approximately $108 million in pretax cost savings following the merger, which PNC expects to be phased in over a two-year period. These cost savings are not reflected in the pro forma financial information. PNC also expects to realize $27 million in pretax synergies and cost savings at PNC as a result of balance sheet repositioning and branch cost avoidance in the future.