pnc425.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing

     Filed by The PNC Financial Services Group, Inc.
Pursuant to Rule 425 under the Securities Act of 1933 and
deemed filed pursuant to Rule 14a-12 of the Securities Exchange Act of 1934

Subject Company: Mercantile Bankshares Corporation
Commission File No. 0-5127

           On October 31, 2006, The PNC Financial Services Group, Inc. (“PNC”) issued the attached press release and supplementary information announcing its earnings and business for the quarter ended September 30, 2006, and presentation materials from an accompanying presentation to investors.



MEDIA: 
Brian E. Goerke 
(412) 762-4550 
corporate.communications@pnc.com 
 
INVESTORS: 
William H. Callihan 
(412) 762-8257 
investor.relations@pnc.com 

PNC POSTS RECORD EARNINGS OF $5.01 PER SHARE
– Adjusted EPS of $1.28 excludes BlackRock transaction and balance sheet repositioning –

     PITTSBURGH, Oct. 31, 2006 – The PNC Financial Services Group, Inc. (NYSE: PNC) today reported record net income of $1.5 billion, or $5.01 per diluted share, for the third quarter of 2006 compared with net income of $334 million, or $1.14 per diluted share, in the third quarter of 2005 and net income of $381 million, or $1.28 per diluted share, in the prior quarter. For the first nine months of 2006, the company earned net income of $2.2 billion, or $7.46 per diluted share, compared with net income of $970 million, or $3.35 per diluted share, for the first nine months of 2005.

     Third quarter 2006 net income included a $1.3 billion after-tax gain from the BlackRock/Merrill Lynch Investment Managers (MLIM) transaction and the after-tax impact of merger integration costs of $31 million. The period also included after-tax losses of $127 million and $31 million, respectively, arising from the previously announced repositioning of PNC’s securities and mortgage loan portfolios. Excluding these items, PNC’s adjusted net income for the quarter was $380 million, or $1.28 per diluted share.

     “PNC delivered strong adjusted earnings of $1.28 per share for the third quarter,” said Chairman and Chief Executive Officer James E. Rohr. “Also, we recognized a $1.6 billion increase in capital as a result of the BlackRock/MLIM transaction. This capital provides us with an extraordinary opportunity to grow our franchise through the acquisition of Mercantile Bankshares Corporation, continuing our expansion in the highly desirable and affluent Mid-Atlantic region.”

  HIGHLIGHTS

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PNC Posts Record Earnings of $5.01 per Share – Page 2

     Return on average common shareholders’ equity was 65.94 percent for the quarter, 16.88 percent as adjusted. Return on average common shareholders’ equity was 16.13 percent in the year-earlier quarter and 17.49 percent in the second quarter of 2006. Return on average common shareholders’ equity for the nine months ended September 30, 2006 was 33.87 percent, 17.26 percent as adjusted. It was 16.49 percent for the nine months ended September 30, 2005.

     As described on page 8 of the news release, the Consolidated Financial Highlights accompanying this news release include several new and reformatted schedules to reconcile the reported and adjusted results, including adjusted results referred to in this news release, and to provide proforma information illustrating the impact of the equity method of accounting for BlackRock.

BUSINESS SEGMENT RESULTS

Retail Banking

Retail Banking earned $206 million for the quarter, compared with $176 million for the year-ago quarter and $185 million for the second quarter of 2006. Compared with the prior year third quarter, revenue increased 7 percent, while noninterest expense increased only 2 percent, driving a 17 percent increase in earnings and creating positive operating leverage.

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PNC Posts Record Earnings of $5.01 per Share – Page 3

     Third quarter earnings increased 11 percent compared to the prior quarter, with the increase driven by higher revenue and lower expenses as the business maintained its focus on expense management and lower provision for credit losses as asset quality remained very strong.

  Retail Banking highlights:

Corporate & Institutional Banking

Corporate & Institutional Banking earned $113 million in the third quarter, compared with $118 million in the third quarter of the prior year and $116 million in the second quarter of 2006. The decrease when compared with the third quarter of 2005 was largely the result of an increase in the provision for credit losses. The increase in noninterest revenue and expense was driven by the acquisition of Harris Williams.

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PNC Posts Record Earning of $5.01 per Share – Page 4

     The earnings decrease compared with the second quarter of 2006 was primarily attributable to a decrease in other income, including decreases in trading income and net gains on commercial mortgage loan sales, partly offset by higher net interest income from deposit growth, a lower provision resulting from improved asset quality and lower noninterest expense. This business has been very successful in adding new customers, managing the risk and return of credit products, growing fee income and controlling expenses.

Corporate & Institutional Banking highlights:

BlackRock

BlackRock reported net income of $19 million for the third quarter of 2006, compared with $61 million in the third quarter of 2005 and $63 million in the second quarter of 2006. BlackRock’s reported net income includes after-tax MLIM integration costs of $44 million in the third quarter of 2006 and $8 million in the second quarter of 2006. The BlackRock segment earned $63 million in the third quarter, an increase of $2 million compared with the third quarter of 2005 and a decrease of $8 million compared with the second quarter of 2006, excluding the impact of MLIM integration costs in those periods. The increase compared with the third quarter of 2005 was a result of higher investment and advisory fees due to growth in assets under management, partly offset by lower nonoperating income, due principally to unrealized losses on energy-related investments. The decrease compared with the second quarter of 2006 was largely a result of lower performance fees, partly offset by decreased expense. Second quarter 2006 benefited from energy-related performance fees.

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PNC Posts Record Earnings of $5.01 per Share– Page 5

     Prior to the September 29, 2006 closing of the MLIM acquisition, PNC owned approximately 69 percent of BlackRock. Accordingly, PNC’s Consolidated Income Statement for the third quarter and first nine months of 2006 continued to reflect PNC’s ownership interest in BlackRock’s net income on a consolidated basis through the closing date. Approximately 31 percent of BlackRock’s earnings were recognized as minority interest expense in the Corporation’s Consolidated Income Statement and are reflected on a separate line in the Business Earnings Summary table in the Consolidated Financial Highlights.

Upon closing of the MLIM acquisition, PNC owned approximately 34 percent of BlackRock. In accordance with generally accepted accounting principles, PNC deconsolidated BlackRock as of that date and, going forward, will account for BlackRock’s earnings contribution using the equity method. BlackRock’s net earnings contribution will be noted on a separate line on the income statement titled, “BlackRock Investment.”

PFPC

PFPC earned $40 million for the quarter, compared with $28 million in the year-earlier period and $26 million in the linked quarter. The earnings increases from the third quarter of 2005 and the second quarter of 2006 were the result of a $14 million reversal of deferred taxes related to earnings from foreign subsidiaries. The reversal resulted from a management decision to permanently reinvest earnings of the subsidiaries in foreign countries. Third quarter 2005 earnings included a $3 million tax benefit identified as part of the One PNC initiative. This business is investing in high growth areas, including managed accounts services and offshore servicing.

     PFPC provided accounting/administration services for $774 billion of net fund assets and provided custody services for $399 billion of fund assets as of September 30, 2006, compared with $793 billion and $475 billion respectively on September 30, 2005 and $743 billion and $389 billion respectively at June 30, 2006. Total fund assets serviced by PFPC were $2.0 trillion at September 30, 2006, which represented an increase over the asset servicing levels of $1.8 trillion at September 30, 2005 and $1.9 trillion at June 30, 2006.

Other

The “Other” category includes the gain on the BlackRock/MLIM transaction, BlackRock/MLIM integration costs, One PNC implementation costs, asset and liability management activities, related net securities gains or losses, certain trading activities, equity management activities, differences between business segment performance reporting and financial statement (GAAP) reporting, corporate overhead, and intercompany eliminations.

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PNC Posts Record Earnings of $5.01 per Share – Page 6

     PNC recorded earnings of $1.1 billion in Other for the quarter largely as a result of the $1.3 billion gain on the BlackRock/MLIM transaction, partly offset by the $127 million after-tax securities portfolio rebalancing loss, $31 million after-tax and minority interest in BlackRock/MLIM integration costs and a $31 million after-tax loss on the mortgage loan portfolio repositioning.

CONSOLIDATED REVENUE REVIEW

Taxable-equivalent net interest income totaled $574 million for the quarter, an increase of $8 million compared with $566 million in the year-earlier period and up 2 percent compared with $562 million in the second quarter of 2006. The net interest margin in the third quarter of 2006 was 2.89 percent, compared with 2.96 percent in the year-earlier period and 2.90 percent in the second quarter of 2006. The increase in net interest income over the same quarter in the prior year and the linked quarter was largely the result of increased revenue from earning assets, partially offset by the higher cost of deposits and borrowings. The Consolidated Financial Highlights accompanying this news release include a reconciliation of taxable-equivalent net interest income to net interest income as reported under GAAP.

     Noninterest income totaled $2.9 billion for the third quarter of 2006 compared with $1.1 billion for the same quarter in the prior year, and $1.2 billion in the second quarter of 2006. The increase compared with the third quarter of 2005 was due to the $2.1 billion net gain from the BlackRock/MLIM transaction, partly offset by the $244 million aggregate impact of the balance sheet repositioning activities and lower equity management and trading revenue. Customer-driven fee revenue increased compared with the year earlier period, including a 17 percent increase in consumer services and a 30 percent increase in corporate services. The change compared with the prior quarter was the result of the net gain on the BlackRock/MLIM transaction, the aggregate impact of the balance sheet repositioning activities, decreased asset management revenues related to lower BlackRock performance fees, and lower equity management and trading revenues. The third quarter of 2006 also included a $20 million loss related to the accounting for hedges on trust preferred securities.

CONSOLIDATED EXPENSE REVIEW

Noninterest expense for the three months ended September 30, 2006 was $1.2 billion, up 2 percent compared with the third quarter of 2005. Noninterest expense increased 3 percent compared with $1.1 billion in the second quarter of 2006. The increases compared with both quarters were driven by $72 million of integration costs associated with the BlackRock/MLIM transaction. Disciplined expense control continues to be a high priority.

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PNC Posts Record Earnings of $5.01 per Share – Page 7

CONSOLIDATED BALANCE SHEET REVIEW

Total assets were $98.4 billion at September 30, 2006, a 6 percent increase compared with $93.2 billion at September 30, 2005, and a 4 percent increase compared with June 30, 2006. The increases compared with both prior dates reflected a $1.8 billion increase related to the impact of the BlackRock/MLIM transaction on PNC and growth in loans and securities, partially offset by the balance sheet repositioning and the deconsolidation of Market Street Funding in October of 2005. More information on the balance sheet impact of the BlackRock/MLIM transaction is provided on page 17.

     Average loans of $50.3 billion for the quarter increased $888 million, or 2 percent, over the year-earlier period and $402 million, or 1 percent, over the linked period. Average loans increased $3.0 billion, or 6 percent, compared with the prior year third quarter excluding the $2.1 billion of average loans in the prior year period related to Market Street Funding, PNC’s commercial paper conduit that was deconsolidated in October 2005. The increase over the third quarter of 2005 on an adjusted basis was driven by continued improvements in loan demand and targeted sales efforts across PNC’s banking business. The increase over the linked quarter was primarily the result of an increase in commercial, commercial real estate and consumer loans.

     Average securities for the third quarter of 2006 were $21.7 billion, an increase of $1.3 billion, or 6 percent, compared with the third quarter of 2005, and average securities increased $283 million compared with the linked quarter. The company continues to invest through the interest rate cycle.

      Average deposits of $64.6 billion increased $5.0 billion, or 8 percent, compared with the same quarter in the prior year, and increased $2.0 billion, or 3 percent, compared with the linked quarter. Average deposits increased largely as a result of the increases in money market deposits, retail certificates of deposit, and Eurodollar deposits. Demand and other noninterest-bearing deposits increased $811 million, or 6 percent year over year, largely as a result of deposits attributed to the commercial mortgage servicing portfolio at Midland.

     PNC’s Tier 1 risk-based capital ratio was an estimated 10.4 percent at September 30, 2006, compared with 8.4 percent at September 30, 2005 and 8.8 percent at June 30, 2006. The BlackRock/MLIM transaction increased capital by $1.6 billion. The increase resulted from the $1.3 billion after-tax gain and $.3 billion of increase to additional paid-in capital.

     The company repurchased 1.9 million common shares during the third quarter under its current common stock repurchase program. The board has authorized a repurchase of up to 20 million shares of common stock, of which approximately 15.8 million remained at the end of the third quarter. Management believes that PNC will have the capacity to engage in, and currently expects to actively engage in, share repurchase activity for the foreseeable future, subject to normal limitations posed by the pending Mercantile transaction.

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PNC Posts Record Earnings of $5.01 per Share – Page 8

      Under the terms of its definitive agreement to acquire Mercantile Bankshares Corporation, which is subject to regulatory and other approvals, PNC plans to issue 52.5 million shares of common stock and pay Mercantile shareholders and option holders $2.13 billion in cash upon close of the transaction.

ASSET QUALITY REVIEW

Overall asset quality remained very strong as the company continued to focus on lending that meets prudent risk-reward parameters. The provision for credit losses for both the third quarter of 2006 and 2005 was $16 million and was $44 million for the second quarter of 2006. The decrease in the provision compared with the linked quarter was primarily due to improved asset quality. Nonperforming assets were $191 million, a decrease of $40 million compared with the prior period.

     Net charge-offs were $47 million, or .37 percent of average loans, for the quarter compared with net charge-offs of $15 million in the third quarter of 2005 and net charge-offs of $30 million in the linked quarter. The increase in net charge-offs compared with the third quarter of 2005 and the second quarter of 2006 was the result of a single large overdraft from the second quarter of 2006. The overdraft is now fully charged-off.

CONSOLIDATED FINANCIAL HIGHLIGHTS

The Consolidated Financial Highlights accompanying this news release include: (1) adjusted results for the third quarter and first nine months 2006, illustrating the impact of certain 2006 items due to the magnitude of the aggregate of those items (2) a reconciliation of these adjusted amounts to net income, components of net income, diluted earnings per share and certain ratios as reported under generally accepted accounting principles (GAAP), and to GAAP condensed, consolidated income statements, (3) a supplemental schedule illustrating the impact of the equity method of accounting for BlackRock on them, and (4) information regarding the impact of BlackRock’s deconsolidation, effective September 29, 2006, and other adjustments to the equity method of accounting on the consolidated balance sheet. The absence of adjusted amounts for other periods discussed in this news release is not intended to imply that there could not have been other similar types of adjustments for these periods, but any such adjustments would not have been similar in magnitude to the amount of the adjustments shown.

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PNC Posts Record Earnings of $5.01 per Share – Page 9

CONFERENCE CALL AND SUPPLEMENTAL FINANCIAL INFORMATION

PNC Chairman and Chief Executive Officer James E. Rohr and Chief Financial Officer Richard J. Johnson will hold a conference call for investors today at 9 a.m. Eastern Time regarding the topics addressed in this release and the related financial supplement. Investors should call five to 10 minutes before the start of the conference call at (800) 990-2718 or (706) 643-0187 (international). A slide presentation to accompany the conference call remarks may be found at www.pnc.com under “About PNC – Investor Relations – Investor Events.” A taped replay of the call will be available for one week at (800) 642-1687 or (706) 645-9291 (international); enter conference ID 7211664.

     In addition, Internet access to the call (listen only) and to PNC’s third quarter earnings release and supplemental financial information will be available at www.pnc.com under “About PNC –Investor Relations – Investor Events.” A replay of the webcast will be available on PNC’s Web site for 30 days.

     The PNC Financial Services Group, Inc. (www.pnc.com) is one of the nation’s largest diversified financial services organizations providing retail and business banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management; asset management and global fund services.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

We make statements in this news release and in the conference call regarding this news release, and we may from time to time make other statements, regarding our outlook or expectations for earnings, revenues, expenses and/or other matters regarding or affecting PNC that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions.

Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made. We do not assume any duty and do not undertake to update our forward-looking statements. Actual results or future events could differ, possibly materially, from those that we anticipated in our forward-looking statements, and future results could differ materially from our historical performance.

Our forward-looking statements are subject to the following principal risks and uncertainties. We provide greater detail regarding these factors in our Form 10-K for the year ended December 31, 2005 and in our current year Form 10-Qs, including in the Risk Factors and Risk Management sections of those reports. Our forward-looking statements may also be subject to other risks and uncertainties, including those that we may discuss elsewhere in this news release or in our filings with the SEC, accessible on the SEC’s website at www.sec.gov and on or through our corporate website at www.pnc.com under “About PNC – Investor Relations.”

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PNC Posts Record Earnings of $5.01 per Share – Page 10

In addition, our pending acquisition of Mercantile Bankshares presents us with a number of risks and uncertainties related both to the acquisition transaction itself and to the integration of the acquired businesses into PNC after closing. These risks and uncertainties include the following:

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PNC Posts Record Earnings of $5.01 per Share – Page 11

In addition to the pending Mercantile Bankshares transaction, we grow our business from time to time by acquiring other financial services companies. Acquisitions in general present us with risks other than those presented by the nature of the business acquired. In particular, acquisitions may be substantially more expensive to complete (including as a result of costs incurred in connection with the integration of the acquired company) and the anticipated benefits (including anticipated cost savings and strategic gains) may be significantly harder or take longer to achieve than expected. In some cases, acquisitions involve our entry into new businesses or new geographic or other markets, and these situations also present risks resulting from our inexperience in these new areas. As a regulated financial institution, our pursuit of attractive acquisition opportunities could be negatively impacted due to regulatory delays or other regulatory issues. Regulatory and/or legal issues related to the pre-acquisition operations of an acquired business may cause reputational harm to PNC following the acquisition and integration of the acquired business into ours and may result in additional future costs and expenses arising as a result of those issues.

ADDITIONAL INFORMATION ABOUT THE PNC/MERCANTILE TRANSACTION

The PNC Financial Services Group, Inc. and Mercantile Bankshares Corporation will be filing a proxy statement/prospectus and other relevant documents concerning the PNC/Mercantile merger transaction with the United States Securities and Exchange Commission (the “SEC”). SHAREHOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND ANY OTHER DOCUMENTS TO BE FILED WITH THE SEC IN CONNECTION WITH THE MERGER TRANSACTION OR INCORPORATED BY REFERENCE IN THE PROXY STATEMENT/PROSPECTUS WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Shareholders will be able to obtain free copies of the proxy statement/prospectus, as well as other filings containing information about Mercantile Bankshares and PNC, without charge, at the SEC’s Internet site (http://www.sec.gov). In addition, documents filed with the SEC by The PNC Financial Services Group, Inc. will be available free of charge from Shareholder Relations at (800) 843-2206. Documents filed with the SEC by Mercantile Bankshares will be available free of charge from Mercantile Bankshares Corporation, 2 Hopkins Plaza, P.O. Box 1477, Baltimore, Maryland 21203, Attention: Investor Relations.

Mercantile Bankshares and its directors and executive officers and certain other members of management and employees are expected to be participants in the solicitation of proxies from Mercantile Bankshares’ shareholders in respect of the proposed merger transaction. Information regarding the directors and executive officers of Mercantile Bankshares is available in the proxy statement for its May 9, 2006 annual meeting of shareholders, which was filed with the SEC on March 29, 2006. Additional information regarding the interests of such potential participants will be included in the proxy statement/prospectus relating to the merger transaction and the other relevant documents filed with the SEC when they become available.

TABULAR MATERIAL FOLLOWS


Consolidated Financial Highlights                                 
 
The PNC Financial Services Group, Inc.                            Page 12 
 
 
            Three months ended             

 
Dollars in millions, except per share data    September 30, 2006        June 30        September 30     

Unaudited    As Reported        As Adjusted (a)        2006        2005     

 
FINANCIAL PERFORMANCE                                 
 
Revenue                                 
 Net interest income (taxable-equivalent basis) (b)    $574        $574        $562        $566     
 Noninterest income    2,943        1,109        1,230        1,116     

 
Total revenue    $3,517        $1,683        $1,792        $1,682     

 
 
Net income    $1,484        $380        $381        $334     

 
 
Diluted earnings per common share    $5.01        $1.28        $1.28        $1.14     
Cash dividends declared per common share    $.55        $.55        $.55        $.50     

 
SELECTED RATIOS                                 
 
Net interest margin    2.89    %    2.89    %    2.90    %    2.96    % 
Noninterest income to total revenue (c)    84        66        69        67     
Efficiency (d)    34        66        64        69     
Return on:                                 
 Average common shareholders’ equity    65.94    %    16.88    %    17.49    %    16.13    % 
 Average assets    6.17        1.58        1.64        1.45     

 
 
            Nine months ended                     

 
Dollars in millions, except per share data    September 30, 2006        September 30             

Unaudited    As Reported        As Adjusted (a)        2005             

 
FINANCIAL PERFORMANCE                                 
 
Revenue                                 
 Net interest income (taxable-equivalent basis) (b)    $1,699        $1,699        $1,619             
 Noninterest income    5,358        3,524        3,019             

 
Total revenue    $7,057        $5,223        $4,638             

 
 
Net income    $2,219        $1,123        $970             

 
 
Diluted earnings per common share    $7.46        $3.77        $3.35             
Cash dividends declared per common share    $1.60        $1.60        $1.50             

SELECTED RATIOS                                 
 
Net interest margin    2.92    %    2.92    %    2.99    %         
Noninterest income to total revenue (c)    76        68        65             
Efficiency (d)    50        65        69             
Return on:                                 
 Average common shareholders’ equity    33.87    %    17.13    %    16.49    %         
 Average assets    3.17        1.60        1.48             

 

Certain prior period amounts included in these Consolidated Financial Highlights have been reclassified to conform with the current period presentation.

(a)      Amounts adjusted for the impact of certain 2006 items for informational purposes due to the magnitude of the aggregate of such adjustments for these periods. Reconciliations of these amounts to net income, diluted earnings per share and selected ratios reported on a generally accepted accounting principles ("GAAP") basis are included on page 13. Reconciliations of noninterest income as reported (GAAP basis) to adjusted amounts are included on page 14. The absence of adjusted amounts for the other periods presented in these tables is not intended to imply that there could not have been other similar types of adjustments for those periods, but any such adjustments would not have been similar in magnitude to the amount of the adjustments shown for the three month and nine month periods ended September 30, 2006.
 
(b)      See Reconciliation of Net Interest Income on a GAAP Basis to Taxable-Equivalent Net Interest Income on page 14.
 
(c)      Calculated as noninterest income divided by the sum of net interest income (GAAP basis) and noninterest income.
 
(d)      Calculated as noninterest expense divided by the sum of net interest income (GAAP basis) and noninterest income.
 

Consolidated Financial Highlights                         
 
The PNC Financial Services Group, Inc.                        Page 13 
 
 
RECONCILIATION OF GAAP NET INCOME, DILUTED EPS                     
AND SELECTED RATIOS TO ADJUSTED AMOUNTS (a)                         
 
Dollars in millions, except per share data    Three months ended September 30, 2006    Nine months ended September 30, 2006 
Unaudited    Adjustments,    Net    Diluted    Adjustments,    Net    Diluted 
    Pretax    Income    EPS Impact    Pretax    Income    EPS Impact 

 
     Net income, GAAP basis        $1,484    $5.01        $2,219    $7.46 
     Adjustments:                         
       Gain on BlackRock transaction*    (2,078)    (1,293)    (4.36)    (2,078)    (1,293)    (4.35) 
       Securities portfolio rebalancing loss *    196    127    0.43    196    127    0.43 
       BlackRock/MLIM transaction integration costs**    72    31    0.10    91    39    0.13 
       Mortgage loan portfolio repositioning loss*    48    31    0.10    48    31    0.10 

 
     Net income, as adjusted        $380    $1.28        $1,123    $3.77 

 

*      Included in noninterest income on a pretax basis.
 
**      Included in noninterest expense on a pretax basis.
 
    Three months ended        Nine months ended     
    September 30        September 30     
    2006        2006     

 
Noninterest income to total revenue, GAAP basis    84    %    76    % 
Pretax impact of adjustments    (18)        (8)     

 
Noninterest income to total revenue, as adjusted    66    %    68    % 

 
 
Efficiency, GAAP basis    34    %    50    % 
Pretax impact of adjustments    32        15     

 
Efficiency, as adjusted    66    %    65    % 

 
 
Return on:                 
 Average common shareholders’ equity, GAAP basis    65.94    %    33.87    % 
 After-tax impact of adjustments    (49.06)        (16.74)     

 
 Average common shareholders’ equity, as adjusted    16.88    %    17.13    % 

 
 
 Average assets, GAAP basis    6.17    %    3.17    % 
 After-tax impact of adjustments    (4.59)        (1.57)     

 
 Average assets, as adjusted    1.58    %    1.60    % 

 

(a)      The tables above represent reconciliations of certain GAAP disclosures to adjusted amounts for the three months and nine months ended September 30, 2006. We have provided these adjusted amounts and reconciliations so that shareholders, investor analysts, regulators and others will be better able to evaluate the impact of certain significant predominantly third quarter items on our GAAP results for the three months and nine months ended September 30, 2006. This information supplements our results as reported in accordance with GAAP and should not be viewed in isolation from, or as a substitute for, our GAAP results. Our Current Reports on Form 8-K dated September 8, 2006, September 22, 2006 and September 29, 2006 include additional information regarding our securities portfolio rebalancing, mortgage loan portfolio repositioning and BlackRock/MLIM transaction accounting, respectively.

Consolidated Financial Highlights                 
 
The PNC Financial Services Group, Inc.                    Page 14 
 
 
RECONCILIATION OF GAAP CONDENSED CONSOLIDATED             
INCOME STATEMENT TO ADJUSTED AMOUNTS (a)                 
            Three months ended         

Dollars in millions        September 30, 2006        June 30    September 30 

Unaudited    As Reported    Adjustments (a)    As Adjusted (a)    2006    2005 

 
Net interest income    $567        $567    $556    $559 
Provision for credit losses    16        16    44    16 
Noninterest income    2,943    $(1,834)    1,109    1,230    1,116 
Noninterest expense    1,178    (72)    1,106    1,149    1,159 

   Income before minority and noncontrolling                     
interests and income taxes    2,316    (1,762)    554    593    500 
Minority and noncontrolling interests in                     
 income (loss) of consolidated entities    (5)    14    9    15    14 
Income taxes    837    (672)    165    197    152 

   Net income    $1,484    $(1,104)    $380    $381    $334 

 
 
        Nine months ended         

Dollars in millions        September 30, 2006        September 30     

Unaudited    As Reported    Adjustments (a)    As Adjusted (a)    2005     

 
Net interest income    $1,679        $1,679    $1,599     
Provision for (recoveries of) credit losses    82        82    (3)     
Noninterest income    5,358    $(1,834)    3,524    3,019     
Noninterest expense    3,498    (91)    3,407    3,199     

   Income before minority and noncontrolling                     
interests and income taxes    3,457    (1,743)    1,714    1,422     
Minority and noncontrolling interests in                     
 income of consolidated entities    23    18    41    29     
Income taxes    1,215    (665)    550    423     

   Net income    $2,219    $(1,096)    $1,123    $970     


(a)      See page 13 for additional information. We have included adjusted amounts as additional, supplemental information in the tables on this page 14 for the three month and nine month periods ended September 30, 2006 only because of the magnitude of the aggregate of such adjustments for these periods. The absence of adjusted amounts for the other periods presented in these tables is not intended to imply that there could not have been other similar types of adjustments for those periods, but any such adjustments would not have been similar in magnitude to the amount of the adjustments shown for the three month and nine month periods ended September 30, 2006.

RECONCILIATION OF NET INTEREST INCOME ON A GAAP BASIS TO TAXABLE-EQUIVALENT NET INTEREST INCOME

The interest income earned on certain assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than a taxable investment. To provide more meaningful comparisons of yields and margins for all earning assets, we also provide revenue on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income on other taxable investments. This adjustment is not permitted under GAAP in the Consolidated Income Statement.

The following is a reconciliation of net interest income as reported in the Consolidated Income Statement to net interest income on a taxable-equivalent basis (in millions):

        Three months ended        Nine months ended 

 
    September 30    June 30    September 30    September 30    September 30 
    2006    2006    2005    2006    2005 

 
Net interest income, GAAP basis    $567    $556    $559    $1,679    $1,599 
Taxable-equivalent adjustment    7    6    7    20    20 
Net interest income,                     

 
 taxable-equivalent basis    $574    $562    $566    $1,699    $1,619 



Consolidated Financial Highlights                     
 
The PNC Financial Services Group, Inc.                    Page 15 
 
 
        Three months ended        Nine months ended 

 
In millions    September 30    June 30    September 30    September 30    September 30 
Unaudited    2006    2006    2005    2006    2005 

 
BUSINESS EARNINGS SUMMARY (a)                     
Retail Banking    $206    $185    $176    $581    $487 
Corporate & Institutional Banking    113    116    118    334    372 
BlackRock (b) (c)    63    71    61    209    167 
PFPC    40    26    28    93    75 

   Total business segment earnings    422    398    383    1,217    1,101 
Minority interest in income of BlackRock    (20)    (21)    (19)    (64)    (51) 
Other (c) (d)    1,082    4    (30)    1,066    (80) 

Total consolidated net income (e)    $1,484    $381    $334    $2,219    $970 


(a) This summary also serves as a reconciliation of total earnings for all business segments to total consolidated net income. Our business segment information is presented based on our management accounting practices and our management structure. We refine our methodologies from time to time as our management accounting practices are enhanced and our businesses and management structure change.

(b) Our ownership interest in BlackRock was approximately 69% -70% for all periods presented. Effective September 29, 2006, PNC's ownership interest in BlackRock dropped to approximately 34%.

(c ) BlackRock reported GAAP earnings of $19 million and $63 million for the three months ended September 30, 2006 and June 30, 2006, respectively, and reported GAAP earnings of $153 million and $161 million for the nine months ended September 30, 2006 and 2005, respectively. For this PNC business segment reporting presentation, pretax integration costs incurred by BlackRock for the MLIM transaction totaling $72 million and $13 million for the three months ended September 30, 2006 and June 30, 2006 and $91 million for the nine months ended September 30, 2006, respectively, have been reclassified from BlackRock to "Other. " Similarly, pretax integration costs of $9 million related to BlackRock's January 2005 acquisition of State Street Research and Management have been reclassified from BlackRock to "Other" for the nine months ended September 30, 2005.

(d) "Other" for the three months and nine months ended September 30, 2006 includes the after-tax impact of the gain on the BlackRock transaction and costs associated with the securities portfolio rebalancing and mortgage loan portfolio repositioning.

(e) See pages 12-14.

Dollars in millions, except per share data    September 30        June 30        September 30     
Unaudited    2006        2006        2005     

BALANCE SHEET DATA                         
Assets    $98,436        $94,914        $93,241     
Loans, net of unearned income    48,900        50,548        50,510     
Allowance for loan and lease losses    566        611        634     
Securities    19,512        21,724        20,658     
Loans held for sale    4,317        2,165        2,377     
Investment in BlackRock    3,836                     
Deposits    64,572        63,493        60,214     
Borrowed funds    14,695        15,651        18,374     
Shareholders’ equity    10,758        8,827        8,317     
Common shareholders’ equity    10,751        8,820        8,309     
Book value per common share    36.60        29.92        28.54     
Common shares outstanding (millions)    294        295        291     
Loans to deposits    76    %    80    %    84    % 
 
ASSETS ADMINISTERED (billions)                         
Managed (f)    $52        $506        $469     
Nondiscretionary    89        85        85     
 
FUND ASSETS SERVICED (billions)                         
Accounting/administration net assets    $774        $743        $793     
Custody assets    399        389        475     
 
CAPITAL RATIOS                         
Tier 1 risk-based (g)    10.4    %    8.8    %    8.4    % 
Total risk-based (g)    13.6        12.4        12.5     
Leverage (g)    9.4        7.7        7.1     
Tangible common equity (h)    7.5        5.2        4.9     
Common shareholders’ equity to assets    10.9        9.3        8.9     
 
ASSET QUALITY RATIOS                         
Nonperforming assets to loans,                         
loans held for sale and foreclosed assets    .36    %    .44    %    .29    % 
Nonperforming loans to loans    .34        .41        .25     
Net charge-offs to average loans (for the three months ended)    .37        .24        .12     
Allowance for loan and lease losses to loans    1.16        1.21        1.26     
Allowance for loan and lease losses to nonperforming loans    339        294        499     

 

(f)      Our assets under management at September 30, 2006 do not include BlackRock's assets under management as we deconsolidated BlackRock effective September 29, 2006.
 
  Excluding the impact of BlackRock, our assets under management (consisting of Retail Banking assets under management) totaled $50 billion at both June 30, 2006 and September 30, 2005.
 
(g)      The ratios for September 30, 2006 are estimated and reflect the impact of the deconsolidation of BlackRock effective September 29, 2006.
 
(h)      Common shareholders' equity less goodwill and other intangible assets (excluding mortgage servicing rights) divided by assets less goodwill and other intangible assets (excluding mortgage servicing rights).
 

Consolidated Financial Highlights

The PNC Financial Services Group, Inc.

Page 16

Illustrative Impact Of Equity Method Of Accounting For BlackRock - Condensed Consolidated Income Statement (a)

                    BlackRock        PNC     
For the three months ended September 30, 2006 - in millions    PNC            PNC    Deconsolidation and    BlackRock    As Adjusted     
Unaudited    As Reported        Adjustments (b)    As Adjusted (b)    Other Adjustments    Equity Method (c)    for BlackRock     

 
Net Interest Income                                 
Interest income    $1,203            $1,203    $(5)        $1,198     
Interest expense    636            636    (2)        634     

 Net interest income    567            567    (3)        564     
Provision for credit losses    16            16            16     

 Net interest income less provision for credit losses    551            551    (3)        548     

Noninterest Income                                 
Asset management    381            381    (302)        79     
BlackRock investment                        $43    43     
Gain on BlackRock transaction    2,078        $(2,078)                     
Other    484        244    728    (18)        710     

 Total noninterest income    2,943        (1,834)    1,109    (320)    43    832     

Noninterest Expense                                 
Compensation and benefits    659        (44)    615    (154)        461     
Other    519        (28)    491    (80)        411     

 Total noninterest expense    1,178        (72)    1,106    (234)        872     

 
Income before minority and noncontrolling                                 
 interests and income taxes    2,316        (1,762)    554    (89)    43    508     
Minority and noncontrolling interests in                                 
 income (loss) of consolidated entities    (5)        14    9    (9)             
Income taxes    837        (672)    165    (37)        128     

 
 Net income    $1,484        $(1,104)    $380    $(43)    $43    $380     

 
Noninterest income to total revenue    84    %                    60    % 
Efficiency    34    %                    62    % 

(a)      In our Current Report on Form 8-K dated August 16, 2006 (the "August 16 Form 8-K"), we presented, for informational purposes only, historical financial information of PNC adjusted as if (1) the deconsolidation of BlackRock from PNC's consolidated financial statements had occurred January 1, 2003 and (2) our investment in BlackRock had been accounted for under the equity method of accounting subsequent to that date. In the August 16 Form 8-K, we presented this information for the three months ended June 30, 2006, March 31, 2006, December 31, 2005, September 30, 2005 and June 30, 2005, along with the years ended December 31, 2005, 2004 and 2003. This schedule is presented for informational purposes only and to supplement the disclosures provided in the August 16 Form 8-K.
 
(b)      See page 13 for additional information. We have included adjusted amounts as additional, supplemental information in the table on this page 16 for the three months ended September 30, 2006 only because of the magnitude of the aggregate of such adjustments for this period.
 
(c)      BlackRock investment revenue represents PNC's approximately 69% ownership interest in earnings of BlackRock for the third quarter of 2006 excluding MLIM pretax integration costs totaling $72 million. At September 30, 2006, PNC's ownership interest in BlackRock was approximately 34%.
 

Consolidated Financial Highlights

The PNC Financial Services Group, Inc.

Page 17

Illustrative Impact Of Equity Method Of Accounting For BlackRock - Condensed Consolidated Balance Sheet

        BlackRock         
        Deconsolidation and         
At September 30, 2006 - in millions    PNC with BlackRock    Other Adjustments to    BlackRock/MLIM    PNC 
Unaudited    Consolidated    Equity Method (a)    Transaction    As Reported 

Assets                 
Loans, net of unearned income of $815    $48,900            $48,900 
Securities available for sale and held to maturity    19,543    $(31)        19,512 
Loans held for sale    4,317            4,317 
Goodwill and other intangible assets    4,535    (497)    $(30)    4,008 
Investment in BlackRock        710    3,126    3,836 
Other    19,294    (1,431)        17,863 

       Total assets    $96,589    $(1,249)    $3,096    $98,436 

 
Liabilities, Minority and Noncontrolling Interests, and Shareholders' Equity             
Deposits    $64,569    $3        $64,572 
Borrowed funds    14,948    (253)        14,695 
Other    7,125    (663)               $1,541 (b)    8,003 

Total liabilities    86,642    (913)    1,541    87,270 

Minority and noncontrolling interests in                 
consolidated entities    744    (336)        408 
Total shareholders’ equity    9,203        1,555    10,758 

       Total liabilities, minority and noncontrolling                 
interests, and shareholders' equity    $96,589    $(1,249)    $3,096    $98,436 


(a)      Includes the elimination of minority interest liability and other adjustments for intercompany transactions and related party transactions due to the deconsolidation of BlackRock.
 
(b)      Includes deferred taxes of approximately $.9 billion and a liability of approximately $.6 billion related to our obligation to provide shares of BlackRock common stock to help fund BlackRock long-term retention and incentive plans.
 

THE PNC FINANCIAL SERVICES GROUP, INC.

FINANCIAL SUPPLEMENT
THIRD QUARTER 2006
UNAUDITED


THE PNC FINANCIAL SERVICES GROUP, INC.     
FINANCIAL SUPPLEMENT     
THIRD QUARTER 2006     
                                                                                                             UNAUDITED     
 
    Page 

 
Consolidated Income Statement    1 
Consolidated Balance Sheet    2 
Capital Ratios and Asset Quality Ratios    2 
Results of Businesses     
     Summary of Business Results and Period-end Employees    3 
     Retail Banking    4-5 
     Corporate & Institutional Banking    6 
     BlackRock    7 
     PFPC    8 
Details of Net Interest Income, Net Interest Margin, and Trading Revenue    9 
GAAP and Bank Efficiency Ratios    10 
Retail Banking Efficiency Ratios    11 
Average Consolidated Balance Sheet and Supplemental Average Balance Sheet Information    12-13 
Details of Loans and Lending Statistics    14 
Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters     
 of Credit and Net Unfunded Commitments    15 
Details of Nonperforming Assets    16-17 
Glossary of Terms    18-20 
Business Segment Descriptions    21 
Additional Information About The PNC/Mercantile Transaction    22 

The information contained in this Financial Supplement is preliminary, unaudited and based on data available at October 31, 2006. We have reclassified certain prior period amounts included in this Financial Supplement to be consistent with the current period presentation. This information speaks only as of the particular date or dates included in the schedules. We do not undertake any obligation to, and disclaim any duty to, correct or update any of the information provided in this Financial Supplement. Our future financial performance is subject to risks and uncertainties as described in our SEC filings.

BlackRock/MLIM Transaction

As further described in our Current Reports on Form 8-K dated February 15, 2006 and September 29, 2006, BlackRock, Inc. ("BlackRock"), formerly a majority-owned subsidiary of The PNC Financial Services Group, Inc., and Merrill Lynch entered into a definitive agreement pursuant to which Merrill Lynch agreed to contribute its investment management business ("MLIM") to BlackRock in exchange for 65 million shares of newly issued BlackRock common and preferred stock.

This transaction closed on September 29, 2006. For all quarterly periods presented in this Financial Supplement, our Consolidated Income Statement reflects our former majority ownership interest in BlackRock. However, our Consolidated Balance Sheet as of September 30, 2006 reflects the deconsolidation of BlackRock's balance sheet amounts and recognizes our 34% ownership interest in BlackRock as of that date as an investment to be accounted for under the equity method on a prospective basis.

Market Street

As disclosed in our 2005 Annual Report on Form 10-K, in October 2005 Market Street Funding ("Market Street"), a multi-seller asset-backed commercial paper conduit owned by an independent third party and administered by PNC Bank, N.A., was restructured. As a result, Market Street was deconsolidated from our Consolidated Balance Sheet effective October 17, 2005. This deconsolidation is reflected in the information contained in this Financial Supplement. We had previously consolidated Market Street under the provisions of FIN 46R effective July 1, 2003.


THE PNC FINANCIAL SERVICES GROUP, INC.                    Page 1 
 
Consolidated Income Statement (Unaudited)                     
    September 30    June 30    March 31    December 31    September 30 
For the three months ended - in millions, except per share data    2006    2006    2006    2005    2005 

Interest Income                     
Loans    $838    $797    $747    $727    $718 
Securities available for sale and held to maturity    271    255    243    233    219 
Other    94    74    76    74    58 

 Total interest income    1,203    1,126    1,066    1,034    995 

Interest Expense                     
Deposits    434    379    327    305    270 
Borrowed funds    202    191    183    174    166 

 Total interest expense    636    570    510    479    436 

 Net interest income    567    556    556    555    559 
Provision for credit losses    16    44    22    24    16 

 Net interest income less provision for credit losses    551    512    534    531    543 

Noninterest Income                     
Asset management    381    429    461    431    364 
Fund servicing    213    210    221    213    218 
Service charges on deposits    81    80    73    74    73 
Brokerage    61    63    59    57    56 
Consumer services    89    94    89    80    76 
Corporate services    157    157    135    143    121 
Equity management gains    21    54    7    16    36 
Net securities losses    (195)    (8)    (4)    (4)    (2) 
Trading    38    55    57    49    47 
Gain on BlackRock transaction    2,078                 
Other    19    96    87    95    127 

 Total noninterest income    2,943    1,230    1,185    1,154    1,116 

Noninterest Expense                     
Compensation    573    558    555    556    545 
Employee benefits    86    76    87    77    86 
Net occupancy    79    83    79    82    86 
Equipment    77    80    77    75    73 
Marketing    39    22    20    31    30 
Other    324    330    353    324    339 

 Total noninterest expense    1,178    1,149    1,171    1,145    1,159 

Income before minority and noncontrolling                     
 interests and income taxes    2,316    593    548    540    500 
Minority and noncontrolling interests in income (loss) of                     
 consolidated entities    (5)    15    13    4    14 
Income taxes    837    197    181    181    152 

 Net income    $1,484    $381    $354    $355    $334 

Earnings Per Common Share                     
   Basic    $5.09    $1.30    $1.21    $1.22    $1.16 
   Diluted    $5.01    $1.28    $1.19    $1.20    $1.14 

Average Common Shares Outstanding                     
   Basic    291    293    292    290    289 
   Diluted    296    297    296    294    292 

Noninterest income to total revenue    84%    69%    68%    68%    67% 
 
Effective tax rate (a)    36.1%    33.2%    33.0%    33.5%    30.4% 


(a)      The increase in the third quarter 2006 effective tax rate is primarily due to taxes related to the gain on, and a cumulative adjustment to deferred taxes in connection with, the BlackRock transaction, partially offset by a reduction in pretax income due to third quarter 2006 balance sheet repositioning activities.
 

THE PNC FINANCIAL SERVICES GROUP, INC.                    Page 2 
 
Consolidated Balance Sheet (Unaudited)                     
 
    September 30    June 30    March 31    December 31    September 30 
In millions, except par value    2006    2006    2006    2005    2005 

 
Assets                     
Cash and due from banks    $3,018    $3,438    $3,206    $3,518    $3,474 
Federal funds sold and resale agreements    2,818    675    511    350    907 
Other short-term investments, including trading securities    2,718    2,005    2,641    2,543    2,553 
Loans held for sale    4,317    2,165    2,266    2,449    2,377 
Securities available for sale and held to maturity    19,512    21,724    21,529    20,710    20,658 
Loans, net of unearned income of $815, $828, $832,                     
   $835, and $856    48,900    50,548    49,521    49,101    50,510 
 Allowance for loan and lease losses    (566)    (611)    (597)    (596)    (634) 

 Net loans    48,334    49,937    48,924    48,505    49,876 
Goodwill    3,418    3,636    3,638    3,619    3,470 
Other intangible assets    590    862    844    847    755 
Investment in BlackRock    3,836                 
Other    9,875    10,472    9,698    9,413    9,171 

 Total assets    $98,436    $94,914    $93,257    $91,954    $93,241 

 
Liabilities                     
Deposits                     
 Noninterest-bearing    $14,840    $14,434    $14,250    $14,988    $14,099 
 Interest-bearing    49,732    49,059    46,649    45,287    46,115 

  Total deposits    64,572    63,493    60,899    60,275    60,214 
Borrowed funds                     
 Federal funds purchased    3,475    3,320    3,156    4,128    1,477 
 Repurchase agreements    2,275    2,136    2,892    1,691    2,054 
 Bank notes and senior debt    2,177    3,503    3,362    3,875    3,475 
 Subordinated debt    4,436    4,329    4,387    4,469    4,506 
 Commercial paper    110    10    120    10    3,447 
 Other    2,222    2,353    2,523    2,724    3,415 

  Total borrowed funds    14,695    15,651    16,440    16,897    18,374 
Allowance for unfunded loan commitments                     
 and letters of credit    117    103    103    100    79 
Accrued expenses    3,855    2,635    2,585    2,770    2,637 
Other    4,031    3,573    3,822    2,759    3,025 

 Total liabilities    87,270    85,455    83,849    82,801    84,329 

Minority and noncontrolling interests in consolidated entities    408    632    627    590    595 
Shareholders’ Equity                     
Preferred stock (a)                     
Common stock - $5 par value                     
 Authorized 800 shares, issued 353 shares    1,764    1,764    1,764    1,764    1,764 
Capital surplus    1,679    1,385    1,349    1,358    1,358 
Retained earnings    10,771    9,449    9,230    9,023    8,814 
Deferred compensation expense    (51)    (60)    (44)    (59)    (64) 
Accumulated other comprehensive loss    (109)    (510)    (394)    (267)    (200) 
Common stock held in treasury at cost: 59, 58, 57, 60,                     
   and 62 shares    (3,296)    (3,201)    (3,124)    (3,256)    (3,355) 

 Total shareholders’ equity    10,758    8,827    8,781    8,563    8,317 

 Total liabilities, minority and noncontrolling interests, and                     
shareholders’ equity    $98,436    $94,914    $93,257    $91,954    $93,241 

 
CAPITAL RATIOS                     
Tier 1 risk-based (b)           10.4 %    8.8 %    8.8 %    8.3 %    8.4 % 
Total risk-based (b)    13.6    12.4    12.5    12.1    12.5 
Leverage (b)    9.4    7.7    7.6    7.2    7.1 
Tangible common equity    7.5    5.2    5.2    5.0    4.9 
Common shareholders’ equity to assets    10.9    9.3    9.4    9.3    8.9 
 
ASSET QUALITY RATIOS                     
Nonperforming assets to loans,                     
 loans held for sale and foreclosed assets    .36 %    .44 %    .40 %    .42 %    .29 % 
Nonperforming loans to loans    .34    .41    .37    .39    .25 
Net charge-offs to average loans (For the three months ended)    .37    .24    .15    .33    .12 
Allowance for loan and lease losses to loans    1.16    1.21    1.21    1.21    1.26 
Allowance for loan and lease losses to nonperforming loans    339    294    328    314    499 


(a)      Less than $.5 million at each date.
 
(b)      The ratios for September 30, 2006 are estimated and reflect the impact of the deconsolidation of BlackRock effective September 29, 2006.
 

THE PNC FINANCIAL SERVICES GROUP, INC.                    Page 3 
 
Summary of Business Results and Period-end Employees(Unaudited)                 
 
Three months ended – dollars in millions (a)    September 30    June 30    March 31    December 31    September 30 
Earnings    2006    2006    2006    2005    2005 

Retail Banking    $206    $185    $190    $195    $176 
Corporate & Institutional Banking    113    116    105    108    118 
BlackRock (b) (c)    63    71    75    73    61 
PFPC    40    26    27    29    28 

       Total business segment earnings    422    398    397    405    383 
Minority interest in income of BlackRock    (20)    (21)    (23)    (22)    (19) 
Other (c) (d)    1,082    4    (20)    (28)    (30) 

Total consolidated net income    $1,484    $381    $354    $355    $334 

 
Revenue (e)                     

Retail Banking    $791    $782    $753    $755    $740 
Corporate & Institutional Banking    356    382    340    358    346 
BlackRock (b) (f)    328    365    410    375    320 
PFPC (g)    208    208    218    209    211 

       Total business segment revenue    1,683    1,737    1,721    1,697    1,617 
Other    1,834    55    27    25    65 

     Total consolidated revenue    $3,517    $1,792    $1,748    $1,722    $1,682 


(a)      This summary also serves as a reconciliation of total earnings and revenue for all business segments to total consolidated net income and revenue. Our business segment information is presented based on our management accounting practices and our management structure. We refine our methodologies from time to time as our management accounting practices are enhanced and our businesses and management structure change.
 
(b)      Our ownership interest in BlackRock was approximately 69% - 70% for all periods presented. Effective September 29, 2006, PNC's ownership interest in BlackRock dropped to approximately 34%.
 
(c)      BlackRock reported GAAP earnings of $19 million, $63 million and $71 million for the three months ended September 30, 2006, June 30, 2006 and March 31, 2006, respectively. For this PNC business segment reporting presentation, pretax integration costs incurred by BlackRock for the MLIM transaction totaling $72 million, $13 million and $6 million for the three months ended September 30, 2006, June 30, 2006 and March 31, 2006, respectively, have been reclassified from BlackRock to "Other."
 
(d)      "Other" for the three months ended September 30, 2006 includes the after-tax impact of the gain on the BlackRock transaction and costs associated with the securities portfolio rebalancing and mortgage loan portfolio repositioning.
 
(e)      Business segment revenue is presented on a taxable-equivalent basis. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than a taxable investment. To provide more meaningful comparisons of yields and margins for all earning assets, we also provide revenue on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income on other taxable investments. This adjustment is not permitted under generally accepted accounting principles (GAAP) on the Consolidated Income Statement. The following is a reconciliation of total consolidated revenue on a book (GAAP) basis to total consolidated revenue on a taxable-equivalent basis (in millions):
 
    September 30    June 30    March 31    December 31    September 30 
    2006    2006    2006    2005    2005 

Total consolidated revenue, book (GAAP) basis    $3,510    $1,786    $1,741    $1,709    $1,675 
Taxable-equivalent adjustment    7    6    7    13    7 

 Total consolidated revenue, taxable-equivalent basis    $3,517    $1,792    $1,748    $1,722    $1,682 


(f)      Amounts for BlackRock represent the sum of total operating revenue and nonoperating income.
 
(g)      Amounts for PFPC represent the sum of servicing revenue and net nonoperating income less debt financing costs.
 
    September 30    June 30    March 31    December 31    September 30 
Period-end Employees    2006    2006    2006    2005    2005 

Full-time employees                     
Retail Banking    9,531    9,674    9,725    9,679    9,891 
Corporate & Institutional Banking    1,925    1,899    1,892    1,861    1,740 
BlackRock        2,317    2,232    2,151    2,145 
PFPC    4,317    4,314    4,291    4,391    4,457 
Other                     
   Operations & Technology    4,006    3,994    3,942    3,966    4,010 
   Staff Services    1,595    1,593    1,560    1,545    1,568 

         Total Other    5,601    5,587    5,502    5,511    5,578 

   Total full-time employees    21,374    23,791    23,642    23,593    23,811 
Total part-time employees    2,165    2,241    2,003    1,755    1,558 

Total employees    23,539    26,032    25,645    25,348    25,369 


The period-end employee statistics disclosed for each business segment reflect staff directly employed by the respective business segment and exclude operations, technology and staff services employees. No employees are shown for BlackRock at September 30, 2006 as we deconsolidated BlackRock effective September 29, 2006.


THE PNC FINANCIAL SERVICES GROUP, INC.                                Page 4     
Retail Banking (Unaudited)                                         
 
Three months ended                                         
Taxable-equivalent basis (a)    September 30        June 30        March 31        December 31        September 30     
Dollars in millions    2006        2006        2006        2005        2005     

INCOME STATEMENT                                         
Net interest income    $427        $424        $408        $417        $407     
Noninterest income                                         
   Asset management    87        87        87        86        87     
   Service charges on deposits    79        77        71        72        71     
   Brokerage    59        59        58        54        54     
   Consumer services    86        88        86        78        72     
   Other    53        47        43        48        49     

       Total noninterest income    364        358        345        338        333     

 
   Total revenue    791        782        753        755        740     
Provision for credit losses    9        28        9        9        14     
Noninterest expense    451        455        436        434        444     

 
   Pretax earnings    331        299        308        312        282     
Minority interest    5        5        4                     
Income taxes    120        109        114        117        106     

 
   Earnings    $206        $185        $190        $195        $176     

 
AVERAGE BALANCE SHEET                                         
Loans                                         
   Consumer                                         
       Home equity    $13,849        $13,816        $13,778        $13,751        $13,570     
       Indirect    1,069        1,019        987        980        952     
       Other consumer    1,221        1,202        1,248        1,264        1,205     

Total consumer    16,139        16,037        16,013        15,995        15,727     
   Commercial    5,821        5,715        5,433        5,282        5,235     
   Floor plan    854        964        970        936        903     
   Residential mortgage    1,509        1,577        1,648        1,716        1,789     
   Other    250        248        236        244        247     

Total loans    24,573        24,541        24,300        24,173        23,901     
Goodwill and other intangible assets    1,580        1,586        1,582        1,560        1,545     
Loans held for sale    1,513        1,535        1,880        1,802        1,602     
Other assets    1,640        1,621        1,607        1,505        1,498     

   Total assets    $29,306        $29,283        $29,369        $29,040        $28,546     

Deposits                                         
   Noninterest-bearing demand    $7,848        $7,908        $7,777        $7,925        $7,891     
   Interest-bearing demand    7,787        7,950        8,025        8,095        8,044     
   Money market    14,832        14,697        14,644        14,399        14,042     

 
           Total transaction deposits    30,467        30,555        30,446        30,419        29,977     
   Savings    1,976        2,109        2,183        2,309        2,516     
   Certificates of deposit    14,053        13,560        13,115        12,671        11,996     

Total deposits    46,496        46,224        45,744        45,399        44,489     
Other liabilities    515        537        560        392        370     
Capital    2,988        2,979        2,943        2,965        2,919     

   Total funds    $49,999        $49,740        $49,247        $48,756        $47,778     

PERFORMANCE RATIOS                                         
Return on average capital    27    %    25    %    26    %    26    %    24    % 
Noninterest income to total revenue    46        46        46        45        45     
Efficiency, GAAP basis    57        58        58        57        60     
Efficiency, as adjusted (b)    55        56        56        55        58     

 

(a)      See notes (a) and (e) on page 3.
 
(b)      See page 11 for a reconciliation of the efficiency ratio, as adjusted, to the efficiency ratio on a GAAP basis.
 

THE PNC FINANCIAL SERVICES GROUP, INC.                                    Page 5     
Retail Banking (Unaudited) (Continued)                                         
 
Three months ended    September 30        June 30        March 31        December 31        September 30     
Dollars in millions except as noted    2006        2006        2006        2005        2005     

OTHER INFORMATION (a)                                         
Credit-related statistics:                                         
 Nonperforming assets    $95        $104        $93        $90        $87     
 Net charge-offs (b)    $31        $19        $14        $12        $11     
 Annualized net charge-off ratio    .50    %    .31    %    .23    %    .20 %    .18    % 

Home equity portfolio credit statistics:                                         
 % of first lien positions    44    %    45    %    45    %    46 %    47    % 
 Weighted average loan-to-value ratios    69    %    69    %    68    %    68 %    70    % 
 Weighted average FICO scores    728        728        727        728        721     
 Loans 90 days past due    .22    %    .21    %    .22    %    .21 %    .18    % 

Checking-related statistics:                                         
 Retail Banking checking relationships    1,958,000        1,956,000        1,950,000        1,934,000        1,921,000     
 Consumer DDA households using online banking    920,000        897,000        880,000        855,000        830,000     
 % of consumer DDA households using online banking    52    %    51    %    50    %    49    %    48    % 
 Consumer DDA households using online bill payment    361,000        305,000        253,000        205,000        188,000     
 % of consumer DDA households using online bill payment    20    %    17    %    14    %    12    %    11    % 

Small business managed deposits:                                         
On-balance sheet                                         
 Noninterest-bearing demand    $4,370        $4,319        $4,357        $4,555        $4,499     
 Interest-bearing demand    1,545        1,392        1,454        1,656        1,547     
 Money market    2,658        2,617        2,705        2,941        3,045     
 Certificates of deposit    647        574        553        530        410     
Off-balance sheet (c)                                         
 Small business sweep checking    1,676        1,532        1,454        1,392        1,321     

   Total managed deposits    $10,896        $10,434        $10,523        $11,074        $10,822     

Brokerage statistics:                                         
 Margin loans    $170        $194        $205        $217        $223     
 Financial consultants (d)    752        775        783        779        784     
 Full service brokerage offices    99        100        100        100        99     
 Brokerage account assets (billions)    $44        $43        $43        $42        $42     

Other statistics:                                         
 Gains on sales of education loans (e)    $11        $7        $4        $4        $11     
 Period-end full-time employees    9,531        9,674        9,725        9,679        9,891     
 Period-end part-time employees    1,660        1,526        1,373        1,117        934     
 ATMs    3,594        3,553        3,763        3,721        3,770     
 Branches (f)    848        846        846        839        830     

ASSETS UNDER ADMINISTRATION (in billions) (g)                                         
Assets under management                                         
Personal    $42        $40        $40        $40        $41     
Institutional    10        10        10        9        9     

 Total    $52        $50        $50        $49        $50     

Asset Type                                         
Equity    $32        $31        $32        $31        $31     
Fixed income    12        12        12        12        13     
Liquidity/Other    8        7        6        6        6     

 Total    $52        $50        $50        $49        $50     

Nondiscretionary assets under administration                                         
Personal    $27        $25        $28        $27        $27     
Institutional    62        60        59        57        58     

 Total    $89        $85        $87        $84        $85     

Asset Type                                         
Equity    $32        $31        $33        $33        $32     
Fixed income    27        26        26        24        25     
Liquidity/Other    30        28        28        27        28     

 Total    $89        $85        $87        $84        $85     


(a)      Presented as of period-end, except for net charge-offs, annualized net charge-off ratio, gains on sales of education loans, and small business deposits.
 
(b)      The increase at September 30, 2006 was primarily due to a single large overdraft fraud that occurred during the second quarter of 2006.
 
(c)      Represents small business balances, a portion of which are calculated on a one-month lag. These balances are swept into liquidity products managed by other PNC business segments, the majority of which are off-balance sheet.
 
(d)      Financial consultants provide services in full service brokerage offices and PNC traditional branches.
 
(e)      Included in "Noninterest income-Other" on page 4.
 
(f)      Excludes certain satellite branches that provide limited products and service hours.
 
(g)      Excludes brokerage account assets.
 

THE PNC FINANCIAL SERVICES GROUP, INC.                                    Page 6     
 
Corporate & Institutional Banking (Unaudited)                                         
 
Three months ended                                         
Taxable-equivalent basis (a)    September 30        June 30        March 31        December 31        September 30     
Dollars in millions except as noted    2006        2006        2006        2005        2005     

INCOME STATEMENT                                         
Net interest income    $182        $173        $175        $184        $194     
Noninterest income                                         
   Corporate services    131        133        113        118        99     
   Other    43        76        52        56        53     

     Noninterest income    174        209        165        174        152     

     Total revenue    356        382        340        358        346     
Provision for (recoveries of) credit losses    7        17        12        23        (1)     
Noninterest expense    182        192        176        177        172     

 
   Pretax earnings    167        173        152        158        175     
Income taxes    54        57        47        50        57     

 
   Earnings    $113        $116        $105        $108        $118     

AVERAGE BALANCE SHEET                                         
Loans                                         
   Corporate (b)    $9,966        $9,981        $9,685        $9,829        $11,436     
   Commercial real estate    2,953        2,760        2,643        2,620        2,580     
   Commercial - real estate related    2,476        2,484        2,454        2,219        2,155     
   Asset-based lending    4,563        4,452        4,252        4,227        4,227     

 
       Total loans (b)    19,958        19,677        19,034        18,895        20,398     
Loans held for sale    865        875        866        923        789     
Goodwill and other intangible assets    1,366        1,328        1,314        1,265        1,081     
Other assets    4,721        4,411        4,282        4,243        4,416     

   Total assets    $26,910        $26,291        $25,496        $25,326        $26,684     

Deposits                                         
   Noninterest-bearing demand    $6,817        $6,353        $6,697        $6,526        $6,195     
   Money market    2,678        2,168        2,110        2,886        2,620     
   Other    995        933        777        717        720     

     Total deposits    10,490        9,454        9,584        10,129        9,535     
Commercial paper (c)                            514        2,553     
Other liabilities    3,885        3,722        3,439        3,405        3,280     
Capital    1,879        2,027        1,945        1,787        1,743     

 
   Total funds    $16,254        $15,203        $14,968        $15,835        $17,111     

PERFORMANCE RATIOS                                         
Return on average capital    24    %    23    %    22    %    24    %    27    % 
Noninterest income to total revenue    49        55        49        49        44     
Efficiency    51        50        52        49        50     

COMMERCIAL MORTGAGE                                         
SERVICING PORTFOLIO (in billions)                                         
Beginning of period    $151        $140        $136        $126        $119     
Acquisitions/additions    37        19        13        21        18     
Repayments/transfers    (8)        (8)        (9)        (11)        (11)     

   End of period    $180        $151        $140        $136        $126     

OTHER INFORMATION                                         
Consolidated revenue from: (d)                                         
   Treasury Management    $108        $106        $102        $105        $105     
   Capital Markets    $64        $76        $64        $62        $42     
   Midland Loan Services    $47        $42        $42        $41        $39     
Total loans (e)    $20,405        $20,057        $19,447        $18,817        $21,084     
Nonperforming assets (e)    $94        $125        $112        $124        $67     
Net charge-offs (recoveries)    $14        $12        $4        $28        $5     
Period-end full-time employees    1,925        1,899        1,892        1,861        1,740     
Net gains on commercial mortgage loan sales    $12        $18        $7        $13        $21     
Net carrying amount of commercial                                         
mortgage servicing rights (e)    $414        $385        $353        $344        $297     


(a)      See notes (a) and (e) on page 3.
 
(b)      Includes lease financing and Market Street. Market Street was deconsolidated from our Consolidated Balance Sheet effective October 17, 2005.
 
(c)      Includes Market Street. See Supplemental Average Balance Sheet Information on pages 12-13.
 
(d)      Represents consolidated PNC amounts.
 
(e)      Presented as of period-end.
 

THE PNC FINANCIAL SERVICES GROUP, INC.                                    Page 7 
BlackRock (Unaudited) (a) (b)                                     
Three months ended                                     
Taxable-equivalent basis (a)    September 30        June 30        March 31        December 31        September 30 
Dollars in millions except as noted    2006        2006        2006        2005        2005 

 
INCOME STATEMENT                                     
Investment advisory and administrative fees    $275        $313        $350        $320        $255 
Other income    48        47        46        49        46 

 Total operating revenue    323        360        396        369        301 
Operating expense (c)    212        240        280        245        208 
Fund administration and servicing costs    11        11        10        11        13 

   Total expense (c)    223        251        290        256        221 

     Operating income    100        109        106        113        80 
Nonoperating income    5        5        14        6        19 

 
   Pretax earnings    105        114        120        119        99 
Minority interest    1                1        1        1 
Income taxes    41        43        44        45        37 

   Earnings (c)    $63        $71        $75        $73        $61 

PERIOD-END BALANCE SHEET                                     
Investment in BlackRock    $3,836                                 
Goodwill and other intangible assets    29        $490        $492        $484        $492 
Other assets            1,434        1,349        1,364        1,181 

   Total assets    $3,865        $1,924        $1,841        $1,848        $1,673 

Liabilities (d)    $1,541        $883        $852        $926        $806 
Stockholders’ equity    2,324        1,041        989        922        867 

   Total liabilities and stockholders’ equity    $3,865        $1,924        $1,841        $1,848        $1,673 

Return on average equity    24    %    28    %    32    %    32    %    28 % 


(a)      See notes (a) and (e) on page 3.
 
(b)      Effective September 29, 2006, we deconsolidated BlackRock from our consolidated financial statements and our investment in BlackRock was accounted for under equity method of accounting subsequent to that date. At September 30, 2006, we owned approximately 34% of BlackRock.
 
(c)     

BlackRock reported GAAP earnings of $19 million, $63 million and $71 million for the three months ended September 30, 2006, June 30, 2006 and March 31, 2006, respectively. For this PNC business segment reporting presentation, pretax integration costs incurred by BlackRock for the MLIM transaction totaling $72 million, $13 million and $6 million for the three months ended September 30, 2006, June 30, 2006 and March 31, 2006, respectively, have been reclassified from BlackRock to "Other." The following is a reconciliation of BlackRock's earnings as reported in this PNC business segment reporting presentation to BlackRock's reported GAAP earnings (in millions):

 
            Three months ended         

    September 30    June 30    March 31    December 31    September 30 
    2006    2006    2006    2005    2005 

BlackRock earnings, as reported in PNC's business reporting presentation    $63    $71    $75    $73    $61 
Less: BlackRock/MLIM transaction integration costs, after-tax    44    8    4         

BlackRock reported GAAP earnings    $19    $63    $71    $73    $61 

 

(d)      Liabilities at September 30, 2006 primarily consist of income taxes payable and our total BlackRock long-term retention and incentive plan ("LTIP") funding obligatio Liabilities for each of the other periods presented include minority interest
 

THE PNC FINANCIAL SERVICES GROUP, INC.                                    Page 8 
 
PFPC (Unaudited) (a)                                     
 
Three months ended    September 30        June 30        March 31        December 31        September 30 
Dollars in millions except as noted    2006        2006        2006        2005        2005 

 
INCOME STATEMENT                                     
Servicing revenue    $218        $218        $227        $217        $221 
Expenses                                     
   Operating expense    163        163        170        161        168 
   Amortization of other intangibles, net    3        4        3        4        3 

Total expense    166        167        173        165        171 

   Operating income    52        51        54        52        50 
Debt financing    11        11        10        10        10 
Net nonoperating income    1        1        1        2         

   Pretax earnings    42        41        45        44        40 
Income taxes (b)    2        15        18        15        12 

   Earnings    $40        $26        $27        $29        $28 

PERIOD-END BALANCE SHEET                                     
Goodwill and other intangible assets    $1,015        $1,018        $1,022        $1,025        $1,029 
Other assets    1,038        1,398        1,363        1,103        1,053 

   Total assets    $2,053        $2,416        $2,385        $2,128        $2,082 

Debt financing    $813        $852        $890        $890        $939 
Other liabilities    772        1,137        1,094        864        799 
Shareholder's equity    468        427        401        374        344 

   Total funds    $2,053        $2,416        $2,385        $2,128        $2,082 

PERFORMANCE RATIOS                                     
Return on average equity    35    %    25    %    28    %    32    %    34 % 
Operating margin (c)    24        23        24        24        23 

SERVICING STATISTICS (at period end)                                     
Accounting/administration net fund assets (in billions) (d)                                     
     Domestic    $695        $671        $665        $754        $726 
     Offshore    79        72        85        81        67 

Total    $774        $743        $750        $835        $793 

Asset type (in billions)                                     
       Money market    $260        $247        $238        $361        $333 
       Equity    331        317        338        305        284 
       Fixed income    111        110        107        104        114 
       Other    72        69        67        65        62 

Total    $774        $743        $750        $835        $793 

Custody fund assets (in billions)    $399        $389        $383        $476        $475 

Shareholder accounts (in millions)                                     
       Transfer agency    18        18        20        19        19 
       Subaccounting    48        47        45        43        40 

Total    66        65        65        62        59 

OTHER INFORMATION                                     
Period-end full-time employees    4,317        4,314        4,291        4,391        4,457 


(a)      See notes (a) and (e) on page 3.
 
(b)      Income taxes for the quarter ended September 30, 2006 included the benefit of a $13.5 million reversal of deferred taxes related to foreign subsidiary earnings.
 
(c)      Operating income divided by servicing revenue.
 
(d)      Includes alternative investment net assets serviced.
 

THE PNC FINANCIAL SERVICES GROUP, INC.                    Page 9 
 
Details of Net Interest Income, Net Interest Margin, and Trading Revenue (Unaudited)         
Taxable-equivalent basis                     
            Three months ended         

Net Interest Income    September 30    June 30    March 31    December 31    September 30 
In millions    2006    2006    2006    2005    2005 

Interest income                     
   Loans    $841    $801    $750    $730    $721 
   Securities available for sale and held to maturity    272    255    244    234    219 
   Other    97    76    79    83    62 

     Total interest income    1,210    1,132    1,073    1,047    1,002 

Interest expense                     
   Deposits    434    379    327    305    270 
   Borrowed funds    202    191    183    174    166 

     Total interest expense    636    570    510    479    436 

           Net interest income (a)    $574    $562    $563    $568    $566 

(a) The following is a reconciliation of net interest income as reported in the Consolidated Income Statement (GAAP basis) to net interest income on a taxable-equivalent basis:     
 
            Three months ended         

 
    September 30    June 30    March 31    December 31    September 30 
In millions    2006    2006    2006    2005    2005 

 
Net interest income, GAAP basis    $567    $556    $556    $555    $559 
Taxable-equivalent adjustment    7    6    7    13    7 

 
Net interest income, taxable-equivalent basis    $574    $562    $563    $568    $566 

 
 
 
            Three months ended         

 
Net Interest Margin    September 30    June 30    March 31    December 31    September 30 
    2006    2006    2006    2005    2005 

Average yields/rates                     
   Yield on interest-earning assets                     
     Loans               6.59 %       6.38 %    6.14 %             5.91 %               5.75 % 
     Securities available for sale and held to maturity    5.01    4.76    4.66    4.49    4.29 
     Other    5.78    5.23    5.04    5.00    4.15 
         Total yield on interest-earning assets    6.09    5.84    5.64    5.44    5.23 
   Rate on interest-bearing liabilities                     
     Deposits    3.43    3.11    2.81    2.58    2.33 
     Borrowed funds    5.40    5.06    4.65    4.23    3.79 
         Total rate on interest-bearing liabilities    3.88    3.56    3.27    3.01    2.73 

         Interest rate spread    2.21    2.28    2.37    2.43    2.50 
   Impact of noninterest-bearing sources    .68    .62    .58    .53    .46 

         Net interest margin               2.89 %       2.90 %    2.95 %             2.96 %               2.96 % 

 
 
            Three months ended         

Trading Revenue (b)    September 30    June 30    March 31    December 31    September 30 
In millions    2006    2006    2006    2005    2005 

Net interest income (expense)    $(1)    $(3)        $2    $1 
Noninterest income    38    55    $57    49    47 

   Total trading revenue    $37    $52    $57    $51    $48 

 
Securities underwriting and trading (c)    $8    $2    $4    $7    $2 
Foreign exchange    11    17    14    12    10 
Financial derivatives    18    33    39    32    36 

   Total trading revenue    $37    $52    $57    $51    $48 


(b)      See pages 12-13 for disclosure of average trading assets and liabilities.
 
(c)      Includes changes in fair value for certain loans accounted for at fair value. See page 12 for disclosure of average loans at fair value.
 

THE PNC FINANCIAL SERVICES GROUP, INC.                Page 10 
 
GAAP and Bank Efficiency Ratios (Unaudited)                     
 
            Three months ended         

    September 30    June 30    March 31    December 31    September 30 
               2006     2006             2006               2005    2005 

 
 
 PNC GAAP basis efficiency ratio (a) (c)               34%       64%             67%               67%    69% 
 Bank efficiency ratio (b) (c)               24%       59%             63%               64%    67% 
 PNC adjusted efficiency ratio (c)               66%                 
 Bank adjusted efficiency ratio (c)               56%                 


(a)      Calculated as noninterest expense divided by the sum of net interest income and noninterest income.
 
(b)      The bank efficiency ratio represents the consolidated (GAAP basis) efficiency ratio excluding the effect of BlackRock and PFPC. We believe the disclosure of this bank efficiency ratio is meaningful for investors because it provides a more relevant basis of comparison with other financial institutions that may not have significant asset management and fund processing businesses.
 

Reconciliation of GAAP amounts with amounts used in the calculation of the bank efficiency ratio:

            Three months ended         

    September 30    June 30    March 31    December 31    September 30 
Dollars in millions    2006    2006    2006    2005    2005 

PNC total revenue, GAAP basis    $3,510    $1,786    $1,741    $1,709    $1,675 
Less: BlackRock revenue*    325    365    409    373    320 
           PFPC revenue*    208    208    218    209    211 

 Revenue, as adjusted    $2,977    $1,213    $1,114    $1,127    $1,144 
 
PNC noninterest expense, GAAP basis    $1,178    $1,149    $1,171    $1,145    $1,159 
Less: BlackRock noninterest expense    295    264    296    256    221 
PFPC noninterest expense    166    167    173    165    171 

 Noninterest expense, as adjusted    $717    $718    $702    $724    $767 

*      These amounts differ from amounts included on pages 7 and 8 of this financial supplement due to the presentation on pages 7 and 8 of BlackRock revenue on a taxable-equivalent basis and classification differences related to BlackRock and PFPC. Note 13 Segment Reporting in our second quarter 2006 Quarterly Report on Form 10-Q provides further details on these differences.
 
  (c) The following present calculations of (1) PNC adjusted efficiency ratio and (2) bank adjusted efficiency ratio for third quarter 2006, as (1) and (2) are adjusted to illustrate the impact of certain third quarter 2006 items due to the magnitude of the aggregate of those items, and reconciliations of those adjusted amounts to amounts used in the PNC GAAP basis efficiency ratio. The absence of adjusted amounts for the other periods presented is not intended to imply that there could not have been other similar types of adjustments for those periods, but any such adjustments would not have been similar in magnitude to the amount of the adjustments shown for third quarter 2006.
 
    September 30 
For the three months ended - dollars in millions    2006 


Reconciliation of GAAP amounts with amounts used in the calculation of the adjusted PNC efficiency ratio:

PNC total revenue, GAAP basis    $3,510 
Adjustments:     
 Gain on BlackRock transaction    (2,078) 
 Securities portfolio rebalancing loss    196 
 Mortgage loan portfolio repositioning loss    48 

   PNC total revenue, as adjusted    $1,676 

 
PNC noninterest expense, GAAP basis    $1,178 
Adjustments:     
 BlackRock/MLIM transaction integration costs    (72) 

   PNC noninterest expense, as adjusted    $1,106 

PNC efficiency ratio, as adjusted    66% 

Reconciliation of amounts used in adjusted PNC efficiency ratio with amounts used in the adjusted bank efficiency ratio:

PNC total revenue, as adjusted    $1,676 
Less: BlackRock/PFPC revenue**    533 

Revenue for bank efficiency, as adjusted    $1,143 

 
PNC noninterest expense, as adjusted    $1,106 
Less: BlackRock/PFPC noninterest expense**    461 

Noninterest expense for bank efficiency, as adjusted    $645 

Bank efficiency ratio, as adjusted    56% 
 
** See detail in (b) above.     


THE PNC FINANCIAL SERVICES GROUP, INC.                Page 11 
 
Retail Banking Efficiency Ratios (Unaudited)                 
 
            Three months ended         

    September 30    June 30    March 31    December 31    September 30 
    2006    2006    2006               2005    2005 

 Efficiency, GAAP basis (a)    57%    58%    58%                 57%    60% 
 Efficiency, as adjusted (b)    55%    56%    56%                 55%    58% 


(a)      Calculated as noninterest expense divided by the sum of net interest income and noninterest income.
 
(b)      Calculated by excluding the impact of Hilliard Lyons activities included within the Retail Banking business segment. Activities excluded are the principal activities of Hilliard Lyons on a management reporting basis, including client-related brokerage and trading, investment banking and investment management. Industry-wide efficiency measures for brokerage firms and asset management firms differ significantly due primarily to the highly variable compensation structure of brokerage firms. We believe the disclosure of an efficiency ratio for Retail Banking excluding the impact of these Hilliard Lyons activities is meaningful for investors as it provides a more relevant basis of comparison with other retail banking franchises.
 

Reconciliation of GAAP amounts with amounts used in the calculation of the adjusted Retail Banking efficiency ratio:

            Three months ended         

    September 30    June 30    March 31    December 31    September 30 
Dollars in millions    2006    2006    2006    2005    2005 

Revenue, GAAP basis    $791    $782    $753    $755    $740 
Less: Hilliard Lyons    48    50    56    48    50 

 Revenue, as adjusted    $743    $732    $697    $707    $690 
 
Noninterest expense, GAAP basis    $451    $455    $436    $434    $444 
Less: Hilliard Lyons    43    45    45    44    44 

 Noninterest expense, as adjusted    $408    $410    $391    $390    $400 


THE PNC FINANCIAL SERVICES GROUP, INC.                    Page 12 
 
Average Consolidated Balance Sheet (Unaudited)                     
    September 30    June 30    March 31    December 31    September 30 
Three months ended - in millions    2006    2006    2006    2005    2005 

Assets                     
Interest-earning assets                     
Securities available for sale and held to maturity                     
         Mortgage-backed, asset-backed, and other debt    $15,109    $13,771    $13,007    $12,541    $12,154 
         U.S. Treasury and government agencies/corporations    6,187    7,263    7,527    7,952    7,960 
         State and municipal    144    152    156    161    167 
         Corporate stocks and other    259    230    216    163    167 

             Total securities available for sale and held to maturity (a) (b)    21,699    21,416    20,906    20,817    20,448 
Loans, net of unearned income                     
     Commercial    20,431    20,348    19,556    19,130    19,685 
     Commercial real estate    3,268    3,071    3,021    2,983    2,947 
     Consumer    16,150    16,049    16,184    16,310    16,673 
     Residential mortgage    7,332    7,353    7,272    7,175    6,739 
     Lease financing    2,790    2,761    2,769    2,821    2,937 
     Other    367    354    344    364    469 

             Total loans, net of unearned income (a)    50,338    49,936    49,146    48,783    49,450 
Loans held for sale    2,408    2,411    2,745    2,715    2,390 
Federal funds sold and resale agreements    1,401    613    488    643    423 
Other    2,805    2,795    3,147    3,248    3,046 

             Total interest-earning assets    78,651    77,171    76,432    76,206    75,757 
Noninterest-earning assets                     
     Allowance for loan and lease losses    (609)    (600)    (600)    (628)    (634) 
     Cash and due from banks    3,161    3,140    3,187    3,325    3,233 
     Other    14,142    13,736    13,110    13,167    12,720 

             Total assets (a)    $95,345    $93,447    $92,129    $92,070    $91,076 

Supplemental Average Balance Sheet Information                     
 
Loans                     
Loans excluding conduit    $50,338    $49,936    $49,146    $48,353    $47,351 
Market Street conduit (a)                430    2,099 

     Total loans (a)    $50,338    $49,936    $49,146    $48,783    $49,450 

 
Trading Assets                     
Securities (c)    $1,460    $1,477    $1,797    $1,852    $1,734 
Resale agreements (d)    537    378    321    593    411 
Financial derivatives (e)    1,220    1,251    908    849    695 
Loans at fair value (e)    168    170             

     Total trading assets    $3,385    $3,276    $3,026    $3,294    $2,840 


(a)      We deconsolidated Market Street from our Consolidated Balance Sheet in October 2005. Assets and liabilities of Market Street, consisting primarily of securities, loans, and commercial paper, are not reflected in our Average Consolidated Balance Sheet after October 17, 2005. The deconsolidation of Market Street affected the following loan categories: commercial, consumer, lease financing and other.
 
(b)      Securities held to maturity totaled less than $.5 million for each of the periods presented and are included in the "Mortgage-backed, asset-backed, and other debt" category above.
 
(c)      Included in "Interest-earning assets-Other" above.
 
(d)      Included in "Federal funds sold and resale agreements" above.
 
(e)      Included in "Noninterest-earning assets-Other" above.
 

THE PNC FINANCIAL SERVICES GROUP, INC.                    Page 13 
 
Average Consolidated Balance Sheet (Unaudited) (Continued)                     
 
    September 30    June 30    March 31    December 31    September 30 
Three months ended - in millions    2006    2006    2006    2005    2005 

Liabilities, Minority and Noncontrolling Interests, and Shareholders' Equity                 
Interest-bearing liabilities                     
Interest-bearing deposits                     
     Money market    $20,565    $19,019    $18,482    $19,194    $18,447 
     Demand    8,075    8,229    8,304    8,378    8,343 
     Savings    2,021    2,177    2,250    2,377    2,589 
     Retail certificates of deposit    14,209    13,686    13,243    12,804    12,143 
     Other time    1,467    1,323    1,309    1,527    2,306 
     Time deposits in foreign offices    3,712    4,276    3,396    2,482    2,061 

         Total interest-bearing deposits    50,049    48,710    46,984    46,762    45,889 
Borrowed funds                     
     Federal funds purchased    3,831    2,715    2,594    2,518    1,704 
     Repurchase agreements    2,027    2,226    2,307    1,915    2,137 
     Bank notes and senior debt    2,801    3,145    3,824    3,558    3,271 
     Subordinated debt    4,436    4,437    4,437    4,438    3,996 
     Commercial paper (a)    153    206    219    798    3,316 
     Other    1,474    2,298    2,380    2,960    2,790 

         Total borrowed funds    14,722    15,027    15,761    16,187    17,214 

         Total interest-bearing liabilities    64,771    63,737    62,745    62,949    63,103 
Noninterest-bearing liabilities, minority and noncontrolling                     
interests, and shareholders' equity                     
     Demand and other noninterest-bearing deposits    14,549    13,926    13,966    14,057    13,738 
     Allowance for unfunded loan commitments                     
         and letters of credit    104    103    101    80    84 
     Accrued expenses and other liabilities    6,346    6,305    6,106    6,049    5,408 
     Minority and noncontrolling interests in                     
         consolidated entities    640    631    589    599    518 
     Shareholders' equity    8,935    8,745    8,622    8,336    8,225 

         Total liabilities, minority and noncontrolling                     
interests, and shareholders' equity    $95,345    $93,447    $92,129    $92,070    $91,076 

Supplemental Average Balance Sheet Information                     
Deposits and Other                     
Interest-bearing deposits    $50,049    $48,710    $46,984    $46,762    $45,889 
Demand and other noninterest-bearing deposits    14,549    13,926    13,966    14,057    13,738 

     Total deposits    $64,598    $62,636    $60,950    $60,819    $59,627 
Transaction deposits    $43,189    $41,174    $40,752    $41,629    $40,528 
Market Street commercial paper (a)                $514    $2,553 
Common shareholders' equity    $8,928    $8,738    $8,615    $8,328    $8,217 
 
Trading Liabilities                     
Securities sold short (b)    $867    $769    $663    $961    $806 
Repurchase agreements and other borrowings (c)    708    641    886    985    933 
Financial derivatives (d)    1,151    1,200    901    908    814 
Borrowings at fair value (d)    40    48             

     Total trading liabilities    $2,766    $2,658    $2,450    $2,854    $2,553 


(a)      See note (a) on page 12.
 
(b)      Included in "Borrowed funds-Other" above.
 
(c)      Included in "Borrowed funds-Repurchase agreements" and "Borrowed funds-Other" above.
 
(d)      Included in "Accrued expenses and other liabilities" above.
 

THE PNC FINANCIAL SERVICES GROUP, INC.                        Page 14 
 
Details of Loans and Lending Statistics (Unaudited)                             
 
Loans                             
    September 30        June 30        March 31    December 31    September 30 
Period ended - in millions    2006        2006        2006    2005    2005 

Commercial                             
   Retail/wholesale    $5,245        $5,393        $4,962    $4,854    $5,114 
   Manufacturing    4,318        4,164        4,113    4,045    4,321 
   Other service providers    2,155        2,179        2,114    1,986    2,173 
   Real estate related    3,000        2,903        2,845    2,577    2,492 
   Financial services    1,423        1,479        1,561    1,438    1,297 
   Health care    685        641        651    616    608 
   Other    3,858        3,805        3,681    3,809    4,098 

     Total commercial    20,684        20,564        19,927    19,325    20,103 

Commercial real estate                             
   Real estate projects    2,691        2,438        2,325    2,244    2,147 
   Mortgage    794        768        721    918    779 

     Total commercial real estate    3,485        3,206        3,046    3,162    2,926 

Equipment lease financing    3,609        3,583        3,558    3,628    3,721 

     Total commercial lending    27,778        27,353        26,531    26,115    26,750 

Consumer                             
   Home equity    13,876        13,853        13,787    13,790    13,722 
   Automobile    1,061        1,008        958    938    931 
   Other    1,419        1,388        1,363    1,445    2,232 

     Total consumer    16,356        16,249        16,108    16,173    16,885 

Residential mortgage    5,234        7,416        7,362    7,307    7,156 
Other    347        358        352    341    575 
Unearned income    (815)        (828)        (832)    (835)    (856) 

     Total, net of unearned income (a)    $48,900        $50,548        $49,521    $49,101    $50,510 

Supplemental Loan Information                             
Loans excluding conduit    $48,900        $50,548        $49,521    $49,101    $47,889 
Market Street conduit (a)                            2,621 

     Total loans (a)    $48,900        $50,548        $49,521    $49,101    $50,510 

 
    September 30        September 30                 
    2006        2005                 

Commercial Lending Exposure (b)(c)                             
Investment grade or equivalent    49    %    48    %             
Non-investment grade                             
   $50 million or greater    3    %    2    %             
   All other non-investment grade    48    %    50    %             

     Total    100    %    100    %             


(a)      See note (a) on page 12.
 
(b)      Includes all commercial loans in the Retail Banking and Corporate & Institutional Banking business segments other than the loans of Market Street. We deconsolidated Market Street from our Consolidated Balance Sheet effective October 17, 2005.
 
(c)      Exposure represents the sum of all loans, leases, commitments and letters of credit.
 

THE PNC FINANCIAL SERVICES GROUP, INC.

Page 15

Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit and
Net Unfunded Commitments
(Unaudited)

Change in Allowance for Loan and Lease Losses                     
    September 30    June 30    March 31    December 31    September 30 
Three months ended - in millions    2006    2006    2006    2005    2005 

Beginning balance    $611    $597    $596    $634    $628 
Charge-offs                     
   Commercial    (39)    (30)    (16)    (8)    (16) 
   Commercial real estate    (2)            (1)     
   Equipment lease financing (a)                (29)     
   Consumer    (13)    (12)    (12)    (12)    (12) 
   Residential mortgage    (2)            (1)     

     Total charge-offs (a)    (56)    (42)    (28)    (51)    (28) 
Recoveries                     
   Commercial    6    4    6    6    8 
   Commercial real estate                    1 
   Equipment lease financing        4             
   Consumer    3    4    4    4    4 

     Total recoveries    9    12    10    10    13 
Net recoveries (charge-offs)                     
   Commercial    (33)    (26)    (10)    (2)    (8) 
   Commercial real estate    (2)            (1)    1 
   Equipment lease financing (a)        4        (29)     
   Consumer    (10)    (8)    (8)    (8)    (8) 
   Residential mortgage    (2)            (1)     

     Total net charge-offs (a)    (47)    (30)    (18)    (41)    (15) 
Provision for credit losses    16    44    22    24    16 
Net change in allowance for unfunded loan                     
   commitments and letters of credit    (14)        (3)    (21)    5 

       Ending balance    $566    $611    $597    $596    $634 

 
Supplemental Information                     
Commercial lending net charge-offs (a) (b)    $(35)    $(22)    $(10)    $(32)    $(7) 
Consumer lending net charge-offs (c)    (12)    (8)    (8)    (9)    (8) 

   Total net charge-offs (a)    $(47)    $(30)    $(18)    $(41)    $(15) 
Net charge-offs to average loans                     
   Commercial lending               .52 %           .34 %           .16 %               .51 %               .11 % 
   Consumer lending    .20    .14    .14    .15    .14 

(a) Fourth quarter 2005 amounts reflect the impact of a charge-off related to a single leasing customer during that period.             
(b) Includes commercial, commercial real estate and equipment lease financing.                     
(c) Includes consumer and residential mortgage.                     
 
Change in Allowance for Unfunded Loan Commitments and Letters of Credit                 
    September 30    June 30    March 31    December 31    September 30 
Three months ended - in millions    2006    2006    2006    2005    2005 

Beginning balance    $103    $103    $100    $79    $84 
Net change in allowance for unfunded                     
 loan commitments and letters of credit    14        3    21    (5) 

     Ending balance    $117    $103    $103    $100    $79 

 
 
Net Unfunded Commitments    September 30    June 30    March 31    December 31    September 30 
In millions    2006    2006    2006    2005    2005 

Net unfunded commitments (d)    $43,804    $40,904    $40,806    $40,178    $35,261 


(d)      Balances subsequent to October 17, 2005 reflect the deconsolidation of Market Street from our Consolidated Balance Sheet as of that date. Amounts related to Market Street are now considered third party net unfunded commitments.
 

THE PNC FINANCIAL SERVICES GROUP, INC.                                Page 16 
 
Details of Nonperforming Assets (Unaudited)                                 
 
Nonperforming Assets by Type                                 
    September 30    June 30        March 31        December 31        September 30 
Period ended - in millions    2006    2006        2006        2005        2005 

Nonaccrual loans