Mercantile Bankshares Reports Fourth Quarter Results

Edward J. Kelly, III, Chairman, President and Chief Executive Officer of Mercantile Bankshares Corporation ("Bankshares") (Nasdaq: MRBK), today reported that net income for the quarter ended December 31, 2006 was $72.9 million, a 2.7% decrease from net income of $74.9 million for the same period in 2005 and a 1.8% increase over the $71.6 million reported for the third quarter of 2006. The results of operations for James Monroe Bancorp, Inc. ("James Monroe") are included subsequent to the close of business on July 17, 2006. On the merger date, James Monroe had total loans of $414 million, total assets of $552 million and total deposits of $434 million.

On October 9, 2006, Bankshares announced that it had entered into a Merger Agreement with PNC Financial Services Group, Inc. ("PNC"). If the merger is completed, each share of Bankshares' common stock will be converted into 0.4184 shares of PNC common stock and $16.45 in cash. The merger is currently expected to occur in March 2007, and is subject to the approval of Bankshares' shareholders, receipt of specified governmental approvals (including the approval of the Board of Governors of the Federal Reserve System) and certain other customary closing conditions.

During the quarter ended December 31, 2006, Bankshares expensed $13.1 million, or $9.2 million on an after-tax basis, of costs pursuant to the Merger Agreement with PNC. These expenses were comprised primarily of $6.8 million in professional fees and $6.3 million of compensation related expenses.

For the quarter ended December 31, 2006, diluted net income per share was $0.57, a decrease of 5.0% from the $0.60 reported for the fourth quarter of 2005. Adjusted weighted average shares outstanding increased from 124.1 million for the quarter ended December 31, 2005 to 126.7 million for the quarter ended December 31, 2006, primarily as a result of the James Monroe acquisition.

For the year 2006, net income was $288.3 million, an increase of 4.3% over the $276.3 million reported for the year 2005. Diluted net income per share for 2006 was $2.30, a 1.8% increase over the $2.26 for 2005. Adjusted weighted average shares outstanding increased from 122.4 million for the year ended December 31, 2005 to 125.3 million for the year ended December 31, 2006.

Bankshares also reports cash operating earnings defined as "GAAP" (Generally Accepted Accounting Principles) earnings excluding the amortization of intangible assets associated with purchase accounting for business combinations; securities gains and losses; and other significant gains, losses or expenses (such as those associated with integrating acquired entities' operations into Bankshares and expenses related to the PNC merger) unrelated to Bankshares' core operations. Cash operating earnings totaled $83.0 million for the fourth quarter of 2006, an increase of 8.5% over the $76.5 million for the same period in 2005 and a 13.1% increase over the $73.4 million for the third quarter of 2006. A reconciliation of GAAP basis net income to cash operating earnings is found at the end of this release.

For the year ended 2006, cash operating earnings were $302.9 million, an increase of 8.3% over the $279.6 million reported for the year ended 2005.

Mr. Kelly stated: "We had a good quarter. Net interest income was up, noninterest income was up and credit quality remained strong. Excluding expenses associated with the PNC merger, expenses were well controlled and earnings were good. I believe we performed well in what continues to be a challenging environment for banks."

Net interest income for the quarter ended December 31, 2006 increased 4.7% to $170.0 million from $162.4 million in the fourth quarter of last year. The increase was due primarily to strong loan growth. Average loans increased $1.2 billion, or 10.1%, with approximately $414.3 million, or 35.6%, of the increase, provided by the James Monroe acquisition. The net interest margin increased four basis points from the third quarter of 2006 due to an improvement in the loan portfolio yield resulting from improved pricing and the recapture of interest on a nonperforming loan that was sold during the quarter. The net interest margin was 4.30% and 4.43% for the fourth quarters of 2006 and 2005, respectively. The net interest spread declined 37 basis points as competitive pressure on deposit pricing intensified and the overall yield on the investment portfolio, while improved, lagged the increase in funding costs. This was offset by a 24 basis point improvement in the benefit derived from noninterest-bearing sources of funds.

Net interest income for the year ended 2006 increased to $655.8 million, or 6.3%, over the $617.1 million for the year ended 2005. The increase was due primarily to strong loan growth offset by a lower net interest margin. The net interest margin decreased 13 basis points in 2006 to 4.31% from 4.44% in 2005. The decrease was attributable to a 40 basis point decline in the net interest spread, which was partially offset by a 27 basis point increase in the benefit derived from noninterest bearing sources of funds.

Average loans of $12.7 billion in the fourth quarter of 2006 increased 10.1% from $11.5 billion in the fourth quarter of 2005 and increased by $259.7 million, or 2.1%, on a linked-quarter basis. Average loan growth was driven primarily by increases in construction, commercial real estate and residential real estate lending, which were up 27.1%, 13.9% and 11.8%, respectively, from the fourth quarter of 2005. The James Monroe acquisition provided approximately 17.0% of the construction, 53.9% of the commercial real estate loan and approximately 6.3% of the residential real estate loan growth.

Total deposits averaged $12.8 billion for the fourth quarter of 2006, up 7.3% from $11.9 billion for the same period last year and up $167.2 million, or 1.3%, on a linked-quarter basis. Average deposit growth was driven primarily by increases in money market, time deposits $100,000 and over and other time deposits, which were up 29.2%, 34.8%, and 6.2%, respectively, from the fourth quarter of 2005. The James Monroe acquisition provided approximately 50.1% of the deposit growth from the fourth quarter of 2005.

At December 31, 2006, nonperforming assets amounted to $32.4 million or 0.25% of period-end loans and other real estate owned. The comparable nonperforming asset ratios were 0.29% and 0.20% at September 30, 2006 and December 31, 2005, respectively. Loans past due 30-89 days were $78.6 million at December 31, 2006 compared with $34.5 million at September 30, 2006 and $65.2 million at December 31, 2005.

The allowance for loan losses was $143.0 million at December 31, 2006, representing 1.12% of total loans. The allowance for loan losses to total loans was 1.15% at September 30, 2006 and 1.35% at December 31, 2005. The allowance for loan losses as a percentage of nonperforming loans decreased from 694.32% at December 31, 2005 to 461.98% at December 31, 2006. Net charge-offs for the quarter ended December 31, 2006 were $0.8 million. The comparable amounts for the quarters ended September 30, 2006 and December 31, 2005 were net charge-offs of $1.1 million and $0.5 million, respectively. No provision for possible loan losses was taken for the quarter ended December 31, 2006. A provision of $1.9 million was taken for the quarter ended December 31, 2005.

Noninterest income, which includes investment and wealth management ("IWM") fees, service charges on deposit accounts, mortgage banking-related fees, securities gains and losses, income from nonmarketable investments and other income, increased 12.5% to $69.9 million for the fourth quarter of 2006 from $62.1 million for the fourth quarter of 2005. For the fourth quarter of 2006, IWM revenue increased $4.0 million from the fourth quarter of 2005. Nonmarketable investment income for the fourth quarter of 2006 increased by $3.9 million over the same period in 2005 due primarily to a $2.1 million increase in private equity and other investments income and a $1.5 million increase in hedge fund revenues. Increases in service charges on deposit accounts of $1.5 million and a gain on the sale of a bank-owned premises of $1.6 million, were substantially offset by a $2.9 million decrease in mortgage banking-related fees. Noninterest income increased 16.9% to $69.9 million for the fourth quarter of 2006 from $59.8 million for the third quarter of 2006. This increase was related primarily to increases in revenues from private equity and other investments of $5.2 million and a $3.4 million increase in hedge fund revenues.

Noninterest income for the year ended 2006 increased 4.8% to $254.7 million from $243.1 million for 2005 due primarily to increased IWM fees of $15.1 million. Stronger equity markets and net new sales across both mutual funds and separately managed personal accounts contributed to the increase. Mortgage banking-related fees were $8.2 million lower than the prior year due principally to the sale of Columbia National Real Estate Finance, LLC. Nonmarketable investment income increased $3.6 million over 2005 as a result of increased hedge fund revenues and higher income from bank-owned life insurance. Higher electronic banking, insurance and letters of credit fees also contributed to the increase.

Noninterest expenses, which include salaries, employee benefits, net occupancy expense of bank premises, furniture and equipment expenses, communications and supplies, professional services, advertising and promotional and other expenses, increased by 18.9% for the quarter ended December 31, 2006 to $128.8 million from $108.4 million for the fourth quarter of 2005. PNC and James Monroe merger-related expenses accounted for $13.4 million of the $20.5 million increase in fourth quarter noninterest expenses over the prior year. The $13.4 million of expenses consisted of $7.1 million in additional professional fees and $6.3 million of compensation expenses pursuant to the PNC Merger Agreement. Excluding merger-related expenses, the $7.1 million increase in noninterest expenses consisted primarily of $2.7 million in merit and staffing increases and a $1.8 million increase in stock based compensation partially offset by a $4.0 million decrease in incentive compensation related to operating performance and reductions of $1.4 million in salaries expense due to an increase in the amount of loan origination costs deferred. Employee benefits increased $2.9 million due primarily to increased pension costs and medical expenses. Net occupancy expense increased $1.1 million primarily related to the increase in building rent of $0.7 million and the loss of $0.3 million in outside tenant income. Furthermore, promotional expenses, professional fees and charitable contributions increased $1.5 million, $0.9 million and $0.6 million, respectively over the fourth quarter of 2005. James Monroe's noninterest expenses accounted for $3.6 million of the $7.1 million increase from the fourth quarter of 2005.

Noninterest expenses for 2006 increased to $457.4 million or 8.7% over $420.8 million for 2005. Excluding the $13.4 million PNC and James Monroe merger-related expenses, noninterest expenses increased $23.2 million from the prior year. This increase was comprised of $15.3 million in merit and staffing expenses; $6.1 million in stock based compensation; $0.6 million in directors' fees; and $9.9 million in employee benefits, due primarily to increased pension costs of $5.7 million and higher insurance expenses of $2.6 million. Net occupancy expenses of bank premises increased $4.2 million due primarily to increased rent expenses and furniture and equipment expenses increased $1.8 million. Also contributing to the overall increase in noninterest expenses were $2.8 million in professional fees, $2.6 million in promotional fees and a $2.1 million increase in tax and licensing fees related to the restructuring of a real estate pension advisory relationship. These increases were partially offset by a reduction of $15.9 million in salaries expense due to an increase in the amount of loan origination costs deferred and an $8.7 million decrease in incentive compensation. Included in the $23.2 million increase in noninterest expenses were $6.2 million from James Monroe which was acquired during the third quarter of 2006.

The cash operating efficiency ratio, a key measure of expense management, was 46.91% for the fourth quarter of 2006 versus 46.69% for the comparable period in 2005 and 48.02% for the third quarter of 2006. Return on average assets for the fourth quarter of 2006 was 1.64%; return on average tangible equity was 18.01%; and the ratio of average tangible equity to average tangible assets was 9.80%. These ratios were 1.64%, 17.87% and 9.79%, respectively, for the third quarter of 2006 and 1.83%, 20.26% and 9.61%, respectively, for the fourth quarter of 2005. See Footnotes No. 1, 2 and 3 at the end of this release for a reconciliation of the GAAP and non-GAAP measures referred to in this paragraph.

For the year ended December 31, 2006, return on average assets was 1.69%; return on average tangible equity was 18.40%; and the ratio of average tangible equity to average tangible assets was 9.82%. These ratios were 1.78%, 19.54% and 9.70%, respectively, for the year ended December 31, 2005. See Footnotes No. 1, 2 and 3 at the end of this release for a reconciliation of the GAAP and non-GAAP measures referred to in this paragraph.

At December 31, 2006, total assets increased by 7.9% to $17.7 billion and total loans increased by 10.2% to $12.8 billion from December 31, 2005. Total deposits increased by 5.8% from the prior year to $12.8 billion at December 31, 2006.

Mercantile Bankshares Corporation, with more than $17.7 billion in assets, is a regional multi-bank financial holding company with headquarters in Baltimore, Maryland. Its member banks serve communities in Maryland, Washington, D.C., Northern Virginia, the Delmarva Peninsula and southern Pennsylvania from a network of 240 offices and more than 255 ATMs. The Investment & Wealth Management division has assets in excess of $43 billion, with management responsibility for more than $21 billion. Additional information is available at http://www.mercantile.com.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This press release contains financial information determined by methods other than in accordance with Generally Accepted Accounting Principles ("GAAP"). Bankshares' management uses these operating earnings measures in their analysis of the Company's performance. These measures typically adjust GAAP performance measures to exclude intangible assets and the amortization of intangible assets related to the consummation of mergers. These operating earnings measures may also exclude other significant gains, losses or expenses that are not considered components of core operations. Since these items and their impact on Bankshares' performance are difficult to predict, management believes presentations of financial measures excluding the impact of these items provide useful supplemental information that is essential to a proper understanding of the operating results and financial position of Bankshares' core businesses. These disclosures should not be viewed as a substitute for results determined in accordance with GAAP, nor are they necessarily comparable to operating earnings performance measures that may be presented by other companies.

This document contains forward-looking statements regarding our outlook or expectations with respect to the planned acquisition of Mercantile, the expected costs to be incurred in connection with the acquisition, Mercantile's future performance and consequences of its integration into PNC, and the impact of the transaction on PNC's future performance. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. The forward-looking statements in this press release speak only as of the date of the press release, and each of PNC and Mercantile assumes no duty, and does not undertake, to update them. Actual results or future events could differ, possibly materially, from those that we anticipated in these forward-looking statements. These forward-looking statements are subject to the principal risks and uncertainties applicable to the respective businesses of PNC and Mercantile generally that are disclosed in the 2005 Form 10-K and in current year Form 10-Qs and 8-Ks of PNC and Mercantile (accessible on the SEC's website at http://www.sec.gov and on PNC's website at http://www.pnc.com and on Mercantile's website at http://www.mercantile.com, respectively). In addition, forward-looking statements in this press release are subject to the following risks and uncertainties related both to the acquisition transaction itself and to the integration of the acquired business into PNC after closing: * Completion of the transaction is dependent on, among other things, receipt of regulatory and shareholder approvals, the timing of which cannot be predicted with precision at this point and which may not be received at all. The impact of the completion of the transaction on PNC's financial statements will be affected by the timing of the transaction. * The transaction may be substantially more expensive to complete (including the integration of Mercantile's businesses) and the anticipated benefits, including anticipated cost savings and strategic gains, may be significantly harder or take longer to achieve than expected or may not be achieved in their entirety as a result of unexpected factors or events. * The integration of Mercantile's business and operations into PNC, which will include conversion of Mercantile's different systems and procedures, may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to Mercantile's or PNC's existing businesses. * The anticipated benefits to PNC are dependent in part on Mercantile's business performance in the future, and there can be no assurance as to actual future results, which could be impacted by various factors, including the risks and uncertainties generally related to PNC's and Mercantile's performance or due to factors related to the acquisition of Mercantile and the process of integrating it into PNC.

Additional financial information is attached.

CONSOLIDATED FINANCIAL SUMMARY

In thousands, except per share data

(unaudited)

For the Twelve Months Ended

December 31,

% Increase

2006 2005 (Decrease)

OPERATING RESULTS

Net interest income (1) $655,787 $617,126 6.3 %

Net interest income - taxable

equivalent (1) 663,158 623,973 6.3

Provision for credit losses - 1,576 (100.0)

Net income 288,286 276,319 4.3

PER COMMON SHARE DATA*

Basic net income $2.32 $2.28 1.8 %

Diluted net income 2.30 2.26 1.8

Dividends paid 1.10 0.99 11.1

Book value at period end 19.25 17.81 8.1

Market value at period end 46.79 37.63 24.3

Market range:

High 47.39 40.09 18.2

Low 34.29 32.27 6.3

AVERAGE BALANCE SHEET DATA

Total loans $12,161,012 $11,029,551 10.3 %

Total earning assets 15,398,521 14,068,137 9.5

Total assets 17,032,263 15,521,019 9.7

Total deposits 12,373,471 11,413,755 8.4

Shareholders' equity 2,342,097 2,096,417 11.7

STATISTICS AND RATIOS

(Net income annualized)

Return on average assets 1.69 % 1.78 %

Return on average equity (2) 12.31 13.18

Return on average tangible equity (2) 18.40 19.54

Average equity to average assets (2) 13.75 13.51

Average tangible equity to average

tangible assets (2) 9.82 9.70

Net interest rate spread - taxable

equivalent 3.48 3.88

Net interest margin on earning

assets - taxable equivalent 4.31 4.44

Efficiency ratio (1),(3) 49.83 48.53

Cash operating efficiency ratio

(1),(3) 47.32 47.61

Dividend payout ratio* 47.41 43.42

Bank offices 240 240 -

Employees 3,544 3,606 (62)

CREDIT QUALITY DATA AT PERIOD END

Net charge-offs $815 $991 (17.8)%

Nonaccrual loans 30,960 22,565 37.2

Restructured loans - - -

Total nonperforming loans 30,960 22,565 37.2

Other real estate owned, net 1,405 667 110.6

Total nonperforming assets 32,365 23,232 39.3

CREDIT QUALITY RATIOS

Net charge-offs, annualized, as a

percent of period-end loans 0.01 % 0.01 %

Nonperforming loans as a percent

of period-end loans 0.24 0.19

Allowance for loan losses as a

percent of period-end loans** 1.12 1.35

Allowance for loan losses as a

percent of nonperforming loans** 461.98 694.32

Other real estate owned as a

percent of period-end loans and

other real estate owned 0.01 0.01

Nonperforming assets as a percent

of period-end loans and other

real estate owned 0.25 0.20

Nonperforming assets as a percent

of total assets 0.18 0.14

For the Quarter Ended December 31,

% Increase

2006 2005 (Decrease)

OPERATING RESULTS

Net interest income (1) $169,995 $162,434 4.7 %

Net interest income - taxable

equivalent (1) 171,842 164,267 4.6

Provision for credit losses - - -

Net income 72,862 74,863 (2.7)

PER COMMON SHARE DATA*

Basic net income $0.58 $0.61 (4.9)%

Diluted net income 0.57 0.60 (5.0)

Dividends paid 0.28 0.25 12.0

Book value at period end

Market value at period end

Market range:

High 47.39 40.09 18.2

Low 36.04 34.11 5.7

AVERAGE BALANCE SHEET DATA

Total loans $12,660,758 $11,497,885 10.1 %

Total earning assets 15,857,022 14,698,731 7.9

Total assets 17,581,286 16,258,275 8.1

Total deposits 12,759,281 11,894,394 7.3

Shareholders' equity 2,452,941 2,210,050 11.0

STATISTICS AND RATIOS

(Net income annualized)

Return on average assets 1.64 % 1.83 %

Return on average equity (2) 11.78 13.44

Return on average tangible equity (2) 18.01 20.26

Average equity to average assets (2) 13.95 13.59

Average tangible equity to average

tangible assets (2) 9.80 9.61

Net interest rate spread - taxable

equivalent 3.41 3.78

Net interest margin on earning

assets - taxable equivalent 4.30 4.43

Efficiency ratio (1),(3) 53.29 47.87

Cash operating efficiency ratio

(1),(3) 46.91 46.69

Dividend payout ratio* 48.28 40.98

Bank offices

Employees

CREDIT QUALITY DATA AT PERIOD END

Net charge-offs $824 $503 63.8 %

Nonaccrual loans

Restructured loans

Total nonperforming loans

Other real estate owned, net

Total nonperforming assets

CREDIT QUALITY RATIOS

Net charge-offs, annualized, as a

percent of period-end loans 0.03 % 0.02 %

Nonperforming loans as a percent of

period-end loans

Allowance for loan losses as a

percent of period-end loans**

Allowance for loan losses as a

percent of nonperforming loans**

Other real estate owned as a percent

of period-end loans and other real

estate owned

Nonperforming assets as a percent of

period-end loans and other real

estate owned

Nonperforming assets as a percent of

total assets

* In January 2006, Bankshares announced a three-for-two stock split on

its common stock. Per share amounts and other applicable information

have been adjusted to give

effect to the split.

** The decline in the allowance for loan losses was due primarily to the

reclassification in 2006 of $15.9 million out of the allowance for loan

losses to a separate reserve for

unfunded commitments in other liabilities.

In view of the changing conditions in the national economy, the effect

of actions taken by regulatory authorities and normal seasonal factors,

the results for the interim

period are not necessarily indicative of annual performance. For

comparability, certain prior period amounts were reclassified to conform

with current period presentation.

(1),(2),(3) See end of this release for additional information.

STATEMENTS OF CONSOLIDATED INCOME

In thousands, except per share data

(unaudited)

For the Twelve Months Ended December 31,

Increase/(Decrease)

2006 2005 Amount %

INTEREST INCOME

Interest and fees on loans $863,563 $700,832 $162,731 23.2 %

Interest and dividends

on investment securities:

Taxable interest income 126,492 107,133 19,359 18.1

Tax-exempt interest income 2,968 3,161 (193) (6.1)

Other investment income 2,655 2,475 180 7.3

132,115 112,769 19,346 17.2

Other interest income 3,044 2,436 608 25.0

Total interest income 998,722 816,037 182,685 22.4

INTEREST EXPENSE

Interest on deposits 251,118 139,917 111,201 79.5

Interest on short-term borrowings 55,100 26,266 28,834 109.8

Interest on long-term debt 36,717 32,728 3,989 12.2

Total interest expense 342,935 198,911 144,024 72.4

NET INTEREST INCOME 655,787 617,126 38,661 6.3

Provision for credit losses - 1,576 (1,576) (100.0)

NET INTEREST INCOME AFTER

PROVISION FOR CREDIT LOSSES 655,787 615,550 40,237 6.5

NONINTEREST INCOME

Investment and wealth management 110,879 95,756 15,123 15.8

Service charges on deposit accounts 46,339 43,885 2,454 5.6

Mortgage banking-related fees 6,786 15,019 (8,233) (54.8)

Investment securities gains and

(losses) 212 405 (193) (47.7)

Nonmarketable investments 23,520 19,882 3,638 18.3

Other income 66,998 68,173 (1,175) (1.7)

Total noninterest income 254,734 243,120 11,614 4.8

NONINTEREST EXPENSES

Salaries 205,826 200,222 5,604 2.8

Employee benefits 56,100 46,175 9,925 21.5

Net occupancy expense of bank

premises 32,783 28,596 4,187 14.6

Furniture and equipment expenses 33,445 31,659 1,786 5.6

Communications and supplies 16,034 16,406 (372) (2.3)

Professional services 31,483 21,914 9,569 43.7

Advertising and promotional 11,663 9,103 2,560 28.1

Other expenses 70,055 66,746 3,309 5.0

Total noninterest expenses 457,389 420,821 36,568 8.7

Income before income taxes 453,132 437,849 15,283 3.5

Applicable income taxes 164,846 161,530 3,316 2.1

NET INCOME $288,286 $276,319 $11,967 4.3

Weighted average shares

outstanding* 124,081 121,349 2,732 2.3

Adjusted weighted average

shares outstanding* 125,321 122,390 2,931 2.4

NET INCOME PER COMMON SHARE:*

Basic $2.32 $2.28 $0.04 1.8

Diluted $2.30 $2.26 $0.04 1.8

For the Quarter Ended December 31,

Increase/(Decrease)

2006 2005 Amount %

INTEREST INCOME

Interest and fees on loans $235,194 $192,697 $42,497 22.1 %

Interest and dividends

on investment securities:

Taxable interest income 33,169 30,081 3,088 10.3

Tax-exempt interest income 695 813 (118) (14.5)

Other investment income 669 722 (53) (7.3)

34,533 31,616 2,917 9.2

Other interest income 433 890 (457) (51.3)

Total interest income 270,160 225,203 44,957 20.0

INTEREST EXPENSE

Interest on deposits 75,480 44,637 30,843 69.1

Interest on short-term borrowings 15,362 9,038 6,324 70.0

Interest on long-term debt 9,323 9,094 229 2.5

Total interest expense 100,165 62,769 37,396 59.6

NET INTEREST INCOME 169,995 162,434 7,561 4.7

Provision for credit losses - - - -

NET INTEREST INCOME AFTER

PROVISION FOR CREDIT LOSSES 169,995 162,434 7,561 4.7

NONINTEREST INCOME

Investment and wealth management 28,297 24,251 4,046 16.7

Service charges on deposit accounts 12,403 10,893 1,510 13.9

Mortgage banking-related fees 1,744 4,690 (2,946) (62.8)

Investment securities gains and

(losses) 7 (53) 60 113.2

Nonmarketable investments 10,137 6,199 3,938 63.5

Other income 17,305 16,131 1,174 7.3

Total noninterest income 69,893 62,111 7,782 12.5

NONINTEREST EXPENSES

Salaries 58,071 51,740 6,331 12.2

Employee benefits 13,562 10,685 2,877 26.9

Net occupancy expense of bank

premises 8,792 7,678 1,114 14.5

Furniture and equipment expenses 8,693 8,491 202 2.4

Communications and supplies 3,951 4,414 (463) (10.5)

Professional services 13,528 5,867 7,661 130.6

Advertising and promotional 4,091 2,553 1,538 60.2

Other expenses 18,135 16,945 1,190 7.0

Total noninterest expenses 128,823 108,373 20,450 18.9

Income before income taxes 111,065 116,172 (5,107) (4.4)

Applicable income taxes 38,203 41,309 (3,106) (7.5)

NET INCOME $72,862 $74,863 $(2,001) (2.7)

Weighted average shares outstanding* 125,276 122,923 2,353 1.9

Adjusted weighted average

shares outstanding* 126,748 124,134 2,614 2.1

NET INCOME PER COMMON SHARE:*

Basic $0.58 $0.61 $(0.03) (4.9)

Diluted $0.57 $0.60 $(0.03) (5.0)

* In January 2006, Bankshares announced a three-for-two stock split on its

common stock. Average share and per share amounts have been

adjusted to give effect to the split.

CONSOLIDATED BALANCE SHEETS

In thousands, except per share data

(unaudited)

December 31,

Increase/(Decrease)

2006 2005 Amount %

ASSETS

Cash and due from banks $347,246 $369,536 $(22,290) (6.0)%

Interest-bearing deposits

in other banks 200 200 - -

Trading account securities

at fair value 3,605 - 3,605 -

Investment securities:

Available-for-sale at

fair value

U.S. Treasury and

government agencies 1,174,254 1,411,344 (237,090) (16.8)

Mortgage-backed

securities 1,821,730 1,544,261 277,469 18.0

States and political

subdivisions 56,699 70,135 (13,436) (19.2)

Other investments 57,770 63,888 (6,118) (9.6)

Held-to-maturity

States and political

subdivisions - fair

value of $13,462 (2006)

and $17,181 (2005) 13,099 16,659 (3,560) (21.4)

Total investment

securities 3,123,552 3,106,287 17,265 0.6

Federal funds sold 2,609 25,104 (22,495) (89.6)

Loans held-for-sale - 26,263 (26,263) (100.0)

Loans 12,792,733 11,607,845 1,184,888 10.2

Less: allowance for loan

losses (143,029) (156,673) (13,644) (8.7)

Loans, net 12,649,704 11,451,172 1,198,532 10.5

Bank premises and

equipment, net 141,464 137,419 4,045 2.9

Other real estate owned,

net 1,405 667 738 110.6

Goodwill 768,686 670,028 98,658 14.7

Other intangible assets,

net 45,736 46,653 (917) (2.0)

Other assets 631,818 588,400 43,418 7.4

Total assets $17,716,025 $16,421,729 $1,294,296 7.9

LIABILITIES

Deposits:

Noninterest-bearing

deposits $3,271,286 $3,324,650 $(53,364) (1.6)

Interest-bearing deposits 9,502,605 8,752,700 749,905 8.6

Total deposits 12,773,891 12,077,350 696,541 5.8

Short-term borrowings 1,652,196 1,237,714 414,482 33.5

Accrued expenses and other

liabilities 213,752 169,780 43,972 25.9

Long-term debt 659,020 742,163 (83,143) (11.2)

Total liabilities 15,298,859 14,227,007 1,071,852 7.5

SHAREHOLDERS' EQUITY

Preferred stock, no par

value; authorized

2,000,000 shares; issued

and outstanding--None

Common stock, $2 par

value;

authorized 200,000,000

shares 251,163 164,331 86,832 52.8

Capital surplus 672,698 676,830 (4,132) (0.6)

Retained earnings 1,540,836 1,386,405 154,431 11.1

Accumulated other

comprehensive income

(loss) (47,531) (32,844) (14,687) (44.7)

Total shareholders'

equity 2,417,166 2,194,722 222,444 10.1

Total liabilities and

shareholders'

equity $17,716,025 $16,421,729 $1,294,296 7.9

Actual shares outstanding* 125,581 123,248 2,333 1.9

Book value per common

share* $19.25 $17.81 $1.44 8.1

* In January 2006, Bankshares announced a three-for-two stock split on its

common stock. Share and per share amounts

have been adjusted to give effect to the split.

CONSOLIDATED AVERAGE BALANCE SHEETS

In thousands

(unaudited)

For the Twelve Months Ended December 31,

2006 2005

Earning assets Average Yield(1) Average Yield(1)

Loans: Balance / Rate Balance / Rate

Commercial and leasing $2,948,882 7.51 % $2,900,598 6.43 %

Commercial real estate 3,922,356 7.09 3,444,921 6.57

Construction 1,851,632 8.24 1,473,353 6.96

Residential real estate 1,918,257 6.21 1,761,955 5.98

Home equity lines 480,747 7.77 507,153 6.05

Consumer 1,039,138 5.80 941,571 5.77

Total loans 12,161,012 7.15 11,029,551 6.40

Federal funds sold, et al 54,274 5.60 51,826 4.70

Securities:(2)

Taxable securities

U.S. Treasury and government

agencies 1,382,178 3.87 1,417,360 3.39

Mortgage-backed 1,659,106 4.40 1,418,144 4.17

Other investments 63,024 4.26 63,067 3.96

Tax-exempt securities

States and political

subdivisions 78,727 6.24 87,992 5.94

Total securities 3,183,035 4.21 2,986,563 3.85

Interest-bearing deposits in

other banks 200 1.53 197 1.21

Total earning assets 15,398,521 6.53 14,068,137 5.85

Cash and due from banks 310,843 309,646

Bank premises and equipment,

net 140,659 143,177

Other assets 1,329,592 1,154,561

Less: allowance for loan

losses (147,352) (154,502)

Total assets $17,032,263 $15,521,019

Interest-bearing liabilities

Deposits:

Savings $1,246,877 0.51 $1,428,445 0.39

Checking plus interest 1,272,953 0.21 1,399,215 0.17

Money market 2,077,613 2.74 1,651,513 1.39

Time deposits $100,000 and

over 2,150,857 4.55 1,627,194 3.18

Other time deposits 2,388,767 3.66 2,142,068 2.67

Total interest-bearing

deposits 9,137,067 2.75 8,248,435 1.70

Short-term borrowings 1,435,082 3.84 1,105,988 2.37

Long-term debt 682,324 5.38 749,196 4.37

Total interest-bearing

funds 11,254,473 3.05 10,103,619 1.97

Noninterest-bearing deposits 3,236,404 3,165,320

Other liabilities and accrued

expenses 199,289 155,663

Total liabilities 14,690,166 13,424,602

Shareholders' equity 2,342,097 2,096,417

Total liabilities &

shareholders' equity $17,032,263 $15,521,019

Net interest rate spread 3.48 % 3.88 %

Effect of noninterest-bearing

funds 0.83 0.56

Net interest margin on

earning assets 4.31 % 4.44 %

For the Quarter Ended December 31,

2006 2005

Earning assets Average Yield(1) Average Yield(1)

Loans: Balance / Rate Balance / Rate

Commercial and leasing $2,981,011 8.05 % $2,912,089 6.86 %

Commercial real estate 4,174,121 7.25 3,664,491 6.79

Construction 2,001,149 8.53 1,574,597 7.56

Residential real estate 2,011,254 6.31 1,798,686 6.05

Home equity lines 463,012 8.15 511,673 6.73

Consumer 1,030,211 5.87 1,036,349 5.68

Total loans 12,660,758 7.41 11,497,885 6.69

Federal funds sold, et al 27,239 6.29 76,062 4.64

Securities:(2)

Taxable securities

U.S. Treasury and government

agencies 1,257,725 4.06 1,429,583 3.41

Mortgage-backed 1,777,984 4.53 1,545,324 4.56

Other investments 59,791 4.48 60,998 4.77

Tax-exempt securities

States and political

subdivisions 73,325 6.22 88,679 6.01

Total securities 3,168,825 4.38 3,124,584 4.08

Interest-bearing deposits in

other banks 200 1.80 200 1.35

Total earning assets 15,857,022 6.81 14,698,731 6.13

Cash and due from banks 312,981 319,176

Bank premises and equipment,

net 143,267 139,662

Other assets 1,411,978 1,258,868

Less: allowance for loan

losses (143,962) (158,162)

Total assets $17,581,286 $16,258,275

Interest-bearing liabilities

Deposits:

Savings $1,155,703 0.54 $1,371,020 0.45

Checking plus interest 1,221,676 0.25 1,398,809 0.18

Money market 2,305,506 3.05 1,785,001 1.86

Time deposits $100,000 and

over 2,405,243 4.94 1,784,340 3.66

Other time deposits 2,442,475 4.13 2,300,075 3.03

Total interest-bearing

deposits 9,530,603 3.14 8,639,245 2.05

Short-term borrowings 1,505,690 4.05 1,213,396 2.96

Long-term debt 661,107 5.59 766,451 4.71

Total interest-bearing

funds 11,697,400 3.40 10,619,092 2.35

Noninterest-bearing deposits 3,228,678 3,255,149

Other liabilities and accrued

expenses 202,267 173,984

Total liabilities 15,128,345 14,048,225

Shareholders' equity 2,452,941 2,210,050

Total liabilities &

shareholders' equity $17,581,286 $16,258,275

Net interest rate spread 3.41 % 3.78 %

Effect of noninterest-bearing

funds 0.89 0.65

Net interest margin on

earning assets 4.30 % 4.43 %

(1) Presented on a tax-equivalent basis using the statutory federal

corporate income tax rate of 35%.

(2) Balances reported at amortized cost; excludes unrealized gains

(losses) on securities available-for-sale.

SUPPLEMENTAL LOAN INFORMATION BY QUARTER

In thousands

(unaudited)

4Q 06 3Q 06 2Q 06

PERIOD-END LOANS BY TYPE

Commercial and Leasing $3,053,832 $2,925,300 $2,935,369

Commercial Real Estate 4,240,303 4,148,895 3,826,335

Construction 2,009,837 1,952,013 1,855,110

Residential Real Estate 2,012,960 1,988,336 1,905,032

Home Equity Lines 455,655 476,746 479,011

Consumer 1,020,146 1,043,048 1,049,323

TOTAL LOANS AT END OF PERIOD $12,792,733 $12,534,338 $12,050,180

NONPERFORMING LOANS BY TYPE

Commercial and Leasing $5,336 $8,206 $8,399

Commercial Real Estate 4,777 5,056 3,623

Construction 15,690 19,519 15,482

Residential Real Estate 4,583 2,640 1,094

Home Equity Lines 123 151 332

Consumer 451 430 315

TOTAL NONPERFORMING LOANS AT END

OF PERIOD $30,960 $36,002 $29,245

LOANS PAST DUE 30-89 DAYS BY TYPE

Commercial and Leasing $20,095 $8,429 $6,794

Commercial Real Estate 21,349 8,280 8,201

Construction 10,697 805 10,008

Residential Real Estate 18,896 11,304 8,369

Home Equity Lines 1,279 1,146 1,075

Consumer 6,288 4,577 4,148

TOTAL LOANS PAST DUE 30-89 DAYS $78,604 $34,541 $38,595

CHARGE-OFFS BY LOAN TYPE

Commercial and Leasing $989 $876 $193

Commercial Real Estate 85 - 153

Construction - - -

Residential Real Estate - 52 -

Home Equity Lines 35 - -

Consumer 1,041 981 504

TOTAL CHARGE-OFFS $2,150 $1,909 $850

RECOVERIES BY LOAN TYPE

Commercial and Leasing $627 $358 $1,174

Commercial Real Estate 41 28 27

Construction - 1 -

Residential Real Estate 13 7 28

Home Equity Lines - - 22

Consumer 645 379 585

TOTAL RECOVERIES $1,326 $773 $1,836

1Q 06 4Q 05

PERIOD-END LOANS BY TYPE

Commercial and Leasing $2,899,242 $2,957,301

Commercial Real Estate 3,675,692 3,703,297

Construction 1,740,413 1,607,095

Residential Real Estate 1,856,250 1,802,373

Home Equity Lines 487,586 505,508

Consumer 1,036,985 1,032,271

TOTAL LOANS AT END OF PERIOD $11,696,168 $11,607,845

NONPERFORMING LOANS BY TYPE

Commercial and Leasing $15,748 $15,771

Commercial Real Estate 4,600 4,451

Construction 414 376

Residential Real Estate 1,577 1,505

Home Equity Lines 148 88

Consumer 403 374

TOTAL NONPERFORMING LOANS AT END OF

PERIOD $22,890 $22,565

LOANS PAST DUE 30-89 DAYS BY TYPE

Commercial and Leasing $7,412 $5,513

Commercial Real Estate 13,386 4,973

Construction 23,979 33,628

Residential Real Estate 9,949 13,948

Home Equity Lines 1,197 1,233

Consumer 4,313 5,856

TOTAL LOANS PAST DUE 30-89 DAYS $60,236 $65,151

CHARGE-OFFS BY LOAN TYPE

Commercial and Leasing $401 $1,440

Commercial Real Estate 209 -

Construction - -

Residential Real Estate 2 160

Home Equity Lines - 22

Consumer 766 1,155

TOTAL CHARGE-OFFS $1,378 $2,777

RECOVERIES BY LOAN TYPE

Commercial and Leasing $908 $1,732

Commercial Real Estate 33 7

Construction 1 -

Residential Real Estate 25 6

Home Equity Lines 2 -

Consumer 568 529

TOTAL RECOVERIES $1,537 $2,274

SUPPLEMENTAL FINANCIAL INFORMATION BY QUARTER

(unaudited)

4Q 06 3Q 06 2Q 06

INVESTMENT AND WEALTH MANAGEMENT

ASSET DATA

(End of Period) In billions

Personal

Assets with Investment Responsibility $9.4 $9.1 $8.9

Assets with No Investment Responsibility 4.4 4.1 3.9

Total Personal 13.8 13.2 12.8

Institutional

Assets with Investment Responsibility 11.4 11.6 11.4

Assets with No Investment Responsibility 17.8 16.7 22.7

Total Institutional 29.2 28.3 34.1

Mutual Funds Not Included Above 0.3 0.3 0.3

Total

Assets with Investment Responsibility 21.1 21.0 20.6

Assets with No Investment Responsibility 22.2 20.8 26.6

Total Assets Under Administration $43.3 $41.8 $47.2

OTHER INTANGIBLE ASSETS INFORMATION

In thousands

EOP Deposit Intangibles, Net $34,698 $37,398 $30,744

EOP Mortgage Servicing Rights, Net 2,581 1,387 1,858

EOP Other Intangible Assets, Net 8,457 9,033 9,801

EOP Total Other Intangible Assets, Net $45,736 $47,818 $42,403

Amortization of Deposit Intangibles $2,195 $1,679 $1,488

Amortization of Mortgage Servicing Rights 62 71 91

Amortization of Other Intangible Assets 580 772 638

Total Amortization of Other Intangible

Assets $2,837 $2,522 $2,217

1Q 06 4Q 05

INVESTMENT AND WEALTH MANAGEMENT

ASSET DATA

(End of Period) In billions

Personal

Assets with Investment Responsibility $8.9 $8.7

Assets with No Investment Responsibility 4.0 3.8

Total Personal 12.9 12.5

Institutional

Assets with Investment Responsibility 11.6 11.6

Assets with No Investment Responsibility 23.1 22.1

Total Institutional 34.7 33.7

Mutual Funds Not Included Above 0.3 0.3

Total

Assets with Investment Responsibility 20.8 20.6

Assets with No Investment Responsibility 27.1 25.9

Total Assets Under Administration $47.9 $46.5

OTHER INTANGIBLE ASSETS INFORMATION

In thousands

EOP Deposit Intangibles, Net $32,232 $33,719

EOP Mortgage Servicing Rights, Net 1,801 1,757

EOP Other Intangible Assets, Net 10,428 11,177

EOP Total Other Intangible Assets, Net $44,461 $46,653

Amortization of Deposit Intangibles $1,487 $1,488

Amortization of Mortgage Servicing Rights 89 82

Amortization of Other Intangible Assets 749 721

Total Amortization of Other Intangible Assets $2,325 $2,291

ADD: /FIRST AND FINAL ADD -- PHTU005 -- Mercantile Bankshares Reports Fourth Quarter Results/

SUPPLEMENTAL FINANCIAL INFORMATION BY QUARTER

In thousands, except per share data

(unaudited)

4Q 06 3Q 06 2Q 06

OPERATING RESULTS

Net interest income (1) $169,995 $166,069 $161,410

Net interest income - taxable

equivalent (1) 171,842 167,916 163,254

Provision for credit losses - - -

Net income 72,862 71,573 73,092

PER COMMON SHARE DATA*

Basic net income $0.58 $0.57 $0.59

Diluted net income 0.57 0.57 0.59

Dividends paid 0.28 0.28 0.28

Book value at period end 19.25 19.07 18.34

Market value at period end 46.79 36.27 35.67

Market range:

High 47.39 37.96 39.53

Low 36.04 34.29 35.00

AVERAGE BALANCE SHEET DATA

Total loans $12,660,758 $12,401,068 $11,921,540

Total earning assets 15,857,022 15,645,850 15,196,996

Total assets 17,581,286 17,297,329 16,798,972

Total deposits 12,759,281 12,592,061 12,190,193

Shareholders' equity 2,452,941 2,342,545 2,309,149

STATISTICS AND RATIOS

(Net income annualized)

Return on average assets 1.64 % 1.64 % 1.75 %

Return on average equity (2) 11.78 12.12 12.70

Return on average tangible

equity (2) 18.01 17.87 18.80

Average equity to average

assets (2) 13.95 13.54 13.75

Average tangible equity to

average tangible assets (2) 9.80 9.79 9.88

Net interest rate spread -

taxable equivalent 3.41 3.41 3.51

Net interest margin on

earning assets - taxable

equivalent 4.30 4.26 4.31

Efficiency ratio (1),(3) 53.29 49.38 48.05

Cash operating efficiency

ratio (1),(3) 46.91 48.02 47.08

Dividend payout ratio* 48.28 49.12 47.46

Bank offices 240 241 237

Employees 3,544 3,592 3,667

CREDIT QUALITY DATA AT PERIOD END

Net charge-offs /(recoveries) $824 $1,136 $(986)

Nonaccrual loans 30,960 36,002 29,245

Restructured loans - - -

Total nonperforming loans 30,960 36,002 29,245

Other real estate owned, net 1,405 67 49

Total nonperforming assets 32,365 36,069 29,294

CREDIT QUALITY RATIOS

Net charge-offs/(recoveries),

annualized, as a percent of

period-end loans 0.03 % 0.04 % (0.03)%

Nonperforming loans as a

percent of period-end loans 0.24 0.29 0.24

Allowance for loan losses as

a percent of period-end loans** 1.12 1.15 1.19

Allowance for loan losses as

a percent of nonperforming

loans** 461.98 399.57 488.49

Other real estate owned as a

percent of period-end loans

and other real estate owned 0.01 - -

Nonperforming assets as a

percent of period-end loans

and other real estate owned 0.25 0.29 0.24

Nonperforming assets as a

percent of total assets 0.18 0.21 0.17

1Q 06 4Q 05

OPERATING RESULTS

Net interest income (1) $158,313 $162,434

Net interest income - taxable

equivalent (1) 160,146 164,267

Provision for credit losses - -

Net income 70,759 74,863

PER COMMON SHARE DATA*

Basic net income $0.58 $0.61

Diluted net income 0.57 0.60

Dividends paid 0.26 0.25

Book value at period end 18.05 17.81

Market value at period end 38.45 37.63

Market range:

High 39.82 40.09

Low 36.88 34.11

AVERAGE BALANCE SHEET DATA

Total loans $11,646,904 $11,497,885

Total earning assets 14,880,775 14,698,731

Total assets 16,435,964 16,258,275

Total deposits

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