EXECUTIVE SUMMARY

THE PNC FINANCIAL SERVICES GROUP, INC.

PNC is one of the largest diversified financial services companies in the United States and is headquartered in Pittsburgh, Pennsylvania.

As further described in Note 2 Acquisitions and Divestitures in our 2008 Form 10-K, on December 31, 2008, PNC acquired National City Corporation (National City). Our consolidated financial statements for the second quarter and first half of 2009 reflect the impact of National City.

PNC has businesses engaged in retail banking, corporate and institutional banking, asset management, residential mortgage banking and global investment servicing, providing many of its products and services nationally and others in PNC’s primary geographic markets located in Pennsylvania, Ohio, New Jersey, Michigan, Maryland, Illinois, Indiana, Kentucky, Florida, Missouri, Virginia, Delaware, Washington, D.C., and Wisconsin. PNC also provides certain investment servicing internationally.

We expect to incur total merger and integration costs of approximately $1.2 billion pretax in connection with the acquisition of National City. This total includes $575 million pretax recognized in the fourth quarter of 2008 and $176 million pretax recognized in the first six months of 2009, including $125 million pretax in the second quarter. The transaction is expected to result in the reduction of approximately $1.2 billion of combined company annualized

noninterest expense through the elimination of operational and administrative redundancies.

We are in the process of integrating the businesses and operations of National City with those of PNC.

KEY STRATEGIC GOALS

We manage our company for the long term and are focused on returning to a moderate risk profile while maintaining strong capital and liquidity positions, investing in our markets and products, and embracing our corporate responsibility to the communities where we do business.

Our strategy to enhance shareholder value centers on driving pre-tax, pre-provision earnings that exceed credit costs by achieving growth in revenue from our balance sheet and diverse business mix that exceeds growth in expenses controlled through disciplined cost management. The primary drivers of revenue growth are the acquisition, expansion and retention of customer relationships. We strive to expand our customer base by offering convenient banking options and leading technology solutions, providing a broad range of fee-based and credit products and services, focusing on customer service, and through a significantly enhanced branding initiative. We may also grow revenue through appropriate and targeted acquisitions and, in certain businesses, by expanding into new geographical markets.

We are focused on our strategies for quality growth. We are committed to returning to a moderate risk profile characterized by disciplined credit management and limited

exposure to earnings volatility resulting from interest rate fluctuations and the shape of the interest rate yield curve. Our actions have created a well-positioned and strong balance sheet, strong liquidity and investment flexibility to adjust, where appropriate and permissible, to changing interest rates and market conditions.

We also continue to be focused on building capital in the current environment characterized by economic and regulatory uncertainty. See the Funding and Capital Sources section of the Consolidated Balance Sheet Review section and the Liquidity Risk Management section of this Financial Review regarding certain restrictions on dividends and common share repurchases resulting from PNC’s participation on December 31, 2008 in the US Department of the Treasury’s Troubled Asset Relief Program (TARP) Capital Purchase Program and other regulatory restrictions on dividend capacity.

On March 1, 2009, our board of directors decided to reduce PNC’s quarterly common stock dividend from $.66 to $.10 per share. Accordingly, the board of directors declared a quarterly common stock cash dividend of $.10 per share in April and July 2009. Our Board recognizes the importance of the dividend to our shareholders. While our overall capital and liquidity positions are strong, extreme economic and market deterioration and the changing regulatory environment drove this difficult but prudent decision. This proactive measure will help us build capital by approximately $1 billion annually, further strengthen our balance sheet and enable us to continue to serve our customers.

SUPERVISORY CAPITAL ASSESSMENT PROGRAM

(“STRESS TESTS”)

On May 7, 2009, the Board of Governors of the Federal Reserve System announced the results of the stress tests conducted by banking regulators under the Supervisory Capital Assessment Program with respect to the 19 largest bank holding companies. As a result of this test, the Federal Reserve concluded that PNC was well capitalized but that, in order to provide a greater cushion against the risk that economic conditions over the next two years are worse than currently anticipated, PNC needed to augment the composition of its capital by increasing the common shareholders’ equity component of Tier 1 capital. In May 2009 we raised $624 million in new common equity at market prices through the issuance of 15 million shares of common stock. In connection with the Supervisory Capital Assessment Program, we submitted a capital plan which was accepted by the Federal Reserve.

RECENT MARKET AND INDUSTRY DEVELOPMENTS

Since the middle of 2007 and with a heightened level of activity during the past 12 months, there has been unprecedented turmoil, volatility and illiquidity in worldwide financial markets, accompanied by uncertain prospects for the overall national economy, which is currently in the midst of a

severe recession. In addition, there have been dramatic changes in the competitive landscape of the financial services industry during this time.

Recent efforts by the Federal government, including the US Department of the Treasury, the Federal Reserve, the FDIC, and the Securities and Exchange Commission, to stabilize and restore confidence in the financial services industry have impacted and will likely continue to impact PNC and our stakeholders. These efforts, which will continue to evolve, include the Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009, and other legislative, administrative and regulatory initiatives, including the US Treasury’s TARP Capital Purchase Program, the FDIC’s Temporary Liquidity Guarantee Program (TLGP) and the Federal Reserve’s Commercial Paper Funding Facility (CPFF).

These programs, some of which are further described in Item 7 of our 2008 Form 10-K, include the following:

TARP Capital Purchase Program – On December 31, 2008, PNC issued to the US Treasury $7.6 billion of preferred stock together with a related warrant to purchase shares of common stock of PNC, in accordance with the terms of the TARP Capital Purchase Program. Funds from this sale count as Tier 1 capital. Holders of this preferred stock are entitled to a cumulative cash dividend at the annual rate per share of 5% of the liquidation preference per year for the first five years after its issuance. After December 31, 2013, if these shares are still outstanding, the annual dividend rate will increase to 9% per year. We plan to redeem the US Treasury’s investment as soon as appropriate in a shareholder-friendly manner, subject to approval by our banking regulators. We do not contemplate exchanging any of the shares of preferred stock issued to the US Treasury under the TARP Capital Purchase Program for shares of mandatorily convertible preferred stock.

Further information on these securities is included in Note 19 Shareholders’ Equity included in our Notes to Consolidated Financial Statements within Item 8 of our 2008 Form 10-K.

FDIC Temporary Liquidity Guarantee Program (TLGP) – In December 2008, PNC Funding Corp issued fixed and floating rate senior notes totaling $2.9 billion under the FDIC’s TLGP-Debt Guarantee Program. In March 2009, PNC Funding Corp issued floating rate senior notes totaling $1.0 billion under this program. Each of these series of senior notes is guaranteed by the FDIC and is backed by the full faith and credit of the United States through June 30, 2012.

Since October 14, 2008, both PNC Bank, National Association (PNC Bank, N.A.) and National City Bank have participated in the TLGP-Transaction Account Guarantee Program. Under this program, through December 31, 2009, all non-interest bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. Coverage

under this program is in addition to, and separate from, the coverage available under the FDIC’s general deposit insurance rules.

Federal Reserve Commercial Paper Funding Facility (CPFF) – Effective October 28, 2008, Market Street Funding LLC (Market Street) was approved to participate in the Federal Reserve’s CPFF. The CPFF commitment to purchase up to $5.4 billion of three-month Market Street commercial paper expires on October 30, 2009. Market Street had no borrowings under this facility at June 30, 2009. On June 25, 2009, the CPFF program was extended to February 1, 2010.

Public-Private Investment Fund Programs (PPIFs) – On March 23, 2009, the US Treasury and the FDIC announced that they will establish the Legacy Loans Program (LLP) to remove troubled loans and other assets from banks. The FDIC will provide oversight for the formation, funding, and operation of new PPIFs that will purchase loans and other assets from depository institutions. The LLP will attract private capital through an FDIC debt guarantee and Treasury equity co-investment. All FDIC-insured depository institutions will be eligible to participate in the program.

On March 23, 2009, the US Treasury also announced the establishment of the Legacy Securities PPIFs, which are designed to address issues raised by troubled assets. These Legacy Securities PPIFs are specifically focused on legacy securities and are part of a plan that directs both equity capital and debt financing into the market for legacy assets. This program is designed to draw in private capital to these markets by providing matching equity capital from the US Treasury and debt financing from the Federal Reserve via the Term Asset-Backed Loan Facility (TALF) and the US Treasury.

PNC is in the process of determining to what extent, if any, it will participate in these programs.

Home Affordable Modification Program (HAMP) – As part of its effort to stabilize the US housing market, in March 2009 the Obama Administration published detailed guidelines implementing the Home Affordable Modification Program (HAMP), and authorized servicers to begin loan modifications. PNC began participating in the HAMP for all GSE mortgages in May, and for non-GSE mortgages in July, and plans to evaluate participation in the Second Lien Program as the US Treasury announces additional details.

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In June 2009 the US Treasury issued a report entitled “Financial Regulatory Reform: A New Foundation” which outlined five key objectives:

To implement the proposals set forth in the US Treasury report, as well as to provide economic stimulus and financial market stability and to enhance the liquidity and solvency of financial institutions and markets, the US Congress and federal banking agencies have announced, and are continuing to develop, additional legislation, regulations and programs. These proposals include changes in or additions to the statutes or regulations related to existing programs, including those described above.

It is not possible at this time to predict the ultimate impact of these actions on PNC’s business plans and strategies.

KEY FACTORS AFFECTING FINANCIAL PERFORMANCE

Our financial performance is substantially affected by several external factors outside of our control including the following, some of which may be affected by legislative, regulatory and administrative initiatives, such as the Federal government initiatives outlined above:

In addition, our success will depend, among other things, upon:

SUMMARY FINANCIAL RESULTS

Highlights of the second quarter of 2009 included the following:

Our Consolidated Income Statement Review section of this Financial Review describes in greater detail the various items that impacted our results for the second quarter and first half of 2009 and 2008.

AVERAGE CONSOLIDATED BALANCE SHEET HIGHLIGHTS

Various seasonal and other factors impact our period-end balances whereas average balances are generally more indicative of underlying business trends apart from the impact of recent acquisitions.

Our Average Consolidated Balance Sheet for the first six months of 2009 included the impact of National City, which was the primary driver of increases compared with the first six months of 2008. The Consolidated Balance Sheet Review section of this Financial Review provides information on changes in selected Consolidated Balance Sheet categories at June 30, 2009 compared with December 31, 2008.

Total average assets were $280.9 billion for the first half of 2009 compared with $141.0 billion for the first half of 2008. Total average assets for the first six months of 2009 included $133.0 billion related to National City.

Average interest-earning assets were $243.7 billion for the first six months of 2009, including $121.6 billion related to National City, compared with $112.3 billion in the first six months of 2008. An increase of $100.3 billion in loans, including $96.5 billion related to National City, and a $15.9 billion increase in securities available for sale, including $12.4 billion related to National City, were reflected in the increase in average interest-earning assets. In addition, securities held to maturity, including those transferred by PNC in the fourth quarter of 2008 from the available for sale portfolio, averaged $3.6 billion in the first six months of 2009.

Average noninterest-earning assets totaled $37.1 billion in the first half of 2009 compared with $28.7 billion in the prior year first half. For the first half of 2009, average noninterest-earning assets related to National City totaled $11.5 billion.

The increase in average total loans, which includes the impact of National City as indicated above, reflected growth in commercial loans of $35.1 billion, consumer loans of $32.5 billion, commercial real estate loans of $16.4 billion and residential mortgage loans of $12.6 billion. Loans represented 70% of average interest-earning assets for the first six months of 2009 and 63% for the first six months of 2008.

Average residential mortgage-backed securities increased $14.2 billion compared with the first half of 2008. Average US Treasury and government agencies securities increased $2.6 billion and average state and municipal securities increased $.8 billion in the comparison. These increases were largely as a result of the National City acquisition and were partially offset by declines of $1.2 billion in average commercial mortgage-backed securities and $1.1 billion in average asset-backed securities compared with the prior year first half. Investment securities comprised 21% of average interest-earning assets for the first half of 2009 and 27% for the first half of 2008.

Average total deposits were $192.5 billion for the first six months of 2009, including $104.0 billion related to National City, compared with $82.8 billion for the first six months of 2008. Average deposits grew from the prior year period primarily as a result of increases in retail certificates of deposit, money market balances, and demand and other noninterest-bearing deposits. Average total deposits represented 69% of average total assets for the first six months of 2009 and 59% for the first six months of 2008.

Average transaction deposits were $116.8 billion for the first half of 2009, including $51.4 billion related to National City, compared with $54.1 billion for the first half of 2008.

Average borrowed funds were $47.0 billion for the first six months of 2009, including $19.7 billion related to National City, compared with $31.6 billion for the first six months of 2008.

BUSINESS SEGMENT HIGHLIGHTS

In the first quarter of 2009, we made changes to our business organization structure and management reporting in conjunction with the acquisition of National City. As a result, we now have seven reportable business segments which include:

Business segment results for the second quarter and first half of 2008 have been reclassified to reflect current methodologies and current business and management structure and present prior periods on the same basis.

Total business segment earnings were $1.193 billion for the first six months of 2009 and $665 million for the first six months of 2008. Second quarter 2009 business segment earnings totaled $488 million compared with $376 million for the second quarter of 2008. Highlights of results for the second quarter and first half of 2009 and 2008 are included below. The Business Segments Review section of this Financial Review includes further analysis of our business segment results over these periods.

We provide a reconciliation of total business segment earnings to total PNC consolidated net income as reported on a GAAP basis in Note 19 Segment Reporting.

Retail Banking

Retail Banking’s earnings were $110 million for the first six months of 2009 compared with $218 million for the same period in 2008. For the second quarter of 2009, Retail Banking’s earnings were $60 million compared with $81 million for the second quarter of 2008. Results for 2009 include revenues and expenses associated with business acquired with National City. Results were challenged in this environment by ongoing credit deterioration, a lower value assigned to our deposits, reduced consumer spending and increased FDIC insurance costs. Retail Banking continues to maintain its focus on customer and deposit growth, employee and customer satisfaction, investing in the business for future growth, as well as disciplined expense management during this period of market and economic uncertainty.

Corporate & Institutional Banking

Corporate & Institutional Banking earned $470 million in the first six months of 2009, including $111 million in the second quarter, compared with $184 million and $159 million, respectively, for the same periods in 2008. Results for 2009 included revenues and expenses associated with business acquired with National City. For the first half of 2009, total revenue of $2.6 billion was strong, driven primarily by net

interest income. Noninterest expense was tightly managed, and earnings were impacted by the provision for credit losses, indicative of deteriorating credit quality and the weakened economy. For second quarter 2009, the increase in the provision for credit losses drove the decline in earnings.

Asset Management Group

Asset Management Group’s earnings were $47 million for the first six months of 2009 compared with $71 million for the same period in 2008. The 34% decline in earnings over the prior year was driven by an increased provision for credit losses. Despite the significant earnings impact from the increased provision for credit losses, the business remained focused on client sales and service, expense management and the National City integration resulting in pretax, pre-provision earnings growth of 20% over the first half of 2008.

Earnings for the Asset Management Group totaled $8 million for the second quarter of 2009 compared with $34 million for the second quarter of 2008. An increase of $45 million in the provision for credit losses drove the decline in earnings.

Residential Mortgage Banking

Residential Mortgage Banking earned $309 million for the six months ended June 30, 2009, including $88 million in the second quarter, driven by strong loan origination activity and net mortgage servicing rights hedging gains. This business segment consists primarily of activities acquired with National City.

BlackRock

Our BlackRock business segment earned $77 million in the first six months of 2009 and $129 million in the first six months of 2008. Second quarter 2009 business segment earnings from BlackRock were $54 million compared with $69 million in the second quarter of 2008. Lower equity markets in 2009, particularly in the first quarter, impacted BlackRock’s results.

Global Investment Servicing

Global Investment Servicing earned $22 million for the first six months of 2009 compared with $63 million for the same period of 2008. For the second quarter of 2009, Global Investment Servicing earned $12 million compared with $33 million for the second quarter of 2008. Results for 2009 were negatively impacted by declines in asset values, fund redemptions, and account closures as a result of the deterioration of the financial markets and the establishment of a legal contingency reserve.

Distressed Assets Portfolio

This business segment consists primarily of assets acquired with National City. The Distressed Assets Portfolio had earnings of $158 million for the first six months of 2009, including $155 million in the second quarter.

Earnings for the first half of 2009 included net interest income of $626 million which was driven by higher yielding loans from the National City acquisition. The provision for credit losses was $289 million, which reflected general credit quality deterioration, although the consumer portfolio experienced some stabilization during the second quarter. Noninterest expense was $135 million for the first six months of 2009, comprised primarily of costs associated with foreclosed assets and servicing costs.

Other

“Other” reported a net loss of $456 million for the first half of 2009 compared with earnings of $236 million for the first half of 2008. The loss for 2009 included the after-tax impact of other-than-temporary impairment charges and alternative investment writedowns, integration costs related primarily to the National City acquisition, a special FDIC assessment, and equity management losses. These items were somewhat offset by a gain related to PNC’s BlackRock LTIP shares obligation in the first quarter and net gains on sales of securities. Our discussion of BlackRock in the Business Segments Review section of this Report describes our investment in BlackRock’s new Series C Preferred Stock, the accounting for which offsets the impact of the gains or losses related to PNC’s BlackRock LTIP shares obligation beginning February 27, 2009. Earnings for 2008 reflected net securities gains and the partial reversal of the Visa indemnification liability, partially offset by trading losses.

“Other” reported a net loss of $281 million for the second quarter of 2009 compared with earnings of $141 million for the second quarter of 2008. The net loss in the 2009 quarter was primarily due to the special FDIC assessment and National City integration costs.

CONSOLIDATED INCOME STATEMENT REVIEW

Our Consolidated Income Statement is presented in Part I, Item 1 of this Report.

Net income for the first six months of 2009 was $737 million and for the first six months of 2008 was $901 million. Net income for the second quarter of 2009 was $207 million compared with net income of $517 million for the second quarter of 2008. Our Consolidated Income Statement for the second quarter and first six months of 2009 includes operating results of National City. As a result, the substantial increase in all income statement comparisons to the comparable 2008 periods, except as noted, are primarily due to the operating results of National City.

Total revenue for the first six months of 2009 was $7.9 billion compared with $3.9 billion for the first six months of 2008. Total revenue for the second quarter of 2009 increased 3% to $4.0 billion from $3.9 billion for the first quarter of 2009.

NET INTEREST INCOME AND NET INTEREST MARGIN

In addition to the impact of National City during 2009, changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See the Statistical Information – Average Consolidated Balance Sheet And Net Interest Analysis section of this Report for additional information.

The increase in net interest income for the second quarter and first six months of 2009 compared with the respective 2008 periods reflected the increase in average interest-earning assets due to National City and the improvement in the net interest margin described below.

We expect net interest income and net interest margin for the remainder of 2009 to be flat to down compared with the first six months of 2009 as the effect of the maturities and paydowns of higher-yielding assets will be partially offset by interest-bearing deposit re-pricing, assuming our current expectations for interest rates and economic conditions. We include our current economic assumptions underlying our forward-looking statements in the Cautionary Statement Regarding Forward-Looking Information section of this Financial Review.

The net interest margin was 3.70% for the first half of 2009 and 3.28% for the first half of 2008. The following factors impacted the comparison:

The net interest margin was 3.60% for the second quarter of 2009 and 3.47% for the second quarter of 2008. The following factors impacted the comparison:

For comparing to the broader market, the average Federal funds rate was .18% for the first half of 2009 compared with 2.62% for the first half of 2008. The average Federal funds rate was .18% for the second quarter of 2009 compared with 2.09% for the second quarter of 2008.

NONINTEREST INCOME

Summary

Noninterest income totaled $3.4 billion for the first six months of 2009, including $1.9 billion related to National City, compared with $2.0 billion for the first six months of 2008. Our noninterest income streams are well diversified and grew 15% in the second quarter of 2009 compared with the first quarter of 2009.

Noninterest income for the first half of 2009 included the following:

Noninterest income for the first half of 2008 included the impact of the following:

Noninterest income totaled $1.8 billion for the second quarter of 2009, including $.9 billion related to National City, compared with $1.1 billion for the second quarter of 2008. The second quarter of 2009 included net gains on sales of

securities of $182 million and net credit-related other-than-temporary impairments on debt and equity securities of $155 million. The second quarter of 2008 included a gain of $80 million related to our BlackRock LTIP shares adjustment.

Additional Analysis

Fund servicing fees totaled $392 million in the first six months of 2009 compared with $462 million in the first six months of 2008. For the second quarter of 2009, fund servicing fees were $193 million compared with $234 million in the second quarter of 2008. Asset management revenue was $397 million in the first half of 2009 compared with $409 million in the first half of 2008. Asset management revenue was $208 million in the second quarter of 2009 compared with $197 million in the second quarter of 2008.

Fund servicing fees and asset management revenue were negatively impacted by declines in asset values associated with the lower equity markets during the first six months of 2009, particularly during the first quarter.

Assets managed at June 30, 2009 totaled $98 billion, including National City assets under management, compared with $67 billion at June 30, 2008.

Global Investment Servicing provided fund accounting/ administration services for $774 billion of net fund investment assets and provided custody services for $399 billion of fund investment assets at June 30, 2009, compared with $988 billion and $471 billion, respectively, at June 30, 2008. The decrease in assets serviced in the comparison was due to declines in asset values and fund outflows resulting from market conditions.

For the first six months of 2009, consumer services fees totaled $645 million compared with $319 million in the first six months of 2008. Consumer service fees were $329 million for the second quarter of 2009 compared with $149 million for the second quarter of 2008. Consumer service fees in the 2009 periods reflected the impact of National City which more than offset reduced merchant and brokerage transaction volumes related to the economy.

Corporate services revenue totaled $509 million in the first half of 2009 and $349 million in the first half of 2008. For the second quarter of 2009, corporate services revenue totaled $264 million compared with $185 million for the second quarter of 2008. Corporate services fees include treasury management fees, which continued to be a strong contributor to revenue.

Residential mortgage fees totaled $676 million in the first six months of 2009, including $245 million in the second quarter. Strong mortgage refinancing volumes, especially in the first quarter, and $260 million of net hedging gains of mortgage servicing rights occurred in the first six months of 2009. Net hedging gains were $58 million in the second quarter. It is

unlikely that we will repeat this strong six-month performance in future periods, particularly the servicing rights hedging gains and loan origination volumes. Additionally, we do not expect refinance and application volumes to be as strong in the second half of 2009 compared with the first half of 2009.

Service charges on deposits totaled $466 million for the first half of 2009 and $174 million for the first half of 2008. Service charges on deposits totaled $242 million for the second quarter of 2009 compared with $92 million for the second quarter of 2008. In both comparisons, service charges on deposits held firm as checking account growth offset declining customer transaction amounts and volumes.

Net gains on sales of securities totaled $238 million for the first six months of 2009 and $49 million for the first six months of 2008. Second quarter net gains on sales of securities were $182 million in 2009 and $8 million in 2008. Second quarter 2009 securities gains related primarily to sales of agency residential mortgage-backed securities.

The net credit component of other-than-temporary impairments of securities recognized in earnings was a loss of $304 million in the first half of 2009, including $155 million in the second quarter.

Other noninterest income totaled $352 million for the first six months of 2009 compared with $276 million for the first six months of 2008.

Other noninterest income for the first six months of 2009 included gains of $103 million related to our equity investment in BlackRock and net losses on private equity and alternative investments of $151 million as referred to above. Other noninterest income for the first six months of 2008 included gains of $120 million related to our equity investment in BlackRock, the $114 million gain from the sale of Hilliard Lyons, and the $95 million Visa gain referred to in the “Summary” section above. The impact of these items more than offset losses related to our commercial mortgage loans held for sale, net of hedges, of $138 million in the 2008 period.

Other noninterest income for the second quarter of 2009 totaled $297 million compared with $206 million for the second quarter of 2008. The second quarter of 2008 included an $80 million gain related to our BlackRock LTIP shares adjustment.

Other noninterest income typically fluctuates from period to period depending on the nature and magnitude of transactions completed. Further details regarding our trading activities are included in the Market Risk Management – Trading Risk portion of the Risk Management section of this Financial Review, further details regarding private equity and alternative investments are included in the Market Risk Management-Equity and Other Investment Risk section and further details regarding gains or losses related to our equity investment in BlackRock are included in the Business Segments Review section.

PRODUCT REVENUE

In addition to credit and deposit products for commercial customers, Corporate & Institutional Banking offers other services, including treasury management and capital markets-related products and services and commercial mortgage banking activities, that are marketed by several businesses to commercial and retail customers across PNC.

Treasury management revenue, which includes fees as well as net interest income from customer deposit balances, totaled $559 million for the first half of 2009 and $274 million for the first half of 2008. For the second quarter of 2009, treasury management revenue was $285 million compared with $137 million for the second quarter of 2008. In addition to the impact of National City, these increases were primarily related to deposit growth and continued growth in legacy offerings such as purchasing cards and services provided to the Federal government and healthcare customers.

Revenue from capital markets-related products and services totaled $190 million in the first six months of 2009 compared with $180 million in the first six months of 2008. Second quarter 2009 revenue was $148 million compared with $104 million for the second quarter of 2008. The impact of National City-related revenue in both comparisons helped to offset declines in merger and acquisition revenues reflecting the difficult financing environment.

Commercial mortgage banking activities include revenue derived from commercial mortgage servicing (including net interest income and noninterest income from loan servicing and ancillary services), and revenue derived from commercial mortgage loans intended for sale and related hedges (including loan origination fees, net interest income, valuation adjustments and gains or losses on sales).

Commercial mortgage banking activities resulted in revenue of $233 million in the first half of 2009 compared with $11 million in the first half of 2008. For the second quarter of 2009, revenue from commercial mortgage banking activities totaled $139 million compared with $105 million for the second quarter of 2008. The first six months of 2009 included gains of $34 million on commercial mortgage loans held for sale, net of hedges. Losses of $138 million on commercial mortgage loans held for sale, net of hedges, reduced revenue for the first six months of 2008.

PROVISION FOR CREDIT LOSSES

The provision for credit losses totaled $2.0 billion for the first six months of 2009 compared with $337 million for the first six months of 2008. For the second quarter of 2009, the provision for credit losses totaled $1.1 billion compared with $186 million for the second quarter of 2008. The provisions for credit losses for the first half and second quarter of 2009 were in excess of net charge-offs of $1.2 billion and $795 million, respectively, due to required increases to our allowance for loan and lease losses reflecting continued deterioration in the credit markets and the resulting increase in nonperforming loans.

The Credit Risk Management portion of the Risk Management section of this Financial Review includes additional information regarding factors impacting the provision for credit losses.

NONINTEREST EXPENSE

Noninterest expense for the first six months of 2009 was $5.0 billion compared with $2.1 billion in the first six months of 2008. Noninterest expense totaled $2.7 billion in the second quarter of 2009 compared with $1.1 billion in the second quarter of 2008. The increases in both comparisons were substantially related to National City. We also recorded a special FDIC assessment of $133 million in the second quarter of 2009. This assessment was intended to build the FDIC’s Deposit Insurance Fund.

Integration costs totaled $177 million in the first half of 2009 compared with $27 million in the first half of 2008. Integration costs in the second quarter of 2009 totaled $125 million compared with $13 million in the second quarter of 2008.

Annualized National City acquisition cost savings of approximately $500 million were realized by the second quarter of 2009, on track to achieve our $600 million goal for 2009 and the $1.2 billion two-year goal of reducing combined company annualized noninterest expense.

EFFECTIVE TAX RATE

Our effective tax rate was 18.6% for the first half of 2009 and 34.9% for the first half of 2008. For the second quarter of 2009, our effective tax rate was 14.5% compared with 31.1% for the second quarter of 2008. Both 2009 effective tax rates were significantly lower than the statutory rate due to the relationship of pretax income to tax credits and earnings that are not subject to tax.

CONSOLIDATED BALANCE SHEET REVIEW

SUMMARIZED BALANCE SHEET DATA

The summarized balance sheet data above is based upon our Consolidated Balance Sheet in Part I, Item 1 of this Report.

The decline in total assets at June 30, 2009 compared with December 31, 2008 was primarily due to weak loan demand and lower cash and short-term investments, somewhat offset by an increase in lower risk investment securities.

An analysis of changes in selected balance sheet categories follows.

LOANS

A summary of the major categories of loans outstanding follows. Outstanding loan balances reflect unearned income, unamortized discount and premium, and purchase discounts and premiums totaling $3.4 billion at June 30, 2009 and $4.1 billion at December 31, 2008, respectively.

Loans decreased $10.5 billion, or 6%, as of June 30, 2009 compared with December 31, 2008. Loans represented 59% of total assets at June 30, 2009 and 60% of total assets at December 31, 2008.

Commercial lending represented 55% of the loan portfolio and consumer lending represented 45% at June 30, 2009. Commercial lending declined 10% at June 30, 2009 compared with December 31, 2008. Commercial loans, which comprised 66% of total commercial lending, declined due to reduced demand for new loans, lower utilization levels and paydowns as clients continued to deleverage their balance sheets. Consumer lending decreased slightly at June 30, 2009 from

December 31, 2008. Increases in education and residential mortgage loans were more than offset by a decline in home equity installment loans and residential construction loans.

Details Of Loans

Our loan portfolio continued to be diversified among numerous industries and types of businesses. The loans that we hold are also concentrated in, and diversified across, our principal geographic markets.

Our home equity lines and installment loans outstanding totaled $36.7 billion at June 30, 2009. In this portfolio, we consider the higher risk loans to be those with a recent FICO credit score of less than or equal to 660 and a loan-to-value ratio greater than or equal to 90%. We had $1.2 billion or approximately 3% of the total portfolio in this grouping at June 30, 2009.

In our $19.3 billion residential mortgage portfolio, loans with a recent FICO credit score of less than or equal to 660 and a loan-to-value ratio greater than 90% totaled $1.8 billion and comprised approximately 9% of this portfolio at June 30, 2009.

Commercial lending is the largest category and is the most sensitive to changes in assumptions and judgments underlying the determination of the allowance for loan and lease losses. We have allocated $3.2 billion, or 70%, of the total allowance for loan and lease losses at June 30, 2009 to these loans. We allocated $1.4 billion, or 30%, of the remaining allowance at that date to consumer lending. This allocation also considers other relevant factors such as:

Valuation of FASB ASC 310-30 (SOP 03-3) Purchased Impaired Loans

Subsequent to December 31, 2008, an additional $2.6 billion of acquired National City loans were identified as impaired under FASB ASC 310-30. A total fair value mark of $1.6 billion was recorded, resulting in a $1.0 billion net investment. These impairments were effective December 31, 2008 based on additional information regarding the borrowers and credit conditions that existed as of the acquisition date. The net investment of $12.9 billion above differs from the $12.5 billion net investment at June 30, 2009 footnoted on page 12 due to payoffs, accretion and other adjustments during the first six months of 2009.

Purchase Accounting Accretion

Accretable Interest

Adjustments to the recorded investment in impaired loans include purchase accounting accretion, reclassifications from non-accretable to accretable interest as a result of increases in estimated cash flows, and reductions in the accretable amount as a result of additional loan impairments as of the National City acquisition close date of December 31, 2008.

Net unfunded credit commitments are comprised of the following:

Net Unfunded Credit Commitments

Unfunded commitments are concentrated in our primary geographic markets. Commitments to extend credit represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. Commercial commitments are reported net of participations, assignments and syndications, primarily to financial institutions, totaling $9.4 billion at June 30, 2009 and $8.6 billion at December 31, 2008.

Unfunded liquidity facility commitments and standby bond purchase agreements totaled $7.0 billion at June 30, 2009 and

December 31, 2008 and are included in the preceding table primarily within the “Commercial and commercial real estate” category.

In addition to credit commitments, our net outstanding standby letters of credit totaled $10.1 billion at June 30, 2009 and $10.3 billion at December 31, 2008. Standby letters of credit commit us to make payments on behalf of our customers if specified future events occur.

INVESTMENT SECURITIES

Details Of Investment Securities

Investment securities totaled $50.0 billion at June 30, 2009 and $43.5 billion at December 31, 2008. The increase in securities of $6.5 billion since year-end reflected primarily the purchase of US Treasury and government agency securities and agency commercial mortgage-backed securities, partially offset by maturities and prepayments. Securities represented 18% of total assets at June 30, 2009 and 15% of total assets at December 31, 2008.

We evaluate our portfolio of investment securities in light of changing market conditions and other factors and, where appropriate, take steps intended to improve our overall positioning.

At June 30, 2009, the securities available for sale balance included a net unrealized loss of $3.8 billion, which represented the difference between fair value and amortized cost. The comparable amount at December 31, 2008 was a net unrealized loss of $5.4 billion. The fair value of investment securities is impacted by interest rates, credit spreads, and market volatility and illiquidity. The improvement in the unrealized pretax loss from year-end was primarily the result of improving fair values in non-agency residential mortgage-backed and non-agency commercial mortgage-backed securities. The net unrealized losses at June 30, 2009 did not reflect significant credit quality concerns with the underlying assets which are primarily investment grade. Overall, we consider the portfolio to be well-diversified and high quality. US Treasury and government agencies, agency residential mortgage-backed securities and agency commercial mortgage-backed securities collectively represented 57% of the investment securities portfolio at June 30, 2009. The Fair Value Measurements And Fair Value Option section of this Financial Review provides further detail on the composition of our securities portfolio, including vintage, credit rating, and FICO score, where applicable.

FASB ASC 320-10, Investments – Debt and Equity Securities (FSP FAS 115-2 and FAS 124-4, “Recognition and Presentation of Other-Than-Temporary Impairments”), was issued in April 2009 and amended other-than-temporary impairment (OTTI) guidance for debt securities regarding recognition and disclosure. The major change in the guidance was the requirement to recognize only the credit portion of OTTI charges in current earnings for those debt securities where there is no intent to sell or it is more likely than not the entity would not be required to sell the security prior to expected recovery. The remaining portion of OTTI charges is included in accumulated other comprehensive loss.

As permitted, PNC adopted this guidance effective January 1, 2009. As a result, we recognized total OTTI in the first half of 2009 of $1.1 billion, comprised of $835 million in accumulated other comprehensive loss on the Consolidated Balance Sheet at June 30, 2009, and $304 million recognized as a reduction of noninterest income in our Consolidated Income Statement. Net OTTI recognized in our Consolidated

Income Statement for the second quarter of 2009 was $155 million. Note 7 Investment Securities in the Notes To Consolidated Financial Statements of this Report provides further information regarding the credit-related OTTI recognized in the first half and second quarter of 2009.

As required under the new guidance, we also recorded a cumulative effect adjustment of $110 million to retained earnings at January 1, 2009 to reclassify the noncredit component of OTTI recognized in 2008 from retained earnings to accumulated other comprehensive loss.

We also early adopted FASB ASC 820, Fair Value Measurements and Disclosures (FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”), during the first quarter of 2009. The Fair Value Measurements And Fair Value Option section of this Financial Review has additional information related to this guidance.

At least quarterly we conduct a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if an OTTI exists. Our process and methods have evolved as market conditions have deteriorated and as more research and other analyses have become available. We expect that our process and methods will continue to evolve. Our assessment considers the security structure, recent security collateral performance metrics, our judgment and expectations of future performance, and relevant industry research and analysis. We also consider the severity of the impairment and the length of time that the security has been impaired in our assessment. Results of the periodic assessment are reviewed by a cross-functional senior management team representing Asset & Liability Management, Finance, and Balance Sheet Risk Management. The senior management team considers the results of the assessments, as well as other factors, in determining whether the impairment is other-than-temporary.

If the current issues affecting the US housing market were to continue for the foreseeable future or worsen, if market volatility and illiquidity were to continue or worsen, or if market interest rates were to increase appreciably, the valuation of our available for sale securities portfolio could continue to be adversely affected and we could incur additional OTTI charges that would impact our Consolidated Income Statement.

Net unrealized gains and losses in the securities available for sale portfolio are included in shareholders’ equity as accumulated other comprehensive income or loss, net of tax. The fair value of investment securities generally decreases when interest rates increase and vice versa. In addition, the fair value generally decreases when credit spreads widen and vice versa.

The expected weighted-average life of investment securities (excluding corporate stocks and other) was 4.5 years at June 30, 2009 and 3.1 years at December 31, 2008.

We estimate that at June 30, 2009 the effective duration of investment securities was 3.0 years for an immediate 50 basis points parallel increase in interest rates and 2.7 years for an immediate 50 basis points parallel decrease in interest rates. Comparable amounts at December 31, 2008 were 3.7 years and 3.1 years, respectively.

LOANS HELD FOR SALE

We stopped originating certain commercial mortgage loans held for sale at fair value during the first quarter of 2008 and intend to continue pursuing opportunities to reduce these positions at appropriate prices. We recognized net gains of $34 million in the first half of 2009 on the valuation and sale of commercial mortgage loans held for sale, net of hedges, including $35 million in the second quarter. Losses of $138 million on the valuation and sale of commercial mortgage loans held for sale carried at fair value, net of hedges, were recognized in the first half of 2008, while gains of $28 million were recognized in the second quarter of that year. We sold $.2 billion and $.5 billion, respectively, of commercial mortgage loans held for sale carried at fair value in the first half of 2009 and 2008.

Strong origination volumes partially offset sales to government agencies of $3.2 billion of commercial mortgages held for sale at lower of cost or market during the first six months of 2009, including $1.5 billion in the second quarter.

Residential mortgage loans held for sale increased during the first half of 2009 due to strong refinancing volumes, especially in the first quarter. Loan origination volume was $13.3 billion, including $6.4 billion in the second quarter. Substantially all such loans were originated to agency standards. We sold $12.0 billion of this production and recognized related revenue of $327 million during the first half of 2009, of which $152 million occurred in the second quarter.

Net interest income on residential mortgage loans held for sale was $162 million for the first six months of 2009, including $80 million in the second quarter.

Goodwill and Other Intangible Assets

Goodwill increased $338 million and other intangible assets increased $864 million at June 30, 2009 compared with December 31, 2008. Note 2 National City Acquisition and Note 9 Goodwill and Other Intangible Assets in the Notes To Consolidated Financial Statements of this Report have further details on the National City-related items that were the primary drivers of these increases.

FUNDING AND CAPITAL SOURCES

Details Of Funding Sources

Total funding sources decreased $10.0 billion at June 30, 2009 compared with December 31, 2008 driven by a $7.6 billion decline in borrowed funds.

Total deposits decreased $2.4 billion at June 30, 2009 compared with December 31, 2008. Relationship-growth driven increases in money market, demand and savings deposits were more than offset by a decline in other time deposits, reflecting a planned run-off of brokered certificates of deposits and retail certificates of deposits which carried a higher price as acquired from recent bank acquisitions. Interest-bearing deposits represented 78% of total deposits at June 30, 2009 compared with 81% at December 31, 2008.

Borrowed funds totaled $44.7 billion at June 30, 2009 compared with $52.2 billion at December 31, 2008. The decline primarily resulted from repayments of Federal Home Loan Bank and other borrowed funds. During the first quarter of 2009, PNC issued $1.0 billion of senior notes guaranteed by the FDIC under the Temporary Liquidity Guarantee Program. In addition, PNC issued $1.0 billion of senior notes during the second quarter of 2009, which were not issued under the Temporary Liquidity Guarantee Program. The Liquidity Risk Management section of this Financial Review contains further details regarding actions we have taken which impacted our borrowed funds balances in 2009.

Capital

We manage our capital position by making adjustments to our balance sheet size and composition, issuing debt, equity or hybrid instruments, executing treasury stock transactions, managing dividend policies and retaining earnings. The reduction in our quarterly common stock dividend that began in April 2009 is expected to add $1 billion annually to PNC’s common equity and cash positions, resulting in annual improvement in capital ratios of approximately 40 basis points.

Total shareholders’ equity increased $1.9 billion, to $27.3 billion, at June 30, 2009 compared with December 31, 2008 primarily due to the following:

Common shares outstanding were 461 million at June 30, 2009 and 443 million at December 31, 2008. As described in the Executive Summary section of this Financial Review, in May 2009 we raised $624 million in new common equity at market prices through the issuance of 15 million shares of common stock. The offering was related to our plan for increasing common equity following the results of the stress tests conducted under the Supervisory Capital Assessment Program by the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency.

We expect to continue to increase our common equity as a proportion of total capital through growth in retained earnings and will consider other capital opportunities as appropriate. We do not contemplate exchanging any of the shares of preferred stock issued to the US Treasury under the TARP Capital Purchase Program for shares of mandatorily convertible preferred stock.

Our current common stock repurchase program permits us to purchase up to 25 million shares of PNC common stock on the open market or in privately negotiated transactions. This program will remain in effect until fully utilized or until modified, superseded or terminated. The extent and timing of share repurchases under this program will depend on a number of factors including, among others, market and general economic conditions, economic and regulatory capital considerations, alternative uses of capital, regulatory and contractual limitations, and the potential impact on our credit ratings. We did not purchase any shares during the first half of 2009 under this program and, as described below, are restricted from doing so under the TARP Capital Purchase Program.

Under the TARP Capital Purchase Program, there are restrictions on dividends and common share repurchases associated with the preferred stock that we issued to the US Treasury in accordance with that program. As is typical with cumulative preferred stock, dividend payments for this preferred stock must be current before dividends may be paid on junior shares, including our common stock, or junior shares can be repurchased or redeemed. Also, under the TARP Capital Purchase Program agreements, the US Treasury’s consent will be required for any increase in common dividends per share above $.66 per share quarterly until the third anniversary of the preferred stock issuance as long as the US Treasury continues to hold any of the preferred stock. Further, during that same period, the US Treasury’s consent will be required, unless the preferred stock is no longer held by the US Treasury, for any share repurchases with limited exceptions, most significantly purchases of common shares in connection with any benefit plan in the ordinary course of business consistent with past practice. Any increase in our dividends while we remain subject to these restrictions would depend on the status of our efforts to put ourselves into position to redeem the US Treasury’s investment in PNC.

Risk-Based Capital