Edgar Filing: PNC FINANCIAL SERVICES GROUP INC

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-09718

The PNC Financial Services Group, Inc.

(Exact name of registrant as specified in its charter)

Pennsylvania

25-1435979

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707

(Address of principal executive offices, including zip code)

(412) 762-2000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of April 29, 2011, there were 526,282,991 shares of the registrant’s common stock ($5 par value) outstanding.

The PNC Financial Services Group, Inc.

Cross-Reference Index to First Quarter 2011 Form 10-Q


	Pages
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

Consolidated Income Statement		59
Consolidated Balance Sheet		60
Consolidated Statement Of Cash Flows		61

Notes To Consolidated Financial Statements (Unaudited)
Note 1 Accounting Policies		63
Note 2 Divestiture		66
Note 3 Loan Sale and Servicing Activities and Variable Interest Entities		67
Note 4 Loans and Commitments to Extend Credit		71
Note 5 Asset Quality and Allowances for Loan and Lease Losses and Unfunded Loan
Commitments and Letters of Credit		72
Note 6 Purchased Impaired Loans		80
Note 7 Investment Securities		81
Note 8 Fair Value		86
Note 9 Goodwill and Other Intangible Assets		96
Note 10 Capital Securities of Subsidiary Trusts and Perpetual Trust Securities		98
Note 11 Certain Employee Benefit And Stock-Based Compensation Plans		99
Note 12 Financial Derivatives		101
Note 13 Earnings Per Share		108
Note 14 Total Equity And Other Comprehensive Income		109
Note 15 Income Taxes		110
Note 16 Legal Proceedings		110
Note 17 Commitments and Guarantees		112
Note 18 Segment Reporting		116

Statistical Information (Unaudited)
Average Consolidated Balance Sheet And Net Interest Analysis		119

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Financial Review

Consolidated Financial Highlights		1
Executive Summary		3
Consolidated Income Statement Review		9
Consolidated Balance Sheet Review		11
Off-Balance Sheet Arrangements And Variable Interest Entities		20
Fair Value Measurements		21
Business Segments Review		22
Critical Accounting Estimates And Judgments		33
Status Of Qualified Defined Benefit Pension Plan		34
Recourse And Repurchase Obligations		35
Risk Management		38
Internal Controls And Disclosure Controls And Procedures		53
Glossary Of Terms		53
Cautionary Statement Regarding Forward-Looking Information		57

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		38-52 and 101-107

Item 4. Controls and Procedures.		53

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.		121
Item 1A. Risk Factors.		121
Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds.		121
Item 6. Exhibits.		121
Exhibit Index.		121
Signature		121

Corporate Information		122

FINANCIAL REVIEW

CONSOLIDATED FINANCIAL HIGHLIGHTS

THE PNC FINANCIAL SERVICES GROUP, INC.


Dollars in millions, except per share data	Three months ended March 31
Unaudited	2011			2010
FINANCIAL RESULTS (a)
Revenue
Net interest income	$	2,176		$	2,379
Noninterest income		1,455			1,384
Total revenue		3,631			3,763
Noninterest expense		2,070			2,113
Pretax, pre-provision earnings from continuing operations (b)		1,561			1,650
Provision for credit losses		421			751
Income from continuing operations before income taxes and noncontrolling interests (pretax earnings)	$	1,140		$	899
Income from continuing operations before noncontrolling interests	$	832		$	648
Income from discontinued operations, net of income taxes (c)					23
Net income	$	832		$	671
Less:
Net income (loss) attributable to noncontrolling interests		(5	)		(5	)
Preferred stock dividends, including TARP (d)		4			93
Redemption of TARP preferred stock discount accretion (d)					250
Net income attributable to common shareholders (d)	$	833		$	333
Diluted earnings per common share
Continuing operations	$	1.57		$	.61
Discontinued operations (c)					.05
Net income	$	1.57		$	.66
Cash dividends declared per common share (e)	$	.10		$	.10
PERFORMANCE RATIOS
Net interest margin (f)		3.94	%		4.24	%
Noninterest income to total revenue		40			37
Efficiency		57			56
Return on:
Average common shareholders’ equity		11.12			5.37
Average assets		1.29			1.02

See page 53 for a glossary of certain terms used in this Report.

Certain prior period amounts have been reclassified to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements.

(a)	The Executive Summary and Consolidated Income Statement Review portions of the Financial Review section of this Report provide information regarding items impacting the comparability of the periods presented.

(b)	We believe that pretax, pre-provision earnings from continuing operations, a non-GAAP measure, is useful as a tool to help evaluate our ability to provide for credit costs through operations.

(c)

Includes results of operations for PNC Global Investment Servicing Inc. (GIS). We sold GIS effective July 1, 2010. See Sale of PNC Global Investment Servicing in the Executive Summary section of the Financial Review section of this Report and Note 2 Divestiture in the Notes To Consolidated Financial Statements of this Report for additional information.

(d)

We redeemed the Series N (TARP) Preferred Stock on February 10, 2010. In connection with the redemption, we accelerated the accretion of the remaining issuance discount on the Series N Preferred Stock and recorded a corresponding reduction in retained earnings of $250 million in the first quarter of 2010. This resulted in a one-time, noncash reduction in net income attributable to common shareholders and related basic and diluted earnings per share. The impact on diluted earnings per share was $.50 for the first quarter of 2010. Total dividends declared for the first quarter of 2010 included $89 million on the Series N Preferred Stock.

(e)

In April 2011, the PNC Board of Directors declared a quarterly cash dividend on common stock of 35 cents per share, an increase of 25 cents per share, or 250%, from the prior quarterly dividend of 10 cents per share. The increased dividend was paid May 5, 2011 to shareholders of record at the close of business on April 18, 2011.

(f)

Calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP in the Consolidated Income Statement. The taxable-equivalent adjustments to net interest income for the three months ended March 31, 2011 and March 31, 2010 were $24 million and $18 million, respectively.

CONSOLIDATED FINANCIAL HIGHLIGHTS (CONTINUED) (a)


Unaudited	March 31 2011			December 31 2010			March 31 2010
BALANCE SHEET DATA (dollars in millions, except per share data)
Assets	$	259,378		$	264,284		$	265,396
Loans (b) (c)		149,387			150,595			157,266
Allowance for loan and lease losses (b)		4,759			4,887			5,319
Interest-earning deposits with banks (b)		1,359			1,610			607
Investment securities (b)		60,992			64,262			57,606
Loans held for sale (c)		2,980			3,492			2,691
Goodwill and other intangible assets		10,764			10,753			12,714
Equity investments (b)		9,595			9,220			10,256
Noninterest-bearing deposits		48,707			50,019			43,122
Interest-bearing deposits		133,283			133,371			139,401
Total deposits		181,990			183,390			182,523
Transaction deposits		134,516			134,654			126,420
Borrowed funds (b)		34,996			39,488			42,461
Shareholders’ equity		31,132			30,242			26,818
Common shareholders’ equity		30,485			29,596			26,466
Accumulated other comprehensive income (loss)		(309	)		(431	)		(1,288	)
Book value per common share		58.01			56.29			50.32
Common shares outstanding (millions)		526			526			526
Loans to deposits		82	%		82	%		86	%

ASSETS UNDER ADMINISTRATION (billions)
Discretionary assets under management	$	110		$	108		$	105
Nondiscretionary assets under administration		109			104			104
Total assets under administration		219			212			209

CAPITAL RATIOS
Tier 1 common		10.3	%		9.8	%		7.9	%
Tier 1 risk-based (d)		12.6			12.1			10.3
Total risk-based (d)		16.2			15.6			13.9
Leverage (d)		10.6			10.2			8.8
Common shareholders’ equity to assets		11.8			11.2			10.0

ASSET QUALITY RATIOS
Nonperforming loans to total loans		2.94	%		2.97	%		3.66	%
Nonperforming assets to total loans, OREO and foreclosed assets		3.50			3.50			4.14
Nonperforming assets to total assets		2.03			2.01			2.46
Net charge-offs to average loans (for the three months ended) (annualized)		1.44			2.09			1.77
Allowance for loan and lease losses to total loans		3.19			3.25			3.38
Allowance for loan and lease losses to nonperforming loans (e)		108			109			92

(a)	The Executive Summary and Consolidated Balance Sheet Review portions of the Financial Review section of this Report provide information regarding items impacting the comparability of the periods presented.

(b)	Amounts include consolidated variable interest entities. See Consolidated Balance Sheet in Part I, Item 1 of this Report for additional information. Also includes our equity interest in BlackRock under Equity investments.

(c)	Amounts include assets for which we have elected the fair value option. See Consolidated Balance Sheet in Part I, Item 1 of this Report for additional information.

(d)	The minimum US regulatory capital ratios under Basel I are 4.0% for Tier 1 risk-based, 8.0% for Total risk-based, and 4.0% for Leverage. The well-capitalized levels are 6.0% for Tier 1 risk-based, 10.0% for Total risk-based, and 5.0% for Leverage.

(e)	The allowance for loan and lease losses includes impairment reserves attributable to purchased impaired loans. Nonperforming loans do not include purchased impaired loans or loans held for sale.

FINANCIAL REVIEW

THE PNC FINANCIAL SERVICES GROUP, INC.

This Financial Review, including the Consolidated Financial Highlights, should be read together with our unaudited Consolidated Financial Statements and unaudited Statistical Information included elsewhere in this Report and with Items 6, 7, 8 and 9A of our 2010 Annual Report on Form 10-K (2010 Form 10-K). We have reclassified certain prior period amounts to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements. For information regarding certain business and regulatory risks, see the Risk Management section in this Financial Review, Item 1A and the Risk Management section of Item 7 of our 2010 Form 10-K, and Note 16 Legal Proceedings and Note 17 Commitments and Guarantees in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Report. Also, see the Cautionary Statement Regarding Forward-Looking Information and Critical Accounting Estimates And Judgments sections in this Financial Review for certain other factors that could cause actual results or future events to differ, perhaps materially, from historical performance and those anticipated in the forward-looking statements included in this Report. See Note 18 Segment Reporting in the Notes To Consolidated Financial Statements included in Part I, Item 1 of this Report for a reconciliation of total business segment earnings to total PNC consolidated net income from continuing operations before noncontrolling interests as reported on a generally accepted accounting principles (GAAP) basis.

EXECUTIVE SUMMARY

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

PNC has businesses engaged in retail banking, corporate and institutional banking, asset management, and residential mortgage banking, 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, Virginia, Missouri, Delaware, Washington, D.C., and Wisconsin. PNC also provides certain products and services internationally.

KEY STRATEGIC GOALS

We manage our company for the long term and are focused on managing toward 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 growth in pre-tax, pre-provision earnings 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. This strategy is designed to give our consumer customers choices based on their needs. Rather than striving to optimize fee revenue in the short term, our approach is focused on effectively growing targeted market share and “share of wallet.” 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 a moderate risk philosophy 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. We made substantial progress in transitioning our balance sheet over the past two years, working to return to our moderate risk profile throughout our expanded franchise. Our actions have created a well-positioned balance sheet, strong bank level liquidity and investment flexibility to adjust, where appropriate and permissible, to changing interest rates and market conditions.

2011 CAPITAL ACTIONS

On April 7, 2011, our Board of Directors approved an increase to PNC’s quarterly common stock dividend from $.10 per common share to $.35 per common share, which was paid on May 5, 2011. Our Board of Directors also confirmed that PNC may begin to purchase common stock under its existing 25 million share repurchase program in open market or privately negotiated transactions. PNC plans to repurchase up to $500 million of common stock during the remainder of 2011. The discussion of capital within the Consolidated Balance Sheet Review section of this Financial Review includes additional information regarding our common stock repurchase program.

Our ability to take these actions had been subject to the results of the supervisory assessment of capital adequacy undertaken by the Board of Governors of the Federal Reserve System (Federal Reserve) and our primary bank regulators as part of the capital adequacy assessment of the 19 bank holding companies that participate in the Supervisory Capital Assessment Program. As we announced on March 18, 2011, the Federal Reserve accepted the capital plan that we submitted for their review and did not object to our capital actions.

RECENT MARKET AND INDUSTRY DEVELOPMENTS

In addition to numerous legislative and regulatory developments, there have been dramatic changes in the competitive landscape of our industry over the last several years.

Beginning in late 2008, efforts by the Federal government, including the US Congress, 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, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), in particular, and other legislative, administrative and regulatory initiatives, including the new rules set forth in Regulation E related to overdraft charges.

Dodd-Frank is extensive, complicated and comprehensive legislation that impacts practically all aspects of a banking organization. Dodd-Frank will negatively impact revenue and increase both the direct and indirect costs of doing business for PNC. It includes provisions that could increase regulatory fees and deposit insurance assessments and impose heightened capital and prudential standards, while at the same time impacting the nature and costs of PNC’s businesses, including consumer lending, private equity investment, derivatives transactions, interchange fees on debit card transactions, and asset securitizations.

Until such time as the regulatory agencies issue final regulations implementing all of the numerous provisions of Dodd-Frank, a process that will extend at least over the next year and might last several years, PNC will not be able to fully assess the impact the legislation will have on its businesses. However, we believe that the expected changes will be manageable for PNC and will have a smaller impact on us than on our larger peers.

Included in these recent legislative and regulatory developments are evolving regulatory capital standards for financial institutions. Dodd-Frank requires the Federal Reserve Board to establish capital requirements that would, among other things, eliminate the Tier 1 treatment of trust preferred securities following a phase-in period expected to begin in 2013. Evolving standards also include the so-called “Basel III” initiatives that are part of the Basel II effort by international banking supervisors to update the original international bank capital accord (Basel I), which has been in effect since 1988. The recent Basel III capital initiative, which has the support of US banking regulators, includes heightened capital requirements for major banking institutions in terms of both higher quality capital and higher regulatory capital ratios. Basel III capital standards will require implementing regulations by the banking regulators. These regulations will

become effective under a phase-in period beginning January 1, 2013, and will become fully effective January 1, 2019.

Dodd-Frank also establishes, as an independent agency organized as a bureau within the Federal Reserve, the Bureau of Consumer Financial Protection (CFPB). Starting July 21, 2011, the CFPB will have the authority to prescribe rules governing the provision of consumer financial products and services, and it is expected that the CFPB will issue new regulations, and amend existing regulations, regarding consumer protection practices. Also on that date, the authority of the Office of the Comptroller of the Currency (OCC) to examine PNC Bank, N.A. for compliance with consumer protection laws, and to enforce such laws, will transfer to CFPB.

Additionally, new provisions concerning the applicability of state consumer protection laws will become effective on July 21, 2011. Questions may arise as to whether certain state consumer financial laws that may have previously been preempted are no longer preempted after this date. Depending on how such questions are resolved, we may experience an increase in state-level regulation of our retail banking business and additional compliance obligations, revenue impacts, and costs.

Dodd-Frank and its implementation, as well as other statutory and regulatory initiatives that will be ongoing, will introduce numerous regulatory changes over the next several years. While we believe that we are well positioned to navigate through this process, we cannot predict the ultimate impact of these actions on PNC’s business plans and strategies.

RESIDENTIAL MORTGAGE FORECLOSURE MATTERS

Beginning in the third quarter of 2010, mortgage foreclosure documentation practices among US financial institutions received heightened attention by regulators and the media. PNC’s US market share for residential servicing is approximately 1.5%. The vast majority of our servicing business is on behalf of other investors, principally the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage Association (FNMA). Following the initial reports regarding these practices, we conducted an internal review of our foreclosure procedures. Based upon our review, we believe that PNC has systems designed to ensure that no foreclosure proceeds unless the loan is genuinely in default.

Similar to other banks, however, we identified issues regarding some of our foreclosure practices. Accordingly, after implementing a delay in pursuing individual foreclosures, we have been moving forward or are in the process of moving forward in most jurisdictions on such matters under procedures designed to address as appropriate any documentation issues. We are also proceeding with new foreclosures under enhanced procedures designed as part of this review to minimize the risk of errors related to the processing of documentation in foreclosure cases.

The Federal Reserve and the OCC, together with the FDIC and others, conducted a publicly-disclosed interagency horizontal review of residential mortgage servicing operations at PNC and thirteen other federally regulated mortgage servicers. As a result of that review, in April 2011 PNC entered into a consent order with the Federal Reserve and PNC Bank N.A. entered into a consent order with the OCC. Collectively, these consent orders describe certain foreclosure-related practices and controls that the regulators found to be deficient and require PNC and PNC Bank to, among other things, develop and implement plans and programs to enhance PNC’s residential mortgage servicing and foreclosure processes, retain an independent consultant to review certain residential mortgage foreclosure actions, take certain remedial actions, and oversee compliance with the orders and the new plans and programs. The two orders do not resolve any other federal or state governmental, legislative or regulatory authority investigations, which may result in significant additional actions, penalties or other remedies, and they do not foreclose the potential for civil money penalties from the bank regulators.

For additional information, please see Note 16 Legal Proceedings and Note 17 Commitments and Guarantees in the Notes To Consolidated Financial Statements in this Report and our Current Report on Form 8-K dated April 14, 2011.

PNC’S PARTICIPATION IN SELECT GOVERNMENT PROGRAMS

Information on these programs is provided in Item 7 of our 2010 Form 10-K.

KEY FACTORS AFFECTING FINANCIAL PERFORMANCE

Our financial performance is substantially affected by several external factors outside of our control including the following:

•

General economic conditions, including the speed and stamina of the moderate economic recovery in general and on our customers in particular,

•

The level of, and direction, timing and magnitude of movement in, interest rates and the shape of the interest rate yield curve,

•

The functioning and other performance of, and availability of liquidity in, the capital and other financial markets,

•

Loan demand, utilization of credit commitments and standby letters of credit, and asset quality,

•

Customer demand for other products and services,

•

Changes in the competitive and regulatory landscape and in counterparty creditworthiness and performance as the financial services industry restructures in the current environment,

•

The impact of the extensive reforms enacted in the Dodd-Frank legislation and other legislative, regulatory and administrative initiatives, including those outlined above, and

•

The impact of market credit spreads on asset valuations.

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

•

Further success in the acquisition, growth and retention of customers,

•

Continued development of the geographic markets related to our recent acquisitions, including full deployment of our product offerings,

•

Revenue growth,

•

A sustained focus on expense management,

•

Managing the distressed assets portfolio and other impaired assets,

•

Improving our overall asset quality and continuing to meet evolving regulatory capital standards,

•

Continuing to maintain and grow our deposit base as a low-cost funding source,

•

Prudent risk and capital management related to our efforts to return to our desired moderate risk profile,

•

Actions we take within the capital and other financial markets, and

•

The impact of legal and regulatory contingencies.

SALE OF PNC GLOBAL INVESTMENT SERVICING

On July 1, 2010, we sold PNC Global Investment Servicing Inc. (GIS), a leading provider of processing, technology and business intelligence services to asset managers, broker-dealers and financial advisors worldwide, for $2.3 billion in cash pursuant to a definitive agreement entered into on February 2, 2010. The pretax gain recorded in the third quarter of 2010 related to this sale was $639 million, or $328 million after taxes.

Results of operations of GIS through March 31, 2010 are presented as income from discontinued operations, net of income taxes, on our Consolidated Income Statement in this Report. Once we entered into the sales agreement, GIS was no longer a reportable business segment. See Note 2 Divestiture in our Notes To Consolidated Financial Statements in this Report.

INCOME STATEMENT HIGHLIGHTS

•

Strong results for the first quarter reflected pretax earnings from continuing operations of $1.1 billion, compared with $.9 billion for the first quarter of 2010.

•

Net interest income for the first three months of 2011 was $2.2 billion and the net interest margin was 3.94%, compared with $2.4 billion and 4.24% for the first three months of 2010. The decreases compared with the prior year quarter were attributable to lower purchase accounting accretion, soft loan demand and the low interest rate environment partially offset by lower funding costs.

•

Noninterest income of $1.5 billion for the first quarter of 2011 increased from $1.4 billion in the prior year first quarter.

•

The provision for credit losses declined to $421 million for the first three months of 2011 from $751 million for the first three months of 2010 driven by overall credit quality improvement and continuation of actions to reduce exposure levels.

•

Noninterest expense totaled $2.1 billion for the first quarter of both 2011 and 2010.

CREDIT QUALITY HIGHLIGHTS

•

Improvement in overall credit quality continued in the first quarter of 2011. Nonperforming assets decreased $43 million to $5.3 billion at March 31, 2011 compared with December 31, 2010. Accruing loans past due of $1.9 billion were relatively unchanged from December 31, 2010. The allowance for loan and lease losses was $4.8 billion, or 3.19% of total loans and 108% of nonperforming loans, as of March 31, 2011.

BALANCE SHEET HIGHLIGHTS

•

Total loans were $149 billion at March 31, 2011 and $151 billion at December 31, 2010. Growth in commercial loans of $1.4 billion during the quarter was offset by declines in commercial real estate loans of $.8 billion and residential mortgage loans of $.7 billion. Loans and commitments originated and renewed totaled approximately $27 billion in the first quarter, including $.9 billion of small business loans.

•

Total deposits were $182 billion at March 31, 2011 and $183 billion at December 31, 2010. Transaction deposits of $135 billion were essentially stable compared with December 31, 2010. Higher cost retail certificates of deposit continued to decline with a reduction of $1.5 billion, or 4%, in the first quarter.

•

PNC’s high quality balance sheet was core funded with a loan to deposit ratio of 82% at March 31, 2011 and a strong bank liquidity position to support growth.

•

PNC’s strong capital levels were reflected in its Tier 1 common capital ratio which increased to 10.3% at March 31, 2011 from 9.8% at December 31, 2010.

•

PNC reached a definitive agreement in January 2011 to acquire 19 branches and approximately $390 million of deposits from BankAtlantic Bancorp, Inc. located in the Tampa, Florida area. The transaction has received regulatory approval and is expected to close in June 2011, subject to customary closing conditions.

Our Consolidated Income Statement and Consolidated Balance Sheet Review sections of this Financial Review describe in greater detail the various items that impacted our results for the first three months of 2011 and 2010.

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 acquisitions, divestitures and consolidations of variable interest entities.

The Consolidated Balance Sheet Review section of this Financial Review provides information on changes in selected Consolidated Balance Sheet categories at March 31, 2011 compared with December 31, 2010.

Total average assets were $262.6 billion for the first three months of 2011 compared with $267.1 billion for the first three months of 2010. Average interest-earning assets were $224.1 billion for the first three months of 2011, compared with $227.0 billion in the first three months of 2010. In both comparisons, the declines were primarily driven by an $8.6 billion decrease in average total loans partially offset by a $5.5 billion increase in average total investment securities. The overall decline in average loans reflected soft customer loan demand, loan repayments, dispositions and net charge-offs. The increase in total investment securities reflected net investments of excess liquidity in short duration, high quality securities, primarily residential mortgage-backed securities.

The decrease in average total loans primarily reflected declines in commercial real estate of $4.9 billion and residential real estate of $3.9 billion, partially offset by a $.8 billion increase in commercial loans. Commercial real estate loans declined due to loan sales, paydowns, and charge-offs. The decrease in residential real estate was impacted by portfolio management activities, paydowns and net charge-offs. Commercial loans increased due to a combination of new volume, improved utilization and new Market Street commitments. Loans represented 67% of average interest-earning assets for the first three months of 2011 and 70% of average interest-earning assets for the first three months of 2010.

Average securities available for sale increased $4.8 billion, to $55.4 billion, in the first quarter of 2011 compared with the first quarter of 2010. Average residential mortgage-backed agency securities increased $7.2 billion and other debt securities increased $2.1 billion in the comparison while residential mortgage-backed non-agency securities declined $2.2 billion and commercial mortgage-backed securities decreased $2.1 billion. The impact of purchases of high quality agency residential mortgage-backed securities and diversifiable other debt was partially offset by the natural run-off from paydowns of other security types.

Average securities held to maturity increased $.8 billion, to $6.7 billion, in the first three months of 2011 compared with the first three months of 2010. An increase of $2.1 billion in commercial mortgage-backed securities more than offset a $1.2 billion decrease in asset-backed securities in the comparison. Purchases of commercial mortgage-backed securities during the first quarter of 2011 outpaced the effect of paydowns of other security types.

Total investment securities comprised 28% of average interest-earning assets for the first three months of 2011 and 25% for the first three months of 2010.

Average noninterest-earning assets totaled $38.5 billion in the first three months of 2011 compared with $40.2 billion in the first three months of 2010. The decline reflected a decrease in average goodwill and other intangible assets.

Average total deposits were $180.8 billion for the first quarter of 2011 compared with $183.1 billion for the first quarter of 2010. Average deposits declined from the prior year period primarily as a result of decreases in retail certificates of deposit and other time deposits, which were partially offset by increases in money market balances, demand and other noninterest-bearing deposits. Growing core checking deposits as a lower-cost funding source and as the cornerstone product to build customer relationships is the primary objective of our deposit strategy. Furthermore, core checking accounts are critical to our strategy of expanding our payment business. Total deposits at March 31, 2011 were $182.0 billion compared with $183.4 billion at December 31, 2010 and are further discussed within the Consolidated Balance Sheet Review section of this Report.

Average total deposits represented 69% of average total assets for both the first three months of 2011 and 2010.

Average transaction deposits were $132.6 billion for the first three months of 2011 compared with $125.2 billion for the first three months of 2010. The ongoing planned reduction of high-cost and primarily nonrelationship certificates of deposit is part of our overall deposit strategy that is focused on growing demand and other transaction deposits as the cornerstone product of customer relationships and a lower-cost, stable funding source.

Average borrowed funds were $38.4 billion for the first quarter of 2011 compared with $42.3 billion for the first quarter of 2010. Maturities of Federal Home Loan Bank (FHLB) borrowings drove the decline compared with the first quarter of 2010. Total borrowed funds at March 31, 2011 were $35.0 billion compared with $39.5 billion at December 31, 2010 and are further discussed within the Consolidated Balance Sheet Review section of this Financial Review. In addition, the Liquidity Risk Management portion of the Risk Management section of this Financial Review includes additional information regarding our sources and uses of borrowed funds.

BUSINESS SEGMENT HIGHLIGHTS

Total business segment earnings were $639 million for the first three months of 2011 and $659 million for the first three months of 2010. Highlights of results for the first three months of 2011 and 2010 are included below. The Business Segments Review section of this Financial Review includes a Results of Business-Summary table and further analysis of our business

segment results over these periods including presentation differences from Note 18 Segment Reporting in our Notes To Consolidated Financial Statements of this Report.

We provide a reconciliation of total business segment earnings to PNC consolidated income from continuing operations before noncontrolling interests as reported on a GAAP basis in Note 18 Segment Reporting in our Notes To Consolidated Financial Statements of this Report

Retail Banking

Retail Banking incurred a loss of $18 million for the quarter compared with earnings of $24 million for the year ago quarter. Earnings declined from the prior year quarter as lower revenues resulting from the impact of Regulation E rules related to overdraft fees and a low interest rate environment were partially offset by a lower provision for credit losses. Retail Banking continued to maintain its focus on growing customers and deposits, improving customer and employee satisfaction, investing in the business for future growth, and disciplined expense management during this period of market and economic uncertainty.

Corporate & Institutional Banking

Corporate & Institutional Banking earned $432 million in the first quarter of 2011 compared with $368 million in the first quarter of 2010. The increase in earnings was due to a decrease in the provision for credit losses, somewhat offset by declines in net interest income and revenue from commercial mortgage banking activities. We continued to focus on adding new clients and increased our cross selling to serve our clients’ needs, particularly in the western markets, and remained committed to strong expense discipline.

Asset Management Group

Asset Management Group earned $43 million in the first quarter of 2011 compared with $39 million in the first quarter of 2010. Assets under administration were $219 billion as of March 31, 2011. Earnings for the first quarter of 2011 reflected a benefit from the provision for credit losses compared with the provision for the first quarter of 2010. The business maintained its focus on new client acquisition and client asset growth during the quarter.

Residential Mortgage Banking

Residential Mortgage Banking earned $71 million in the first quarter of 2011 compared with $78 million in the first quarter of 2010. Earnings declined from the prior year first quarter primarily as a result of a higher provision for credit losses, lower servicing fees, lower net interest income and higher noninterest expense offset partially by increased loans sales revenue and higher net economic hedging gains on mortgage servicing rights.

BlackRock

Our BlackRock business segment earned $86 million in the first three months of 2011 and $77 million in the first three

months of 2010. Higher earnings at BlackRock for the first quarter of 2011 compared to the first quarter of 2010 were due to the effect of growth in base and performance fees as well as BlackRock Solutions ^® and advisory fees.

Distressed Assets Portfolio

This business segment consists primarily of assets acquired with acquisitions and had earnings of $25 million for the first three months of 2011 compared with $73 million in the first three months of 2010. The decline was driven by a decrease in net interest income, partially offset by a lower provision for credit losses and an increase in noninterest income.

Other

“Other” reported earnings of $193 million for the three months of 2011 compared with a net loss of $11 million for the first three months of 2010. The increase in earnings over the first quarter of 2010 primarily reflected the impact of integration costs incurred in the 2010 period, the reversal of a portion of an indemnification liability for certain Visa litigation in the first quarter of 2011 and higher net gains on sales of securities net of other-than-temporary impairments (OTTI) in the first quarter of 2011.

CONSOLIDATED INCOME STATEMENT REVIEW

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

Net income for the first three months of 2011 was $832 million compared with $671 million for the first three months of 2010. Total revenue for the first three months of 2011 was $3.6 billion compared with $3.8 billion for the three months of 2010. The decline in total revenue in the comparison reflected lower net interest income in 2011.

NET INTEREST INCOME AND NET INTEREST MARGIN


	Three months ended March 31
Dollars in millions	2011			2010
Net interest income	$	2,176		$	2,379
Net interest margin		3.94	%		4.24	%

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 (Unaudited) – Average Consolidated Balance Sheet And Net Interest Analysis section of this Report for additional information.

The decrease in net interest income and net interest margin compared with the first quarter of 2010 was attributable to lower purchase accounting accretion, soft loan demand and the low interest rate environment partially offset by lower funding costs.

The net interest margin was 3.94% for the first three months of 2011 and 4.24% for the first three months of 2010. The following factors impacted the comparison:

•

A 50 basis point decrease in the yield on interest-earning assets. The yield on loans, the largest portion of our earning assets, decreased 41 basis points.

•

These factors were partially offset by a 21 basis point decline in the rate accrued on interest-bearing liabilities. The rate accrued on interest-bearing deposits, the largest component, decreased 26 basis points.

We expect that our purchase accounting accretion will decrease by as much as $700 million for full year 2011 compared with 2010. Excluding the impact of this factor, we expect our net interest income to increase for full year 2011 by $100 million or more. Overall, we also expect that our net interest margin will decline for full year 2011 compared with 2010.

NONINTEREST INCOME

Summary

Noninterest income totaled $1.5 billion for the first three months of 2011, compared with $1.4 billion for the first three months of 2010.

Noninterest income in the first quarter of 2011 increased $71 million compared with the first quarter of 2010 due to higher residential mortgage fees, higher net gains on sales of securities net of OTTI and a decrease in repurchase reserves partially offset by lower corporate service fees and a decline in service charges on deposits primarily from the impact of Regulation E rules pertaining to overdraft fees.

Additional Analysis

Asset management revenue increased $4 million to $263 million in the first three months of 2011 compared with the first three months of 2010. The increase in the comparisons was driven by higher equity markets, successful client retention, growth in new clients and strong sales performance. Assets under management at March 31, 2011 totaled $110 billion compared with $105 billion at March 31, 2010. Higher equity earnings from our BlackRock investment also contributed to the improved first quarter results.

For the first quarter of 2011, consumer services fees totaled $311 million compared with $296 million in the first quarter of 2010. The increase in fees reflected higher volume-related transaction fees, such as debit cards and credit cards.

Corporate services revenue totaled $217 million in the first three months of 2011 and $268 million in the first three months of 2010. Commercial mortgage servicing revenue declined due to higher impairment charges and lower ancillary fee income. Corporate services fees include the noninterest component of treasury management fees, which continued to be a strong contributor to revenue.

Residential mortgage revenue totaled $195 million in the first quarter of 2011 and $147 million in the first quarter of 2010. Higher loan sales revenue and net economic hedging gains on mortgage servicing rights drove the increase over the first quarter of 2010.

Service charges on deposits totaled $123 million for the first three months of 2011 and $200 million for the first three months of 2010. The decline resulted primarily from the impact of Regulation E rules pertaining to overdraft fees.

Net gains on sales of securities totaled $37 million for the first quarter of 2011 and $90 million for the first quarter of 2010. The net credit component of OTTI of securities recognized in earnings was a loss of $34 million in the first quarter of 2011, compared with a loss of $116 million in the first quarter of 2010.

Other noninterest income totaled $343 million for the first three months of 2011 compared with $240 million for the first three months of 2010. The increase was driven by several individually insignificant items.

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 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.

Looking to full year 2011, we see momentum in our fee-based revenues resulting from client growth and depth in our expanded franchise. At the same time, we will see the continued impact of ongoing regulatory reforms. Excluding the expected incremental negative impact of two aspects of anticipated regulatory changes on fees related to Regulation E and interchange rates of approximately $400 million for full year 2011 as further discussed in the Retail Banking portion of the Business Segments Review section of this Report, we expect noninterest income for full year 2011 to increase in the low-to-mid single digits (in terms of percentages) compared with 2010.

PRODUCT REVENUE

In addition to credit and deposit products for commercial customers, Corporate & Institutional Banking offers other services, including treasury management, commercial real estate, and capital markets-related products and services, that are marketed by several businesses primarily to commercial customers.

Treasury management revenue, which includes fees as well as net interest income from customer deposit balances, totaled $301 million for the first three months of 2011 and $296 million for the first three months of 2010.

Revenue from capital markets-related products and services totaled $139 million in the first quarter of 2011 compared with $161 million in the first quarter of 2010. The decrease was due to a number of large underwriting transactions and loan sale activity in the first quarter a year ago which did not recur, which were partially offset by increased derivatives client revenue and reduced impact of credit risk on customer derivative position values

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 $41 million in the first three months of 2011 compared with $115 million in the first three months of 2010. This decline was due to a reduction in the value of commercial mortgage servicing rights largely driven by higher loan prepayment rates and lower interest rates, and lower ancillary commercial mortgage servicing fees.

PROVISION FOR CREDIT LOSSES

The provision for credit losses totaled $421 million for the first three months of 2011 compared with $751 million for the first three months of 2010. The significant decline from the first three months of 2010 was driven by overall credit quality improvement and continuation of actions to reduce exposure levels.

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.

We anticipate an overall improvement in credit migration for full year 2011 and a continued reduction in our nonperforming loans assuming modest GDP growth. As a result, we expect that our full year 2011 provision for credit losses will be at least $800 million less than our full year 2010 provision for credit losses assuming budgeted loan growth projections.

NONINTEREST EXPENSE

Noninterest expense was $2.1 billion for the first three months of both 2011 and 2010. Integration costs included in noninterest expense totaled $102 million in the first quarter of 2010.

Apart from the possible impact of the legal and regulatory contingencies disclosed in our 2010 Form 10-K and this Report, we expect that total noninterest expense for full year 2011 will be less than total noninterest expense for full year 2010. The magnitude of the decline will be dependent upon the pace of our investment in business growth opportunities.

EFFECTIVE TAX RATE

The effective tax rate was 27.0% in the first quarter of 2011 compared with 27.9% in the first quarter of 2010. We anticipate that the effective tax rate will remain approximately the same for the remainder of 2011.

CONSOLIDATED BALANCE SHEET REVIEW

SUMMARIZED BALANCE SHEET DATA


In millions	Mar. 31 2011		Dec. 31 2010
Assets
Loans	$	149,387	$	150,595
Investment securities		60,992		64,262
Cash and short-term investments		9,242		10,437
Loans held for sale		2,980		3,492
Goodwill and other intangible assets		10,764		10,753
Equity investments		9,595		9,220
Other, net		16,418		15,525
Total assets	$	259,378	$	264,284
Liabilities
Deposits	$	181,990	$	183,390
Borrowed funds		34,996		39,488
Other		8,675		8,568
Total liabilities		225,661		231,446
Total shareholders’ equity		31,132		30,242
Noncontrolling interests		2,585		2,596
Total equity		33,717		32,838
Total liabilities and equity	$	259,378	$	264,284

The summarized balance sheet data above is based upon our Consolidated Balance Sheet in this Report.

The decline in total assets at March 31, 2011 compared with December 31, 2010 was primarily due to lower 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 $2.6 billion at March 31, 2011 and $2.7 billion at December 31, 2010. The balances do not include future accretable net interest (i.e., the difference between the undiscounted expected cash flows and the recorded investment in the loan) on the purchased impaired loans.

Loans decreased $1.2 billion, or 1%, as of March 31, 2011 compared with December 31, 2010. Growth in commercial loans of $1.4 billion was offset by declines of $.8 billion in commercial real estate loans, $.7 billion of residential real estate loans and $.6 billion of home equity loans compared with year end. Commercial loans increased due to a combination of new volume, improved utilization and new Market Street commitments. Commercial real estate loans declined due to loan sales, paydowns, and charge-offs. The decrease in residential real estate was impacted by portfolio management activities, paydowns and net charge-offs. Home

equity loans declined due to increased paydowns in the first quarter of 2011 as well as lower refinancing activity.

Loans represented 58% of total assets at March 31, 2011 and 57% at December 31, 2010. Commercial lending represented 54% of the loan portfolio at March 31, 2011 and 53% at December 31, 2010. Consumer lending represented 46% at March 31, 2011 and 47% at December 31, 2010.

Commercial real estate loans represented 7% of total assets at both March 31, 2011 and December 31, 2010.

Details Of Loans


In millions	Mar. 31 2011		Dec. 31 2010
Commercial
Retail/wholesale	$	10,665	$	9,901
Manufacturing		9,805		9,334
Service providers		8,690		8,866
Real estate related (a)		8,040		7,500
Financial services		5,034		4,573
Health care		3,839		3,481
Other		10,529		11,522
Total commercial		56,602		55,177
Commercial real estate
Real estate projects		11,581		12,211
Commercial mortgage		5,552		5,723
Total commercial real estate		17,133		17,934
Equipment lease financing		6,215		6,393
TOTAL COMMERCIAL LENDING (b)		79,950		79,504
Consumer
Home equity
Lines of credit		23,001		23,473
Installment		10,655		10,753
Residential real estate
Residential mortgage		14,602		15,292
Residential construction		731		707
Credit card		3,707		3,920
Other consumer
Education		9,041		9,196
Automobile		3,156		2,983
Other		4,544		4,767
TOTAL CONSUMER LENDING		69,437		71,091
Total loans	$	149,387	$	150,595

(a)	Includes loans to customers in the real estate and construction industries.

(b)	Construction loans with interest reserves, and A Note/B Note restructurings are not significant to PNC.

Total loans above include purchased impaired loans of $7.5 billion, or 5% of total loans, at March 31, 2011, and $7.8 billion, or 5% of total loans, at December 31, 2010.

We are committed to providing credit and liquidity to qualified borrowers. Total loan originations and new commitments and renewals totaled $27 billion for the first three months of 2011.

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.

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 (ALLL). This estimate also considers other relevant factors such as:

•

Actual versus estimated losses,

•

Regional and national economic conditions,

•

Business segment and portfolio concentrations,

•

Industry conditions,

•

The impact of government regulations, and

•

Risk of potential estimation or judgmental errors, including the accuracy of risk ratings.

Higher Risk Loans

Our loan portfolio includes certain loans deemed to be higher risk and therefore more likely to result in credit losses. We established specific and pooled reserves on the total commercial

lending category of $2.5 billion at March 31, 2011. This commercial lending reserve included what we believe to be adequate and appropriate loss coverage on the higher risk commercial loans in the total commercial portfolio. The commercial lending reserve represented 52% of the total ALLL of $4.8 billion at that date. The remaining 48% of ALLL pertained to the total consumer lending category. This category of loans is more homogenous in nature and has certain characteristics that can be assessed at a total portfolio level in terms of loans representing higher risk. We do not consider government insured/government guaranteed loans to be higher risk as we do not believe these loans will result in a significant loss because of their structure. Additional information regarding our higher risk loans is included in Note 5 Asset Quality and Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit in our Notes To Consolidated Financial Statements included in this Report.

Information related to purchased impaired loans, purchase accounting accretion and accretable net interest recognized during the first three months of 2011 and 2010 follows.

Valuation of Purchased Impaired Loans


	March 31, 2011						December 31, 2010
Dollars in billions	Balance			Net Investment			Balance			Net Investment
Commercial and commercial real estate loans:
Unpaid principal balance	$	1.6					$	1.8
Purchased impaired mark		(.3	)					(.4	)
Recorded investment		1.3						1.4
Allowance for loan losses		(.3	)					(.3	)
Net investment		1.0			63	%		1.1			61	%
Consumer and residential mortgage loans:
Unpaid principal balance		7.6						7.9
Purchased impaired mark		(1.4	)					(1.5	)
Recorded investment		6.2						6.4
Allowance for loan losses		(.6	)					(.6	)
Net investment		5.6			74	%		5.8			73	%
Total purchased impaired loans:
Unpaid principal balance		9.2						9.7
Purchased impaired mark		(1.7	)					(1.9	)
Recorded investment		7.5						7.8
Allowance for loan losses		(.9	)(a)					(.9	)
Net investment	$	6.6			72	%	$	6.9			71	%

(a)

Impairment reserves of $.9 billion at March 31, 2011 reflect impaired loans with further credit quality deterioration since acquisition. This deterioration was more than offset by the cash received to date in excess of recorded investment of $.8 billion and the net reclassification to accretable net interest, to be recognized over time, of $1.3 billion.

The unpaid principal balance of purchased impaired loans declined from $9.7 billion at December 31, 2010 to $9.2 billion at March 31, 2011 due to amounts determined to be uncollectible, payoffs and disposals. The remaining purchased impaired mark at March 31, 2011 was $1.7 billion which was a decline from $1.9 billion at December 31, 2010. The net investment of $6.9 billion at December 31, 2010 declined 4% to $6.6 billion at March 31, 2011 primarily due to payoffs, disposals and further impairment partially offset by accretion during 2011. At March 31, 2011, our largest individual

purchased impaired loan had a recorded investment of $22 million.

We currently expect to collect total cash flows of $8.8 billion on purchased impaired loans, representing the $6.6 billion net investment at March 31, 2011 and the accretable net interest of $2.2 billion shown in the Accretable Net Interest-Purchased Impaired Loans table that follows. These represent the net future cash flows on purchased impaired loans, as contractual interest will be reversed.

Purchase Accounting Accretion


	Three months ended March 31,
In millions	2011			2010
Non-impaired loans	$	68		$	112
Impaired loans		160			265
Reversal of contractual interest on impaired loans		(106	)		(134	)
Net impaired loans		54			131
Securities		9			11
Deposits		100			167
Borrowings		(31	)		(56	)
Total	$	200		$	365

In addition to the amounts in the table above, cash received in excess of recorded investment from sales or payoffs of impaired commercial loans (cash recoveries) totaled $81 million for the first quarter of 2011 and $75 million for the first quarter of 2010. We do not expect this level of cash recoveries to be sustainable.

Remaining Purchase Accounting Accretion


In billions	Mar. 31 2011			Dec. 31 2010
Non-impaired loans	$	1.1		$	1.2
Impaired loans		2.2			2.2
Total loans (gross)		3.3			3.4
Securities		.2			.1
Deposits		.4			.5
Borrowings		(1.0	)		(1.1	)
Total	$	2.9		$	2.9

Accretable Net Interest – Purchased Impaired Loans


In billions	2011			2010
January 1	$	2.2		$	3.5
Accretion (including cash recoveries)		(.3	)		(.3	)
Net reclassifications to accretable from non-accretable		.3			.5
Disposals					(.1	)
March 31	$	2.2		$	3.6

Net unfunded credit commitments are comprised of the following:

Net Unfunded Credit Commitments


In millions	March 31, 2011		December 31, 2010
Commercial / commercial real estate (a)	$	60,150	$	59,256
Home equity lines of credit		19,161		19,172
Consumer credit card and other unsecured lines		14,832		14,725
Other		2,638		2,652
Total	$	96,781	$	95,805

(a)	Less than 3% of these amounts at each date relate to commercial real estate.

Commitments to extend credit represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. Commercial commitments reported above exclude syndications, assignments and participations, primarily to financial institutions, totaling $16.3 billion at March 31, 2011 and $16.7 billion at December 31, 2010.

Unfunded liquidity facility commitments and standby bond purchase agreements totaled $229 million at March 31, 2011 and $458 million at December 31, 2010 and are included in the preceding table primarily within the “Commercial / commercial real estate” category.

In addition to credit commitments, our net outstanding standby letters of credit totaled $10.2 billion at March 31, 2011 and $10.1 billion at December 31, 2010. 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


In millions	Amortized Cost		Fair Value
March 31, 2011
SECURITIES AVAILABLE FOR SALE
Debt securities
US Treasury and government agencies	$	5,119	$	5,229
Residential mortgage-backed
Agency		29,519		29,469
Non-agency		7,876		7,171
Commercial mortgage-backed
Agency		1,305		1,325
Non-agency		1,998		2,079
Asset-backed		3,005		2,864
State and municipal		2,254		2,234
Other debt		3,748		3,816
Corporate stocks and other		340		340
Total securities available for sale	$	55,164	$	54,527
SECURITIES HELD TO MATURITY
Debt securities
Commercial mortgage-backed (non-agency)	$	4,169	$	4,310
Asset-backed		2,287		2,320
Other debt		9		10
Total securities held to maturity	$	6,465	$	6,640
December 31, 2010
SECURITIES AVAILABLE FOR SALE
Debt securities
US Treasury and government agencies	$	5,575	$	5,710
Residential mortgage-backed
Agency		31,697		31,720
Non-agency		8,193		7,233
Commercial mortgage-backed
Agency		1,763		1,797
Non-agency		1,794		1,856
Asset-backed		2,780		2,582
State and municipal		1,999		1,957
Other debt		3,992		4,077
Corporate stocks and other		378		378
Total securities available for sale	$	58,171	$	57,310
SECURITIES HELD TO MATURITY
Debt securities
Commercial mortgage-backed (non-agency)	$	4,316	$	4,490
Asset-backed		2,626		2,676
Other debt		10		11
Total securities held to maturity	$	6,952	$	7,177

The carrying amount of investment securities totaled $61.0 billion at March 31, 2011, a decrease of $3.3 billion, or 5%, from $64.3 billion at December 31, 2010. The decline resulted from principal payments and net sales of primarily agency mortgage-backed securities and government agency securities. Investment securities represented 24% of total assets at both March 31, 2011 and December 31, 2010.

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. We consider the portfolio to be well-diversified and of high quality. US Treasury and government agencies, agency residential mortgage-backed securities and agency commercial mortgage-backed securities collectively represented 59% of the investment securities portfolio at March 31, 2011.

At March 31, 2011, the securities available for sale portfolio included a net unrealized loss of $637 million, which represented the difference between fair value and amortized cost. The comparable amount at December 31, 2010 was a net unrealized loss of $861 million. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. 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 improvement in the net unrealized pretax loss compared with December 31, 2010 was primarily due to improved liquidity in non-agency residential mortgage-backed securities markets. Net unrealized gains and losses in the securities available for sale portfolio are included in shareholders’ equity as accumulated other comprehensive income or loss from continuing operations, net of tax.

Unrealized gains and losses on available for sale securities do not impact liquidity or risk-based capital. However, reductions in the credit ratings of these securities would have an impact on the determination of risk-weighted assets which could reduce our regulatory capital ratios. In addition, the amount representing the credit-related portion of OTTI on available for sale securities would reduce our earnings and regulatory capital ratios.

The expected weighted-average life of investment securities (excluding corporate stocks and other) was 4.8 years at March 31, 2011 and 4.7 years at December 31, 2010.

We estimate that, at March 31, 2011, the effective duration of investment securities was 3.4 years for an immediate 50 basis points parallel increase in interest rates and 3.3 years for an immediate 50 basis points parallel decrease in interest rates. Comparable amounts at December 31, 2010 were 3.1 years and 2.9 years, respectively.

The following table provides detail regarding the vintage, current credit rating, and FICO score of the underlying collateral at origination, where available, for residential mortgage-backed, commercial mortgage-backed and other asset-backed securities held in the available for sale and held to maturity portfolios:


	March 31, 2011
	Agency						Non-agency
Dollars in millions	Residential Mortgage-Backed Securities			Commercial Mortgage-Backed Securities			Residential Mortgage-Backed Securities			Commercial Mortgage-Backed Securities			Asset-Backed Securities
Fair Value – Available for Sale	$	29,469		$	1,325		$	7,171		$	2,079		$	2,864
Fair Value – Held to Maturity											4,310			2,320
Total Fair Value	$	29,469		$	1,325		$	7,171		$	6,389		$	5,184
% of Fair Value:
By Vintage
2011		11	%		7	%					1	%
2010		38	%		25	%					2	%		7	%
2009		17	%		33	%					3	%		14	%
2008		5	%		4	%								13	%
2007		8	%		4	%		18	%		9	%		10	%
2006		5	%		7	%		24	%		30	%		12	%
2005 and earlier		16	%		20	%		58	%		55	%		14	%
Not Available														30	%
Total		100	%		100	%		100	%		100	%		100	%
By Credit Rating
Agency		100	%		100	%
AAA								5	%		81	%		80	%
AA								3	%		6	%		1	%
A								3	%		7	%
BBB								5	%		4	%		1	%
BB								9	%		1	%
B								14	%					4	%
Lower than B								60	%					12	%
No rating								1	%		1	%		2	%
Total		100	%		100	%		100	%		100	%		100	%
By FICO Score
>720								56	%					3	%
<720 and >660								35	%					9	%
<660														3	%
No FICO score								9	%					85	%
Total								100	%					100	%

We conduct a comprehensive security-level impairment assessment quarterly on all securities in an unrealized loss position to determine whether the loss represents OTTI. Our assessment considers the security structure, recent security collateral performance metrics, external credit ratings, failure of the issuer to make scheduled interest or principal payments, our judgment and expectations of future performance, and relevant independent industry research, analysis and forecasts.

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 Market 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.

We recognize the credit portion of OTTI charges in current earnings for those debt securities where we do not intend to sell and believe we will not be required to sell the securities prior to expected recovery. The noncredit portion of OTTI is included in accumulated other comprehensive loss.

We recognized OTTI for the first three months of 2011 and 2010 as follows:

Other-Than-Temporary Impairments


	Three months ended March 31
In millions	2011			2010
Credit portion of OTTI losses (a)
Non-agency residential mortgage-backed	$	28		$	73
Asset-backed		5			43
Other debt		1
Total credit portion of OTTI losses		34			116
Noncredit portion of OTTI losses (recoveries) (b)		(4	)		124
Total OTTI losses	$	30		$	240

(a)	Reduction of noninterest income in our Consolidated Income Statement.

(b)	Included in Accumulated other comprehensive loss, net of tax, on our Consolidated Balance Sheet.

The following table summarizes net unrealized gains and losses (including the credit and noncredit portions of OTTI) recorded on non-agency residential and commercial mortgage-backed and other asset-backed securities, which represent our most significant categories of securities not backed by the US government or its agencies. A summary of all OTTI credit losses recognized for the first three months of 2011 by investment type is included in Note 7 Investment Securities in the Notes To Consolidated Financial Statements in this Report.


	March 31, 2011
In millions	Residential Mortgage- Backed Securities					Commercial Mortgage- Backed Securities				Asset-Backed Securities
Available for Sale Securities (Non-Agency)
	Fair Value		Net Unrealized Gain (Loss)			Fair Value		Net Unrealized Gain (Loss)		Fair Value		Net Unrealized Gain (Loss)
Credit Rating Analysis
AAA	$	394	$	(12	)	$	1,042	$	37	$	1,978	$	7
Other Investment Grade (AA, A, BBB)		839		(26	)		885		36		42		(5	)
Total Investment Grade		1,233		(38	)		1,927		73		2,020		2
BB		619		6			70		4
B		980		(102	)		7		4		206		(27	)
Lower than B		4,297		(571	)						606		(100	)
Total Sub-Investment Grade		5,896		(667	)		77		8		812		(127	)
Total No Rating		42					75				28		(16	)
Total	$	7,171	$	(705	)	$	2,079	$	81	$	2,860	$	(141	)
OTTI Analysis
Investment Grade:
OTTI has been recognized	$	109	$	(12	)
No OTTI recognized to date		1,124		(26	)	$	1,927	$	73	$	2,020	$	2
Total Investment Grade		1,233		(38	)		1,927		73		2,020		2
Sub-Investment Grade:
OTTI has been recognized		3,807		(638	)						617		(126	)
No OTTI recognized to date		2,089		(29	)		77		8		195		(1	)
Total Sub-Investment Grade		5,896		(667	)		77		8		812		(127	)
No Rating:
OTTI has been recognized											28		(16	)
No OTTI recognized to date		42					75
Total No Rating		42					75				28		(16	)
Total	$	7,171	$	(705	)	$	2,079	$	81	$	2,860	$	(141	)
Securities Held to Maturity (Non-Agency)
Credit Rating Analysis
AAA						$	4,119	$	139	$	2,148	$	32
Other Investment Grade (AA, A, BBB)							191		2		61		1
Total Investment Grade							4,310		141		2,209		33
BB											6
B											2
Lower than B
Total Sub-Investment Grade											8
Total No Rating											93
Total						$	4,310	$	141	$	2,310	$	33

Residential Mortgage-Backed Securities

At March 31, 2011, our residential mortgage-backed securities portfolio was comprised of $29.5 billion fair value of US government agency-backed securities and $7.2 billion fair value of non-agency (private issuer) securities. The agency securities are generally collateralized by 1-4 family, conforming, fixed-rate residential mortgages. The non-agency securities are also generally collateralized by 1-4 family residential mortgages. The mortgage loans underlying the non-agency securities are generally non-conforming (i.e., original balances in excess of the amount qualifying for agency securities) and predominately have interest rates that are fixed for a period of time, after which the rate adjusts to a floating rate based upon a contractual spread that is indexed to a market rate (i.e., a “hybrid ARM”), or interest rates that are fixed for the term of the loan.

Substantially all of the non-agency securities are senior tranches in the securitization structure and at origination had credit protection in the form of credit enhancement, over-collateralization and/or excess spread accounts.

During the first quarter of 2011, we recorded OTTI credit losses of $28 million on non-agency residential mortgage-backed securities. As of March 31, 2011, $26 million of the credit losses related to securities rated below investment grade. As of March 31, 2011, the noncredit portion of OTTI losses recorded in accumulated other comprehensive loss for non-agency residential mortgage-backed securities totaled $650 million and the related securities had a fair value of $4 billion.

The fair value of sub-investment grade investment securities for which we have not recorded an OTTI credit loss as of March 31, 2011 totaled $2 billion, with unrealized net losses of $29 million. The results of our security-level assessments indicate that we will recover the entire cost basis of these securities. Note 7 Investment Securities in the Notes To Consolidated Financial Statements in this Report provides further detail regarding our process for assessing OTTI for these securities.

Commercial Mortgage-Backed Securities

The fair value of the non-agency commercial mortgage-backed securities portfolio was $6.4 billion at March 31, 2011 and consisted of fixed-rate, private-issuer securities collateralized by non-residential properties, primarily retail properties, office buildings, and multi-family housing. The agency commercial mortgage-backed securities portfolio was $1.3 billion fair value at March 31, 2011 consisting of multi-family housing. Substantially all of the securities are the most senior tranches in the subordination structure.

There were no OTTI credit losses on commercial mortgage-backed securities during the first quarter of 2011.

Asset-Backed Securities

The fair value of the asset-backed securities portfolio was $5.2 billion at March 31, 2011 and consisted of fixed-rate and floating-rate, private-issuer securities collateralized primarily by various consumer credit products, including residential mortgage loans, credit cards, automobile loans, and student loans. Substantially all of the securities are senior tranches in the securitization structure and have credit protection in the form of credit enhancement, over-collateralization and/or excess spread accounts.

We recorded OTTI credit losses of $5 million on asset-backed securities during first three months of 2011. All of the securities were collateralized by first and second lien residential mortgage loans and were rated below investment grade. As of March 31, 2011, the noncredit portion of OTTI losses recorded in accumulated other comprehensive loss for asset-backed securities totaled $142 million and the related securities had a fair value of $645 million.

For the sub-investment grade investment securities (available for sale and held to maturity) for which we have not recorded an OTTI loss through March 31, 2011, the remaining fair value was $203 million, with unrealized net losses of $1 million. The results of our security-level assessments indicate that we will recover the entire cost basis of these securities. Note 7 Investment Securities in the Notes To Consolidated Financial Statements in this Report provides further detail regarding our process for assessing OTTI for these securities.

If current housing and economic conditions were to worsen, if market volatility and illiquidity were to worsen, or if market interest rates were to increase appreciably, the valuation of our investment securities portfolio could continue to be adversely affected and we could incur additional OTTI credit losses that would impact our Consolidated Income Statement.

LOANS HELD FOR SALE


In millions	March 31 2011		December 31 2010
Commercial mortgages at fair value	$	858	$	877
Commercial mortgages at lower of cost or market		189		330
Total commercial mortgages		1,047		1,207
Residential mortgages at fair value		1,826		1,878
Residential mortgages at lower of cost or market		14		12
Total residential mortgages		1,840		1,890
Other		93		395
Total	$	2,980	$	3,492

We stopped originating certain commercial mortgage loans designated as held for sale in 2008 and continue pursuing opportunities to reduce these positions at appropriate prices. We sold $16 million of commercial mortgage loans held for

sale carried at fair value in the first three months of 2011 and sold $24 million in the first three months of 2010.

We recognized net gains of $13 million in the first three months of 2011 on the valuation and sale of commercial mortgage loans held for sale, net of hedges, compared with net gains of $9 million recognized in the first three months of 2010.

Residential mortgage loan origination volume was $3.2 billion in the first three months of 2011. Substantially all such loans were originated under agency or Federal Housing Administration (FHA) standards. We sold $3.4 billion of loans and recognized related gains of $84 million during the first three months of 2011. The comparable amounts for the first three months of 2010 were $1.9 billion and $39 million, respectively.

Interest income on loans held for sale was $69 million in the first three months of 2011, and $66 million in the first three months of 2010 and is included in Other interest income on our Consolidated Income Statement.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets totaled $10.8 billion at both March 31, 2011 and December 31, 2010. See Note 9 Goodwill and Other Intangible Assets included in the Notes To Consolidated Financial Statements in this Report.

FUNDING AND CAPITAL SOURCES

Details Of Funding Sources


In millions	March 31 2011		December 31 2010
Deposits
Money market	$	86,726	$	84,581
Demand		47,786		50,069
Retail certificates of deposit		35,834		37,337
Savings		8,098		7,340
Other time		454		549
Time deposits in foreign offices		3,092		3,514
Total deposits		181,990		183,390
Borrowed funds
Federal funds purchased and repurchase agreements		4,079		4,144
Federal Home Loan Bank borrowings		5,020		6,043
Bank notes and senior debt		11,324		12,904
Subordinated debt		9,310		9,842
Other		5,263		6,555
Total borrowed funds		34,996		39,488
Total	$	216,986	$	222,878

Total funding sources decreased $5.9 billion at March 31, 2011 compared with December 31, 2010.

Total deposits decreased $1.4 billion, or 1%, at March 31, 2011 compared with December 31, 2010. Interest-bearing deposits represented 73% of total deposits at both March 31, 2011 and December 31, 2010. Total borrowed funds decreased $4.5 billion since December 31, 2010. The decline from December 31, 2010 was primarily due to maturities of bank notes and senior debt, FHLB borrowings and other borrowings.

Capital

See 2011 Capital Actions in the Executive Summary section of this Financial Review for additional information regarding our April 2011 increase to PNC’s quarterly common stock dividend and our plans to purchase shares under PNC’s existing common stock repurchase program (described below) during the remainder of 2011.

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.

Total shareholders’ equity increased $.9 billion, to $31.1 billion, at March 31, 2011 compared with December 31, 2010 as retained earnings increased $.8 billion. Common shares outstanding were 526 million at both March 31, 2011 and December 31, 2010.

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 in the first three months of 2011 under this program.

Risk-Based Capital


Dollars in millions	March 31 2011			December 31 2010
Capital components
Shareholders’ equity
Common	$	30,485		$	29,596
Preferred		647			646
Trust preferred capital securities		2,908			2,907
Noncontrolling interests		1,348			1,351
Goodwill and other intangible assets		(9,008	)		(9,053	)
Eligible deferred income taxes on goodwill and other intangible assets		419			461
Pension, other postretirement benefit plan adjustments		371			380
Net unrealized securities losses, after-tax		387			550
Net unrealized losses (gains) on cash flow hedge derivatives, after-tax		(454	)		(522	)
Other		(224	)		(224	)
Tier 1 risk-based capital		26,879			26,092
Subordinated debt		4,913			4,899
Eligible allowance for credit losses		2,694			2,733
Total risk-based capital	$	34,486		$	33,724
Tier 1 common capital
Tier 1 risk-based capital	$	26,879		$	26,092
Preferred equity		(647	)		(646	)
Trust preferred capital securities		(2,908	)		(2,907	)
Noncontrolling interests		(1,348	)		(1,351	)
Tier 1 common capital	$	21,976		$	21,188
Assets
Risk-weighted assets, including off-balance sheet instruments and market risk equivalent assets	$	213,281		$	216,283
Adjusted average total assets		253,727			254,693
Capital ratios
Tier 1 common		10.3	%		9.8	%
Tier 1 risk-based		12.6			12.1
Total risk-based		16.2			15.6
Leverage		10.6			10.2

Federal banking regulators have stated that they expect all bank holding companies to have a level and composition of Tier 1 capital well in excess of the 4% regulatory minimum, and they have required the largest US bank holding companies, including PNC, to have a capital buffer sufficient to withstand losses and allow them to meet credit needs of their customers through the economic downturn. They have also stated their view that common equity should be the dominant form of Tier 1 capital. As a result, regulators are now emphasizing the Tier 1 common capital ratio in their evaluation of bank holding company capital levels, although this metric is not provided for in the regulations. We seek to manage our capital consistent with these regulatory principles, and believe that our March 31, 2011 capital levels were aligned with them.

Dodd-Frank requires the Federal Reserve Board to establish capital requirements that would, among other things, eliminate the Tier 1 treatment of trust preferred securities following a phase-in period expected to begin in 2013. Accordingly, PNC will evaluate its alternatives, including the potential for early redemption of some or all of its trust preferred securities, based on such considerations it may consider relevant, including dividend rates, the specifics of the future capital requirements, capital market conditions and other factors. PNC is also subject to replacement capital covenants with respect to certain of its trust preferred securities as discussed in Note 13 Capital Securities of Subsidiary Trusts and Perpetual Trust Securities in Item 8 of our 2010 Form 10-K.

Our Tier 1 common capital ratio was 10.3% at March 31, 2011, compared with 9.8% at December 31, 2010. Our Tier 1 risk-based capital ratio increased 50 basis points to 12.6% at March 31, 2011 from 12.1% at December 31, 2010. Increases in both ratios were attributable to retention of earnings and a decline in risk-weighted assets in 2011.

At March 31, 2011, PNC Bank, N.A., our domestic bank subsidiary, was considered “well capitalized” based on US regulatory capital ratio requirements. To qualify as “well-capitalized”, regulators currently require banks to maintain capital ratios of at least 6% for Tier 1 risk-based, 10% for total risk-based, and 5% for leverage, which are indicated on page 2 of this Report. We believe PNC Bank, N.A. will continue to meet these requirements during the remainder of 2011.

The access to, and cost of, funding for new business initiatives including acquisitions, the ability to engage in expanded business activities, the ability to pay dividends, the level of deposit insurance costs, and the level and nature of regulatory oversight depend, in part, on a financial institution’s capital strength.

OFF-BALANCE SHEET ARRANGEMENTS AND VARIABLE INTEREST ENTITIES

We engage in a variety of activities that involve unconsolidated entities or that are otherwise not reflected in our Consolidated Balance Sheet that are generally referred to as “off-balance sheet arrangements.” Additional information on these types of activities is included in our 2010 Form 10-K and in the following sections of this Report:

•

Commitments, including contractual obligations and other commitments, included within the Risk Management section of this Financial Review,

•

Note 3 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements,

•

Note 10 Capital Securities of Subsidiary Trusts and Perpetual Trust Securities in the Notes To Consolidated Financial Statements, and

•

Note 17 Commitments and Guarantees in the Notes To Consolidated Financial Statements.

PNC consolidates variable interest entities (VIEs) when we are deemed to be the primary beneficiary. The primary beneficiary of a VIE is determined to be the party that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.

A summary of VIEs, including those that we have consolidated and those in which we hold variable interests but have not consolidated into our financial statements, as of March 31, 2011 and December 31, 2010 is included in Note 3 of this Report.

PNC Capital Trust E Trust Preferred Securities

In February 2008, PNC Capital Trust E issued $450 million of 7.75% Trust Preferred Securities due March 15, 2068 (the Trust E Securities). PNC Capital Trust E’s only assets are $450 million of 7.75% Junior Subordinated Notes due March 15, 2068 and issued by PNC (the JSNs). The Trust E Securities are fully and unconditionally guaranteed by PNC. We may, at our option, redeem the JSNs at 100% of their principal amount on or after March 15, 2013.

In connection with the closing of the Trust E Securities sale, we agreed that, if we have given notice of our election to defer interest payments on the JSNs or a related deferral period is continuing, then PNC would be subject during such period to restrictions on dividends and other provisions protecting the status of the JSN debenture holder similar to or in some ways more restrictive than those potentially imposed under the Exchange Agreements with Trust II and Trust III, as described in Note 13 Capital Securities of Subsidiary Trusts and Perpetual Trust Securities (Note 13) in our 2010 Form 10-K. PNC Capital Trusts C and D have similar protective provisions with respect to $500 million in principal amount of junior subordinated debentures. Also, in connection with the closing of the Trust E Securities sale, we entered into a replacement capital covenant, which is described in Note 13 in our 2010 Form 10-K.

Acquired Entity Trust Preferred Securities

As a result of the National City acquisition, we assumed obligations with respect to $2.4 billion in principal amount of junior subordinated debentures issued by the acquired entity. As a result of other prior acquisitions, we assumed obligations with respect to $158 million in principal amount of junior subordinated debentures issued by the acquired entities. As described in Note 13 in our 2010 Form 10-K, during 2010 we redeemed $81 million in principal amount related to the junior subordinated debentures issued by the acquired entities. Under the terms of the outstanding debentures, if there is an event of default under the debentures or PNC exercises its right to defer payments on the related trust preferred securities issued by the statutory trusts or there is a default under PNC’s guarantee of such payment obligations, PNC would be subject during the period of such default or deferral to restrictions on dividends and other provisions protecting the status of the debenture holders similar to or in some ways more restrictive than those potentially imposed under the Exchange Agreements with Trust II and Trust III, as described in Note 13 in our 2010 Form 10-K.

FAIR VALUE MEASUREMENTS

In addition to the following, see Note 8 Fair Value in the Notes To Consolidated Financial Statements in this Report for further information regarding fair value.

Assets recorded at fair value represented 27% of total assets at both March 31, 2011 and December 31, 2010. Liabilities recorded at fair value represented 2% and 3% of total liabilities at March 31, 2011 and December 31, 2010, respectively.

The following table includes the assets and liabilities measured at fair value and the portion of such assets and liabilities that are classified within Level 3 of the valuation hierarchy.


	March 31, 2011					December 31, 2010
In millions	Total Fair Value		Level 3			Total Fair Value		Level 3
Assets
Securities available for sale	$	54,527	$	8,610		$	57,310	$	8,583
Financial derivatives		5,076		50			5,757		77
Residential mortgage loans held for sale		1,826					1,878
Trading securities		2,254		60			1,826		69
Residential mortgage servicing rights		1,109		1,109			1,033		1,033
Commercial mortgage loans held for sale		858		858			877		877
Equity investments		1,457		1,457			1,384		1,384
Customer resale agreements		823					866
Loans		229		2			116		2
Other assets		915		455			853		403
Total assets	$	69,074	$	12,601		$	71,900	$	12,428
Level 3 assets as a percentage of total assets at fair value				18	%				17	%
Level 3 assets as a percentage of consolidated assets				5	%				5	%
Liabilities
Financial derivatives	$	4,322	$	476		$	4,935	$	460
Trading securities sold short		1,244					2,530
Other liabilities		3					6
Total liabilities	$	5,569	$	476		$	7,471	$	460
Level 3 liabilities as a percentage of total liabilities at fair value				9	%				6	%
Level 3 liabilities as a percentage of consolidated liabilities				<1	%				<1	%

The majority of Level 3 assets represent non-agency residential mortgage-backed and asset-backed securities in the available for sale securities portfolio for which there was a lack of observable market activity.

During the first three months of 2011, no significant transfers of assets or liabilities between the hierarchy levels occurred.

BUSINESS SEGMENTS REVIEW

We have six reportable business segments:

•

Retail Banking

•

Corporate & Institutional Banking

•

Asset Management Group

•

Residential Mortgage Banking

•

BlackRock

•

Distressed Assets Portfolio

Once we entered into an agreement to sell GIS, it was no longer a reportable business segment. We sold GIS on July 1, 2010.

Business segment results, including inter-segment revenues, and a description of each business are included in Note 18 Segment Reporting included in the Notes To Consolidated Financial Statements of this Report. Certain amounts included in this Financial Review differ from those amounts shown in Note 18 primarily due to the presentation in this Financial Review of business net interest revenue on a taxable-equivalent basis.

Results of individual businesses are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP; therefore, the financial results of our individual businesses are not necessarily comparable with similar information for any other company. We refine our methodologies from time to time as our management accounting practices are enhanced and our businesses and management structure change. Certain prior period amounts have been reclassified to reflect current methodologies and our current business and management structure. Financial results are presented, to the extent practicable, as if each business operated on a stand-alone basis. We have aggregated the business results for certain similar operating segments for financial reporting purposes.

Assets receive a funding charge and liabilities and capital receive a funding credit based on a transfer pricing

methodology that incorporates product maturities, duration and other factors.

Capital is intended to cover unexpected losses and is assigned to our business segments using our risk-based economic capital model, including consideration of the goodwill and other intangible assets at those business segments, as well as the diversification of risk among the business segments. We have revised certain capital allocations among our business segments, including amounts for prior periods. PNC’s total capital did not change as a result of these adjustments for any periods presented.

We have allocated the ALLL and unfunded loan commitments and letters of credit based on our assessment of risk inherent in the business segment loan portfolios. Our allocation of the costs incurred by operations and other shared support areas not directly aligned with the businesses is primarily based on the use of services.

Total business segment financial results differ from total consolidated results from continuing operations before noncontrolling interests, which itself excludes the earnings and revenue attributable to GIS through March 31, 2010 that is reflected in discontinued operations. The impact of these differences is reflected in the “Other” category. “Other” for purposes of this Business Segments Review and the Business Segment Highlights in the Executive Summary includes residual activities that do not meet the criteria for disclosure as a separate reportable business, such as gains or losses related to BlackRock transactions including LTIP share distributions and obligations, integration costs, asset and liability management activities including net securities gains or losses and certain trading activities, exited businesses, equity management activities, alternative investments, intercompany eliminations, most corporate overhead, and differences between business segment performance reporting and financial statement reporting (GAAP), including the presentation of net income attributable to noncontrolling interests.

Results Of Businesses – Summary

(Unaudited)


	Income (Loss)						Revenue				Average Assets (a)
Three months ended March 31 - in millions	2011			2010			2011		2010		2011		2010
Retail Banking	$	(18	)	$	24		$	1,247	$	1,359	$	66,669	$	68,354
Corporate & Institutional Banking		432			368			1,098		1,261		76,980		79,575
Asset Management Group		43			39			222		227		6,918		7,041
Residential Mortgage Banking		71			78			258		228		11,619		8,855
BlackRock		86			77			108		99		5,530		6,225
Distressed Assets Portfolio		25			73			245		330		14,101		19,507
Total business segments		639			659			3,178		3,504		181,817		189,557
Other (b) (c)		193			(11	)		453		259		80,737		77,591
Income from continuing operations before noncontrolling interests (d)	$	832		$	648		$	3,631	$	3,763	$	262,554	$	267,148

(a)	Period-end balances for BlackRock.

(b)	For our segment reporting presentation in this Financial Review, “Other” for the first three months of 2010 included $113 million of pretax integration costs related to acquisitions.

(c)	“Other” average assets include securities available for sale associated with asset and liability management activities.

(d)	Amounts are presented on a continuing operations basis and therefore exclude the earnings, revenue, and assets of GIS for the first three months of 2010.

RETAIL BANKING

(Unaudited)


Three months ended March 31 Dollars in millions, except as noted	2011			2010
INCOME STATEMENT
Net interest income	$	818		$	869
Noninterest income
Service charges on deposits		117			195
Brokerage		53			53
Consumer services		228			208
Other		31			34
Total noninterest income		429			490
Total revenue		1,247			1,359
Provision for credit losses		276			339
Noninterest expense		1,001			975
Pretax earnings (loss)		(30	)		45
Income taxes (benefit)		(12	)		21
Earnings (loss)	$	(18	)	$	24
AVERAGE BALANCE SHEET
Loans
Consumer
Home equity	$	26,064		$	26,821
Indirect auto		2,400			1,893
Indirect other		1,612			2,080
Education		9,101			8,060
Credit cards		3,731			4,079
Other		1,823			1,793
Total consumer		44,731			44,726
Commercial and commercial real estate		10,786			11,455
Floor plan		1,572			1,296
Residential mortgage		1,287			1,801
Total loans		58,376			59,278
Goodwill and other intangible assets		5,769			5,934
Other assets		2,524			3,142
Total assets	$	66,669		$	68,354
Deposits
Noninterest-bearing demand	$	18,102		$	16,776
Interest-bearing demand		20,920			19,212
Money market		40,382			39,699
Total transaction deposits		79,404			75,687
Savings		7,573			6,552
Certificates of deposit		35,364			45,614
Total deposits		122,341			127,853
Other liabilities		1,147			1,652
Capital		8,048			8,310
Total liabilities and equity	$	131,536		$	137,815
PERFORMANCE RATIOS
Return on average capital		(1	)%		1	%
Return on average assets		(.11	)		.14
Noninterest income to total revenue		34			36
Efficiency		80			72
OTHER INFORMATION (a)
Credit-related statistics:
Commercial nonperforming assets	$	301		$	324
Consumer nonperforming assets		409			276
Total nonperforming assets (b)	$	710		$	600
Impaired loans (c)	$	869		$	1,013
Commercial lending net charge-offs	$	67		$	96
Credit card lending net charge-offs		68			96
Consumer lending (excluding credit card) net charge-offs		122			108
Total net charge-offs	$	257		$	300
Commercial lending annualized net charge-off ratio		2.20	%		3.05	%
Credit card lending annualized net charge-off ratio		7.39	%		9.54	%
Consumer lending (excluding credit card) annualized net charge-off ratio		1.17	%		1.03	%
Total annualized net charge-off ratio		1.79	%		2.05	%
Other statistics:
ATMs		6,660			6,467
Branches (d)		2,446			2,461


At March 31 Dollars in millions, except as noted	2011			2010
OTHER INFORMATION (CONTINUED) (a)
Home equity portfolio credit statistics:
% of first lien positions (e)		36	%		34	%
Weighted average loan-to-value ratios (e)		73	%		73	%
Weighted average FICO scores (f)		731			725
Annualized net charge-off ratio		1.28	%		.70	%
Loans 30 – 59 days past due		.47	%		.44	%
Loans 60 – 89 days past due		.31	%		.30	%
Loans 90 days past due		.99	%		.85	%
Customer-related statistics:
Retail Banking checking relationships		5,521,000			5,379,000
Retail online banking active customers		3,226,000			2,782,000
Retail online bill payment active customers		1,029,000			826,000
Brokerage statistics:
Financial consultants (g)		700			722
Full service brokerage offices		34			41
Brokerage account assets (billions)	$	34		$	33

(a)	Presented as of March 31 except for net charge-offs and annualized net charge-off ratios, which are for the three months ended.

(b)	Includes nonperforming loans of $688 million at March 31, 2011 and $579 million at March 31, 2010.

(c)	Recorded investment of purchased impaired loans related to acquisitions.

(d)	Excludes certain satellite branches that provide limited products and/or services.

(e)	Includes loans from acquired portfolios for which lien position and loan-to-value information was limited.

(f)	Represents the most recent FICO scores we have on file.

(g)	Financial consultants provide services in full service brokerage offices and traditional bank branches.

Highlights of Retail Banking’s performance for the first quarter of 2011 include the following:

•

In January, PNC reached a definitive agreement to acquire 19 branches and approximately $390 million of deposits from BankAtlantic Bancorp, Inc. All of the branches are located in the Tampa, Florida area. The transaction is expected to close in June 2011, subject to customary closing conditions. The transaction is expected to provide Retail Banking with the opportunity to establish a foothold in the Tampa area and to expand our branch presence in the Florida market.

•

Retail Banking launched a new checking account line-up and a new credit card suite during the first quarter. The new products are designed to provide more choices for customers.

•

Net new checking relationships grew 56,000 in the first quarter and 142,000 over the prior year, strong results reflecting gains in all of our markets. We are

seeing strong retention and increasing acquisition in all of our markets.

•

Success in implementing Retail Banking’s deposit strategy resulted in growth in average demand deposits of $3.0 billion, or 8%, over the prior year.

•

Our investment in online banking capabilities continues to pay off. Active online bill payment and active online banking customers grew by 5% and 6%, respectively, during the first quarter of 2011. In a year-over-year comparison, active online bill payment grew 25% and active online banking customers grew 16%.

•

PNC’s branch footprint covers nearly one-third of the US population with a network of 2,446 branches and 6,660 ATM machines at March 31, 2011. We continue to invest in the branch network. In the first quarter of 2011, we opened 6 traditional branches, consolidated 30 branches, and had a net decrease of 13 ATMs.

Total revenue for the first quarter of 2011 was $1.2 billion compared with $1.4 billion for the first quarter of 2010. Net interest income of $818 million declined $51 million compared with the first quarter of 2010. Net interest income was negatively impacted by lower interest credits assigned to deposits, reflective of the rate environment, and benefited from higher demand deposits and increased education loans.

Noninterest income declined $61 million when compared with the first quarter of 2010. The decline was driven by lower overdraft fees resulting from Regulation E rules.

For 2011, Retail Banking revenue continues to be negatively impacted by the rules set forth in Regulation E related to overdraft fees and is expected to be negatively impacted by the potential limits related to interchange rates on debit card transactions (proposed in Dodd-Frank.) The incremental negative impact of these two aspects of regulatory reform on fees is estimated to be approximately $400 million in 2011 compared with 2010 if limits to interchange rates are implemented consistent with rules currently proposed by the Federal Reserve Board. Changes in the proposed interchange rules could impact this estimate. Further, this estimate does not include any additional impact to revenue of other or additional regulatory requirements. There could be other aspects of regulatory reform that further impact these or other areas of our business as regulatory agencies, including the new CFPB, issue proposed and final regulations pursuant to Dodd-Frank and other legislation. See additional information regarding legislative and regulatory developments in the Executive Summary section of this Financial Review.

The provision for credit losses was $276 million for the first quarter of 2011 compared with $339 million in the first quarter of 2010. Net charge-offs were $257 million for the first quarter of 2011 compared with $300 million in prior year first quarter. Improvements in credit quality are evident in the

credit card and small business portfolios. However, the home equity portfolio is challenged by trends reflecting an increase in bankruptcies, continued loan modifications, many of which resulted in troubled debt restructurings, and a longer foreclosure timeline.

Noninterest expense for the first three months of 2011 increased $26 million from the same period last year. The increase was driven by continued investment in the business.

Growing core checking deposits as a lower-cost funding source and as the cornerstone product to build customer relationships is the primary objective of our deposit strategy. Furthermore, core checking accounts are critical to our strategy of expanding our payments business. The deposit strategy of Retail Banking is to remain disciplined on pricing, target specific products and markets for growth, and focus on the retention and growth of balances for relationship customers.

In the first quarter of 2011, average total deposits decreased $5.5 billion, or 4%, compared with 2010.

•

Average demand deposits increased $3.0 billion, or 8%, over the same quarter in 2010. The increase was primarily driven by customer growth and customer preferences for liquidity.

•

Average money market deposits increased $683 million, or 2%, from the first three months of 2010. The increase was primarily due to core money market growth as customers generally prefer more liquid deposits in a low rate environment.

•

In the first three months of 2011, average certificates of deposit decreased $10.3 billion from the same period last year. This decline is expected to continue in 2011, although at a slower pace, due to the continued run-off of higher rate certificates of deposits.

Currently, we plan to maintain our focus on a relationship-based lending strategy that targets specific customer sectors (mass consumers, homeowners, students, small businesses and auto dealerships) and our moderate risk lending approach. In the first quarter of 2011, average total loans were $58.4 billion, a decrease of $902 million, or 2%, over the same quarter last year.

•

Average education loans grew $1.0 billion compared with the first three months of 2010, primarily due to portfolio purchases.

•

Average indirect auto loans increased $507 million over the first quarter of 2010. The increase was due to the expansion of our indirect sales force and product introduction to acquired markets, as well as overall increases in auto sales. The indirect other portfolio is primarily a run-off portfolio comprised of marine, RV, and other indirect loan products.

•

Average floor plan loans grew $276 million compared with the first quarter of 2010, primarily

due to higher line utilization as dealers maintained higher inventory levels due to product availability and improved sales prospects.

•

Average credit card balances decreased $348 million over the first quarter of 2010. The decrease was primarily the result of weak consumer demand in response to the economic environment. This resulted in fewer active accounts generating balances coupled with increased paydowns on existing accounts.

•

Average home equity loans declined $757 million compared with the first three months of 2010. Consumer loan demand remained soft in the current

economic climate. The decline is driven by loan demand being outpaced by paydowns, refinancings, and charge-offs. Retail Banking’s home equity loan portfolio is relationship based, with 96% of the portfolio attributable to borrowers in our primary geographic footprint. The nonperforming assets and charge-offs that we have experienced are within our expectations given current market conditions.

•

Average commercial and commercial real estate loans declined $669 million compared with the first quarter of 2010. The decline was primarily due to loan demand being outpaced by refinancings, paydowns, and charge-offs.

CORPORATE & INSTITUTIONAL BANKING

(Unaudited)


Three months ended March 31 Dollars in millions, except as noted	2011			2010
INCOME STATEMENT
Net interest income	$	799		$	890
Noninterest income
Corporate service fees		187			242
Other		112			129
Noninterest income		299			371
Total revenue		1,098			1,261
Provision for (recoveries of) credit losses		(30	)		236
Noninterest expense		445			446
Pretax earnings		683			579
Income taxes		251			211
Earnings	$	432		$	368
AVERAGE BALANCE SHEET
Loans
Commercial	$	33,194		$	34,081
Commercial real estate		14,347			17,961
Commercial – real estate related		3,463			3,128
Asset-based lending		7,370			5,940
Equipment lease financing		5,540			5,320
Total loans		63,914			66,430
Goodwill and other intangible assets		3,484			3,795
Loans held for sale		1,341			1,410
Other assets		8,241			7,940
Total assets	$	76,980		$	79,575
Deposits
Noninterest-bearing demand	$	27,843		$	22,271
Money market		12,131			12,253
Other		6,057			7,610
Total deposits		46,031			42,134
Other liabilities		12,205			10,871
Capital		7,858			8,800
Total liabilities and equity	$	66,094		$	61,805


Three months ended March 31 Dollars in millions, except as noted	2011			2010
PERFORMANCE RATIOS
Return on average capital		22	%		17	%
Return on average assets		2.28			1.88
Noninterest income to total revenue		27			29
Efficiency		41			35
COMMERCIAL MORTGAGE SERVICING PORTFOLIO (in billions)
Beginning of period	$	266		$	287
Acquisitions/additions		10			8
Repayments/transfers		(10	)		(13	)
End of period	$	266		$	282
OTHER INFORMATION
Consolidated revenue from: (a)
Treasury Management	$	301		$	296
Capital Markets	$	139		$	161
Commercial mortgage loans held for sale (b)	$	29		$	27
Commercial mortgage loan servicing (c)		12			88
Total commercial mortgage banking activities	$	41		$	115
Total loans (d)	$	64,368		$	65,137
Credit-related statistics:
Nonperforming assets (d) (e)	$	2,574		$	3,343
Impaired loans (d) (f)	$	659		$	1,033
Net charge-offs	$	153		$	271
Net carrying amount of commercial mortgage servicing rights (d)	$	645		$	921

(a)	Represents consolidated PNC amounts.

(b)	Includes valuations on commercial mortgage loans held for sale and related commitments, derivative valuations, origination fees, gains on sale of loans held for sale and net interest income on loans held for sale.

(c)	Includes net interest income and noninterest income from loan servicing and ancillary services.

(d)	At March 31.

(e)	Includes nonperforming loans of $2.4 billion at March 31, 2011 and $3.2 billion at March 31, 2010.

(f)	Recorded investment of purchased impaired loans related to acquisitions.

Highlights of Corporate & Institutional Banking performance include:

•

Added new clients at a record pace in 2010 and continued this momentum during the first quarter of 2011.

•

Loan commitments, primarily in our Middle Market and Business Credit segments, grew from the first quarter of 2010. Average loans grew over $1 billion from the fourth quarter of 2010.

•

Cross sales of treasury management and capital markets products to customers in PNC’s western markets continued to be successful following the systems conversions. Sales in the first quarter of 2011 were ahead of target and were up compared with the first quarter last year.

•

Midland Loan Services, one of the leading third-party providers of servicing for the commercial real estate industry, received the highest U.S. servicer and special servicer ratings from Fitch Ratings and Standard & Poor’s and is in its 11th consecutive year of achieving these ratings.

•

Midland was the number one servicer of FNMA and FHLMC loans and was the second leading servicer of commercial and multifamily loans by volume as of December 31, 2010 according to Mortgage Bankers Association.

•

Mergers and Acquisitions Journal named Harris William & Co. Advisor of the Year in its March 2011 issue.

Net interest income for the first quarter of 2011 was $799 million, a decrease of $91 million from the first quarter of 2010, reflecting lower purchase accounting accretion, lower interest credits assigned to deposits and a decrease in average loans, partially offset by improved loan spreads and an increase in average deposits.

Corporate service fees were $187 million for the first three months of 2011, a decrease of $55 million from the first three months of 2010, primarily due to a reduction in the value of commercial mortgage servicing rights largely driven by higher loan prepayment rates and lower interest rates, and lower ancillary commercial mortgage servicing fees. The major components of corporate service fees are treasury management, corporate finance fees and commercial mortgage servicing revenue.

•

Our Treasury Management business, which is one of the top providers in the country, continued to invest in markets, products and infrastructure as well as major initiatives such as healthcare. The healthcare initiative is designed to help provide our customers opportunities to reduce operating costs.

Other noninterest income was $112 million for the first three months of 2011 compared with $129 million in the first quarter of 2010 primarily due to a decline in underwriting revenues.

The provision for credit losses was a recovery of $30 million in the first quarter 2011 compared with a provision of $236 million in the first three months of 2010. The improvement reflected continued positive migration in portfolio credit quality along with lower loan levels. Net charge-offs for the first three months of 2011 of $153 million decreased $118 million or 44% compared with the 2010 period. The decline

was attributable primarily to the commercial real estate and equipment finance portfolios. Nonperforming assets declined across all portfolios for the fourth consecutive quarter.

Noninterest expense was $445 million in the first three months of 2011 and was flat compared to the same period a year ago. Lower compensation costs due to the sale of a duplicative agency servicing operation were offset by higher credit-related costs.

Average loans were $63.9 billion for the first quarter of 2011 compared with $66.4 billion in the first quarter of 2010. The decrease in average loans of $2.5 billion or 4% compared with 2010 was driven by exits of certain client relationships combined with lower utilization rates.

•

PNC Real Estate provides commercial real estate and real-estate related lending and is one of the industry’s top providers of both conventional and affordable multifamily financing. Commercial real estate loans declined in the first three months of 2011 compared with the first three months of 2010 due to loan sales, paydowns and charge-offs.

•

PNC Business Credit is one of the top asset-based lenders in the country. It expanded its operations with the acquisition of an asset-based lending group in the United Kingdom which was completed in November 2010. Total loans acquired were approximately $300 million. Loan commitments and loan utilization rates increased throughout 2010 and into the first quarter of 2011.

•

PNC Equipment Finance is the 6th largest bank-affiliated leasing company with $9 billion in equipment finance assets. Average loans and leases declined slightly in the first quarter 2011 compared with the first quarter of 2010 due to runoff and sales of non-strategic portfolios, which offset portfolio acquisitions and improved origination volumes within our middle market customer base.

Average deposits were $46.0 billion for the first quarter of 2011, an increase of $3.9 billion, or 9%, compared with the first three months of 2010. Our customers have continued to move balances to noninterest-bearing demand deposits to maintain liquidity.

The commercial mortgage servicing portfolio was $266 billion at March 31, 2011 compared with $282 billion at March 31, 2010. The decrease was primarily the result of the sale of a duplicative agency servicing operation, a non-core business, in the second quarter of 2010.

See the additional revenue discussion regarding treasury management, capital markets-related products and services, and commercial mortgage banking activities in the Product Revenue section of the Consolidated Income Statement Review.

ASSET MANAGEMENT GROUP

(Unaudited)


Three months ended March 31 Dollars in millions, except as noted	2011			2010
INCOME STATEMENT
Net interest income	$	60		$	63
Noninterest income		162			164
Total revenue		222			227
Provision for (recoveries of) credit losses		(6	)		9
Noninterest expense		160			156
Pretax earnings		68			62
Income taxes		25			23
Earnings	$	43		$	39
AVERAGE BALANCE SHEET
Loans
Consumer	$	4,054		$	3,993
Commercial and commercial real estate		1,503			1,442
Residential mortgage		715			963
Total loans		6,272			6,398
Goodwill and other intangible assets		374			415
Other assets		272			228
Total assets	$	6,918		$	7,041
Deposits
Noninterest-bearing demand	$	1,162		$	1,228
Interest-bearing demand		2,291			1,699
Money market		3,597			3,217
Total transaction deposits		7,050			6,144
Certificates of deposit and other		677			818
Total deposits		7,727			6,962
Other liabilities		70			112
Capital		344			418
Total liabilities and equity	$	8,141		$	7,492
PERFORMANCE RATIOS
Return on average capital		51	%		38	%
Return on average assets		2.52			2.25
Noninterest income to total revenue		73			72
Efficiency		72			69
OTHER INFORMATION
Total nonperforming assets (a) (b)	$	74		$	139
Impaired loans (a) (c)	$	143		$	191
Total net charge-offs (recoveries)	$	(11	)	$	4
Assets Under Administration (in billions) (a) (d)
Personal	$	102		$	96
Institutional		117			113
Total	$	219		$	209
Asset Type
Equity	$	120		$	104
Fixed Income		64			59
Liquidity/Other		35			46
Total	$	219		$	209
Discretionary assets under management
Personal	$	71		$	69
Institutional		39			36
Total	$	110		$	105
Asset Type
Equity	$	57		$	51
Fixed Income		36			35
Liquidity/Other		17			19
Total	$	110		$	105
Nondiscretionary assets under administration
Personal	$	31		$	27
Institutional		78			77
Total	$	109		$	104
Asset Type
Equity	$	63		$	53
Fixed Income		28			24
Liquidity/Other		18			27
Total	$	109		$	104

(a)	As of March 31.

(b)	Includes nonperforming loans of $69 million at March 31, 2011 and $132 million at March 31, 2010.

(c)	Recorded investment of purchased impaired loans related to acquisitions.

(d)	Excludes brokerage account assets.

Highlights of Asset Management Group’s performance during the first three months of 2011 include the following:

•

Substantially increased new client acquisition and year-over-year sales and also outperformed first quarter goals;

•

Focused hiring to drive growth across the footprint;

•

Piloted new financial reporting technology to clients in several markets, and

•

Continued signs of improvement in credit performance.

Assets under administration were $219 billion at March 31, 2011 compared with $209 billion at March 31, 2010. Discretionary assets under management were $110 billion at March 31, 2011 compared with $105 billion at March 31, 2010. The increase in the comparisons was driven by higher equity markets, successful client retention, growth in new clients and strong sales performance.

Total revenue for the first quarter of 2011 was $222 million compared with $227 million for the same period in 2010. Net interest income was $60 million for the first quarter of 2011 compared with $63 million in the first quarter of 2010. The decrease was attributable to lower loan yields and lower interest credits assigned to deposits reflective of the current low rate environment. Noninterest income of $162 million for the first three months of 2011 declined slightly from the prior year first quarter as the exit of acquisition-related noncore products mitigated solid growth in asset management fees from improved equity markets and strong sales performance.

Provision for credit losses was a benefit of $6 million in the first quarter of 2011 reflecting improved credit quality compared with provision of $9 million for the first quarter of 2010. A net recovery of $11 million was recognized for the first quarter compared with net charge-offs of $4 million in the first quarter of 2010.

Noninterest expense of $160 million in the first quarter of 2011 increased $4 million, or 3%, from the year ago first quarter. The increase was attributable to investments in the business to drive growth.

Average deposits for the quarter increased $765 million, or 11%, over the prior year first quarter. Average transaction deposits grew 15% compared with first quarter 2010 and were substantially offset by the strategic run off of higher rate certificates of deposit in the comparison. Average loan balances decreased $126 million, or 2%, from the prior year first quarter primarily due to the current economy.

RESIDENTIAL MORTGAGE BANKING

(Unaudited)


Three months ended March 31 Dollars in millions, except as noted	2011			2010
INCOME STATEMENT
Net interest income	$	56		$	74
Noninterest income
Loan servicing revenue
Servicing fees		50			69
Net MSR hedging gains		64			46
Loan sales revenue		84			39
Other		4
Total noninterest income		202			154
Total revenue		258			228
Provision for (recoveries of) credit losses		8			(16	)
Noninterest expense		137			120
Pretax earnings		113			124
Income taxes		42			46
Earnings	$	71		$	78
AVERAGE BALANCE SHEET
Portfolio loans	$	2,734		$	2,820
Loans held for sale		1,802			974
Mortgage servicing rights (MSR)		1,048			1,264
Other assets		6,035			3,797
Total assets	$	11,619		$	8,855
Deposits	$	1,587		$	3,602
Borrowings and other liabilities		4,144			2,279
Capital		729			1,195
Total liabilities and equity	$	6,460		$	7,076
PERFORMANCE RATIOS
Return on average capital		39	%		26	%
Return on average assets		2.48	%		3.57	%
Noninterest income to total revenue		78	%		68	%
Efficiency		53	%		53	%
RESIDENTIAL MORTGAGE SERVICING PORTFOLIO
(in billions)
Beginning of period	$	125		$	145
Acquisitions		5
Additions		3			2
Repayments/transfers		(6	)		(6	)
End of period	$	127		$	141
Servicing portfolio statistics: (a)
Fixed rate		90	%		89	%
Adjustable rate/balloon		10	%		11	%
Weighted average interest rate		5.53	%		5.79	%
MSR capitalized value (in billions)	$	1.1		$	1.3
MSR capitalization value (in basis points)		88			90
Weighted average servicing fee (in basis points)		30			30
OTHER INFORMATION
Loan origination volume (in billions)	$	3.2		$	2.0
Percentage of originations represented by:
Agency and government programs		100	%		98	%
Refinance volume		85	%		73	%
Total nonperforming assets (a) (b)	$	395		$	418
Impaired loans (a) (c)	$	158		$	298

(a)	As of March 31

(b)	Includes nonperforming loans of $101 million at March 31, 2011 and $239 million at March 31, 2010.

(c)	Recorded investment of purchased impaired loans related to acquisitions.

Residential Mortgage Banking overview:

•

Total loan originations were $3.2 billion for the first quarter of 2011 compared with $2.0 billion in the first quarter of 2010. Refinance application volume was up compared to first quarter 2010. Loans continue to be originated primarily through direct channels under FNMA, FHLMC and FHA/VA agency guidelines.

•

Investors may request PNC to indemnify them against losses on certain loans or to repurchase loans that they believe do not comply with applicable contractual loan origination covenants and representations and warranties we have made. At March 31, 2011, the liability for estimated losses on repurchase and indemnification claims for the Residential Mortgage Banking business segment was $124 million compared with $188 million at March 31, 2010. See Note 17 Commitments and Guarantees in the Notes To Consolidated Financial Statements of this Report for additional information.

•

Residential mortgage loans serviced for others totaled $127 billion at March 31, 2011 compared with $141 billion at March 31, 2010 as payoffs continued to outpace new direct loan origination volume.

•

Noninterest income was $202 million in the first quarter of 2011 compared with $154 million in the first quarter of 2010. The increase resulted from higher loan sales revenue driven by higher loan origination volume and higher net economic hedging gains on mortgage servicing rights.

•

Net interest income was $56 million in the first quarter of 2011 compared with $74 million in the first quarter of 2010. The decrease in the comparisons was primarily due to lower interest earned on escrow deposits.

•

Noninterest expense was $137 million in the first quarter of 2011 compared with $120 million in the first quarter of 2010. The increase from the prior year first quarter was driven by higher loan origination volume and higher foreclosure-related expenses.

•

The fair value of mortgage servicing rights was $1.1 billion at March 31, 2011 compared with $1.3 billion at March 31, 2010. The decline was due to lower mortgage rates at March 31, 2011 and a smaller mortgage servicing portfolio.

BLACKROCK

(Unaudited)

Information related to our equity investment in BlackRock follows:


Three months ended March 31 Dollars in millions	2011			2010
Business segment earnings (a)	$	86		$	77
PNC’s economic interest in BlackRock (b)		20	%		24	%

(a)	Includes PNC’s share of BlackRock’s reported GAAP earnings and additional income taxes on those earnings incurred by PNC.

(b)	At March 31.


In billions	Mar. 31 2011		Dec. 31 2010
Carrying value of PNC’s investment in BlackRock (c)	$	5.1	$	5.1
Market value of PNC’s investment in BlackRock (d)		7.2		6.9

(c)	The March 31, 2011 amount is comprised of our equity investment of $5,068 million and $22 million of goodwill and accumulated other comprehensive income related to our BlackRock investment. The comparable amounts at December 31, 2010 were $5,017 million and $37 million.

PNC accounts for its investment in BlackRock under the equity method of accounting, exclusive of a related $1.8 billion deferred tax liability at both March 31, 2011 and December 31, 2010.

(d)	Does not include liquidity discount.

PNC accounts for its BlackRock Series C Preferred Stock at fair value, which offsets the impact of marking-to-market the obligation to deliver these shares to BlackRock to help fund BlackRock LTIP programs. The fair value amount of the BlackRock Series C Preferred Stock is included on our Consolidated Balance Sheet in the caption Other assets. Additional information regarding the valuation of the BlackRock Series C Preferred Stock is included in Note 8 Fair Value in the Notes To Consolidated Financial Statements of this Report.

PNC accounts for its remaining investment in BlackRock under the equity method of accounting. Our percentage ownership of BlackRock common stock (approximately 25% at March 31, 2011) is higher than our overall share of BlackRock’s equity and earnings.

Our 2010 Form 10-K includes additional information about our investment in BlackRock, including BlackRock’s November 2010 secondary common stock offering and our sale of a portion of our shares of BlackRock common stock in that offering.

DISTRESSED ASSETS PORTFOLIO

(Unaudited)


Three months ended March 31 Dollars in millions, except as noted	2011		2010
INCOME STATEMENT
Net interest income	$	236	$	342
Noninterest income		9		(12	)
Total revenue		245		330
Provision for credit losses		152		165
Noninterest expense		53		48
Pretax earnings		40		117
Income taxes		15		44
Earnings	$	25	$	73
AVERAGE BALANCE SHEET
Commercial Lending:
Commercial/Commercial real estate

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