PNC Financial Services (PNC)

PROVISION FOR CREDIT LOSSES

The provision for credit losses totaled $880 million for the first three months of 2009 compared with $151 million for the first three months of 2008. The provision for credit losses for the first quarter of 2009 was in excess of net charge-offs of $431 million for the period due to a required increase to our allowance for loan and lease losses reflecting continued deterioration in the credit markets and the resulting increase in nonperforming loans.

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

PROVISION FOR CREDIT LOSSES

The provision for credit losses totaled $1.517 billion for 2008 compared with $315 million for 2007. Of the total 2008 provision, $990 million was recorded in the fourth quarter, including $504 million of additional provision recorded on December 31, 2008 to conform the National City loan reserving methodology with ours. The differences in methodology include granularity of loss computations, statistical and quantitative factors rather than qualitative assessment, and the extent of current appraisals and risk assessments.

In addition to the impact of National City, the higher provision in 2008 compared with the prior year was driven by general credit quality migration, including residential real estate development and commercial real estate exposure, an increase in net charge-offs, and growth in nonperforming loans. Growth in our total credit exposure also contributed to the higher provision amounts in both comparisons.

With a deteriorating economy, we expect credit migration will continue throughout 2009 as credit quality improvements will lag any economic turnaround. The Credit Risk Management portion of the Risk Management section of this Item 7 includes additional information regarding factors impacting the provision for credit losses.

PROVISION FOR CREDIT LOSSES

The provision for credit losses totaled $527 million for the first nine months of 2008 compared with $127 million for the first nine months of 2007. The provision for credit losses for the third quarter of 2008 totaled $190 million compared with $65 million for the third quarter of 2007. The higher provision in both comparisons was driven by general credit quality migration, especially in the residential real estate development portion of our commercial real estate portfolio and related sectors, and in home equity loans. Total residential real estate development outstandings were approximately $1.8 billion at September 30, 2008 compared with $2.1 billion at December 31, 2007. Growth in our total credit exposure also contributed to the higher provision amounts in both comparisons.

Our planned acquisition of National City may result in an additional provision for credit losses, which would be recorded at closing, to conform the National City loan reserving methodology with ours. Given this transaction and continued credit deterioration, management is no longer in a position to provide guidance for the provision for credit losses for full year 2008.

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.

PROVISION FOR CREDIT LOSSES

The provision for credit losses totaled $337 million for the first six months of 2008 compared with $62 million for the first six months of 2007. The provision for credit losses for the second quarter of 2008 totaled $186 million compared with $54 million for the second quarter of 2007. The higher provision in both comparisons was driven by general credit quality migration, especially in the residential real estate development sector of our commercial real estate portfolio. Total residential real estate development outstandings were approximately $2.1 billion at June 30, 2008. Growth in our total credit exposure also contributed to the higher provision amounts in both comparisons.

Given our projections for loan growth and continued credit deterioration, and our current assumptions for the national economy, we expect that the provision for credit losses will be approximately $750 million for full year 2008, including the impact of the Sterling acquisition. However, we believe that increased operating leverage will be more than adequate to cover increased credit costs in 2008.

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.

PROVISION FOR CREDIT LOSSES

The provision for credit losses totaled $151 million for the first quarter of 2008 compared with $8 million for the first quarter of 2007. The higher provision in the comparison was driven by general credit quality migration, especially in our commercial real estate portfolio, including residential real estate development exposure, and growth in total credit exposure. Total residential real estate development outstandings were approximately $2.1 billion at March 31, 2008.

Given our projections for loan growth and continued credit deterioration, and our view that national economic conditions currently point toward a mild recession, we expect that the provision for credit losses will be approximately $600 million for full year 2008, including the impact of the Sterling acquisition.

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.

PROVISION FOR CREDIT LOSSES

The provision for credit losses totaled $315 million for 2007 and $124 million for 2006. Of the total 2007 provision, $188 million was recorded in the fourth quarter, including approximately $45 million related to our Yardville acquisition. The higher provision in 2007 was also impacted by an increase in our real estate portfolio, including residential real estate development exposure, and growth in total credit exposure. Total residential real estate development outstandings were approximately $2.1 billion at December 31, 2007.

We do not expect to sustain asset quality at its current level. Given our projections for loan growth and continued credit deterioration, we expect nonperforming assets and the provision for credit losses will be higher in 2008 compared with 2007. Also, we expect that the level of provision for credit losses in the first quarter of 2008 will be modestly lower than the amount reported for the fourth quarter of 2007.

The Credit Risk Management portion of the Risk Management section of this Item 7 includes additional information regarding factors impacting the provision for credit losses.

PROVISION FOR CREDIT LOSSES

The provision for credit losses totaled $127 million for the first nine months of 2007 compared with $82 million for the first nine months of 2006. The provision for credit losses for the third quarter of 2007 was $65 million compared with $16 million for the third quarter of 2006. The higher provision in the third quarter and first nine months of 2007 was primarily due to growth in total credit exposure and modest credit quality migration.

Given current market conditions, we do not expect to maintain asset quality at its current level. To the extent actual outcomes differ from our estimates, changes to the provision for credit losses may be required that may reduce future earnings. See the Credit Risk Management portion of the Risk Management section of this Financial Review for additional information regarding factors that impact the provision for credit losses.

PROVISION FOR CREDIT LOSSES

The provision for credit losses totaled $62 million for the first six months of 2007 compared with $66 million for the first six months of 2006. The provision for credit losses for the second

PROVISION FOR CREDIT LOSSES

The provision for credit losses decreased $14 million, to $8 million, in the first quarter of 2007 compared with the first quarter of 2006. The decrease in the quarterly comparison was primarily the result of improving overall asset quality.

We do not expect to sustain asset quality at its current level. However, based on the assets we currently hold and current business trends and activities, we believe that overall asset quality will remain strong by historical standards for the near term. We anticipate that the provision will be higher for the second quarter of 2007 compared with the first quarter of 2007. To the extent actual outcomes differ from our estimates, additional provision for credit losses may be required that would reduce future earnings. See the Credit Risk Management portion of the Risk Management section of this Financial Review for additional information regarding factors that impact the provision for credit losses.

PROVISION FOR CREDIT LOSSES

The provision for credit losses was $124 million for 2006 compared with $21 million for 2005. The provision for credit losses for 2005 included the benefit of a $53 million loan recovery in the second quarter of that year resulting from a litigation settlement. In addition to this item, the increase in the provision for credit losses in 2006 reflected the following factors:

We do not expect to sustain asset quality at its current level. However, based on the assets we currently hold and current business trends and activities, we believe that overall asset quality will remain strong by historical standards for at least the near term. To the extent actual outcomes differ from our estimates, additional provision for credit losses may be required that would reduce future earnings.

See the Credit Risk Management portion of the Risk Management section of this Item 7 for additional information regarding factors impacting the provision for credit losses.

PROVISION FOR CREDIT LOSSES

The provision for credit losses increased $85 million, to $82 million, in the first nine months of 2006 compared with the first nine months of 2005. For the third quarter of 2006, the provision for credit losses was unchanged at $16 million compared with the prior year third quarter. The increase in the nine-month comparison reflected the following:

We do not expect to sustain asset quality at its current level. However, based on the assets we currently hold and current business trends and activities, we believe that overall asset quality will remain strong by historical standards for at least the near term. See the Credit Risk Management portion of the Risk Management section of this Financial Review for additional information regarding factors that impact the provision for credit losses.

PROVISION FOR CREDIT LOSSES

The provision for credit losses increased $85 million, to $66 million, in the first half of 2006 compared with the first half of 2005. For the second quarter of 2006, the provision for credit losses increased $71 million, to $44 million, compared with the prior year second quarter. The increases in both comparisons reflected the following:

We do not expect to sustain asset quality at its current level. However, based on the assets we currently hold and current business trends and activities, we believe that overall asset quality will remain strong by historical standards for at least the near term. See the Credit Risk Management portion of the Risk Management section of this Financial Review for additional information regarding factors that impact the provision for credit losses.

PROVISION FOR CREDIT LOSSES

The provision for credit losses was $22 million for the first quarter of 2006 compared with $8 million in the first quarter of 2005. This increase primarily reflected the impact of total average loan growth in 2006 of $5.2 billion compared with the prior year first quarter.

We expect that the provision for credit losses will increase in subsequent quarters in 2006 primarily due to loan and loan commitment growth. In addition, we do not expect to sustain asset quality at its current level. However, based on the assets we currently hold and current business trends and activities, we believe that overall asset quality will remain strong by historical standards for at least the near term. See the Credit Risk Management portion of the Risk Management section of this Financial Review for additional information regarding factors impacting the provision for credit losses.