PNC 10-Q Quarter ended Sept. 30, 2010

E XECUTIVE S UMMARY

T HE PNC F INANCIAL S ERVICES G ROUP , I NC .

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.

K EY S TRATEGIC G OALS

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

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

We are focused on our strategies for quality growth. We are committed to re-establishing a moderate risk profile characterized by disciplined credit management and limited exposure to earnings volatility resulting from interest rate

fluctuations and the shape of the interest rate yield curve. We made substantial progress in transitioning our balance sheet throughout 2009 and in the first nine months of 2010, working to return to our moderate risk philosophy 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.

We also continue to be focused on building capital in the current environment characterized by economic and regulatory uncertainty. See the Funding and Capital Sources section of the Consolidated Balance Sheet Review section and the Liquidity Risk Management section of this Financial Review.

S ALE OF PNC G LOBAL I NVESTMENT S ERVICING

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 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 June 30, 2010 and the related after-tax gain on sale in the third quarter of 2010 are presented as income from discontinued operations, net of income taxes, on our Consolidated Income Statement for the periods presented in this Report. Once we entered into the sales agreement, GIS was no longer a reportable business segment. Further information regarding the GIS sale is included in Note 2 Divestiture in our Notes To Consolidated Financial Statements in this Report.

N ATIONAL C ITY I NTEGRATION C OSTS

A summary of pretax merger and integration costs in connection with our December 31, 2008 acquisition of National City Corporation (National City) follows.

National City Integration Costs

The National City transaction is expected to result in the reduction of more than $1.8 billion of combined company annualized noninterest expense by the end of 2010 through the elimination of operational and administrative redundancies. We have completed the customer and branch conversions to our technology platforms and have integrated the businesses and operations of National City with those of PNC.

R ECENT M ARKET AND I NDUSTRY D EVELOPMENTS

The economic turmoil that began in the middle of 2007 and continued through most of 2008 and 2009 has now settled into a slow economic recovery with, at this time, somewhat uncertain prospects. This has been accompanied by dramatic changes in the competitive landscape of the financial services industry and a wholesale reformation of the legislative and regulatory landscape with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which was signed into law by President Obama on July 21, 2010.

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, as 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 proposed and final regulations implementing 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 many of our larger peers.

Items 1 and 7 of our 2009 Form 10-K include information regarding efforts beginning in late 2008 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 that 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, Dodd-Frank and other legislative, administrative and regulatory initiatives.

Included in these efforts 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 and are expected to include a phase-in period beginning in 2013 and ending January 1, 2019.

Residential Mortgage Foreclosure Matters

Beginning in the third quarter of 2010, mortgage foreclosure documentation practices among US financial institutions have received heightened attention by regulators and the media. PNC’s market share for residential servicing is less than 2%. 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). Regardless, we have been conducting an internal review of our foreclosure procedures. Based upon our review thus far, we believe that PNC has systems designed to ensure that no foreclosure proceeds unless the loan is genuinely in default. On average, our residential mortgage loans in foreclosure are more than one year delinquent.

Similar to other banks, we have identified issues regarding some of our documentation. Accordingly, we are delaying pursuing individual foreclosures when we commenced our review until we are confident that any pending documentation issues have been resolved. We are currently 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.

For additional information, please see Note 17 Legal Proceedings and Note 18 Commitments and Guarantees in our Notes To Consolidated Financial Statements in Part I of this Report and Item 1A Risk Factors in Part II of this Report.

TARP Capital Purchase Program

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. See Repurchase of Outstanding TARP Preferred Stock and Sale by US Treasury of TARP Warrant in Note 14 Total Equity And Other Comprehensive Income in the Notes To Consolidated Financial Statements in this Report for additional information.

FDIC Temporary Liquidity Guarantee Program

The FDIC’s TLGP is designed to strengthen confidence and encourage liquidity in the banking system by:

PNC did not issue any securities under the TLGP-Debt Guarantee Program during the first nine months of 2010.

From October 14, 2008 through December 31, 2009, PNC Bank, National Association (PNC Bank, N.A.) participated in the TLGP-Transaction Account Guarantee Program. Beginning January 1, 2010, PNC Bank, N.A. is no longer participating in this program, but Dodd-Frank extends the program for all banks for two years, beginning December 31, 2010.

Public-Private Investment Fund Programs (PPIFs)

PNC did not participate in these programs during the first nine months of 2010.

Home Affordable Modification Program (HAMP)

PNC began participating in HAMP for GSE mortgages in May 2009 and for non-GSE mortgages in July 2009, and recently signed the agreements to begin participating in the Second Lien Program. HAMP is scheduled to terminate as of December 31, 2012.

Home Affordable Refinance Program (HARP)

PNC began participating in HARP in May 2009. The program terminated as of June 10, 2010.

As noted above, 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.

K EY F ACTORS A FFECTING F INANCIAL P ERFORMANCE

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

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

S UMMARY F INANCIAL R ESULTS

Credit Quality Highlights

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 third quarter and first nine months of 2010 and 2009.

A VERAGE C ONSOLIDATED B ALANCE S HEET H IGHLIGHTS

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 September 30, 2010 compared with December 31, 2009.

Total average assets were $265.4 billion for the first nine months of 2010 compared with $278.6 billion for the first nine months of 2009.

Average interest-earning assets were $225.1 billion for the first nine months of 2010, compared with $241.0 billion in the first nine months of 2009. Decreases of $13.1 billion in loans and $6.5 billion in other interest-earning assets, partially offset by a $5.3 billion increase in investment securities, drove the decrease in average interest-earning assets.

The decrease in average total loans reflected a decline in commercial loans of $8.6 billion, commercial real estate loans of $4.1 billion and residential mortgage loans of $3.3 billion, partially offset by an increase of $2.9 billion in consumer loans.

Loans represented 69% of average interest-earning assets for the first nine months of 2010 and 70% for the first nine months of 2009.

Average securities available for sale increased $2.0 billion, to $49.4 billion, in the first nine months of 2010 compared with the first nine months of 2009. Average US Treasury and government agencies securities increased $4.2 billion while average other debt securities increased $1.4 billion in the comparison. These increases were partially offset by a decline of $2.9 billion in average non-agency residential mortgage-backed securities and a decline of $.8 billion in commercial mortgage-backed securities.

Average securities held to maturity increased $3.3 billion, to $7.2 billion, in the first nine months of 2010 compared with the first nine months of 2009. The increase reflected purchases of asset-backed and non-agency commercial mortgage-backed securities, the transfer of securities from the available for sale portfolio, and the impact of the Market Street Funding LLC (Market Street) consolidation effective January 1, 2010.

Total investment securities comprised 25% of average interest-earning assets for the first nine months of 2010 and 21% for the first nine months of 2009.

Average noninterest-earning assets totaled $40.3 billion in the first nine months of 2010 compared with $37.6 billion in the prior year period.

Average total deposits were $182.0 billion for the first nine months of 2010 compared with $191.2 billion for the first nine months of 2009. 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 an increase in transaction deposits. Total deposits at September 30, 2010 were $179.2 billion compared with $186.9 billion at December 31, 2009 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 nine months of 2010 and the first nine months of 2009.

Average transaction deposits were $127.2 billion for the first nine months of 2010 compared with $118.7 billion for the first nine months of 2009.

Average borrowed funds were $40.8 billion for the first nine months of 2010 compared with $45.7 billion for the first nine months of 2009. A $6.7 billion decline in Federal Home Loan Bank borrowings drove the decline in the comparison, partially offset by higher average commercial paper borrowings that reflected the consolidation of Market Street. Total borrowed funds at September 30, 2010 were $39.8 billion compared with $39.3 billion at December 31, 2009 and are further discussed within the Consolidated Balance Sheet Review section of this Report. In addition, the Liquidity Risk Management portion of the Risk Management section of this Report includes additional information regarding our sources and uses of borrowed funds.

L INE OF B USINESS H IGHLIGHTS

We have six reportable business segments:

Total business segment earnings were $2.0 billion for the first nine months of 2010 and $1.8 billion for the first nine months of 2009. Highlights of results for the first nine months and third quarter of 2010 and 2009 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 the first nine months of 2010 and 2009 including presentation differences from Note 19 Segment Reporting.

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 19 Segment Reporting.

Retail Banking

Retail Banking earned $97 million for the first nine months of 2010 compared with earnings of $161 million for the same period a year ago. Earnings declined from the prior year due primarily due to lower revenues as a result of lower interest credits assigned to deposits and a decline in fees which were partially offset by well-managed expenses. Retail Banking continued to maintain its focus on growing customers and deposits, customer and employee satisfaction, investing in the business for future growth, as well as, disciplined expense management during this period of market and economic uncertainty.

Retail Banking had a loss of $7 million in the third quarter of 2010 compared with earnings of $50 million in the third quarter of 2009. Earnings decreased from the prior year quarter due to a decline in fees, a higher provision for credit losses and lower net interest income.

Corporate & Institutional Banking

Corporate & Institutional Banking earned $1.2 billion in the first nine months of 2010 compared with $775 million in the first nine months of 2009. Significantly higher earnings for the first nine months of 2010 reflected a lower provision for credit losses and lower noninterest expense which more than offset declines in net interest income and noninterest income compared with the 2009 period.

Corporate & Institutional Banking earned $427 million in the third quarter of 2010 compared with $309 million in the third quarter of 2009. The increase in earnings compared with third quarter 2009 was primarily due to a lower provision for credit losses driven by reduced exposure levels along with positive credit migration.

Asset Management Group

Asset Management Group earned $112 million for the first nine months of 2010 compared with $82 million for the same period in 2009. Assets under administration were $206 billion at September 30, 2010 and $217 billion at September 30, 2009. The first nine months of 2010 reflected a lower provision for credit losses, lower expenses from disciplined expense management and higher noninterest income. These improvements were partially offset by a decrease in net interest income from lower yields on loans.

Earnings for Asset Management Group totaled $44 million for the third quarter of 2010 compared with $35 million for the third quarter of 2009. The increase in earnings from the prior year quarter reflected a benefit from the provision for credit losses and lower expenses that more than offset a decline in revenue.

Residential Mortgage Banking

Residential Mortgage Banking earned $272 million for the first nine months of 2010 compared with $410 million in the first nine months of 2009. Earnings decreased from the first nine months of 2009 primarily due to reduced loan sales revenue and lower net hedging gains on mortgage servicing rights, partially offset by lower noninterest expense.

Residential Mortgage Banking earned $98 million in the third quarter of 2010 compared with $91 million for the third quarter of 2009. Higher net hedging gains on mortgage servicing rights and lower expenses in the 2010 quarter more than offset a decline in net interest income and a higher provision for credit losses.

BlackRock

Our BlackRock business segment earned $253 million in the first nine months of 2010 and $151 million in the first nine months of 2009. Third quarter 2010 business segment earnings from BlackRock were $99 million compared with $74 million in the third quarter of 2009. The benefits of BlackRock’s December 2009 acquisition of Barclays Global Investors (BGI) and improved capital markets conditions contributed to higher earnings at BlackRock.

Distressed Assets Portfolio

The Distressed Assets Portfolio earned $8 million for the first nine months of 2010 compared with $172 million for the first nine months of 2009. A $288 million increase in the provision for credit losses was the primary factor driving the decrease in earnings in the comparison.

For the third quarter of 2010, Distressed Assets Portfolio had earnings of $17 million compared with $14 million for the third quarter of 2009. Higher net interest income and lower expenses more than offset the impact of lower noninterest income and a higher provision for credit losses.

Other

“Other” reported earnings of $232 million for the first nine months of 2010 compared with a net loss of $496 million for the first nine months of 2009. The net loss for the 2009 period included higher other-than-temporary impairment (OTTI) charges compared with the 2010 period, alternative investment writedowns, a $133 million special FDIC assessment, and equity management losses.

“Other” reported earnings of $97 million for the third quarter of 2010 compared with a net loss of $33 million for the third quarter of 2009.

C ONSOLIDATED I NCOME S TATEMENT R EVIEW

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

Net income for the first nine months of 2010 was $2.6 billion compared with $1.3 billion for the first nine months of 2009. Net income for the third quarter of 2010 was $1.1 billion compared with $.6 billion for the third quarter of 2009. Total revenue for the first nine months of both 2010 and 2009 was $11.3 billion. Total revenue for the third quarter of 2010 decreased 7% to $3.6 billion from $3.9 billion for the third quarter of 2009.

N ET I NTEREST I NCOME AND N ET I NTEREST M ARGIN

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

The increase in net interest income for the first nine months of 2010 compared with the first nine months of 2009 resulted primarily from the impact of lower deposit and borrowing costs somewhat offset by lower loan volume and lower revenue from our investment securities portfolio. Our deposit strategy included the retention and repricing at lower rates of relationship-based certificates of deposit and the planned run off of maturing non-relationship certificates of deposit and brokered deposits.

The net interest margin was 4.18% for the first nine months of 2010 and 3.72% for the first nine months of 2009. The following factors impacted the comparison:

The net interest margin was 3.96% for the third quarter of 2010 and 3.76% for the third quarter of 2009. The following factors impacted the comparison:

We expect net interest income and margin to trend down in the fourth quarter of 2010 but at a slower pace than we experienced from the second quarter of 2010 to the third quarter of 2010. We believe that lower purchase accounting accretion, continued soft loan demand and the low interest rate environment will contribute to lower net interest income and margin in the fourth quarter of 2010 compared with the third quarter of 2010.

N ONINTEREST I NCOME

Summary

Noninterest income totaled $4.2 billion for the first nine months of 2010, a decline of $361 million or 8% compared with the first nine months of 2009. Decreases in residential mortgage loan sales revenue, the value of commercial mortgage servicing rights and net hedging gains on residential mortgage servicing rights, along with lower service charges on deposits, were the primary factors in the comparison. Partially offsetting these items were lower OTTI charges and higher asset management fees.

Noninterest income totaled $1.4 billion for the third quarter of 2010, a decline of $246 million or 15% compared with the third quarter of 2009. This decrease was mainly due to the decrease in overdraft charges, the reduction in value of commercial mortgage servicing rights and third quarter 2009 gains on sales of commercial loans.

Additional Analysis

Asset management revenue was $751 million in the first nine months of 2010 compared with $639 million in the first nine months of 2009. Asset management revenue was $249 million in the third quarter of 2010 compared with $242 million in the third quarter of 2009. These increases reflected higher equity earnings from our BlackRock investment, improved equity markets and client growth. Discretionary assets under management at September 30, 2010 totaled $105 billion compared with $104 billion at September 30, 2009.

For the first nine months of 2010, consumer services fees totaled $939 million compared with $975 million in the first nine months of 2009. Consumer services fees were $328

million for the third quarter of 2010 compared with $330 million for the third quarter of 2009. Lower consumer service fees for 2010 in both comparisons reflected lower brokerage fees and the impact of the consolidation of the securitized credit card portfolio, partially offset by higher volume-related transaction fees. As further discussed in the Retail Banking section of the Business Segments Review portion of this Financial Review, we expect that the Credit CARD Act of 2009 will negatively impact full year 2010 revenues by approximately $75 million, a portion of which will be in the fourth quarter of 2010.

Corporate services revenue totaled $712 million in the first nine months of 2010 and $761 million in the first nine months of 2009. Corporate services revenue declined in the third quarter of 2010 to $183 million, compared with $252 million for the third quarter of 2009. The declines in both comparisons were largely the result of a reduction in the value of commercial mortgage servicing rights largely driven by lower interest rates, partially offset by higher merger and acquisition advisory and ancillary commercial mortgage servicing fees. Corporate services fees include the noninterest component of treasury management fees, which continued to be a strong contributor to revenue.

Residential mortgage revenue totaled $542 million in the first nine months of 2010 compared with $883 million in the first nine months of 2009. Third quarter 2010 residential mortgage revenue totaled $216 million compared with $207 million in the third quarter of 2009. The nine-month decline reflected reduced loan sales revenue given the strong loan origination refinance volume in 2009 and lower net hedging gains on mortgage servicing rights. Higher net hedging gains on mortgage servicing rights drove the third quarter 2010 increase.

Service charges on deposits totaled $573 million for the first nine months of 2010 and $714 million for the first nine months of 2009. Service charges on deposits totaled $164 million for the third quarter of 2010 compared with $248 million for the third quarter of 2009. The decrease in both instances was due to lower overdraft charges and required branch divestitures in the third quarter of 2009. As further discussed in the Retail Banking section of the Business Segments Review portion of this Financial Review, we expect that the new Regulation E rules related to overdraft charges will negatively impact our fourth quarter 2010 revenue by an estimated $100 million, or approximately $55 million more than its impact on the third quarter of 2010.

Net gains on sales of securities totaled $358 million for the first nine months of 2010 and $406 million for the first nine months of 2009. Third quarter net gains on sales of securities were $121 million in 2010 and $168 million in 2009.

The net credit component of OTTI of securities recognized in earnings was a loss of $281 million in the first nine months of

2010, including $71 million in the third quarter, compared with losses of $433 million and $129 million, respectively, for the same periods in 2009.

Other noninterest income totaled $650 million for the first nine months of 2010 compared with $660 million for the first nine months of 2009. Other noninterest income for the third quarter of 2010 totaled $193 million compared with $311 million for the third quarter of 2009. The third quarter of 2009 included $88 million of gains on sales of loans.

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

We believe that as the economy recovers, there will be greater opportunities for growth in client-related fee-based revenue.

P RODUCT R EVENUE

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 $919 million for the first nine months of 2010, an increase of $78 million or 9% compared with the first nine months of 2009. For the third quarter of 2010, treasury management revenue was $319 million, an increase of $38 million or 14% compared with the third quarter of 2009. These increases were primarily related to deposit growth and continued growth in legacy offerings such as purchasing cards and lockbox as well as services provided to the Federal government and healthcare customers.

Revenue from capital markets-related products and services totaled $411 million in the first nine months of 2010 compared with $346 million in the first nine months of 2009, an increase of $65 million or 19%. Higher underwriting, mergers and acquisition advisory fees, and syndications fees contributed to the improved results. Third quarter 2010 revenue was $119 million compared with $155 million for the third quarter of 2009, a decline of $36 million or 23%. The decline was driven by lower loan sale gains partially offset by increased mergers and acquisition advisory fees and syndications fees.

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 $146 million in the first nine months of 2010, a decrease of $206 million or 59% compared with the first nine months of 2009. For the third quarter of 2010, losses from commercial mortgage banking activities totaled $16 million compared with third quarter 2009 revenue of $119 million. These decreases were primarily due to valuations associated with commercial mortgage loans held for sale, net of hedges, higher impairment of mortgage servicing rights, and the sale during the second quarter 2010 of a duplicative agency servicing operation acquired as part of the National City transaction. These decreases were partially offset by higher ancillary commercial mortgage servicing fees.

P ROVISION F OR C REDIT L OSSES

The provision for credit losses totaled $2.1 billion for the first nine months of 2010 compared with $2.9 billion for the first nine months of 2009. For the third quarter of 2010, the provision for credit losses totaled $486 million compared with $914 million for the third quarter of 2009. The lower provision in both comparisons reflected credit exposure reductions and overall improving credit migration during 2010.

We are optimistic about prospects for a stable-to-lower provision for credit losses in the fourth quarter of 2010 compared with the third quarter of 2010. Future provision levels will depend primarily on the level of nonperforming loans and the pace of economic recovery.

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.

N ONINTEREST E XPENSE

Noninterest expense for the first nine months of 2010 was $6.3 billion compared with $6.9 billion for the first nine months of 2009, a decline of $591 million or 9%. The impact of higher cost savings related to the National City acquisition

and the reversal of certain accrued liabilities in the second quarter of 2010, including $73 million associated with a franchise tax settlement and $47 million associated with an indemnification for certain Visa litigation, were reflected in the lower nine-month expenses. Lower expenses in the first nine months of 2010 also reflected a special FDIC assessment, intended to build the FDIC’s Deposit Insurance Fund, of $133 million in the second quarter of 2009.

Noninterest expense totaled $2.2 billion in the third quarter of 2010, a decline of 3% compared with the third quarter of 2009. Noninterest expense declined compared with the year ago quarter primarily due to higher acquisition-related cost savings.

We expect noninterest expense to be lower in the fourth quarter of 2010 relative to the third quarter of 2010 primarily due to lower integration costs and an expected fourth quarter reduction in our Visa indemnification liability.

See National City Integration Costs in the Executive Summary section of this Financial Review for details of integration costs incurred, including through the first nine months of 2010 and 2009.

We achieved National City acquisition cost savings of $1.7 billion on an annualized basis in the third quarter of 2010, higher and earlier than our original goal of $1.2 billion, and are on track to meet our new goal of $1.8 billion by the end of 2010.

E FFECTIVE T AX R ATE

The effective tax rate was 25.0% for the first nine months of 2010 compared with 21.4% for the first nine months of 2009. The tax rate was lower on a year-to-date basis in 2009 due to lower levels of pretax income in 2009 partially offset by the 2010 favorable IRS letter ruling noted below.

For the third quarter of 2010, our effective tax rate was 18.8% compared with 25.5% for the third quarter of 2009. The lower tax rate in the third quarter of 2010 was primarily the result of receiving a favorable IRS letter ruling in July 2010 that resolved a prior tax position and resulted in a tax benefit of $89 million.

We anticipate that the full year 2010 effective tax rate will be approximately 26%.

C ONSOLIDATED B ALANCE S HEET R EVIEW

S UMMARIZED B ALANCE S HEET D ATA

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

The decline in total assets at September 30, 2010 compared with December 31, 2009 was primarily due to decreases in loans and cash and short-term investments, partially offset by an increase in investment securities.

Total assets and liabilities at September 30, 2010 included $4.5 billion and $3.2 billion, respectively, related to Market Street and a credit card securitization trust as more fully described in the Off-Balance Sheet Arrangements And Variable Interest Entities section of this Financial Review and Note 3 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements of this Report.

An analysis of changes in selected balance sheet categories follows.

L OANS

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 $2.8 billion at September 30, 2010 and $3.2 billion at December 31, 2009. The balances do not include future accretable net interest on the purchased impaired loans.

Loans decreased $7.4 billion, or 5%, as of September 30, 2010 compared with December 31, 2009. An increase in loans of $3.5 billion from the initial consolidation of Market Street and

the securitized credit card portfolio was more than offset by the impact of soft customer loan demand combined with loan repayments and payoffs in the distressed assets portfolio.

Loans represented 58% of total assets at both September 30, 2010 and at December 31, 2009. Commercial lending represented 52% of the loan portfolio and consumer lending represented 48% at September 30, 2010.

Commercial real estate loans represented 7% of total assets at September 30, 2010 and 9% of total assets at December 31, 2009.

Details Of Loans

Total loans above include purchased impaired loans related to National City amounting to $8.1 billion, or 5% of total loans, at September 30, 2010, and $10.3 billion, or 7% of total loans, at December 31, 2009.

We are committed to providing credit and liquidity to qualified borrowers. Total loan originations and new

commitments and renewals totaled $112 billion for the first nine months of 2010, including $39 billion in the third quarter.

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. This estimate also considers other relevant factors such as:

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 $2.9 billion at September 30, 2010. This commercial lending reserve provided adequate and appropriate loss coverage on the higher risk commercial loans in the total commercial portfolio. The commercial lending reserve represented 56% of the total allowance for loan and lease losses of $5.2 billion at that date. The remaining 44% of the allowance for loan and lease losses 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. Such loans are excluded from the following assessment of higher risk loans.

Our home equity lines of credit and installment loans outstanding totaled $34.6 billion at September 30, 2010. In this portfolio, we consider the higher risk loans to be those with a recent FICO credit score of less than or equal to 660 and an original loan-to-value ratio greater than 90%. Such loans totaled $1.2 billion or approximately 4% of the total home equity line of credit and installment loans at September 30, 2010. These higher risk loans were concentrated in our geographic footprint with 28% in

Pennsylvania, 13% in Ohio, 11% in New Jersey, 7% in Illinois, 6% in Michigan, and 5% in Kentucky, with the remaining loans dispersed across several other states. Option ARM loans and negative amortization loans in this portfolio were not significant. Within the higher risk home equity portfolio, approximately 12% are in some stage of delinquency and 6% are in late stage (90+ days) delinquency status.

In our $15.7 billion residential mortgage portfolio, loans with a recent FICO credit score of less than or equal to 660 and a recent loan-to-value ratio greater than 90% totaled $.7 billion and comprised approximately 4% of this portfolio at September 30, 2010. Twenty-three percent of the higher risk loans are located in California, 12% in Florida, 11% in Illinois, 8% in Maryland, 5% in Pennsylvania, and 5% in New Jersey, with the remaining loans dispersed across several other states. Option ARM loans and negative amortization loans in this portfolio were not significant. Within the higher risk residential mortgage portfolio of $.7 billion, approximately 47% are in some stage of delinquency and 36% are in 90+ days late stage delinquency status.

Within our broader home equity lines of credit, installment loans and residential mortgage portfolios, approximately 5% of the aggregate $50.3 billion loan outstandings have loan-to-value ratios in excess of 100%. The impact of housing price depreciation is reflected in the allowance for loans and lease losses as a result of the consumer reserve methodology process. The consumer reserve process is sensitive to collateral values which in turn affect loan loss severity. While our consumer reserve methodology strives to reflect all significant risk factors, there is an element of uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information such as housing price depreciation. We provide additional reserves where appropriate to provide coverage for losses attributable to such risks.

We obtain updated property values annually for select residential mortgage loan portfolios. We are expanding this valuation process to update the property values on the majority of our real estate secured consumer loan portfolios.

Information related to purchased impaired loans, purchase accounting accretion and accretable net interest recognized during the first nine months of 2010 in connection with our acquisition of National City follows.