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2000 AN N U A L RE P O R T



CO N T E N T S

Financial Highlights . . . . . . . 1

Letter To Our Shareholders . . 3

Q & A . . . . . . . . . . . . . . . . . . 8

Business Overview . . . . . . . . . 10

Customer Insight . . . . . . . . . . 12

PNC Bank Community Banking . . . . . . 14

PNC Bank

Corporate Banking . . . . . . . 16PNC Real Estate Finance . . . . 18

PNCBusiness Credit . . . . . . . 20

Superior Technology . . . . . . . . 22

PNC Advisors . . . . . . . . . . . . . 24

BlackRock . . . . . . . . . . . . . . . 26

PFPC . . . . . . . . . . . . . . . . . . . 28

Performance Award . . . . . . . . . 30

Board of Directors . . . . . . . . . . 31

Financials . . . . . . . . . . . . . . . 32



FI N A N C I A L HI G H L I G H T SThe PNC Financial Services Group, Inc.

$991

I N C O M EFR O M CO N T I N U I N G

OP E R AT I O N S

(in millions)

96 97 98 99 00

$1,038$1,080

$1,202 $1,214

$1.42

D I V I D E N D S PE RCO M M O N SH A R E

(in millions)

96 97 98 99 00

$1.50 $1.58$1.68

$1.83

$2.88

D I L U T E D EA R N I N G S

PE R SH A R EFR O M CO N T I N U I N G

OP E R AT I O N S

(in millions)

96 97 98 99 00

$3.24$3.49

$3.94$4.09

Year ended December 31Dollars in millions, except per share data 2000 1999 1998

F I N A N C I A L PE R F O R M A N C E

Revenue

Net interest income(taxable-equivalent basis) . . $ 2,182 $ 2,366 $ 2,514

Noninterest income . . . . . . . 2,891 2,450 2,086

Total revenue . . . . . . . . . . . . $ 5,073 $ 4,816 $ 4,600

Noninterest income tototal revenue . . . . . . . . . . . 56.99% 50.87% 45.35%

Income fromcontinuing

operations . . . . . . . . . . . . . . . $ 1,214 $ 1,202 $ 1,080Discontinued operations . . . . . . . 65 62 35

Net income . . . . . . . . . . . . . $ 1,279 $ 1,264 $ 1,115

Per common shareDiluted earnings

Continuing operations . . . . $ 4.09 $ 3.94 $ 3.49

Discontinued operations . . .22 .21 .11

Net Income . . . . . . . . . . . $ 4.31 $ 4.15 $ 3.60

Cash dividends declared . . . 1.83 1.68 1.58

SE L E C T E D RAT I O SReturn on

Average commonshareholders equity . . . . 21.63% 22.41% 20.81%

Average assets . . . . . . . . . . 1.68 1.69 1.49

YE A R-E N D BA L ANC E S

Assets . . . . . . . . . . . . . . . . . . . . $ 69,844 $ 69,286 $ 70,754Loans, net of unearned income . . 50,601 49,673 57,633Deposits . . . . . . . . . . . . . . . . . . 47,664 45,802 46,150Shareholders equity . . . . . . . . . 6,656 5,946 6,043

1

Note: This annual report contains forward-looking statements. Please refer to

the section of this report captioned Forward-Looking Statements on page 58

for important information relating to forward-looking statements.



TheThinking

BehindThe Money



3

LE T T E R TO OU R SH A R E H O L D E R S

EA R FE L L O W SH A R E H O L D E R S

The PNC Financial Services Group

delivered record performance in 2000

in the face of extremely

challenging market dynamics

and competition. Our

fundamental objectives for

the year were to deliver

strong near-term financialperformance and to

take meaningful steps to

strengthen the business mix and

competitive position of our company.I am pleased to report that we achieved

these objectives.

DPowerful,DiversifiedBusinesses

SuperiorTechnology

Positioned forGrowth



CO N S I S T E N C Y A N D GR O W T H: OU R TA R G E T E D

OU T C O M E S

Our overriding objective is to achieve a

premium valuation relative to our peers, and we

recognize that achieving this objective will require

the demonstrated ability to deliver strong growthin earnings consistently over time. Accordingly,

we have focused our strategies on creating a business

mix with the following characteristics:

Greater diversity of earnings, with increased contri-butions from our more highly-valued businesses,including asset management and processing.

Greater consistency of earnings, an objective thatwill demand decreased reliance on historicallyvolatile lending activities and increased contribu-tions from fee-based activities.

Strong growth dynamics, whichwill require continued investments inour higher-growth businesses andincreased relative contributions fromhigher-growth activities within ourbanking businesses.

BU I L D I N G A MO R E VA L U A B L E

BU S I N E S S MI X

In 2000, we invested over

$1 billion in our businesses, including

our acquisition of Automated BusinessDevelopment, Corp., which will be inte-

grated into PFPC, and BillingZone, our

joint venture with Perot Systems. Our

investments have focused on expanding

the scope and scale of our more highly-

valued businesses, building the PNC

brand, attracting and retaining talented

professionals, and developing and

Positive change defined our company in

2000, and our ability to embrace change during the

year without compromising near-term performance is

a testament to the will and resolve of our employees.

In this, my first letter to shareholders, I want to thank

all of my colleagues at PNC. Their efforts paved the

way for a strong 2000 and drove our progress in

creating a more valuable company.

ST R O N G FI N A N C I A L PE R F O R M A N C E

On an absolute basis and relative

to our industry peers, the financial

performance of our continuing operations

was strong in 2000:

Earnings per share rose to $4.09,a 10% increase over core earningsper share in 1999.

Noninterest income accountedfor 57% of total revenue.

Asset quality remained relativelystable, with net charge-offs to averageloans of .27% and nonperformingloans to total loans of .64%.

Returns on equity and assets were21% and 1.8%, respectively.

We are pleased with our financial

results in 2000, and are gratified that

investors have recognized the strength

and consistency of our performance. In

2000, PNCs stock price increased by over

60%, more than four times the increase

for the S&P Major Regional Banks Index.

4

PNC CO M M O NST O C K V S. S&P

MA J O R RE G I O N A LB A N K S I N D E X

(per share price increase Dec. 31, 2000 vs.Dec. 31, 1999)

PNC S&PMRBI

64%

14%



5

implementing leading technologies to drive both rev-

enue and efficiency. Very importantly, our investments

have resulted in greater business diversity, which we

believe will help to mitigate the impact of cycles that

individual businesses will inevitably face.

The diversity of our franchise has been improvedby the exceptional growth of our asset management

and processing businesses PNC Advisors,

BlackRock and PFPC. These businesses contributed

nearly 25% of earnings in 2000, up from approxi-

mately 15% in 1996. Because of the strong growth

dynamics of these businesses, we believe that their

relative contributions to total earnings will continue

to move higher. And because these businesses

compete in some of the most highly-valued sectors

in financial services, we believe their increased

contributions will further improve the valuation

dynamics of our company.

Equally important, we have increased revenue

and earnings diversity within our banking businesses.

In 2000, non-lending revenue accounted for more

than twice the revenue generated by lending activities

within our banking businesses. And again, this

increased diversity was due in large part to the growth

of more highly-valued activities, including treasury

management, deposit gathering and brokerage.

A FO C U S O N CO N S I S T E N C Y A N D VA L U E

We recognize that no company operating in the

financial markets is immune to risk. But we believe

that our strategic actions in recent years have signifi-

cantly improved our potential to generate consistent

earnings growth over time.

We have lowered our reliance on traditional

lending activities, which are historically more volatilethan fee-driven businesses because of their inherent

vulnerability to credit risk and economic cycles. We

have exited the credit card business, warehouse lending

and significant portions of our national real estate

and corporate lending businesses. In the first quarter

of 2001, we sold our residential mortgage banking

business, which competes in an industry historically

vulnerable to significant levels of volatility.

In the past two years alone, our loan commit-

ments have decreased by nearly $30 billion. But

there is still work to be done, particularly in light of

an uncertain economic future. We will not hesitate to

take further strategic actions to improve our ability to

J ames E. Rohr, President and Chief Executive Officer



6

Community Banking grew revenue by 3% for the

year but, driven by new applications of technology

to increase marketing efficiency, delivered earnings

growth of 9%.

A TE C H N O L O G Y LE A D E R

Part of our confidence in the future of thiscompany stems from our position of leadership in

technology, which has represented a significant com-

petitive advantage at PNC for many years. We have

focused on making disciplined and focused invest-

ments in technologies that have the potential to create

value for customers and shareholders alike.

And our efforts across a wide range of

businesses have received significant

recognition.

In December, PNC was ranked11th overall, and 2nd amongfinancial services organiza-tions, in the Innovation100 research study byInformationWeekand CapGemini Ernst & Young, whichevaluated companies based ontheir success in using technol-ogy to benefit customers.

Our customer call centerwas ranked 5th-best in

our industry byFinancialServices Marketing.

Our data center the heart ofour technology capabilities was ranked as the most effi-cient in our peer group by theGartnerGroup.

This recognition is only a

reflection of the value we contin-

ued to deliver to customers

through a number of significant

technology initiatives. Ourlaunch of BillingZone, a joint

deliver consistent earnings growth over time, up to

and including the sale or downsizing of additional

businesses that we do not believe are positioned to

help us achieve our performance objectives.

EN G I N E S F O R GR O W T H

Obviously, we have downsized

PNCs balance sheet as a result of our

strategies to strengthen our busi-

ness mix. This has meant sacrific-

ing near-term net interest

income to drive what we believe

to be very positive changes in

the long-term earnings and

growth dynamics of our compa-

ny. But even as we have

removed substantial amounts of

lending-related

revenue, we have been able

to grow earnings per share at a

compound annual rate of 10%

over the past five years.

This performance during

a period of substantial transition

reflects the powerful growth

dynamics inherent in many

of our businesses. Our asset

management and processing

businesses PNC Advisors,BlackRock and PFPC grew

revenue, collectively, by 22% in

2000. Among our banking business-

es, Treasury Management, Capital Markets and

Business Credit delivered revenue growth of

11%, 21% and 45%, respectively, in 2000.

2000 RE V E N U E CO N T R I B U T I O NBY BU S I N E S S

Banking Assetand Secured Finance Management

and Processing



7

venture with Perot Systems, will help position PNC as

a leader in electronic bill presentment and payment.

BlackRock introduced BlackRock Solutions, offering

industry-leading risk management and investment

technology services to institutional investors. PNC

Advisors introduced live Webcasts of market com-

mentaries by top investment professionals. These and

other innovations helped to maintain PNCs position

as a technology leader in our industry.

Equally important, we have used technology

to better understand our customers and increase the

effectiveness of our marketing efforts. In Community

Banking, for example, virtually all of our customer

households have been offered customized packages

of banking services based on what we have learned

about their preferences.

OU R AS P I R AT I O N S

We are pleased with the progress we have made

in increasing the value and strengthening the competi-

tive position of PNC. Business by business, I believe

we have built a company that is only beginning to

demonstrate its inherent strength and potential. But

we recognize that work remains to be done, and that

we will face significant challenges going forward.

As I have stated, our fundamental objective is

to earn by delivering superior earnings growth

consistently over time a position as one of the most

highly-valued companies in our industry. To achievethis, we will focus on further strengthening our busi-

ness mix, on aggressively managing our risk profile,

on continuing to develop intelligent applications of

technology, on building a true marketing culture at all

levels of our company, and on living our commitment

to our customers that PNC will provide innovative,

thoughtful solutions for a wealth of financial needs.

In light of our achievements during the past

year, and the hard work that stands behind them,

many thanks are certainly in order. First, to Tom

OBrien, who will be retiring as Chairman of PNC inMay. Tom stood at the helm of our company for over

15 years, and under his leadership our employees

transformed PNC from a strong, regional bank into

one of the leading and best-performing financial

services organizations in the nation. Thank you, Tom,

from the entire PNC family.

My thanks also to Walter Gregg and our entire

executive management team, who have guided PNC

through a period of enormous change, and to our

Board of Directors, an extremely talented group

whose counsel I value immensely. Jackson Randolph

and Rod Ross are to retire from our Board of

Directors in April, and I extend my deepest apprecia-

tion for their friendship, guidance and longstanding

commitment to our company.

I am proud to be an employee of PNC.

And I have never been more proud of the entire PNC

team, whose talents and energy are the foundation

of our success. On behalf of this outstanding group

of employees, I would like to thank you, our

shareholders, for your confidence in our company.

Sincerely,

James E. RohrPresident and Chief Executive Officer


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8

From a financial perspective

our performance was strong.

We delivered double-digit

core EPS growth and a 21%

return on equity, and we

maintained relatively stable

asset quality. And we contin-

ued to take steps to strengthen

our business mix. Whats

HO W DO YO U RAT E P N C S 2000 PE R F O R M A N C E?

When you look at our strate-

gic actions collectively, we

made very significant progress

in strengthening the business

mix of this organization. We

continued to invest in, and

grow, highly-valued business-

es like PFPC, BlackRock and

Treasury Management. We

continued to reshape our tra-

ditional banking businesses inan effort to decrease volatility

WH AT WE R E P N C S MO S T IM P O R TA N T

ST R AT E G I C AC C O M P L I S H M E N T S?

Walter E. Gregg, J r.ViceChairman

Q&A

extremely important is that

our employees continued to

show their commitment to

making this organization

better, stronger and more

valuable, and because of their

efforts, I believe were very

well positioned for the future.

Rohr

and risk and increase valua-

tion potentialAnd we took

actions to exit or downsize

businesses that were not

aligned with our valuation

objectives, including the sale

of our residential mortgage

banking business, which

competes in a volatile

industry that is not valued

highly by investors.

Gregg

NO N I N T E R E S TI N C O M E / T O TA L

RE V E N U E

(in millions)

96 97 98 99 00

40%

45%

51%57%



9

I would say that well continue

to be opportunistic regarding

acquisitionsThere are always

opportunities to buy for the sake

of sheer size, but we recognize

that those types of transactionsmust be evaluated carefully

because they do not consistently

create value for sharehold-

ersOur recent acquisitions

Theres no doubt that this isa challenge throughout our

industry. But weve made

significant progress in imple-

menting strategies intended

to enable our traditional

banking businesses to deliver

more consistent, higher-quali-

ty earnings.

Weve downsized our

reliance on lending activities,

WH AT HA S PNC DO N E T O CR E AT E VA L U E

I N I T S BA N K I N G BU S I N E S S E S?

First, we recognize that being

a top-performing company

for our shareholders requires

that we be a top-performing

company for our customers.

Thats why were so focused

on becoming a best-of-class

provider in each of our

businessesSome of our

businesses, clearly PFPC and

Treasury Management, have

already achieved that level of

leadership. And we believe

all of our businesses can

WH AT AR E YO U R AS P I R AT I O N S F O R P N C ?

J imRohrPresident and

Chief ExecutiveOfficer

WH AT I S YO U R ST R AT E G Y RE G A R D I N G AC Q U I S I T I O N S?

have been driven business

by businessWeve had

tremendous success with

acquisitions like BlackRock,

Midland, ISG and Hilliard

LyonsAnd weve developeda real talent for integrating a

diverse range of organizations

quickly and efficiently.

Rohr

which are inherently morevolatile sources of earnings.

In fact, lending-related rev-

enue has decreased to 20%

of total revenue thats down

from 32% in 1998.

Just as important, weve

dramatically increased the

contributions of deposit

gathering and fee-generating

elements of our traditional

achieve that goal. In the end,

we aspire to be one of the

most highly-valued companies

in our industry. Our strategies

focus on improving the quality

of our earnings to position us

to deliver top-tier growth in

earnings, consistently over

time. We believe this is the

most direct path to the type of

premium valuation were

focused on attaining.

Rohr

banking businesses. Wehave a growing small business

banking group, and strong

capital markets and treasury

management businesses.

So overall, weve made

significant progress on both

the community and corporate

banking sides toward

increasing the value of our

banking franchise.

Gregg



10

BANKING AND SECURED FINANCE2000

2000 2000 Return Noninterest Income Competitive PositionsRevenue Earnings on Capital to Total Revenue (national rankings)

Community Banking

$2,033 $590 22% 30% A Leading Community

Bank in all Major

Markets Served

9th-Largest

ATM Network

Top 25 SmallBusiness Lender

7th-Largest Issuer of

Visa Check Cards

Corporate Banking

$839 $244 20% 33% 9th-Largest Treasury

Management Business

13th-Largest Bank

Leasing Company

Real Estate Finance

$220 $82 21% 48% 2nd-Largest Servicer of

Commercial Mortgage-

Backed Securities

2nd-Largest Servicer of

Commercial Mortgage

Loans

Business Credit

$119 $49 32% 17% Top 10 Asset-Based

Lender



11

ASSET MANAGE ME NT AND PROCESSING2000

2000 2000 Return Operating Competitive PositionsRevenue Earnings on Capital Margin (national rankings)

$792 $173 32% 34% Top 10 Manager of

Trust and High-Net-

Worth Assets

$477 $87 27% 36% 7th-Largest Publicly

Traded Asset Manager

5th-Largest Manager

of Institutional Money

Market Funds

$690 $47 22% 23% Largest Full-Service

Mutual Fund

Transfer Agent

2nd-Largest Provider

of Mutual Fund

Accounting and

Administration Services



Customer



InsightOur businesses develop professionals witha keen insight into customer needs andwe arm them with the products and tech-

nology needed to act on that insight.

Call center professionals have immediate access tocustomer information and histories for more than5 million accounts

PNC Advisors professionals have wireless online accessto market data and customer information

Treasury management offers customized electronicbill presentment programs to meet specific cashmanagement needs



14

hrough its Community Banking business,

PNC Bank offers deposit, brokerage, insur-

ance and credit products and services as well

as electronic banking. Its customer base

includes more than three million retail house-

holds and 180,000 small businesses, primari-

ly within PNCs geographic region.

In 2000, Community Banking

continued its efforts to build a customer-

focused franchise. Initiatives to strengthen

its deposit franchise, increase revenues

contributed by fee-based sources, and

improve efficiency helped fuel 9% earnings

growth for the year.

Targeted sales and marketing

campaigns designed to attract new

business and retain and deepen existing

customer relationships led Community

Banking to increase average deposits to $36

billion a 4% increase over 1999. These

efforts also helped boost sales of fee-based

brokerage, insurance and annuity products

leading Community Banking to a 13%

increase for the year in noninterest income.

Community Banking also continued

to leverage PNCs leadership position in

technology to improve productivity and

streamline a variety of sales and service

processes. This ongoing focus, combinedwith its commitment to managing costs,

has helped improve its efficiency ratio to

51% from 55% in 1998.

Moving into 2001, technology

will continue to play a key role in

Community Bankings strategy to enhance

its differentiated customer experience

and help drive revenue growth. By Web-

enabling all delivery channels including

more than 700 branches and providingits sales staff with information on customer

needs and insights fromits industry-leading

data mart, Community Banking will be

better positioned to increase sales and offer

superior service.

Already one of the nations leading

small business lenders, Community

Banking is also intensifying its focus on

delivering a variety of non-traditional

services to this lucrative market. This

includes an arrangement for a prominent

insurance broker to offer insurance prod-

ucts to the businesses, offering wealth

management products to the owners, and

a package of financial products and serv-

ices called Workplace Banking to small

business employees. Community Banking

remains committed to the goal of creating

sustainable, long-term value for share-

holders, customers, employees and the

communities it serves.

AT YOUR SERVICE

To focus more time on keeping his multiple

Camp Hill, Pa.-area franchises operating as

efficiently as possible, Raghu Tadavarthy does

much of his personal and small business banking

through PNCs 24 hours a day, seven days a week

National Financial Services Center (NFSC).

Ranked by Financial Services Marketing as one

of the top five call centers in the industry,

the NFSC has leveraged customer insight and

technology to streamline processes, enhance

services and increase sales which jumped 55%

over 1999. These achievements have also

led to double-digit increases in both customer

and employee satisfaction.

T

PNC BA NK CO M M U N I T YBA N K I N G

DE P O S I TGR O W T H

(increase over previous year)

1%

98 99 00

2%

4%



An insightful

providerto smallbusinesses and

consumers



A full rangeof financial

servicesfor corporate

clients



n 2000, Corporate Banking continued

its transition to becoming a provider of

diversified financial services to companies

and government agencies which

included developing a stronger focus on

more highly-valued earnings. Central to

this transition are Corporate Bankings

specialized credit, capital markets, treasury

management and leasing services.

At the same time, Corporate

Banking has focused on decreasingits reliance on institutional lending,

which has historically demonstrated

earnings volatility. As a result of these

strategies, more valuable noncredit-

related sources now generate 52% of

Corporate Bankings revenues.

Treasury Management has

leveraged leading technology and strongreceivables management products to

grow revenue at nearly twice the industry

average since 1998.

And its inherent technology and

receivables management strengths were

key reasons behind PNCs joint venture

with Perot Systems to create BillingZone.

This business will help position PNC

as a leader in the growing business-to-

business electronic bill payment and

presentment (EBPP) arena.

PNC Capital Markets, with its

strong, middle market focus, has been

another important contributor. With spe-

cialized expertise in loan syndications,

asset securitization, foreign exchange and

public finance, PNC Capital Markets has

grown earnings at a 20% compound annu-

al rate over the last three years. And it

has minimal involvement in higher-risk,

proprietary trading activities.

Driving growth across these sectors

and focusing intensely on increasing cross-

referral activity with other PNC businesses

should better position Corporate Banking

to continue its transition and deliver more

valuable earnings.

Equally important, in an

increasingly challenging asset qualityenvironment, Corporate Banking will

take continued actions to limit large

credit exposures and further reduce

reliance on lending revenue.

PNC BA NK CO R P O R AT E BA N K I N G

17

FEDERATED DEPARTMENT STORES

Cincinnati-based Federated Department Stores,

Inc., has long valued PNC for its ability to deliv-

er a broad spectrumof sophisticated financial

products and services. In addition to providing

corporate expense disbursement services, PNC

Banks Treasury Management group recently

joined with Federated to implement a customized

electronic data interchange merchandise payables

systemfor suppliers. PNC Capital Markets was

instrumental in financing Federateds co-branded

Visa card programthrough an asset securitization

facility, and BlackRock provides investment

management services. Pictured are Federated

Vice Chairman Ron Tysoe and PNC Senior

Vice President J oe Richardson.

$339

98 99 00

$373 $433

NO N C R E D I TRE V E N U E

(in millions)

I



hrough PNC Real Estate Finance,

commercial real estate developers, owners

and investors are provided credit, capital

markets, treasury management, and other

products and services. The PNC Real

Estate Finance platformincludes Midland

Loan Services, which provides servicing

for commercial mortgage loans, and

Columbia Housing, a national syndicator

of affordable housing equity.

PNC Real Estate Finance contin-

ued to reposition itself in 2000, taking

additional steps to enhance its strong

technology and processing platform and

to increase the relative contribution of

fee-generating, non-lending activities.

To enhance its national leadership

position in commercial mortgage servicing,

Midland Loan Services merged with

Univest Financial Group, a privately held

provider of technology and data manage-

ment services to the commercial real estate

finance industry.The combined operation

is a leading provider of Web-based loan

servicing and asset administration solutions

for the commercial real estate industry.

The contributions of Midland and

Columbia Housing, another primarily

fee-based business, helped to furtherdiversify the earnings composition of PNC

Real Estate Finance and create a more

valuable enterprise. In 2000, noninterest

income grew to 48% of total revenue,

compared with 29% in 1998.

Efforts to drive higher-quality

earnings were also helped by measures

PNC Real Estate Finance took to reduce

its reliance on more volatile and cyclical

credit-related revenues. It continued

throughout the year to move away from

credit-only relationships by emphasizingits fully-integrated package of commercial

real estate financial products and services.

In addition, this business will focus

on growing higher-qualityrevenues by

expanding third-party processing services to

other commercial real estate lenders.

THE CHARLES E. SMITH REALTY

COMPANIES

By leveraging the quality and breadth of a broad

range of financial services, a relationship

that began with a construction loan in the 1980s

now encompasses several PNC businesses. Denny

Minami, COO/CFO of Charles E. Smith

Residential Realty L.P., and Paul Larner, CFO of

Charles E. Smith Commercial Realty L.P.

(pictured with PNCs Bill Lynch and Connie

Bond Stuart), rely on PNC for a wide

range of financial services. In addition to the

lines of credit, construction loans and

capital markets products provided by PNC Real

Estate Finance, the Smith Companies utilize the

services of PNC Advisors, Hawthorn and PNC

Banks treasury management group.

T

PNC RE A L ES TAT E FI N A N C E

18

NO N I N T E R E S TI N C O M E

(in millions)

$47

98 99 00

$100$105



Innovativesolutions for thecommercialreal estate market



A national

leaderin asset-basedlending



ne of the countrys fastest growing

asset-based lenders, PNC Business

Credit provides secured financing

products and services to middle market

customers on a national basis.

PNC Business Credit enables

clients to leverage the value of their

assets and cash flow to achieve both

short- and long-term goals.

Led by a seasoned management

team and with a marketing presence in

some of the nations fastest growing

regions, in 2000 PNC Business Credit

posted record earnings for the third

consecutive year and it has grown

to become one of the nations top 10

asset-based lenders.

Since its inception in 1997,

PNC Business Credit has generated

consistently high returns in this primarily

leverage-based business.

Driving this success is PNC

Business Credits emphasis on risk

management practices. To mitigate risk,

PNC Business Credit conducts extensive

due diligence on prospective clients, and

it has implemented a systemic approach

to monitoring collateral.

In addition, Business Credit has

developed an intense focus on cross-sell-

ing to its clients PNCs wide range of

financial services such as treasurymanagement, capital markets and work-

place banking products.

As a result of these initiatives,

PNC Business Credit increased noninter-

est income 82% last year to $20 million.

With its strong marketing team and

emphasis on risk management practices,

PNC Business Credit is well positioned to

build on the success it has achieved.

COM-NET ERI CSSON

The principals of The Anderson Group

Bill Anderson, Steve Frobouck and Steve Savor

have been banking and investing with The PNCFinancial Services Group for over 30 years. So

when their company, Com-Net Critical

Communications, sought financing to acquire the

mobile radio division of Ericsson, they selected

PNC Business Credit over a number of

asset-based lending groups to structure,

underwrite and syndicate the transaction.

PNC Business Credit worked closely with theCom-Net team(Frobouck, the chairman,

is pictured here with PNCs Greg Steve and Savor,

the CEO) in structuring the transaction so

that Com-Net had the liquidity to purchase

the division, with sufficient capital to grow and

meet its strategic objectives.

P N C BU S I N E S S CR E D I T

O

21

RE V E N U E

(in millions)

$62

98 99 00

$82

$119



Superior



TechnologyAt PNC, we invest in technology tobring new levels of convenience andaccessibility to our customersand to

equip employees with tools that enhanceproductivity and marketing capabilities.

PNCs new technology hub Firstside Center (pictured) doubles capacity for online transactions and transfersup to $50 billion daily for treasury management customers.

Firstside has also been recognized nationally for itsemployee-friendly features and environmentallyprogressive design

PNCs call center which increased sales 55% over1999 is one of the top 5 in the industry (FinancialServices Marketing)

PNC ranked 11th in the Innovation 100, recognizingleaders in customer-centric business and technologystrategies (Information Week)

Through BlackRock Solutions, BlackRock utilizesproprietary systems and analytics to analyze $1.3 trillionof investment positions



ne of the largest wealth managers in

the nation, PNC Advisors provides clients

with tailored investment and traditional

banking solutions. It includes Hilliard

Lyons, a full-service brokerage, and

Hawthorn, an investment consulting

provider for the ultra-affluent. PNC

Advisors also serves as investment manag-

er and trustee for employee benefit plans

and charitable and endowment assets.

PNC Advisors continued to

build on the solid earnings growth it has

achieved over the past three years by

expanding its distribution capabilities and

enhancing its product set. The completed

integration of Hilliard Lyons has extended

PNC Advisors reach and helped drive

growth in new markets. Although it contin-

ues to leverage PNCs broad bank referral

network, now, with more than 1,000

consultants in 21 states, PNC Advisors

generates more than 80% of its new busi-

ness from non-bank-referred clients.

Through a number of marketing

initiatives, PNC Advisors has intensified

its focus on the emerging wealth segment,

particularly the senior executive and

business owner marketplace. Its financial

experts assist clients in understandingand realizing the value of illiquid assets,

including stock options and concentrated

equity positions, through a service coined

Unlocking Paper Wealth.

Its Web site (pncadvisors.com),

launched in late 2000, offers educational

Webcasts on Unlocking Paper Wealth

targeted to the senior executive audience.

Additionally, the site offers a myriad of

investment tools and an aggregated view of

a clients banking and investment accounts

via a single, secure channel.

Hawthorn, which now serves over

270 families that typically have a net worth

exceeding $100 million, has been another

area of growth for PNC Advisors. Hawthorn

has distinguished itself as one of the very

few investment providers that has been

successful in serving the needs of the ultra-

affluent. And the unique capabilities devel-oped through Hawthorn are often modified

to serve other PNC Advisors clients.

Going forward, PNC Advisors is

focused on expanding Hilliard Lyons

presence in existing PNC markets and

increasing investment sales by targeting

the financial needs of corporate executives,

business owners and the growing market

of affluent women.

WEB SITE/UNLOCKI NG PAPER WEALTH

The expansion of PNC Advisors Web presence

through www.pncadvisors.comenables

clients to access their accounts and receive

valuable investment information.

The Unlocking Paper Wealth area on the home

page allows visitors, such as Marconi

executive Darrin Coulson (pictured), to receive

financial planning assistance via

Webcasts fromPNCs top investment officers.

A myriad of investment tools,

including proprietary equity research, are

also available online.

O

P N C AD V I S O R S

24

NE T I N C O M E

(in millions)

$119

98 99 00

$147

$173



Investment

expertise

when and where

you need it



World classsolutions forinstitutional investors



and diluted earnings per share increasing

by 25%, 29% and 30%, respectively.Assets under management grew by 24%

to $204 billion, led by a 35% increase

in separate account assets. Net new

business accounted for over 80% of growth

in assets under management, and included

a substantial amount of additional sub-

scriptions from existing clients a clear

endorsement of the firms success in

achieving client investment objectives

and service expectations.

A number of BlackRocks achieve-

ments in 2000 have helped to create a

solid platform for future growth. The

firm delivered exceptional investment per-

formance in its fixed income and liquidity

products. The successful integration of a

European equity team in Edinburgh result-

ed in more than $6 billion in new European

equity mandates. New leadership was

added to the domestic large cap value

team, significantly improving performance

in existing portfolios. BlackRock Solutions

was successfully launched (see story). And

the firm continued to expand its personnel

base, including the addition of more than

50 college graduates, reflecting the firms

commitment to building from within.

In 2001, BlackRock will continue to

focus on its overriding objective deliver-ing superior investment performance and

exceptional service to its clients while

pursuing strategies to build on its core

strengths and selectively expand the firms

expertise and breadth of distribution.

BL A C KRO C K

BLACKROCKSOLUTIONS

Since its founding, BlackRock has invested

substantial resources in the development

of proprietary analytics and technology toenhance its investment process and operating

efficiency. The resulting industry-leading

capabilities are unique in their integration of

sophisticated risk analytics with a comprehensive

trading systemthat features straight-through,

paperless processing of the firms investment

operations. Since 1994, BlackRock has selectively

met client requests for access to these

services, and has reinvested the revenue generatedfromthese assignments to further refine and

enhance its analytics and systems. In August 2000,

BlackRock announced that these services would

be offered to a broader universe of institutional

investors under the name BlackRock Solutions,

building in 2001 on a year-end base of over

$1.37 trillion in assets under risk management.

27

ne of the nations premier investment

management companies, BlackRock

offers a full range of investment products

through individually managed accounts

and mutual funds, including its flagship

fund families, BlackRock Fundsand

BlackRock Provident Institutional Funds.

ThroughBlackRock Solutions, the firmalso offers sophisticated risk management

and investment technology services to

large institutional investors.

BlackRock delivered exceptional

returns for shareholders in its first full

year as a public company (NYSE: BLK).

The firms financial performance was

strong, with revenue, operating income

OAS S E T S UN D E RMA N A G E M E N T

(in billions)

$131

98 99 00

$165

$204



FPC provides a wide range of global fund

services to the investment managementindustry, including mutual funds, alterna-

tive investments and retirement plans.

This member of The PNC Financial

Services Group is the nations largest

full-service mutual fund transfer agent

and second largest provider of mutual

fund accounting and administration

services. PFPC now services $1.3 trillion

in total fund accounting and administra-

tion, transfer agency and custody assets

and is a leading provider of retirement,

custody, subaccounting and alternative

investment services.

By implementing a number of

initiatives to expand its reach and diversify

its revenue stream, PFPC has achieved

strong earnings growth and continues

to strengthen its leadership position in

servicing the funds marketplace.The integration of Investor Services

Group (ISG), which PFPC acquired in

December 1999, continued on schedule.

The addition of ISG greatly enhances

PFPCs transfer agency and retirement

services capabilities, and this acquisition

became accretive to PNCs earnings in

the fourth quarter of 2000.

PFPC also continued its expansion

in the European market with the openingof its Luxembourg office and planning is

well underway to open a second office in

Ireland in 2001. From its overseassites,

PFPC provides accounting and administra-

tion for $9.4 billion in assets.

PFPC undertook other initiatives

to broaden its range of capabilities,

including acquiring Automated Business

Development Corp., a leading provider of

blue sky compliance services. PFPC also

leveraged its sophisticated technology

platform to enhance the innovative

solutions it offers clients.

In January 2001, PFPC signed a

nonbinding letter of intent with three

mutual fund providers, Fidelity Investments,

Franklin Templeton and PutnamInvestments,

to create a multi-functional, Web-based

portal for financial intermediaries. And

PFPC also introduced an electronic trade

interface systemto help clients comply withcompressed settlement deadlines.

PFPC is well positioned to build

on the growth it has achieved. In 2001,

key areas of focus include enhancing

its Web-based products and services to

meet the needs of its growing client

base, furthering European expansion and

continuing the integration of ISG.

EUROPEAN EXPANSION

The opening of PFPCs newest office in

Luxembourg is yet another step to strategically

position the business to capitalize on

the growth anticipated in Europes financial

services market. Luxembourg is a major

financial center catering to the offshore funds

marketplace. Luxembourg-based funds are

required to maintain their central administration

within the nations boundaries, a restriction that

offers growth opportunities for services firms with

local operations. The office complements

PFPCs existing global fund servicing operations

in Dublin and Grand Cayman. Combined,

these operations provide accounting and adminis-

tration services for approximately

$9.4 billion in assets.

P

P F P C

28

SH A R E H O L D E RAC C O U N T S

(in millions)

2.7

98 99 00

34.1*

42.5

*Increase reflectsISG acquisition



A premier providerof fund services

worldwide



PE R F O R M A N C E AWA R D

The strength of our financial performance

which is reflected in the following

pages is founded on the commitment

and dedication of more than 26,000

PNC employees. Their thinking is

the foundation of our performance for

customers and shareholders. In 2000,

we recognized 10 of these employeesas winners of the PNC Performance

Award our highest honor. Their

extraordinary performance reflects a

deep understanding of the needs,

values and aspirations of customers,

fellow employees, communities and

shareholders that lies at the heart of

everything we do.

2000 PE R F O R M A N C EAWA R D WI N N E R S

J O H N L. J A C K HA L L

Community Banking

EH A B HA M M A D

Community Banking

DO N N A L. HA M M E L

Community Banking

DE N N I S K. HAYA S H I

Corporate Banking

ALV E N A HE R A L D

Corporate Banking

RO B E R T LE I N I N G E R

Community Banking

GE R A R D GE R RY ME Y E R

Technology & ProcessingServices

KA R E N S. MO R G A N

Community Banking

AR L E N E M. OH L E R

Corporate Banking

J O S E P H W. CH I P SE I D L

PNC Advisors

30



BO A R D O F DI R E C T O R S

31

PA U L W. CH E L L G R E N (2,3,5)

Chairman andChief Executive Officer

Ashland Inc.(energy company)

Chairman, Finance Committee

Director since 1995

RO B E R T N. CL AY(3,5)

President andChief Executive Officer

Clay Holding Company(investments)

Director since 1987

GE O R G E A. DAV I D S O N, J R. (2,4,6)

Retired Chairman

Dominion Resources, Inc.(public utility holdingcompany)

Chairman, Committee onCorporate Governance

Director since 1988

DAV I D F. GI R A R D-D I CA R L O (1,6)

Co-Chairman andManaging Partner

Blank Rome Comisky &McCauley LLP(law firm)

Director since 1995

J A N E G. PE P P E R (1,4)

President

PennsylvaniaHorticultural Society(nonprofit horticulturalmembership organization)

Director since 1997

JACKSON H. RANDOLPH (1,4)

Chairman Emeritus

Cinergy Corp.

(public utility holdingcompany)

Director since 1988

J A M E S E. RO H R (2,6)


The PNC Financial ServicesGroup, Inc.

Director since 1989

RO D E R I C H. RO S S(4,6)

Retired Vice Chairman andChief Executive Officer

Keystone State LifeInsurance Company(insurance company)

Director since 1979

LO R E N E K. ST E F F E S

Vice PresidentSoftware Services andSoftware Group

Pittsburgh Site Executive

IBM Corporation(consulting, education andtraining software services)

Director since 2000

WA LT E R E. GR E G G, J R. (2,3)

Vice Chairman

The PNC Financial ServicesGroup, Inc.

Director since 1998

WI L L I A M R. J O H N S O N(5)

Chairman, President andChief Executive Officer

H.J. Heinz Company(food products company)

Director since 1997

BR U C E C. LI N D S AY(1,3)

Chairman andManaging Director

Brind-Lindsay & Co., Inc.(consulting company)

Director since 1995

W. CR A I G MCCL E L L A N D (2,5,6)

Retired Chairman andChief Executive Officer

Union Camp Corporation(paper manufacturing andland resources)

Chairman, Credit Committee

Director since 1985

TH O M A S H. OBR I E N(2,3)

Chairman

The PNC Financial Services

Group, Inc.Chairman,Executive Committee

Director since 1983

TH O M A S J . US H E R(2,4,5)

Chairman andChief Executive Officer

USX Corporation(energy, steel anddiversified business)

Chairman, Personnel andCompensation Committee

Director since 1992

MI LT O N A. WA S H I N G T O N(5,6)


Allegheny HousingRehabilitation Corporation(housing rehabilitation andconstruction)

Director since 1994

HE L G E H. WE H M E I E R (1,2,4)


Bayer Corporation

(healthcare, life sciences andchemicals)

Chairman, Audit Committee

Director since 1992

Committees:

1 Audit

2 Executive

3 Finance

4 Corporate Governance

5 Personnel and Compensation

6 Credit

*

*

*Retiring as of April 24, 2001



The PNC Financial

Services Group, Inc.

One PNC Plaza

249 Fifth AvenuePittsburgh, PA 15222-2707



32

TA B L E O F CO N T E N T SThe PNC Financial Services Group, Inc.

FI N A N C I A L RE V I E W

33 Selected ConsolidatedFinancial Data

34 Overview

35 Review of Businesses

37 Community Banking

38 Corporate Banking

39 PNC Real Estate Finance

40 PNC Business Credit

41 PNC Advisors42 BlackRock

43 PFPC

44 Consolidated IncomeStatement Review

46 Consolidated BalanceSheet Review

48 Risk Factors

49 Risk Management

56 1999 Versus 1998

58 Forward-LookingStatements

RE P O RT S O N

CO N S O L I D AT E D

FI N A N C I A L STAT E M E N T S

59 Managements Responsibilityfor Financial Reporting

59 Report of Ernst & YoungLLP, Independent Auditors

72 NOTE 12 Securitizations

73 NOTE 13 Deposits

73 NOTE 14 BorrowedFunds

73 NOTE 15 CapitalSecurities of Subsidiary

Trusts

73 NOTE 16 Shareholders Equity

74 NOTE 17 RegulatoryMatters

75 NOTE 18 FinancialDerivatives

76 NOTE 19 EmployeeBenefit Plans

78 NOTE 20 Stock-BasedCompensation Plans

79 NOTE 21 Income

Taxes80 NOTE 22 Segment

Reporting

82 NOTE 23 EarningsPer Share

83 NOTE 24 Comprehensive Income

83 NOTE 25 Litigation

83 NOTE 26 Fair Valueof FinancialInstruments

84 NOTE 27 UnusedLine of Credit

85 NOTE 28 ParentCompany



60 Consolidated Statementof Income

61 Consolidated BalanceSheet

62 Consolidated Statementof Shareholders Equity

63 Consolidated Statementof Cash Flows

NO T E S T O



64 NOTE 1 AccountingPolicies

68 NOTE 2 DiscontinuedOperations

68 NOTE 3 Sale ofSubsidiary Stock

69 NOTE 4 Cash Flows

69 NOTE 5 TradingActivities

69 NOTE 6 SecuritiesAvailable for Sale

70 NOTE 7 Loans andCommitments to ExtendCredit

71 NOTE 8 Nonperforming Assets

72 NOTE 9 Allowance forCredit Losses

72 NOTE 10 Premises,

Equipment and LeaseholdImprovements

72 NOTE 11 Goodwill andOther Amortizable Assets

STAT I S T I C A L

IN F O R M AT I O N

86 Selected QuarterlyFinancial Data

87 Analysis of Year-to-YearChanges in Net InterestIncome

88 Average ConsolidatedBalance Sheet and NetInterest Analysis

90 Allowance for Credit Losses

91 Short-Term Borrowings

91 Loan Maturities andInterest Sensitivity

91 Time Deposits of $100,000or More



FI N A N C I A L RE V I E WThe PNC Financial Services Group, Inc.

SE L E C T E D CO N S O L I D AT E D FI N A N C I A L DATA

Year ended December 31

Dollars in millions, except per share data 2000 1999 1998 1997 1996SU M M A RY O F OP E R AT I O N SInterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,732 $4,583 $5,024 $4,912 $4,812Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,568 2,239 2,536 2,467 2,413Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . 2,164 2,344 2,488 2,445 2,399Provision for credit losses . . . . . . . . . . . . . . . . . . . . . 136 163 225 70Noninterest income before net securities gains . . . . . . 2,871 2,428 2,070 1,583 1,217Net securities gains . . . . . . . . . . . . . . . . . . . . . . . . . . 20 22 16 40 22Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . 3,071 2,843 2,698 2,403 2,112Income fromcontinuing operations before income taxes . 1,848 1,788 1,651 1,595 1,526Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634 586 571 557 535Income fromcontinuing operations . . . . . . . . . . . . . . 1,214 1,202 1,080 1,038 991Income fromdiscontinued operations . . . . . . . . . . . . . 65 62 35 14 1Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,279 $1,264 $1,115 $1,052 $992

PE R CO M M O N SH A R E DATABasic earnings

Continuing operations . . . . . . . . . . . . . . . . . . . . . . $4.12 $3.98 $3.53 $3.29 $2.91Discontinued operations . . . . . . . . . . . . . . . . . . . . .23 .21 .11 .04Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.35 4.19 3.64 3.33 2.91

Diluted earningsContinuing operations . . . . . . . . . . . . . . . . . . . . . . 4.09 3.94 3.49 3.24 2.88Discontinued operations . . . . . . . . . . . . . . . . . . . . .22 .21 .11 .04Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.31 4.15 3.60 3.28 2.88

Diluted cash earnings (a)Continuing operations . . . . . . . . . . . . . . . . . . . . . . 4.48 4.21 3.70 3.40 3.02Discontinued operations . . . . . . . . . . . . . . . . . . . . .22 .21 .12 .05 .02Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.70 4.42 3.82 3.45 3.04

Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.88 19.23 18.86 16.87 17.13Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . 1.83 1.68 1.58 1.50 1.42

BA L A N C E SH E E T HI G H L I G H T S(at December 31) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $69,844 $69,286 $70,754 $71,694 $71,312Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,373 60,268 63,547 63,798 64,028Loans, net of unearned income . . . . . . . . . . . . . . . . . 50,601 49,673 57,633 54,235 51,791Securities available for sale . . . . . . . . . . . . . . . . . . . . 5,902 5,960 4,472 8,040 11,512Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,655 3,477 467 18 40Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,664 45,802 46,150 46,956 45,043Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,718 14,229 15,939 16,958 18,345Shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . 6,656 5,946 6,043 5,384 5,869Common shareholders equity . . . . . . . . . . . . . . . . . . 6,344 5,633 5,729 5,069 5,553

SE L E C T E D RAT I O S . . . . . . . . . . . . . . . . . . . . . . .From Continuing Operations . . . . . . . . . . . . . . . .Return on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Average common shareholders equity . . . . . . . . . . 20.52% 21.29% 20.14% 19.74% 17.15%Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.76 1.76 1.55 1.52 1.44

Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . 3.64 3.86 3.99 3.98 3.85Noninterest income to total revenue . . . . . . . . . . . . . . 56.99 50.87 45.35 39.61 33.73

Efficiency (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56.85 55.54 54.81 55.33 55.87From Net IncomeReturn on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Average common shareholders equity . . . . . . . . . . 21.63 22.41 20.81 20.01 17.18Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.68 1.69 1.49 1.49 1.40

Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . 3.37 3.68 3.85 3.94 3.83Noninterest income to total revenue . . . . . . . . . . . . . . 59.28 52.79 46.97 41.29 35.68Efficiency (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55.17 54.82 54.76 56.07 56.95Dividend payout . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.06 40.22 43.43 45.39 48.89Leverage (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.03 6.61 7.28 7.30 7.70Common shareholders equity to assets . . . . . . . . . . . 9.08 8.13 8.10 7.07 7.79Average common shareholders equity to average assets 8.44 8.13 7.56 7.57 8.32

(a) Excludes amortization of goodwill.(b) Excludes amortization and distributions on capital securities.

(c) Excludes amortization, distributions on capital securities and residential mortgage banking risk management activities. 33



This Financial Review should be read in conjunction with

The PNC Financial Services Group, Inc. and subsidiaries

(Corporation or PNC) Consolidated Financial State-

ments and Statistical Information included herein. For

information regarding business risks, see the Risk Manage-

ment and Risk Factors sections in this Financial Review.

Also, see the Forward-Looking Statements section in this

Financial Review for other factors that could cause actual

results to differ materially fromforward-looking statements

or historical performance.

OV E RV I E W

TH E PNC FI N A N C I A L SE RV I C E S GR O U P, IN C.

The Corporation is one of the largest diversified financial

services companies in the United States, operating commu-

nity banking, corporate banking, real estate finance, asset-

based lending, wealth management, asset management and

global fund services businesses. The Corporation provides

certain products and services nationally and others in PNCsprimary geographic markets in Pennsylvania, New Jersey,

Delaware, Ohio and Kentucky. The Corporation also pro-

vides certain products and services internationally.

Financial services organizations today are challenged

to demonstrate that they can generate sustainable and con-

sistent earnings growth in an increasingly competitive and

volatile environment. PNC has responded to these chal-

lenges by aggressively pursuing strategies designed to

achieve more consistent results. These strategies include

repositioning leverage-based businesses and improving the

earnings streamby building a diverse group of higher-valuation businesses. Increasing contributions fromgrowth

businesses, including asset management and processing and

the fee-based segments within PNCs banking franchise, have

strengthened the Corporations revenue and earnings mix. In

addition, the Corporation seeks to enhance consolidated

value by leveraging technology, information, branding, mar-

keting and financial resources across all businesses.

As a result of these strategies, PNCs financial charac-

teristics have changed significantly over the past five years.

Noninterest income grew 23% annualized during this time

period while net interest income decreased by approximately$300 million and total assets declined by $3.4 billion.

Noninterest income to total revenue increased from36% in

1996 to 59% in 2000. The loan to deposit ratio improved

from113% to 106% as a result of exiting lower-return lend-

ing businesses, while growing the deposit franchise. Over

this period, return on average common shareholders equity

improved from17%to 22%.

As part of this transition, the Corporation implemented

a number of initiatives designed to improve the risk/return

characteristics of its lending businesses. These included the

sale of the credit card business and exiting or downsizing

certain non-strategic lending businesses.

On October 2, 2000, PNC announced that it reached a

definitive agreement to sell its residential mortgage banking

business. The capital made available by the sale will be

redeployed in a number of ways, which may include repur-

chasing common stock, continuing to reduce balance sheet

leverage, reducing debt and making targeted investments in

higher-growth businesses. The amount of capital available

for redeployment and the income statement impact of the

sale will depend on fair market values and other factors,

and will not be determined until final settlement. The trans-

action closed on January 31, 2001.

PNC also expanded its fee-based services by acquiring

Investor Services Group (ISG) in December 1999. The

combination of ISG with PFPC, the Corporations global

fund services subsidiary, created one of the nations leading

full-service processors for pooled investment products.

Other strategic acquisitions during 2000 included

Automated Business Development Corp. (ABD), the lead-

ing provider of blue sky compliance services to the mutual

fund industry, Univest Financial Group LLC (Univest), a

privately held provider of technology and data management

services to the commercial real estate finance industry, and

the origination and servicing business of U.B. Vehicle

Leasing Inc.

SU M M A RY FI N A N C I A L RE S U LT S

Consolidated net income for 2000 was $1.279 billion or

$4.31 per diluted share, a 10% increase compared with

core earnings per diluted share for 1999. Return on average

common shareholders equity was 21.63% and return on

average assets was 1.68% for 2000 compared with core

returns of 21.24% and 1.60%, respectively, a year ago.

Cash earnings per diluted share, which exclude goodwill

amortization, were $4.70 for 2000, a 12% increase com-

pared with core cash earnings per diluted share a year ago.

Core earnings for the prior year exclude one-time gains that

were partially offset by the cost of certain strategic initia-

tives. Reported earnings for 1999 were $1.264 billion or

$4.15 per diluted share.

The residential mortgage banking business is reflected

in discontinued operations throughout the Corporations

consolidated financial statements. Accordingly, the earnings

and net assets of the residential mortgage banking business

are shown separately on one line in the income statement

and balance sheet, respectively, for all periods presented.

34



EF F E C T O F DI S C O N T I N U E D OP E R AT I O N S

Year ended December 31 2000 1999 1999Dollars in millions, except per share data Reported Core Reported

Income fromcontinuing

operations . . . . . . . . . . . . . . $1,214 $1,137 $1,202

Discontinued operations . . . . . . 65 62 62

Total net income . . . . . . . . . . $1,279 $1,199 $1,264

Diluted EPS continuingoperations . . . . . . . . . . . . . . $4.09 $3.72 $3.94

Discontinued operations . . . . . . .22 .21 .21

Total diluted EPS . . . . . . . . . $4.31 $3.93 $4.15

Cashdiluted EPS continuingoperations (a) . . . . . . . . . . . . $4.48 $4.00 $4.21

Discontinued operations (a) . . . .22 .21 .21

Total cash diluted EPS (a) . . . $4.70 $4.21 $4.42

(a) Excludes amortization of goodwill

The remainder of the discussion and information in this

Financial Review reflects continuing operations, unless

otherwise noted.

Earnings fromcontinuing operations for 2000 of

$1.214 billion or $4.09 per diluted share increased 10%

compared with core earnings per diluted share for 1999.

Taxable-equivalent net interest income was $2.182bil-

lion for 2000, a $184 million decrease compared with 1999.

The net interest margin was 3.64% for 2000 compared with

3.86% for 1999. The decreases were primarily due to fund-

ing costs related to the ISG acquisition, changes in balance

sheet composition and a higher interest rate environment

in 2000.

The provision for credit losses was $136 million for

2000 and net charge-offs were $135 million or .27% of

average loans. The provision for credit losses was $163mil-

lion and net charge-offs were $161 million or .31%of aver-

age loans in 1999. The decreases were primarily due to the

sale of the credit card business in the first quarter of 1999,

partially offset by higher commercial net charge-offs

in 2000.

Noninterest income of $2.891 billion for 2000 increased

28% compared with 1999, excluding non-core items from

the prior year, and represented 57% of total revenue. The

increase was primarily driven by strong growth in certain

fee-based businesses, the impact of the ISG acquisition and

higher equity management income. Excluding ISG, noninter-

est income increased 13% compared with the prior year.

Noninterest expense was $3.071 billion and the effi-

ciency ratio was 57% in 2000 compared with $2.703billion

and 55%, respectively, in 1999, excluding non-core items.

The increases were primarily due to the ISG acquisition.

Excluding ISG, noninterest expense increased 2% com-

pared with the prior year.

Total assets were $69.8 billion at December 31, 2000

compared with $69.3 billion at December 31, 1999.

Average earning assets were $59.9 billion for 2000 com-

pared with $61.3 billion for 1999. Average earning assets

declined primarily due to a decrease in loans that resulted

fromthe downsizing and exiting of certain non-strategic

lending businesses.

Shareholders equity totaled $6.7 billion at

December 31, 2000. The regulatory capital ratios were

8.03% for leverage, 8.60% for tier I risk-based and

12.57%for total risk-based capital. During 2000, PNC

repurchased 6.7 million shares of common stock.

The ratio of nonperforming assets to total loans, loans

held for sale and foreclosed assets was .71% at December 31,

2000 compared with .61% at December 31, 1999.

Nonperforming assets were $372 million at December 31,

2000 compared with $325 million at December 31, 1999.

The increase was primarily due to higher commercial non-

performing loans partially offset by lower commercial real

estate and residential mortgage nonperforming loans.

The allowance for credit losses was $675 million and

represented 1.33% of total loans and 209% of nonaccrual

loans at December 31, 2000. The comparable ratios were

1.36% and 232%, respectively, at December 31, 1999.

RE V I E W O F BU S I N E S S E S

PNC operates seven major businesses engaged in communi-

ty banking, corporate banking, real estate finance, asset-

based lending, wealth management, asset management and

global fund services: Community Banking, Corporate

Banking, PNC Real Estate Finance, PNC Business Credit,

PNC Advisors, BlackRock and PFPC.

Business results are presented based on PNCs man-

agement accounting practices and the Corporations

management structure. There is no comprehensive, authori-tative body of guidance for management accounting equiva-

lent to generally accepted accounting principles; therefore,

PNCs business results are not necessarily comparable with

similar information for any other financial services institu-

tion. Financial results are presented, to the extent practica-

ble, as if each business operated on a stand-alone basis.

35



The presentation of business results was changed to

reflect the Corporations operating structure during 2000.

Middle market and equipment leasing activities (previously

included in Community Banking) are reported in Corporate

Banking. In addition, PNC Real Estate Finance and PNC

Business Credit are reported separately within PNC

Secured Finance. Regional real estate lending activities

(previously included in Community Banking) are reported

in PNC Real Estate Finance. Business financial results for

2000 and 1999 are presented consistent with this structure.

The management accounting process uses various bal-

ance sheet and income statement assignments and trans-

fers to measure perfo rmance of the businesses.

Methodologies change fromtime to time as management

accounting practices are enhanced and businesses change.

Securities or borrowings and related net interest income

a re assigned based on the net asset or liability position of

each business. Capital is assigned based on managements

assessment of inherent risks and equity levels at indepen-

dent companies providing similar products and servic es .

The allowance for credit losses is allocated to the busi-

nesses based on managements assessment of risk inhere n t

in the loan portfolios. Support areas not directly aligned

with the businesses are allocated primarily based on the

utilization of serv ic e s .

Total business financial results differ fromconsolidated

results fromcontinuing operations primarily due to differ-

ences between management accounting practices and gen-

erally accepted accounting principles, divested and exited

businesses, equity management activities, minority inter-

ests, residual asset and liability management activities,

eliminations and unassigned items, the impact of which is

reflected in the Other category. The results of the residen-

tial mortgage banking business, previously PNC Mortgage,

are included in results fromdiscontinued operations.

RE S U LT S O F BU S I N E S S E S

Revenue Return on

Earnings (taxable-equivalent basis) Assigned Capital Average Assets

Year ended December 31 dollars in millions 2000 1999 2000 1999 2000 1999 2000 1999

PNC Bank

Community Banking . . . . . . . . . . . . . $590 $543 $2,033 $1,968 22% 21% $38,958 $37,502

Corporate Banking . . . . . . . . . . . . . . 244 246 839 745 20 21 16,382 15,587

Total PNC Bank . . . . . . . . . . . . . . 834 789 2,872 2,713 22 21 55,340 53,089

PNC Secured Finance

PNC Real Estate Finance . . . . . . . . . 82 74 220 212 21 19 5,506 5,554

PNC Business Credit . . . . . . . . . . . . 49 29 119 82 32 25 2,271 1,759

Total PNC Secured Finance . . . . . 131 103 339 294 24 20 7,777 7,313

Asset ManagementPNC Advisors . . . . . . . . . . . . . . . . . 173 147 792 738 32 27 3,500 3,353

BlackRock . . . . . . . . . . . . . . . . . . . . 87 59 477 381 27 36 537 448

PFPC . . . . . . . . . . . . . . . . . . . . . . . . 47 45 690 264 22 40 1,578 308

Total Asset Management . . . . . . . . 307 251 1,959 1,383 28 30 5,615 4,109

Total businesses . . . . . . . . . . . . . . . . 1,272 1,143 5,170 4,390 23 23 68,732 64,511

Other . . . . . . . . . . . . . . . . . . . . . . . . (58) (6) (97) 227 (241) 3,403

Results fromcontinuing operations core 1,214 1,137 5,073 4,617 21 20 68,491 67,914

Gain on sale of credit card business . . . . 125 193

Gain on sale of equity interest in EPS . . . 63 97

BlackRock IPO gain . . . . . . . . . . . . . . . 59 64

Branch gains . . . . . . . . . . . . . . . . . . . . . 17 27

Gain on sale of Concord stock net ofPNC Foundation contribution . . . . . . . 16 41

Wholesale lending repositioning . . . . . . . (126) (195)

Costs related to efficiency initiatives . . . . (64)

Write-down of an equity investment . . . . (18) (28)

Mall ATM buyout . . . . . . . . . . . . . . . . . (7)

Results fromcontinuing operations

reported . . . . . . . . . . . . . . . . . . . . . . 1,214 1,202 5,073 4,816 21 21 68,491 67,914

Results fromdiscontinued operations . . 65 62 307 384 13 14 487 449

Total consolidated reported . . . . . . $1,279 $1,264 $5,380 $5,200 22 22 $68,978 $68,363

36



CO M M U N I T Y BA N K I N G


Dollars in millions 2000 1999

IN C O M E STAT E M E N T

Net interest income . . . . . . . . . . . . . $1,414 $1,418

Noninterest income . . . . . . . . . . . . . 619 550

Total revenue . . . . . . . . . . . . . . . 2,033 1,968

Provision for credit losses . . . . . . . . 45 61

Noninterest expense . . . . . . . . . . . . 1,071 1,057

Pretax earnings . . . . . . . . . . . . . . 917 850

Income taxes . . . . . . . . . . . . . . . . . . 327 307

Earnings . . . . . . . . . . . . . . . . . . . $590 $543

AV E R A G E BA L A N C E SH E E T

Loans

Consumer

Home equity . . . . . . . . . . . . . . $5,419 $5,176

Indirect . . . . . . . . . . . . . . . . . . 1,215 1,945

Education . . . . . . . . . . . . . . . . 102 849

Other consumer . . . . . . . . . . . . 795 727

Total consumer . . . . . . . . . . 7,531 8,697

Commercial . . . . . . . . . . . . . . . . . 3,649 3,708

Residential mortgage . . . . . . . . . . 11,619 11,285

Other . . . . . . . . . . . . . . . . . . . . . 1,466 1,254

Total loans . . . . . . . . . . . . . . . . 24,265 24,944

Securities available for sale . . . . . . . 5,539 5,735

Loans held for sale . . . . . . . . . . . . . 1,297 510

Assigned assets and other assets . . . 7,857 6,313

Total assets . . . . . . . . . . . . . . . . . $38,958 $37,502

Deposits

Noninterest-bearing demand . . . . $4,548 $5,000

Interest-bearing demand . . . . . . . 5,428 4,894

Money market . . . . . . . . . . . . . . . 10,253 8,990

Savings . . . . . . . . . . . . . . . . . . . . 1,992 2,328

Certificates . . . . . . . . . . . . . . . . . 13,745 13,280

Total deposits . . . . . . . . . . . . . 35,966 34,492

Other liabilities . . . . . . . . . . . . . . . . 363 479

Assigned capital . . . . . . . . . . . . . . . 2,629 2,531

Total funds . . . . . . . . . . . . . . . . . $38,958 $37,502

PE R F O R M A N C E RAT I O S

Return on assigned capital . . . . . . . 22% 21%

Noninterest income to total revenue . . 30 28

Efficiency . . . . . . . . . . . . . . . . . . . . 51 52

Community Banking provides deposit, branch-based broker-

age, electronic banking and credit products and services to

retail customers as well as credit, treasury management and

capital markets products and services to small businesses

primarily within PNCs geographic region.

Community Bankings strategic focus is on driving sus-

tainable revenue growth while aggressively managing the

revenue/expense relationship. Community Banking utilizes

knowledge-based marketing capabilities to analyze cus-

tomer demographic information, transaction patterns and

delivery preferences to develop customized banking pack-

ages focused on improving customer satisfaction and

profitability.

Community Banking has also invested heavily in build-

ing a sales culture and infrastructure while improving effi-

ciency. Capital investments have been strategically directed

towards the expansion of multi-channel distribution, consis-

tent with customer preferences, as well as the delivery of

relevant customer information to all distribution channels.

Community Banking contributed 46% of total business

earnings for 2000 compared with 48% for 1999. Earnings

increased $47 million or 9% to $590 million for 2000 and

the noninterest income to total revenue and efficiency ratios

improved. Excluding the impact of downsizing the indirect

automobile lending portfolio and the sale of certain branch-

es in the third quarter of 1999, earnings increased 11% in

the comparison.

Total revenue was $2.033 billion for 2000 compared

with $1.968 billion for 1999. The increase was primarily

due to a $69 million or 13% increase in noninterest income

that was driven by higher consumer transaction volume.

The provision for credit losses for 2000 decreased

$16million or 26% compared with the prior year. The

decrease was primarily due to lower net charge-offs related

to the downsizing of the indirect automobile lending

portfolio.

Consumer loans declined in the comparison primarily

due to the continued downsizing of the indirect automobile

lending portfolio and the decision to sell education loans in

repayment, which are included in loans held for sale. There

was a shift fromnoninterest-bearing demand deposits to

interest-bearing demand deposits due to strategies designed

to increase customer satisfaction and retention. Money mar-

ket deposits increased $1.3 billion or 14% primarily due to

successful consumer marketing initiatives.

37



CO R P O R AT E BA N K I N G


Dollars in millions 2000 1999

IN C O M E STAT E M E N T

Credit-related revenue . . . . . . . . . . . $406 $372

Noncredit revenue . . . . . . . . . . . . . . 433 373

Total revenue . . . . . . . . . . . . . . . 839 745

Provision for credit losses . . . . . . . . 79 16

Noninterest expense . . . . . . . . . . . . 384 360

Pretax earnings . . . . . . . . . . . . . . 376 369

Income taxes . . . . . . . . . . . . . . . . . . 132 123

Earnings . . . . . . . . . . . . . . . . . . . $244 $246

AV E R A G E BA L A N C E SH

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