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2000 AN N U A L RE P O R T
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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
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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.
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TheThinking
BehindThe Money
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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
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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%
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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
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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
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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%
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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
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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
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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
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Customer
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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
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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%
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An insightful
providerto smallbusinesses and
consumers
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A full rangeof financial
servicesfor corporate
clients
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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
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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
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Innovativesolutions for thecommercialreal estate market
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A national
leaderin asset-basedlending
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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
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Superior
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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
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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
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Investment
expertise
when and where
you need it
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World classsolutions forinstitutional investors
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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
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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
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A premier providerof fund services
worldwide
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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
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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)
President andChief Executive Officer
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)
President andChief Executive Officer
Allegheny HousingRehabilitation Corporation(housing rehabilitation andconstruction)
Director since 1994
HE L G E H. WE H M E I E R (1,2,4)
President andChief Executive Officer
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
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The PNC Financial
Services Group, Inc.
One PNC Plaza
249 Fifth AvenuePittsburgh, PA 15222-2707
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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
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
60 Consolidated Statementof Income
61 Consolidated BalanceSheet
62 Consolidated Statementof Shareholders Equity
63 Consolidated Statementof Cash Flows
NO T E S T O
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
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
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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
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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.
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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.
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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
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CO M M U N I T Y BA N K I N G
Year ended December 31
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.
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CO R P O R AT E BA N K I N G
Year ended December 31
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