William H. Callihan - Director of IR James E. Rohr - Chairman and CEO Richard J. Johnson - CFO

Matthew O’Connor - UBS Michael Mayo - Deutsche Bank Securities Collyn Gilbert - Stifel Nicolaus & Company, Inc. Betsy Graseck - Morgan Stanley Edward Najarian - Merrill Lynch

Good morning. My name is Celissa, and I will be your conference facilitator today. At this time, I would like to welcome everyone to The PNC Financial Services Group Second Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. As a reminder, this call is being recorded. I will now turn the conference over to the Director of Investor Relations, Mr. Bill Callihan. Sir, please go ahead. William H. Callihan - Director of Investor Relations: Thank you and good morning. Welcome to today's conference call for The PNC Financial Services Group. Participating on this call will be PNC's Chairman and Chief Executive Officer, Jim Rohr; and Rick Johnson, the company's Chief Financial Officer. The following statements contain forward-looking information. Actual results and future events could differ possibly materially from those that we anticipated in our statements and from our historical performance due to a variety of factors, including those described in today's conference call, in our earnings release and related materials, and in our 10-K, 10-Q and various other SEC reports available on our corporate website. These statements speak only as of July 17, 2008 and PNC undertakes no obligation to update them. We also provide details of reconciliation to GAAP and non-GAAP financial measures we may discuss in today's conference call, in our earnings release, and financial supplement, in our presentation slides, appendix of this call, and various SEC reports and other documents. These are all available on our corporate website at pnc.com in the Investor Relations section. And now I'd like to turn the call over to Jim Rohr. James E. Rohr - Chairman and Chief Executive Officer: Thank you, Bill, and good morning everyone and thank you for joining us today. We are very pleased to be reporting what we believe is an excellent quarter for PNC, particularly in such a challenging environment. Before Rick and I get into the details, let me start by saying that we’ve always believed that at some point in the future, every company will meet its balance sheet. In recent years you’ve been able to syndicate or sell all types of products and assets, but this hasn't come to pass. And clearly the recognition today is that past decisions eventually become apparent in the company's financial results. We at PNC, we’ve always managed the company for the long term. Our focus has been on positioning our balance sheet, emphasizing risk-adjusted returns. We feel the results of these efforts are apparent in today's earnings performance and this gives us the strength to continue to invest in our businesses and grow our customer relationships, which is working very well. During this call, Rick and I will review our second quarter earnings results and I will close by discussing our plans for growth, but we are changing the presentation a bit. And Rick will give you more detail about our balance sheet, which I think is most appropriate in this environment. And this is a strong quarter financially for us and we are very pleased with our performance, and we are optimistic about the rest of the year. During the quarter, we continued to grow our business, as evidenced by gains in customers along with average loans and deposits. We posted strong year-over-year revenue growth, while managing expenses resulting in positive operating leverage. When we look at our balance sheet, we are uniquely liquid and we are very liquid with an excellent loan-to-deposit ratio. And I think that will enable us to continue to support our customer growth. Rick will review this in some detail. Our asset quality while it deteriorated as we had indicated before, it continues to reflect our disciplined approach, and the results demonstrate that our portfolio remain manageable even in this challenging environment. Moving on to net interest income, as we had told you we generated strong growth as our team met our balance sheet wealth position to take advantage of the Federal Reserve rate reductions with high-quality assets. We also saw the resulting significant improvement in our net interest margin. Capital, which is important in this environment, is we are also well capitalized. In spite of the fact that we closed our Sterling acquisition in April, we’ve subsequently strengthened our Tier 1 capital position in the quarter through non-dilutive issuances and retained earnings and our Tier 1 is now over 8%. And also, our trading results improved and at the same time we reduced our trading risk profile as well. We reduced our commercial mortgage loans held for securitization by more than 20% in the quarter and reduced our proprietary trading position. The current economy, we believe, is very difficult. We actually have two economies. We have some sectors such as technology, exporting, commodities, healthcare that are doing very well while banking, housing, automotive, and related sectors are struggling. We believe those struggles will continue for some time. And I think quite frankly because we think we're in a slow growth environment, we can't predict the outcome, we’ll remain focused on maintaining a moderate risk profile. But we have strategies in place to grow PNC driven by strong and experienced leadership team and we are pleased with what that’s done for our second quarter results. In this environment, we recognize that there are opportunities to expand market share and enhance customer relationships probably uniquely as I look forward… as I look into the past. We've grown loan-to-deposits and we have aggressive plans to continue those trends. Additionally, we’re investing in our markets and our products and we believe that that will drive continued customer and revenue growth. I'll add more color around our growth plans after Rick provides you with additional details about our balance sheet and our financial results. Rick? Richard J. Johnson - Chief Financial Officer: Thank you, Jim, and good morning everyone. As Jim indicated, this was a great quarter for PNC, as we reported $505 million of net income or $1.45 of diluted earnings per share. These earnings included an after-tax gain on the mark to market of our BlackRock LTIP shares obligation and integration costs primarily related to our Sterling acquisition. Excluding these items, earnings per diluted share would have been $1.37, a very strong second quarter performance. Now here are my key messages. First, our balance sheet was well positioned for the Fed rate reductions resulting in strong net interest income and revenue growth. Second, while our asset quality continued to migrate and credit costs increased in the second quarter, the pace of this migration remained manageable. And third our capital position continued to strengthen from year-end and we continue to maintain a strong liquidity position. So, despite a challenging market, PNC delivered strong results due to our business model and the quality of our balance sheet. Now let's start with my first key message. Our liability-sensitive balance sheet was well positioned for the rapid decline in short-term rates resulting in a 70 basis point reduction in our overall cost of funds. In addition to reducing our overnight borrowing rate by 85 basis points, we’re able to make changes to our deposit pricing, reducing the overall deposit rate by 62 basis points and at the same time grow our average money market balances by more than $2 billion or an 8% increase on a linked quarter basis. This resulted in very strong net interest income growth of $123 million or 14% on a linked quarter basis. Most of this result is reflected in our other segment. We do not expect to sustain this rate of growth, however based on our economic assumptions we now expect full-year net interest income growth will exceed 28% when compared to 2007. And while we don't expect to Fed tightening in the short term, it is a risk we’ve considered in our revenue growth guidance. My second key message is a better asset quality. As Jim mentioned earlier, sooner or later you will meet your balance sheet and we like the risk-adjusted returns that our differentiated balance sheet has delivered. As you can see on Slide 4 of our presentation, our total assets are $143 billion and reflecting our moderate risk profile only 51% of our assets are loans. This ranks PNC among the lowest of our peers, which is exactly where you’d want to be at this point in the credit cycle. But before I go into our loan book, let me take a moment to describe the quality of our other assets. Our loans held for sale portfolio, which includes our commercial mortgage loans held for sale, represents only 2% of our balance sheet and is comprised of high-quality assets. In fact, we only have one small multifamily loan delinquency in our portfolio. As the CMBS markets eased modestly, we reduced our inventory by approximately $500 million during the quarter, recognizing a gain of $21 million. Our goal is to continue to reduce our positions throughout the year. However, these are high-quality assets with excellent yields, so we will remain patient in our efforts to reduce this portfolio. Our $31 billion securities book, which represents 22% of our balance sheet, is well diversified across high-quality residential mortgage, commercial mortgage, and asset-backed securities. We have no CDOs, CLOs, or CIS [ph] in the portfolio. Our focus has been to purchase relatively short-dated, higher-rated paper. We have approximately $10 billion of agency-backed holdings and our non-agency holdings have high levels of subordination and substantially all are AAA rated. In addition, we performed credit analysis on the underlying assets, including stress tests leveraging BlackRock solutions. As swap rates increased during the quarter, we did experience further losses on the portfolio due to market liquidity. However, permanent impairments have been minimal to date. Our other assets of $27 billion includes equity investments, including our investment in BlackRock, miscellaneous assets, goodwill, and other intangible assets. As you would expect in this environment, we did see some modest impairments on our equity investments in the quarter, the largest of which was an impairment in our $100 million investment in GMAC. However, across all our equity investments, we experienced only $30 million of impairments in the quarter, again a very manageable pace of asset impairment. In the current environment, we’ve recognized there is a great deal of concern about asset quality and loan portfolio performance. Our adherence to a moderate risk profile has given us a portfolio that is performing well on a relative basis even under these difficult market circumstances. Our $30 billion consumer loan portfolio was high quality and is producing strong returns. Home equity is a relationship-based book and we originated this nearly $14 billion portfolio with the intent to hold them our balance sheet. Nearly all of these loans are on our footprint and our strategy to not involve targeting the subprime market. In the second quarter, net charge-offs were only 53 basis points, which I expect will be well below our peers, but I do expect this charge-off rate to increase modestly in the periods ahead. As you can see, the 90-day delinquency rate of 44 basis points, including nonperforming loans continued to be manageable. Our $9 billion residential mortgage book is comprised mostly of seasoned jumbo loans with strong loan-to-value levels. We purchase these loans for overall balance sheet management purposes. They offered us great spreads with relatively low risk. The 90-day delinquency rate on this portfolio is 94 basis points. Excluding nonperforming loans, the delinquency rate was 39 basis points and the net charge-offs were 1 basis point. I expect these statistics will be well below our peers. Other consumer loans include education loans, automobile lending, and other consumer loans. The primary risk here is in the auto lending, as option values continued to decline in the used-car market, impacting our ultimate recovery on repossessions. Overall, net charge-offs in this portfolio were 63 basis points in the quarter, while 90-day delinquency rates, including nonperforming loans, were only 47 basis points. This portfolio has had a minor impact on our total credit migration. As you can see, the overall consumer book is performing well. Now moving to our commercial book, we have $43 billion in outstandings. Of the $34 billion in commercial loans, which include lease financing, nearly two-thirds of cash flow loans to middle market companies located mostly in our footprint. This portfolio is diversified and has performed well to date. Net charge-offs in this portfolio were 73 basis points in the second quarter and we have seen only modest increases in NPAs. Looking at commercial real estate, we have more than $7.4 billion, excluding residential real estate development. This book is diversified with no single project type greater than 18% and net charge-offs are only 78 basis points, with relatively no nonperforming assets. Our area of strength is the $2.1 billion in residential real estate development, which represents less than 2% of total assets. These loans, the majority of which are in our footprint, are very granular and the average size of these outstandings is about $1.4 million per loan. We believe this gives us greater flexibility working through these credits at lower losses. These loans are primarily located in Maryland, Virginia, Delaware, and New Jersey. Charge-offs were 1.38% in the second quarter. We have about $250 million in nonperforming assets in this class, which represents 35% of our total nonperforming assets. As expected, the pace of loans moving to nonperforming status slowed between the first and the second quarter. We do expect further growth in nonperforming assets in this category. Now, let's take a look at our overall charge-offs and reserving trends. Slide 5 shows our credit quality metrics on a consolidated basis. In this difficult market, deterioration was to be expected given that these ratios were at historically low levels. As you can see from the recent trends, our net charge-offs and reserve ratios have been manageable for us. While net charge-offs have increased, they are among the lowest in the industry. Of course, we will continue to monitor the situation as if we do expect charge-off rates to increase. However, we believe we are adequately reserved to cover these increases. Our allowance to loans has increased to 1.35% this quarter, a significant increase versus the prior quarter. We expect to continue to increase this coverage, as the market and our credit quality migration dictates. Overall, we believe our moderate risk profile and our adequacy of our reserves differentiate our balance sheet from our peers. As an aside, given the recent press on cross-border leasing, I would like to remind you all that we are fully reserved and have substantially settled all our tax and accounting risk related to this activity. Now I'd like to turn to our third key message, our capital and liquidity positions. We believe capital and liquidity are critical differentiators and as you can see on Slide 6, PNC has a strong liquidity position and a disciplined approach to capital management. As I mentioned earlier, our balance sheet continued to be highly liquid by many measures and we continue to have ample unused borrowing capacity of nearly $27 billion as of June 30th, 2008. And PNC has clearly improved its capital position during the first half of the year. We were able to increase our dividend by 5% for the second quarter; closed on the Sterling acquisition in April, which cost us approximately 35 basis points on our Tier 1 ratio; and still strengthened our Tier 1 capital position through successful non-dilutive issuances and retained earnings. At 8.1%, we are well within our targeted Tier 1 capital range of 7.5% to 8.5%. We continue… we intend to continue to work to build capital flexibility to the higher end of this range to support our customers during this period of economic uncertainty. Now let's take a look at earnings. Our revenue mix is diverse and grew in double-digit territory both year-over-year and on a linked quarter basis. I've already covered our strong net interest income growth, so let me focus on fee income. Our fee-based businesses accounted for 52% of total revenue and grew 10% linked quarter and 9% year-over-year. Now, if we exclude the impact of the LTIP obligation, which was a $40 million increase in revenues, linked quarter growth in noninterest income would have been 6%. Let me highlight a few of these. Fund servicing revenue grew 2.6% linked quarter or 11% on an annualized basis, driven primarily by our emerging products and our acquisitions of Albridge and Coates. Our asset management revenues were down linked quarter due to the loss of revenue associated with Hilliard Lyons and lower equity market values. Nevertheless, we had very strong sales in our wealth management business, particularly in new markets and growth from BlackRock. Together, consumer service fees and service charges on deposits were down from the prior quarter. Excluding $33 million of revenue related to Hilliard Lyons in the prior quarter, revenues were up 10% on a linked quarter basis primarily due to increased debit card usage, as a result of higher activation levels and the acceptance of our products and services in new markets. Corporate service revenue increased 13% linked quarter, primarily due to strong results from commercial mortgage servicing and loan syndication fees and treasury management services. Other noninterest income benefited from actions we took this quarter to mitigate risk. Our trading revenues this quarter were $53 million driven by a strong performance on our client trading activities and reflecting our lower risk positions in the proprietary book. And the gains in our commercial mortgage origination business were a positive $21 million reflecting improved markets and narrowing spreads, enabling approximately $500 million of securitizations, which substantially offset the equity investment and impairments I mentioned earlier. As these revenues illustrate, I am pleased with our product penetration with existing clients and those who are winning in our new markets. Overall, our revenue mix is producing very strong results. As you can see on Slide 9, we created positive operating leverage on a year-to-date basis. This has been accomplished with a 16% growth in revenue and a 9% growth in expenses. The 9% growth in expenses is primarily driven by investing in growth opportunities, including our acquisitions. Our success in growing revenues while continuing to manage expenses is reflected in our continuous improvement process. We think having this as part of our culture is particularly important, given the current uncertainties about the economy. Based on our economic assumptions, as we look to the full year, we see higher revenue growth than previously expected, driven by net interest income growth in excess of 28%, which I mentioned earlier. As a result, total revenue growth is now expected in the mid-teens on a year-over-year basis, and we expect noninterest expense growth in the mid to low-single digits resulting in significant positive operating leverage. Now, just to give you an example of how powerful this is. For each percentage point of operating leverage, PNC creates between $60 million to $70 million in annualized pre-provision pre-tax earnings. This operating leverage is important, given that we are increasing our full-year provision guidance to $750 million. Clearly, economic conditions are changing as we are seeing higher unemployment rates and slower economic growth. However, we believe that increased operating leverage will be more than adequate to cover the increased credit costs for full-year 2008. We also expect our effective tax rate to remain at approximately 31% for the rest of 2008. All in all, as we continue to execute on our business model and aggressively manage and monitor our balance sheet, we believe we are in a position to deliver a solid second half. With that I'll turn it back to Jim. James E. Rohr - Chairman and Chief Executive Officer: Thank you, Rick. [inaudible] future growth, we’ve been investing in our markets and our product innovation, and we are seeing strong growth in our 13 sales markets, with all of them meeting or exceeding sales goals for the first half of the year. And by applying our PNC business model to our recent acquisitions, we are seeing very strong growth in our new markets. In fact, greater Washington and greater Maryland markets are rapidly becoming our largest markets in terms of new sales with greater Washington now ranked as first and greater Maryland as number four. Let me give you a few examples. Sales increases in greater Maryland helped drive organic net new customer growth. Consumer new DDA account production and consumer loans are up sharply and that was a record for that market. We're seeing strong gains in merchant services, in our consumer loan sales, and wealth management in both the greater Maryland and Greater Washington markets and these are products that weren't resident in the prior companies that we acquired there. Strong growth in greater Washington helped drive year-to-date PNC investments brokerage fees up 11% year-over-year, and corporate banking has posted first-half results with… record first-half results with especially good fee-based product sales results in the greater Washington market. During the second quarter, we closed the largest ever treasury management sale to an existing account in the greater Washington area. Throughout the footprint, in all of our markets we're pleased with the growth that we're seeing in our money market deposits and our market gains. Net new checking relationships grew by 23,000, more than four times higher than the 5,000 customers added in the same quarter last year. And capital markets had a record quarter due to strong client growth, particularly in interest rate derivatives and foreign exchange. Clearly, we are growing customers in all of our markets and our objective is to continue to see these market opportunities offering customers the full range of PNC's products and services. Let me turn to product generation because we’ve continued to invest in our products. We are launching products in the second half of the year that, we believe, are game changers in terms of acquiring and serving new customers. We’re looking to leverage our already strong position in university banking and capture the newest generation entering the workforce generation wise with a product that's built just for them. It's called Virtual Wallet and the image on Slide 10 is from the website for this new product. As you can see, this product represents a new way of banking for a newer generation of customers. Virtual Wallet is an online banking tool that provides on-demand access to manage spending and saving in real time. We integrated online bill pay, direct deposit, overdraft warnings, and a saving feature in one view, perfect for this tech-savvy generation. We see greater potential here. In less than 10 years, Gen Y consumers will outnumber any other generation and their incomes will surpass that of the baby boomers. With 7 million Gen Y customers in our footprint, we see this as a tremendous opportunity to add and retain new customers, and new tech-savvy folks out there can actually go online and sign up for one of these accounts and we’d invite to do that. And with ATMs across the country we can continue to service you wherever you are. Now on the corporate side, the next generation of our Healthcare Advantage product leverages our strengths in technology and our leadership in treasury management. We have a unique capability today with this introduction and it enables… this product helps enable hospitals and insurance companies to electronically manage more than 30 billion healthcare transactions that take place in the U.S. every year. Given the market opportunity, we see strong revenue growth potential for this product. Turning to PFPC, we announced Monday that we changed the name of this business segment to PNC Global Investment Servicing. This name better reflects frankly how this segment is changing from an information processor to an information provider. And we are remarkably pleased with the fourth quarter acquisitions of Albridge Solutions and Coates Analytics. Both acquisitions differentiate us and we are already seeing client growth. These examples indicate we are investing in our businesses with a goal of growing our customer relationships. These innovative products are designed to meet market needs and we believe these products along with our execution in our recent acquisitions will enhance our future market positions leading to strong future revenue growth. As we look at the current marketplace, we recognize there are many variables in place such as energy costs, unemployment rates, declining housing prices, and unprecedented market volatility. But despite the challenges of this economy, which we think are significant, we posted strong quarterly results and we're focused on growing our business. Our balance sheet is strong, as Rick reviewed, and our asset performance reflects our moderate risk profile, and we believe we are positioned to perform well in the second half. In conclusion, our fundamental metrics speak for themselves. Given the significant events we've seen throughout the financial sector, I'm very pleased to see how the PNC team has performed compared to others. We have a solid foundation to continue to invest in and grow our franchise and I'm confident that we have the leadership team, the momentum, and the initiatives in place to capitalize on the market opportunities to continue to create long-term value for our shareholders. And with that, we’d be pleased to take your questions. Operator, if you could give our participants the instructions please? Question and Answer

[Operator Instructions]. Your first question comes from the line of Matt O'Connor with UBS. Matthew O’Connor - UBS: Good morning. James E. Rohr - Chairman and Chief Executive Officer: Good morning, Matt. Richard J. Johnson - Chief Financial Officer: Good morning, Matt. Matthew O’Connor - UBS: You had a very nice increase in net interest margin this quarter. I just wanted to dig a little deeper in terms of some of the drivers, was there any benefit from Sterling on the margin side? Richard J. Johnson - Chief Financial Officer: Marginally, not a big impact. Matthew O’Connor - UBS: Okay. But just like a few basis points? Richard J. Johnson - Chief Financial Officer: The biggest impact as we say, it was in the borrowing costs coming down and the… overnight borrowing costs coming down dramatically, and then you had the effect of... we specifically focused on rolling some CD balances off and getting those rates down, and also being very aggressive on our money market pricing, and all of those together led to a significant reduction of funding cost. Matthew O’Connor - UBS: Okay. And then obviously on the asset side, the decline in the trading book probably helped with the mix shift? Richard J. Johnson - Chief Financial Officer: Actually, yes. That did help a little bit, but again that was pretty modest as well. Matthew O’Connor - UBS: So, it’s just a pretty good level for the yen [ph] going forward? Richard J. Johnson - Chief Financial Officer: Well, I think eventually we expect the Fed to make a move. We don't think it’s going to happen this year. But I think when the Fed does start to increase rates, I think obviously that could put some pressure on the margin. I think as we roll our securities portfolio off and that reprices, that could put some pressure on the margins. But at the same time, I think spreads are very good today, we are going to continue to try to grow our loans and our deposit balances organically, and some of that activity can offset whatever pressure those two other factors may put on. But I think based on our forecast this year, it's... I think for the remainder of this year would be flat to down… slightly down. Matthew O’Connor - UBS: Okay. And then separately with respect to capital, obviously your tangible comment does not include the full value of BlackRock there and it slipped a little bit this quarter because of the goodwill and I think the OCI. But is there an absolute level of tangible comment that would just be too low or how... should we just add the unrealized gains from the BlackRock to the 4.4% or how is that used in the rating agencies? James E. Rohr - Chairman and Chief Executive Officer: I don't think there is an absolute number. I think we are very comfortable with the risk profile of the balance sheet of the company, which I think allows us to feel really good about our risk-based capital position and our Tier 1... Tier 1 ratio being the primary ratio that we drive the company by. So, I think with the current position of capital, as well as the unrealized gain of BlackRock, we are very comfortable with where we are today. Matthew O’Connor - UBS: Okay. Thank you very much. William H. Callihan - Director of Investor Relations: Next question, please?

Your next question comes from the line of Mike Mayo with Deutsche Bank James E. Rohr - Chairman and Chief Executive Officer: Good morning, Mike. Richard J. Johnson - Chief Financial Officer: Good morning, Mike. Michael Mayo - Deutsche Bank Securities: Good morning. So for your outlook, you expect higher revenue growth. Is that mostly reflecting the impact of this quarter? And when you think about that, do you include the CMBS gain, the trading gain, the BlackRock LTIP if I heard you correctly? So, you expect the increase in revenues for the last two quarters to exceed the $150 million in additional provision and if so, I mean by like $10 million, by $100 million as we got there and increase our estimates? James E. Rohr - Chairman and Chief Executive Officer: And first of all we always take the LTIP number also plus or minus for the fee income because we guess that's unrelated to the business. But when we look at the growth of revenue going forward, I think Rick was very specific in saying we consider net interest income growth year-over-year at 28% or more, and we are comfortable with that number for the rest of the year. And when you strip away the various sundry items in the fee income business, the fee income grew 6% and we see customer flows that will make us real comfortable about that number or more going forward. So, we think revenue growth is going to be strong for the rest of the year. Michael Mayo - Deutsche Bank Securities: So, are you guiding higher or are you safely saying the increase in producing [ph] expense will be safely covered by the additional operating leverage in revenues? Richard J. Johnson - Chief Financial Officer: Yes, I'm saying that the increase in operating leverage will be higher than the increased cost on the provision. James E. Rohr - Chairman and Chief Executive Officer: Yes. Michael Mayo - Deutsche Bank Securities: A lot higher or a little higher? Richard J. Johnson - Chief Financial Officer: I gave you all the percentages. Michael Mayo - Deutsche Bank Securities: And I guess book value went down linked quarter. Is that just due to the higher unrealized securities losses and the goodwill from Sterling? Richard J. Johnson - Chief Financial Officer: Yes, that was primarily the fact that the AOCI, the mark on the AFS portfolio increased about $400 million in the course of the quarter because swap rates went up about 100 basis points. So, that's basically what drove that down. Michael Mayo - Deutsche Bank Securities: And how much did Sterling add in the second quarter to both revenues and expenses? We can kind of look at a core growth rate? Richard J. Johnson - Chief Financial Officer: We'll get that for you, but it wasn’t… I wouldn't… it would not have been a big number in the... it would not have been a big number in the fee income line, that did not have a lot of fee income businesses and we’ll come up with the NII impact, but it was not a significant impact on the quarter-to-quarter change. Michael Mayo - Deutsche Bank Securities: And last question, to the extent that you are guiding higher for loan loss expenses, what's your outlook for NPAs? Richard J. Johnson - Chief Financial Officer: NPAs will go up. I think the pace of NPAs will look a lot more like the growth we saw from the first to the second quarter. Michael Mayo - Deutsche Bank Securities: What was that again? Richard J. Johnson - Chief Financial Officer: About $100 million. Michael Mayo - Deutsche Bank Securities: Okay. All right. Thank you. James E. Rohr - Chairman and Chief Executive Officer: Which is a slower growth rate than we had seen in the fourth and the first. Michael Mayo - Deutsche Bank Securities: All right. Thank you. James E. Rohr - Chairman and Chief Executive Officer: Thank you. William H. Callihan - Director of Investor Relations: Next question, please?

Your next question comes from the line of Collyn Gilbert with Stifel Nicolaus James E. Rohr - Chairman and Chief Executive Officer: Good morning, Collyn. Richard J. Johnson - Chief Financial Officer: Good morning, Collyn. Collyn Gilbert - Stifel Nicolaus & Company, Inc.: Thanks. Good morning guys. Just a question on the residential real estate portfolio, could you just talk a little bit about the trends that you are seeing there, maybe some of the severity rates and sort of how you are looking to manage that portfolio in terms of loss recognition versus taking some of the projects into REO? James E. Rohr - Chairman and Chief Executive Officer: Well, that's a very small portfolio relative to the total balance sheet. I think we are one of those smallest banks in terms of residential real estate in the industry. But nonetheless, we do see a migration in the residential real estate business. Mostly in the middle mid-Atlantic states where 75% of it’s located, we only have $250 million of total residential real estate outside of that... outside of that region. And so, the average nonperformers above $1.4 million, we are very comfortable that we can manage those, it’s a lot easier to manage that size project than it is… these larger mega projects that you see in some of the other states. So, it’s mostly customer business, so it was driven... not the least of which was driven by the Mercantile acquisition. But the credit quality there, I think, while deteriorating, it’s not as bad as it is in other parts of the country. Collyn Gilbert - Stifel Nicolaus & Company, Inc.: Okay. So, then when you talk about the migration of NPAs going higher, is there any one sector that has you concern. I mean it sounds like you are saying that the consumer portfolio is holding in fairly well. But as you're looking at and anticipating higher nonperforming assets, anything other than the general slowdown in the economy that's going to drive that? James E. Rohr - Chairman and Chief Executive Officer: Well, residential real estate, I mean there is no question. When you look at the residential real estate business over many, many years and many cycles, you’ll have housing prices bottoming up well after foreclosures peak. Foreclosures haven't peaked as yet, and housing prices as you know are continuing to decline. So, I think the residential real estate business on a national basis is clearly as bad as it's ever been. So, when we look at the mid-Atlantic states, we don't have quite... quite the issues that we have in other markets around the country, but I think you're going to continue to see sharpness in those markets. Collyn Gilbert - Stifel Nicolaus & Company, Inc.: Okay. And then, I maybe bold in asking this question, but could you just talk about your appetite or outlook? And I don't know if you said this in your initial comments, but about future acquisitions or future M&A? James E. Rohr - Chairman and Chief Executive Officer: Well, our best acquisition strategy right now is to acquire new customers. It's working extraordinarily well in each and every one of our markets, as I mentioned. Every one of our markets is above their sales goal for the year. And it's really been gratifying to see how the teams in the various markets have been able to execute to selling and cross-selling various PNC products to new and existing customers. So, that's the biggest and best opportunity for us going forward. And with regards to other acquisitions, I think we are pleased with the ones that we have under our belt that we are executing on those. I think we just would have to be optimistic… opportunistic in terms of any other acquisitions. We've been pleased and successful with the ones we've had. But the market, I think if you look at the residential real estate market and the economy quite frankly, we're going to have a slow economy for the time period. So, I think... I think we'll just have to be opportunistic on that. Collyn Gilbert - Stifel Nicolaus & Company, Inc.: Okay, great. Thanks very much. William H. Callihan - Director of Investor Relations: Next question, please?

[Operator Instructions]. Your next question comes from the line of Fred Graham [ph] with Admiral Capital. James E. Rohr - Chairman and Chief Executive Officer: Good morning, Fred. Richard J. Johnson - Chief Financial Officer: Good morning.

Good morning. Thank you for taking the call. This is a question related to a subsidiary of yours, PFPC, and I know it's a very small piece of your business. But I'm kind of trying to understand the trend… the possible trend or the movement in subaccounting as it relates to mutual fund client-based accounting? I am wondering if you can discuss the trend and if you’re possibly going to take market share in that space and just from an industry perspective if you think that that's going to change? James E. Rohr - Chairman and Chief Executive Officer: We are clearly the market share leader in sub-accounting. The numbers are honing in on 100%. So, we really like that business, we have the... it's not 100%. We have our lawyer here whining. We have a very high market share in the subaccounting business. Our technology has been extraordinarily successful. And as you see the migration from traditional transfer agency to subaccounting, I mean we are very pleased with that right in the sweet spot. So, PFPC now PNC Global Investment Services has a very strong position in subaccounting and we like the migration actually. Richard J. Johnson - Chief Financial Officer: Yeah, on a linked quarter basis, part of the lift to the revenues there, that we did have several new conversions with the new clients, so we can continue to add to our market share.

Okay, great. I appreciate that, thank you. James E. Rohr - Chairman and Chief Executive Officer: Thank you. William H. Callihan - Director of Investor Relations: Next question, please?

Your next question comes from the line of Collyn Gilbert with Stifel Nicolaus. Collyn Gilbert - Stifel Nicolaus & Company, Inc.: I guess I want to manipulate the call here a little bit. Just a follow-up on in terms of how you look at the impairments and I think this is a question that every bank is getting. But in terms of determining when something is permanently impaired versus temporary, and how you're looking at that within your portfolio? Richard J. Johnson - Chief Financial Officer: You're referring to the available for sale in particular? Collyn Gilbert - Stifel Nicolaus & Company, Inc.: Yes, yes. Richard J. Johnson - Chief Financial Officer: Obviously there is lot of market liquidity out there. So, when we think of permanent impairment, we have to actually see that there is a real credit deterioration in the underlying assets involved in that particular portfolio. One of the things we go through with BlackRock Solutions’ assistance is a very detailed and rigorous stress testing on the underlying assets within that portfolio. And to the extent that we see that there is some deterioration that we don't believe will recover, then we will take a permanent impairment. I would say on that entire portfolio to date, we're only taking $15 million worth of impairments. That's how high quality and how careful the individuals were personally in this portfolio originally, and we feel that that's not a very big impairment on this portfolio of $30 billion. Collyn Gilbert - Stifel Nicolaus & Company, Inc.: Okay, great. Thanks. William H. Callihan - Director of Investor Relations: Next question, please?

Your next question comes from the line of Betsy Graseck with Morgan Stanley. James E. Rohr - Chairman and Chief Executive Officer: Hey, Betsy. Richard J. Johnson - Chief Financial Officer: Good morning, Betsy. Betsy Graseck - Morgan Stanley: Hi, how are you? Well, that was my question, so I guess [inaudible]. I guess just a follow-on on net interest margin if you don't mind. Could you just speak to where you think you are with regard to deposits and deposit pricing in your area and the degree which you still have room there on the liability side? Richard J. Johnson - Chief Financial Officer: Yes, Betsy, I think you're well aware that we've been less aggressive on the CD side, because we don't necessarily see that as a relationship product as much as a rate product. But on the money market side, we're positioning ourselves at the moment to pay aggressively on both the east side and the east side of our franchise. We believe in this environment, garnering more money market deposits and growing that balance is going to be a big help to us as we look forward into '09 and '10. Betsy Graseck - Morgan Stanley: Okay. So, that's where you're going to spending money is in the money market funds? Richard J. Johnson - Chief Financial Officer: Yes. Yes, absolutely. Betsy Graseck - Morgan Stanley: Okay. Thanks. James E. Rohr - Chairman and Chief Executive Officer: All right. William H. Callihan - Director of Investor Relations: Our next question, please?

Your next question comes from line of Nick Elfner [ph] with Wellington Management. James E. Rohr - Chairman and Chief Executive Officer: Hello, Nick.

Hi, however you? A couple of questions, I guess in a general statement, where are you seeing market share gains? And I am kind of wondering at the expense of home we’ve seen some pretty impressive revenue numbers from some of the big banks. I’m wondering if you are seeing pullback in various business lines from the community banks and perhaps a more capital constrained smaller competitors? James E. Rohr - Chairman and Chief Executive Officer: Actually, we are seeing it across the board, and it's across the footprint. As I mentioned, each one of our markets is over plan on our sales goal, which is surprising, actually it doesn't happen all the time. And we have different banks obviously in different parts of the franchise that we compete with. So, I would say that we've been successful across the board. Just to give you an example, I got two e-mails this morning with five new customers and they were from four different banks. So, I was pleased to see that we weren’t favoring any one bank.

Great. That's great. Just maybe in terms of capital, do you have any remaining hybrid or trust preferred capacity and are you concerned at all potentially about the goodwill in terms of impairment [inaudible]. But any comment on that would be great? Richard J. Johnson - Chief Financial Officer: No, terrific. We will create more capacities as we go to the end of the year, as we generate earnings and put aside retained earnings that creates more capacity for hybrid and preferred stock issuances. So, we'll continue to look at that at the moment, we don't see any need to issue either, but we will have more capacity as year progresses. As far as goodwill, we see no risk whatsoever of goodwill impairments.

And then do you have any view on the FAS 140 impact potential to any capital ratios? I am not sure how much potential consolidation risk there is for you? Richard J. Johnson - Chief Financial Officer: Yes. I mean we have clearly the risk that, our Market Street conduit. It could be consolidated as a result of that, but the impact on our Tier capital ratio of consolidating that is less than 10 basis points. So, there is the risk, it's not something that we worry about.

And finally, did you take any marks on any of your CMBS decisions this quarter or anything respectively you could share on that? Richard J. Johnson - Chief Financial Officer: Well, we recognized a gain of $21 million because we actually… when the commercial mortgage market got down to about, I think it moved about 60 basis points in from where it was at the end of March. We were able to do two securitizations at that point. But I will tell you that spreads have widened back out to where they were as of June 30th back to where they were at March 31.

Thanks very much. William H. Callihan - Director of Investor Relations: Next question, please?

Your next question comes from the line of Ed Najarian with Merrill Lynch. James E. Rohr - Chairman and Chief Executive Officer: Good morning, Ed. Richard J. Johnson - Chief Financial Officer: Good morning. Edward Najarian - Merrill Lynch: Good morning guys. Great quarter. My question is a kind of very specific, it has to do with mortgage servicing rights. Am I correct that you wrote down your mortgage servicing rights a little bit in the quarter and if so, could you describe what the thought process was there? Richard J. Johnson - Chief Financial Officer: No, we did not, Ed. Where would you found that from? Edward Najarian - Merrill Lynch: Actually it was e-mailed to me, so I was… Richard J. Johnson - Chief Financial Officer: No. We did not write that down. Obviously there is a natural process of mortgage servicing right amortization that we go through all the time. Edward Najarian - Merrill Lynch: Did you write them up appreciably or did you sort of keep the valuation fairly constant from where it was last quarter? Maybe a better question is, what did you do with your mortgage servicing rights valuation? Richard J. Johnson - Chief Financial Officer: No real change in the overall, but the amortization obviously takes place. And since we haven't added a lot of new securitizations on that portfolio, you would expect the balances to come down a little bit as we amortize... where we are, because there is simply not a lot of new servicing assets coming on board at the moment. James E. Rohr - Chairman and Chief Executive Officer: There is much volatility there, as you know as in the retail business given that there is very heavy seven-year prepayment penalty. Edward Najarian - Merrill Lynch: Do you see any kind of noticeable slowdown in prepayment speeds that would cause you to potentially write up your MSRs relative to where they had been previously? Richard J. Johnson - Chief Financial Officer: No. We don't record them at fair value, so we would never write them up, but well, we did see that there is… was a slight expansion, which means that in this quarter, you did have a slight slowdown in the MSR amortization, but not material. Edward Najarian - Merrill Lynch: Okay. Thank you. William H. Callihan - Director of Investor Relations: All right. Operator, we will poll our group for any last questions. Hello?

There no further questions at this time. James E. Rohr - Chairman and Chief Executive Officer: Okay. Thank you for joining us this morning. Richard J. Johnson - Chief Financial Officer: Thank you. James E. Rohr - Chairman and Chief Executive Officer: Bye-bye.

Thank you for participating in today's PNC Financial Services Group earnings conference call. You may now disconnect.