PNC profit rises despite growing loan losses

Shares of PNC Financial Services Group Inc. soared Thursday after the nation’s fifth largest bank said its profit grew sharply during the third quarter, even as loan losses rose.

Echoing results at rivals Wells Fargo & Co. and US Bancorp, the Pittsburgh-based bank said rising interest and fee income, boosted by its acquisition of National City Corp., more than offset a big jump in loan losses, which rose to $650 million from $122 million in the third quarter of last year.

National City had the second-largest market share in the Indianapolis area before it was acquired by PNC, with about 75 bank branches and 1,200 employees.

Earnings available to common shareholders totaled $467 million, or $1 per share, in the three months ended Sept. 30, as its revenue more than doubled to $4.05 billion. Both income and revenue were well above what Wall Street was anticipating. A year ago, the bank earned $248 million, or 70 cents a share.

Shares rallied $6.23, or 13.9 percent, to $51.19 in afternoon trading.

Last year at this time, PNC shares were trading near $75. But shortly after announcing its plans to buy National City in late October, shares began to plunge, along with the entire financial sector, as investors worried about the stability of banks amid a worsening economy.

PNC shares fell hard and fast in the final months of last year and beginning of 2009 as the credit crisis rocked the financial system, sinking 78 percent in a matter of five months to an 18-year low of $16.20 on March 6. Including Thursday’s big gains, shares have rebounded about 214 percent since then.

Like nearly all banks, PNC has battled mounting loan losses as consumers struggle to repay debt. PNC set aside $914 million during the third quarter to cover faulty loans, nearly five times the amount set aside during the same period last year, but 16 percent less than the $1.1 billion in the second quarter.

Loan losses also declined from the second quarter, sliding 18 percent from $795 million.

Though many banks have warned this quarter that loan losses will continue to rise well into next year, PNC joined Minneapolis-based regional bank US Bancorp in offering a more hopeful outlook, saying bad loans aren’t growing as fast as they were earlier this year, which could be a sign that losses have peaked.

The bank said its fourth-quarter provision for loan losses should be roughly the same as the third quarter.

Chairman and CEO James Rohr said he is encouraged that the pace of loan losses appears to be easing. But he is still cautious about the economy. Despite signs the economy is stabilizing, "it doesn’t feel like the recession is over," he said during a conference call with investors.

With the outlook on the economy still cloudy, Rohr said the bank is in no rush to pay back the government’s $7.6 billion TARP loan.

"We’ll pay it back over a reasonable amount of time," he said, perhaps as soon as in the next 15 months and so long as regulators approve.

As part of the government’s stress tests of the 19 largest U.S. banks, PNC was required to raise an additional $600 million in capital this year as a buffer against potential futures losses. The bank met that requirement when it raised more than $600 million in a common stock offering in May.