PNC Financial Joins the Good Results Club

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Banks and other financials are, by and large, doing rather well this reporting season. Much of this is due to increases in business loans as the economy attempts a tippy-toe recovery. Joining this wealthy club is regional banking group PNC Financial (NYSE: PNC  ) , which reported strong improvement across several of its business lines in 3Q. But was it rewarded with a big share price rise on this positive news? Nah!

Canadian contribution
PNC's headline numbers were impressive. Consolidated revenue, at $4.1 billion, was 15% higher on a year-over-year basis, while net advanced more modestly (11%) to $925 million from 3Q 2011's $834 million.

The company's lending activities were robust; all told, loans amounted to $182 billion during the quarter, for an 18% gain over the same period last year. Putting the juice in this growth was commercial lending -- this ballooned 24% from 3Q 2011 to total $105 billion.

Those gains weren't entirely organic, though. The credit for at least some of them can go to the now ex-RBC Bank, the former American wing of Royal Bank of Canada (NYSE: RY  ) that PNC bought last year for a little under $3.5 billion. When acquired, RBC was the fifth-largest bank in America, with 400 or so branches throughout the Southeast. So its operations definitely impact those of its now-parent company.

But by how much is uncertain. In its earnings release, PNC didn't break down the numbers, so it's hard to tell exactly how much of a contribution RBC made. The closing of the sale was announced in March of this year.

Regardless, whether aided by RBC substantially or not, PNC showed strong growth in non-interest income. That figure jumped 23% year over year (to $1.69 billion), and a more powerful 54% against 2Q.

Much of this was due to a one-off, though -- the bank sold a 5 million share position it held in Visa (NYSE: V  ) class B common, booking a cool $137 million gain on the sale. PNC still has a lot of Visa stock in its portfolio, to the tune of 18 million shares, with a fair value of around $1 billion, according to the bank.

Good, but not good enough
PNC's improved numbers for loans are broadly in line with that of other banks in 3Q. Fellow regional lender US Bancorp (NYSE: USB  ) just reported its earnings, which featured a 22% year-over-year rise in commercial lending. As with PNC, that lift helped US Bancorp book double-digit growth in net profit.

Coincidentally, 22% was also the rise in Wells Fargo's (NYSE: WFC  ) net earnings (as discussed more thoroughly by my colleagues Anand Chokkavelu and Matt Koppenheffer). Although a bigger entity that makes a great deal of its money with mortgage lending, Wells has plenty of traditional business lines in common with a smaller fry like PNC.

Those numbers are pleasant, but challenges lie ahead for the financial sector as a whole. Like several of its peers mentioned when delivering their most recent quarterly results, PNC warned of risks in its core business lending due to the continued "moderate economic expansion" and the persistence of low interest rates.

Plus, the looming fiscal cliff in this country, and Europe's fiscal woes, will make some potential borrowers hesitant to get too busy in the loan sphere.

Some of this is already starting to bite. Again, like many other financials reporting results these days, PNC's net interest margin is down. At the end of the quarter, this stood at 3.8%, as opposed to the 4.1% of 2Q and the 3.9% of 3Q 2011.

Smacked by ugly beasts
For the financial sector, the recent past and the looming future of the economy, in general, and banking, in particular, have created a lot of bears. They're driving the performance of stocks just now. In order to outpace these pessimistic beasts, a bank has to really shine bright among its peers.

PNC, while it did just fine in 3Q, wasn't quite luminous enough. Which is probably why its stock moved only slightly up on the day that the results were announced.

That pessimism is not likely to melt away anytime soon. Considering that, let's not expect a big share price blast for PNC in the immediate future. Those bears are still swatting away, and it's no fun for investors to get whacked by the big paws.

Eric Volkman has no positions in the stocks mentioned above. The Motley Fool owns shares of PNC Financial Services and Wells Fargo & Company. Motley Fool newsletter services recommend Visa and Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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