Earnings Up at PNC After a Challenging Quarter

The nation's third largest regional bank by assets, PNC Financial (NYSE: PNC  ) , added its name to the list of lenders that improved earnings, but it struggled to prop up its top line in the third quarter. For the three months ended Sept. 30, the Pittsburgh-based lender earned $1.039 billion on $3.920 billion in net revenue. While net income was higher on a year-over-year basis, revenue fell by 4%.

PNC's results were consistent with a now-familiar story line. Following the likes of Wells Fargo (NYSE: WFC  ) and Bank of America (NYSE: BAC  ) , PNC's net revenue came under pressure from a number of directions. A lower yielding asset portfolio, without a comparable decrease in its cost of funds, contributed to a drop in net interest income. And its fee-based revenue was affected similarly.

While the bank reported year-over-year top-line gains from asset management and both consumer and corporate services, the improvements weren't enough to offset the impact from higher interest rates on its mortgage-banking division. In the third quarter of last year, mortgage banking accounted for $264 million in revenue. Last quarter, it was down to $193 million, equating to a 27% decline.

Stealing another page from its competitors' playbooks, PNC was able to staunch some of the bleeding by cutting both expenses and loan loss provisions. The former declined on a year-over-year basis by $226 million, or 9%, while the latter was almost cut in half. In the third quarter of 2012, PNC set aside $228 million in provisions for future loan losses. This year, the figure dropped to $137 million.

It's for these reasons that PNC results, while mixed with respect to net income and revenue, should not be considered a disappointment. As president and chief executive officer William Demchak said in the bank's earnings release, "Even in the face of an environment that is challenging the entire industry, our businesses are successfully growing loans, and we are leveraging our high-quality balance sheet to drive revenue."

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