Apr. 24--PNC Financial Services Group Inc. said Thursday that profits increased 22 percent -- but they could have been higher if the bank didn't put money aside to cover loans expected to go sour in the stubborn recession.

PNC's net income grew to $460 million, compared to $377 million a year earlier, and included results from National City Corp., which PNC acquired on Dec. 31. The earnings equaled $1.03 a share, compared to $1.09 a year ago.

Shares of PNC closed at $40.93, up $2.87.

Like many banks reporting results this week, PNC increased its set-aside for problem loans to $880 million for the three months ended March 31, compared to $151 million a year earlier. When banks put such money in reserve, it lowers profits.

The bank is girding for losses not only because of deteriorating economic conditions but because total loans more than doubled from $70 billion a year ago to $171 billion, mostly from the addition of National City.

"In a very challenging environment, we further strengthened our capital and liquidity positions and loan-loss reserves," said CEO James Rohr during a conference call with analysts.

"The most prudent thing to do is sock as much away as you can in reserves. I probably would have liked to have seen PNC put even more away," said Collyn Gilbert, a bank analyst at Stifel Nicolaus & Co., Florham Park, N.J.

Banks are "all unfortunately at the mercy of a slowing economy," she said. "So I'd expect credit to deteriorate and earnings growth to continue to be under pressure."

First Commonwealth Financial Corp., which has 115 branches statewide, said yesterday it set aside $8.2 million to cover problem loans, compared to $3.2 million the year before. The Indiana, Pa., bank said quarterly net income fell to $1.7 million, compared to $11.1 million a year ago.

And S&T Bancorp on Monday reported a quarterly loss of $3.1 million because it set aside $21.4 million for problem loans. The Indiana, Pa., bank has 55 branches in the region.

Because of pressure on earnings, PNC said it is cutting staff from its combination with National City. PNC said in February it plans to cut about 5,800 jobs by 2011. Rohr said it cut 800 jobs in the last three months -- all but 71 on the National City side. The January-March quarter included $52 million in expenses from the merger.

Rohr told analysts that PNC eliminated many computer programming positions at National City related to systems that PNC will not develop.

Neither Rohr nor a spokesman would say what other kinds of positions were cut and where.

PNC said it expects cost cuts to save $400 million to $500 million annually starting this year.

Acquisition of the Cleveland-based banking giant helped PNC double quarterly revenue to $3.87 billion from $1.82 billion a year ago.

PNC's results included a payment of $47 million in dividends to the federal government, which bought $7.6 billion of preferred stock from PNC on Dec. 31. The money, part of the government's bank-rescue plan, helped PNC acquire National City.

"I thought the earnings PNC reported were decent, considering the headwinds going on around them," said analyst Gilbert.

Separately, Rohr said PNC was considering disposing of some of its troubled assets through a government program established a month ago. The Private-Public Investment Funds Program, to be run by the Federal Deposit Insurance Corp., would let banks sell problem assets to private investors with government backing.

"We've had some discussions, and (FDIC) Chairman (Sheila) Bair called and asked us if we're interested, but not everybody is certain about the pricing" of the assets, said Rohr. "We would be interested in selling parts of the portfolio if conditions were right, but there's a lot of details to be worked out."

Thomas Olson can be reached via e-mail or at 412-320-7854.

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