Jul. 24--PNC Financial Services Group Inc. on Thursday said second-quarter profit dropped 87 percent, because of a special assessment, continued integration costs associated with acquiring National City Corp. and provisions for possible loan losses.

Profit for the three months ended June 30 was $65 million, or 14 cents a share, down sharply from $505 million, or $1.45 a share in the second quarter of 2008.

Integration costs associated with the Dec. 31 takeover of National City subtracted about $125 million from profit, while the special assessment by the Federal Deposit Insurance Corp. took another $133 million from the bottom line, according to PNC. Another $95 million was paid to the Treasury Department in preferred dividends as part of the federal government's bank bailout program.

Analysts had expected profit between 42 cents and 45 cents a share. Those estimates don't include the special charges.

PNC shares closed yesterday at $35.79, down $1.62 or 4.3 percent.

While calling economic conditions probably the most difficult he's ever experienced as a banker, PNC Chief Executive James Rohr said he is pleased with his institution's performance.

"Our performance is what we'd expect in this environment," Rohr said, speaking in a conference call to analysts.

Rohr admitted that one of PNC's greatest challenges going forward is that loan demand remains soft, and also that credit quality continues to deteriorate, again reflecting the broader economy.

"I see no worrying trends concerning National City, but it would help PNC a lot if loan demand was growing," said Nancy Bush, of Annandale, N.J.-based investment advisory firm NAB Research LLC.

PNC's provision for possible credit losses jumped during the quarter to nearly $1.1 billion from $186 million on June 30, 2008. Loans and other assets no longer collecting interest jumped to more than $4.5 billion from $733 million during last year's second quarter.

Loans PNC no longer expects to be repaid increased year-over-year to $795 million from $112 million.

"Nonperforming loans continue to climb, but overall, they appear to have a handle on things," said Matt Schultheis, who follows PNC for Boenning & Scattergood Inc., of West Conshohocken, Montgomery County. Schultheis has a "neutral" rating on PNC stock.

"Nonperforming loans jumped more than I expected, but I think that was more due to the economy and not the fault of the company," said Richard Weiss, who follows PNC for Janney Montgomery Scott LLC, of Philadelphia. Weiss has a "neutral" rating on PNC shares.

Schultheis said the assimilation of National City appears to be going well, but quickly pointed out that 60 percent of the loans no longer collecting interest come from National City.

"They set aside $2.8 billion when they acquired National City to handle bad loans, but if they burn through that amount -- that's not a good thing," Schultheis said.

PNC's revenue nearly doubled, to $4 billion from just over $2 billion a year ago, mainly from the addition of National City.

Rick Stouffer can be reached via e-mail or at 412-320-7853.

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