Oct. 23--PNC Financial Services Group yesterday said third-quarter profits more than doubled from a year earlier, despite mounting loan losses, as it reaped the benefits of its take over of National City Corp. and a bigger spread between what it charges for loans and what it pays out on deposits.

The Pittsburgh-based financial services giant reported net income of $559 million, or $1 per share, up from $259 million, or 70 cents per share, in the same period last year.

Analysts had forecast that PNC would earn about 31 cents in the quarter. The bank's better-than-expected performance ignited PNC's shares, which surged $5.69, or nearly 13 percent, to close at $50.65 yesterday.

"I'm very pleased how we performed during this difficult economy," Chairman and CEO James Rohr said in a conference call with analysts.

Revenue shot up to $4 billion from $1.7 billion in the third quarter last year, reflecting the National City acquisition and lower rates paid to depositors.

The bank set aside $914 million in the quarter to cover bad loans, up from $190 million a year earlier but down slightly from $1.1 billion in the second quarter this year. Nonperforming loans rose to 3.5 percent of the portfolio vs. 1.16 percent last year and 2.81 percent in the second quarter.

Loan losses rose to $650 million from $122 million a year ago but fell from $795 million in the second quarter.

"The economy is beginning to show signs of stabilization, and we're seeing signs that credit quality deterioration is easing," Mr. Rohr said. Still, he said the bank expected to make a similar provision for bad loans in the current quarter as the jobless rate rises and commercial and residential borrowers continue to have trouble making payments.

PNC, the nation's fifth biggest bank based on deposits, said the purchase of Cleveland-based National City at the end of December continued to exceed expectations. The deal added to earnings so far this year, and cost savings from the merger were ahead of expectations.

The first wave of National City branch conversions to the PNC system is set to begin the weekend of Nov. 7 with the Western Pennsylvania, eastern Ohio and Florida markets. The remaining conversions should be completed by the end of June, six months ahead of the initial estimate, PNC said.

Mr. Rohr said PNC was in no rush to repay the $7.6 billion in bailout funds it received last year in the U.S. Treasury's Troubled Asset Relief Program. "Although the recession is technically over, it doesn't feel like it's over," he told analysts.

He said the bank wanted to be able to repay the money without having to do "some huge capital raise," as some other banks have done.

Mr. Rohr said PNC might seek regulator approval to pay back the funds "perhaps in the next 15 months."

PNC issued 15 million common shares in May after being told by regulators to boost capital by $600 million. The bank was one of 10 major financial institutions required to raise capital after undergoing a "stress test."

During the third quarter, net interest income, essentially profits on loans, was $2.2 billion. That matched the second quarter but was more than double the $1 billion in the third quarter of 2008.

Noninterest income was $1.8 billion for the third and second quarters vs. $654 million for the '08 third quarter.

Patricia Sabatini can be reached at psabatini@post-gazette.com or 412-263-3066.

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