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Updates to add further information about the results, conference call and latest share movement




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PNC Financial Services Group

(PNC) - Get Free Report

shares surged after the Mid-Atlantic bank reported third-quarter earnings that widely exceeded Wall Street's expectations, and said it could possibly begin repaying TARP funds in 2011.

The stock was up nearly 8% to $48.58 in mid-morning action. Volume of 5.8 million was already closing in on the issue's three-month daily average of 6.1 million just over 90 minutes into the trading session.

Before the opening bell, PNC reported earnings of $559 million, or a $1 a share, up from a year-ago profit of $259 million, or 70 cents a share, in the year-ago quarter. The company paid total preferred dividends of $99 million in the quarter, with $95 million, an impact of 21 cents a share, of those payments related to its TARP participation. PNC attributed the performance to higher revenue, lower expenses and the positive impact of its National City acquisition.

The average estimate of analysts polled by Thomson Reuters was for earnings of 31 cents a share in the September period.

Total revenue increased to $4.05 billion in the latest three months from $1.65 billion in the year-ago equivalent period, largely because of the addition of National City's customer base in a deal completed at the end of 2008. In the second quarter ended in June, revenue totaled $3.98 billion.

PNC's Chairman and CEO James Rohr was optimistic during the company's conference call, noting that the rate of credit deterioration has "eased" in the most recent quarter.

PNC's credit loss provision swelled to $914 million during the quarter from $190 million a year ago, though that's down on a sequential basis. The bank's ratio of nonperforming assets grew to 3.5% of its portfolio, up from 1.16% last year, and 2.81% at the end of the second quarter. Net charge-offs grew to 1.59% in the third quarter from 0.66% a year ago, though the ratio was down slightly from 1.89% in the second quarter.

Of National City, the company said the deal has been accretive year-to-date and it expects it to add to earnings for the full year as well. PNC estimates it realized cost savings of roughly $200 million related to the transaction in the third quarter, bringing total cost savings for the year to $460 million.

In answer to an analyst's question during the call regarding when the company would repay funds received through TARP, Rohr said the company was "not in a rush," but could possibly see a repayment in 2011.

"We're still relatively conservative in terms of the economy, although we have seen some stabilization for sure," Rohr said on the call. "I think the issue for us is to pay it back over a reasonable period of time. I would expect we will be beginning conversations with the regulators to pay it back perhaps over the next 15 months, and I think we'll do it in a shareholder friendly manner."

"We expect to be continuing to build our capital ratios in the quarter," he added. "The balance sheet continues to reduce. We have a $20 billion distressed book that we have approximately $2 billion worth of capital supporting that. We wouldn't expect that to be around forever, so I think we'll be able to pay it back in a shareholder friendly manner without having to do some huge capital raise like other people have had to do."

--Written by Sung Moss and Laurie Kulikowski in New York


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