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Profits Rise at Wachovia, PNC

Wachovia's adjusted earnings match estimates.

A gaggle of super regional banks reported a mixed bag of earnings Thursday, led by


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18% gain in fourth-quarter profits.

The Charlotte, N.C.-based bank earned $1.7 billion, or $1.09 a share, up from $1.45 billion, or 95 cents a share, a year ago. Revenue at the bank rose 7% to $6.56 billion, fueled by increases in fee income and net interest income and a decline in money set aside for bad loans.

Excluding merger costs, Wachovia, on an operating basis, earned $1.74 billion, or $1.11 a share. That matched the Thomson Financial consensus estimate. But revenue fell short of the analyst estimate of $6.7 billon.

At Wachovia, net interest income, the difference between what a bank makes on its loans and the money it pays out to depositors, rose 6% to $3.56 billion. Fee income, which includes fees on checking accounts and fees from investment banking work, rose 7% to $2.99 billion.

Overall, the earnings report from Wachovia, one of the largest East Coast lenders, was similar to those reported by other major banks in the fourth quarter. Earnings have largely matched the modest expectations of Wall Street analysts, while revenue has been slightly soft.

Big gains in fee income, fees from checking accounts, investment banking work and other services, have been the main saving grace for the banking industry in the quarter.

One of the problems for the banking industry is the all but disappearing spread between short- and long-term interest, which crimps the profitability of loans. The so-called flattening of the yield curve is hammering margins at many lenders and resulting in only modest gain in net interest income.

Wachovia, despite the 6% gain in net interest income, wasn't immune from the impact of the flattening yield curve. By quarter's end, the bank's net interest margin, a measure of the profitability of its lending and deposit operations, was 3.25%, down from 3.37% a year ago.

The bank benefited from continuing good trends in defaults on loans. In the quarter, Wachovia's provision for credit losses was $81 million, down from $109 million a year ago.

"We're proud of our record fourth-quarter results and fourth consecutive year of double-digit earnings increases despite rising funding costs and related industrywide pressure on margins,'' said Wachovia CEO Ken Thompson in a press release.

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In other bank news, Pittsburgh-based

PNC Financial

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posted a 16% gain in earnings, as it exceeded analyst estimates due to the combination of savings from job cuts following its acquisition of Riggs National Bank.

PNC, in the quarter, earned $55 million, or $1.20 a share, up from $307 million, or $1.08 a share, a year ago. Total revenues were $1.72 billion, up 23% from last year.

Both earnings and revenues came in well ahead of analyst forecasts. Analysts were looking for PNC to earn $1.12 a share and generate revenues of $1.63 billion.

Almost all of the earnings gain came from PNC's retail banking division, which benefited from the adding of branches in the Washington, D.C., metropolitan area following the Riggs acquisition. Retail banking earned $195 million, compared to $167 million a year ago.

By contrast, earnings from PNC's corporate and institution banking divisions were unchanged from a year ago at $108 million.

Meanwhile, Midwestern lender


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reported no change in fourth-quarter earnings from a year ago. However, the bank's earnings did beat analyst estimates by 2 cents.

In the quarter, the Detroit-based bank earned $207 million, or $1.25 a share, compared to $207 million, or $1.21 cents a share, a year ago. Analysts were looking for earnings of $1.19 a share.

Net interest income rose 7% to $501 million. Noninterest income, which includes fees, rose 38% to $281 million.