Net interest margin expanded and the integration of National City Corp. continued smoothly, but PNC Financial Services Group Inc. did not get the same pop from fourth-quarter credit trends that other banks enjoyed.

Nonperforming assets, which declined from the third quarter to the fourth at banks including KeyCorp and Comerica, jumped nearly 12% at PNC. Net chargeoffs, at 2.1% of average loans, came in above analysts' projections.

"The $672 million sequential increase in nonperforming loans is less than our estimate, but the $835 million [of] fourth-quarter net chargeoffs is worse, and we see both these credit trends as lagging peers' fourth-quarter results," Standard & Poor's equity analyst Erik Oja wrote in a client note.

Investors punished the stock, driving PNC shares 5.26% lower, to $55.70 during a session in which many regional banks rallied.

Some of the stock's decline may have been attributable to concerns over the potential impact of the Obama administration's proposed restrictions on big banks — with $270 billion in assets, it is one of the largest financial institutions after Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc., and among the largest still holding onto funds from the Troubled Asset Relief Program. PNC said Thursday it no longer has a proprietary trading desk, eliminating a major target of the Obama proposal, but if curbs on bank size were to be expanded, PNC perhaps might find its future expansion potential limited.

For now, PNC Chairman and Chief Executive James E. Rohr said he is less concerned with growth opportunities than with squeezing more cost savings from the National City acquisition, which already has yielded better-than-expected results since being finalized just over a year ago. Rohr said PNC has passed on about two dozen opportunities for government-assisted deals and would stay focused on finishing the conversion of National City branches into PNC branches, and capitalizing on chances to cross-sell products to customers.

"I think the opportunity for us right now is to get this [National City integration] right," Rohr said.

He also will need to focus on getting chargeoffs under control.

Net chargeoffs rose $185 million from the third quarter to the fourth, reflecting an increase in uncollectible commercial real estate loans. Meanwhile, impairments to consumer loans prompted the company to increase its provision for credit losses from $914 million to $1.05 billion.

But the pace of credit-quality deterioration appeared to ease, based on a slowing rate of growth in nonperforming assets. Also, early- and later-stage delinquencies stabilized. Accruing loans 30 to 89 days past due were essentially flat with the previous quarter at $2.4 billion, compared with an 8% increase in the prior quarter.

PNC also reported good results in its net interest margin, which widened a better-than-expected 29 basis points from the previous quarter to 4.05%, and it showed strong expense control. Rohr said he was "now very confident" that the company would reach its goal for annualized cost savings of $1.5 billion from the National City acquisition by June 2011.

Reduced costs will be helpful in absorbing the impact of continued contraction in lending, which has been driven by overall weakness in new loan demand and low utilization of credit lines to existing borrowers. PNC had assets of $269.9 billion at the end of the fourth quarter, down from $291.1 billion a year earlier.

Revenue "might modestly decline if the utilization rates and the loan demand stays where it is," Rohr told analysts on a conference call. "But we expect the expenses to come down quite nicely over the course of the year."

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