TEXT-Fitch: PNC earnings in line with expectations

Oct 16 - PNC Financial Services Group, Inc. (PNC) reported improved
results in third quarter 2012 (3Q'12) as compared to last quarter, which
included a large build in the mortgage repurchase reserve. PNC's core earnings
benefitted from fee income growth and lower provision expenses, offset by margin
compression and higher expenses.

PNC's net interest margin (NIM) fell a significant 26 basis points (bps) after a
strong showing in 2Q'12, with 16bps of the decline attributed to lower purchase
accounting accretion (PAA) in 3Q'12. Excluding the PAA, which contributes
approximately 40bps to the NIM, PNC's core NIM was 3.43% in 3Q'12, down 10bps
from 2Q'12. The margin compression is in line with broad industry trends.

PNC's provision for residential mortgage loan repurchase obligations totaled $37
million in 3Q'12, down significantly from $438 million last quarter. PNC
disclosed last quarter that it expected to experience elevated levels of
repurchase demands from the GSEs, reflecting a change in behavior and demand
patterns, primarily related to loans sold in 2006 through 2008, prompting the
large reserve build last quarter. Fitch expects that mortgage repurchase
provisions will remain at levels similar to 3Q'12 going forward.

The large sequential improvement in non-interest income also reflected a pre-tax
gain of $137 million on the sale of a portion of PNC's VISA investment.
Excluding the VISA gain and mortgage repurchase provisions in both quarters,
non-interest income grew approximately 4% reflecting solid client fee income
growth.

Excluding integration costs and trust preferred securities redemption costs,
core non-interest expenses were up 2% on a linked-quarter basis mainly due to
higher personnel expenses. The increase in expenses combined with the slight
decline in spread income contributed to negative operating leverage during the
quarter.

Asset quality ratios were somewhat distorted by the adoption of the OCC guidance
pertaining to borrowers discharged from bankruptcy. Related to this guidance,
PNC reported $112 million in additional non-accruing troubled debt
restructurings and $83 million in related NCOs. Excluding this, non-performing
loans (NPLs) fell 5% sequentially and net chargeoffs (NCOs) declined a
significant 21%. NCOs remain well below peer averages, and were only 55bps
during the quarter, adjusting for the impact of the guidance.

PNC's reported an estimated Tier 1 common ratio of 9.5% at Sept. 30, 2012, up
20bps on a sequential basis, and roughly in line with regional bank peer
averages. PNC estimates its pro forma Basel III Tier 1 common ratios to be
between 8% and 8.5% by year-end 2013. Fitch views this level of pro forma
capital as acceptable in light of PNC's risk profile and earnings track record
and capacity.

Additional information is available at 'www.fitchratings.com'.