Servicing Writedowns, Impairment Create PNC Red Ink

Pittsburgh-Writedowns to commercial mortgage servicing rights and investment securities contributed to PNC Financial Services Group's fourth-quarter loss.

On the bright side, PNC said it is seeing increased demand for first mortgages due to low interest rates and is expanding its presence in consumer lending due to the acquisition of National City.

PNC suffered a $35 million impairment to its commercial mortgage servicing portfolio during the fourth quarter as a result of lower interest rates. PNC services $286 billion of commercial mortgage loans.

PNC also increased the size of its investment securities portfolio to $43.5 billion, including $13.3 billion of mostly government-backed residential mortgage-backed securities acquired in the National City deal. "Unrealized" losses reflecting declines in the fair value of securities totaled $5.4 billion at year-end, up from $3.6 billion at Sept. 30.

The addition reflects acquisitions of government-backed residential mortgage securities, the company said.

The acquisition of National City closed at year-end, and PNC did not include National City in its financial performance. However, the bank did report on the consolidated balance sheet of the combined company, which now has $291 billion of assets.

The company earmarked $27.5 billion of loans as "distressed," including residential construction loans, brokered home-equity loans and certain residential mortgage loans. The majority of the distressed portfolio came from National City, PNC said.

PNC increased its allowance for loan losses to $3.9 billion, up from $1.1 billion at Sept. 30, 2008. The increase primarily reflected $2.2 billion of allowance acquired from National City. The company also added $504 million to its loss reserve to adjust for differences between PNC's loss estimate methodology and National City's.

Nonperforming assets totaled $2.2 billion, including $722 million from National City. A year earlier, PNC's nonperformers totaled $495 million.

PNC's residential mortgage servicing portfolio totaled $187 billion at year-end, with almost all of the portfolio coming from National City.

PNC reported a $248 million fourth-quarter loss including acquisition costs. Without the acquisition expenses, the bank said it would have posted net income of $132 million.

PNC, which employs almost 60,000 people across the combined company, plans to reduce the workforce of the company by 5,800 positions by 2011. The goal is to eliminate $1.2 billion of annualized expenses.

In other earnings news, Comerica Inc., Dallas, earned $3 million, or $0.02 per share, in the fourth quarter. The company's quarterly loss reserve rose to $192 million, up from $165 million in the third quarter.

Comerica said its participation in the TARP program has allowed it to purchase agency MBS.

"Our strong focus on credit is evidenced by the continued reduction of exposure to California residential real estate development as well as the automotive industry, given the challenges that these sectors continue to face," said Ralph Babb, chairman and CEO.

First Community Corp., Lexington, S.C., lost $488,000 in the fourth quarter after absorbing $9.5 million of "other than temporary" impairment to the value of its Freddie Mac preferred shares. The bank said it has no remaining exposure to GSE preferred stock. The bank also increased its provision for loan losses to $1.4 million for the fourth quarter, compared with $359,000 in the third quarter. Jacksonville Bancorp has revised its fourth-quarter results to reflect an impairment charge of $428,000 to the value of its mortgage servicing rights.

The impairment charge reduced the company's net income from a previously reported $494,000 to $232,000.

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