The pace of loans going bad actually fell during the second quarter at PNC Financial Services Group Inc. (PNC).

Unfortunately for the Pittsburgh regional bank, so too most of its core revenues.

PNC's earnings fell 60% from a year earlier to $207 million due to lower core revenues, higher losses from loans gone bad and a one-time special assessment from the federal government to re-stock the Federal Deposit Insurance Corp.'s deposit insurance fund.

At the same time, the pace of loans turning bad at PNC actually slowed, a possible indication that the bank could soon see losses from loans start to taper. PNC also posted positive earnings from its recent acquisition of troubled rival National City Corp., which vaulted PNC to the fifth- largest U.S. bank by deposits.

PNC set aside $1.1 billion to cover current and future loan losses, up 23.5% over last quarter. The company has now socked away $4.6 billion for future losses from bad loans, equal to 2.77% of its total loans.

PNC Chief Financial Officer Richard Johnson said the company expects its provision for loan losses to remain flat in coming quarters.

"I don't have any reason to believe [future provisions] will get substantially better," he said during a conference call with analysts. "Nor do I have reason to believe they'll get substantially worse."

Johnson also said PNC expects a fourth-quarter after-tax gain of $400 million to $500 million related to its investment stake in asset manager BlackRock Inc.

Shares in PNC were recently down 4% to $35.99.

The bank posted total second-quarter revenue of $4 billion, up slightly from the previous quarter. And yet revenue at most of the firm's business segments actually fell. PNC noted that its ranks of customers is nonetheless growing.

And yet the firm's level of loans turning bad actually slowed. So-called nonperforming loans, or loans becoming uncollectable, grew by $1 billion during the second quarter, down from the first quarter's growth of $1.3 billion.

In many ways, PNC is a modestly smaller bank than it was just six months ago; total assets and loans have fallen for the last two quarters.

Deposits fell as well during the second quarter, in part because the company chose to shed higher-cost certificates of deposits.

That shrinking game - which is likely only a temporary trend - also hit PNC's net interest margin, which is the difference in interest rates between funds that banks borrow and the funds they lend.

PNC said lower demand for loans pushed the bank to park funds in low-risk securities like Treasury bonds as well as deposit accounts at the Federal Reserve. As a result, the company's net interest margin fell to 3.60%, down from 3.81% in the quarter.

The regional bank bought troubled Cleveland-based National City for nearly $2 billion on Dec. 31 as part of the federal government's effort to pair struggling banks with stronger rivals.

Unlike some of its other healthy peers, PNC hasn't rushed to repay the $7.6 billion in taxpayer support it accepted last year from the U.S. Treasury. The firm reiterated Thursday that it would repay those funds "when appropriate" and "in a shareholder-friendly manner."

The comments continue to suggest that PNC's shareholders are unlikely to face the heavy dilution other bank investors have faced recently, since many firms repaying Troubled Asset Relief Program loans have raised the necessary cash in part by issuing new shares.

-By Marshall Eckblad and Kerry Grace Benn, Dow Jones Newswires; 212-416-2156; marshall.eckblad@dowjones.com