Holding its own amid a cascading credit crunch, PNC Financial Services Group surprised Wall Street yesterday with a 19 percent increase in second-quarter earnings.

The performance of Pittsburgh's largest bank is a reminder that all is not dire in the battered financial services industry, despite concerns about solvency of mortgage lenders nationwide.

Southwestern Pennsylvania, in fact, remains largely immune from the U.S. meltdown despite the slumping stock price of Cleveland-based National City Corp. which employs 3,000 in this area. National City had to issue a statement earlier this week reassuring deposit holders of its strength, citing a recent influx of $7 billion to bolster its capital.

As it turns out, no Pittsburgh-area financial institution is among the 290 on a "problem list" compiled by Coral Cables, Fla.-based BauerFinancial Inc., which tracks the performance of 8,500 banks across the U.S. Also, the Pittsburgh metropolitan area finished 2007 with the 15th-lowest foreclosure rate among the 100 largest U.S. cities, according to online foreclosure tracker RealtyTrac, offering another sign that banks did not overreach here.

"When you look at where the problem banks are today," said banking analyst Gerard Cassidy of RBC Capital Markets in Portland, Me., "it was all the hot economic areas in the last five years, such as California, Nevada, Arizona and Florida. Western Pennsylvania has always been stable, slower-growth economy, and as a result, through they never enjoyed the boom times, they are not going to suffer through the bust times like the other areas."

More banks are expected to fail in the coming years, but Mr. Cassidy predicts much of the "carnage" will be elsewhere.

Added PNC Chief Executive Officer Jim Rohr: "We didn't have those kinds of excesses here. We did not overbuild."

PNC's profits in the second quarter were up largely due to rising income from loans. Its net income was $505 million, compared to $423 million in the year-ago period. The bank also set aside $186 million to pay for bad loans, compared to $54 million in the same period last year. Loans written off due to nonpayment were $112 million, compared with $32 million a year ago.

"I would say PNC has less exposure to the troubled areas, which has enabled them to produce better numbers this quarter," said Mr. Cassidy of RBC Capital Markets.

"Management has to be credited with the decision five years or so to reduce exposure to these high risk areas" and "focus on diverse sources of revenue that carried the day in this quarter."

Mr. Rohr of PNC said the transformation began more than a decade ago and fees now account for more than half of all revenue. The bank, Mr. Rohr said, took some criticism for not putting more loans on its books, for not growing its net interest income (difference between what it costs to borrow and what PNC receives for lending) as fast as other banks. But it also stayed away from then-highly profitable subprime lending, which contributed to the overbuilt residential real estate market and the excesses that followed.

Now, Mr. Rohr said, the "industry is paying for it dearly."

Those decisions, he added, are "coming home to roost."

Another large institution relying on fees to carry it through the slump is The Bank of New York Mellon Corp., which employs 6,784 in the Pittsburgh area. It earned $309 million in the second quarter, down 31 percent from the year before. Non-performing assets were $279 million, as compared to $6.6 billion at JP Morgan Chase.

"Even in tumultuous times, banks can be profitable if they manage their risk," said Bart Narter, analyst with Boston-based research and consulting firm Celent. "This demonstrates that banks that understand what business they are in and what risks they are managing can thrive."

Also weathering the crisis is First Commonwealth Financial Corp., based in Indiana, the region's sixth-largest bank. Profits jumped 12 percent during the second quarter, from $11.5 million to $12.9 million. And Huntington Bancshares Inc., the Ohio lender that lost about half its value this year, reported that second-quarter profits surged 26 percent on fee income and commercial lending, sending it up 40 percent in New York trading. The Columbus-based bank is seventh in the Pittsburgh area in terms of market share after last year's purchase of Sky Financial Group.

"We have no delusions the economic environment is going to turn around soon," said Chief Executive Officer Thomas Hoaglin in a conference call yesterday.

"However, we don't see it falling off a cliff."

Mr. Hoaglin said the "prolonged downturn" will pressure the company to add to reserves and recognize higher charge-offs and that those actions would help the lender perform better than its peers in terms of credit quality. "We know we have to earn the right to be believed," he said in the call.

The U.S., Mr. Rohr said yesterday is poised between "two economies," one dragged down by housing and the other growing in health care, commodities, agriculture, energy and technology. He made this same point at a conference hosted last May by the Federal Reserve Bank of Chicago.

"We have a lot of industries doing well, " he said in May. "But from our point of view, frankly, I think this residential real estate problem is going to be around for a few years. As I recall, it takes us about two to three years to get out of these issues and this one is probably worse than others."

Mr. Cassidy is predicting that 300 banks may fail in the next three years. Even that, though, would fall well short of the failures racked up during a Savings & Loan crisis in the late 1980s and early 1990s.

"There is a lot of panic out there right now," Karen Dorway, president of BauerFinancial, said. But, "we have less than 300 banks on our problem list out of 8,500 in the country."

"The industry itself is still doing OK."