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 did core revenue.

PNC's earnings fell 60% from a year earlier to $207 million due to lower core revenue, 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.

Shares in PNC were recently down 6.6% to $34.92.

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, even as some of PNC's peers, including J.P. Morgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC), managed to boost many of their revenue at impressive rates.

PNC noted that its ranks of customers is nonetheless growing.

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.

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 out.

PNC said lower demand for loans pushed the bank to invest funds in ultra-low-risk securities like Treasury bonds. 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