PNC Financial Services Group Inc.’s (PNC) fourth-quarter profit fell 40% to $493 million, or 85 a share, from $820 million, or $1.50 a share, a year earlier, despite improving credit quality.

The Pittsburgh-based company earned $3.1 billion, or $5.64 a share, for the year ended Dec. 31, down from $3.4 billion, or $5.74 a share, in 2010.

Total revenue dipped to $3.5 billion for the fourth quarter from $3.9 billion a year earlier, which included a gain of $160 million from the sale of BlackRock (BLK) shares and lower service fees from recovery in the value of commercial mortgage servicing rights. The company said fourth-quarter revenue was also hurt by the regulatory impact of lower interchange fees of $75 million on debit card transactions.

PNC said higher costs associated with foreclosures led to a fourth-quarter revenue loss of $61 million for its residential mortgage unit, down from revenue of $3 million the same period a year earlier.

Residential mortgage banking earned $87 million for the full year compared with $269 million for 2010. The decline was driven by an increase in noninterest expense and lower net interest income.

Total loan originations in the fourth quarter were $3 billion, up from $2.5 billion in the same period a year earlier. Loans serviced for others totaled $118 billion at Dec. 31, compared with $125 billion the prior year. Payoffs continued to outpace new loan production.

PNC recorded $68 million in gains on sales of agency residential mortgage-backed securities. The bank said it grew customers, loans and deposits in the fourth quarter with improving overall credit quality and disciplined expense management.

The provision for credit losses for the quarter fell to $190 million from $261 million in the third quarter due to improving credit quality and continued actions to reduce exposure levels.

Net charge-offs declined to $327 million in the fourth quarter compared with $365 million in the third quarter.

Write to Justin T. Hilley.

Follow him on Twitter @JustinHilley.