2012 in Review: PNC Financial

PNC Financial (NYSE: PNC  ) , one of the biggest regional banks on the scene, arrived at its present size through an energetic series of acquisitions. 2012 was a quiet year for the company in terms of buyouts, rather it spent its effort consolidating its more recent purchases. In some ways, the bank took a breather from its usual means of growth. Let's see how it did during this break and what the immediate future might hold.

Collecting royalties
Financially speaking, PNC was reliably profitable during the year. Following the general trend of its sector, its 3Q was particularly good. Bottom line came in at $925 million on net interest income of just under $2.4 billion. Those numbers bettered the same quarter the previous year by 11% and 10%, respectively. Total loans motored ahead by 24% to $105 billion.

Much of this gain is due to the bank's swallowing of its latest high-profile acquisition, the buy of RBC Bank (USA) from Royal Bank of Canada (NYSE: RY  ) , a deal that was agreed in 2011 and consolidated early this year.

PNC has been a serial acquirer for many years now, and its experience makes it smart about purchases; it grabbed RBC Bank (USA) in a cash-and-stock buy amounting to something like $3.45 billion, which was under the subsidy's tangible book value.

It wasn't only the finances that attracted PNC to the big Canadian asset. Taking over its operations -- which were headquartered in North Carolina -- gave Pennsylvania-based PNC a sizable footprint in the South. 420-plus branches worth, spread across both Carolinas, Florida, Alabama, Georgia, and Virginia.

It also greatly expanded its network in terms of sheer numbers. The acquisition boosted the company's branch count by a robust 17%. These days, PNC's network is creeping up toward the 3,000 branch level.

This makes it not only one of the most expansive regional banks -- second only to US Bancorp (NYSE: USB  ) and its 3,000-plus outlets -- but one of the largest banks in the country, period.

Steady march ahead
The RBC Bank (USA) purchase was entirely in character for PNC. It's an inherently conservative firm that avoids splashy big gambles. Rather, it prefers to shell out when it's reasonably certain that it can get a good deal for a set of assets that'll bring a notable return.

That's not to say that the bank shies away from being aggressive in its pursuits. There was, for example, the 2008 buyout of National City Bank that cost PNC over $5 billion (mostly in stock) and doubled its size. And there was a flurry of buys late in the previous decade, usually of mid-Atlantic regional players like Mercantile Bankshares and Yardville National Bancorp.

PNC likes to grow though acquisitions because its conservatism keeps it away from the higher-volatility asset classes and business lines. This is good for investors in a way, because such instruments have burned other financials and caused the occasional full-blown crisis.

At heart, the company is a bread-and-butter bank holding deposits and making its money by lending them out. True to its character, in the last quarter, PNC's retail and corporate/institutional banking brought in fully three-quarters of total revenues,  with other units contributing only marginally to the remainder.

Compare that to the sprawl of a big nationwide rival like Bank of America (NYSE: BAC  ) or Citigroup (NYSE: C  ) , both of which offer nearly every flavor of financial service imaginable. What's appealing about that is that it makes PNC's performance steadier, safer, and more predictable than that of many competitors its size.

The downside is that it's missing out on some good chances in segments that are hot just now; residential mortgages, for instance,  brought in only 7% of revenues for it last quarter, or $284 million. The return wasn't bad, with net coming in at $36 million for the unit, but that's nothing compared to the hundreds of millions others are adding to their bottom lines. Wells Fargo it ain't. 

Meanwhile, asset management was also just a minor contributor to overall take during the quarter, coming in at 6%. To be exact, that's $243 million. To be more exact, that distilled into $37 million in net profit. Again, like mortgages that's a decent return... others, however, are posting much higher numbers than that.

Wanna sell your bank?
PNC always seems to be on the hunt for a new acquisition. Now that it's digested its fat Canadian fish, it'll probably enter 2013 standing on alert for a fresh purchase. Given the general upswing in bank share prices and the return of bullishness to the sector, however, it doesn't seem like there are too many juicy candidates (save for maybe a bank or two in Florida).

But if anyone can find a good asset to buy at the right price, it's PNC. In the meantime, the firm will continue to spend much of its effort consolidating, borrowing, and lending. As it always has. None


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