3 Reasons This Bank's Best Days Are Ahead

Photo: Wikimedia Commons/AgnosticPreachersKid

Banks have been on an incredible run over the past few years since the bottom of the financial crisis, but one bank may still have more room for growth ahead of it.

PNC (NYSE: PNC  ) is in an interesting place as the seventh largest bank in the U.S. by when looking at total deposits. While it may find itself in the second tier of banks when considering only its size, as it turns out, it may be at the top of the list when it comes to investments. And there are three key reasons why.

1. Pivotal improvement
PNC noted it surpassed a collection of 12 of its peers in almost every pertinent metric to evaluate how well it performed in 2013 relative to 2012. It ranked first in loan growth at 5%, its 3% growth in revenues came in fourth, its expense reductions of 7% were good for second, and its pre-tax pre-provision earnings growth of 26% placed it second. 

Against peers like Bank of America (NYSE: BAC  ) , Wells Fargo (NYSE: WFC  ) , US Bancorp (NYSE: USB  ) , and Capital One (NYSE: COF  ) , it performed resoundingly well:


Source: Company investor presentations / SNL Datasource.

Its net income of $4.2 billion was a record for the company, and while its return on average assets of 1.4% and equity of almost 11% didn't match that posted by the likes of Wells Fargo and US Bancorp, PNC doesn't command nearly as high a valuation:


Source: Company investor relations.

Certainly, improvement in key areas and an attractive valuation are enough to pique the interests of many, but it turns out PNC has more to it than those things.

2. Execution on expansion
PNC is headquartered in Pittsburgh and for most of its existence focused its efforts in the Midwest and the Northeast. Yet following its acquisition of the United States operations of RBC, it began to aggressively pursue expansion in the Southeast, and 2013 marked a year of significant growth.

Its total consumer and small business relationships grew by 11%, and total customers was up 5% to 732,000. Yet perhaps even more impressive was the growth in its new primary clients for its asset management group -- who PNC expects to generate more than $10,000 per client in annual revenue from -- which grew from 210 new clients in 2012 to 395 in 2013. This helps partially explain why its total assets under administration grew from $224 billion to $247 billion, an increase of 10%.

In September, CEO Bill Demchak noted PNC's "expansion into the Southeast offers a lot of opportunity to experiment in order to figure out what works best for our customers," and with resounding gains from its business operations in the Southeast, it seems what is best for its customers is truly what is best for PNC as well.

3. Room for growth
There's no denying 2013 marked a year of strong performance and growth for PNC, and in total its net income was up more than 30% on the year. Yet it also must be noted the bank still ultimately has further room for improvement, and as shown above it could have higher return metrics relative to its peers, and its efficiency ratio -- which measures how effective it is in utilizing expenses to generate revenue -- is also on the higher side at 61%.

However, this reality can be taken in two ways, it can be a red flag that causes investors to think other banks are more attractive, or it can be a sign the best is ahead of PNC. When you consider it executed on its previous initiatives and maintains an attractive valuation, the best days for both PNC and its shareholders are ahead of it.

1 more great idea
There is no denying there's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 19, 2014, at 12:36 PM, jdmeck wrote:

    The farther you drop the easier it is to look good on the climb back up.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2843693, ~/Articles/ArticleHandler.aspx, 10/31/2014 6:00:29 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement