PNC PNC Financial Services Group Inc

As part of its effort to expand, PNC Financial Services Group Inc. (PNC) has completed the acquisition of 19 branches from a subsidiary of BankAtlantic Bancorp Inc. (BBX). Additionally, two related facilities in the Tampa - St. Petersburg area and associated deposits were also handed over to PNC as part of the sale.

PNC shelled out a premium for the deposits in the transaction in addition to the net book value of the acquired real estate and fixed assets related to the branches and facilities.  

A Win-Win Situation

It is a win-win situation for BankAtlantic and PNC. The acquisition would establish PNC’s retail banking footing in the Tampa Bay area. The company can also augment its other businesses by leveraging those branches.

BankAtlantic had announced its intention to sell its Tampa operations last August, to concentrate on its prime footprint in Southeast Florida where it presently has 79 branches. Notably, the company had incurred significant losses in the recent years from its soured real estate loans.

BankAtlantic expects to record a net gain of approximately $38.2 million in connection with the transaction while its assets will drop by approximately $336 million. Moreover, the deal is expected to augment about 145 basis points to each of its regulatory capital ratios.

Our Take

PNC’s continued strengthening of balance sheet, with focus on risk and expense management, should propel its earnings ahead. The company’s first quarter 2011 adjusted earnings of $1.57 per share were well ahead of the Zacks Consensus Estimate of $1.37 per share.

Results also compared favorably with the prior-year quarter’s adjusted earnings. A substantial contraction in the provision for credit losses, lower non-interest expenses, a strong balance sheet and improved credit quality were attributed to the results.

However, revenues were lower due to a challenging operating environment. Then again, the recent dividend increase and share buyback plan should inspire investors’ confidence on the stock.

Moreover, benefits from the 2008 National City acquisition continue to exceed the company's expectations. We also believe that the latest acquisition spree would also be accretive to its revenue.

However, we expect the top line to remain restricted in the near term, with continued soft demand for loans and a low interest rate environment. Regulatory initiatives also remain headwinds to both top and bottom lines.

PNC shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Considering its fundamentals, we also have a Neutral recommendation on the stock.

 
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