Bank on PNC

07/25/2013 7:00 am EST

Focus: STOCKS

Regional bank selection PNC Financial Group—a buy on our Recommended List—announced that it had doubled its second-quarter profit, notes Geoffrey Seiler, editor of BullMarket.com.

PNC Financial Group (PNC), the nation's second-largest regional bank reported a big jump in fee income, and like other banks, benefited from stronger credit quality as it put less money aside to cover bad loans. It also sold some of its Class B shares of Visa.

The Pittsburgh-based bank said it earned $1.12 billion, or $1.99 per share, compared to $546 million, or 98 cents, a year earlier. The reported result easily beat the $1.62 per share, analysts were projecting. Strip out asset sales and other items, and its $1.71 in net income was still ahead of the consensus.

Total revenue grew by 12.2% to $4.06 billion and beat the Street estimate of $3.95 billion. Credit quality continued to improve, as the provision for credit losses declined to $157 million in Q2, compared with $236 million in the first quarter.

Non-performing assets of $3.8 billion were -4%, or -$149 million, lower than at the end of Q1.

PNC grew its loan portfolio by $3.3 billion during the quarter, or 2%, to $190 billion, paced by solid growth in commercial lending. Loans to businesses grew by 3%, or $3.0 billion, during the quarter.

The $300 million in consumer-loan growth came from home equity and auto loans, partly offset by pay-downs of student and mortgage loans.

Overall, PNC reported a steady, solid quarter that was largely an extension of its results in Q1. It still isn't a flashy operator, but PNC's attention to the nuts and bolts of banking at the retail and corporate level have enabled it to keep growing, despite loan demand well-below the pre-crisis peak.

The recent spike in interest rates at the long-end of the curve could keep some consumer borrowers on the sidelines, but the growth from the corporate side was quite good.

A wider yield curve should also help improve its NII in future quarters, which was one area of weakness in Q2. However, that weakness largely stemmed from the firm making some timely security trades, which more than made up for the lower-than-expected net interest income.

PNC is just starting to reap the benefits of having acquired the poorly-managed RBC units in the Southeast.

As it rolls out its platform of integrated products and services in that region, we would expect to see client rolls grow, as happened when it snared the former National City Bank at the depths of the financial crisis.

Indeed, the bank has a lot of levers it can pull to bring in clients. Add it all up, and we still consider PNC to be a Buy. Our new target is $87.

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