PNC to Branch Out in Florida - Analyst Blog

PNC Financial Services Group Inc. (PNC) is set to expand by acquiring 19 branches from a subsidiary of BankAtlantic Bancorp Inc. (BBX). In this regard, both companies have entered into an agreement per which BankAtlantic Bancorp's subsidiary BankAtlantic will sell 19 Tampa Branches to PNC Bank N.A., part of The PNC Financial Services Group Inc.

Additionally, 2 related facilities in the Tampa – St. Petersburg area and associated deposits (around $350 million) would also be handed over to PNC Bank as part of the sale.

PNC has agreed to shell 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. The transaction is expected to close in June 2011, pending regulatory approvals and other customary terms and conditions.

A Win-Win Situation

It is a win-win situation for BankAtlantic and PNC. In an effort to focus its efforts in South Florida, its core market, BankAtlantic had announced last August its intention to sell its Tampa operations. This sale would enable the company to concentrate on its prime footprint, which now has 79 branches. Notably, the company had incurred significant losses in the recent years from its soured real estate loans.

On the other hand, 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.

Our Take

PNC continues to strengthen its balance sheet with its focus on risk management. The company reported fourth-quarter adjusted earnings of $1.60 per share, which were ahead the Zacks Consensus Estimate of $1.40.A substantial decrease in the provision for credit losses, strong balance sheet and improved credit quality drove the results. 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 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.

 
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