PNC Financial Services Group Inc. (PNC) is on an acquisition spree. The company has signed a definitive agreement to purchase 27 branches from Flagstar Bank, a subsidiary of Flagstar Bancorp Inc. (FBC).
Under the deal terms, PNC will acquire 21 and lease 6 branches located in Atlanta, Georgia. Based on balances as of June 30, 2011, PNC will assume around $240 million of deposits associated with these branches.
PNC will purchase fixed assets and acquired real estates related to these branches for the net book value for about $42 million. Neither any deposit premium will be paid nor will any loans be purchased in the transaction. The deal is expected to close in December 2011. It is, however, subject to customary closing conditions, including regulatory approvals.
The deal is a strategic fit for PNC Financial. It will expand the company’s operation in Atlanta and add to its competitive edge. With over 70 branches located in the Atlanta metro area, including those that it plans to add from its pending acquisition of RBC Bank (USA), would aid the company in expanding its retail banking business. It would also be able to leverage its corporate banking and wealth management prospects.
PNC anticipates offering employment to significantly all of the Flagstar branch employees. Additional job opportunities may also turn up for expanding its vast range of retail, corporate, mortgage and wealth management products and services in this market.
Recent Acquisitions
In June 2011, PNC Financial announced its plan to purchase RBC Bank (USA), the U.S. retail banking subsidiary of Royal Bank of Canada (RY). It also signed a definitive agreement in this context.
This $3.45 billion worth acquisition would help PNC Financial to expand its footprint in the Southeast markets. The purchase price of the RBC unit, which has approximately $25 billion of assets, represents a $112 million discount to tangible book value.
The deal is expected to close in March 2012, subject to customary closing conditions including regulatory approvals. It is anticipated to be accretive to PNC Financial’s earnings by the end of 2013 or sooner, depending on the purchase amount paid in stock. The deal would aid PNC Financial to significantly widen its operating footprint and double its presence in Florida, thereby creating opportunities for future growth.
Last month, PNC Financial also 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.
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’s continued strengthening of balance sheet, with focus on risk and expense management, should propel its earnings ahead. Benefits from the 2008 National City acquisition continue to exceed the company's expectations.
We also believe that the company’s latest acquisition spree would be accretive to its revenue. Hence, this capital infusion is a strategic fit for PNC Financial.
Yet, the top line is expected to remain subdued in the near term, with continued soft demand for loans and a low interest rate environment. Regulatory issues also remain an overhang.
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.
BANKATLANTIC -A (BBX): Free Stock Analysis Report
FLAGSTAR BANCP (FBC): Free Stock Analysis Report
PNC FINL SVC CP (PNC): Free Stock Analysis Report
ROYAL BANK CDA (RY): Free Stock Analysis Report
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