Balanced View on PNC Financial

On Mar 6, 2013, we reiterated our long-term recommendation on PNC Financial Services Group Inc. ( PNC - Analyst Report ) at Neutral based on its diverse revenue mix, balance sheet strengthening efforts, strategic acquisitions and solid capital levels. However, a tepid economic recovery with continued low interest rate environment and increased regulatory headwinds are our concerns.

Why Neutral?

PNC Financial’s fourth quarter 2012 adjusted earnings per share of $1.71 significantly exceeded the Zacks Consensus Estimate of $1.37. However, results were below the earnings per share of $1.74 recorded in the prior quarter.

Better-than-expected results reflect improved net interest income. Moreover, lower nonperforming assets, reduced charge-offs along with healthy capital levels were the positives.

However, PNC Financial’s non-interest expense was $2.8 billion, up 7% from the last quarter. The hike reflected increase in personnel costs along with increased expenses for residential mortgage foreclosure-related matters. Further, PNC Financial’s provision for credit losses was $318 million, up 39% sequentially. This was mainly attributable to a larger loan portfolio and reduced reserve release in commercial lending.

Over the last 7 days, the Zacks Consensus Estimate for 2013 and 2014 remained stable at $6.58 and $6.86 per share, respectively. With the Zacks Consensus Estimates remaining constant, the company retains a Zacks Rank #3 (Hold).

Other Major Banks to Consider

Among peers of PNC Financial, BankUnited Inc. ( BKU - Analyst Report ) holds a Zacks Rank #1 (Strong Buy), while Fifth Third Bancorp ( FITB - Analyst Report ) and State Street Corporation ( STT - Analyst Report ) retain a Zacks Rank #2 (Buy).