BY JEFF McKINNEY
The Cincinnati Enquirer
It isn't uncommon these days for John Haller to be asked when PNC Bank Corp. might buy one of Cincinnati's largest banks -- again.
John Haller, president of PNC's Cincinnati unit, says his company would be interested in buying a local bank.
(Ernest Coleman photo)
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It's been 10 years since the Pittsburgh-based regional banking company expanded into Cincinnati with its $700 million acquisition of the parent company of Central Trust Co.
Since then, PNC executives often find themselves fighting a perception in local banking circles that PNC cannot be a formidable player in a market dominated by three hometown banks.
Such questions nag PNC as well as the other out-of-town regional banks because Cincinnati's Fifth Third Bancorp, Star Banc Corp. and Provident Financial Group Inc. control more than 50 percent of Cincinnati's $23 billion in deposits and operate 241 of the area's 651 branches.
"We're at a numerical disadvantage because our rivals and the media focuses on how many branches and people you have," said Mr. Haller, president and chief executive of PNC's 51-branch Cincinnati unit, the area's fourth-largest bank. "But we're very satisfied with our operations, and I can assure you we'll be the last one standing of the (so-called) outside banks."
Mr. Haller admits that PNC could pick up significant market share by buying one of Cincinnati's big banks, a move PNC would pursue if one of them became available.
And PNC has the clout to take on such deals. It is the nation's 11th-largest bank with assets of $72 billion and market value of $16.5 billion, much higher than any Cincinnati-based bank.
But industry experts say PNC likely wouldn't pursue that strategy because Cincinnati's major banks would command a high price, and super-regional banks like PNC are focused on building national franchises.
Translation: Major banks might shy from paying a premium price for Fifth Third, Star or Provident, particularly because those deals would give an acquirer offices and customers mostly in just three states -- Ohio, Indiana and Kentucky.
"We would be interested in buying a bank here if one became for sale, but it would have to be for a reasonable price and not in a hostile-takeover situation," Mr. Haller said.
Different strategies
Such an initiative clearly would have to come from the brass at PNC, which is relying on acquiring non-bank businesses that can generate fees to help increase the company's profits.
That means local PNC bank presidents like Mr. Haller will continue to run networks of branches and offices that can feed business to the specialty operations that the parent company has acquired or is expanding into, analysts said.
For PNC, that spells a strategy that's much different than the plans of its Cincinnati rivals. Fifth Third and Star, for instance, have expanded recently largely by acquiring other banks and thrifts, relying on their community banking philosophy to boost profits. Of course, PNC isn't abandoning banking services for individuals, Mr. Haller said. As Cincinnati's fourth-largest bank, PNC handles about 10 percent of the area's deposits totaling $2.5 billion. But, Mr. Haller explained, PNC is aiming to generate 50 percent of its total annual revenue by 2000 from financial services that can generate fees. PNC is focusing on selling such specialties as mutual funds, mortgage banking, private banking, asset and liability management and specialty services to major companies. "Retail banking is very important to us, but we're delighted with the returns we're getting from areas like private banking, treasury management services and corporate real estate," Mr. Haller said.
In fact, Mr. Haller is confident that PNC, with its parent company's resources, can market the kinds of services and niche products that will distinguish PNC from many of its competitors in markets such as Cincinnati and Louisville.
"We just had our best year ever in this market," Mr. Haller said. "We did extremely well in several areas, particularly in retail banking, mortgage banking and private banking."
PNC doesn't break out profits of its Cincinnati operations because all of the bank's affiliates operate under one national charter.
But Wall Street banking analysts who follow PNC said the company's strategy of investing in non-bank acquisitions and relying more on fee-income businesses to improve its balance sheet is working, albeit slowly.
Carla D'Arista, managing director at Friedman, Billings, Ramsey & Co. in Arlington, Va., said PNC had share earnings growth of 1 percent since 1993. Much of that flat growth reflects an after-tax loss of $370 million PNC took in the mid-1990s from selling securities in its portfolio that were losing money. But earnings in PNC's core banking franchise grew 26 percent in the period.
She also said PNC's 1997 share earnings rose 14 percent from 1996 and predicts a five-year annualized share earnings growth rate of 11 percent, in line with other similar-sized banks.
Acquisitions to help
Analysts also said PNC's recent purchase of Midland Loan Services, a large servicer of business mortgage loans, and its plans to expand and diversify its $108 billion BlackRock Asset Management should spur fee income.
Frank Barkocy, a managing director of Josepthal & Co. in New York, said PNC's strategy in Cincinnati is consistent with its program in all its other major markets.
"They (PNC) could be doing very well there, but they're not as visible because they don't have local dominance (in deposit market share)," Mr. Barkocy said.
Mr. Haller insists that PNC can continue to be a major player in Cincinnati and nationally if it continues to follow its game plan.
But some Wall Street insiders consider PNC a potential takeover target as the banking industry continues to experience its massive consolidation.
Mr. Barkocy said PNC, like any other bank, could be bought. But a suitor would have to pony up a high price because PNC's basic banking business is strong, its fee-income lines are steadily growing and the bank has launched or expanded into many rapidly growing businesses.
PNC's shares are trading in the mid-$50s.
"I don't see them going cheap, if at all, because they're well-positioned where they operate and they're doing well with several fee-income initiatives they have gotten into," Mr. Barkocy said.
