PNC Financial Services (PNC), SunTrust Banks, Inc. (STI): Two Financial Stocks to Buy, 1 to Avoid

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The bank reported Tier 1 capital and Tier 1 common ratio of 11.20% and 10.10%, respectively, above the current regulatory requirement. Besides better expense management, SunTrust Banks, Inc. (NYSE:STI) needs to focus on improving its mortgage and loan growth, particularly when the U.S. housing markets are showing signs of a rebound. Going forward, its management expects a rise in mortgage banking and investment banking.

Industrial & commercial loan growth a driver

PNC Financial Services (NYSE:PNC is the sixth-largest regional bank by assets and deposits in the U.S. PNC Financial Services (NYSE:PNC) derives substantial revenue from retail banking and corporate and industrial banking. The bank reported earnings per share of $1.76 at the end of the first quarter of 2013 and revenue of $4.1 billion, up 6% y/y. Due to abridged funding cost and organic loan growth, net interest income grew 4% y/y. Non-interest income surged 9% year over a year to $1.6 billion while non-interest income dropped 2% y/y to $2.4 billion in the first quarter. PNC Financial Services (NYSE:PNC) increased the quarterly dividend on common stock to $0.44 per share.

In 2011, PNC Financial Services (NYSE:PNC) purchased the retail operations of Royal Bank of Canada (USA) (NYSE:RY), which had a positive impact on PNC Financial Services (NYSE:PNC)’s net interest income. PNC Financial Services (NYSE:PNC) is expecting growth in industrial and commercial loans. The bank’s acquisition of Royal Bank of Canada (USA) (NYSE:RY) and dividend growth are positive stock price drivers.

Conclusion

Better expense management should be a driver for the aforementioned three banks, but macroeconomic conditions will affect their performance. By comparing these three banks, I believe Regions Financial Corporation (NYSE:RF) and PNC Financial would be better investment opportunities. SunTrust Banks, Inc. (NYSE:STI) needs to improve its deposits growth and mortgage banking segment to stay in the game. For PNC, increase in demand for loans from the industrial and commercial sectors will possibly propel its earnings higher.


Red Chip has no position in any stocks mentioned. The Motley Fool owns shares of PNC Financial Services.
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The article 2 Financial Stocks to Buy, 1 to Avoid originally appeared on Fool.com is written by Red Chip.

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