PNC aggressively adding branches to become coast-to-coast bank

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PNC Financial Services Group in Pittsburgh wants to be the next coast-to-coast bank.

To make that happen, the $406 billion-asset company will accelerate the pace of building branches over the next 18 months, with a goal of having a physical presence in every major metropolitan market.

PNC recently opened branches in Dallas and Kansas City, Mo., William Demchak, the company's chairman, president and CEO, said during a Wednesday conference call to discuss quarterly results. Branches in those cities are bringing in deposits at five times the pace that PNC would expect from locations in its older markets.

Those results have encouraged PNC executives to build more branches in Boston, Dallas, Houston and Nashville, Tenn. For instance, Demchak eventually would like to have as many as 15 branches in Dallas. The bank only has one branch in Dallas right now.

"Our ambition is to be a national retail bank," the CEO said. "The form that that takes ⁠— for us and for everybody ⁠— continues to evolve."

Demchak offered several explanations for the success of the new branches, including their design. He added that employees in the new branches "spend more time out in the community" compared to employees in more traditional branches.

"I still think, particularly for larger deposits, branches matter," Demchak said.

Customers are often willing to travel some distance to meet someone face to face rather than handle a transaction digitally, he said. "That's had a stronger impact that I otherwise would have expected."

Demchak said it is becoming clear that PNC can achieve higher returns in some new markets by building more branches.


While PNC focuses on adding branches in the nation's 50 biggest cities, it will continue to cut branches in more saturated markets.

Still, Demchak asserted that PNC would lose business if it settles for playing defense in its older markets, noting that Bank of America and JPMorgan Chase are both expanding around Pittsburgh.

"If you sit in your existing region you will atrophy through time," he said.

Asked whether PNC would be better off buying banks, Demchak responded that acquiring smaller institutions means adding "a lot of stuff you really don't want," while often paying a hefty premium.

"More often than not, we don't want anything to do with the balance sheet, and the branches you get are in the wrong places with the wrong technology with the wrong style and with the wrong employees," he said.

PNC reported a 1.3% increase in second-quarter profit from a year earlier to $1.4 billion. Earnings per share of $2.88 topped the average estimate of analyst polled by FactSet Research Systems by 6 cents.

Net interest income increased by 3.5%, to $2.5 billion. Higher loan balances offset a net interest margin that narrowed by 5 basis points, to 2.91%.

Noninterest expense rose by 1% to $2.6 billion.

Nonperforming assets fell slightly to $1.9 billion, but net charge-offs increased by 30%, to $142 million.

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