PNC Says Tech Upgrade a Higher Priority Than Acquisitions

NEW YORK (TheStreet) -- PNC Financial (PNC) is overhauling its technology to keep pace with digital retail competitors and to protect its fee base, which already makes up 44% of its revenue, CFO Robert Reilly said at a Morgan Stanley conference on Tuesday.

Reilly outlined a three-pronged strategy for advancing PNC's banking systems -- something he views as the Pittsburgh-based bank's top priority. And the company has plenty of time to revamp and build out new business areas like residential mortgages, especially because it faces less pressure to expand, he said.
 
"There was a time in PNC's history where we had a strategic need for scale," Reilly said at the conference. "We don't feel that way now." 
 
Not only are the valuations of potential acquisition targets unappealing, "there is this question in terms of what the optimal size is within this regulatory construct. And at $350 billion in assets, we feel sort of like we're in the sweet spot."
 
The three broad tech areas that Reilly outlined included maintaining the most up-to-date technology and cybersecurity; opening new data centers to boost PNC's online marketplace, which clients are increasingly accessing as online banking picks up steam; and modernizing features of loan applications and residential mortgage systems.
 
Customer deposits through ATM and mobile devices increased to be 40% of the PNC's total deposits in the first quarter, a rise from 31% a year earlier.
 


PNC, which moved into the home mortgage arena with its $5.6 billion  purchase of Cleveland-based National City in 2008, is now adding technological features to make its loan and mortgage applications more convenient and competitive when compared with that of its established rivals. 
 
Reilly said he expects his company to wait for the completion of new data centers and revamped lending systems, likely within 18 months, before considering acquisitions.
 
"We've been pretty public for the last couple of years saying that we weren't interested in doing a major bank deal  because we wanted to get the technology and operations behind us. And we still feel that way," he said. 

PNC must also adjust to the industry-wide shift in how consumers bank and the fact that physical branches play a less important role, which puts a premium on developing digital applications rather than adding real estate.

Commenting on the bank's fledgling mortgage business, Reilly said a lot of progress has been made. "We spent a lot of time over the last couple of years building that product out to be a core consumer product in terms of our menu."

The bank extended mortgage loans of $2.6 billion during the first three months of 2015, compared with $1.9 billion during the first three months of 2014, according to its quarterly financial statements

On Tuesday at the market's close, PNC shares were priced $97.57, showing a $1.33% rise for the day.

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