PNC warning: Mortgage slowdown ahead

Bank-watcher R. Scott Siefers, analyst for Sandler O'Neill + Partners, New York, has cut his 2013 profit target for PNC Financial Services Group, Pennsylvania's largest bank, to $6.57 a share from his previous $6.78 after new chief executive William Demchak "backed off" earlier projections and warned home lending won't grow as quickly as expected -- both because of "lower (loan) volume levels," and also "the difficulty in finding talented employees" to handle mortgage loans.

Siefers is still recommending the stock after a "solid" quarter in which PNC posted "cleaner" sales and profit numbers than was its custom under previous CEO Jim Rohr. The analyst blames accounting fallout from earlier mergers, but also credits Demchak's acknowlegement that "investors' frustration with the complexity in PNC's recent numbers" has been a factor in the bank's low share price multiple, less than 10x earnings, which is below other big banks for a company with PNC's profitability, rising sales and continuing expense cuts.

PNC loans should rise about 5% this year, led by business (commercial & industrial) lending, according to Siefers. The bank will continue to cut jobs and expenses. Starting next year he expects PNC to plow more profits into higher dividends and share buybacks to prop up PNC's share price.

ALSO: PNC has cut costs by (1) cutting back on marketing and (2) "reducing incentive compensation costs" as investment banking (for example, mortgage sales) declines, writes Anthony Polini, analyst at Raymond James & Associates, in a report to clients.