For PNC's Bill Demchak, being heir apparent to the nation's ninth-largest bank came with a handful of burdens. Now, after 10 years of helping to build up expectations, he will have to surpass them.

The Pittsburgh company last week announced that Demchak, who currently runs all of its businesses and serves as president, will take over for retiring chief executive Jim Rohr in April. His promotion was expected, and Demchak has been widely credited for helping Rohr build out the bank after the financial crisis. But now he will have to prove that he can single-handedly continue the bank's expansion, even in a more difficult deal environment, and help it overcome the sluggish economy and terminally low interest rates.

"He's kind of getting it at a tough time," says analyst Scott Siefers of Sandler O'Neill. "They've done a lot of the good stuff — Rohr got all the headlines with the big deals, and now he's got to go integrate it all."

In an interview Tuesday, Demchak acknowledged, "I think people appropriately have high expectations."

Many of those expectations are for increased growth, of both the organic and inorganic varieties, after PNC's rapid expansion over the past decade. Rohr bought both National City of Cleveland and the Royal Bank of Canada's U.S. retail operations, and Demchak says that capitalizing on the RBC deal to finish expanding south is his first priority.

"We have a big bet in the Southeast with the purchase of RBC's U.S. operations. We need to see that through," he says. "That's a multi-multi-year task. This isn't something where we want to check the box and say, ‘We're done.'"

Analysts and other bank watchers, however, are already looking ahead and predicting that PNC will eventually need to think about pushing into more states, especially to the west, through more deals.

"They should be one of the banks … that emerges as a real national player," says analyst Marty Mosby of Guggenheim Securities. "It's not as if they have to make any strategic acquisitions in 2013 or 2014; they definitely have enough of a franchise in place to make the most of it in the next couple of years. … But eventually you're going to want to strengthen the franchise in the Southeast, and they'll look west."

But finding affordable deal targets in those regions is already more difficult than it was during the height of the financial crisis.

"Now there's not going to be that many of those discounted acquisitions left, so how does Demchak continue to build the franchise?" Mosby says. "He's still got that pressure to grow and expand the company, but he has to do so in an environment that isn't going to give the same opportunities."

Rohr has said as much in recent months, and Demchak on Tuesday downplayed his interest in future acquisitions.

"Our organic growth opportunity is so huge," he says. "The M&A market has picked up a little recently, but on the small-bank front … price expectations are well beyond where we would see value."

Demchak also expressed satisfaction with the current size of PNC, which at $305 billion of assets is large and diversified enough to weather some of the interest rate and compliance-cost problems plaguing small banks without facing all of the reputational and regulatory problems of the biggest banks.

"As a company we're fairly well situated," he says. "We're small enough that we're not one of the big megabanks that has everybody worried, and we did well during the last financial crisis."

Still, PNC has been trying to rein in expenses as interest rates remain low, demand for loans is tepid and opportunities for new revenue are limited. Demchak, a former senior JPMorgan Chase (JPM) banker who is known for his candor, addressed those challenges head-on in the interview.

"We're in an economy which is OK — we're kind of muddling along, but inside of that we have very low interest rates," he says. "We have changing behavioral patterns in the way people interact with banks, and we have to figure out how to serve the customer of the future while maintaining the customers of the past."

Also on his priority list is continuing to generate more revenue from PNC's retirement and wealth-management businesses and to "rethink the retail delivery model" of branches. PNC has already built out some mobile banking and other technology that Rohr has said allows it to replace branch staff.

Rod Taylor, an Atlanta executive recruiter who specializes in financial services searches, points out that this changing mixture of branches and technology could diminish the need for future acquisitions for PNC.

"Brick-and-mortar branches are a big part of what's obsolete in the industry. Why buy them?" he says.

But he praises what PNC is doing so far with its recent acquisitions. As the bank pushes into the Sun Belt market, "they really appear to have a more balanced perspective on when and where to acquire, and who to hire and who not to hire" compared with some of their competitors in the region, Taylor says.

Demchak also says that PNC needs to figure out what the future of the mortgage industry will be, and how the bank can build a better "mortgage engine" for its customers.

"We don't know the future of Fannie and Freddie, we don't know the future of all the regulations that will be out there, but we do know that mortgages are probably the single most important product for the vast majority of our clients," he says. "We need to be very good at providing that product to them."

Register or login for access to this item and much more

All Bank Investment Consultant content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access