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PNC Misses but Margin Expansion Offers Hope (Update 1)

CEO James Rohr said that the company's "results for the second quarter reflected strong operating performance in a challenging environment," adding that "while we experienced a few items that reduced our earnings in the short term, we were very pleased with our success in continuing to grow customer relationships and loans resulting in strong revenue," and that "we are excited about the opportunities we see in our newly acquired southeastern markets and across our entire franchise to drive long-term value."

PNC's shares have now returned 8% year-to-date, following a 27% decline during 2011.3

PNC Chart PNC data by YCharts

Based on a 40-cent quarterly payout, the shares have a dividend yield of 2.62%.

PNC's shares trade for nine times the consensus 2013 EPS estimate of $6.78. The consensus 2012 EPS estimate is $5.94.

Stifel Nicolaus analyst Christopher Mutascio rates PNC a "Buy," with a $74 price target, and said after the earnings announcement that if the mortgage repurchase charges and merger expenses were backed out, "we can arrive at a quarterly EPS run rate going forward of $1.74 assuming the company has fully accounted for higher loan repurchase demands/putbacks within the 2Q12 reserve build."

The analyst was impressed with PNC's net interest margin expansion, "easily exceeded our expectations of 3.87%," adding that "of the $235 million sequential quarter increase in net interest income, we estimate that one-third ($80 million) was derived from higher accretable yield) and two-thirds ($155 million) was driven by core margin expansion."

Mutascio estimates that "the company's core net interest margin (excluding accretable yield) increased 8-10 basis points during the quarter, which bucks the trend from the margin compression we have seen from most banks reporting 2Q12 results thus far."

Stifel Nicolaus estimates that PNC will earn $6.00 a share for all of 2012, followed by 2013 EPS of $6.90.

Mutascio said that his price target "represents 10.7x our 2013 EPS estimate of $6.90 and 1.5x our 4Q13 estimated tangible book value per share of $50.16, which we believe to be reasonable valuation metrics for a company that is generating above peer returns on average assets ."

Interested in more on PNC? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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