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5 'Best' Bank Stock Ideas from Sterne Agee

Stocks in this article: BAC C PNC TCB FMBI TFSL TBBK I:BKX

5. PNC Financial Services Group
Shares of PNC Financial Services Group (PNC - Get Report) of Pittsburgh closed at $63.88 Monday, returning 13% year-to-date, following a 3% decline during 2011.

The shares trade for 1.3 times tangible book value, according to Thomson Reuters Bank Insight, and for nine times the consensus 2013 EPS estimate of $6.82. The consensus 2012 EPS estimate is $5.69.

Based on Sterne Agee's price target of $74, PNC's shares have 16% upside potential.

PNC's shares have underperformed most large regional banks this year, reflecting investors' concerns over increased mortgage repurchase demands, with PNC reporting a second-quarter mortgage putback provision of $438 million, leading to disappointing earnings of $546 million, or 98 cents a share, including 54 cents a share, after tax, for the mortgage repurchase provision. The second-quarter results compared to earnings of $811 million, or $1.44 a share, during the first quarter, and $912 million, or $1.67 a share, during the second quarter of 2011.

One major advantage for PNC in the current environment is that the acquisition of RBC Bank (USA) -- which included 424 branches in North Carolina, Florida, Alabama, Georgia, Virginia and South Carolina at a price below tangible book value -- has positioned the company's balance sheet for an expanding net interest margin, which is no mean feat in the current low-rate environment.

The company's net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- expanded to 4.08%, from 3.90% the previous quarter, and 3.93% a year earlier.

Sterne Agee analyst Todd Hagerman estimates that PNC will earn $6.90 a share in 2013, for a return on average assets (ROA) of 1.16% and a return on average equity (ROE) of 9.42%. The analyst said on Monday that the RBC Bank (USA) acquisition is "exceeding expectations as visibility surrounding revenue growth should become more apparent as investment spend is effectively complete," and that "increasing new client wins and a steady flight to quality in the Southeast, together with positive operating leverage and steadily falling funding costs, suggest PNC is on track to further improve its above-average profitability metrics."

PNC Chart PNC data by YCharts

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

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