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Acquisitions are PNC Financial's (PNC) preferred way to grow because the bank's conservatism keeps it away from volatile business lines and assets. This makes the bank a safer option for its investors. Besides, the bank has adequate capital and the required financial strength to continue the profitability trend. Barron's believes that the bank will trade at $70 in 2013. Therefore, I recommend investors benefit from this upside potential.

Bank Description

The bank operates as a financial holding company based in Pennsylvania catering to the financial need of Pennsylvania, Ohio, New Jersey, Florida and Washington. The bank provides retail, commercial, mortgage banking and investment banking services.

Past Performance

PNC witnessed a profitable 2012. On net interest income of $2.4 billion, the company posted a bottom line of $925 million at the end of the third quarter of the current year. The results of the most recent quarter beat the results of the same quarter of the previous year by 10% and 11%, respectively. The total loans portfolio surged 24% to $105 billion at the end of the most recent quarter.

Much of the improvement in the bank's most recent results was associated to swallowing of its high-profile acquisition, the acquisition of RBC Bank USA from Royal Bank of Canada (RY). The bank's regular acquisitions make it a smart acquirer. The RBC Bank acquisition expanded PNC's footprint in the southern region and increased the branch network by 17%.

Key Metrics

According to the latest SEC filings, the bank's total loans portfolio surged 19% year-over-year to $181 billion, while deposits increased 11% over the same time period. At the end of the third quarter, the bank posted an impressive loan-to-deposit ratio of 88%. In comparison, JPMorgan (JPM) and Bank of America (BAC) had loan-to-deposit ratios of 63% and 84%, respectively.

Capital Position

During the third quarter of the current year, the company strengthened its capital position as represented by its tier 1 common capital ratio of 9.5%. The ratio improved from 9.3% at the end of the linked quarter. Compared to this, the tier 1 common capital ratio for Bank of America was 11.41%, while Regions Financial (RF) reported a tier 1 common capital ratio of 11.48%.

Valuations

Currently, PNC is trading below the large cap peer median of 1.2 times tangible book value. The stock is trading at 8.9 times 2014 earnings, slightly higher than the large cap peers at 8 times. Regions Financial trades at 4% premium to its tangible book value, while Bank of America and Citigroup (C) trade at 20% and 24% discounts to their respective tangible book values.

Analysts have a consensus mean price target of $68.73, while Barron's said the stock could rally to as high as $70 in 2013. Growing fee business is expected to bolster the bank's bottom line in the coming years. Besides, new commercial and industrial loans could boost the profits as the bank stands to benefit from a strong farm economy, increased fracking activity and a manufacturing revival in its Midwestern region.

Source: PNC Financial Presents Upside In 2013