(Reuters) - PNC Financial Services Group Inc (PNC.N) will buy Royal Bank of Canada's (RY.TO) U.S. retail bank operations for $3.45 billion in cash and stock, allowing PNC to expand in the U.S. Southeast.

The deal, announced by the banks on Monday, helps RBC offload a money-losing business and comes in contrast to steps by its Canadian rivals to expand in the United States.

RBC Bank (USA) has $25 billion of assets and 424 branches in six U.S. states: Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia. As of March 31, PNC had 2,446 branches and $259.38 billion of assets.

RBC said it will continue to provide banking services to RBC Wealth Management and RBC Capital Markets in the United States.

RBC expects the deal to result in a loss of C$1.6 billion ($1.63 billion), which will be recorded in the current quarter. The figure includes an estimated goodwill write-off of C$1.3 billion.

PNC has the option of paying RBC up to $1.0 billion of the purchase price in common stock; $1.0 billion of stock would amount to 3 percent of PNC's outstanding common shares, based on the bank's closing stock price of $57.79 on June 17.

The stock part of the deal will be limited to RBC not owning more than 4.9 percent of PNC's shares at closing of the deal, expected in March 2012.

PNC expects to fund the cash portion of the buy with cash on hand, debt issuance and a preferred stock offering.

The purchase price represents a $112 million discount to the tangible book value of the unit.

Pittsburgh-based PNC will also buy RBC's related credit card assets for $165 million.

RBC expects the deal to add to 2012 earnings, while PNC expects the purchase to add to its earnings by the end of 2013 or sooner depending on the stock component of the deal, the companies said in separate statements.

For RBC, the deal could boost its capital levels. Had the deal happened on April 30, the bank's Tier 1 capital level would have been 1.4 percentage points higher, the bank said.

RBC is selling its U.S. retail banking assets roughly 10 years after entering the market through its acquisition of Centura Banks in 2001. It later expanded its U.S. presence through the acquisitions of Eagle Bancshares, Admiralty Bancorp and other banks in the U.S. Southeast.

The Canadian bank has struggled with credit losses in the United States following the economic downturn.

PNC beat out Winston-Salem, North Carolina-based rival BB&T Corp (BBT.N) in the battle for the RBC unit.

Bank of America Merrill Lynch was the financial adviser to PNC, while J.P. Morgan Chase & Co was the financial adviser to RBC.

PNC said it expects merger and integration costs of about $322 million.

(Reporting by Joe Rauch in Charlotte; additional reporting by Dan Wilchins in New York, Euan Rocha in Toronto, and Aftab Ahmed in Bangalore; Editing by Gopakumar Warrier and John Wallace)

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