2. PNC Financial Services Group


Shares of PNC Financial Services Group ( PNC) of Pittsburgh closed at $61.03 Monday, trading for 1.2 times tangible book value and 9.3 times the consensus 2013 EPS estimate of $6.58. The consensus 2014 EPS estimate is $6.90.

The shares returned 4% in 2012 after declining 3% in 2011.

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

PNC will announce its fourth-quarter results on Jan. 17, with the consensus estimate being a profit of $1.57 a share, declining from $1.64 in the third quarter, but increasing from 85 cents in the fourth quarter of 2011, when the company booked "$240 million of residential mortgage foreclosure-related expenses primarily as a result of ongoing governmental matters" and took a $198 million charge related to the redemption of trust preferred securities.

PNC was included in the $8.5 billion regulatory foreclosure settlement announced on Monday, but the company didn't make a separate announcement on how much it would be paying.

The company on Wednesday announced a series of one-time items that will "will reduce PNC's fourth quarter 2012 net income by approximately $.47 per diluted common share," including $91 million in expenses related to mortgage foreclosures, including $70 million for the industry settlement. Other items include " a pretax provision of $254 million for residential mortgage repurchase obligations related to expected elevated levels of repurchase demands primarily as a result of further changes in behavior and demand patterns of government-sponsored enterprises, FHLMC and FNMA," along with a $45 million goodwill impairment charge for the company's mortgage unit, and a gain of $130 million on the sale of Visa ( V) shares.

PNC also said that it "recorded $35 million of pretax integration costs and $70 million of pretax noncash charges for the remarketing and redemption of high cost hybrid capital securities."

Stifel Nicolaus analyst Christopher Mutascio rates PNC a "Hold," and said after the announcement that the company is "backing out" the $254 million mortgage putback provision, "when it states that its EPS will exceed $1.57."

"We don't know how investors will view this, but we do not back it out of core operations. We thought the company's large reserve build in 2Q12 was the 'kitchen sink' action. Apparently, we were wrong and these charges are more repetitive than we thought," he said. Mutascio also said that although PNC backed the $35 million in integration costs out of its core earnings guidance, "we don't back these out of our core EPS calculation either as mergers and acquisitions are a business line item for the bank. As such, we believe there is a high probability that integration costs will be an ongoing contribution to the company's expense base. This is no different than how we treat integration expenses at our other banks."

Mutascio's core fourth-quarter earnings estimate for PNC was updated to $1.18, factoring in another thee cents of expenses for backed out by PNC, for the "residual $21 million" included in the company's mortgage foreclosure expenses. PNC's shares were down 1% in early trading Wednesday, to $59.80.

PNC's shares were down slightly, closing Wednesday at $60.17.

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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