("2nd UPDATE: PNC Sees More Demands to Buy Back Bad Mortgages," at 2:20 p.m. EDT and previous versions of the article, misstated the rank of Wells Fargo as one of the nation's largest banks in the 14th paragraph. The correct version follows:) --PNC will add $350 million to repurchase reserve --One GSE has become more aggressive in demanding mortgage repurchases, CEO Jim Rohr said --So far, PNC lost $1.6 billion from mortgage repurchases By Matthias Rieker PNC Financial Services Group Inc. (PNC) is setting aside an additional $350 million in second-quarter reserves to cover demands to repurchase bad mortgages, a 10-fold increase from the prior quarter. Shares of the Pittsburgh bank, the nation's eighth largest, fell more than 3% in morning trading, but were down 1.8%, to $57.09, in recent trading, illustrating how sensitive investors remain to mortgage issues five years after the mortgage meltdown began. Chief Executive Jim Rohr told investors at a Morgan Stanley Financial Services Conference in New York that demands on the bank to repurchase faulty mortgages have increased in the second quarter, forcing the increase in the reserve this quarter to cover the repurchases. In the first quarter, it had added $32 million to its reserves to meet repurchase demands from government-sponsored entities, or GSEs, such as Fannie Mae (FNMA) and Freddie Mac (FMCC). So far, PNC has lost $1.6 billion from mortgages originated by a PNC business unit and then sold to government-sponsored entities, but later bought back because GSEs alleged the underwriting was faulty. Subsequent claims by GSEs to repurchase such mortgages that they claim didn't fit their set standards and are now delinquent rose 35% in the second quarter from the first, to $288 million, mostly tied to mortgages originated and sold between 2005 and 2008. The issue has plagued bankers, who had been hoping to put the matter of souring mortgages behind them. The GSEs asked banks to buy back $33 billion of loans last year, 10% more than in 2010, according to federal securities filings the companies made earlier this year. Last week, SunTrust Banks Inc. (STI) Chairman and CEO William Rogers told investors that his bank is in "an aggressive but cordial dialogue" with Fannie and Freddie and, though claims to repurchase mortgages may vary from quarter to quarter, he said losses "this year will be appreciably lower" than last year. Mr. Rohr of PNC said the claims are tied mainly to one GSE--he declined to name it--which he said has in recent months become more aggressive in demanding mortgages be bought back by PNC, particularly mortgages originated by National City Corp., a bank that collapsed in the arms of PNC during the financial crisis. "Barring significant changes in the future behaviors and demand patterns of investors, we believe we are appropriately reserved against future demands," Mr. Rohr said. He said "2012 will still be a strong year to PNC." The bank's revenue is expected to increase just below 10% though expenses are seen increasing by the same percentage, the bank's presentation showed. Analysts expect PNC to report a profit of $810 million in the second quarter, according to Thomson Reuters. The bank's first-quarter profit was $811 million, down 2.5% from a year earlier. Meanwhile, Wells Fargo & Co. (WFC) Chief Financial Officer Tim Sloan told investors at the same conference earlier Tuesday that the San Francisco bank hasn't decided yet how much it would add to its repurchase reserve. However, he said the bank hadn't detected "any significant changes" in the GSEs' behavior towards Wells Fargo. Wells Fargo, the nation's fourth-largest bank by assets, is the nation's largest mortgage originator and servicer. It had increased its repurchase reserve by $118 million in the first quarter but said repurchase demands were down 25% from a year earlier, to $154 million. Bank of America Corp. (BAC), the nation's second-largest bank by assets after J.P. Morgan Chase & Co. (JPM), suffered badly in recent years from demands to take back bad mortgages from Countrywide Financial, the massive mortgage lender that the Charlotte bank bought in 2008. The bank is in litigation with Fannie Mae over repurchase demands. A Bank of America spokesman declined to discuss the bank's second-quarter repurchase reserve. --Nick Timiraos and Christian Berthelsen contributed to this article. Write to Matthias Rieker at email@example.com.