The past year wasn't the best for giant regional bank PNC Financial (NYSE: PNC ) , which saw its fortunes rise and fall throughout 2012. For that reason, investors are doubtless looking forward to (if you can call it that) the Q4 earnings report with some trepidation, particularly since the bank has admitted to some headwinds that will likely impact the quarter's income.
Mortgage malaise strikes again
Last year at this time , PNC showed a dismal 40% drop in net income from its Q4 2010 numbers, as well as a drop in revenue of 9%. Things began to look up in the first quarter of 2012, with revenues up by nearly 3% and net income rising by 2.5%.
Second-quarter results were a mixed bag, showing another sizable drop in net income and reflecting a $438 million provision for mortgage put-back requests. At that time, management noted the increase in these requests, which it expected to continue -- particularly from Fannie Mae and Freddie Mac. The bank's net income margin and net interest income increased, however, primarily due to its acquisition of Royal Bank of Canada's (NYSE: RY ) U.S. operations.
Things really started to look up in Q3 , with net income rising approximately 10% year over year. But, within the last couple of weeks, the rumblings began regarding Q4. The big $8.5 billion settlement between the government and 10 mortgage lenders -- one of which is PNC -- caused the bank to make noises about fourth-quarter income results . The bank has recorded a charge of $70 million for its part of the settlement and has increased reserves for put-back requests by another $254 million -- bringing the grand total for this last category to $614 million at the end of 2012.
What does this mean for Q4?
Put-back requests from government-sponsored entities have escalated for other regionals, as well. SunTrust (NYSE: STI ) has been seeing its requests increase for over a year , and it noted in September that it had set aside $375 million in repurchase provisions during the third quarter. Then, of course, there was the recent granddaddy of all put-back settlements between Bank of America (NYSE: BAC ) and Fannie Mae for a stunning $10.3 billion. In addition, both SunTrust and B of A are fellow signatories on the aforementioned fraudulent mortgage settlement.
Despite all the gloom, Fitch has noted that put-back requests for the regional banks probably won't be as injurious as those facing the nation's biggest institutions. For its part, PNC has announced that issues involving faulty mortgages will likely reduce EPS by $0.47, but that its overall adjusted income will still beat analysts' predictions. In just a couple of days, we'll all know for sure.
The big banks may be rushing to renew their focus on traditional banking, but well-run regional banks like PNC Financial are already there. PNC saw its share of hardships during the financial meltdown, but its management team thinks the bank is now back on track and ready to deliver for investors. Should you put PNC on your radar? To help you figure that out, one of The Motley Fool's top banking analysts has authored a brand-new premium research report, delving into everything investors need to know about PNC today. To claim your copy, simply click here now for instant access.