Behind PNC’s $88 billion commitment to invest in communities

By now, it’s become standard practice for merging banks to commit to lending billions of dollars in low-income neighborhoods as a way of winning community advocates’ support for their deals. The largest such pledge came in 2019, when Truist Financial — the company created through the merger of BB&T and SunTrust Banks — committed to making $60 billion in mortgages, small-business loans and other investments within its markets over a three-year period.

Then came Tuesday’s announcement from PNC Financial Services Group.

The Pittsburgh company, which is in the process of acquiring the U.S. operations of Spanish banking giant BBVA, pledged to invest an eye-popping $88 billion in its communities over four years. The commitment includes $47 billion of mortgages, $26.5 billion of small-business loans and $14.5 billion of community development investments.

Like Truist, KeyCorp, Fifth Third Bancorp and other banks, the $468 billion-asset PNC worked closely with the nonprofit National Community Reinvestment Coalition to draw up its community benefits plan. The amount was always going to be in the tens of billions but seemed to grow as PNC Chairman and CEO William Demchak became intimately involved in the discussions and the needs of communities and businesses hit hard by the coronavirus pandemic became more apparent.

NCRC CEO Jesse Van Tol said PNC recognized that $88 billion was the “right response” to the pandemic’s impact on communities.

“This is an uncertain time,” he said“Everybody recognizes this is a need.”

Including PNC’s pledge, the NCRC has now secured nearly $300 billion of community development commitments from large and regional banks since 2016.

Banks often reach these agreements with the goal of avoiding any roadblocks advocacy groups can throw up for regulators as new deals are considered for approval. The agreement with PNC was reached over seven or eight meetings with advocacy groups, and Demchak attended each one and was active in asking questions, Van Tol said.

“[Demchak] was highly engaged,” Van Tol said. “He wanted to make a mark.”

The plan comes after PNC unveiled a new product designed to help customers monitor their checking account balances and avoid overdraft fees, a move Van Tol said was an encouraging step away from the industry’s typical practice of racking up fees from overdrafts.

PNC has earmarked $47 billion for mortgages home equity loans to borrowers of color or those with low to moderate incomes and another $26.5 billion for small businesses in lower-income neighborhoods and areas where a majority of business owners are of color.

PNC will place a high priority on small businesses earning annual revenues of less than $1 million, including many small farms. Van Tol said a commitment to farmers was particularly in negotiations with PNC because the acquisition of the $102 billion-asset BBVA USA would substantially increase PNC’s presence in rural markets. BBVA has about 640 offices in Alabama, Arizona, California, Colorado, Florida, New Mexico and Texas.

“It’s a big geography in this merger,” Van Tol said. “There is a lot of rural area.”

PNC will also provide $14.5 billion in community development loans under the deal, including $400 million for Community Development Financial Institutions that focus on underserved areas. PNC will also increase its grants and charitable giving by $500 million over the four-year period under the agreement.

There will be 20 new branches and 25 remote automated teller machines set up in lower-income areas under the merger, along with 10 mobile banking units. The bank is also planning to increase spending with diverse suppliers by 20% over the four-year plan. PNC also committed to increase recruitment from historically Black colleges and explore how to reach out to higher education campuses that primarily serve Hispanic students looking for job opportunities.

“As a Main Street bank, we believe that our success will be proportional to the prosperity we help create for our stakeholders,” Demchak said in a release announcing the commitment.

PNC’s deal for BBVA, announced in November, is expected to close by the middle of this year.

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