FNB of Pennsylvania to pay $13.5M to settle redlining allegations

Key Takeaways:

– First National Bank of Pennsylvania (FNB) has agreed to pay $13.5 million to settle accusations of redlining.
– FNB is the 12th lender to settle with the Department of Justice since the Combating Redlining Initiative was announced in October 2021.
– The settlement requires FNB to invest at least $11.75 million in a loan subsidy fund to provide better access to mortgages and home improvement loans in majority-Black and Hispanic neighborhoods.
– FNB denies the accusations and states that it has never avoided serving the credit needs of borrowers in these neighborhoods.
– The complaint alleges that FNB had very few branch offices in majority-Black and Hispanic neighborhoods and did not assign loan officers to work in those neighborhoods.
– FNB’s marketing strategy was focused on white communities, according to the complaint.
– The settlement also requires FNB to open three new branches in predominantly Black and Hispanic neighborhoods and hire a director of community lending.
– The Department of Justice’s Combating Redlining Initiative has resulted in settlements with a total of 12 lenders, totaling over $122 million.
– The settlement with FNB aims to create better borrowing opportunities for all residents of North Carolina.

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A 2017 acquisition that expanded First National Bank of Pennsylvania’s footprint into North Carolina came with some unexpected baggage — accusations of redlining that the bank denies but has agreed to pay $13.5 million to resolve.

First National Bank of Pennsylvania (FNB) is the 12th lender to settle with the Department of Justice since federal officials announced a Combating Redlining Initiative in October 2021.

The latest settlement, announced jointly on Monday with North Carolina’s attorney general, requires FNB to invest at least $11.75 million in a loan subsidy fund to provide better access to mortgages and home improvement loans to residents of majority-Black and Hispanic neighborhoods in the Charlotte and Winston-Salem markets.

In agreeing to the settlement, FNB maintained that “it has never acted to avoid serving the credit needs of borrowers in majority-Black and Hispanic census tracts or to discourage such borrowers from obtaining mortgage loans,” and that “it began implementing reforms to ensure [it] was properly serving all of the communities in its footprint,” before agreeing to settle the case.

In their complaint, government prosecutors said Pittsburgh, Pennsylvania-based FNB first entered the Charlotte and Winston-Salem markets in March 2017 when it acquired Yadkin Bank in a deal FNB valued at $1.8 billion.

The complaint alleges that from 2017 through 2021, only two of the 36 branch offices that FNB operated at various times in the metro Charlotte and Winston-Salem markets were located in majority-Black and Hispanic census tracts.

“During the relevant time period, FNB did not assign even one loan officer to work in either of the two FNB branches located in majority-Black and Hispanic neighborhoods,” the complaint alleged.

While FNB relied “overwhelmingly on mortgage loan officers” to generate mortgage loan applications by developing referral sources and conducting outreach to potential customers, only two of the 42 loan officers it employed in the Charlotte market were Black, and one of them sold reverse mortgages, prosecutors alleged. FNB did not employ any Black or Hispanic loan officers in the Winston-Salem market, the complaint said.

Other lenders generated applications in predominantly Black and Hispanic neighborhoods at two-and-a-half times the rate of FNB in Charlotte and four times the rate of FNB in Winston-Salem, prosecutors said.

In analyzing FNB’s marketing strategy, investigators determined that it was focused on raising brand awareness and promoting the bank’s services — a “broad-reaching strategy” that was not designed to attract mortgage applications from majority-Black and Hispanic communities.

FNB’s search engine marketing efforts “were targeted to ZIP codes within 10 miles of an FNB branch,” the complaint alleged, and direct mail marketing was targeted at homes “within a 10-15 minute drive of a branch.”

“Because FNB’s branches were concentrated in white communities, this practice focused direct mailing and search engine marketing on white communities,” the complaint alleged.

In a statement, FNB said the DOJ investigation “encompassed both mortgage lending activity by Yadkin prior to the acquisition and First National Bank in the early years following its entry into the North Carolina markets.”

“First National Bank is deeply disappointed that the government commenced an investigation after the bank’s brief presence in the Charlotte and Winston-Salem markets, particularly when the bank had established its commitment to offering affordable credit in minority communities immediately following the Yadkin acquisition,” the statement said.

In addition to investing nearly $12 million in a loan subsidy fund, the settlement requires FNB to open three new branches in predominantly Black and Hispanic neighborhoods in Charlotte and Winston-Salem, and hire a director of community lending to oversee the continued development of lending in those communities.

FNB also agreed to spend an additional $1 million on community partnerships to provide services related to credit, and $750,000 for advertising, outreach, consumer financial education and credit counseling in predominantly Black and Hispanic neighborhoods.

“When banks discriminate, it means hardworking people can’t buy a house, start a business, or invest in their futures,” North Carolina Attorney General Josh Stein said in a statement. “I want every person who calls North Carolina home to have a fair shot, and I’m pleased that this settlement will create better borrowing opportunities for all North Carolinians.”

The Department of Justice’s Combating Redlining Initiative has resulted in settlements with a dozen lenders totaling more than $122 million to date, including:

  • Jacksonville, Florida-based Ameris Bank, which agreed in October 2023 to a $9 million settlement aimed at improving access to credit in majority-Black and Hispanic neighborhoods.
  • The Washington Trust Company agreed in September 2023 to invest and spend at least $9 million to improve access to mortgage credit in minority neighborhoods in Rhode Island.
  • Newark, Ohio-based Park National Bank agreed in February 2023 to invest at least $7.75 million in a loan subsidy fund to increase access to credit in majority-Black and Hispanic neighborhoods in the Columbus area.
  • In what was touted as the biggest redlining settlement ever reached by the Department of Justice, City National Bank in January 2023 agreed to invest at least $31 million in majority-Black and Hispanic neighborhoods in Los Angeles County.
  • Lakeland Bank in September 2022 agreed to invest at least $12 million in a loan subsidy fund for residents of Black and Hispanic neighborhoods in the Newark, New Jersey, metropolitan area, including neighborhoods in Essex, Somerset and Union counties.
  • Berkshire Hathaway-owned Trident Mortgage Company in July 2022 agreed to invest more than $20 million to create homeownership opportunities in communities of color around Philadelphia.

In announcing the settlement with Ameris Bank last fall, Attorney General Merrick Garland said the Justice Department had over two dozen ongoing investigations into redlining across the country.

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