Latest DOJ redlining settlement offers warning about M&A

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First National Bank of Pennsylvania said that it is "deeply disappointed" that the government started an investigation despite the fact that it only entered the Charlotte and Winston-Salem, North Carolina, markets in 2017.
Ken McCarthy

A redlining settlement announced Monday by federal and North Carolina authorities sends a warning to banks about the risk that dealmaking will bring scrutiny of lending practices within a seller's old footprint.

First National Bank of Pennsylvania agreed to the settlement in order to resolve allegations about its mortgage operations in certain parts of North Carolina. The regional bank, a unit of Pittsburgh-based FNB Corp., entered the Charlotte and Winston-Salem markets in 2017 by purchasing Yadkin Financial.

Between 2017 and 2021, First National avoided making mortgage loans in heavily Black and Hispanic parts of the Charlotte and Winston-Salem areas, in contrast with its practices in majority-white neighborhoods, according to the U.S. Department of Justice and North Carolina authorities. 

"We are prepared to hold institutions accountable when they engage in discriminatory conduct," Assistant Attorney General Kristen Clarke, who heads the DOJ's civil rights division, said Monday during a call with reporters. "Banks should also be on notice that they will be held accountable for redlining activity even when conducted by entities that they have acquired or merged with."

Clarke also drew attention to the role that redlining allegations can play in the bank merger review process. That process is conducted by bank regulators, not the DOJ.

"I think that a small takeaway from our announcement today is that institutions should know that that bank merger review process is robust and active and aggressive, and includes an analysis of potentially unlawful redlining," Clarke said.

First National Bank said in a written statement that it is "deeply disappointed" that the government started an investigation despite the fact that it only entered the Charlotte and Winston-Salem markets in 2017 — and in light of what the bank characterized as "its commitment to offering affordable credit in minority communities immediately following the Yadkin acquisition."

The DOJ's investigation covered mortgage lending activity by both Yadkin and First National, encompassing a pre-merger period and the early years after the Pennsylvania bank's entry into the North Carolina market, according to First National.

"We firmly assert First National Bank's compliance with fair lending laws and strongly disagree with the DOJ's allegations," bank spokesperson Jennifer Reel said in a press release. "We cooperated fully to reach an agreement in this inherited matter as a good faith effort to avoid prolonged litigation and to maintain our focus on promoting equity and economic prosperity."

First National said that for more than a decade, it has offered specialized loan products meant to expand access to credit.

Under the settlement, First National Bank agreed to invest at least $11.75 million in a loan subsidy fund that's designed to increase mortgage availability in majority-Black and majority-Hispanic parts of Charlotte and Winston-Salem.

The bank, which had more than $45 billion of assets as of November, also pledged to open two new branches in Charlotte and one in Winston-Salem. And it agreed to spend $750,000 on advertising its services to communities of color in the two North Carolina markets, plus $1 million on related community partnerships. 

First National, which currently has 16 branches in the Charlotte area and 15 in the Winston-Salem area, noted that the settlement did not include a civil money penalty.

U.S. officials did not reveal what prompted their investigation of First National. But they said in the settlement agreement that they first notified the bank that they were opening the probe in November 2021, which was one month after the DOJ announced its Combating Redlining initiative.

First National told the authorities that Yadkin had historically lagged behind peer banks in lending in majority-Black and majority-Hispanic census tracts in the Charlotte and Winston-Salem metropolitan statistical areas, according to the settlement agreement.

Under the deal, First National agreed to retain consultants to conduct a community credit needs assessment for the Black and Hispanic communities in Charlotte and Winston-Salem. The bank is expected to submit a remedial plan that draws on the recommendations of the assessment.

First National also agreed to designate an employee as director of community lending, and to give that person responsibility for overseeing the development of the bank's lending in majority-Black and majority-Hispanic census tracts in North Carolina.

According to the Justice Department, the First National settlement is the 13th since the DOJ announced the Combating Redlining initiative more than two years ago. Those settlements include a $31-million agreement — the largest in the agency's history — with Los Angeles-based City National Bank.

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