PNC Bank, a subsidiary of Pittsburgh-based PNC Financial Services, is expanding its corporate banking services and plans to grow its retail branch presence in Los Angeles, a move that has the potential to change the region’s banking scene.
The bank’s westward journey, away from its strongholds in the Midwest and East Coast, began about 10 years ago when it launched plans to become a national player. Those plans came to fruition when PNC completed the $11.6 billion acquisition of Houston-based BBVA USA Bancshares in June.
PNC is the sixth largest bank company in the nation ranked by assets, according to an Insider Intelligence report. The firm had $557 billion in assets as of the end of the year and operated approximately 2,500 branches and 9,000 ATMs.
Main street approach
“The PNC model is what we would call a national main street bank, and what that means is we deliver the full capabilities of a national platform bank, but deliver them on a localized business model,” Todd Wilson, PNC’s regional president of the greater Los Angeles market, said. “That’s driven by a local market president, me in this case in Los Angeles, that oversees all the operations for the bank in that market.”
Wilson has ties to the region he serves, having worked with the city of Los Angeles in 2010 after being appointed a managing director for the city by Mayor Antonio Villaraigosa and First Deputy Mayor Austin Beutner. Wilson and other local leaders were tasked with figuring out how to make the city more business-friendly from a policy perspective. He was involved in the launch of the LA County Office of Small Business.
Wilson noted that although PNC has had a presence in Los Angeles for a while, his team’s efforts to expand corporate banking and outreach to small businesses and middle-market companies is something new. Wilson and his team operate out of a Century City office that opened about five months ago.
“Our primary clients today are businesses in the local community and our focus is on helping them grow, either through offering credit or other ancillary services,” Wilson said. “But it’s our intention to build out the full capabilities of the bank throughout Los Angeles and all of California.”
Although details of that retail branch expansion were not disclosed, Wilson said PNC has plans in the pipeline. PNC has one physical branch in Los Angeles, a legacy BBVA branch in Lynwood. Chase Bank, for comparison, operates about 55 branches in Los Angeles.
Nathan Stovall, the director of the financial institutions research team for S&P Global Market Intelligence, said that more branches will eventually be in the works for PNC.
“If you’re going to be a bank of size, that means not really being there with just one or two branches. Now 20 years ago, (expansion) might have meant 50, 100 or even more branches for somewhere like Los Angeles,” Stovall said. “But nowadays, that number is certainly lower. (PNC) might now need one-fourth or one-fifth as many branches as they would have back then.”
Stovall said it is common for banks of PNC’s size to venture into new markets where they have little to no retail presence but do have corporate banking activity, referring to JP Morgan and Bank of America. He added that PNC has been able to target new expansion through digital offerings as a way to test markets.
“I don’t know if they have explicitly done that in L.A., but I know that they were doing that in a lot of places as a way to get their toe in the water and see what kind of pickup they would have,” Stovall said. “On the corporate side, that just makes tremendous sense.”
PNC’s current priority is corporate banking and building relationships with local companies in sectors such manufacturing and exports. According to Wilson, the institution’s corporate banking presence will expand across all local industries.
Wilson stressed that the bank is also key on advancing minority-owned and women-owned businesses.
“This is where we’ll put our dollars here in L.A., around women’s business development and minority business owners,” Wilson said. “When we think about all these small businesses that have been built up, we think that’s a huge opportunity for us to focus on and it’s very consistent with what PNC has been doing.”
At a national level, PNC has already engaged in initiatives that seek to help such businesses. The bank’s Project 257 is attempting to close the economic gender gap between men and women through focused development and advancement of women within the company, and by investing in community institutions that support female and minority entrepreneurs.
Logistics of growing
Century City office: Todd Wilson, fourth from left, regional president of PNC Bank, with, from left, Derrick Littlejohn, Debbie Marshall, Tina Hwang, Anita Dharapuram and James Yi. (Photo by Ringo Chiu)
Stovall sees PNC’s move to establish a corporate banking presence before establishing physical branches as one that could save the bank money, depending on its approach. He referenced banks that have spent fortunes on marketing and gained large numbers of customers at the cost of racking up customer acquisition expenses.
“In a lot of cases for those banks, the average account size is really small, so they’ve been able to attract a bunch of people, but they’re not bringing a lot of money into it,” Stovall said. “So, it’s not foolproof, but that’s the challenge, right? You can put a number on (the cost of a marketing campaign) and that number might be lower than building a new branch (or it might not).”
Mike Mayo, head of United States large-cap bank research at Wells Fargo Securities, said PNC pulling farther away from its headquarters has some implied risk.
“To the extent that they increase the lending on the West Coast, that has potential to increase the risk that their selection will not be as good as it’s been in the past,” Mayo said. “So they need to be hyper alert for any red flags in their new expansion and be attuned to risk.”
However, Mayo added, such issues should be handled well by the bank since it has some of the best risk management in the banking industry.
“If anyone’s attuned to the risk, it should be them,” Mayo said. “There’s a new kid in town in PNC and they shouldn’’t be underestimated. That’s why I call them the bank of steel, given their resiliency of balance sheet operations, technology and risk oversight.”
Wilson said PNC does not have a detailed timeline for its expansion, but plans to be a presence in Los Angeles for the long run.