PNC Financial Services Group agreed to buy Spanish financial company BBVA's U.S. business for $11.6 billion, making Pittsburgh-based PNC the fifth-largest U.S. bank by assets and setting it up for adding more branches across the Sun Belt.
In the second-biggest financial industry merger since the Great Recession, PNC is adding a bank, Houston-based BBVA USA Bancshares, that is more active when it comes to commercial real estate lending as a percentage of total assets. And as for its own real estate, the combined company doesn't appear it will have too many branches in the same areas once the deal is done.
"The branch map looks good without a lot of overlap," independent bank analyst Vincent Kondaveeti said in a note to clients. "Seems like a good deal from an earnings and operational point of view. ... Increased oil and gas exposure may be a concern" because of the concentration of business near its energy industry-dependent Texas hometown.
BBVA USA, with $104 billion in assets, provides commercial and retail banking services through its 637 branches in Texas, Alabama, Arizona, California, Florida, Colorado and New Mexico. The combined company will have a coast-to-coast franchise with a presence in 29 of the 30 largest markets in the United States.
"This transaction is an opportunity to navigate our future from a position of strength, accelerating PNC's national expansion strategy," William S. Demchak, PNC's chairman, president and CEO, said in a statement.
BBVA USA has been growing its branch network while PNC has been shrinking, according to federal banking data.
Over the past 12 months, PNC has closed 154 branches and opened only 18. BBVA USA has closed three but plans to open 15 new locations across Texas. The branches, set to open in early 2021, underscore a five-year strategic plan launched in early 2020 that bases growth on facilitating face-to-face relationships with customers.
In discussing the deal on a morning conference call, PNC acknowledged the Sun Belt's rising population and is looking to grow in those markets.
"This is about expansion, not taking away things," Demchak said.
Part of the plans for the BBVA branches will include a boost in broadband capacity to enhance online transaction activity, PNC said.
At the same time, PNC hopes to achieve cost efficiencies of $900 million over the next three years, after considering branch technology upgrades.
BBVA USA leases its Houston headquarters at 2200 Post Oak Blvd., where it occupies about 161,000 square feet.
For PNC, the acquisition adds about $86 billion of deposits and $66 billion of loans based on BBVA USA's Sept. 30 balance sheet.
More of BBVA's lending based on asset size has been in commercial real estate than PNC's, according to federal banking data. About 16% of BBVA's assets were tied to commercial real estate loans, which totaled $16.1 billion as of the end of June. PNC's commercial real estate loans totaled $36.3 billion, which was just 8% of its assets.
The combined company's commercial real estate portfolio will represent about 9.4% of total assets.
PNC is buying a bank that through this year posted a loss. BBVA USA posted net income in the third quarter of $166 million, which reduced its loss for the year to $2.2 billion. PNC posted net income of $1.5 billion for the third quarter, which boosted its profit for the year to $1.6 billion.
The transaction, which has been approved by both companies' boards, is expected to close in mid-2021, subject to customary closing conditions, including regulatory approvals.
Upon closing, PNC intends to merge BBVA USA into PNC. The deal comes about a year after the $66 billion merger combining BB&T and SunTrust Banks to create Truist Financial.