How Dwelling House went from a tight ship to a bookkeeping nightmare
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The Lavelles -- son Robert M., left, and father Robert R. -- were the driving force behind the thrift, one of the only financial institutions in the nation that allowed prisoners to open and maintain bank accounts. Federal regulators warned officers five years ago that they suspected some of the bank's prisoner accounts were being used for criminal activity.
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When tellers and accountants at Dwelling House Savings & Loan were balancing withdrawals and deposits at the end of a business day in the late 1980s, they realized the Hill District thrift was missing 5 cents.
It was a big deal for Robert M. Lavelle, who had been put in charge of the bank by his father and its founder, Robert R. Lavelle. He was so determined to trace the whereabouts of five pennies, he made the staff work until 11 p.m. to solve the mystery.
"My impression of the son is he was extremely committed to the bank and worked long hours," said Robert Wauzzinski, author of "More Than Money: The Story of Dwelling House Savings and Loan," published in 2003.
The top officers at Pittsburgh's leading African-American financial institution had a reputation for running a tight ship. But at some point their system of checks and balances became so weak that no one apparently noticed millions of dollars being systematically funneled out of the bank's capital account over more than a year.
Dwelling House was shut down last weekend by the federal Office of Thrift Supervision, which determined that the $13.8 million bank "was in an unsafe and unsound condition, was critically undercapitalized" and had no reasonable hope of recovering.
"The Office of Thrift Supervision and the FDIC both made extraordinary efforts to prevent the outcome that occurred," said Bill Ruberry, a spokesman for the OTS in Washington, D.C. "We thought this was going to be a happy ending, but the hole turned out to be bigger than we thought."
Dwelling House officials have said cyberthieves were able to tap into their computer system and electronically transmit from $3 million to $4 million out of the capital account.
Figuring out exactly how much was missing turned out to be so difficult that it stymied a vigorous campaign by civic leaders and philanthropic foundations to save the institution.
Federal officials said financial records at Dwelling House were in such poor shape that even after three months of trying to make sense of it all, the institution could not come up with an accurate number for how large its problem was.
On Aug. 14, the final day of negotiations, representatives of the Heinz Foundation, the Pittsburgh Foundation, the Poise Foundation, the Elsie Hillman Foundation, Dollar Bank and Wells Fargo gathered at a conference table ready to seal a deal.
The closing paperwork awaited their signatures, and together they had placed more than $1 million in escrow to bail out the thrift.
But as the clock ticked closer to 5 p.m., federal accountants realized Dwelling House was in worse shape than anyone had thought. Beyond the money promised, the bank needed an additional $1 million in capital to become solvent.
The deal fell apart.
"Everyone worked hard to meet a goal, and at the 11th hour it turned out the need was greater than expected," Mr. Ruberry said.
Robert M. Lavelle, a central figure in the downfall of this city's most prominent minority-owned financial institution, has not commented publicly about his role in its failure. He declined to comment for this report. Mr. Lavelle, 65, was fired by order of the OTS in November and recently was fined $5,000 by the federal agency that oversees thrifts.
Dr. Wauzzinski said he spent many hours interviewing and observing Mr. Lavelle and his father, Robert R. Lavelle, 93, during the five years he spent researching his book, and that he was baffled by the turn of events.
"This bank up until this point has been the model of ethical banking and competency," he said. "I know that because I spent time with a tape recorder interviewing everyone associated with that bank.
"I've never seen a business that has built up as much community trust as Dwelling House has. This comes as a complete shock to me. I hesitate to speculate on what went wrong."
The FBI and Pittsburgh police were investigating and declined to make an official statement.
One law enforcement officer, who is close to the case and spoke on condition of anonymity, said the probe is moving slowly because so many agencies are involved and it's hard to get a clear picture of what went on because of Dwelling House's bookkeeping problems.
While the 119-year-old bank had made strides into the computer era, much of its business was still handled the old-fashioned way -- by hand.
The institution had a tradition of doing things differently even before technology began changing the banking industry. Its mission of serving an underserved population meant not always listening to common wisdom.
Instead of relying on complicated risk profiles to make loan decisions, Dwelling House took chances that many commercial banks would not have taken on low-income borrowers. And it was not uncommon for the thrift's officers to visit people's homes to give them financial counseling.
That commitment to helping the underprivileged might have been part of the bank's own undoing.
Dwelling House was one of the only financial institutions in the nation that allowed prisoners to open and maintain bank accounts. Federal regulators warned officers five years ago that they suspected some of the bank's prisoner accounts were being used for money laundering and other forms of criminal activity.
In 2006, the OTS ordered Dwelling House to stop opening prisoner accounts, to keep all existing prisoner accounts to $25 maximum deposits and to stop allowing prisoners to make electronic deposits. The bank apparently continued to violate the order, which recently resulted in Robert M. Lavelle being fined $5,000, his father $2,500 and five other board members $1,000 each.
All Dwelling House deposits now belong to the $20 billion PNC Financial Services Group, which has indicated it likely will close the accounts. PNC also plans to close the branch and move the remaining accounts into a nearby PNC branch.
David Barr, a spokesman for the Federal Deposit Insurance Corp. in Washington, D.C., said his organization didn't find a lot of interest from the banking community in buying Dwelling House.
Weeks ago, when the OTS notified the FDIC that Dwelling House was in such dire financial straits it might be closed, FDIC officers began to quietly market the Pittsburgh thrift to 489 potential buyers nationwide. That included 115 designated minority-owned financial institutions.
The only bank that came forward with a bid was PNC.
PNC bought all of Dwelling House's $13.8 million in deposits and $1.9 million of its $13.4 million in loan assets. The remainder of Dwelling House's $11.5 million in loans will be sold on the secondary bond market to the highest bidders.
First Published August 24, 2009 12:00 am
