With one branch and just $5 million in assets, Pittsburgh-based Hill District FCU is so small its CEO performs routine tasks including making deposits with its correspondent bank.
Treasurer and CEO Richard Witherspoon was doing just that in late June when a teller at PNC Bank NA, which provided depository and check-clearing services for the 3,000-member credit union, informed him its accounts had been closed. "I was flabbergast," he said. To make matters worse, in the queue in front of Witherspoon was a Hill District FCU member holding a loan check from the credit union, and the bank would not honor it. "That was embarrassing," he said.
In an interview, Witherspoon said the credit union started banking with PNC in 1971. "It was more than just a bank back then," he said, calling the credit union's relationship with the bank outstanding. "They had a whole different approach toward community development than they do today."
For example, back in the mid-1990s Hill District FCU was dealing with significant loan losses and PNC gave it a grant to supplement salaries. At another point the credit union's loan-to-share ratio was in the 90% range, and PNC made a substantial deposit so that it could continue lending, he said.
National Association of State Credit Union Supervisors President and CEO Lucy Ito said in an interview she has seen similar things happen to a number of small — and even somewhat larger — credit unions that were at the mercy of institutions acting as correspondent banks. "Sadly, it's a pretty common tale," she said.
Such incidents were especially prevalent a few years ago when there was more bank-versus-credit union sentiment in the financial services space, Ito said. National and regional banks would simply cite a new policy and then refuse to work with credit unions. To some degree there is still that battle, she said.
PNC Financial Services Group Inc. spokeswoman Diane Zappas said PNC periodically reviews its relationships with business customers across a variety of dimensions including profitability, nature of account and adherence to policies and requirements. As a matter of policy and to protect customer information, it does not disclose the reasons for exiting specific relationships, she said.
Witherspoon said he had no problem with PNC's decision but rather the way it was handled. Hill District FCU received no advance warning nor any follow up from the bank. And the timing could not have been worse, he said. Hill District FCU serves a community where the median income is below $20,000 annually and is typically busiest during the first week of the month, in part because that is when social security checks are distributed. So it had no cash for July 1, which could have caused tremendous interruptions.
But Pittsburgh-based F.N.B. Corp. stepped up and allowed it to meet the cash demand. FNB has taken PNC's place as the credit union's correspondent bank and is permitting the credit union's members to use its ATMs free of cost, which is a service PNC did not offer, Witherspoon said.
Ito said typically a larger institution would provide depository and check-clearing services, and with some "noncash" credit unions a bank would also provide cash for members. Historically, some small credit unions have also worked with nearby banks when they had a need to make transactions face-to-face, especially for deposits.
Corporate credit unions are often able to help with tasks such as check processing, Ito said. But when the credit union stabilization program was rolled out during the financial crisis, many credit unions began turning to the Federal Reserve for services that they would have previously contracted from corporate credit unions.
Federal Reserve correspondent banking rules are the same for all credit unions regardless of size. So smaller credit unions do not have different rules or guidelines as opposed to larger institutions. Witherspoon said Hill District FCU has not turned to the Fed because it is too expensive and it is more efficient for Hill District FCU to deal with a nearby bank. He believes few tiny credit unions deal directly with the Fed.
Zappas said PNC continues to support the mission of Hill District FCU and remains an investor in the organization. A portion of the funds it has invested in the credit union support a community loan program, she said.
Witherspoon said he has not heard from PNC since the accounts were closed and would not return the credit union's business to it under any circumstances. "No, absolutely not," he said.