Customers of Dwelling House Savings & Loan became clients of PNC Financial Services Group yesterday following the regional bank's takeover of the tiny Hill District institution this weekend.

For people with strong emotional ties to a bank that not only served financial needs but was identified with its mission to improve the African-American community, the abrupt and unexpected change was disappointing.

"I just closed my account and I'm very upset because they are selling my mortgage and I don't know who they are selling it to," said Elaine Benson, 56, of Monroeville, as she stormed out of the bank yesterday. "I've never been late on a mortgage payment or my home-improvement loan.

"I was just told by PNC that in 30 days this building will be closed. This tells me that Dwelling House is no longer in business and I don't want to do business with PNC Bank."

The 119-year-old minority-owned financial institution that famously embraced low-income people that other banks steered clear of became another footnote in Pittsburgh's history when the federal Office of Thrift Supervision determined late Friday it had no hope of recovering heavy capital losses.

Dwelling House was shut down and OTS officials appointed the Federal Deposit Insurance Corporation as receiver. The FDIC sold all of Dwelling House's $13.8 million in deposits to PNC Financial Services. PNC also bought $3 million of Dwelling House's $13.4 million in loans.

The remaining $10 million in mortgages and other loans will be sold for pennies on the dollar to investors in the secondary bond market.

"For any loan the FDIC has, we would encourage those customers to get with PNC Bank or a lender of their choice and arrange financing," said Scott Hammer, an FDIC ombudsman based in Washington, D.C. "Otherwise, the FDIC will consolidate the loan portfolio and subsequently bundle and sell them on the open market.

"We are not lenders. Our responsibility is to liquidate the assets," he said.

The FDIC will be notifying customers if their loans were not purchased by PNC.

The Dwelling House building itself is owned by Lavelle Real Estate, which is located next door under the same roof. Lavelle Real Estate will retain ownership of the building.

PNC spokesman Fred Solomon said the sole branch of Dwelling House will be closed within 90 days. PNC will continue to offer commercial banking services in the Hill District through an existing PNC branch on Centre Avenue across from Hill House.

"For the time being, these customers don't yet have access to PNC branches," Mr. Solomon said. "We'd like them to continue banking at Dwelling House."

But ultimately, he said, when the accounts are fully converted to PNC, the new customers will have access to a wider array of banking services such as checking and savings accounts, debit and credit cards and ATMs.

Dwelling House had only offered savings accounts.

Gail Williams, 60, of East Liberty, a longtime Dwelling House customer, said she was devastated to hear of the takeover but is now looking forward to a relationship with PNC.

She had purchased money orders to pay her bills while banking at Dwelling House. PNC representatives have already set up a checking account for her and waived the fee the bank usually charges customers with savings accounts below the $400 minimum, she said.

Still, the change is not easy.

"I just liked Dwelling House. The people and the small atmosphere is great," Ms. Williams said. "Changing to PNC is progress, though, because Dwelling House was not automated and a lot of things were done by hand.

"This way, I'm coming into the new era of automation. With PNC, we are moving on up."

One issue in the PNC purchase was the prisoner bank accounts that Dwelling House had maintained. Regulators had for years been concerned about the thrift's role in providing banking services to prison inmates, and now PNC owns those controversial accounts.

"We have a lot of decisions to make over the next several months, and that's one of them," Mr. Solomon said, pointing out that Dwelling House opened the prisoner accounts by mail and PNC does not operate that way. "To open a PNC account, you must come into a branch."

Office of Thrift Supervision officials five years ago warned Dwelling House management to stop letting prisoners make electronic transactions and to limit prisoner deposits to $25. The thrift apparently continued to violate the federal order, according to OTS enforcement records.

The thrift's problems deepened when $3 million in fraudulent electronic withdrawals cleaned out Dwelling House's capital account over more than a one-year period.

Bank officers blamed the losses on an organized ring of cyberthieves, and said sloppy bookkeeping caused the thefts to go undiscovered for so long. The FBI and Pittsburgh city police are still investigating what happened to the money.

Former president and CEO Robert M. Lavelle, the son of the 93-year-old former CEO Robert R. Lavelle, was fired by order of the OTS in November and was recently fined $5,000 for failing to properly manage the institution. Five of the bank's directors also were fined $1,000 each.

Pittsburgh community leaders made an extraordinary attempt to rescue the landmark institution from failure when news of its financial troubles became public. Several charitable foundations had agreed to a last-ditch plan to help the thrift meet capital reserve requirements.

Jackie Dixon, a community activist who once served as a member of Dwelling House's board of directors, hosted a party at her Fox Chapel home last month to thank everyone who made a deposit of at least $1,000 during a public fundraising drive.

"If I had it to do all over again, would I? Certainly," Ms. Dixon said yesterday.

Local business owner Ogbonna Onwubiko, 49, of East Liberty, said he will be forever grateful to Dwelling House.

Officers at the thrift in 2006 granted him a $56,000 loan for the $89,000 purchase of the building on South Highland Avenue where he runs Global Food Market, which specializes in African, Caribbean and Latin American foods.

"They are good people here," he said. "When I was looking for the loan, I went to all the banks around and nobody was willing to talk to me. (Dwelling House) talked to me and gave me the loan."

At the time, Mr. Onwubiko said he had no credit history, but he did have an excellent rental record and a 30 percent down payment for the building, plus closing costs.

"They looked at it and they helped me out," he said, adding that his business is thriving. "It's unfortunate what has happened here."

First Published: August 18, 2009, 4:00 a.m.