NEW YORK -- The most striking thing a visitor notices about New York City's Lower East Side People's Federal Credit Union is how much it feels like Jimmy Stewart's Bailey Building and Loan in Frank Capra's classic film "It's a Wonderful Life."
First, there's the building. Even though insurance requirements and a changing neighborhood forced the credit union to put its tellers behind regulation-grade security glass, it has kept the original teller counter, windows and wooden accents from when the building served as a bank branch. Thus, after members come through the scruffy gentility of the credit union's main door, with its lobby clock hearkening back to a different time, they step up to windows advertising services from that time, with names like paying/receiving, international banking, note teller and loans.
Second, there are the people. On a given Friday morning, many members who come into the credit union appear to have more than their accounts on their mind as they stop to say hello to member service representatives or ask how a teller's kids are doing in school. Some members are so regular that the staff can tell time by them. Well, usually.
"Oh, oh!" one staffer called out in mock surprise as a middle-aged man who is usually one of the credit union's afternoon crowd walked through the door at about 9:40 a.m. "It can't be time to go home already?"
"Nah, man," the member mumbles and smiles. "I'm just early today."
Finally, like the building and loan from the movie, the $25 million Lower East Side People's Federal Credit Union ended 2009 in the black by over $77,000. This was a first, and all the sweeter for CEO Linda Levy since it happened during a year when very few other credit unions, even those much larger in size, could claim the same color ink on their bottom lines.
"I think we astounded our examiner," Levy said, smiling a little bit at the memory. "He told me, 'I just have to tell you how incredibly rare this is this year.'"
Levy could take particular pride in the credit union's staff and board for the accomplishment since, again much like Stewart's building and loan, the credit union survived its most serious case of red ink ever in 2008, when it ended the year with roughly $233,000 more going out than coming in.
"We had a number of challenges in 2008," Levy said. "But the primary one was that our sources of external funding that we have depended on in the past dried up. Until last year, we had always depended on grant money to help keep ourselves balanced and that went away for us, just like it did for a lot of different organizations."
Levy recalled the scarlet ink on 2008's balance sheet at the end of the year as a both a shock and a wake-up call. Since its chartering in 1986, LESPFCU had used money from outside sources for its initial capital and then for grants each year to help keep the books balanced. But the financial crisis of 2008 wiped out a lot of foundation and other philanthropic giving, including funding for LESPFCU.
"We resolved at the end of 2008 that we could not let ourselves get into another position where we had to take a hit to our reserves," Levy said. "We just couldn't." So the credit union enacted some drastic staff and payroll reductions and took other measures designed to bring the credit union's budget back into line to, if not make money, at least not lose money.
"The ironic thing at the time was just when we it looked like we were on track to get into the black and staying in without hitting any reserve, NCUA came out with the corporate hit," Levy said. "And of course, we had the whole thing with Members United and that was another hit. But we survived and we still made money."
The credit union's whole history has been one of refusing to retreat in the face of adversity, Levy said. Organizers both inside and outside the area began working on building a CU after Manufacturers Hanover Bank, then a regional institution which has since been absorbed into Chase Manhattan Bank, closed down the branch building the credit union uses now and announced it was leaving the area. In retrospect, the decision does not look surprising. The area had steadily become a greater haven to drug dealers and criminals. But many living in the area still saw the loss of the bank branch as a significant blow.
"Hard as it is to believe today," Levy said, "but their departure left a 100 block area of lower Manhattan without any bank branch at all, and that was just not acceptable." But while residents were not lacking in resolve, they were finding that if organizing and capitalizing a neighborhood bank was far beyond their meager resources, organizing and capitalizing a credit union was not going to be a whole lot easier.
Then, about a year into the effort, some organizers, including Cliff Rosenthal, then executive director of the National Federation of Community Development Credit Unions, found out that Manufacturers Hanover was seeking to open another branch on Lexington Avenue and promptly filed an objection to the move with the bank's federal regulator. In their objection, the organizers asserted that under the Community Reinvestment Act, the bank could not open a new branch after having so recently abandoned a nearby community and left it bereft of financial services.
Faced with the objection, Manufacturers Hanover negotiated, and in the end, the Lower East Side People's Federal Credit Union opened with $350,000 and a $100,000 nonmember deposit from the bank, some money to help renovate the bank branch, access to which the credit union also got, and the right to buy the building in three years at an affordable price. By the turn of that year, Levy recalled, LESPFCU had become a $2 million credit union, an experience that validated her hard work in the community, she said.
"When we first opened, the renovations really had not been finished," she recalled. "So there were big sheets of plywood on those great doors we have now and every night we would lock them with a huge chain and big padlock that I would unlock in the morning when I opened up so people could come in and deposit their money with us. Honestly," she added, laughing a little. "I think the fact that people were willing to come and deposit money with us in those circumstances showed how desperate they were for a financial institution."
While the credit union has managed, at least so far, to weather the economic storms, Levy doesn't consider it out of the woods yet. When asked what she considered LESPFCU's greatest accomplishment out of all of the things it has done, Levy answered "staying open today."
Currently, the credit union's biggest challenge is a liquidity problem that finds it with a loan-to-share ratio of 135% as of Jan. 31, a situation that has led the credit union to cut back on some lending until it can resolve the liquidity dilemma. One part of a short-term solution, Levy explained, may come in the form of money from the Troubled Asset Relief Program that the Obama administration will make available to community development financial institutions like LESPFCU for up to eight years at very low interest. But part of the longer term solution may rest in the changing demographics of the neighborhoods around its branches.
The bulk of the credit union's members have come and still come from the band of public housing complexes that wrap around parts of its Lower East Side office or from housing cooperatives near its central Harlem branch, but as both neighborhoods have gentrified, the CU has begun to draw wealthier members, Levy said.
These new members don't care that the credit union works with lower income New Yorkers. Rather, they appreciate that the cooperative is so very local. And as the distrust and anger with larger national bank brands has grown, Levy said the credit union has even begun to see members coming in response to high-profile media efforts like the Huffington Post-sponsored "Move Your Money," drawn by a desire to bank with an institution focused on their own area.
Sherley Soto, member services manager for the credit union, said it's too soon to say if LESPFCU is seeing a trend or merely a blip, but so far the credit union has been opening 10 to 14 new accounts a week, compared to its usual five to seven. And the new members are different, too. Previously, members might be satisfied with depositing $25 to open a share account and maybe another $25 to open a checking account--often at the urging of the Social Security Administration or other government agency--but the new members will deposit more and also ask about the credit union's other products and services.
Levy said the new members not only bring additional deposits and loan demand to the credit union, they also bring a less costly approach to financial services. LESPFCU's costs are higher not because the credit union's delinquencies are that much higher but because the majority of its members remain very transaction based. By contrast, the new members want to take advantage of the credit union's online banking, direct deposit and other technologies that make them, on the whole, less expensive members.
The arrival of the new members and the increased adoption of online banking among even some of the CU's oldest members suggest a longer term trend toward cutting some of the credit union's operational expenses, Levy said.
As it does so, the credit union would keep working with its members to build their financial awareness and skills to help them change their lives, Soto said. She added that the most important thing she believes the credit union accomplishes day in and day out is helping people who have previously had no real connection to a financial institution or little understanding of how to better manage their money gain that understanding. "It's so important," she said, "and it's so rewarding to help it happen."