Dime Savings Bank of New York, F.S.B.

1859–1992

Dime Savings Bank of New York ("the Dime") is a full-service bank offering a wide variety of financial services, mostly residential property loans but also commercial real estate and consumer loans. The Dime operates over 40 banking offices in the New York City area. In the early 1990s the bank had assets totalling over $8 billion and was presided over by Richard D. Parsons, the first African American to lead a large thrift of Dime's size. During the Savings and Loan (S&L) crisis of the 1980s, Dime suffered high delinquencies on home loans. Following a capital restructuring plan at the hands of federal S&L regulators, the Dime turned a profit in 1992 for the first time in five years.

The Dime has a history dating back to 1859, when it was founded as a state-chartered mutual savings bank (owned by its depositors). It wasn't until 1983 that the Dime became a federally chartered mutual savings bank and FDIC member; in 1986, the Dime became a public corporation.

Up until the late 1970s, savings and loan banks were heavily regulated in the types of loans they could offer and the interest rates they charged; for example, commercial lending was limited by New York State law to five percent of a savings bank's assets, and mutual savings banks were restricted by New York State law to only offering home mortgages. Thus, most firms merely had to function profitably within heavily prescribed limits. Smooth growth from low-risk home mortgages worked well for the Dime in the booming postwar housing market.

By 1978 Dime had 11 offices in the New York area and $4 billion in deposits. But the U.S. economy was stagnating at this time (compared to the 1950s and 1960s) and, in 1977 and 1978, Dime began a series of mergers. In October 1977 the bank bought Mechanics Exchange Savings Bank. In 1978 Dime merged with Citizens Savings & Loan Association (which had $98 million in deposits and five offices), also of New York. Both Dime and Citizens were mutuals (i.e., owned by their depositors), so, in merging, they merely pooled their assets and liabilities. Dime subsequently also merged with Mechanics Exchange Savings in Albany ($245 million in deposits) and First Federal Savings & Loan Association of Port Washington, New York ($116 million in deposits).

By 1980, Dime was New York's second largest savings bank and continued to expand through acquisition, now into the suburban New York market. Upon acquiring Union Savings Bank (assets of $232 million), the $5 billion Dime was within a "few million dollars" of Bowery Savings Bank, New York's largest savings institution.

By 1978 Dime had 11 offices in the New York area and $4 billion in deposits.

1984–1988

During the late 1970s, fundamental changes were also occurring in the regulation of financial services. The new laws allowed thrifts to enter markets other than home mortgages, leading to fierce competition within the industry and with other large financial institutions. The potential for growth was enormous, but the risks were also much greater. Soon savings banks were offering credit cards, car loans, and other commercial loans, allowing them the room to compete more effectively with commercial banks. The Dime moved quickly into this competitive foray.

Dime continued its expansion, buying out Westchester County Savings & Loan, with Westchester becoming the Westchester Division of Dime ($30 million in deposits with three offices in Westchester County). Prior to this expansion, Dime had eleven offices in Brooklyn, Manhattan, Nassau, and Suffolk Counties (totalling $4.6 billion in deposits) and no offices in Westchester County.

In addition to its expansionary moves through acquisition, the Dime was moving into new technology and capitalizing on its services through new delivery methods. By 1984, with $6.1 billion in deposits, Dime began utilizing automated teller machines (ATMs), entering into a joint venture with Automatic Data Processing Inc., and Electronic Banking Systems, a marketing firm, to operate ATMs in General Corporation's Pathmark food store chains. Dime had previously operated small branches in food stores. However, much more profit was possible with the application of ATM technology than was generated through Dime's old extended delivery system, and the high levels of customer traffic, convenient locations, and long hours made food stores ideal locations for ATMS.

In 1986 Dime went public, becoming a federally chartered stock savings bank. Dime issued 22,425,000 common shares of stock at $17.75 per share; 4,397,895 shares were offered to deposit account holders, borrowers, trustees, officers, and employees of the Dime, and 18,027,105 shares were sold publicly.

By 1988, the Dime had assets of $11.46 billion and 55 branches in eleven eastern states. Dime acquired Starpointe Savings Bank of Somerset, New Jersey, for $63 million, establishing Dime's first consumer banking presence in New Jersey. (It had previously been limited to mortgage banking in the state.)

1987–1994

Instrumental in the deal was the bank's new president and chief executive officer, Richard Parsons, formerly a partner at the New York law firm of Patterson, Belknap, Webb, & Tyler. The deal made Dime the third largest thrift in New York state and the eighteenth largest in the nation, with 52 retail banking offices in New York state and eleven mortgage offices in New York, Connecticut, New Jersey, and Florida. At the end of 1989, Dime had $12.4 billion in assets. As a result of the deal, Starpointe changed its name to Dime Savings Bank of New Jersey.

By the late 1980s, many S&Ls had extended themselves too far, making real estate loans to questionable borrowers. Over 500 S&Ls had fallen victim to insolvency (with taxpayers financing their return to solvency) and, in 1989, losses for the industry were said to have been growing at a rate of $15 billion per year. Dime was left with huge losses on some 1500 defaulted mortgages. By the end of the decade, the Dime had weathered the S&L crisis, but its profitability had plummeted. Parsons was assigned the task of navigating the Dime out of its troubles. Despite its weak capital position, Dime was considered one of the strongest thrifts on the East Coast.

The goals Parsons outlined for Dime were diversification, cost restructuring, and acquisition. Parsons noted that savings banks like Dime were now competing with large banks. (In fact, Dime's foremost competitor was Citibank.) Because the rules of the game had changed so substantially and competition had increased, Parsons concluded that only expansion into new lines of business and new geographic markets could guarantee survival and high profitability for Dime.

In attempts to cut costs, in February 1992 Dime eliminated 400 jobs (about 15 percent of its staff), and turned to outsourcing of many office activities. About one-third of the bank's back-office activities (including check printing, check processing, and distribution of checking and mortgage statements) were farmed out to Nationar, a processing firm based in New York. This step alone reduced Dime's overhead by approximately $11 million a year. The company also restructured its top management, shedding its chief financial officer, head of foreclosed real estate, chief service quality executive, and senior mortgage official.

Despite these measures, Dime lost $40 million in the first nine months of 1991. And, with a deficient risk-based capital ratio, a legal requirement for thrifts, the Dime continued to be under the careful scrutiny of federal regulators. Dime had to contend with both satisfying federal regulators from the Office of Thrift Supervision on its capital improvement plan, as well as the possibility that regulators would force the company into a merger with a stronger institution. Dime continued to be troubled by non-performing assets, mostly overdue mortgages and foreclosed homes (which made up 10.8 percent of its assets as of September 1992, up from 1.65 percent in 1987). Nonetheless, Dime continued to write new mortgages of $1.5 billion in 1992, up from $250 million in 1991. The company hoped to hit the $3 billion mark by 1994. But three straight years of heavy losses (including over $140 million in losses in 1990 alone) continued to put a drag on growth prospects.

1987–1993

The Dime's new lending strategy focused on safe loans and included a tactic referred to as wholesale mortgage lending. By buying a sizeable portion of new loans from other companies, Dime hoped to achieve geographic diversification of its loans without the expense of opening more branches. While some analysts considered this a high risk strategy, since the purchasing company is far removed from knowing its borrowers, Dime argued that costs of these loans are low and that they would only deal with well-established lenders.

After a record loss of $237.4 million in 1991, Dime earned a profit in 1992, its first recorded profit since 1987. From 1987 to 1993, Dime sold twelve of its branches and reduced its staffing from 3,700 to 1,900 employees. In late 1992, regulators approved Dime's capital improvement plan. As part of its capital restructuring, Dime reduced its assets to $8.8 billion from $12 billion. All of these moves helped to increase its profit rate.

In May 1993, Dime sold the eight branches of its subsidiary in New Jersey to First Fidelity Bancorp. Dime was thus left with 34 remaining branches in what it called its core markets of New York City.