SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1998 or
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______________________
to _____________________
Commission File Number 0-17494
DIME FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Connecticut 06-1237470
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
95 Barnes Road, Wallingford, Connecticut 06492
---------------------------------------- ----------
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (203) 269-8881
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - $1.00 par value; 5,269,772 shares were outstanding as of
April 30, 1998.
DIME FINANCIAL CORPORATION AND SUBSIDIARY
INDEX
Part I Financial Information Page No.
Item 1. Financial Statements
Consolidated Statements of Condition
March 31, 1998 and 1997 (unaudited)
and December 31, 1997. 3.
Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997 (unaudited) 3.
Selected Financial Highlights 3.
Consolidated Statement of Changes in Shareholders' Equity
Three months ended March 31, 1998 (unaudited) 4.
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997 (unaudited) 5.
Condensed Notes to Consolidated Financial
Statements (unaudited) 7-12.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-21.
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 21.
Signatures 21.
Exhibit Index 23.
Part I. - FINANCIAL INFORMATION
Item 1. Financial Statements
The registrant incorporates herein by reference the following
information from its Quarterly Report to Shareholders for the quarter
ended March 31, 1998, filed as Exhibit 19 hereto:
Consolidated Statements of Condition (unaudited)
Consolidated Statements of Operations (unaudited)
Selected Financial Highlights
Dime Financial Corporation and Subisdiary
Consolidated Statement of Changes in Shareholders' Equity (unaudited)
Three Months Ended March 31, 1998
Net
Unrealized
Gain on
Additional Available
Common Paid-in Retained for Sale Treasury
(dollars in thousands) Stock Capital Earnings Securities Stock Total
- --------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $5,515 $52,597 $23,477 $594 ($2,898) $79,285
Net Income 2,610 2,610
Options Exercised 84 979 1,063
Dividends Paid (628) (628)
Change in net unrealized gain (loss)
on securities available for sale 97 97
--------------------------------------------------------------------
Balance at March 31, 1998 $5,599 $53,576 $25,459 $691 ($2,898) $82,427
--------------------------------------------------------------------
DIME FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997 (unaudited)
(Dollars in thousands)
1998 1997
------------------
Cash flows from operating activities:
Net income $ 2,610 $3,774
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 50 50
Depreciation and amortization 220 207
Accretion of investments, net (154) (237)
Amortization of intangible assets 87 88
Amortization of net deferred loan fees (57) (37)
Gain on investment securities (118) (11)
Gains on sale of other real estate owned --- (23)
Provision for OREO losses 13 11
Increase in accrued income receivable (768) (1,140)
(Increase) decrease in other assets 91 (758)
Increase in other liabilities 654 959
------------------
Net cash provided by operating activities 2,628 2,883
------------------
Cash flows from investing activities:
Available for sale investment securities:
Proceeds from sale of investment securities 137 --
Investment securities purchased (8,191) --
Proceeds from principal payments 908 --
Available for sale mortgage-backed securities:
Mortgage-backed securities purchased (88,256) (61,190)
Proceeds from call of mortgage-backed securities 13,111 --
Proceeds from principal payments 34,417 5,458
Proceeds from sale of mortgage-backed securities 31,863 3,336
Held to maturity investment securities:
Investment securities purchased (59,155) (24,999)
Proceeds from call / maturity of investment securities 27,000 12,000
Net (increase) decrease in loans (1,589) 6,878
Proceeds from sale of loans 338 289
Purchase of premises and equipment (324) (28)
Proceeds from sale of other real estate owned 7 357
------------------
Net cash used by investing activities (49,734) (57,899)
------------------
Cash flows from financing activities:
Net increase in deposits 36,169 61,051
Proceeds from FHLBB advances 15,000 --
Proceeds from exercise of DFC stock options 1,063 54
Payments of cash dividends (628) (462)
------------------
Net cash provided by financing activities 51,604 60,643
------------------
Net increase in cash and cash equivalents 4,498 5,627
Cash and cash equivalents at beginning of period 36,432 31,875
------------------
Cash and cash equivalents at end of period $40,930 $37,502
==================
Supplemental disclosures of cash flow information:
Non-cash investing activities:
Transfer of loans to other real estate owned $ 35 $ 51
Cash paid during the quarter for:
Interest to depositors $ 8,558 $ 7,028
Interest on FHLBB advances $ 930 $ 962
Income taxes $ 1,281 $ 100
DIME FINANCIAL CORPORATION AND SUBSIDIARY
Condensed Notes to Consolidated Financial Statements
March 31, 1998 (unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements should be read
in conjunction with the audited financial statements and notes thereto
included in Dime Financial Corporation's 1997 Annual Report and Proxy
Statement dated March 20, 1998. In the opinion of management, the
accompanying consolidated financial statements reflect all necessary
adjustments, consisting of normal recurring accruals for a fair presentation
of results as of the dates and for the periods covered by the consolidated
financial statements. The results of operations of the interim period may
not be indicative of results for the entire 1998 fiscal year.
2. EARNINGS PER SHARE
The calculation of earnings per share is based on the weighted average
number of common shares outstanding during the periods presented as follows:
(dollars in thousands, except share data) Three Months Ended
3/31/98 3/31/97
---------------------- ----------------------
Basic Diluted Basic Diluted
Equivalent shares:
Average shares outstanding 5,217,537 5,217,537 5,134,714 5,134,714
Additional shares due to:
Stock options --- 152,954 --- 111,182
- --------------------------------------------------------------------------------------------
Total equivalent shares 5,217,537 5,370,491 5,134,714 5,245,896
============================================================================================
Earnings per share:
Net income $2,610 $2,610 $3,774 $3,774
- --------------------------------------------------------------------------------------------
Total equivalent shares 5,217,537 5,370,491 5,134,714 5,245,896
- --------------------------------------------------------------------------------------------
Earnings per share $0.50 $0.49 $0.73 $0.72
============================================================================================
3. INVESTMENT SECURITIES
The amortized cost, approximate market values, and maturity groupings of
investment securities are as follows:
March 31, 1998 March 31, 1997
-------------------- --------------------
Amortized Market Amortized Market
(Dollars in Thousands) Cost Value Cost Value
- ---------------------------------------------------------------------------------------------
INVESTMENT SECURITIES AVAILABLE FOR SALE:
U.S. Government-sponsered agency obligations:
After 1 but within 5 years --- --- $ 4,000 $ 3,907
After 5 but within 10 years 5,425 5,425 8,000 7,746
After 10 years 3,571 3,511 --- ---
Asset-backed securities:
After 10 years 9,582 9,786 13,254 13,141
Equity Securities 5,961 6,239 12 12
- ---------------------------------------------------------------------------------------------
Total Investment Securities Available for Sale $ 24,539 $ 24,961 $ 25,266 $ 24,806
=============================================================================================
INVESTMENT SECURITIES HELD TO MATURITY:
U.S. treasury securities:
Within 1 year $ 2,475 $ 2,488 --- ---
After 1 but within 5 years 1,008 1,058 $ 3,458 $ 3,467
U.S Government-sponsored agency obligations:
Within 1 year 2,989 2,999 --- ---
After 1 but within 5 years 18,946 18,961 56,370 55,665
After 5 but within 10 years 96,643 96,655 73,451 71,688
After 10 years 45,165 44,704 --- ---
- ---------------------------------------------------------------------------------------------
Total Investment Securities Held to Maturity $167,226 $166,865 $133,279 $130,820
=============================================================================================
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE:
Mortgage-backed securities:
GNMA $ 52,012 $ 52,862 $ 51,397 $ 50,688
FHLMC --- --- 35 35
REMIC / CMO's 337,061 336,933 162,352 158,647
- ---------------------------------------------------------------------------------------------
Total Mortgage-backed Sec. Available for Sale $389,073 $389,795 $213,784 $209,370
=============================================================================================
March 31, 1998 March 31, 1997
-------------- --------------
INVESTMENT SECURITIES AVAILABLE FOR SALE:
Gross unrealized gains $ 495 $ 4
Gross unrealized losses $ 73 $ 464
INVESTMENT SECURITIES HELD TO MATURITY:
Gross unrealized gains $ 275 $ 28
Gross unrealized losses $ 636 $2,487
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE:
Gross unrealized gains $1,480 $ 2
Gross unrealized losses $ 758 $4,416
4. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
Three Months Ended March 31,
1998 1997
---------------------------
(In Thousands)
Balance at January 1, $ 12,352 $ 12,929
Provision for loan losses 50 50
Charge-offs (540) (389)
Recoveries 9 103
- -----------------------------------------------------------------------------
Balance at March 31, $ 11,871 $ 12,693
=============================================================================
Average loans $373,838 $396,407
Net quarterly charge-offs as a percentage of
average loans 0.14% 0.07%
Non-performing loans $ 2,422 $ 2,697
Allowance for loan losses as a percentage of
non-performing loans 490.02% 470.72%
Allowance for loan losses as a percentage of
total loans 3.17% 3.23%
5. NON-PERFORMING ASSETS
March 31,
----------------
1998 1997
---- ----
(In Thousands)
Mortgage loans on real estate $2,260 $2,296
Commercial loans 68 229
Consumer loans 94 172
Total non-performing loans 2,422 2,697
Other real estate owned, net 496 916
----------------
Total non-performing assets $2,918 $3,613
================
Non-performing loans as a percentage of total loans 0.65% 0.69%
Non-performing assets as a percentage of total assets 0.29% 0.44%
6. IMPAIRED LOANS
Impaired loans are commercial, commercial real estate, non-owner occupied
residential mortgage loans, and individually significant owner-occupied
residential mortgage and consumer loans for which it is probable that the
Company will not be able to collect all amounts due according to the
contractual terms of the loan agreement. Owner occupied residential mortgage
and consumer loans which are not individually significant are measured for
impairment collectively.
The definition of "impaired loans" is not the same as the definition of
"non-accrual loans". Non-accrual loans include impaired loans and are those
on which the accrual of interest is discontinued when collectibility of
principal or interest is uncertain or payments of principal or interest have
become contractually past due 90 days. The Company does not accrue income
on loans that are past due 90 days or more except in the case of education
loans which are conditionally guaranteed. Education loans that were 90 days
or more past due at March 31, 1998 and in accrual status totaled $77,000.
The Company may choose to place a loan on non-accrual status while not
classifying the loan as impaired if it is probable that the Company will
collect all amounts due in accordance with the contractual terms of the
loan.
Factors considered by management in determining impairment include payment
status and collateral value. Loans that experience insignificant payment
delays and insignificant shortfalls are not classified as impaired.
Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of
delay, reasons for delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the total debt owed. The amount of
impairment is generally determined by the difference between the fair value
of underlying collateral securing the loan and the recorded amount of the
loan.
Interest payments received from commercial mortgage loans, commercial
business loans, and non-owner occupied residential investment mortgage loans
which have been classified as impaired are generally applied to the carrying
value of such loans. Interest payments received from all other loans which
are classified as impaired are recognized on a cash basis.
At March 31, 1998 impaired loans totaled $2.5 million with a related
allowance of $396,000 compared with impaired loans at March 31, 1997 of $2.1
million with a related allowance of $357,000. Management believes that the
valuation allowance for impaired loans at March 31, 1998 is adequate.
7. FHLBB ADVANCES
Federal Home Loan Bank of Boston advances consisted of the following:
March 31,
1998 1997
---- ----
(In Thousands)
7.16% due 1997 $25,000
5.55% due 1998 $ 5,000
5.89% due 1998 5,000
6.05% due 1998 15,000
6.04% due 1999 5,000
6.66% due 1999 10,000
6.29% due 1999 10,000 10,000
5.77% due 2000 5,000
6.51% due 2000 8,000 8,000
5.69% due 2001 5,000
5.77% due 2001 5,000
5.80% due 2001 7,500
5.84% due 2003 7,500
------------------------------------------
Total FHLBB advances $73,000 $58,000
------------------
8. COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income" as of January 1, 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (such as
changes in net unrealized investment gains and losses). Comprehensive
income includes net income and any changes in equity from non-owner sources
that bypass the income statement. The purpose of reporting comprehensive
income is to report a measure of all changes in equity of an enterprise that
result from recognized transactions and other economic events of the period
other than transactions with owners in their capacity as owners.
Application of SFAS No. 130 will not impact amounts previously reported for
net income or affect the comparability of previously issued financial
statements. The following table summarizes comprehensive income for the
three months ended March 31, 1998 and 1997:
1998 1997
---- ----
Net Income $2,610 $ 3,774
Other comprehensive income, net of tax
Unrealized gains (losses) on investments:
Unrealized holding gain (loss)arising during
Period (net of tax expense (benefit) of $110 and
($1,470) for 1998 and 1997, respectively). 168 (2,241)
Less: reclassification adjustment for gains
Included in net income (net of income tax
expense of $47 and $4 for 1998 and 1997,
respectively). 71 7
-----------------
Other Comprehensive income 97 (2,248)
-----------------
Comprehensive income $2,707 $ 1,526
-----------------
Item 2:
DIME FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Dime Financial Corporation of Wallingford, Connecticut (the "Company" or
"DFC"), organized in 1988, is the parent company of one wholly-owned
subsidiary, The Dime Savings Bank of Wallingford ("Dime") which was
organized in 1871. Consolidated assets as of March 31, 1998 were $1.0
billion.
The Company provides a full range of banking services to individual and
corporate customers through its subsidiary, Dime, which operates eleven
retail banking offices in six contiguous communities within New Haven
County, Connecticut. Products and services offered include a variety of
savings, time, and checking products, as well as mortgage loans, consumer
loans, and commercial loans. Deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to certain limits under the law.
As described in greater detail in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, on March 31, 1998, the Company and
HUBCO, Inc. ("HUBCO") announced the signing of a definitive merger
agreement. Under the terms of the agreement, DFC will be merged into HUBCO
and shares of DFC's common stock will be exchanged for shares of HUBCO
common stock at a specified exchange ratio. The merger agreement also
provides that, until the merger becomes effective or the agreement is
terminated, DFC may only declare, set aside or pay dividends on its common
stock in a quarterly amount equal to $0.12 per share, with the dividend
payment dates to be coordinated with HUBCO. Consummation of the merger is
subject to approval by bank regulatory authorities and the shareholders of
DFC, as well as other customary conditions specified in the merger
agreement. If the approvals are granted, the transaction is expected to be
completed during the third quarter of 1998.
FINANCIAL CONDITION
The Company's earnings primarily depend upon the difference between the
interest and dividend income earned on loans and investments and the
interest expense paid on deposits and borrowed money ("net interest
income"). The difference between the average interest rate earned on loans
and investments and the average interest rate paid on deposits and
borrowings is affected by economic factors influencing general interest
rates, loan demand, the level of non-performing loans, and savings flows as
well as the effects of competition for loans and deposits. Net income is
also affected by gains and losses on investment securities transactions and
other operating income such as service charges and fees offset by additions
to the provision for loan losses, other operating expenses and income tax
expense.
In the first quarter of 1998, the Company reported net income of $2.6
million or $0.49 per share on a diluted basis compared with net income of
$3.8 million or $0.72 per share on a diluted basis for the quarter ended
March 31, 1997. The change in net income from 1997 was primarily due to the
Company's return to taxation which was partially offset by an increase in
pre-tax income due to balance sheet growth. Results for the quarter ended
March 31,1998 reflect a combined federal and state income tax rate of
approximately 40%. No income tax expense was recorded during the first
quarter of 1997 due to the fact that the Company recognized a deferred tax
asset amount sufficient to offset any income tax expense. Income on a pre-
tax basis increased 19% to $4.5 million for the first quarter of 1998
compared with pre-tax income of $3.8 million for the first quarter of 1997.
The increase in pre-tax income was due primarily to growth in the Company's
balance sheet as assets climbed to $1.0 billion compared with total assets
of $814.4 million at March 31, 1997
The provision to the allowance for loan losses totaled $50,000 for the
quarter ended March 31, 1998 unchanged from the provision recorded during
the year earlier period as well as the fourth quarter of 1997. The provision
remained unchanged due primarily to continued strength in the level of the
allowance for loan losses as a percentage of non-performing loans as well as
a percentage of total loans outstanding.
Net interest income totaled $7.4 million for the quarter ended March 31,
1998 representing a net interest rate spread ("spread") of 2.46% and a net
interest margin ("margin") of 3.02% compared with net interest income of
$6.7 million for the quarter ended March 31, 1997 representing a spread of
2.92% and a margin of 3.46%. The increase in net interest income was
primarily caused by a larger volume of interest-earning assets partially
offset by a decrease in the spread and margin. The decrease in the spread
and margin was due primarily to the combination of a higher cost of
deposits, a lower loan yield, and a greater volume of lower-yielding
investment securities as a percentage of interest-earning assets.
Operating expenses equaled $3.5 million for the quarter ended March 31, 1998
compared with $3.4 million for the first quarter of 1997. Costs associated
with the operations of other real estate owned ("OREO") and other
foreclosure related expenses totaled $54,000 for the first quarter of 1998
compared with $51,000 during the first quarter of 1997. Expenses related to
the merger with HUBCO, Inc. totaled $150,000 during the quarter ended March
31, 1998. Additional expenses are expected in the remaining quarters prior
to the merger. The Company's efficiency ratio, which excludes merger-related
and OREO operations expenses, equaled 41.91% for the first quarter of 1998
compared with 45.90% during the first quarter of 1997.
At March 31, 1998, the Company's allowance for loan losses totaled $11.9
million, representing 490.02% of non-performing loans, 406.77% of non-
performing assets, and 3.17% of total loans. At March 31, 1997, the
Company's allowance for loan losses was $12.7 million or 470.72% of non-
performing loans, 351.35% of non-performing assets, and 3.23% of total
loans.
Non-performing assets continued to decline representing 0.29% of total
assets at March 31, 1998. Non-performing loans totaled $2.4 million, or
0.65% of total loans at March 31, 1998, compared with $2.7 million, or 0.69%
of total loans at March 31, 1997. Other real estate owned totaled $496,000
at March 31, 1998 compared with $916,000 at March 31, 1997. Total non-
performing assets were $2.9 million or 0.29% of total assets at March 31,
1998 compared with $3.6 million or 0.44% of total assets at March 31, 1997.
Gross loans totaled $374.8 million at March 31, 1998 nearly unchanged from
total loans of $374.0 million at December 31, 1997 and down $18.0 million or
approximately 4.5% from total loans of $392.8 million at March 31, 1997. The
reduction in total loans outstanding from the prior year was caused
primarily by an increase in prepayment activity in residential mortgages in
addition to increased competition for new loans.
Total deposits equaled $853.3 million at March 31, 1998, an increase of
$36.2 million from total deposits of $817.1 million at December 31, 1997 and
an increase of $166.1 million from total deposits of $687.1 million at March
31, 1997. The increase in deposits from the prior year was caused primarily
by increased volume in the level of retail deposits through competitive
pricing and sales efforts in addition to expansion of the sale of retail
brokered certificates of deposit and solicited municipal deposits. Retail
brokered certificates totaled $36.7 million at March 31, 1998 compared with
$7.9 million at March 31, 1997 and compared with $31.7 million at December
31, 1997. Solicited municipal deposits equaled $33.7 million at March 31,
1998 compared with $21.5 million at December 31, 1997. There were no
solicited municipal deposits at March 31, 1997.
ASSET QUALITY
The composition of the Company's balance sheet has continued to change over
the past year with investment securities increasing and loans decreasing.
Fierce competition and highly competitive pricing tempered loan production
as management believed that the pricing necessary to sustain the loan
portfolio was inconsistent with the risk presented. As a result, the Company
directed its focus to the investment securities portfolio. The Company's
investment securities portfolio equaled $582 million, representing 57% of
total assets at March 31, 1998, compared with $367 million or approximately
45% of total assets at March 31, 1997, an increase of $215 million or 58%.
While the portfolio increased substantially, the investments continue to be
of the highest quality consisting mainly of U.S. Treasury securities, U.S.
Government Agency securities, U.S. Government-Sponsored Agency securities
and AAA rated non-Agency securities.
Total loans equaled $375 million at March 31, 1998 compared with $393
million at March 31, 1997 representing a decrease of 4.5%. Ongoing loan
review procedures assess loan quality in addition to providing the Board and
management with analysis to determine that the allowance for loan losses is
sufficient given the risks inherent in the loan portfolio at a point in
time. During the first quarter of 1998 the Company recorded a provision to
the allowance for loan losses of $50,000, unchanged from the provision
recorded during the year earlier period.
In addition to non-performing loans, management has classified performing
loans totaling $3.1 million as substandard for internal purposes at March
31, 1998 compared with $4.9 million at March 31, 1997. Substandard loans are
inadequately protected by the current sound worth and paying capacity of the
obligor or of the collateral pledged, if any, and must have a well-defined
weakness or weaknesses that jeopardize the liquidation of the debt. These
loans are still performing and management does not have serious doubt as to
their collectibility.
LIQUIDITY AND ASSET / LIABILITY MANAGEMENT
The primary objective of asset/liability management is to maximize net
interest income while ensuring adequate liquidity, monitoring proper credit
risk and maintaining an appropriate balance between interest rate sensitive
assets and interest rate sensitive liabilities. Interest rate sensitivity
management seeks to minimize fluctuating net interest margins and to enhance
consistent growth of net interest income through periods of changing
interest rates. Liquidity management involves the ability to meet the cash
flow requirements of the Company's loan and deposit customers.
The Company has an asset / liability committee ("ALCO") which meets weekly
to discuss loan and deposit pricing and trends, current liquidity and
interest rate risk positions, interest rate and economic trends and other
relevant information. To aid in the measurement of interest rate risk, the
Company utilizes an asset / liability model which, given many key
assumptions, projects estimated results within the constraints of those
assumptions. The model is also used to estimate movement within the balance
sheet, given certain scenarios, and to measure the effects of that movement
on net interest income.
Cash on hand, deposits at other financial institutions, interest-bearing
deposits with an original maturity of three months or less, and Federal
funds sold are the principal sources of liquidity. Cash and cash
equivalents amounted to $40.9 million at March 31, 1998, compared with $37.5
million at March 31, 1997. Cash and cash equivalents represented 4.03% of
total assets at March 31, 1998 compared with 4.60% of total assets at March
31, 1997. The Company believes that liquidity is sufficient to meet
currently known demands and commitments.
Principal sources of funds include cash receipts from deposits, loan
principal and interest payments, earnings on investments, and proceeds from
amortizing and maturing investments. The current principal uses of funds
include disbursements to fund investment purchases, loan originations,
payments of interest on deposits, and payments to meet operating expenses.
The Company constantly reviews the pricing and availability of several
funding sources for general liquidity needs including retail brokered
certificates and solicited municipal deposits, in addition to more
traditional Federal Home Loan Bank of Boston ("FHLBB") borrowings. Retail
brokered certificates increased $28.8 million from March 31, 1997 to total
$36.7 million at March 31,1998. Solicited municipal deposits, a new funding
source for Dime, totaled $33.7 million at March 31, 1998. There were no
solicited municipal deposits at March 31, 1997. Dime is a member FHLBB and
as a member may borrow from the FHLBB to secure additional funds. At March
31, 1998 FHLBB borrowings totaled $73.0 million, an increase of $15.0
million from March 31, 1997. In April of 1998 a $15.0 million borrowing
with the FHLBB matured. The Company replaced this borrowing with two
advances of $7.5 million each for periods of three years and five years,
respectively at a weighted average rate of 5.82%.
The Company's primary source of funds is in the form of dividends received
from its subsidiary bank, Dime. Therefore, the liquidity and the capital
resources of the Company are largely dependent upon the liquidity,
profitability, and capital position of its subsidiary, and the ability of
the subsidiary to declare and pay dividends under applicable laws and
regulations. The Company must comply with the capital ratio requirements set
by the Board of Governors of the Federal Reserve while Dime must comply with
the capital ratio requirements set by the FDIC. At March 31, 1998 the Tier 1
leverage capital ratio of Dime was 8.08%. The following table presents the
Company's risk-based and leverage capital ratios:
March 31,
Required 1998 1997
---- ----
Tier I risk-based capital 4.0% 20.49% 18.67%
Total risk-based capital 8.0% 21.76% 19.95%
Leverage capital 4.0% 8.13% 8.33%
On April 22, 1998 the Board of Directors declared a regular quarterly
dividend payment of $0.12 per share payable on May 22, 1998 to shareholders
of record on May 8, 1998.
COMPARATIVE ANALYSIS
The following table sets forth the dollar (in thousands) increases
(decreases) in the components of the Company's consolidated statements of
operations during the periods indicated and is followed by management's
discussion of the various changes.
Three months ended
March 31, 1998
compared to
March 31, 1997
------------------
Interest income $3,263
Interest expense 2,540
Net interest income 723
Provision for loan losses 0
Investment securities gains, net 107
Other operating income 48
Other operating expenses 157
Income before income taxes 721
Income tax expense 1,885
Net income ($1,164)
---------------------------------------------------------------------------
| Quarter Ended March 31, 1998 |
| Compared with |
| Quarter Ended March 31, 1997 |
---------------------------------------------------------------------------
General. Net income for the quarter ended March 31, 1998, was $2.6 million
or $0.49 per diluted share, compared with net income of $3.8 million or
$0.72 per diluted share for the same period in 1997. The change in net
income reflects the Company's return to taxation at a combined Federal and
State income tax rate of approximately 40%.
Interest Income. Interest income for the quarter ended March 31, 1998
totaled $17.5 million representing an average yield on interest earning
assets of 7.27%. Interest income for the quarter ended March 31, 1997
totaled $14.2 million and represented an average yield on interest earning
assets of 7.47%. The increase in interest income was caused primarily by an
increase in the volume of interest-earning assets. The decrease in yield was
caused primarily by a decrease in the volume of higher yielding loans and an
increase in the volume of lower yielding investment securities.
Interest Expense. Interest expense totaled $10.1 million for the quarter
ended March 31, 1998 representing an average cost of funds of 4.81%. Total
interest expense for the quarter ended March 31, 1997 was $7.5 million which
represented an average cost of funds of 4.55%. The increase in interest
expense was caused primarily by an increase in the volume of interest-
bearing deposits.
Net Interest Income. Net interest income totaled $7.4 million for the
quarter ended March 31, 1998 compared with $6.7 million for the quarter
ended March 31, 1997. The net interest rate spread for the quarter ended
March 31, 1998 was 2.46% compared with 2.92% for the quarter ended March 31,
1997. The net interest margin was 3.02% for the first quarter of 1998
compared with a net interest margin of 3.46% for the first quarter of 1997.
The following table summarizes the yields for the major components of net
interest income for the periods presented:
Comparative Interest Spread Table
For the quarters ended
3/31/98 3/31/97
------- -------
Interest Earning Assets:
Loans 8.14% 8.13%
Investment Securities 6.79% 6.86%
Federal Funds Sold 5.32% 5.27%
Yield on Interest Earning Assets 7.27% 7.47%
Interest Bearing Liabilities:
Deposits 4.68% 4.35%
Borrowings 6.16% 6.63%
Cost of Interest Bearing Liabilities 4.81% 4.55%
Net Interest Rate Spread 2.46% 2.92%
Net Interest Margin 3.02% 3.46%
Provision for Loan Losses. The provision to the allowance for loan losses
for the quarter ended March 31, 1998 totaled $50,000 compared with a
provision of $50,000 during the quarter ended March 31, 1997.
Investment Securities Gains (Losses), Net. The Company recorded $118,000 of
net realized investment security gains during the quarter ended March 31,
1998 compared with net realized security gains of $11,000 booked during the
year earlier period.
Other Operating Income. Other operating income totaled $563,000 for the
first quarter of 1998 compared with $515,000 in the first quarter of 1997.
The following table comparatively summarizes the categories of other
operating income:
OTHER OPERATING INCOME:
March 31,
(Dollars in thousands) 1998 1997
---- ----
Deposit account fees $407 $398
Customer service fees 35 34
Fees from savings bank life
insurance sales 87 72
Loan and loan servicing fees 6 9
Other fees 28 2
------------
Total Other Operating Income $563 $515
============
Operating Expenses. Total operating expenses, including OREO operations and
merger-related expenses, equaled $3.5 million for the first quarter of 1998
compared with total operating expenses of $3.4 million for the first quarter
of 1997. The following table comparatively illustrates the categories of
operating expenses:
OPERATING EXPENSES:
(Dollars in thousands) 3/31/98 3/31/97
------- -------
Salaries and Benefits $1,792 $1,649
Professional Services 526 583
Occupancy and Equipment 496 465
FDIC Assessment 24 18
Net Cost (Gain) of OREO operations 54 51
Merger Related Expenses 150 ---
Other Operating Expenses 503 622
-----------------
Total Operating Expenses $3,545 $3,388
=================
Income Tax Expense. Income tax expense totaled $1.9 million for the quarter
ended March 31, 1998 compared with no income tax expense recorded during the
first quarter of 1997due to the fact that the Company recognized a deferred
tax asset amount sufficient to offset any income tax expense. The estimated
combined income tax expense effective for 1998 is 40%.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Reference is made to the disclosures presented in the Company's
annual report to Shareholders ("annual report") on pages seven
through nine under the caption "Asset / Liability Management and
Market Risk". Management believes that, at March 31, 1998, there
is no material change in the Company's market risks as identified
and measured at December 31, 1997 and presented in the annual
report.
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
a. The following exhibits are included in this report:
Exhibit No. Description
- ----------- -----------
2. Agreement and Plan of Merger, dated as of March 31, 1998,
among HUBCO, Inc., Lafayette American Bank, The Company and
Dime (Incorporated by reference to Exhibit #2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997 (file No. 0-17494))
19. Report furnished to the Company's shareholders for the quarter
ended March 31, 1998.
27. Financial Data Schedule.
b. No report on form 8-K has been filed by the registrant with
the Securities and Exchange Commission during the quarter
ended March 31, 1998.
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIME FINANCIAL CORPORATION
Date: May 13, 1998 /s/ Richard H. Dionne
---------------------
Richard H. Dionne
President & Chief Executive Officer
Date: May 13, 1998 /s/ Albert E. Fiacre, Jr.
-------------------------
Albert E. Fiacre, Jr.
Executive Vice President and Chief
Financial Officer
EXHIBIT INDEX
Exhibit No. Description Page
2. Agreement and Plan of Merger, dated as of March 31, 1998,
among HUBCO, Inc., Lafayette American Bank, The Company and
Dime (Incorporated by reference to Exhibit 2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997 (File No. 0-17494)).
19. Report furnished to the Company's shareholders for the quarter
ended March 31, 1998.
27. Financial Data Schedule