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 June 30, 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
95 Barnes Road, Wallingford, Connecticut 06492
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(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; 5,313,347 shares were outstanding as of July
31, 1998.
Part I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Dime Financial Corporation and Subsidiary
Consolidated Statements of Condition
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June 30, December 31, June 30,
(In thousands, except share data) 1998 1997 1997
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Assets
Cash and amounts due from banks $ 13,235 $ 9,016 $ 8,161
Interest bearing deposits 25 661 44
Federal funds sold 20,708 26,755 24,476
Investment securities available for sale(a) 24,092 17,605 29,096
Investment securities held to maturity(b) 177,747 135,037 133,801
Mortgage-backed securities available for sale(c) 393,834 380,741 270,539
Mortgage-backed securities held to maturity(d) --- --- 2,897
Investment in Federal Home Loan Bank of Boston stock 7,192 7,192 7,192
Loans receivable:
Mortgage Loans:
Residential real estate - owner occupied 262,597 267,583 277,018
Residential real estate - non-owner occupied 24,432 27,440 29,939
Commercial real estate 22,557 26,189 31,814
Builders' and Land 2,228 594 357
Commercial loans 18,413 10,305 7,712
Consumer loans 39,788 41,899 42,660
Allowance for loan losses (11,668) (12,352) (12,330)
--------------------------------------
Loans receivable, net 358,347 361,658 377,170
Premises and equipment, net 4,431 4,474 4,761
Accrued income receivable 8,186 6,586 6,201
Other real estate owned, net 496 481 487
Other assets 8,593 9,162 6,810
Excess of cost over fair value of net assets acquired 1,893 2,068 2,243
--------------------------------------
Total assets $1,018,779 $961,436 $873,878
======================================
Liabilities and Shareholders' equity
Liabilities:
Deposits $ 855,080 $817,091 $755,843
Federal Home Loan Bank of Boston advances 73,000 58,000 43,000
Other liabilities 5,647 7,060 5,464
--------------------------------------
Total liabilities 933,727 882,151 804,307
--------------------------------------
Shareholders' equity:
Preferred stock; no par value; authorized 1,000,000 shares;
none issued and outstanding --- --- ---
Common stock; $1.00 par value; authorized 9,000,000 shares;
issued 5,645,829 shares, 5,515,249 and 5,498,994, respectively;
outstanding 5,294,222 shares, 5,163,642 and 5,147,387, respectively. 5,646 5,515 5,499
Additional paid-in capital 54,188 52,597 52,407
Retained earnings 27,307 23,477 15,735
Net unrealized gain (loss) on available for sale securities 809 594 (1,172)
Treasury stock --351,607 shares at cost (2,898) (2,898) (2,898)
--------------------------------------
Total shareholders' equity 85,052 79,285 69,571
--------------------------------------
Total liabilities and shareholders' equity $1,018,779 $961,436 $873,878
======================================
- --------------------
<Fa> amortized cost: $23,667 at June 30, 1998; $17,351 at December 31,
1997; and $29,315 at June 30, 1997.
<Fb> market value: $177,816 at June 30, 1998; $134,948 at December 31,
1997; and $132,774 at June 30, 1997.
<Fc> amortized cost: $392,918 at June 30, 1998; $380,010 at December 31,
1997; and $272,262 at June 30, 1997.
<Fd> market value: $2,920 at June 30, 1997.
Dime Financial Corporation and Subsidiary
Consolidated Statements of Operations
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Three months ended June 30, Six Months Ended June 30,
(In thousands, except share data) 1997 1997 1997 1997
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Interest Income:
Interest and fees on loans $ 7,585 $ 8,039 $15,193 $16,094
Interest-bearing deposits 1 1 3 2
Federal funds sold 377 287 743 596
Interest and dividends on investments:
U.S. treasury securities 56 57 112 114
U.S. government agency obligations 3,012 2,564 5,812 4,889
REMIC/CMO's 4,252 1,896 8,205 3,217
Non-agency REMIC/CMO's 1,369 1,280 2,832 2,414
Mortgage-backed securities 850 996 1,713 1,631
Asset-backed securities 164 230 344 478
Equity Securities 98 --- 165 ---
Dividends on Federal Home Loan Bank of Boston Stock 115 116 230 230
Asset hedge premiums (13) --- (24) ---
----------------------------------------------------
Total Interest Income 17,866 15,466 35,328 29,665
----------------------------------------------------
Interest Expense
Interest to depositors 9,304 7,578 18,328 14,129
Interest on Federal Home Loan Bank of Boston advances 1,118 787 2,133 1,749
Liability hedge premiums 15 --- 29 ---
----------------------------------------------------
Total Interest Expense 10,437 8,365 20,490 15,878
----------------------------------------------------
Net Interest Income 7,429 7,101 14,838 13,787
Provision for loan losses 50 50 100 100
----------------------------------------------------
Net interest income after provision 7,379 7,051 14,738 13,687
Investment securities gains, net 0 6 118 17
Other operating income 506 488 1,069 1,003
----------------------------------------------------
Income before other operating expenses 7,885 7,545 15,925 14,707
----------------------------------------------------
Other Operating Expenses:
Salaries and employee benefits 1,764 1,696 3,556 3,345
Professional and other services 607 556 1,133 1,139
Bank occupancy and equipment expense 469 506 965 971
FDIC Assessment 25 20 49 38
Net (benefit) cost of operation of other real estate 28 48 82 99
Merger related expenses 181 --- 331 ---
Other operating expenses 525 569 1,028 1,191
----------------------------------------------------
Total Other Operating Expenses 3,599 3,395 7,144 6,783
----------------------------------------------------
Income before income taxes 4,286 4,150 8,781 7,924
Income tax expense (benefit) 1,804 --- 3,689 ---
----------------------------------------------------
Net income $ 2,482 $ 4,150 $ 5,092 $ 7,924
====================================================
Basic Earnings per Share $ 0.47 $ 0.81 $ 0.97 $ 1.54
Weighted Average Common Shares and
Common Stock Equivalents outstanding 5,273 5,141 5,246 5,138
Diluted Earnings per Share $ 0.46 $ 0.79 $ 0.94 $ 1.51
Weighted Average Common Shares and
Common Stock Equivalents outstanding 5,431 5,270 5,401 5,258
Dime Financial Corporation and Subisdiary
Consolidated Statement of Changes in Shareholders' Equity (unaudited)
Six Months Ended June 30, 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 5,092 5,092
Options Exercised 131 1,591 1,722
Dividends Paid (1,262) (1,262)
Change in net unrealized gain (loss)
on securities available for sale 215 215
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Balance at June 30, 1998 $5,646 $54,188 $27,307 $809 ($2,898) $85,052
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DIME FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997 (unaudited)
(Dollars in thousands) 1998 1997
--------------------
Cash flows from operating activities:
Net income $ 5,092 $ 7,924
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 100 100
Depreciation and amortization 435 414
Amortization/Accretion investments, net (310) (575)
Amortization of intangible assets 175 175
Amortization of net deferred loan fees (200) (98)
Gain on investment securities (118) (17)
Gains on sale of other real estate owned 10 (24)
Increase in accrued income receivable (1,600) (987)
(Increase) decrease in other assets 427 (752)
Increase (decrease) in other liabilities (1,413) 896
--------------------
Net cash provided by operating activities 2,598 7,056
--------------------
Cash flows from investing activities:
Available for sale investment securities:
Proceeds from sale of investment securities 137 5,006
Investment securities purchased (8,191) (10,000)
Proceeds from principal payments 1,796 2,033
Available for sale mortgage-backed securities:
Mortgage-backed securities purchased (154,854) (126,417)
Proceeds from principal payments 89,687 11,443
Proceeds from sale of mortgage-backed securities 31,863 3,336
Proceeds from call of mortgage-backed securities 20,709 ---
Held to maturity investment securities:
Investment securities purchased (112,152) (33,999)
Proceeds from maturity of investment securities 69,500 20,500
Held to maturity mortgage-backed securities:
Mortgage-backed securities purchased --- (2,956)
Proceeds from principal payments --- 58
Net decrease in loans 2,736 8,785
Proceeds from sale of loans 579 1,185
Purchase of premises and equipment (392) (80)
Proceeds from sale of other real estate owned 71 898
--------------------
Net cash used by investing activities (58,511) (120,208)
--------------------
Cash flows from financing activities:
Net increase in deposits 37,989 129,745
Payments of FHLB of Boston advances --- (15,000)
Proceeds from FHLB of Boston advances 15,000 ---
Proceeds from exercise of DFC stock options 1,722 190
Payments of cash dividends (1,262) (977)
--------------------
Net cash provided by financing activities 53,449 113,958
--------------------
Net increase (decrease) in cash and cash equivalents (2,464) 806
Cash and cash equivalents at beginning of period 36,432 31,875
--------------------
Cash and cash equivalents at end of period $ 33,968 $ 32,681
====================
Supplemental disclosures of cash flow information:
Non-cash investing activities:
Transfer of loans to other real estate owned $ 96 $ 151
Cash paid during the quarter for:
Interest to depositors $ 17,876 $ 13,618
Interest on FHLBB advances $ 2,054 $ 1,853
Income taxes $ 5,081 $ 310
DIME FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 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 to Shareholders
and incorporated by reference in its Annual Report on Form 10K for the year
ended December 31, 1997. In the opinion of management, the accompanying
consolidated financial statements reflect all necessary adjustments,
consisting only 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 and common stock equivalents outstanding during the
periods presented. Actual shares outstanding totalled 5,294,222 at June 30,
1998 and 5,147,387 at June 30, 1997.
(dollars in thousands, except share data) Three Months Ended
6/30/98 6/30/97
------------------------------------------------
Basic Diluted Basic Diluted
------------------------------------------------
Equivalent shares:
Average shares outstanding 5,273,239 5,273,239 5,141,030 5,141,030
Additional shares due to:
Stock options --- 157,713 --- 128,669
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Total equivalent shares 5,273,239 5,430,952 5,141,030 5,269,699
=============================================================================================
Earnings per share:
Net income $2,482 $2,482 $4,150 $4,150
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Total equivalent shares 5,273,239 5,430,952 5,141,030 5,269,699
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Earnings per share $0.47 $0.46 $0.81 $0.79
=============================================================================================
(dollars in thousands, except share data) Six Months Ended
6/30/98 6/30/97
------------------------------------------------
Basic Diluted Basic Diluted
------------------------------------------------
Equivalent shares:
Average shares outstanding 5,245,542 5,245,542 5,137,926 5,137,926
Additional shares due to:
Stock options ---- 155,334 ---- 119,926
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Total equivalent shares 5,245,542 5,400,876 5,137,926 5,257,852
=============================================================================================
Earnings per share:
Net income $5,092 $5,092 $7,924 $7,924
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Total equivalent shares 5,245,542 5,400,876 5,137,926 5,257,852
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Earnings per share $0.97 $0.94 $1.54 $1.51
=============================================================================================
3. INVESTMENT SECURITIES
The amortized cost, approximate market values, and maturity groupings of
investment securities are as follows:
June 30, 1998 June 30, 1997
----------------------------------------------
Amortized Market Amortized Market
(Dollars in Thousands) Cost Value Cost Value
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INVESTMENT SECURITIES AVAILABLE FOR SALE:
U.S. Government-sponsered agency obligations:
After 1 but within 5 years ---- ---- $ 4,000 $ 3,954
After 5 but within 10 years 5,425 5,438 13,000 12,826
After 10 years 3,571 3,548 ---- ----
Asset-backed securities:
After 10 years 8,710 8,929 12,303 12,304
Equity Securities 5,961 6,177 12 12
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Total Investment Securities Available for Sale $ 23,667 $ 24,092 $ 29,315 $ 29,096
================================================================================================
INVESTMENT SECURITIES HELD TO MATURITY:
U.S. treasury securities:
Within 1 year $ 2,482 $ 2,492 ---- ----
After 1 but within 5 years 1,007 1,058 $ 3,464 $ 3,503
U.S Government-sponsored agency obligations:
Within 1 year 3,000 3,000 ---- ----
After 1 but within 5 years 26,450 26,420 54,886 54,675
After 5 but within 10 years 94,643 94,808 75,451 74,596
After 10 years 50,165 50,038 ---- ----
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Total Investment Securities Held to Maturity $177,747 $177,816 $133,801 $132,774
================================================================================================
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE:
Mortgage-backed securities:
GNMA $ 49,986 $ 50,764 $ 61,718 $ 61,960
FHLMC ---- ---- 33 33
REMIC / CMO's 342,932 343,070 210,511 208,546
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Total Mortgage-backed Sec. Available for Sale $392,918 $393,834 $272,262 $270,539
================================================================================================
MORTGAGE-BACKED SECURITIES HELD TO MATURITY:
REMIC / CMO's ---- ---- $ 2,897 $ 2,920
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Total Mortgage-backed Sec. Held to Maturity ---- ---- $ 2,897 $ 2,920
================================================================================================
June 30, 1998 June 30, 1997
------------- -------------
INVESTMENT SECURITIES AVAILABLE FOR SALE:
Gross unrealized gains $ 466 $ 37
Gross unrealized losses $ 41 $ 256
INVESTMENT SECURITIES HELD TO MATURITY:
Gross unrealized gains $ 376 $ 92
Gross unrealized losses $ 307 $1,119
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE:
Gross unrealized gains $1,408 $ 398
Gross unrealized losses $ 492 $2,121
MORTGAGE-BACKED SECURITIES HELD TO MATURITY:
Gross unrealized gains ---- $ 23
4. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
Six Months Ended June 30,
-------------------------
1998 1997
------------------------
(Dollars In Thousands)
Balance at January 1, $ 12,352 $ 12,929
Provision for loan losses 100 100
Charge-offs (793) (819)
Recoveries 9 120
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Balance at June 30, $ 11,668 $ 12,330
===========================================================================
Average loans $372,424 $393,833
Net charge-offs as a percentage of average loans 0.21% 0.18%
Non-performing loans $ 2,310 $ 2,819
Allowance for loan losses as a percentage of
non-performing loans 505.14% 437.39%
Allowance for loan losses as a percentage of
total loans 3.15% 3.17%
5. NON-PERFORMING ASSETS
June 30,
----------------
1998 1997
----------------
(Dollars In Thousands)
Mortgage loans on real estate $2,237 $2,438
Commercial loans 16 226
Consumer loans 57 155
----------------
Total non-performing loans 2,310 2,819
Other real estate owned, net 496 487
----------------
Total non-performing assets $2,806 $3,306
================
Non-performing loans as a percentage of total loans 0.62% 0.72%
Non-performing assets as a percentage of total assets 0.28% 0.38%
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 collectability 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 that are conditionally guaranteed. Education loans which were 90 days
or more past due and in accrual status totaled $62,000 at June 30, 1998
compared with $164,000 at June 30, 1997. 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 June 30, 1998 impaired loans totaled $2.4 million with a related
allowance of $384,000 compared with impaired loans at June 30, 1997 of $3.4
million with a related allowance of $520,000. Management believes that the
valuation allowance for impaired loans at June 30, 1998 is adequate.
7. FHLBB ADVANCES
Federal Home Loan Bank of Boston advances consisted of the following:
June 30,
1998 1997
-----------------------
(In Thousands)
6.05% due 1998 --- $15,000
5.55% due 1998 $ 5,000 ---
5.89% due 1998 5,000 ---
6.66% due 1999 10,000 10,000
6.29% due 1999 10,000 10,000
6.04% due 1999 5,000 ---
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 $43,000
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 and six months ended June 30, 1998 and 1997:
Three Months Ended
1998 1997
------------------
Net Income $2,482 $4,150
Other comprehensive income, net of tax
Unrealized gains (losses) on investments:
Unrealized holding gain (loss) arising during
period (net of tax expense (benefit) of $77 and
($1,339) for 1998 and 1997, respectively). 118 (2,041)
Less: reclassification adjustment for gains
included in net income (net of income tax
expense of $2 for 1997) 0 4
------------------
Other Comprehensive income 118 (2,045)
------------------
Comprehensive income $2,600 $2,105
------------------
Six Months Ended
1998 1997
------------------
Net Income $5,092 $7,924
Other comprehensive income, net of tax
Unrealized gains (losses) on investments:
Unrealized holding gain (loss) arising during
period (net of tax expense (benefit) of $188 and
($127) for 1998 and 1997, respectively). 286 (193)
Less: reclassification adjustment for gains
included in net income (net of income tax
expense of $47 and $7 for 1998 and 1997,
respectively). 71 10
------------------
Other Comprehensive income 215 (203)
------------------
Comprehensive income $5,307 $7,721
------------------
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 ("DFC" or the
"Company"), 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 June 30, 1998 were $1.0
billion.
The Company provides a full range of banking services to individual and
business customers through its subsidiary, 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 numerous 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 a Proxy Statement-Prospectus dated July
10, 1998, DFC and Dime have entered into a definitive merger agreement with
HUBCO, Inc. ("HUBCO") and Lafayette American Bank. 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 and is offset by
additions to the provision for loan losses, other operating expenses and
income tax expense.
In the second quarter of 1998, the Company reported net income of $2.5
million or $0.46 per share on a diluted basis compared with net income of
$4.2 million or $0.79 per share on a diluted basis for the quarter ended
June 30, 1997. Net income for the six month period ended June 30, 1998
totaled $5.1 million or $0.94 per share on a diluted basis compared with net
income of $7.9 million or $1.51 per share on a diluted basis for the six
month period ended June 30, 1997. The change in net income from 1997
primarily reflects the Company's return to taxation at a combined Federal
and State income tax rate of approximately 40%. No income tax expense was
recorded during the first half of 1997 due to the reduction of the valuation
allowance related to deferred tax assets.
The provision to the allowance for loan losses totaled $50,000 for the
quarter ended June 30, 1998, unchanged from the prior year period. The
provision to the allowance for loan losses for the six months ended June 30,
1998 totaled $100,000, unchanged from the first half of 1997.
Net interest income totalled $7.4 million for the quarter ended June 30,
1998, representing a net interest rate spread ("spread") of 2.40% and a net
interest margin ("margin") of 2.98% compared with net interest income of
$7.1 million for the quarter ended June 30, 1997, representing a spread of
2.90% and a margin of 3.42%. Net interest income for the six months ended
June 30, 1998 totaled $14.8 million, representing a spread of 2.43% and a
margin of 3.00%, compared with net interest income of $13.8 million for the
six months ended June 30, 1997, representing a spread of 2.91% and a margin
of 3.45%. The increase in net interest income was primarily caused by a
larger volume of interest-earning assets which was partially offset by a
decrease in the spread and margin. The decrease in the spread and margin
was due primarily to the combination of higher costing deposits, a lower
loan yield, and a greater volume of lower-yielding investment securities, on
average, as a percentage of interest-earning assets.
Operating expenses, excluding the net cost of operations of other real
estate owned ("OREO operations") and merger related expenses, equaled $3.4
million for the quarter ended June 30, 1998, compared with $3.3 million for
the second quarter of 1997. Total operating expenses excluding OREO
operations and merger related expenses for the six month period ended June
30, 1998 totaled $6.7 million unchanged from the year earlier period. The
net cost of OREO operations equaled $28,000 and $82,000 for the second
quarter and first six months of 1998 compared with $48,000 and $99,000 for
the comparable periods of 1997. Expenses related to the previously
announced merger with HUBCO, Inc. totaled $181,000 during the second quarter
of 1998 and $331,000 for the first half of 1998. No such expenses were
incurred during the comparable periods of 1997. Additional merger related
expenses are expected prior to merger. The Company's efficiency ratio,
which excludes merger related and OREO operations expenses, equaled 42.72%
for the quarter ended June 30, 1998 and equaled 42.31% for the first half of
1998, compared with 44.10% and 44.97% for the quarter and six months ended
June 30, 1997.
OREO operations may include gains or losses on the sale of OREO, writedowns
of OREO, and expenses to operate and maintain OREO. The net cost of
operation of OREO equaled $28,000 for the second quarter of 1998 compared
with $48,000 for the second quarter of 1997. For the first six months of
1998 the OREO operations equaled $82,000 compared with $99,000 for the same
period in 1997.
At June 30, 1998, the Company's allowance for loan losses totaled $11.7
million, representing 505.14% of non-performing loans, 415.88% of non-
performing assets, and 3.15% of total loans. At June 30, 1997, the Company's
allowance for loan losses was $12.3 million or 437.39% of non-performing
loans, 372.99% of non-performing assets, and 3.17% of total loans. The
allowance for loan losses at December 31, 1997 totaled $12.4 million,
representing 539.77% of non-performing loans, 446.06% of non-performing
assets, and 3.30% of total loans.
Non-performing assets continued to decline, representing 0.28% of total
assets at June 30, 1998 compared with 0.38% at June 30, 1997 and compared
with 0.29% of total assets at December 31, 1997. Non-performing loans
totaled $2.3 million, or 0.62% of total loans at June 30, 1998, compared
with $2.8 million, or 0.72% of total loans at June 30, 1997 and compared
with $2.3 million, or 0.61% of total loans at December 31, 1997. Other real
estate owned totaled $496,000 at June 30, 1998 compared with $487,000 at
June 30, 1997 and compared with $481,000 at December 31, 1997. Total non-
performing assets were $2.8 million at June 30, 1998 compared with $3.3
million at June 30, 1997 and compared with $2.8 million at December 31,
1997.
Gross loans totaled $370.0 million at June 30, 1998, down approximately $4.0
million or 1.06% from total loans of $374.0 million at December 31, 1997,
and down $19.5 million or approximately 5.0% from total loans of $389.5
million at June 30, 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 $855.1 million at June 30, 1998, an increase of $38.0
million from total deposits of $817.1 million at December 31, 1997 and an
increase of $99.2 million from total deposits of $755.8 million at June 30,
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 and solicited municipal deposits. Retail brokered certificates
totaled $36.8 million at June 30, 1998 compared with $22.8 million at June
30, 1997 and compared with $31.7 million at December 31, 1997. Solicited
municipal deposits equaled $19.2 million at June 30, 1998 compared with $7.0
million at June 30, 1997 and compared with $21.5 million at December 31,
1997
ASSET QUALITY
The composition of the Company's balance sheet has continued to change over
the past year. 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 $595.7 million,
representing 58% of total assets at June 30, 1998 compared with $436.3
million or approximately 50% of total assets at June 30, 1997 and compared
with $533.4 million, representing 55% of total assets at December 31, 1997.
While the portfolio increased over the past year, the quality of the
investments continue to be of high caliber 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 $370.0 million at June 30, 1998, compared with $389.5
million at June 30, 1997, representing a decrease of 5.0%. Ongoing loan
review procedures assess loan quality in addition to providing the Board and
management with analysis to determine whether the allowance for loan losses
is sufficient given the risks inherent in the loan portfolio at a point in
time. During the second quarter and first six months of 1998 the Company
added $50,000 and $100,000, respectively to the allowance for loan losses,
unchanged from the provision recorded during the year earlier period.
In addition to non-performing loans, management has classified performing
loans totalling $3.8 million as substandard for internal purposes, at June
30, 1998 compared with $1.6 million at June 30, 1997 and compared with $1.8
million at December 31, 1997. Substandard loans generally 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, 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.
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 rates 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 $34.0 million at June 30, 1998, compared with $32.7
million at June 30, 1997. Cash and cash equivalents represented 3.33% of
total assets at June 30, 1998 compared with 3.74% of total assets at June
30, 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 borrowings
from the Federal Home Loan Bank of Boston ("FHLBB"). Retail brokered
certificates increased $14.0 million from June 30, 1997 to total $36.8
million at June 30, 1998. Solicited municipal deposits totaled $19.2
million at June 30, 1998 as compared to $7.0 million at June 30, 1997. Dime
is a member of the FHLBB and as a member may borrow from the FHLBB to secure
additional funds. At June 30, 1998 FHLBB borrowings totaled $73.0 million,
an increase of $30.0 million from June 30, 1997.
DFC'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 DFC 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. DFC 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 June 30, 1998 the Tier 1 leverage capital ratio of Dime was
8.08%. The following table presents DFC's risk-based and leverage capital
ratios:
June 30,
Required 1998 1997
----------------------------
Tier I risk-based capital 4.0% 21.23% 19.30%
Total risk-based capital 8.0% 22.50% 20.58%
Leverage capital 4.0% 8.13% 8.13%
On July 15, 1998 the Board of Directors declared a regular quarterly payment
of $0.12 per share payable on August 18, 1998 to shareholders of record on
July 31, 1998.
YEAR 2000
The Company is aware of the issues associated with the programming code in
computer systems as the year 2000 ("Y2K") approaches. The Y2K issue is
pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information
when the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or fail. A system failure could
result in the inability of the Bank to properly process customer transactions
and could adversely effect the operations of the Company.
The Company has completed its assessment relating to Y2K compliance and has
completed test plans for its computer systems. The Company's primary data
processing function was outsourced to a third party during 1996. The third
party data processing vendor has provided us with results of recent Y2K
testing. The results indicate that the systems tested performed adequately
with only minor problems, which have since been corrected. Additional
testing is planned. The Bank is an FDIC insured institution and , as such,
has and will adhere to the schedule required by its regulators. In
addition, reporting requirements of regulatory authorities regarding Y2K
have been adhered to. Contingency planning is currently underway and is
expected to be completed during the fourth quarter of 1998. Expenses
relating to Y2K have had and, the Company believes that they will continue
to have, an immaterial effect on the Company's earnings.
COMPARATIVE ANALYSIS
The following table sets forth the dollar increases (decreases) in certain
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 Six months ended
June 30, 1998 June 30, 1998
compared to compared to
June 30, 1997 June 30, 1997
------------------ ----------------
Interest income $ 2,400 $ 5,663
Interest expense 2,072 4,612
-----------------------------
Net interest income 328 1,051
Provision for loan losses 0 0
Investment securities gains, net (6) 101
Other operating income 18 66
Other operating expenses 204 361
-----------------------------
Income before income taxes 136 857
Income tax expense 1,804 3,689
-----------------------------
Net income ($1,668) ($2,832)
-----------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting
and reporting standards for derivative instruments and hedging activities.
It requires that an entity recognize all derivatives in its statement of
financial position and measure those instruments at fair value. The
accounting for changes in fair value of a derivative depends on the intended
use of the derivative and the resulting designation. Under this statement,
an entity that elects to apply hedge accounting is required to establish at
the inception of the hedge the method it will use for assessing
effectiveness of the hedge and the measurement approach for determining the
ineffective aspect of the hedge. Those methods must be consistent with the
entity's approach to managing risk. SFAS No. 133 is effective for all
fiscal years beginning after June 15, 1999. Early adoption is permitted,
however, retroactive application is prohibited. The Company has not yet
determined the impact SFAS No. 133 will have on its financial statements.
- ----------------------------------------------------------------------------
Quarter and Six months Ended June 30, 1998
Compared with
Quarter and Six months Ended June 30, 1997
- ----------------------------------------------------------------------------
General. Net income for the quarter ended June 30, 1998, was $2.5 million
or $0.46 per diluted share, compared with net income of $4.2 million or
$0.79 per diluted share for the same period in 1997. Net income for the six
months ended June 30, 1998 totaled $5.1 million or $0.94 per diluted share
compared with $7.9 million or $1.51 per diluted share for the first six
months of 1997. The change in net income primarily 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 June 30, 1998
totaled $17.9 million representing an average yield on interest earning
assets of 7.19% and totaled $35.3 million for the six months ended June 30,
1998, representing an average yield on interest earning assets of 7.23%.
Interest income for the quarter ended June 30, 1997 totaled $15.5 million,
representing an average yield on interest earning assets of 7.50% and
totaled $29.7 million for the six months ended June 30, 1997, representing
an average yield of 7.49%. 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 totalled $10.4 million for the quarter
ended June 30, 1998, representing an average cost of funds of 4.79% and
totaled $20.5 million for the six months ended June 30, 1998, representing
an average cost of funds of 4.80%. Total interest expense for the quarter
ended June 30, 1997 was $8.4 million, representing an average cost of funds
of 4.60% and totaled $15.9 million for the first six months of 1997 which
represented an average cost of funds of 4.58%. The increase in interest
expense was caused primarily by an increase in the volume of interest-
bearing deposits. The increase in the cost of funds was caused by an
increase in the volume of higher-costing certificates of deposit versus
lower-costing savings deposits.
Net Interest Income. Net interest income totalled $7.4 million for the
quarter ended June 30, 1998 compared with $7.1 million for the quarter ended
June 30, 1997. Net interest income totalled $14.8 million for the first
half of 1998 compared with $13.8 million for the first six months of 1997.
The net interest rate spread for the quarter ended June 30, 1998 was 2.40%
compared with 2.90% for the quarter ended June 30, 1997. The net interest
rate spread for the six months ended June 30, 1998 was 2.43%, down from the
prior year spread of 2.91%. The net interest margin for the second quarter
of 1998 was 2.98%, compared with a net interest margin of 3.42% for the
second quarter of 1997. The net interest margin was 3.00% for the first
half of 1998 compared with a net interest margin of 3.45% for the six months
ended June 30, 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 and six months ended
Quarter Quarter YTD YTD
6/30/98 6/30/97 6/30/98 6/30/97
------------------ ------------------
Interest Earning Assets:
Loans 8.18% 8.22% 8.16% 8.17%
Investment Securities 6.67% 6.93% 6.74% 6.90%
Federal Funds Sold 5.32% 5.46% 5.18% 5.32%
Yield on Interest Earning Assets 7.19% 7.50% 7.23% 7.49%
Interest Bearing Liabilities:
Deposits 4.66% 4.47% 4.67% 4.41%
Borrowings 6.07% 6.35% 6.11% 6.50%
Cost of Interest Bearing Liabilities 4.79% 4.60% 4.80% 4.58%
Net Interest Rate Spread 2.40% 2.90% 2.43% 2.91%
Net Interest Margin 2.98% 3.42% 3.00% 3.45%
Provision for Loan Losses. The provision to the allowance for loan losses
for the quarter ended June 30, 1998 totaled $50,000 compared with a
provision of $50,000 for the second quarter of 1997. The provision for the
first six months of 1998 totaled $100,000, unchanged from the prior year
period.
Investment Securities Gains (Losses), Net. The Company recorded $118,000 of
net realized investment security gains during the first half of 1998,
compared with net realized security gains of $17,000 recorded during the
first six months of 1997.
Other Operating Income. Other operating income totalled $506,000 for the
second quarter of 1998 compared with $488,000 in the second quarter of 1997
and totaled $1.1 million for the first half of 1998 compared with $1.0
million for the first half of 1997. The following table comparatively
summarizes the categories of other operating income:
OTHER OPERATING INCOME:
Quarter Quarter YTD YTD
(Dollars in thousands) 6/30/98 6/30/97 6/30/98 6/30/97
------------------ ------------------
Deposit account fees $422 $403 $ 829 $ 800
Customer service fees 37 34 71 68
Fees from savings bank life
insurance sales 31 28 118 101
Loan and loan servicing fees 4 13 10 22
Other fees 12 10 41 12
--------------------------------------
Total Other Operating Income $506 $488 $1,069 $1,003
--------------------------------------
Other Operating Expenses. Total operating expenses, including OREO
operations, and merger related expenses equalled $3.6 million for the second
quarter of 1998, compared with total operating expenses of $3.4 million for
the second quarter of 1997. Total operating expenses for the six month
period ended June 30, 1998 totaled $7.1 million compared with $6.8 million
for the six month period ended June 30, 1997. The following table
comparatively illustrates the categories of operating expenses:
OPERATING EXPENSES
Quarter Quarter YTD YTD
(Dollars in thousands) 6/30/98 6/30/97 6/30/98 6/30/97
------------------ ------------------
Salaries and Employee Benefits $1,764 $1,696 $3,556 $3,345
Professional Services 607 556 1,133 1,139
Occupancy and Equipment 469 506 965 971
FDIC Assessment 25 20 49 38
Net Cost (Gain) of OREO operations 28 48 82 99
Merger Related Expenses 181 --- 331 ---
Other Operating Expenses 525 569 1,028 1,191
---------------------------------------
Total Operating Expenses $3,599 $3,395 $7,144 $6,783
---------------------------------------
Income Tax Expense. Income tax expense totaled $1.8 million for the quarter
ended June 30, 1998 and $3.7 million for the first six months of 1998
compared with no income tax expense recorded during the first six months of
1997. No income tax was recorded during the first half of 1997 due to the
reduction of the valuation allowance related to deferred tax assets. 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
1997 Annual Report to Shareholders ("Annual Report") on pages seven
through nine under the caption "Asset / Liability Management and
Market Risk". Management believes that, at June 30, 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.
DIME FINANCIAL CORPORATION AND SUBSIDIARY
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
----------- -----------
27 Financial Data Schedule
b On April 9, 1998, the Company filed a current report on Form 8-K,
relating to the postponement of its Annual Meeting of Shareholders,
reporting on Item #5 (other events) and Item #7 (Financial
Statements, Pro Forma Financial Information and Exhibits)
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: August 13, 1998 /s/ Richard H. Dionne
---------------------
Richard H. Dionne
President & Chief Executive Officer
Date: August 13, 1998 /s/ Albert E. Fiacre, Jr.
-------------------------
Albert E. Fiacre, Jr.
Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule