SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file Number 33-58936
------------------------------------
DIMECO, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2250152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
820 Church Street
Honesdale, PA 18431
(Address of principal executive offices)
(717) 253-1970
(Issuer's Telephone Number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 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 [ ]
As of August 2, 1996, there were 720,159 shares outstanding of the issuer's
common stock with an aggregate market value of approximately $15,843,498.
Dimeco, Inc.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (unaudited) as of June 30,
1996 and December 31, 1995 3
Consolidated Statement of Income (unaudited) for the
three months and the six months ended
June 30, 1996 and 1995 4
Consolidated Statement of Cash Flows (unaudited) for
the six months ended June 30, 1996 and 1995 5
Consolidated Statement of change in Stockholders' Equity
(unaudited) for the six months ended June 30, 1996 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Default Upon Senior Securities 13
Item 4. Submissions of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
Dimeco, Inc.
CONSOLIDATED BALANCE SHEET (Unaudited)
June 30, December 31,
1996 1995
------------ ------------
ASSETS
Cash and due from banks $ 1,283,094 $ 1,231,674
Interest-bearing deposits in other banks 2,832,717 1,970,017
Federal Funds Sold 3,830,000 5,920,000
------------ ------------
Total cash and cash equivalents 7,945,811 9,121,691
------------ ------------
Mortgage loans held for sale 798,043 464,588
Investment securities held to maturity
(market value $14,511,446 and $9,357,895) 14,467,780 11,453,419
Investment securities available for sale 8,999,717 9,267,390
Loans (net of unearned income of $2,096,860
and $2,150,429) 94,967,804 89,656,264
Less allowance for possible loan losses 1,341,627 1,247,629
------------ ------------
Net loans 93,626,177 88,408,635
------------ ------------
Premises and equipment, net 2,889,561 2,960,622
Other real estate 453,895 389,422
Accrued interest receivable 1,006,410 943,319
Other assets 1,856,177 1,799,179
------------ ------------
TOTAL ASSETS $132,043,571 $124,808,265
============ ============
LIABILITIES
Deposits:
Noninterest-bearing $ 13,724,713 $ 12,352,292
Interest-bearing 104,848,745 97,525,940
------------ ------------
Total Deposits 118,573,458 109,878,232
------------ ------------
Securities sold under agreements to repurchase - 2,050,000
Accrued interest payable 561,412 568,413
Other liabilities 465,753 568,578
------------ ------------
TOTAL LIABILITIES 119,600,623 113,065,223
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.50 par value; 3,000,000 shares
authorized, 718,338 and 708,449 shares issued
and outstanding 359,168 354,225
Capital surplus 2,480,550 2,303,241
Retained earnings 9,650,016 9,076,350
Net unrealized gain (loss) on securities available
for sale (46,786) 9,226
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,442,948 11,743,042
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $132,043,571 $124,808,265
============ ============
See accompanying notes to the consolidated financial statements.
Dimeco, Inc.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
[CAPTION]
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
INTEREST INCOME
Interest and fees on loans $ 2,139,306 $ 1,916,109 $ 4,262,825 $ 3,778,945
Interest-bearing deposits in other banks 8,319 3,470 12,334 5,250
Federal funds sold and securities
purchased under agreement to resell 130,983 34,892 251,778 35,683
Investment securities:
Taxable 217,792 256,686 379,009 528,966
Exempt from federal income tax 81,056 81,408 161,651 168,857
------------ ------------- ------------ ------------
Total interest income 2,577,456 2,292,565 5,067,597 4,517,701
------------ ------------- ------------ ------------
INTEREST EXPENSE
Deposits 1,079,583 986,752 2,147,235 1,908,989
Borrowed funds - 73 - 14,811
Securities sold under agreements
to repurchase 28,993 2,222 58,636 21,523
------------ ------------- ------------ ------------
Total interest expense 1,108,576 989,047 2,205,871 1,945,323
------------ ------------- ------------ ------------
NET INTEREST INCOME 1,468,880 1,303,518 2,861,726 2,572,378
Provision for loan losses 136,500 117,750 273,000 170,250
------------ ------------- ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,332,380 1,185,768 2,588,726 2,402,128
------------ ------------- ------------ ------------
OTHER INCOME
Service charges on deposit accounts 57,374 44,160 106,704 85,864
Gain (loss) on loans available for sale (35,746) 13,512 (36,084) 36,885
Other operating income 91,996 92,576 197,717 184,112
Gain on sale of securities 59,257 - 59,257 -
------------ ------------- ------------ ------------
Total other income 172,881 150,248 327,594 306,861
------------ ------------- ------------ ------------
OTHER EXPENSES
Salaries and employee benefits 477,167 410,598 957,182 818,046
Occupancy expense, net 63,975 50,099 140,485 101,831
Furniture and equipment expense 68,690 57,369 128,183 102,547
Deposit insurance premiums 500 57,615 1,000 114,597
Other operating expense 296,456 242,698 585,930 505,714
------------ ------------- ------------ ------------
Total other expenses 906,788 818,379 1,812,780 1,642,735
------------ ------------- ------------ ------------
Income before income taxes 598,473 517,637 1,103,540 1,066,254
Income tax expense 179,000 154,000 329,000 326,000
------------- ------------- ------------ ------------
NET INCOME $ 419,473 $ 363,637 $ 774,540 $ 740,254
============= ============= ============ ============
NET EARNINGS PER SHARE $ 0.58 $ 0.52 $ 1.08 $ 1.07
============= ============= ============ ============
See accompanying notes to consolidated financial statements.
Dimeco, Inc.
STATEMENT OF CASH FLOWS (Unaudited)
Six Months
Ended June 30,
1996 1995
------------- -------------
OPERATING ACTIVITIES
Net income $ 774,540 $ 740,254
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 273,000 170,250
Depreciation 130,406 112,948
Market value adjustment, loans held for sale 31,365 (88,750)
Amortization of investments, net 64,393 86,472
Investment securities gains (59,257)
Decrease (increase) in accrued interest receivable (63,091) 15,714
Increase (decrease) in accrued interest payable (7,001) 31,110
Net decrease in loans available for sale (364,820) 917,604
Amortization of net deferred loan origination fees (41,995) (28,194)
Other, net (150,668) (144,620)
------------- -------------
Net cash provided by operating activities 586,872 1,812,788
------------- -------------
INVESTING ACTIVITIES
Investment securites available for sale:
Proceeds from sales of investment securities 354,248 -
Proceeds from maturities or paydowns
of investment securities 11,698,103 3,663,022
Purchase of investment securities (14,889,043) (504,650)
Net increase in loans (5,586,211) (1,404,631)
Purchase of life insurance policies - (885,000)
Purchase of premises and equipment (50,142) (174,410)
Proceeds from sale of other real estate 89,655 99,248
-------------- -------------
Net cash provided by (used for) investing activities (8,383,390) 793,579
-------------- -------------
FINANCING ACTIVITIES
Increase in deposits, net 8,695,224 3,362,043
Decrease in short term borrowings (2,050,000) (1,400,000)
Proceeds from dividend reinvestment and stock purchase plan 182,252 162,881
Dividends paid (206,836) (173,721)
--------------- -------------
Net cash provided by financing activities 6,620,640 1,951,203
--------------- -------------
Increase (decrease) in cash and cash equivalents (1,175,878) 4,557,570
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,121,689 2,694,187
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,945,811 $ 7,251,757
=============== =============
See accompanying notes to consolidated financial statements.
Dimeco, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Net unreal- Total
Common Retained ized loss on Stockholders'
Stock Surplus Earnings Securities Equity
------------- --------------- --------------- ------------- ---------------
Balance, December 31, 1995 $ 354,225 $ 2,303,241 $ 9,076,350 $ 9,226 $ 11,743,042
Net income 774,540 774,540
Net unrealized loss on securities (56,012) (56,012)
Dividend reinvestment and stock
purchase plan 4,943 177,309 182,252
Cash dividends ($.28 per share) (200,874) (200,874)
------------- --------------- --------------- ------------- ---------------
Balance, June 30, 1996 $ 359,168 $ 2,480,550 $ 9,650,016 $ (46,786) $ 12,442,948
============= =============== =============== ============= ===============
See accompanying notes to the consolidated financial statements.
Dimeco, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Dimeco,
Inc. (the "Company") and its wholly-owned subsidiary The Dime Bank (the
"Bank"). All significant intercompany balances and transactions have been
eliminated in the consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore,
do not necessarily include all information that would be included in
audited financial statements. The information furnished reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of operations. All such adjustments are of a
normal recurring nature. The results of operations for the interim periods
are not necessarily indicative of the results to be expected for the full
year.
Certain comparative amounts for 1995 have been reclassified to conform
to 1996 classifications.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Total assets at June 30, 1996 increased $7,235,000 or 5.8% over the
$124,808,000 reported at December 31, 1995. The Damascus office continued
to add to our asset and deposit base accompanied by increases in each of
the other offices. Cash and cash equivalents decreased $1,176,000 or 12.9%
due to decreases in federal funds sold. With an adjustment in interest
rates during the second quarter, the Company decided to invest in
relatively short term bonds to boost interest income while maintaining
opportunities to reinvest if interest rates begin to increase in the near
term. Although we do not anticipate any dramatic increase in interest
rates in the near future, the positioning in shorter term bonds provides a
more favorable interest rate spread than federal funds sold. In light of
these purchases, total investment securities increased $2,747,000 or 13.3%
during the first half of 1996.
Mortgage loans held for sale increased $333,000 or 71.8% due to
increased originations of residential mortgages amounting to $1,134,000
netted against sales of $801,000 in May. The loan portfolio increased
$5,312,000 or 5.9% with the largest increase being $2,110,000 in
residential mortgages. This increase is the result of an improving real
estate market, somewhat more aggressive interest pricing and a greater
participation by the Company in local real estate and builders
organizations. Commercial loans increased $1,616,000 which is a
continuation of growth that began in 1995 and is attributable to continued
marketing efforts and business development. Consumer loans increased
$963,000 over the same time frame with a special promotion geared towards
helping area residents who experienced both snow and flooding damage during
the winter of 1995-96.
Deposits increased $8,695,000 or 7.9% since December 31, 1995. The
greatest increase was $4,688,000 or 32.2% in statement savings accounts.
Management believes this increase is due to competitive rates offered ,
with business customers in particular using this type of account.
Noninterest-bearing deposits also increased $1,654,000 or 13.4%, which is
typical for the end of the second quarter as local businesses are more
active. Securities sold under agreement to repurchase have been eliminated
since December 31, 1995 with the maturity of this account in June 1996.
These liabilities were used to offer competitive rates to certain larger
customers without the guarantee of the FDIC and therefore without the added
expense of deposit insurance premiums. Since deposit premiums have greatly
decreased, the need for this type of account has been nullified at this
time.
Equity capital increased $700,000 or 6.0% during the six months ended
June 30, 1996, primarily the result of net earnings for the period of
$775,000. The dividend reinvestment plan contributed $182,000 during the
period with the stock purchase option not available to stockholders in the
second quarter of 1996. Dividends of $201,000 along with a $56,000
adjustment in the unrealized loss on securities available for sale
accounted for the remaining change in Stockholders' Equity.
Management monitors risk-based capital and leverage capital ratios in
order to assess compliance with regulatory guidelines. At June 30, 1996
the bank had risk-based capital totalling 14.3%, exceeding the 8.0% minimum
risk-based capital requirement. Core equity capital, which must be at
least fifty percent of the total risk-based capital, was 13.0% of this
requirement at June 30, 1996. Additionally, the Company must maintain a
minimum leverage capital ratio of 3%, as of June 30, 1996 the Company's
leverage capital ratio was 9.6%.
RESULTS OF OPERATION
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995.
The Company earned $775,000 for 1996, an increase of $34,000 or 4.6%
from the $740,000 reported for 1995.
The net margin increased $289,000 or 11.2% from 1995 to 1996. This
increase resulted from volume increases in average interest-earning assets
of $12,605,000 from 1995 to 1996 offset by a decrease in the average
interest rate from 8.19% in 1995 to 8.09%in 1996. The cost of funds
increased from 3.73% in 1995 to 3.82% in 1996 with the volume of deposits
increasing from $104,387,000 to $115,606,000. The net interest spread
decreased from 4.46% in 1995 to 4.28% in 1996.
The provision for loan losses increased $103,000 or 60.4% in 1996 from
1995 due to the increased size of the loan portfolio and to management's
continuing evaluation of credit risk in the portfolio. The level of the
allowance for loan loss as a percentage of total loans remained relatively
consistent during the period at 1.41% in 1996 compared to 1.43% in 1995.
Gains (losses) on loans held for sale decreased $73,000 in 1996 from
1995. During 1996 the Company experienced losses in the held for sale loan
category due to decreased market value. Losses realized on sales of loans
in this category during 1996 were $5,000 with unrealized losses accounting
for the remaining $31,000. During 1995 market prices had increased from
the values booked in 1994.
In the second quarter of 1996, a municipal bond which had been in
nonaccrual status and had been adjusted to a lower market value was
refunded realizing a gain of $52,000. In addition, a group of mortgage-
backed securities which had been paid down to a value below our policy
limits was sold realizing a gain of $7,000.
Salaries and employee benefits increased $139,000 or 17.0% in 1996 as
compared to 1995. Salary expense increased $72,000 or 11.8% which is due
to a combination of normal salary increases of approximately 4.0%,
increased staffing in the Damascus office and overtime associated with
training and installation of Jack Henry Siverlake software which was
installed in May 1996. The additional employees in Damascus accounted for
increased employee benefit expense of $15,000 with additional benefits
from other increased salary expense accounting for $8,000. Expenses
associated with the salary continuation plan which began in 1995 accounted
for $24,000 of the increase because the plan was implemented in the second
quarter of 1995. There was no corresponding expense for the first five
months of 1995. Various miscellaneous items accounted for the remaining
increase, no one of which is material.
Occupancy expense increased $38,000 or 38.0% mainly due to the
establishment of the Damascus office in the third quarter of 1995.
Deposit insurance premiums decreased $114,000 due to the full
recapitalization of the Bank Insurance Fund in the second quarter of 1995.
Other operating expense increased $80,000 or 15.9% from 1995 to 1996.
The main item contributing to this difference was increased advertising
expenses of $20,000 associated with our entrance into a new market area and
extra promotions for our 90th anniversary celebration. In addition, in
1996 the Company outsourced its' Internal Audit function accounting for
$13,000 of unmatched expenses in this category in 1995. Additional MAC
expenses of $11,000 were associated with the additional location in
Damascus. Postage fees rose $11,000 or 28.1% due to the 10.3% increase in
postage rates and the increased number of customer accounts. Computer
software amortization increased $8,000 with the purchase of $135,000 in new
software in 1996 and platform automation software of $69,000 purchased in
1995 on which the company is beginning to recognize additional depreciation
expense.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND 1995
The Company earned $419,000 for 1996, an increase of $56,000 over the
$364,000 reported for 1995. The net interest margin increased $165,000
over the same quarter in 1995 based upon increased volume with a decrease
in interest rate, as noted in six month discussion above.
The provision for loan loss increased $19,000, based on the increased
size and management's analysis of the loan portfolio.
Market rates dropped on the loans held for sale portfolio during the
second quarter of 1996 resulting in a decrease of $49,000 over the same
quarter in 1995 when management took an opportunity to sell a portion of
loans originated for sale at a gain of $14,000.
Salaries and employee benefits increased $67,000 or 16.2% reflecting
annual salary increases, additional expenses associated with of new
employees for our Damascus office and overtime pay associated with
installation and training on the new Jack Henry software system.
Occupancy expense increased $14,000 mainly due to the increased expense
of the Damascus office which was not open in the second quarter of 1995.
Furniture and equipment expense increased $11,000 mainly due to
depreciation on the new assets in the Damascus office.
Deposit insurance premiums decreased in 1996 from 1995 as discussed
above.
Other operating expense increased $54,000 or 22.2% during 1996.
Promotional and advertising expenses were $9,000 greater during this
quarter of 1996 as compared to 1995 with additional advertising in the
Damascus office and in celebration of our 90th anniversary. Internal audit
fees were outsourced in 1996 compared to an on staff Internal Auditor in
1995 accounting for $13,000 of increased expenses in this category. A
combination of MAC fees being invoiced incorrectly in the first quarter of
1996 and corrected in the second quarter and the addition of an ATM in
Damascus show increased fees of $10,000 over the same quarter of 1995. All
other items mentioned in the six month discussion above had a similar
effect on the second quarter analysis.
LIQUIDITY AND CASH FLOWS
To ensure that the Company can satisfy customer credit needs for current
and future commitments and deposit withdrawal requirements, the Bank
manages the liquidity position by ensuring that there are adequate short-term
funding sources available for those needs. Liquid assets consists of
cash and due from banks, federal funds sold, interest-bearing deposits with
other banks and investment securities maturing in one year or less. The
following table shows these liquidity sources, minus short-term borrowings,
as of June 30, 1996 compared to December 31, 1995:
June 30, December 31,
------------ -------------
(dollars in thousands)
Cash and due from banks $ 1,283 $ 1,232
Interest-bearing deposits with other banks 2,833 1,970
Federal funds sold 798 465
Mortgage loans held for sale 3,830 5,920
Investment securities maturing in one year or less 8,828 14,012
------------ -------------
17,572 23,599
Less short-term borrowings - 2,050
------------ -------------
Net liquidity position $ 17,572 21,549
============ =============
As a percent of total assets 13.3% 17.3%
============ =============
Management monitors liquidity on a consistent basis and feels that
liquidity levels are adequate. In addition to these liquidity sources, the
Bank has available also a credit line with the Federal Home Loan Bank in
the amount of $3.4 million.
Management is not aware of any known trends, events or uncertainties that
will have or is reasonably likely to have a material effect on the
Company's liquidity, capital resources or operations nor is management
aware of any current recommendations by regulatory authorities, which if
implemented, would have such an effect.
RISK ELEMENTS
The table below presents information concerning nonperforming assets
including nonaccrual loans, renegotiated loans, loans 90 days or more past
due, nonaccrual securities, other real estate loans and repossessed assets
at June 30, 1996 and December 31, 1995. A loan is classified as nonaccrual
when, in the opinion of management, there are doubts about collectibility
of interest and principal. At the time the accrual of interest is
discontinued, future income is recognized only when cash is received.
Renegotiated loans are those loans whose terms have been renegotiated to
provide a reduction or deferral of principal or interest as a result of the
deterioration of the borrower.
June 30, December 31,
------------- -------------
(dollars in thousands)
Loans on nonaccrual basis $ 1,346 $ 1,096
Loans past due 90 days or more 1,453 463
Renegotiated loans 641 -
------------- -------------
Total nonperforming loans 3,440 1,559
Other real estate 454 389
Repossessed assets - -
Nonaccrual securities - 151
------------- -------------
Total nonperforming assets $ 3,894 $ 2,099
============= =============
Nonperforming loans as a percent of total loans 3.62% 1.74%
============= =============
Nonperforming assets as a percent of total assets 2.95% 1.70%
============= =============
Management believes the level of the allowance for loan losses at June
30, 1996 is sufficient. The relationship between the allowance for loan
losses and outstanding loans is a function of the credit quality and known
risk attributed to the loan portfolio. The on-going loan review program
and credit approval process is used to determine the adequacy of the
allowance for loan losses. Included in total loans are loans of $1,110,000
which management has classified as impaired under the terms of Financial
Accounting Standards Board Statement No. 114, "Accounting by Creditors for
Impairment of a Loan Income Recognition and Disclosure." The related
allowance for loan losses on these loans amounted to $172,000. There were
no impaired loans without a related allowance for loan losses.
Management does not believe that loans classified as loss, doubtful
substandard or special mention for internal or regulatory purposes (i)
represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results,
liquidity, or capital resources, or (ii) represent material loans about
which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the
loan repayment terms.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
NONE
Item 2 - Changes in the rights of the Company's security holders
NONE
Item 3 - Defaults by the Company on its senior securities
NONE
Item 4 - Submissions of matters to a vote of security holders
The following represents the results of matters submitted to a
vote of the shareholders at the annual meeting held on April 25,
1996:
Election of Directors:
The following directors were elected with terms to expire April,
1999:
For Against Abstain
Joseph J. Murray 485,791.3484 18,334.2831 0.
Thomas A Peifer 485,791.3484 18,334.2831 0.
S.R. Snodgrass, A.C. was selected as the Company's independent
auditors for the year ending December 31, 1996 by the following
vote:
For: 503,785.6315
Against: 40.0000
Abstain: 300.0000
Item 5 - Other information
NONE
Item 6 - Exhibits and Reports on Form 8-K
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIMECO, INC.
Date: August 6, 1996 By:
Joseph J. Murray
President and Chief Executive Officer
Date: August 6, 1996 By:
Maureen H. Beilman
Controller/Treasurer