Annual Report Financial Highlights

Dear Shareholders:

We entered 2021 with enthusiasm and remained optimistic and committed to our shareholders and customers throughout the year. At the beginning of 2021, the bank assisted almost 400 of our customers with round two of the Paycheck Protection Program “PPP” with $65 million in funds to support their businesses and we continue to help them with the forgiveness process. As the year progressed, COVID-19 continued to present many challenges. I am proud to say that our staff rose to the occasion and continued to provide exceptional customer service while operating within a modified business model. To better service our customers, the bank invested in upgrading and adding to our digital platform as many of our customers turned to these products during the pandemic. Online and mobile upgrades offered a consistent look across all devices to simplify how customers manage and move their money. A new convenient account opening platform was rolled out in the fourth quarter allowing existing and potential customers an easy way to open certain deposit accounts via The Dime Bank website or our mobile app. Additionally, to protect our customers and the bank, enhanced security features were installed as the level of fraud throughout the world continues to increase. Customers can now manage their debit card more securely by controlling when, where, and how their card can be used. We are excited about these changes and hope you are too.
Moving onto your Company’s financial performance, I am pleased to present this positive report with record profits. Total assets of $958 million at December 31, 2021 were 8.5% greater than last year. While loan balances only increased by 1.9% to $657 million, loan demand remained steady, especially related to the residential and commercial real estate as well as construction categories. Please keep in mind that the bank originated PPP loans in both round one and round two that continued to be forgiven in 2021. Total originations for PPP loans in 2020 and 2021 were almost $135 million! By the end of 2021, there were only about $41 million remaining in PPP loans. Non-performing assets to total assets decreased by over 30% to 1.45% from last year. Our staff is working diligently to further reduce this ratio and is in frequent contact with our borrowers to negotiate terms to bring these credits current.
The investment portfolio grew by almost $52 million or 30.5% from December 31, 2020. Cash balances remained elevated as deposits continued to climb throughout 2021. Management deploys this excess liquidity not needed for loan demand into higher earning bonds that meet our policy guidelines to improve our net interest income. Our strategy is to invest in both amortizing bonds for liquidity purposes as well as non-amortizing bonds for greater yield while positioning ourselves for the upcoming rising rates.
Both interest-bearing and non-interesting bearing deposits except for certificates of deposit “CDs” showed significant increases over 2020. Balances in these accounts increased almost $111 million since the end of last year. As uncertainty related to the pandemic continues to ease and as inflation remains high, we expect these balances to recede somewhat in 2022. Overall, we believe that our deposit balances will remain strong.
Borrowings from the Federal Home Loan Bank of Pittsburgh “FHLB” declined over $42 million or 47.5% from December 31, 2020. Just as excess cash was deployed into the investment portfolio, it was also used to prepay some long-term borrowings. Management strategically decided to pay down $9 million in borrowings in 2021 in addition to our regular scheduled payments and maturities to lower our interest expense for future periods.
Net income for the year increased to $12 million or $3.1 million greater than the previous year. Return on average assets of 1.26% and return on average equity of 12.08% were 16.7% and 25.1% higher than last year. PPP fees of $2.7 million contributed the most to interest income growth, but investment securities income also added to the increase. Interest expense declined by $1.6 million even with the FHLB prepayment fees and surge in deposits mainly due to the low interest rate environment. A detailed analysis of the allowance for loan losses warranted a decrease of $2.3 million or 65.7% in the provision expense for 2021. Noninterest income grew by $368 thousand or 6.4% over last year with several categories contributing to this increase such as brokerage commissions and debit card interchange fees while gains on sales of mortgages decreased in 2021 compared to a record year in 2020. Noninterest expense increased almost $1.7 million or 8.1% over the previous year mainly due to higher salary and benefits, administrative expenses, as well as professional fees. Overall, the efficiency ratio improved to 58.94%.
As a result of the favorable financial position of your Company and the Board of Directors’ dedication to reward shareholders when possible, the Board voted to increase the dividend in the fourth quarter to $.36 per share and approved a special dividend payment of $.50 per share. This equates to an annual dividend of $1.88 per share or 41.4% greater than last year! At this level, the dividend yield was 5.08% or 22.1% higher than 2020. The market value of your Company ended the year at $37 per share up over 15% from the previous year while earnings per share increased by 33.6% to $4.73.
Dimeco qualified to trade on the OTCQX marketplace in September 2021 which required your Company to meet certain financial standards, follow best practices for governance, and demonstrate compliance with applicable securities laws. This upgrade from the pink sheets allows an increased exposure to a wider range of investors along with easily accessible corporate and financial information.
Being part of a community means giving back and your Company strives to help ours grow and flourish. Donations of almost $375,000 were made by the bank to various non-profit organizations as we understand their importance not only in the community, but in people’s lives. During the year, the bank also advocated for policies that protect our customers’ right to financial privacy. We are committed to character and integrity in all that we do.
Our staff continues to be the backbone of our business and not only do they put customers first in their day-to-day activities, but they also support the community. Through various fundraising efforts, they donated over $30,000 to many local organizations and continue to give of their time and talents to non-profit organizations who rely on these individuals for their continued success.
Many exciting projects began in 2021 and will continue into 2022. Our newly constructed Greentown branch will be opening in the first quarter with improved technology to enhance our customers’ experience. Construction is currently underway on our new support center which includes a new customer care center and retail branch at 1055 Texas Palmyra Highway, Honesdale. We are equally as excited to expand our presence to lower Lackawanna County with the opening of a new retail branch at The Marketplace at Steamtown. Remodeling of this location began, and our expectations are to open by late second quarter. 2022 is starting off to be a very busy year and we look forward to all the opportunities that are ahead of us.
We thank you for your continued support and investment and encourage you to recommend Dimeco, Inc. to family, friends, and colleagues. As always, please feel free to reach out to me with questions.


Peter Bochnovich
President & Chief Executive Officer

Consolidated Financial Highlights 2021
(amounts in thousands, except per share data)

Performance for the year ended December 31, 2021 2020 % Increase (decrease)
Interest income $35,410 $33,950 4.3%
Interest expense $3,468 $5,071 (31.6%)
Net interest income $31,942 $28,879 10.6%
Net income $11,952 $8,856 35.0%
Shareholders' Value (per share) 2021 2020 % Increase (decrease)
Net income - basic $4.73 $3.54 33.6%
Net income - diluted $4.72 $3.52 34.1%
Dividends $1.88 $1.33 41.4%
Book value $39.61 $38.11 3.9%
Market value $37.00 $32.00 15.6%
Market value/book value ratio 93.4% 84.0% 11.2%
Price/earnings multiple 7.8X 9.0X (13.3%)
Dividend yield 5.08% 4.16% 22.1%
Financial Ratios 2021 2020 % Increase (decrease)
Return on average assets 1.26% 1.08% 16.7%
Return on average equity 12.08% 9.66% 25.1%
Efficiency ratio 58.94% 59.99% (1.8%)
Net interest margin 3.67% 3.82% (3.9%)
Shareholders' equity/asset ratio 10.52% 10.83% (2.9%)
Dividend payout ratio 39.75% 37.57% 5.8%
Nonperforming assets/total assets 1.45% 2.11% (31.3%)
Allowance for loan losses as a % of loans 1.75% 1.65% 6.1%
Net charge-offs/average loans .05% .21% (76.2%)
Allowance for loan losses/nonaccrual loans 84.81% 59.19% 43.3%
Allowance for loan losses/nonperforming loans 84.64% 58.11% 45.7%
Risk-based capital 14.45% 13.48% 7.2%
Financial Position at December 31, 2021 2020 % Increase (decrease)
Assets $958,220 $882,804 8.5%
Loans $657,267 $644,731 1.9%
Deposits $796,916 $686,415 16.1%
Stockholders' equity $100,811 $95,615 5.4%