I am very pleased to report on the performance and strategic accomplishments of your Company for 2022. It was a very busy year regarding our facilities. In March, we built a new, technology efficient branch and relocated our Greentown office to the Dutch’s Market Plaza. This office was designed to accommodate our universal banker model which allows for greater interaction with our employees who are cross-trained and able to execute most services a customer may need. In July, we expanded our primary market further into Lackawanna County, opening an office within The Marketplace at Steamtown. The bank took advantage of a great opportunity to extend our branch network as the city of Scranton is undergoing a revitalization with many new businesses. We believe our products and services are a good fit for Scranton and the surrounding areas. This office was also developed to complement the universal banker model. Lastly, in September, we opened our Indian Orchard branch, a retail office at 1055 Texas Palmyra Highway, Honesdale. This will also be the future site of our Support Center. Being able to utilize this large space for our Support Center was key for us as we had outgrown our existing location. Adding a retail branch, also outfitted for the universal banker model, is going to be very convenient for both our existing and new customers in that area. These capital investments will create growth opportunities for the bank and thus far, all sites are well received. We are proud of each of these new offices and encourage you to stop by to see them and meet our team.
Now onto your Company’s financial performance. 2022 turned out to be a solid year. Total assets of $970 million at December 31, 2022, were 1.2% greater than last year. The investment portfolio declined by $2 million over 2021. While the book value of the investments increased year over year, the requirement to mark our investments to market value caused an overall decrease in the portfolio due to rising interest rates. Most banks are dealing with this deterioration in market values, and we expect to see these values increase when the Federal Reserve (Fed) begins to cut interest rates or as the bonds within the portfolio mature. Loan balances grew by 3.3% to $679 million despite over $36 million of commercial loans being paid off through the SBA Paycheck Protection Program (PPP) forgiveness process. Loan demand remained strong throughout the year with almost every category experiencing growth. The ratio of non-performing assets to total assets was .54%, a decrease of over 60% from last year, while nonaccrual loans declined by $9 million or 66%. The allowance for loan losses was reduced by $944 thousand after detailed analysis in our model. Management continues to prepare for compliance in 2023 with the Financial Accounting Standards Board (FASB) pronouncement of Current Expected Credit Losses (CECL). There will be more discussion on CECL in future quarterly letters.
Deposit balances compared to 2021 were slightly less by 1.2%. Noninterest-bearing deposits grew by $7.8 million while interest-bearing decreased by $17.1 million or 2.8%. Growth in savings deposits was almost $3 million while other categories of interest-bearing deposits showed declines. Management decided to increase rates on all deposit types in the third quarter as the Fed continued to hike rates to combat inflation. Certificates of deposit (CD) specials were also introduced in the third quarter as many banks chose to garner deposits through this means. CD rates continue to be very competitive, and we expect this will continue throughout 2023.
Short-term borrowings from the Federal Home Loan Bank of Pittsburgh “FHLB” increased by almost $63 million. Loan demand remained steady throughout 2022 and we experienced some deposit runoff resulting in the need to borrow. Other borrowed funds decreased by $29.4 million or 66.4% due to normal payment amortizations and prepaying certain borrowings earlier in the year when cash was at the highest levels.
Stockholders’ equity of $88 million, declined $12.8 million or 12.7%. This decrease stems from an $21.8 million increase in the accumulated other comprehensive loss, offset by an increase in retained earnings from net income. The accumulated other comprehensive loss is the result of the mark to market value of the securities portfolio in the current rising rate environment. While this loss does reduce the tangible book equity, it does not impact the regulatory capital calculations. Dimeco, Inc.’s capital remains above the regulatory minimum requirements to be considered well capitalized.
Net income for the year of $12.3 million was $389 thousand higher than the previous year. Return on average assets was 1.28% and return on average equity was 13.51%, an increase of 1.6% and 11.8%, respectively over last year. Interest income grew $3.2 million or 8.9% mainly due to rising interest rates along with new loan volume. Higher rates paid on deposit accounts and the increase in short-term borrowings resulted in an uptick in interest expense of $301 thousand which was offset by less interest expense paid on other borrowed funds. The provision for loan losses was reduced by $2 million from 2021 because of improving economic conditions, the reduction of nonaccrual loans, and in the fourth quarter due to our allowance for loan losses calculation. Noninterest income declined $1.2 million or 19.3%. Management strategically sold some low interest yielding bonds at a loss to reinvest the proceeds in higher yielding investments to position us for greater interest income in the future. Also, as mortgage activity decreased due to the rise in interest rates, less income was recognized on the sales of these loans. Noninterest expense increased by $3 million or 13.1%. This was mainly attributed to the opening of two new branches along with the relocation of our Greentown branch.
There were both positive effects and some challenges from the pandemic. One positive was on the technology front as it fast-tracked trends in bank operations and customer interaction behaviors. Digital banking solutions are continually advancing at accelerated rates. The Dime Bank has embraced the needs of our customers through investments in bank technology and digital customer interaction solutions. We implemented modern mobile workspace technology, combining cloud-based productivity solutions and mobile desktop technology. This allows customers using our online banking products to have the same look regardless of the device they are using (laptop, iPad, mobile phone). Included in our mobile offerings is My Credit Manager, whereby customers can monitor their financial well-being 24/7 through Experian. Financial literacy and education are important for everyone, so we added this feature at no expense to our customers. Please use this tool to help you manage your credit score. In our branch network, we deployed new investments in digital marketing, that allow us to centrally manage and deploy new product campaigns and customer communications through real-time deployment. Operationally, we invested in a new telecommunications platform that combines traditional calling, virtual meetings, internal messaging, and team collaboration capabilities, at a reduced operational expense. The Bank also significantly invested in high-risk data and technology to maximize the security of customer and bank data. Our plan is to focus on creating more operational efficiencies and to research additional digital offerings. One of the greater challenges is on the staffing side, as finding qualified and available candidates remains a struggle. The bank continues to look to add depth, talent and expertise to our growing team. We look forward to returning to normalcy in 2023 and are excited to see what opportunities are ahead.
As always, we continue to support the nonprofit and philanthropic organizations within our communities both monetarily and by volunteering time. Your Company once again participated in the PA Educational Improvement Tax Credit Program, the Neighborhood Assistance Program and the Neighborhood Works – Beautiful Blocks Program contributing $335,000, $124,250, and $20,000, respectively. Our team organized dress down days, twice a month, to raise funds for a variety of organizations. Through these staff donations and other corporate contributions, we raised over $150,000 for local organizations while donating more than 500 hours to non-profits by volunteering, advising or being members of their boards. The importance of these organizations cannot be overlooked as they have a positive impact on the great communities we serve.
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.
President & Chief Executive Officer
Consolidated Financial Highlights 2022
(amounts in thousands, except per share data)
|Performance for the year ended December 31,||2022||2021||% Increase (decrease)|
|Net interest income||$34,809||$31,942||9.0%|
|Shareholders' Value (per share)||2022||2021||% Increase (decrease)|
|Net income - basic||$4.86||$4.73||2.7%|
|Net income - diluted||$4.85||$4.72||2.8%|
|Market value/book value ratio||127.7%||93.4%||36.7%|
|Financial Ratios||2022||2021||% Increase (decrease)|
|Return on average assets||1.28%||1.26%||1.6%|
|Return on average equity||13.51%||12.08%||11.8%|
|Net interest margin||3.95%||3.67%||7.6%|
|Shareholders' equity/asset ratio||9.08%||10.52%||(13.7%)|
|Dividend payout ratio||30.04%||39.75%||(24.4%)|
|Nonperforming assets/total assets||.54%||1.45%||(62.8%)|
|Allowance for loan losses as a % of loans||1.56%||1.75%||(10.9%)|
|Net charge-offs/average loans||-||.05%||(100.0%)|
|Allowance for loan losses/nonaccrual loans||223.61%||84.81%||163.7%|
|Allowance for loan losses/nonperforming loans||209.70%||84.64%||147.8%|
|Financial Position at December 31,||2022||2021||% Increase (decrease)|