First Quarter 2023
I would like to start off by reassuring everyone in the wake of the recent failures of two large regional banks that The Dime Bank is a community bank in business since 1905 with a solid foundation allowing for responsible growth along with deep roots throughout our communities. Our business model is relationship driven, which is very different than large banks. We have strong credit quality and liquidity. We continue to be well capitalized and operate under prudent and safe banking practices. Our deposit base is stable with most of our customers being fully FDIC insured. While most banks have unrealized losses in their investment portfolio due to the rising interest rate environment, our liquidity position allows us to hold our bonds until maturity or when market values rebound. We are proud to operate in the great communities we serve and look forward to assisting in any way that we can. This includes helping anyone with questions regarding deposit insurance coverage.
Now onto your Company’s financial performance for the quarter ended March 31, 2023. Total assets increased $2.6 million to $963 million from the first quarter of 2022. Cash balances of $9.5 million decreased $30.4 million or 76.2% over the same period last year. Excess funds were deployed into the loan portfolio along with some decreases in our deposit base. Both businesses and individuals have drawn down somewhat on their deposits to combat the challenging economic factors of rising interest rates and inflation. Loan balances of $671 million at the end of the quarter were $26 million or 4.0% greater than March 31, 2022. Growth was centered in commercial and residential mortgages and consumer loans while overall business loans decreased due to forgiveness of Paycheck Protection Program (PPP) loans by the Small Business Administration. Balances in PPP loans decreased by almost $14 million from the first quarter of 2022 to 2023.
Deposit balances of $788 million were a decrease of $31.3 million or 3.8% over the previous year. Both demand and savings deposits experienced decreases. Many customers chose to move funds to certificates of deposit (CD) specials due to the higher yields or use their funds to cover increased expenses. CD balances increased $31.1 million or 20.9%.
Short-term borrowings increased by $57.7 million as excess cash used for loans, along with a reduction of deposits, resulted in the need to borrow funds from the Federal Home Loan Bank of Pittsburgh (FHLB). Other borrowed funds decreased by $23.9 million or 70.3%. The bank chose to prepay certain borrowings earlier in the first and second quarters of 2022 when cash was at its highest level to decrease interest expense and cost of funds with the remaining decrease due to normal payment amortization.
Stockholders’ equity decreased slightly by $844 thousand from March 31, 2022, to $92.7 million. This decrease stems from a $9.1 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. There were two rate hikes so far in 2023 of 25 basis points each. 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 requirements to be considered well capitalized.
Interest income increased $1.4 million or 15.7% over the first quarter of 2022. Both loan and investment interest income grew, while loan fees declined due to less fee income from PPP loans. Additional interest expense of $1.9 million was recognized as higher rates are being paid on deposits along with the growth of short-term borrowings. This increase was offset by the reduction of interest expense from other borrowed funds as described above. Non-interest income increased $180 thousand or 12.9%. Non-interest expenses grew by $823 thousand or 13.6%. Salaries and benefits were the biggest contributor as we hired additional staff for new locations as well as normal salary increases. The provision for loan losses decreased by $267 thousand as we adjusted our allowance required by our Current Estimated Credit Losses (CECL) calculation. Tax expense decreased by $132 thousand due to reduced income. Net income of $2.5 million was $668 thousand less than the first quarter of 2022. This resulted in an annualized return on average assets of 1.05% and return on average equity of 11.12%.
Even with the concerning economic and financial headlines, 2023 is off to a good start for Dimeco, Inc. Loan demand is steady while growth continues with our digital products and with our new branches. We look forward to the rest of the year. Be assured that your Company continues to operate under safe banking principles, and we are dedicated to serving our customers and communities. Please visit one of our branches or give us a call to discuss your questions.
As always, we thank you for your continued support and commitment. Please take any opportunity to refer family and friends to Dimeco, Inc. I welcome your comments.
Peter Bochnovich
President and Chief Executive Officer
Consolidated Financial Highlights
(unaudited)
(dollars in thousands, except per share)
| Performance for the year ended March 31, |
2023
|
2022 |
% Increase (decrease) |
Interest income
|
$10,655 |
$9,210 |
15.7% |
| Interest expense |
$2,497 |
$628 |
297.6% |
| Net interest income |
$8,158 |
$8,582 |
(4.9%) |
| Net income |
$2,523 |
$3,191 |
(20.9%) |
| Shareholders' Value (per share) |
2023 |
2022 |
% Increase (decrease) |
| Net income - basic |
$.99 |
$1.26 |
(21.4%) |
| Net income - diluted |
$.99 |
$1.26 |
(21.4%) |
| Dividends |
$.38 |
$.36 |
5.6% |
| Book value |
$36.27 |
$36.74 |
(1.3%) |
| Market value |
$37.80 |
$44.75 |
(15.5%) |
| Market value/book value ratio |
104.2% |
121.8% |
(14.4%) |
| Price/earnings multiple |
9.5X |
8.9X |
6.7% |
| Dividend yield |
4.02% |
3.22% |
24.8% |
| Financial Ratios |
2023 |
2022 |
% Increase (decrease) |
| *Return on average assets |
1.05% |
1.33% |
(21.1%) |
| *Return on average equity |
11.12% |
12.75% |
(12.8%) |
| Efficiency ratio |
69.34% |
59.57% |
16.4% |
| Net interest margin |
3.78% |
3.96% |
(4.5%) |
| Shareholders' equity/asset ratio |
9.62% |
9.73% |
(1.1%) |
| Dividend payout ratio |
38.38% |
28.57% |
34.3% |
| Nonperforming assets/total assets |
.55% |
1.46% |
(62.3%) |
| Allowance for loan losses as a % of loans |
1.55% |
1.81% |
(14.4%) |
| Net charge-offs/average loans |
- |
- |
- |
Allowance for loan losses/nonaccrual loans
|
229.51% |
85.61% |
168.1% |
Allowance for loan losses/nonperforming loans
|
206.05% |
84.29% |
144.5% |
| Financial Position at March 31, |
2023 |
2022 |
% Increase (decrease) |
| Assets |
$963,274 |
$960,681 |
.3% |
| Loans |
$670,658 |
$644,618 |
4.0% |
| Deposits |
$788,261 |
$819,556 |
(3.8%) |
| Stockholder' equity |
$92,655 |
$93,499 |
(.9%) |
*annualized
Consolidated Balance Sheet
(unaudited) (in thousands)
|
Assets
|
3/31/2023 |
3/31/2022 |
Cash and cash equivalents
|
$9,470 |
$39,846 |
Investment securities available for sale
|
$220,940 |
$221,511 |
Loans, net of allowance for loan losses
|
$660,275 |
$632,976 |
| Premises and equipment |
$20,454 |
$16,361 |
| Accrued interest receivable |
$3,312 |
$2,830 |
| Other real estate owned |
$224 |
$224 |
| Other assets |
$48,599 |
$46,933 |
| Total Assets |
$963,274 |
$960,681 |
Liabilities
|
3/31/2023 |
3/31/2022 |
| Deposits - Noninterest-bearing |
$191,775 |
$197,883 |
| Deposits - Interest-bearing |
$596,486 |
$621,673 |
| Total Deposits |
$788,261 |
$819,556 |
Short-term borrowings
|
$60,198 |
$2,500 |
| Other borrowed funds |
$10,121 |
$34,045 |
| Accrued interest payable |
$276 |
$122 |
| Other liabilities |
$11,763 |
$10,959 |
| Total Liabilities |
$870,619 |
$867,182 |
| Total Stockholders' Equity |
$92,655 |
$93,499 |
|
Total Liabilities & Stockholders' Equity
|
$963,274 |
$960,681 |
Consolidated Statement of Income
(unaudited) (in thousands, except per share data)
|
Three months ended |
|
| Interest Income |
3/31/2023 |
3/31/2022 |
| Loans, including fees |
$8,689 |
$8,040 |
| Investment securities |
$1,888 |
$1,109 |
| Other |
$78 |
$61 |
| Total interest income |
$10,655 |
$9,210 |
| Interest Expense |
3/31/2023 |
3/31/2022 |
| Deposits |
$1,671 |
$420 |
| Short-term borrowings |
$774 |
$4 |
| Other borrowed funds |
$52 |
$204 |
| Total interest expense |
$2,497 |
$628 |
| Net Interest Income |
$8,158 |
$8,582 |
| (Credit) provision for loan losses |
($132) |
$135 |
| Net Interest Income, After Provision for Loan Losses |
$8,290 |
$8,447 |
| Noninterest income |
$1,580 |
$1,400 |
| Noninterest expense |
$6,854 |
$6,031 |
| Income before income taxes |
$3,016 |
$3,816 |
| Income taxes |
$493 |
$625 |
| Net Income |
$2,523 |
$3,191 |
| Earnings per share-basic |
$.99 |
$1.26 |
| Earnings per share-diluted |
$.99 |
$1.26 |
| Average shares outstanding-basic |
2,544,290 |
2,536,719 |
Average shares outstanding-diluted
|
2,547,623 |
2,542,209 |
