Third Quarter 2022
I am happy to present the financial results of Dimeco, Inc as of September 30, 2022. Your company’s results are solid, and performance is in line with management’s expectations. However, as we begin the final quarter of 2022, many of the same economic factors are still at play. The Federal Reserve (Fed) raised rates by a total of 150 basis points in the third quarter and more are anticipated before year-end as they try to combat inflation. Consumer buying power continues to decline, employment and supply chain issues linger, and talk of a recession persists. While there is so much uncertainty with the economy, one certainty is our commitment to our customers, the communities we serve and our shareholders.
Total assets of $961 million was a slight decrease of $7.4 million or .8% over the same time last year. Cash balances decreased by $40.9 million or 79.1% as excess funds were deployed into the loan or investment portfolio along with some decreases in our deposit base. Investment securities of $220 million grew $13.9 million or 6.8% over last year as Fed rate hikes also impacted yields on bonds, thereby making certain investment purchases attractive. Loan balances at September 30, 2022, were $656 million or $7.6 million greater than a year earlier. As mentioned in previous letters, commercial loans decreased mainly due to the SBA Paycheck Protection Program (PPP) loan forgiveness. Balances of these PPP loans decreased by over $54 million from last year with approximately $4.7 million remaining. Total mortgage loans showed the greatest increase with balances growing approximately $67 million over last year including both residential and commercial real estate categories.
Deposit balances ended the quarter at $828 million, an increase of $27.1 million or 3.4% over the previous year. Most deposit types including business and personal experienced increases except for certificates of deposit (CDs). As expected, while deposits remained higher than last year, there was some runoff since the second quarter as businesses and individuals continue to be impacted by those economic issues mentioned above.
Short term borrowings increased by $18.2 million as excess cash used for loans and investments, along with a decline in deposits, resulted in the need to borrow funds from the Federal Home Loan Bank of Pittsburgh (FHLB). Other borrowed funds decreased by $36.3 million or 70.3%. The bank chose to prepay some borrowings when cash was at our highest levels to decrease our interest expense and cost of funds.
Stockholders’ equity decreased $16 million from September 30, 2021, to $84.8 million. This decrease stems from an $23.9 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. Dividends totaled $1.08 per share, at September 30, 2022, an increase of 5.9% compared to a year earlier with a dividend payout ratio of 29.03%.
Net income for the nine months was $9.5 million, 6.4% higher than the previous year, providing $3.72 earnings per share, an increase of 5.4%. Interest income increased $1.5 million or 5.8%. This is mainly due to loan and investment income as variable loans and bonds repriced along with new volume accounting for the remainder of this growth. Interest expense declined $595 thousand or 22.1% because of the prepayment of FHLB borrowings. Deposit expense grew as management chose to increase rates on all deposit types due to several rate hikes by the Fed. Non-interest income declined by $102 thousand or 2.2% because of less gains from the sale of mortgages in the secondary market and in the investment portfolio. Brokerage commissions and other fees helped to offset some of this decrease. Non-interest expense grew by $1.7 million or 10.3%. Payroll and furniture and equipment showed the greatest increases as we relocated our Greentown branch and added two new branches. Provision expense for the second quarter decreased by $625 thousand or 69.4% over this time last year. Tax expense increased by $342 thousand due to higher income. This resulted in an annualized return on average assets of 1.31% and return on average equity of 13.48%.
I am especially excited to report that The Dime Bank opened two new branches in the third quarter! As previously reported, one branch is in The Marketplace at Steamtown in Lackawanna County and the other is located at 1055 Texas Palmyra Highway known as our Indian Orchard branch. Both locations are well received and off to a great start. These locations, like our Greentown branch, are designed to support the universal banker model with enhanced technology to provide better service to our customers. We are eager to assist both new and existing customers and cannot wait to see the opportunities yet to come.
As always, we would like to thank you for your continued support and commitment to your Company. Please take any opportunity to refer family and friends to Dimeco. I welcome your questions or comments.
Peter Bochnovich
President and Chief Executive Officer
Consolidated Financial Highlights
(unaudited)
(dollars in thousands, except per share)
| Performance for the nine months ended September 30, |
2022
|
2021 |
% Increase (decrease) |
Interest income
|
$27,937 |
$26,397 |
5.8% |
| Interest expense |
$2,095 |
$2,690 |
(22.1%) |
| Net interest income |
$25,841 |
$23,707 |
9.0% |
| Net income |
$9,451 |
$8,884 |
6.4% |
| Shareholders' Value (per share) |
2022 |
2021 |
% Increase (decrease) |
| Net income - basic |
$3.72 |
$3.53 |
5.4% |
| Net income - diluted |
$3.71 |
$3.51 |
5.7% |
| Dividends |
$1.08 |
$1.02 |
5.9% |
| Book value |
$33.29 |
$39.62 |
(16.0%) |
| Market value |
$45.25 |
$36.50 |
24.0% |
| Market value/book value ratio |
135.9% |
92.1% |
47.6% |
| *Price/earnings multiple |
9.1X |
7.8X |
16.7% |
| *Dividend yield |
3.18% |
3.73% |
(14.7%) |
| Financial Ratios |
2022 |
2021 |
% Increase (decrease) |
| *Return on average assets |
1.31% |
1.25% |
4.8% |
| *Return on average equity |
13.48% |
12.06% |
11.8% |
| Efficiency ratio |
60.75% |
58.99% |
3.0% |
| Net interest margin |
3.92% |
3.65% |
7.4% |
| Shareholders' equity/asset ratio |
8.82% |
10.40% |
(15.2%) |
| Dividend payout ratio |
29.03% |
28.90% |
.4% |
| Nonperforming assets/total assets |
.72% |
1.64% |
(56.1%) |
| Allowance for loan losses as a % of loans |
1.76% |
1.71% |
2.9% |
| Net charge-offs/average loans |
- |
.04% |
(100.0%) |
Allowance for loan losses/nonaccrual loans
|
239.90% |
72.59% |
230.5% |
Allowance for loan losses/nonperforming loans
|
174.98% |
72.45% |
141.5% |
| Financial Position at September 30, |
2022 |
2021 |
% Increase (decrease) |
| Assets |
$961,463 |
$968,893 |
(.8%) |
| Loans |
$667,859 |
$659,822 |
1.2% |
| Deposits |
$828,210 |
$801,140 |
3.4% |
| Stockholder' equity |
$84,795 |
$100,777 |
(15.9%) |
*annualized
Consolidated Balance Sheet
(unaudited) (in thousands)
|
Assets
|
9/30/2022 |
6/30/2022 |
3/31/2022 |
9/30/2021 |
Cash and cash equivalents
|
$10,824 |
$39,435 |
$39,846 |
$51,748 |
Mortgage loans held for sale
|
- |
$285 |
- |
- |
Investment securities available for sale
|
$220,001 |
$224,112 |
$221,511 |
$206,083 |
Loans, net of allowance for loan losses
|
$656,123 |
$640,679 |
$632,976 |
$648,554 |
| Premises and equipment |
$20,117 |
$18,605 |
$16,361 |
$13,716 |
| Accrued interest receivable |
$3,015 |
$2,703 |
$2,830 |
$2,955 |
| Other real estate owned |
$224 |
$224 |
$224 |
$333 |
| Other assets |
$51,159 |
$48,224 |
$46,933 |
$45,504 |
| Total Assets |
$961,463 |
$974,267 |
$960,681 |
$968,893 |
Liabilities
|
9/30/2022 |
6/30/2022 |
3/31/2022 |
9/30/2021 |
| Deposits - Noninterest-bearing |
$205,706 |
$220,171 |
$197,883 |
$191,094 |
| Deposits - Interest-bearing |
$622,504 |
$633,943 |
$621,673 |
$610,046 |
| Total Deposits |
$828,210 |
$854,114 |
$819,556 |
$801,140 |
Short-term borrowings
|
$20,788 |
$2,500 |
$2,500 |
$2,500 |
| Other borrowed funds |
$15,309 |
$18,225 |
$34,045 |
$51,607 |
| Accrued interest payable |
$88 |
$54 |
$122 |
$99 |
| Other liabilities |
$12,273 |
$11,660 |
$10,959 |
$12,770 |
| Total Liabilities |
$876,668 |
$886,553 |
$867,182 |
$868,116 |
| Total Stockholders' Equity |
$84,795 |
$87,714 |
$93,499 |
$100,777 |
|
Total Liabilities & Stockholders' Equity
|
$961,463 |
$974,267 |
$960,681 |
$968,893 |
Consolidated Statement of Income
(unaudited) (in thousands, except per share data)
|
Three months ended |
|
|
|
Nine months ended |
|
| Interest Income |
9/30/2022 |
6/30/2022 |
3/31/2022 |
9/30/2021 |
9/30/2022 |
9/30/2021 |
| Loans, including fees |
$8,032 |
$7,704 |
$8,040 |
$7,891 |
$23,776 |
$23,289 |
| Investment securities |
$1,531 |
$1,284 |
$1,109 |
$1,009 |
$3,924 |
$2,899 |
| Other |
$61 |
$115 |
$61 |
$75 |
$237 |
$209 |
| Total interest income |
$9,624 |
$9,103 |
$9,210 |
$8,975 |
$27,937 |
$26,397 |
| Interest Expense |
9/30/2022 |
6/30/2022 |
3/31/2022 |
9/30/2021 |
9/30/2022 |
9/30/2021 |
| Deposits |
$771 |
$428 |
$420 |
$441 |
$1,619 |
$1,391 |
| Short-term borrowings |
$74 |
$3 |
$4 |
$6 |
$81
|
$37 |
| Other borrowed funds |
$72 |
$119 |
$204 |
$259 |
$395
|
$1,262 |
| Total interest expense |
$917 |
$550 |
$628 |
$706 |
$2,095
|
$2,690 |
| Net Interest Income |
$8,707 |
$8,553 |
$8,582 |
$8,269 |
$25,842
|
$23,707 |
| Provision for loan losses |
$25 |
$115 |
$135 |
$200 |
$275
|
$900 |
| Net Interest Income, After Provision for Loan Losses |
$8,682 |
$8,438 |
$8,447 |
$8,069 |
$25,567
|
$22,807 |
| Noninterest income |
$1,542 |
$1,567 |
$1,400 |
$1,504 |
$4,509 |
$4,611 |
| Noninterest expense |
$6,303 |
$6,365 |
$6,031 |
$5,520 |
$18,699
|
$16,950 |
| Income before income taxes |
$3,921 |
$3,640 |
$3,816 |
$4,053 |
$11,377
|
$10,468 |
| Income taxes |
$606 |
$695 |
$625 |
$609 |
$1,926
|
$1,584 |
| Net Income |
$3,315 |
$2,945 |
$3,191 |
$3,444 |
$9,451
|
$8,884 |
| Earnings per share-basic |
$1.30 |
$1.16 |
$1.26 |
$1.37 |
$3.72 |
$3.53 |
| Earnings per share-diluted |
$1.30 |
$1.15 |
$1.26 |
$1.36 |
$3.71
|
$3.51 |
| Average shares outstanding-basic |
2,539,474 |
2,537,955 |
2,536,719 |
2,519,318 |
2,538,811 |
2,519,743 |
Average shares outstanding-diluted
|
2,546,521 |
2,544,346 |
2,542,209 |
2,526,214 |
2,543,689 |
2,528,906 |
