Fourth Quarter 2023
As 2023 comes to a close, I am excited to report on Dimeco, Inc.’s financial results. As you read this letter, you will see that while there were challenges this year, there were also many successes. Your Company fared well from a growth standpoint, especially within the loan portfolio. Deposit competition remained strong throughout all of 2023 and is expected to continue through 2024. As mentioned in previous letters, interest margin pressure had a negative impact on earnings for us as well as many other banks, but net income ended the year as forecasted.
Total assets of $989 million increased $19.9 million or 2.1% over last year. Loan balances of $722 million at the end of the year were $43.4 million or 6.4% greater than December 31, 2022. Growth was centered in mortgage and consumer loans. Mortgage loans grew by $29.8 million over the previous year. Consumer loans of $23.2 million were $9.1 million or 65.1% greater than the end of last year. The investment portfolio declined $21.7 million or 9.9% from the same time last year as bonds with cashflows were used to fund new loans or to pay down overnight borrowings from the Federal Home Loan Bank of Pittsburgh (FHLB).
Deposit balances of $827 million were an increase of $39 million or 4.9% over last year. Demand and savings deposits continued to experience decline as customers looked to move money into higher yielding certificates of deposit (CDs) or to cover increased expenses. CD balances grew by $108.2 million or 65.8% from December 31, 2022. Management decided to purchase brokered CDs of $36 million in the third and fourth quarters at slightly lower market rates to pay down some higher rated overnight borrowings.
Short-term borrowings decreased by $49.5 million due to the acquisition of brokered deposits as well as the repositioning of $17 million of overnight borrowings to lower interest rate, term borrowings with maturities of less than three years. Other borrowed funds increased by $19.6 million as described above as well as from match funding certain loans to reduce our interest rate risk exposure. The remaining difference was due to normal payment amortization and maturities.
Stockholders’ equity increased by $10.6 million from December 31, 2022, to $99 million. The increase was mainly from $10.8 million of net income, which was offset by dividends paid while gaining $4.1 million due to a decrease in accumulated other comprehensive losses. These losses are the result of the mark to market value of the securities portfolio in the current high-rate environment. There were four rate hikes in 2023 of 25 basis points each, all of which impacted the market value of the securities in our investment portfolio. While these losses have a negative effect on the tangible book equity, they do not affect the regulatory capital calculations. Dimeco, Inc.’s capital remains above the regulatory requirements to be considered well capitalized.
Interest income increased by $9.7 million or 25.1% over 2022. Loan interest income of $39.4 million was $8.8 million or 28.6% greater due to the additional loans originated and a portion of the portfolio repricing to higher rates. Loan fees declined by over $1 million directly related to the winding down of the Paycheck Protection Program (PPP) loans. Investment interest income grew $1.9 million despite a decline in the average balance of the portfolio due to certain variable rate bonds repricing. Interest expense expanded by $10.5 million as higher rates are being paid on deposits combined with the growth in borrowings at market rates. As a result of these cost of funds fluctuations, net interest income of $34 million was $834 thousand or 2.4% less than last year. Non-interest expenses grew by $1 million or 4.0%. The largest components were salaries for new and existing staff and the related healthcare benefits. The provision for credit losses increased by $1.7 million from December 31, 2022, as we adjusted our allowance based on our Current Estimated Credit Losses (CECL) calculation reflecting our loan portfolio growth. Net income of $10.8 million was $1.5 million less than last year. This resulted in an annualized return on average assets of 1.11% and a return on average equity of 11.84%.
I look forward to the opportunities Dimeco, Inc. will have in 2024. While the interest rate environment is one of uncertainty, we will continue to navigate as we always have by making prudent banking decisions. Best wishes to all for a healthy and successful new year. Thank you for your continued support and commitment. I welcome your questions or comments and appreciate your referrals to Dimeco, Inc.
Peter Bochnovich
President and Chief Executive Officer
Consolidated Financial Highlights
(unaudited)
(dollars in thousands, except per share)
| Performance for the year ended December 31, |
2023
|
2022 |
% Increase (decrease) |
Interest income
|
$48,267 |
$38,578 |
25.1% |
| Interest expense |
$14,292 |
$3,769 |
279.2% |
| Net interest income |
$33,975 |
$34,809 |
(2.4%) |
| Net income |
$10,828 |
$12,341 |
(12.3%) |
| Shareholders' Value (per share) |
2023 |
2022 |
% Increase (decrease) |
| Net income - basic |
$4.27 |
$4.86 |
(12.1%) |
| Net income - diluted |
$4.27 |
$4.85 |
(12.0%) |
| Dividends |
$1.54 |
$1.46 |
5.5% |
| Book value |
$38.90 |
$34.45 |
12.9% |
| Market value |
$34.49 |
$44.00 |
(21.6%) |
| Market value/book value ratio |
88.7% |
127.7% |
(30.5%) |
| Price/earnings multiple |
8.1X |
9.1X |
(11.0%) |
| Dividend yield |
4.47% |
3.32% |
34.6% |
| Financial Ratios |
2023 |
2022 |
% Increase (decrease) |
| Return on average assets |
1.11% |
1.28% |
(13.3%) |
| Return on average equity |
11.48% |
13.51% |
(12.4%) |
| Efficiency ratio |
64.99% |
63.86% |
1.8% |
| Net interest margin |
3.83% |
3.95% |
(3.0%) |
| Shareholders' equity/asset ratio |
9.96% |
9.08% |
9.7% |
| Dividend payout ratio |
36.07% |
30.04% |
20.1% |
| Nonperforming assets/total assets |
.94% |
.54% |
74.1% |
| Allowance for loan losses as a % of loans |
1.57% |
1.56% |
.6% |
| Net charge-offs/average loans |
- |
- |
- |
Allowance for loan losses/nonaccrual loans
|
134.80% |
223.61% |
(39.7%) |
Allowance for loan losses/nonperforming loans
|
124.62% |
209.70% |
(40.6%) |
| Financial Position at December 31, |
2023 |
2022 |
% Increase (decrease) |
| Assets |
$989,456 |
$969,567 |
2.1% |
| Loans |
$722,446 |
$679,072 |
6.4% |
| Deposits |
$826,540 |
$787,574 |
4.9% |
| Stockholder' equity |
$98,578 |
$88,013 |
12.0% |
Consolidated Balance Sheet
(unaudited) (in thousands)
|
Assets
|
12/31/2023 |
9/30/2023 |
6/30/2023 |
3/31/2023 |
12/31/2022 |
Cash and cash equivalents
|
$8,708 |
$10,330 |
$9,605 |
$9,470 |
$7,997 |
Investment securities available for sale
|
$197,086 |
$200,487 |
$211,729 |
$220,940 |
$218,768 |
Loans, net of allowance for loan losses
|
$711,134 |
$699,130 |
$675,285 |
$660,275 |
$668,484 |
| Premises and equipment |
$20,154 |
$20,225 |
$20,232 |
$20,454 |
$20,558 |
| Accrued interest receivable |
$3,788 |
$3,744 |
$3,224 |
$3,312 |
$3,308 |
| Other real estate owned |
$224 |
$224 |
$224 |
$224 |
$224 |
| Other assets |
$48,362 |
$51,853 |
$48,282 |
$48,599 |
$50,228 |
| Total Assets |
$989,456 |
$985,993 |
$968,581 |
$963,274 |
$969,567 |
Liabilities
|
12/31/2023 |
9/30/2023 |
6/30/2023 |
3/31/2023 |
12/31/2022 |
| Deposits - Noninterest-bearing |
$178,553 |
$179,162 |
$186,621 |
$191,775 |
$193,322 |
| Deposits - Interest-bearing |
$647,987 |
$605,949 |
$608,327 |
$596,486 |
$594,252 |
| Total Deposits |
$826,540 |
$785,111 |
$794,948 |
$788,261 |
$787,574 |
Short-term borrowings
|
$15,677 |
$65,128 |
$36,880 |
$60,198 |
$65,164 |
| Other borrowed funds |
$34,466 |
$33,556 |
$26,801 |
$10,121 |
$14,890 |
| Accrued interest payable |
$759 |
$482 |
$314 |
$276 |
$214 |
| Other liabilities |
$13,436 |
$12,768 |
$17,668 |
$11,763 |
$13,712 |
| Total Liabilities |
$890,878 |
$897,045 |
$876,611 |
$870,619 |
$881,554 |
| Total Stockholders' Equity |
$98,578 |
$88,948 |
$91,970 |
$92,655 |
$88,013 |
|
Total Liabilities & Stockholders' Equity
|
$989,456 |
$985,993 |
$968,581 |
$963,274 |
$969,567 |
Consolidated Statement of Income
(unaudited) (in thousands, except per share data)
|
Three months ended |
|
|
|
|
Year ended |
|
| Interest Income |
12/31/2023 |
9/30/2023 |
6/30/2023 |
3/31/2023 |
12/31/2022 |
12/31/2023 |
12/31/2022 |
| Loans, including fees |
$11,833 |
$10,456 |
$9,290 |
$8,689 |
$8,840 |
$40,268 |
$32,616 |
| Investment securities |
$1,856 |
$1,873 |
$1,946 |
$1,888 |
$1,741 |
$7,563 |
$5,665 |
| Other |
$148 |
$91 |
$119 |
$78 |
$60 |
$436 |
$297 |
| Total interest income |
$13,837 |
$12,420 |
$11,355 |
$10,655 |
$10,641 |
$48,267 |
$38,578 |
| Interest Expense |
12/31/2023 |
9/30/2023 |
6/30/2023 |
3/31/2023 |
12/31/2022 |
12/31/2023 |
12/31/2022 |
| Deposits |
$3,802 |
$2,672 |
$2,560 |
$1,671 |
$1,273 |
$10,705 |
$2,892 |
| Short-term borrowings |
$511 |
$1,039 |
$455 |
$774 |
$343 |
$2,779 |
$424 |
| Other borrowed funds |
$343 |
$311 |
$102 |
$52 |
$58 |
$808 |
$453 |
| Total interest expense |
$4,656 |
$4,022 |
$3,117 |
$2,497 |
$1,674 |
$14,292 |
$3,769 |
| Net Interest Income |
$9,181 |
$8,398 |
$8,238 |
$8,158 |
$8,967 |
$33,975 |
$34,809 |
| Provision (credit) for credit losses |
$284 |
$397 |
$284 |
($132) |
($1,100) |
$833 |
($825) |
| Net Interest Income, After Provision (Credit) for Credit Losses |
$8,897 |
$8,001 |
$7,954 |
$8,290 |
$10,067 |
$33,142 |
$35,634 |
| Noninterest income |
$1,774 |
$1,716 |
$1,614 |
$1,580 |
$447 |
$6,684 |
$4,956 |
| Noninterest expense |
$6,271 |
$7,075 |
$6,599 |
$6,854 |
$7,063 |
$26,799 |
$25,762 |
| Income before income taxes |
$4,400 |
$2,642 |
$2,969 |
$3,016 |
$3,451 |
$13,027 |
$14,828 |
| Income taxes |
$790 |
$411 |
$505 |
$493 |
$561 |
$2,199 |
$2,487 |
| Net Income |
$3,610 |
$2,231 |
$2,464 |
$2,523 |
$2,890 |
$10,828 |
$12,341 |
| Earnings per share-basic |
$1.43 |
$.88 |
$.97 |
$.99 |
$1.14 |
$4.27 |
$4.86 |
| Earnings per share-diluted |
$1.43 |
$.88 |
$.97 |
$.99 |
$1.14 |
$4.27 |
$4.85 |
| Average shares outstanding-basic |
2,524,588 |
2,529,228 |
2,545,686 |
2,544,290 |
2,541,153 |
2,537,721 |
2,541,378 |
Average shares outstanding-diluted
|
2,524,654 |
2,529,228 |
2,545,753 |
2,547,623 |
2,546,241 |
2,537,863 |
2,545,965 |
