FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17494
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Dime Financial Corporation
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-1237470
- ------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
95 Barnes Road, Wallingford, Connecticut 06492
- ---------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 269-8881
----------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $105,927,669 on February 28, 1997. On that date, 5,135,887
shares of Common Stock, par value $1.00 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this
Annual Report on Form 10-K as indicated herein.
<TABLE>
<CAPTION>
Part of 10-K into
Document which incorporated
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<S> <C>
Annual Report to Shareholders for the fiscal year ended
December 31, 1996 (the "Annual Report") I, II and IV
Proxy Statement to Shareholders dated March 12, 1997
(filed pursuant to Regulation 14A) (the "Proxy
Statement") III
</TABLE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
PART I
Item 1 - Business 1
Item 2 - Properties 10
Item 3 - Legal Proceedings 12
Item 4 - Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Registrant 12
PART II
Item 5 - Market for Registrant's Common Equity and Related
Shareholders Matters 13
Item 6 - Selected Financial Data 13
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8 - Financial Statements and Supplementary Data 13
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III
Item 10 - Directors and Executive Officers of the Registrant 14
Item 11 - Executive Compensation 14
Item 12 - Security Ownership of Certain Beneficial Owners
and Management 14
Item 13 - Certain Relationships and Related Transactions 15
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 15
</TABLE>
PART I
Item 1 - Business
The principal executive offices of Dime Financial Corporation (the
"Company") and its wholly-owned subsidiary, The Dime Savings Bank of
Wallingford ("Dime") are located at 95 Barnes Road, Wallingford, Connecticut
06492. The telephone number of the Company and Dime is (203) 269-8881.
Other information required by this item appears on page 2 of the Company's
1996 Annual Report to Shareholders (the "1996 Annual Report") under the caption
"To Our Shareholders"; on the inside front cover under the caption "Corporate
Profile"; on page 1 under the caption "Financial Highlights" and on pages 5
through 16 under the caption "Management's Discussion and Analysis of
Operations." Such information is incorporated herein by reference and made a
part hereof. In addition, certain other information required by this item is
set out below.
Interest Rates and Interest Differentials
The information required by this item appears in the 1996 Annual Report on
page 10 under the caption "Average Balances and Interest Rates." Such
information is incorporated herein by reference and made a part hereof.
Rate / Volume Analysis
The information required by this item appears in the 1996 Annual Report on
page 11 under the caption, "Rate / Volume Analysis." Such information is
incorporated herein by reference and made a part hereof.
Non-performing Assets
The information required by this item appears in the 1996 Annual Report on
pages 5 through 7 under the caption, "Asset Quality." Such information is
incorporated herein by reference and made a part hereof.
Problem Loans and Allowance for Loan Losses
Additional information required by this item appears in the 1996 Annual
Report on pages 7 through 8 under the caption, "Allowance for Loan Losses &
Provisions to the Allowance for Loan Losses." Such information is incorporated
herein by reference and made a part hereof.
Loans which were in non-accrual status at December 31, 1996 are included
within the presentation on page 7 in the table under the caption, "Asset
Quality," of the 1996 Annual Report. In addition to the disclosure on pages 5
through 7 of the 1996 Annual Report, management has internally classified $3.3
million of loans as substandard at December 31, 1996. Loans classified as
substandard are inadequately protected by the current sound worth and paying
capacity of the obligor or of the collateral pledged, if any, and must have a
well-defined weakness or weaknesses that jeopardize the liquidation of the
debt. These loans are still performing. Management does not have serious doubt
as to their collectibility and believes that the amounts allocated to these
loans in the allowance for loan losses are adequate.
The Company's allowance for loan losses as allocated between loan types
for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 are set forth
in the following table.
<TABLE>
<CAPTION>
December 31,
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1996 1995 1994
--------------------------- --------------------------- ---------------------------
Loans in Loans in Loans in
Category as Category as Category as
Amount of Percentage of Amount of Percentage of Amount of Percentage of
(Dollares in Thousands) Reserve Total Loans Reserve Total Loans Reserve Total Loans
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Reserve allocated to:
Mortgage loans:
Residential real estate: $ 5,742 79.8% $ 3,323 78.3% $ 2,198 77.2%
Commercial real estate: 3,162 8.4 6,693 9.6 5,237 11.2
Builders' & land 19 0.1 84 0.3 195 0.8
Commercial loans 461 0.7 754 1.0 1,136 1.4
Consumer loans 767 11.0 870 10.8 560 9.4
Unallocated allowance 2,778 1,055 --
---------------------------------------------------------------------------------
Total $12,929 100.0% $12,779 100.0% $ 9,326 100.0%
=================================================================================
<CAPTION>
December 31,
----------------------------------------------------------
1993 1992
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Loans in Loans in
Category as Category as
Amount of Percentage of Amount of Percentage of
(Dollars in Thousands) Reserve Total Loans Reserve Total Loans
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Reserve allocated to:
Mortgage loans:
Residential real estate: $ 1,969 72.3% $ 1,718 66.9%
Commercial real estate: 7,594 14.9 9,643 16.0
Builders' & land 281 1.0 427 1.2
Commercial loans 3,234 2.6 8,714 7.4
Consumer loans 984 9.2 778 8.5
---------------------------------------------------
Total $14,062 100.0% $21,280 100.0%
===================================================
</TABLE>
Investment Securities
Additional information required by this item appears in the 1996 Annual
Report on pages 23 through 24 under the caption "Note 4: Investment and
Mortgage-backed Securities." Such information is incorporated herein by
reference and made a part hereof. The carrying values of investment securities
were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995 1994
--------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Investment Securities Available for Sale:
U.S. treasury securities $ -- $ 4,029 $ --
U.S. government agency obligations 11,815 -- 3,957
Other bonds and notes -- 4,097 --
Asset-backed securities 14,406 -- --
Equity securities 12 12 625
---------------------------------
Total Investment Securities Available for Sale $ 26,233 $ 8,138 $ 4,582
=================================
Mortgage-backed Securities Available for Sale:
Mortgage-backed securities $ 23,861 $ 47,912 $ --
REMIC's/CMO's 134,867 47,278 --
---------------------------------
Total Mortgage-backed Securities Available for Sale $ 158,728 $ 95,190 $ --
=================================
Investment Securities Held to Maturity:
U.S. treasury securities $ 3,452 $ 1,013 $ 19,688
U.S. government agency obligations 116,805 46,885 18,045
Other bonds and notes -- -- 14,136
---------------------------------
Total Investment Securities Held to Maturity: $ 120,257 $ 47,898 $ 51,869
=================================
</TABLE>
Loans
Additional information required by this item appears in the 1996 Annual
Report on pages 11 through 12 under the caption "Lending Activities" and on
pages 24 through 25 under the caption "Note 5: Loans Receivable." This
information is incorporated herein by reference and made a part hereof. The
following table sets forth the contractual maturities of the loan portfolio at
December 31, 1996:
<TABLE>
<CAPTION>
Due after
Due in one one before Due after
year or less five years five years
------------ ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Adjustable rate loans:
Mortgage Loans:
Residential real estate owner occupied $ 313 $ 1,479 $ 109,427
Residential real estate non-owner occupied 87 947 29,702
Commercial real estate 286 2,849 25,006
Builders & land -- -- 115
Consumer loans 2,373 3,234 12,991
Commercial loans 392 13 2,191
-------------------------------------
Total adjustable rate loans 3,451 8,522 179,432
-------------------------------------
Fixed Rate loans:
Mortgage Loans
Residential real estate owner occupied 1,081 9,032 166,670
Residential real estate non-owner occupied 8 134 487
Commercial real estate 1,577 200 3,530
Builders & land -- -- 332
Consumer loans 4,979 5,631 14,883
Commercial loans 28 143 235
-------------------------------------
Total fixed rate loans 7,673 15,140 186,137
-------------------------------------
Total loans $ 11,124 $ 23,662 $ 365,569
=====================================
</TABLE>
Deposits
The information required by this item appears in the 1996 Annual Report
on pages 13 through 14 under the caption "Deposits and Other Borrowings" and on
pages 26 through 27 under the caption, "Note 8: Deposits." Such information is
incorporated herein by reference and made a part hereof.
Competition
In attracting deposits, Dime faces strong competition from savings banks,
savings and loan associations, commercial banks, credit unions, insurance
companies and investment firms located in its primary market area. The banking
business in Connecticut is highly competitive. In March 1990 the Connecticut
General Assembly adopted legislation that permits full interstate banking in
Connecticut by allowing business combinations among commercial banks, bank
holding companies and thrift institutions located in Connecticut and other
states with reciprocal interstate banking laws. This legislation also permits
bank holding companies from other states to establish non-banking offices,
including loan production offices, in Connecticut on a limited basis.
In recent years, market demands, economic pressures, fluctuating interest
rates and increased customer awareness of product and service differences among
financial institutions have forced such institutions to diversify their
services to become more cost effective. Such actions may increase the cost of
funds to Dime in the future. Dime faces strong competition in attracting
deposits and in making real estate and other loans. Dime's most direct
competition for deposits comes from other thrift institutions, commercial
banks, credit unions and money market funds.
Dime competes for deposits with the financial industry principally by
offering depositors a wide variety of deposit programs, convenient branch
locations and hours, tax-deferred retirement programs and other services. Dime
does not rely upon any individual, group or entity for a material portion of
its deposits. In 1996, Dime introduced and sold $3.0 million in retail brokered
certificates of deposit. At the present time, it is the general practice of
Dime to limit the majority of its lending activities to within the State of
Connecticut. While Dime is not engaged in interstate banking, Dime owns
mortgages secured by real property located outside of Connecticut.
The competition faced by Dime for real estate loans comes principally
from mortgage brokers and mortgage banking companies, other savings banks,
savings and loan associations, commercial banks, finance companies, insurance
companies and other institutional lenders. Dime competes for loan originations
primarily through the interest rates and loan fees it charges and the
efficiency and quality of service it provides borrowers, real estate brokers
and builders. Factors which affect competition and lending include, among
others, the general availability of lendable funds and credit, general and
local economic conditions, current interest rate levels, volatility in the
mortgage markets and other factors.
Employees
As of February 28, 1997, Dime employed 131 full-time and 36 part-time
employees, including 33 officers. During 1995 and 1996, the Company instituted
a restructuring plan which significantly reduced the Company's workforce
through lay-offs and through attrition. The total reduction in full-time
equivalent employees since March 31, 1995 approximates 39%. Additional
information regarding this item is located on page 27 of the 1996 Annual Report
under the caption "Note 10: Restructure Expense, net." Such information is
incorporated herein by reference and made a part hereof.
The principal officers of Dime also serve as officers of the Company but
receive no additional compensation from the Company. The Company has no other
employees.
REGULATION AND SUPERVISION
As a Connecticut-chartered capital stock savings bank whose deposits are
insured by the FDIC, Dime is subject to extensive regulation and supervision by
both the Connecticut Banking Commissioner (the "Commissioner") and the FDIC.
Dime further is subject to various regulatory requirements of the Federal
Reserve Board applicable to FDIC-insured financial institutions. The Company
also is subject to certain regulations of the Federal Reserve Board and the
Commissioner. This governmental regulation is primarily intended to protect
depositors, not shareholders.
Connecticut Regulation
The Commissioner regulates Dime's internal organization as well as its
deposit, lending and investment activities. The approval of the Commissioner is
required, among other things, for the establishment of branch offices and
business combination transactions. The Commissioner conducts periodic
examinations of Dime. Many of the areas regulated by the Commissioner are
subject to similar regulation by the FDIC.
The Connecticut Interstate Banking Act, as amended, permits Connecticut
banks to engage in stock acquisitions of, and mergers with, depository
institutions in other states with reciprocal legislation. All of the other New
England states, and a majority of the other states, have enacted reciprocal
legislation. Several interstate mergers and acquisitions involving Connecticut
bank holding companies or banks with offices in the service areas of Dime and
bank holding companies or banks headquartered in other states have been
completed. Although the effect of this legislation has not been significant,
any future effect on the Company and Dime cannot be predicted.
Connecticut banking laws grant banks broad lending authority. Subject to
certain limited exceptions, however, total secured and unsecured loans made to
any one obligor pursuant to this statutory authority may not exceed 25 percent
of a bank's capital, surplus, undivided profits and loss reserves.
Dime is prohibited by Connecticut banking law from paying dividends
except from its net profits, which is defined as the remainder of all earnings
from current operations. The total of all dividends declared by Dime in any
calendar year may not, unless specifically approved by the Commissioner, exceed
the total of its net profits of that year combined with its retained net
profits of the preceding two years.
Under Connecticut banking law, no person may acquire the beneficial
ownership of more than 10 percent, or after acquiring 10 percent, increase
ownership to 25 percent or more, of any class of voting securities of a bank
chartered by the State of Connecticut or having its principal office in
Connecticut or a bank holding company thereof without the prior notification
and approval by the Commissioner.
Any state-chartered bank meeting statutory requirements may, with the
approval of the Commissioner, establish and operate branches in any town or
towns within the state.
FDIC Regulation
Dime's deposit accounts are insured by the FDIC to a maximum of $100,000
for each insured depositor. As a state chartered FDIC-insured bank, Dime is
subject to extensive supervision and examination by the FDIC and also is
subject to FDIC regulations regarding many aspects of its business, including
types of deposit instruments offered and permissible methods for acquisition of
funds. The FDIC periodically makes its own examination of insured institutions.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the FDIC has implemented a system of risk-related deposit insurance
assessments. Beginning on January 1, 1993, insurance premiums of all banks vary
depending upon the capital level and supervisory rating of the institution.
FDIC risk-based capital requirements became fully effective at the end
of 1992. Under these requirements, FDIC-insured institutions are required to
maintain minimum levels of "capital" based upon an institution's total
"risk-weighted assets." For purposes of these requirements, "capital" is
comprised of both Tier 1 capital and Tier 2 capital. Tier 1 capital consists
primarily of common stock, additional paid in capital, retained earnings and
limited amounts of perpetual preferred stock. Tier 2 capital consists primarily
of loan loss reserves and certain preferred stock, subordinated debt, and
convertible securities. In determining total capital, the amount of Tier 2
capital may not exceed the amount of Tier 1 capital. A bank's total
"risk-weighted assets" are determined by assigning the bank's assets and off
balance sheet items (e.g., letters of credit) to one of four risk categories
based upon their relative credit risk. Under the regulations, the greater the
risk associated with an asset, the greater the amount of such asset that will
be subject to the capital requirements. An FDIC-insured bank is required to
maintain minimum ratios of Tier 1 and total risk-based capital to risk-weighted
assets of 4.0% and 8.0%, respectively. At December 31, 1996, the Tier 1 and
total risk-based capital ratios for Dime were 17.91% and 19.19%, respectively.
Management believes that Dime will remain in full compliance with applicable
risk-based capital requirements.
A leverage capital ratio requirement adopted by the FDIC became
effective in 1991. Under this requirement, FDIC insured institutions are
required to maintain a ratio of common equity minus intangible assets to total
assets of at least 3% for the most highly rated institutions and 4% to 5% for
most institutions. At December 31, 1996 the leverage capital ratio of Dime was
8.43%. Refer to page 15 of the Annual Report under the caption "Liquidity,
Sources and Uses of Funds and Capital Resources."
In addition, FDICIA categorizes banks based on capital levels and
triggers certain mandatory and discretionary federal banking agency responses
for institutions that fall below certain capital levels. These categories are
"well-capitalized," "adequately capitalized," "under-capitalized,"
"significantly undercapitalized," and "critically undercapitalized." A bank is
categorized as "well capitalized" if it maintains a leverage ratio of at least
5%, a total risk-based capital ratio of at least 10%, and a Tier 1 risk-based
capital ratio of at least 6%. Based on its regulatory capital ratios at
December 31, 1996, Dime is well capitalized as defined in FDIC regulations.
Refer to page 29 of the 1996 Annual Report under the caption "Note 13:
Regulatory Matters."
FDICIA also restricts the ability of FDIC-insured state banks, such as
Dime, to acquire and retain equity investments. Generally, state banks only may
hold equity securities to the extent permitted for national banks. However,
FDICIA also permits certain state banks to acquire or retain equity investments
in an amount up to 100 percent of Tier 1 capital in either (1) common or
preferred stock listed on a national securities exchange, or (2) shares of a
registered investment company. To be eligible for this exception, Dime was
required to file, and has filed, a one-time notice of its intention to acquire
and retain such securities. In March of 1993, Dime received conditional
approval from the FDIC to continue to hold or acquire listed and/or registered
equity securities up to the fullest extent permitted by FDICIA.
Pursuant to FDICIA, in December 1993, the FDIC issued a final rule
concerning activities of FDIC-insured state banks. Under the final rule, an
insured state bank must obtain the FDIC's prior consent before directly, or
indirectly through a majority-owned subsidiary, engaging "as principal" in any
activity that is not permissible for a national bank unless one of the
exceptions contained in the regulation applies. The final rule sets out
application procedures for requesting the FDIC's consent; provides a phase-out
period for activities which are not approved by the FDIC; and sets out
conditions that may be imposed in the FDIC's discretion when approving
applications. To date, the final rule has not had a material impact on the
business of Dime.
FDIC insurance of deposits may be terminated by the FDIC, after notice
and hearing, upon a finding by the FDIC that the insured institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, rule or
order of, or conditions imposed by, the FDIC. Dime does not know of any
practice, condition or violation that might lead to termination of its deposit
insurance.
Federal Reserve System Regulation
Under the regulations of the Federal Reserve Board, depository
institutions such as Dime are required to maintain reserves against their
transaction accounts and non-personal time deposits. These regulations
generally require the maintenance of reserves of 3 percent against transaction
accounts totaling $49.3 million or less and 10 percent of the amount of such
accounts in excess of such amount.
The Federal Reserve Board has established capital adequacy guidelines
for bank holding companies that are similar to the FDIC capital requirements
described above. As of December 31, 1996, the Company's Tier 1 and total
risk-based capital ratios were 17.93% and 19.21%, respectively, and the
Company's leverage capital ratio was 8.44%. Management believes that the
Company will remain in full compliance with applicable Federal Reserve Board
capital requirements. Refer to page 15 of the Annual Report under the caption,
"Liquidity Sources and Uses of Funds and Capital Resources."
The Company is subject to regulation by the Federal Reserve Board as a
registered bank holding company. The Federal Bank Holding Company Act of 1956,
as amended (the "BHCA"), under which the Company is registered, limits the
types of companies which the Company and its subsidiaries may acquire or
organize and the activities in which they may engage. In general, a bank
holding company and its subsidiaries are prohibited from engaging in or
acquiring direct control of any company engaged in non-banking activities
unless such activities are so closely related to banking or managing or
controlling banks as to be a proper incident thereto. The Company has not
determined which, if any, of these or other permissible non-banking activities
it might seek to engage in.
Under the BHCA, a bank holding company is required to obtain the prior
approval of the Board of Governors of the Federal Reserve System to acquire,
with certain exceptions, more than 5% of the outstanding voting stock of any
bank or bank holding company, to acquire all or substantially all of the assets
of a bank or to merge or consolidate with another bank holding company.
As described above, the Connecticut Interstate Banking Act specifically
permits Connecticut bank holding companies and banks to acquire or be acquired
by banks or bank holding companies in other states with reciprocal merger and
acquisition laws. Federal antitrust laws place limitations on the acquisition
of banks and other businesses.
Under the BHCA, the Company and Dime are prohibited from engaging in
certain tying arrangements in connection with any extension of credit or
provision of any property or services. Dime is subject to certain restrictions
imposed by the Federal Reserve Act and FDICIA on making any investments in the
stock or other securities of the Company and the taking of such stock or
securities as collateral for loans to any borrower.
Dime also is subject to certain restrictions imposed by the Federal
Reserve Act on the amount of loans it can make to the Company. Such loans must
be collateralized as provided by the Federal Reserve Act. The amount of such
loans may not exceed (when aggregated with certain other transactions between
Dime and the Company) 10 percent of the capital stock and surplus of such bank.
The Company is required under the BHCA to file annually with the Federal
Reserve Board reports of operations, and it and Dime are subject to examination
by the Federal Reserve Board. In addition, the Company, as a bank holding
company, is registered with the Connecticut Banking Commissioner under the
Connecticut Bank Holding Company Act.
Effect of Government Policy
Banking is a business that depends on interest rate differentials. One
of the most significant factors affecting the earnings of Dime is the
difference between the interest rate paid by Dime on its deposits and other
borrowings, on the one hand, and, the interest rates received by Dime on loans
extended to its customers and securities held in its portfolio on the other
hand. The value and yields of its assets and the rate paid on its liabilities
are sensitive to changes in prevailing market rates of interest. Thus, the
earnings and growth of Dime will be influenced by general economic conditions,
the monetary and fiscal policies of the federal government, and policies of
regulatory agencies, particularly the Federal Reserve Board, which implements
national monetary policy. The nature and impact of any future changes in
monetary policies cannot be predicted.
The present bank regulatory scheme is undergoing significant change,
both as it affects the banking industry itself and as it affects competition
between banks and non-banking financial institutions. There has been
significant regulatory change in the regulation and operation of savings
associations, in the bank merger and acquisition area, in the products and
services banks can offer, and in the non-banking activities in which bank
holding companies can engage. In part as a result of these changes, banks are
now actively competing with other types of depository institutions and with
non-bank financial institutions, such as money market funds, brokerage firms,
insurance companies and other financial service enterprises. It is not possible
at this time to assess what impact these changes in the regulatory scheme will
ultimately have on the Company and Dime.
Moreover, certain legislative and regulatory proposals that could affect
the Company, Dime and the banking business in general are pending, or may be
introduced, before the United States Congress, the Connecticut General Assembly
and various governmental agencies. These proposals include measures that may
further alter the structure, regulation and competitive relationship of
financial institutions and that may subject the Company and Dime to increased
regulation, disclosure and reporting requirements. In addition, the various
banking regulatory agencies frequently propose rules and regulations to
implement and enforce already existing legislation. It cannot be predicted
whether or in what form any legislation or regulations will be enacted or the
extent to which the business of the Company and Dime will be affected thereby.
Item 2 - Properties
Including its administrative office located at 95 Barnes Road,
Wallingford, Connecticut, Dime has eleven banking branches located throughout
New Haven County. The following table sets forth certain information regarding
Dime's banking offices.
<TABLE>
<CAPTION>
Date Owned or Lease
Office Location Opened Leased Expiration Date
------ --------- ------ -------- ---------------
<S> <C> <C> <C> <C>
Barnes Park 95 Barnes Road 1986 Owned Not Applicable
Wallingford, CT
Cheshire 595 Highland Ave. 1979 Owned Not Applicable
Cheshire, CT
Eastside 841 East Center St. 1975 Owned Not Applicable
Wallingford, CT
Main Street 2 North Main St. 1871 Owned Not Applicable
Wallingford, CT
Montowese 47 Middletown Ave. 1966 Owned Not Applicable
North Haven, CT
Northford 859 Forest Road 1986 Leased (a) 12/31/00
Northford, CT
Turnpike 7 North Turnpike Road 1973 Owned Not Applicable
Wallingford, CT
Washington Ave. 90 Washington Ave. 1981 Owned Not Applicable
North Haven, CT
Mount Carmel 3300 Whitney Ave. 1987 Leased (b) 11/30/00
Hamden, CT
Harbor Brook 100 Hanover St. 1975 Leased (c) 7/31/99
Meriden, CT
East Side 733 East Main Street 1983 Owned Not Applicable
Meriden, CT
<FN>
- --------------------
<F1> (a) Dime's lease payment is currently $1,700 per month.
<F2> (b) Dime's lease payment is currently $5,000 per month.
<F3> (c) Dime's lease payment is currently $2,174 per month, plus applicable taxes
and insurance, utilities and maintenance charges.
</FN>
</TABLE>
Item 3 - Legal Proceedings
There are no pending legal proceedings to which the Company or Dime is a
party, other than ordinary routine litigation in the normal course of business.
None of the proceedings is material to the Company or Dime.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's stockholders during
the period between October 1, 1996 and December 31, 1996.
Executive Officers of the Registrant
The following table presents information regarding all executive officers
of the Company, including his or her positions with the Company and such
person's length of service.
<TABLE>
<CAPTION>
Length of
Executive Officer Age Positions with the Company Service (a)
----------------- --- ----------------------------------- -----------
<S> <C> <C> <C>
Richard H. Dionne 52 President, Chief Executive Officer 1/30/95
and Director of the Company
Albert E. Fiacre, Jr. 47 Senior Vice President and Chief 3/6/95
Financial Officer
Timothy R. Stanton 40 Senior Vice President of Retail 4/3/95
Operations
Frank P. LaMonaca 39 Senior Vice President and Senior 7/31/95
Loan and Credit Officer
<FN>
- --------------------
<F1> (a) Length of service indicates date hired. All executive officers have been
executive officers of the Company since their respective dates of hire.
Prior to joining the Company, Mr. Fiacre was Executive Vice President and
Treasurer of Society for Savings, Hartford, Connecticut; Mr. Stanton was
Vice President at Shawmut Bank, Hartford, Connecticut; and Mr. LaMonaca
was Senior Vice President at Lafayette American Bank and Trust Company,
Hamden, Connecticut.
</FN>
</TABLE>
All executive officers of the Company are elected annually by the
Company's Board of Directors and serve at the pleasure of the Board of
Directors.
PART II
Item 5 - Market for Registrant's Common Equity and Related Shareholders Matters
A portion of the information required by this item appears on page 36 of
the Annual Report under the caption "Corporate Information"; on pages 28
through 29 of the Annual Report under the caption "Notes to Consolidated
Financial Statements, Note 12 - Shareholders' Equity, and Note 13 - Regulatory
Matters"; and in Item 1 of this report under the subheadings "Connecticut
Regulation," "FDIC Regulation," and "Federal Reserve System Regulation." Such
information is incorporated herein by reference and made a part hereof.
In addition to the above, the following is noted:
For the foreseeable future, the sole source of amounts available to the
Company for the declaration of dividends will be dividends declared and paid by
Dime on Dime common stock. Any amounts received by the Company will be used to
pay the operating expenses of the Company and for other activities in which it
may engage before any dividends can be paid on Company Common Stock. It is
anticipated that the only operating expenses of the Company will be
administrative expenses, which in large part will be allocated to and
reimbursed by Dime. Under the Certificate of Incorporation of the Company, the
Company has the authority to issue preferred stock with dividend rights
superior to Common Stock that may adversely affect the amount or frequency of
Company Common Stock dividends, although the Company has no plans at this time
to issue such preferred stock.
Item 6 - Selected Financial Data
The information required by this item, appears on page 3 of the Annual
Report under the captions "Selected Financial Data." Such information is
incorporated herein by reference and made a part hereof.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item appears on pages 5 through 16 of
the Annual Report under the caption "Management's Discussion and Analysis of
Operations." Such information is incorporated herein by reference and made a
part hereof.
Item 8 - Financial Statements and Supplementary Data
The Company's financial statements, and notes thereto, and supplementary
data are included in the Annual Report on pages 17 through 34 and on page 4
under the caption "Selected Quarterly Financial Data." Such information is
incorporated herein by reference and made a part hereof.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no disagreements between the Company and its independent
public accountants on accounting and financial disclosure matters during the
fiscal year ended December 31, 1996 for which a Form 8-K was required to be
filed.
PART III
Item 10 - Directors and Executive Officers of the Registrant
Directors, executive officers, promoters and control persons
The information required by this section appears in the Proxy Statement
under caption "Proposal 1 - Election of a Class of Directors," and in Part I of
this Report under the caption "Executive Officers of the Registrant," and is
incorporated herein by reference and made a part hereof.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
To the Company's knowledge, based solely upon a review of Forms 3, 4 and
5 and amendments thereto and written representations that no other reports were
required that were furnished to the Company for the fiscal year ended December
31, 1996, all filing required by Section 16(a) of the Securities Exchange Act
of 1934 were complied with applicable to its officers, directors and greater
than ten percent (10%) beneficial owners with the following exceptions: each of
Richard H. Dionne, Albert E. Fiacre, Timothy R. Stanton, Frank P. LaMonaca, and
Robert P. Simon inadvertently failed to file two reports on a timely basis
reporting two separate grants of stock options on July 2, 1996 and on December
18,1996. Each of the aforementioned officers of the Company filed a Form 5 on
March 10, 1997 disclosing these transactions.
Item 11 - Executive Compensation
The information required by this item appears in the Proxy Statement on
page 6 through 11 under the caption "Compensation and Related Matters." Such
information is incorporated herein by reference and made a part hereof.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The information required by this item appears in the Proxy Statement on
page 2 under the caption "Principal Shareholders of the Company," and on pages
3 through 6 under the caption "Proposal 1 - Election of a Class of Directors."
The information is furnished as of February 1, 1997, on which date 5,135,887
shares were outstanding. Such information is incorporated herein by reference
and made a part hereof.
Item 13 - Certain Relationships and Related Transactions
The information required by this item appears in the Proxy Statement on
pages 12 and 13 under the caption "Transactions With Management and Others."
Such information is incorporated herein by reference and made a part hereof.
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report and appear on
the pages indicated. Those items preceded by *** are included in the
Annual Report and are incorporated herein by reference:
(1) Financial Statements:
<TABLE>
<CAPTION>
Page in
Annual Report
-------------
<S> <S> <C>
*** Independent Auditors' Report 35
*** Consolidated Statements of Condition as of
December 31, 1996 and 1995 17
*** Consolidated Statements of Operations for the Years
Ended December 31, 1996, 1995 and 1994 18
*** Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 1996, 1995
and 1994 19
*** Consolidated Statements of Cash Flow for the Years
Ended December 31, 1996, 1995 and 1994 20
*** Notes to Consolidated Financial Statements 21-34
</TABLE>
(2) Financial Statement Schedules:
All Schedules to the Consolidated Financial Statements required by
Article 9 of Regulation S-X are not required under the related
instructions or are inapplicable and therefore have been omitted.
(3) Exhibits:
Exhibit No. Description
3.1 Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-4 (No. 33-23054) filed on July 9, 1988);
Amendment to Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1990).
3.2 Bylaws of the Company (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-4 (No.
33-23054) filed on July 8, 1988)
4 Instruments Defining Rights of Security Holders Included In
Exhibits 3.1 and 3.2
10.1* The Dime Savings Bank of Wallingford 1986 Stock Option and
Incentive Plan, as amended (Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form
S-4 (No. 33-23054) filed on July 8, 1988)
10.2* The Dime Savings Bank of Wallingford 1986 Stock Option Plan
for Outside Directors (Incorporated by reference to Exhibit
10.2 to the Company's Registration Statement on Form S-4 (No.
33-23054) filed on July 8, 1988)
10.3* The Dime Savings Bank of Wallingford 1986 Stock Option and
Incentive Plan Incentive Stock Option Agreement (Incorporated
by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-4 (No. 33-23054) filed on July 8, 1988)
10.4* The Dime Savings Bank of Wallingford 1986 Stock Option Plan
for Outside Directors Stock Option Agreement (Incorporated by
reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-4 (No. 33-23054) filed on July 8, 1988)
10.5* Dime Financial Corporation 1996 Stock Option and Incentive
Plan (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8 (No. 333-04917)
filed on May 31, 1996)
10.6* Dime Financial Corporation 1996 Stock Option Plan for Outside
Directors (Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (No. 333-04917)
filed on May 31, 1996)
10.7* Dime Financial Corporation Non-Qualified Stock Option
Agreement for Mr. Ralph D. Lukens (Incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on
Form S-8 (No. 333-08447) filed on July 19, 1996)
10.8* The Dime Savings Bank of Wallingford Non-Qualified Stock
Option Agreement, as Amended, for Mr. M. Joseph Canavan
(Incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-8 (No. 333-08447) filed on
July 19, 1996)
10.9* The Dime Savings Bank of Wallingford Non-Qualified Stock
Option Agreement, as Amended, for Mr. William J. Farrell
(Incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (No 333-08447) filed on
July 19, 1996)
13 1996 Annual Report to Shareholders. Except for those portions
of the Annual Report which have been specifically
incorporated by reference in this Form 10-K, such Annual
Report shall not be deemed filed.
21 Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 2 to the Company's Registration Statement on Form S-4
(No. 33-23054) filed on July 8, 1988)
23 Consent of Independent Auditors
* Compensatory plan or arrangement required to be filed as an
exhibit to this form pursuant to Item 14(c) of this report.
A COPY OF ANY EXHIBIT LISTED ABOVE WILL BE PROVIDED BY THE COMPANY TO ANY
SHAREHOLDER UPON THE WRITTEN REQUEST OF SUCH SHAREHOLDER AND UPON THE PAYMENT
OF A REASONABLE FEE LIMITED TO THE COMPANY'S EXPENSES IN FURNISHING SUCH
EXHIBIT. REQUESTS SHOULD BE ADDRESSED TO ELEANOR M. TOLLA, SECRETARY, DIME
FINANCIAL CORPORATION, 95 BARNES ROAD, WALLINGFORD, CONNECTICUT 06492.
(b) The Company filed no reports on Form 8-K during the period from October
1, 1996 to December 31, 1996.
(c) The exhibits required by Item 601 of Regulation S-K are filed as a
separate part of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DIME FINANCIAL CORPORATION
DATED: March 19, 1997 By /s/ Richard H. Dionne
-------------------------------------
Richard H. Dionne
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
Chairman of the Board of Directors
- ---------------------------- --------
Ralph D. Lukens
/s/ Richard H. Dionne President, Chief Executive Officer 3/19/97
- ---------------------------- and Director
Richard H. Dionne
/s/ Albert E. Fiacre, Jr. Senior Vice President and Chief 3/18/97
- ---------------------------- Financial Officer
Albert E. Fiacre, Jr.
/s/ Robert P. Simon Vice President and Comptroller 3/18/97
- ----------------------------
Robert P. Simon
/s/ Gary O. Olson Director 3/19/97
- ----------------------------
Gary O. Olson
/s/ Fred A. Valenti Director 3/19/97
- ----------------------------
Fred A. Valenti
/s/ Rosalind F. Gallagher Director 3/19/97
- ----------------------------
Rosalind F. Gallagher
/s/ Robert Nicoletti Director 3/19/97
- ----------------------------
Robert Nicoletti
/s/ M. Joseph Canavan Director 3/19/97
- ----------------------------
M. Joseph Canavan
/s/ William J. Farrell Director 3/19/97
- ----------------------------
William J. Farrell
Director
- ---------------------------- --------
Richard D. Stapleton
/s/ Theodore H. Horwitz Director 3/19/97
- ----------------------------
Theodore H. Horwitz
</TABLE>
DIME FINANCIAL CORPORATION
Exhibits
to
Annual Report on Form 10-K
For the Year Ended December 31, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<C> <S> <C>
13 1996 Annual Report to Shareholders
23 Consent of Independent Auditors
</TABLE>
DIME
FINANCIAL CORPORATION
ANNUAL REPORT 1996
Corporate Profile
Dime Financial Corporation (the "Company") is the parent company of one
wholly owned subsidiary, The Dime Savings Bank of Wallingford ("Dime" or the
"Bank"), which was founded in 1871. Consolidated company assets at
December 31, 1996 totalled $751.3 million compared with total assets of $658.4
million at December 31, 1995. The Company's book value at December 31, 1996
equalled $12.21 per share compared with a book value of $10.29 per share at
December 31, 1995. Total common shares outstanding at December 31, 1996
equalled 5,129,289 compared with 5,022,385 common shares outstanding at
December 31, 1995.
Operating as a mutual savings institution until July of 1986, Dime then
converted to a stock form of ownership through an initial public offering
of approximately five million common shares.
In December 1988, a Connecticut bank holding company, Dime Financial
Corporation, was established and acquired all of the outstanding shares of
The Dime Savings Bank of Wallingford in exchange for shares of common stock
of the newly formed holding company. Concurrently, the Company acquired all
of the outstanding common stock of City Savings Bank of Meriden ("City"),
a $163 million savings bank which operated three banking offices in the
contiguous community of Meriden. In August of 1992, City was merged with
and into Dime.
Dime is a state-chartered, FDIC insured savings bank currently operating
eleven retail banking offices in the central corridor of Connecticut. Branch
offices in the local communities of Wallingford and North Haven, where Dime
has the largest share of deposits, and in Meriden, Cheshire, North Branford
and Hamden position Dime as the distinctive community savings bank in our
market.
The common stock of Dime Financial Corporation is traded on the NASDAQ
National Market System (the "NMS") under the symbol "DIBK". It is found
in newspaper stock tables as "Dime Fin'l Corp - Connecticut" or an
abbreviation thereof, alphabetized in the "D's".
Financial Highlights Dime Financial Corporation
1996 Annual Report
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
As of or for the years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Net interest income $25,896 $25,397 $25,948
Provision for loan losses 2,000 7,550 4,516
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 23,896 17,847 21,432
Investment securities gains, net 326 298 6
Gain on sale of assets held for sale 1,266
Other operating income 2,049 2,080 2,207
- ------------------------------------------------------------------------------------------------------------------------------
Income before operating expenses and income taxes 26,271 20,225 24,911
Other operating expenses (a) 13,808 16,997 20,123
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 12,463 3,228 4,788
Income tax expense (benefit) (10) (2,813) 60
- ------------------------------------------------------------------------------------------------------------------------------
Net income $12,473 $6,041 $4,728
================================================================================================================================
Assets $751,303 $658,373 $637,729
Investment securities $305,218 $151,226 $56,463
Loans receivable, net $387,293 $443,664 $501,052
Deposits $626,098 $543,344 $527,786
Shareholders' equity $62,611 $51,668 $45,196
Book value per share $12.21 $10.29 $9.05
Net interest rate spread 3.30% 3.65% 4.00%
Net yield on interest-earning assets 3.85% 4.12% 4.22%
Return on average assets 1.82% 0.95% 0.71%
Return on average equity 22.19% 12.82% 11.06%
<FN>
<F1> (a) A net non-recurring restructure charge of $1.9 million was charged to
operations during 1995 and $77,000 during 1996.
</FN>
</TABLE>
Total Assets
(in thousands)
'94 $637,729
'95 $658,373
'96 $751,303
Book Value Per Share
'94 $ 9.05
'95 $10.29
'96 $12.21
Total Deposits
(in thousands)
'94 $527,786
'95 $543,344
'96 $626,098
To Our Shareholders Dime Financial Corporation
1996 Annual Report
Dime Financial Corporation earned $12.5 million or $2.45 per share for
the year ended December 31, 1996 compared with net income of $6.0 million
or $1.21 per share for the year ended December 31, 1995, representing a per
share increase of 102%. Operating expenses for the year ended December 31,
1996 were $13.8 million, a reduction of $3.2 million or 19% from $17.0
million for the year ended December 31, 1995. The provision to the allowance
for loan losses during the year ended December 31, 1996 totalled $2.0 million
down from $7.6 million during the year ended December 31, 1995.
Though 1996 was a very successful year, we remain concerned by the
local economy which has not rebounded and continues to show little sign of
rejuvenation. In response to that concern, the Company augmented the
allowance for loan losses during 1996, though at reduced levels.
Total non-performing assets declined to $3.8 million at December 31, 1996,
the lowest level in eight years. The allowance for loan losses stood at $12.9
million at December 31, 1996, nearly unchanged from year end 1995, and
represented 3.23% of total loans outstanding and 503% of non-performing
loans compared with an allowance of $12.8 million or 2.80% of total loans
and 166% of non-performing loans at December 31, 1995. Gross charge-offs
totalled $3.8 million during 1996 - a reduction from gross charge-offs of
$4.8 million during 1995, but still considered high for a loan portfolio
consisting primarily of secured 1-4 family residential mortgages. In
addition, many of our borrowers, while current on payment, carry mortgage
debt in excess of the collateral value.
Local consolidation in the industry continued during 1996 and presented
unique opportunities to increase our deposit base. In addition, the Company
celebrated the 125th anniversary of its subsidiary, The Dime Savings Bank of
Wallingford. The Bank increased advertising and unveiled new deposit products
to mark the celebration of this historic occasion. As a result, deposits
increased $82.8 million or 15% during 1996 to total $626.1 million at December
31, 1996. Total assets grew to $751.3 million at December 31, 1996
representing an increase of $92.9 million or 14% from year-end 1995.
In early 1996, the Board of Directors announced the resumption of the
dividend with an initial payment of $0.07 per share. As a result of the
Company's second quarter earnings, the Board increased the quarterly dividend
payment to $0.08 per share. With 1996 year-end results, the Board has further
increased the dividend payment to $0.09 per share, payable on February 24,
1997 to shareholders of record on February 6, 1997. Most importantly, the
Company's stock price recorded a new record high during the fourth quarter
of 1996 at $18.75 per share. We are pleased with the recognition the Company
has received from the market as we work to build upon the Company's strengths
and provide increased value to our shareholders.
The Board and Management are proud of the 1996 financial results and the
progress that has been achieved. We look forward to the challenges ahead
and appreciate the continued confidence shown by our shareholders.
/s/ RALPH D. LUKENS /s/ RICHARD H. DIONNE
Ralph D. Lukens Richard H. Dionne
Chairman of the Board President and Chief Executive Officer
Selected Financial Data Dime Financial Corporation
1996 Annual Report
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
As of or for the years ended December 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Financial Condition and Other Data:
Total assets $751,303 $658,373 $637,729 $672,114 $748,337
Loans receivable $400,222 $456,443 $510,378 $508,081 $592,096
Allowance for loan losses $(12,929) $(12,779) $(9,326) $(14,062) $(21,280)
Loans receivable, net $387,293 $443,664 $501,052 $494,019 $570,816
Investments (a) $333,855 $182,735 $103,912 $105,645 $113,116
Deposits $626,098 $543,344 $527,786 $566,845 $593,062
FHLBB advances $58,000 $58,000 $60,000 $61,000 $88,000
Shareholders' equity $62,611 $51,668 $45,196 $40,358 $63,768
Non-performing loans $2,570 $7,682 $7,959 $12,849(b) $36,730
Non-performing assets $3,780 $9,097 $11,670 $19,402(b) $69,925
- -------------------------------------------------------------------------------------------------------------------------------
Operating Data:
Interest income $51,391 $47,476 $44,703 $49,973 $62,235
Interest expense $25,495 $22,079 $18,755 $22,519 $32,254
Net interest income $ 25,896 $25,397 $25,948 $27,454 $29,981
Provision for loan losses $2,000 $7,550 $4,516 $20,900 $8,300
Investment securities gains, net $326 $298 $6 $630 $1,293
Gain on assets held for sale -- -- $1,266 -- --
Other operating income $2,049 $2,080 $2,207 $2,050 $1,984
Other operating expenses (f) $13,808 $16,997 $20,123 $31,856 $22,215
Income (loss) before income taxes,
extraordinary items and cumulative effect
of changes in accounting methods $12,463 $3,228 $4,788 $(22,622) $2,743
Income tax expense (benefit) $(10) $(2,813) $60 -- $1,348
Income (loss) before extraordinary items and
cumulative effect of changes in accounting methods $12,473 $6,041 $4,728 $(22,622) $1,395
Extraordinary item - tax loss carry forward -- -- -- -- $393
Extraordinary item - prepayment penalty on long-term debt -- -- -- $(874) --
Cumulative effect of changes in accounting methods:
Postretirement benefits other than pensions, net of tax -- -- -- $(477) --
Income taxes -- -- -- $563 --
Net income (loss) $12,473 $6,041 $4,728 $(23,410) $1,788
- -------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Income (loss) before extraordinary items and
accounting changes $2.45 $1.21 $0.94 $(4.53) $ 0.28
Net income (loss) $2.45 $1.21 $0.94 $(4.68) $ 0.36
Book value $12.21 $10.29 $9.05 $8.08 $12.77
Dividends declared (e) $0.30 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Selected Statistical Data:
Return on average assets 1.82% 0.95% 0.71% (3.26)% 0.23%
Return on average equity 22.19% 12.82% 11.06% (36.40)% 2.82%
Average equity to average assets 8.19% 7.43% 6.46% 8.95% 8.12%
Net interest rate spread (c) 3.30% 3.65% 4.00% 3.95% 3.98%
Net yield on interest-earning assets (d) 3.85% 4.12% 4.22% 4.18% 4.20%
Tier 1 leverage capital ratio 8.44% 7.50% 6.45% 5.14% 7.69%
Dividend payout ratio 12.24% -- -- -- --
Non-performing loans to total loans 0.64% 1.68% 1.56% 2.53%(b) 6.20%
Non-performing assets to total assets 0.50% 1.38% 1.83% 2.89%(b) 9.34%
<FN>
<F1> (a) Including interest-bearing deposits with other banks, federal funds sold,
investments, and Federal Home Loan Bank of Boston stock.
<F2> (b) Does not include $28.4 million of loans and other real estate owned held
for sale.
<F3> (c) Return on average interest-earning assets less cost of average
interest-bearing liabilities.
<F4> (d) Net interest income divided by average interest-earning assets.
<F5> (e) The Company suspended the quarterly dividend following the April 26, 1991
dividend of $0.10 per share.
<F6> (f) A net non-recurring restructure charge of $1.9 million was charged to
operations during 1995 and $77,000 during 1996.
</FN>
</TABLE>
Selected Quarterly Financial Data Dime Financial Corporation
1996 Annual Report
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
1996 1995 1996 1995 1996 1995 1996 1995
First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $12,588 $11,474 $13,090 $11,797 $12,641 $12,030 $13,072 $12,175
Total interest expense 6,174 4,871 6,185 5,446 6,347 5,741 6,789 6,021
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 6,414 6,603 6,905 6,351 6,294 6,289 6,283 6,154
Provision for loan losses 700 3,500(a) 600 1,800 450 1,400 250 850
Investment securities gains, net 159 234 12 -- 32 64 123 --
Other operating income 506 552 485 506 552 528 506 494
Other operating expenses (b) 3,528 4,669 3,764 5,008 3,259 3,349 3,257 3,971
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 2,851 (780) 3,038 49 3,169 2,132 3,405 1,827
Income tax expense (benefit) (8) 11 (2) (1,987) -- 12 -- (849)
Net income (loss) $2,859 $(791) $3,040 $2,036 $3,169 $2,120 $3,405 $2,676
===============================================================================================================================
Net income (loss) per share $0.57 $(0.16) $0.60 $0.41 $0.62 $0.42 $0.66 $0.53
<FN>
<F1> (a) The increase in the provision for loan losses in the first quarter of
1995 resulted primarily from strengthening reserves related to potential
risk in the 1-4 family residential mortgage loan portfolio which
comprised approximately 77%of the total loan portfolio.
<F2> (b) Net restructure charges of $158,000, $182,000 and ($263,000) were charged
to expense in the first, second and fourth quarters of 1996, respectively.
Net restructure charges of $947,000 and $940,000 were charged to expense
in the second and fourth quarters of 1995, respectively.
</FN>
</TABLE>
Management's Discussion and Analysis of Operations Dime Financial Corporation
1996 Annual Report
1996 Overview
A 106% increase in 1996 net income to $12.5 million reflected the results of
the new foundation which the Board and manage-ment constructed during much of
1995. The increase in net income during 1996 was primarily caused by a
reduction in the provision for loan losses and a reduction in operating
expenses. The provision for loan losses equalled $2.0 million for the year
ended December 31, 1996 compared with a provision for loan losses of $7.6
million for the year ended December 31, 1995. Total operating expenses for
the year ended December 31, 1996 equalled $13.8 million compared with
operating expenses of $17.0 million for the year ended December 31, 1995.
The Company achieved solid earnings during 1996 while simultaneously
strengthening the balance sheet through diversification of earning assets,
increased allowance for loan loss coverage, reduced non-performing assets and
an expanded deposit base. Barometers of the Company's diversification and
strengths can be measured in many ways:
* Total deposits increased to a record $626.1 million at December 31, 1996
compared with total deposits of $543.3 million at December 31, 1995,
representing an increase of $82.8 million or over 15%.
* Non-performing assets declined to $3.8 million representing 0.50% of total
assets at December 31, 1996 compared with non-performing assets of $9.1
million representing 1.38% of total assets at year-end 1995.
* The allowance for loan losses equalled $12.9 million representing 3.23% of
total loans at December 31, 1996 compared with an allowance of $12.8
million representing 2.80% of total loans at December 31, 1995.
* Gross loans, exclusive of the allowance for loan losses, decreased $56.2
million or 12% to total $400.2 million representing 53% of total assets at
December 31, 1996 compared with gross loans of $456.4 million representing
69% of total assets at December 31, 1995.
* The investment securities portfolio, inclusive of the investment in Federal
Home Loan Bank of Boston ("FHLBB") stock, increased $154.0 million or 97%
from year-end 1995 to total $312.4 million at December 31, 1996. Investment
securities represented nearly 42% of total assets at December 31, 1996
compared with 24% of total assets at December 31, 1995.
* Total assets increased $92.9 million or 14% from year-end 1995 to total
$751.3 million at December 31, 1996.
Credit quality problems in the loan portfolio, which hampered earnings growth
in prior years, subsided with significant reductions in non-performing assets
and an increase in the ratio of the allowance for loan losses to
non-performing loans and to total loans. Even so, management remains
concerned by the still-high level of charge-offs and the local economy's
continued stagnation with no recent indications of meaningful recovery.
In response to this concern, the allowance for loan losses was augmented
during the year, though at reduced levels, in order to continue to recognize
the underlying collateral deficiencies within a portion of the company's loan
portfolio. Provisions to the allowance for loan losses equalled $2.0 million
for the year ended December 31, 1996 compared with provisions of $7.6 million
for the year ended December 31, 1995.
One of the most important achievements during 1996 was the growth in
deposits. Total deposits increased nearly $83 million or 15% from year-end
1995 with much of that growth coming during the fourth quarter of 1996 as a
direct result of the introduction of new products designed to mark the 125th
anniversary of The Dime Savings Bank of Wallingford. Additionally, customer
dissatisfaction from recent consolidation activity in the market aided efforts
to build the deposit base. An increased advertising effort was undertaken in
order to capitalize on the opportunities presented.
In addition to the success the Company enjoyed with regard to deposit growth,
additional flexibility within earning assets was achieved as strong competition
for quality loans led manage-ment to the investment securities market for
alternatives. The Company diversified the portfolio through the purchase of
securities with maturities that attempt to match the Company's changing
liability structure. As a result, the investment portfolio nearly doubled
from year-end 1995 to total $312.4 million at December
31, 1996 compared with $158.4 million at December 31, 1995.
Asset Quality
The Company retained its focus on asset quality during 1996 with significant
additional improvement in the level of non-performing assets. Non-performing
assets are comprised of loans in non-accrual status and other real estate
owned ("OREO").
Loans are classified as non-performing when they become ninety days past due
as to interest or principal payments, or sooner if the ability of the
borrower to meet the contractual payment terms is in doubt. Loans classified
as non-performing are placed in non-accrual status and previously accrued,
but unpaid interest is reversed by charging interest income. Interest
payments received on non-accrual residential mortgage loans and consumer loans
are generally recognized as income on a cash basis. Interest payments
received on non-accrual loans which are commercial in nature are generally
used to further reduce the carrying value of the loan. Interest payments
made on commercial loans during 1996, totalling approximately $122,000, were
applied to the carrying value of loans. Interest payments applied to
principal during 1995 totalled approximately $200,000. Loans past due ninety
days or more and still in accrual status are limited to guaranteed student
loans and totalled $118,000 at December 31, 1996. Prior to 1996 all loans
past due 90 days or more were placed in non-accrual status.
OREO is real estate acquired by the Company through foreclosure or in
settlement of loans. The collections and OREO areas of the Bank are designed
to monitor and review real estate acquired by the Bank through foreclosure.
The results of their reviews are based on property re-appraisals, current and
prospective economic conditions and other relevant factors. Management in
this area is responsible for ensuring that specific properties are carried at
a value that does not exceed fair value, less selling costs. During 1996 the
Company transferred $1.4 million of loans to OREO compared with $878,000
during 1995. Sales of OREO amounted to $2.2 million during 1996 versus $5.2
million during 1995.
Total non-performing loans decreased to $2.6 million at December 31, 1996
compared with non-performing loans of $7.7 million at December 31, 1995,
representing a decrease of $5.1 million or 67%. OREO totalled $1.2 million
at December 31, 1996 compared with OREO of $1.4 million at December 31, 1995,
representing a decrease of $205,000 or 14%. Total non-performing assets
equalled $3.8 million at December 31, 1996 compared with non-performing
assets of $9.1 million at December 31, 1995, representing a decrease of $5.3
million or 58%. Total non-performing assets as a percentage of total assets
equalled 0.50% at December 31, 1996, representing the lowest level in eight
years. Non-performing assets represented 1.38% of total assets at December
31, 1995.
Non-Performing Assets
(in thousands)
'94 $11,670
'95 $ 9,097
'96 $ 3,780
The Company had no loans categorized as troubled debt restructures ("TDR") at
December 31, 1996. One loan totalling $885,000 was classified as TDR at
December 31, 1995 as compared with TDR's totalling $10.8 million and $4.3
million at December 31, 1994 and December 31, 1993, respectively. There were
no loans categorized as TDR's at December 31, 1992. A loan is categorized as
a TDR if the original interest rate on such loan, repayment terms, or both
were restructured due to a deterioration in the financial condition of the
borrower. The loan classified as TDR at December 31, 1995 was restructured
at market rates and is performing in accordance with its restructured terms.
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 114 ("FAS #114"),
"Accounting by Creditors for Impairment of a Loan" which was amended in
October 1994 by SFAS No. 118 "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosure" ("FAS #118"). These statements
were adopted by the Company on January 1, 1995. Under FAS #114 and FAS #118
all loans that are impaired must be measured and valued using the following
guidelines:
(1) the present value of expected future cash flows discounted at the loan's
effective rate of interest, or
(2) the loan's observable market price, or
(3) the fair value of supporting collateral if the loan is collateral
dependent
Because of the similarities between measurement requirements of FAS #114 and
FAS #118 and existing methods used by the Company to evaluate loans, the
adoption of these Statements did not have a material impact on the Company's
financial statements. At December 31, 1996 impaired loans totalled $2.5
million with a valuation allowance of $425,000 compared with impaired loans
totalling $5.2 million at December 31, 1995 with a valuation allowance of
$668,000. The average balance of impaired loans during 1996 approximated
$3.8 million compared with an average of $6.1 million during 1995. Income
recognized during 1996 on these loans totalled approximately $22,000 compared
with income recognized during 1995 of approximately $173,000.
The Company's policies ensure that lending and investment activities are
evaluated in the context of an acceptable level of risk which produces a
profit consistent with the exposure to risk. These policies are reviewed cons
tantly by the Company's senior management. The lending and credit
administration staffs are charged with monitoring the loan portfolio and
identifying changes in the economy or in a borrower's circumstances which may
affect the ability to repay debt or the value of pledged collateral. In
addition, the Company engaged an outside firm during 1996 and 1995 to perform
ongoing independent loan review of the loan portfolio. The results of such
reviews have been consistent with the actions management has taken.
During 1996, the Company executed periodic sales of non-performing assets
with proceeds of $2.1 million which required charge-offs through the
allowance for loan losses of $1.6 million on those assets prior to their
sale. These sales were completed based on certain factors which convinced
management that pursuing resolutions through conventional collections efforts
would be more costly than resolutions through sales. In the fourth quarter of
1995, the Company executed a bulk sale of two packages of non-performing
assets with proceeds of $2.8 million which required charge-offs through the
allowance for loan losses prior to their sale of approximately $1.4 million.
The Company believes that residential property values in its market area
continued a multi-year decline during 1996, further decreasing the value of
the collateral securing many of the Company's residential mortgage loans. If
such a trend continues, further charge-offs may continue and necessitate loan
loss provisions which may adversely affect overall financial performance.
The following table is an analysis of the Company's non-performing assets at
the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995 1994 1993(a) 1992
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
Mortgage loans:
Residential real estate - owner occupied $862 $2,729 $4,194 $4,757 $7,524
Residential real estate - non-owner occupied 510 1,235 --(b) --(b) --(b)
Commercial real estate 788 2,580 1,501 4,906 19,862
Builders' & land -- -- 103 -- 2,299
Commercial loans 303 690 1,858 2,708 6,140
Consumer loans 107 448 303 478 905
- ------------------------------------------------------------------------------------------------------------------------------
Total non-accruing loans 2,570 7,682 7,959 12,849 36,730
- ------------------------------------------------------------------------------------------------------------------------------
Other real estate owned:
Residential real estate 472 1,072 2,093 3,004 7,527
Commercial real estate 306 -- 390 1,063 13,830
Builders' & land 432 793 1,969 3,008 8,919
Commercial loans -- -- -- -- 2,522
Consumer loans -- -- -- 397 397
- ------------------------------------------------------------------------------------------------------------------------------
Total other real estate owned 1,210 1,865 4,452 7,472 33,195
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for losses on other real estate owned -- (450) (741) (919) --
- ------------------------------------------------------------------------------------------------------------------------------
Total other real estate owned, net 1,210 1,415 3,711 6,553 33,195
- ------------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $3,780 $9,097 $11,670 $19,402 $69,925
==============================================================================================================================
Total non-accruing loans to total loans 0.64% 1.68% 1.56% 2.53% 6.20%
Total non-performing assets to total loans 0.94% 1.99% 2.29% 3.81% 11.79%
Total allowance for loan losses to non-accruing loans 503.07% 166.36% 117.17% 109.44% 57.94%
Total allowances for loan and OREO losses to
non-performing assets 342.02% 138.57% 81.11% 73.72% 30.43%
<FN>
<F1> (a) 1993 non-performing assets exclude $28.4 million of assets classified as
held for sale.
<F2> (b) Information for this period is not available, it is included within
"Residential real estate - owner occupied" for prior periods.
</FN>
</TABLE>
Allowance for Loan Losses and Provisions to the Allowance for Loan Losses
The allowance for loan losses is a reserve established through provisions
for loan losses charged to expense on a periodic basis and is reduced by
charge-offs in the loan portfolio and increased through recoveries of loans
previously charged-off. The allowance is maintained at a level that
management believes is adequate to absorb potential losses in the loan
portfolio. Management's methodology in determining the adequacy of the
allowance considers specific credit reviews, past loan loss experience,
current economic conditions and trends, borrowers' financial condition,
concentrations of credit, and the growth and composition of the loan
portfolio, among other factors.
At December 31, 1996, the Company maintained an allowance for loan losses
of $12.9 million representing 3.23% of total loans outstanding at that date.
The allowance for loan losses at December 31, 1995 totalled $12.8 million
representing 2.80% of total loans outstanding. Gross charge-offs for the
year ended December 31, 1996 totalled $3.8 million compared with gross
charge-offs of $4.8 million for the year ended December 31, 1995.
Recoveries totalled $1.9 million for the year ended December 31, 1996 compared
with recoveries of $749,000 for the year ended December 31, 1995. Net
charge-offs of $1.9 million for the year ended December 31, 1996 equalled
0.43% of average loans outstanding compared with net charge-offs of $4.1
million for the year ended December 31, 1995 which equalled 0.83% of average
loans outstanding.
Provisions to the allowance for loan losses for the year ended December 31,
1996 totalled $2.0 million which was a reduction from provisions to the
allowance for loan losses for the year ended December 31, 1995 of $7.6
million, a decrease of $5.6 million or 73.5%. The decrease in provisions was
primarily the result of a reduction in non-performing loans and a reduction
in total loans outstanding.
While the ratio of the allowance for loan losses to total loans increased to
3.23%, the total level of the allowance was essentially unchanged at $12.9
million. A greater than expected reduction in total loans outstanding
accounted for the increase in the ratio. Net charge-offs of $1.9 million,
which were less than expected due to a strong experience with recoveries on
loans charged-off many years earlier, did approximately equal the loan loss
provision of $2.0 million. Finally, faster resolutions of problem assets
reduced the level of non-performing loans to $2.6 million and thereby
increased the ratio of the allowance for loan losses to non-performing loans
to 503%. Part of this reduction was due to gross charge-offs of $3.8 million
which, while reduced from prior years, is still considered a high level for a
loan portfolio consisting overwhelmingly of 1-4 family residential first
mortgages. On this basis, the allowance for loan losses provides 3 - 4 years
of coverage, if charge-offs were to continue at the 1996 rate.
A comparative analysis of the allowance for loan losses is shown in the
following table. At December 31, 1996, management believes that the
allowance for loan losses was adequate given the quality of the loan
portfolio at that date. Management may make additional provisions to the
allowance for loan losses as necessary in the coming year if economic
conditions cause deterioration in the loan portfolio beyond the potential
loss exposures identified as of December 31, 1996.
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $12,779 $9,326 $14,062 $21,280 $26,371
Provision charged to expense 2,000 7,550 4,516 20,900 8,300
Charge-offs:
Mortgage loans:
Residential real estate (2,926) (3,193) (2,826) (4,735) (1,957)
Commercial real estate (70) (1,308) (4,467) (14,194) (3,409)
Builders' & land -- -- -- (2,277) (737)
Commercial loans (387) (93) (2,706) (7,103) (8,132)
Consumer loans (384) (252) (246) (226) (521)
Recoveries:
Mortgage loans:
Residential real estate 372 187 88 107 24
Commercial real estate 207 21 369 19 104
Builders' & land 35 -- -- -- 337
Commercial loans 1,176 506 487 237 867
Consumer loans 127 35 49 54 33
- ------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (1,850) (4,097) (9,252) (28,118) (13,391)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of the year $12,929 $12,779 $9,326 $14,062 $21,280
==============================================================================================================================
Average loans for the year $427,008 $492,028 $515,640 $546,134 $612,902
Net charge-offs as a percentage of average loans 0.43% 0.83% 1.79% 5.15% 2.18%
Allowances for loan losses as a percentage
of non-performing loans 503.07% 166.36% 117.17% 109.44% 57.94%
</TABLE>
Asset / Liability Management
The primary function of asset / liability management is to maximize net
interest income while ensuring adequate liquidity, monitoring proper credit
risk and maintaining an appropriate balance between interest rate sensitive
assets and interest rate sensitive liabilities. Liquidity management
involves the ability to meet the cash flow requirements of the Company's loan
and deposit customers. Interest rate sensitivity management seeks to minimize
fluctuating net interest margins and to enhance consistent growth of net
interest income through periods of changing interest rates.
The Company has an asset / liability committee ("ALCO") which meets weekly to
discuss loan and deposit pricing and trends, current liquidity and interest
rate risk positions, interest rate and economic trends and other relevant
information. To aid in the measurement of interest rate risk, the Company
utilizes an asset / liability model which, given many key assumptions, project
s estimated results within the constraints of those assump-tions. The model
is also used to estimate movement within the balance sheet, given certain
scenarios, and to measure the effects of that movement on net interest
income.
The following table summarizes assets and liabilities at December 31, 1996
that are sensitive to changes in interest rates within certain time horizons.
A positive "GAP" exists when rate sensitive assets exceed rate sensitive
liabilities and indicates that a greater volume of assets than liabilities
will reprice in a given period. This will generally enhance earnings in a
rising rate environment and inhibit earnings in a declining rate environment.
Conversely, when rate sensitive liabilities exceed rate sensitive assets,
the "GAP" is referred to as negative and indicates that a greater volume of
liabilities than assets will reprice during a given period. In this case, a
rising rate environment generally will inhibit earnings and declining rates
will enhance earnings.
Although the Company's policy is to maintain a ratio of net rate sensitive
assets or liabilities on a one year time horizon to less than 10% of total
assets, at December 31, 1996 this rate sensitive position slightly surpassed
the prescribed policy limit equaling an 11.88% negative GAP. This change was
caused primarily by the inclusion of a $25.0 million borrowing, which matures
in April 1997, within the one year time horizon.
Management intends to refinance this borrowing with a maturity or maturities
which will more appropriately match the characteristics of interest-earning
assets at that time. If this borrowing were excluded from the cumulative one
year GAP position, the result would have equalled 8.60% of total assets. The
rate on the maturing borrowing is 7.16% which, based upon quoted rates as of
December 31, 1996, will be able to be refinanced at a lower cost. In
addition, the current diversification of the balance sheet with increased
investment securities classified as available for sale allows flexibility with
regard to the purchase/ sale of investment securities in an attempt to manage
the Company's GAP position, if necessary.
Interest Rate Sensitivity Management
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996
After After After
six months one year three years Non-
Within but within but within but within After Interest
six months one year three years five years five years Bearing (c) Total
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate sensitive assets:
Interest-bearing deposits $149 $-- $-- $-- $-- $-- $149
Mortgage-backed securities (a) 34,657 26,265 45,105 18,242 35,856 (1,397) 158,728
Debt securities 23,117 4,412 11,931 12,366 94,723 (72) 146,477
Other investments 28,489 -- -- -- -- -- 28,489
Loans (a) 119,484 88,354 58,358 22,752 108,817 2,457 400,222
Non-interest bearing -- -- -- -- -- 17,238 17,238
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets 205,896 119,031 115,394 53,360 239,396 18,226 751,303
- ------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitive liabilities:
Regular savings and money market,
club and escrow accounts (b) 29,131 8,406 40,064 20,036 101,455 -- 199,092
Interest-bearing checking (b) 5,319 2,658 3,988 1,996 7,387 21,348
Certificates of deposit 263,595 80,091 17,935 1,781 2,015 (31) 365,386
Borrowings from FHLB of Boston 25,000 -- 25,000 8,000 -- -- 58,000
Non-interest bearing -- -- -- -- -- 107,477 107,477
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Capital 323,045 91,155 86,987 31,813 110,857 07,446 751,303
- ------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity GAP $(117,149) $27,876 $28,407 $21,547 $128,539 $(89,220) $--
==============================================================================================================================
Cumulative interest rate sensitivity GAP $(117,149) $(89,273) $(60,866) $(39,319) $89,220 $-- $--
==============================================================================================================================
Percentage of interest rate
sensitivity GAP to total assets
Period (15.59)% 3.71% 3.78% 2.87% 17.11% (11.88)%
Cumulative (15.59)% (11.88)% (8.10)% (5.23)% 11.88% --
Cumulative rate sensitive assets as a
percentage of cumulative rate sensitive
liabilities 63.74% 78.45% 87.86% 92.62% 113.86% 100.00%
<FN>
<F1> (a) The categories within which loans and mortgage-backed securities have
been included reflect certain prepayment assumptions by management given
certain weighted average maturities and projected interest rate
assumptions.
<F2> (b) A substantial portion of regular savings deposits and interest-bearing
checking deposits are considered core deposits by management and
therefore less sensitive to changes in interest rates.
<F3> (c) Non-accrual loans are included in non-interest bearing.
</FN>
Net Interest Rate Spread & Net Interest Income
The net interest rate spread (the "spread") is the difference between the
average interest rate received on interest-earning assets and the average
interest rate paid for interest-bearing liabilities. For the year ended
December 31, 1996 average interest-earning assets totalled $672.0 million, an
increase of 9.0%, and generated an average yield of 7.65%. This compares with
average interest-earning assets of $616.4 million generating an average yield
of 7.70% for the year ended December 31, 1995. Average interest-bearing
liabilities totalled $586.2 million, an increase of 7.5%, with an average
cost of 4.35% for the year ended December 31, 1996 compared with average
interest-bearing liabilities of $545.2 million with an average cost of 4.05%
for the year ended December 31, 1995. The spread for the year ended December
31, 1996 equalled 3.30% compared with a spread of 3.65% for the year ended
December 31, 1995. The net interest margin for the year ended December 31,
1996 was 3.85% versus a net interest margin of 4.12% for the year ended
December 31, 1995.
The reduction in the spread during 1996 was caused primarily by an increase
in the cost of interest-bearing deposits outstanding. Lower costing savings
deposits decreased and averaged $197.5 million during 1996 compared with an
average $221.1 million during 1995. Higher costing certificates of deposit,
however, increased to average $308.8 million during 1996 compared with an
average $244.5 million during 1995. The increase in the cost of
interest-bearing deposits and its impact on net interest income was partially
offset by the reduction of non-performing assets from $9.1 million at
December 31, 1995 to $3.8 million at December 31, 1996. The following
comparative table shows the average balances and average interest rates of
interest-earning assets and interest-bearing liabilities:
Average Balances and Interest Rates
(Dollars in thousands)
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(a) $427,008 $35,417 8.29% $492,028 $39,781 8.09% $515,640 $40,041 7.77%
Interest-bearing deposits 360 23 6.39% 3,556 126 3.54% 9,782 106 1.08%
Federal funds sold 17,643 929 5.18% 20,171 1,174 5.74% 12,382 557 4.44%
U.S. treasury securities 4,104 241 5.87% 13,553 649 4.79% 32,372 1,358 4.19%
U.S. agency obligations 78,869 5,389 6.83% 34,931 2,315 6.63% 12,185 610 5.01%
REMIC's/CMO's 50,216 3,152 6.28% 19,929 1,380 6.92%
Non-agency REMIC's/CMO's 29,608 2,008 6.78% -- -- -- -- -- --
Mortgage-backed securities
adjustable rate 47,793 3,062 6.41% 15,893 1,069 6.73% -- -- --
Asset-backed securities 9,410 661 7.02%
Other bonds and notes 766 48 6.27% 9,079 475 5.23% 24,927 1,427 5.72%
Equity securities 12 1 8.33% 65 3 4.62% 424 50 1.79%
Net unrealized gain (loss) on available
for sale securities (960) -- -- n/m -- -- n/m -- --
Federal Home Loan Bank
of Boston stock 7,192 460 6.40% 7,192 504 7.01% 7,192 554 7.70%
- -----------------------------------------------------------------------------------------------------------------------------
$672,021 $51,391 7.65% $616,397 $47,476 7.70% $614,904 $44,703 7.27%
=============================================================================================================================
Noninterest-Earning Assets:
Cash & due from banks 9,307 8,876 8,364
Premises and equipment 5,568 7,485 8,748
Accrued interest receivable 4,444 4,108 4,227
Other assets(a) (4,716) (2,928) 25,328
- -----------------------------------------------------------------------------------------------------------------------------
14,603 17,541 46,667
- -----------------------------------------------------------------------------------------------------------------------------
Total $686,624 $633,938 $661,571
=============================================================================================================================
Interest-Bearing Liabilities:
Now accounts $21,998 $339 1.54% $21,569 $340 1.58% $22,919 $336 1.47%
Savings, money market, club
and escrow deposits 197,475 4,704 2.38% 221,050 5,136 2.32% 273,391 6,240 2.28%
Certificates of deposit 308,772 16,454 5.33% 244,518 12,417 5.08% 217,550 7,737 3.56%
FHLBB advances 58,000 3,998 6.78% 58,060 4,186 7.11% 62,081 4,442 7.06%
- -----------------------------------------------------------------------------------------------------------------------------
$586,245 $25,495 4.35% $545,197 $22,079 4.05% $575,941 $18,755 3.27%
=============================================================================================================================
Noninterest-Bearing Liabilities
and Capital accounts:
Demand deposits 38,540 35,897 36,250
Other liabilities 5,623 5,714 6,644
Shareholders' equity 56,216 47,130 42,736
- -----------------------------------------------------------------------------------------------------------------------------
100,379 88,741 85,630
- -----------------------------------------------------------------------------------------------------------------------------
Total $686,624 $633,938 $661,571
=============================================================================================================================
Net Interest Income $25,896 $25,397 $25,948
================================================================================================================================
Net Interest Rate Spread 3.30% 3.65% 4.00%
================================================================================================================================
Net Yield on Interest
Earning Assets 3.85% 4.12% 4.22%
================================================================================================================================
<FN>
<F1> (a) Average loans receivable including loans in non-accrual status, are shown
gross and the related allowance is included in other assets. In 1996 and
1995 the average daily balance for the allowance exceeded that of the
remaining other assets, creating a negative balance.
</FN>
</TABLE>
Net interest income for the year ended December 31, 1996 increased modestly
to $25.9 million compared with net interest income of $25.4 million for the
year ended December 31, 1995 representing an increase of approximately
$500,000 or 2%. The reduction in the net interest spread was more than offset
by the increased volume of interest-earning assets. Though net interest
income changed only slightly, the composition of interest-earning assets and
interest-bearing liabilities, affecting income, changed substantially. The
following rate/volume analysis reflects the impact of rate and volume changes
in interest-earning asset and interest-bearing liability categories on annual
net interest income.
RATE / VOLUME ANALYSIS
The following table presents, for the periods indicated, the changes in
interest and dividend income and the changes in interest expense attributable
to changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities. A change attributable to both
volume and rate has been allocated proportionally to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Increase (Decrease)
Due to Due to Due to Due to
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans receivable $(5,371) $1,007 $(4,364) $(1,873) $1,613 $(260)
Federal funds sold (138) (107) (245) 421 196 617
U.S. treasury securities (530) 122 (408) (879) 170 (709)
U.S. government agency obligations 3,000 74 3,074 1,453 252 1,705
REMIC's/CMO's 1,913 (141) 1,772 1,380 -- 1,380
Non-agency REMIC's/CMO's 2,008 -- 2,008 -- -- --
Mortgage-backed securities 2,046 (53) 1,993 1,069 -- 1,069
Asset-backed securities 661 661 -- -- --
Other investments (716) 142 (574) (1,206) 224 (982)
Equity securities (3) 1 (2) (27) (20) (47)
Change due to mix in interest-earning assets (a) 1,357 (1,357) -- (228) 228 --
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 4,227 (312) 3,915 110 2,663 2,773
- ------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits 2,846 758 3,604 (183) 3,763 3,580
FHLBB advances (4) (184) (188) (234) (22) (256)
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 2,842 574 3,416 (417) 3,741 3,324
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $1,385 $(886) $499 $527 $(1,078) $(551)
==============================================================================================================================
<FN>
<F1> (a) Represents the effects on interest income which are caused by changes in
the mix of interest-earning assets relative to interest-earning assets in
the aggregate.
</FN>
</TABLE>
Lending Activities
Total loans equalled $400.2 million at December 31, 1996 and represented
53.3% of total assets compared with total loans of $456.4 million or 69.3% of
total assets at December 31, 1995, representing a decrease of $56.2 million
or 12.3%. The decrease in loans from year-end 1995 was caused primarily by
the combination of weak loan demand and asset / liability management policies
which weigh the risk / reward ratio of potential loan requests with
opportunities available elsewhere. Fierce competition and highly competitive
pricing tempered loan production during the year as management believed that
the pricing necessary to sustain the loan portfolio during 1996 was
inconsistent with the risk presented. As a result, the Company directed its
focus to the investment securities portfolio.
Lending activities have traditionally consisted of the origination of
conventional mortgage loans on residential real estate, the origination of
secured consumer loans and, to a lesser degree, the origination of commercial
mortgage and other commercial and industrial loans. The Company generally
limits the term of fixed rate mortgage loans it will accept for its own
portfolio to 15 years. To aid in asset / liability management, the Company
offers adjustable rate mortgage loans that reprice every one to three years
and offers adjustable rate hybrid products which offer a fixed rate at the
beginning of the loan term, from three to ten years, and then reprice yearly
after the initial term. Consumer loans offered include home equity term
loans, home equity lines of credit, automobile loans and education loans.
Adjustable rate loans equalled 47.8% of total loans at December 31, 1996
compared with adjustable rate loans which represented approximately 48.1%
of total loans at December 31, 1995.
Total Loans (in thousands)
'94 $510,378
'95 $456,443
'96 $400,222
The Company experienced increased, but still modest, loan demand during 1996.
As a result, total loan originations slowed while the investment securities
portfolio grew as alternatives were sought. During 1996 Dime originated
$26.5 million of new loans; $9.7 million of one to four family residential
mortgages, $10.0 million of home equity and other consumer type loans and
$6.8 million of commercial business and commercial real estate loans were
originated. During 1995 Dime originated $21.4 million of new loans; $6.7
million of one to four family mortgages, $8.9 million of home equity loans
and $5.8 million of commercial loans and commercial real estate loans were
originated.
The following table presents the loan portfolio by fixed and variable
components:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995 1994 1993 1992
Amount % Amount % Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable rate loans:
Mortgage loans:
Residential real estate:
owner occupied $111,219 27.8% $130,823 28.7% $177,193 34.7% $194,626 38.2% $213,576 36.0%
non-owner occupied (b) 30,736 7.7% 26,649 5.8% --(a) -- --(a) -- --(a) --
Commercial real estate 28,141 7.0% 35,455 7.8% 46,860 9.2% 65,135 12.8% 70,407 11.9%
Builders' & land 115 0.0% 1,501 0.3% 4,276 0.8% 4,864 1.0% 5,389 0.9%
Consumer loans 18,598 4.6% 20,868 4.6% 19,067 3.8% 20,821 4.1% 23,049 3.9%
Commercial loans 2,596 0.7% 4,082 0.9% 6,292 1.2% 11,505 2.3% 41,580 7.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Total adjustable rate 191,405 47.8% 219,378 48.1% 253,688 49.7% 296,951 58.4% 354,001 59.7%
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed Rate loans:
Mortgage loans:
Residential real estate:
owner occupied 176,783 44.2% 199,033 43.6% 217,004 42.5% 173,278 34.0% 182,847 30.8%
non-owner occupied 629 0.1% 1,050 0.2% --(a) -- --(a) -- --(a) --
Commercial real estate 5,307 1.3% 8,204 1.8% 10,076 2.0% 10,508 2.1% 24,637 4.2%
Builders' & land 332 0.1% -- -- -- -- -- -- 1,851 0.3%
Consumer loans 25,493 6.4% 28,420 6.2% 28,965 5.7% 26,151 5.1% 27,405 4.6%
Commercial loans 406 0.1% 445 0.1% 751 0.1% 1,917 0.4% 2,209 0.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Total fixed rate 208,950 52.2% 237,152 51.9% 256,796 50.3% 211,854 41.6% 238,949 40.3%
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 400,355 100.0% 456,530 100.0% 510,484 100.0% 508,805 100.0% 592,950 100.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Less:
Allowance for loan losses 12,929 12,779 9,326 14,062 21,280
Unearned income -- -- -- -- 1
Deferred loan
origination fees, net 133 87 106 724 853
- ---------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net $387,293 $443,664 $501,052 $494,019 $570,816
=================================================================================================================================
<FN>
<F1> (a) Information for this period is not available, and is included within
"Residential real estate - owner occupied" for prior periods.
<F2> (b) In 1996, approximately $8 million of loans have been reclassified from
"owner occupied" to "non-owner occupied" based on updated information.
</FN>
</TABLE>
Residential real estate loans decreased $38.2 million or 10.7% during 1996
and totalled $319.4 million or 79.8% of total loans outstanding at December
31, 1996. Residential real estate loans at December 31, 1995 totalled $357.6
million and represented 78.3% of total loans outstanding.
Commercial real estate and builders loans decreased $11.3 million or 24.9%
from year-end 1995 and totalled $33.9 million or 8.5% of total loans
outstanding at December 31, 1996. Commercial real estate and builders loans
at December 31, 1995 totalled $45.2 million and represented 9.9% of total
loans outstanding.
Consumer loans decreased $5.2 million or 10.6% during 1996 and totalled $44.0
million or 11.0% of total loans outstanding at December 31, 1996. Consumer
loans at December 31, 1995 totalled $49.3 million and represented 10.8% of
total loans outstanding. Consumer loans include equity loans on residential
real estate.
Commercial loans decreased $1.5 million or 33.6% from year end 1995 and
totalled $3.0 million or less than 1.0% of total loans outstanding at
December 31, 1996. Commercial loans at December 31, 1995 totalled $4.5
million and represented 1.0% of total loans outstanding.
Investment Activities
Investment securities, net of the investment in the Federal Home Loan Bank of
Boston, increased substantially during 1996 and totalled $305.2 million or
40.6% of total assets at December 31, 1996 compared with $151.2 million or
23.0% of total assets at December 31, 1995, an increase of $154.0 million or
101.8%. The increase in securities during 1996 was primarily the result
of a new focus on investment securities, as credit-worthy opportunities in
the loan arena were scarce. Competitive changes within the local market
presented loan offerings, generally at pricing that Dime was unwilling to
match given the levels of risk involved. As the competition for quality
loans spawned rate offerings that management believed, in many cases, to be
subpar for the risk, the Company allowed a net run-off in the loan portfolio
and chose securities as an alternative investment for available funds from
this run-off as well as additional funds from deposit growth.
Investment Securities
(in thousands)
'94 $ 56,463
'95 $151,226
'96 $305,218
In addition to the substantial increase in the level of investment
securities, the composition of the portfolio changed as well. The introductio
n of adjustable rate mortgage-backed securities ("MBSs"), collateralized
mortgage obligations ("CMOs") and asset-backed securities ("ABSs") provided
investment options to the Company which mirrored, in many ways, the reactions
to market changes of the loan portfolio, yet without the same level of credit
risk. The Company's investment policy provides guidelines under which
investments are purchased and sold. The Company's asset / liability ("ALCO")
committee meets weekly and establishes interest-earning asset and
interest-bearing liability pricing. The investment policy coupled with price
/ risk monitoring by the ALCO, provide the foundation from which investment
security transactions are completed. The portfolio is comprised of high
quality investments with most issues guaranteed or partially guaranteed by
the U.S. Government, a U.S. Government Agency or a U.S. Government-Sponsored
Agency.
The objectives of the investment securities portfolio include the attainment
of competitive and, in many cases, superior yields on a risk-adjusted basis;
management of the duration of assets for interest rate risk purposes;
providing for increased liquidity; providing for a source of capital gain
income as opportunities exist. During 1996 the Company recorded net gains
from the sale of investment securities totalling $326,000 compared with net
gains during 1995 of $298,000.
The following table comparatively illustrates the changes in the composition
of the investment security portfolio at December 31, 1994, 1995 and 1996.
Investment securities classified as available for sale and held to maturity
under FAS #115 are combined in the following presentation. For a complete
presentation of securities and their appropriate classifications under FAS
#115 please refer to Note #4.
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
U.S. treasury securities $3,452 $5,041 $19,688
U.S. government-sponsored
agency obligations 128,620 46,886 22,002
Other bonds and notes -- 4,097 14,136
REMIC's/CMO's 134,867 47,278 --
Mortgage-backed securities 23,861 47,912 --
Asset-backed securities 14,406 -- --
Equity securities 12 12 637
- -------------------------------------------------------------------
Total investment securities $305,218 $151,226 $56,463
===================================================================
</TABLE>
Deposits and Other Borrowings
Deposits have traditionally been the major source of funding for investment
purchases and loan demand, and should continue to be in the foreseeable
future. A wide variety of consumer savings, time and demand deposit products
designed to attract both short term and long term funds are offered. In
addition, Dime offers commercial deposit products to meet the needs of our
business customers. Dime instituted initiatives during 1996 designed to
maximize the impact of the celebration of the 125th anniversary of the
Company's sole subsidiary, The Dime Savings Bank of Wallingford. An
increased advertising campaign and the introduction of new products with 125
day terms offering premium pricing and other benefits were unveiled to our
depositors. In addition, consolidation activity in the local market
presented unique opportunities to attract new deposits due to customer
dissatisfaction. As a result, deposits increased $82.8 million or 15.2% to
total $626.1 million at December 31, 1996 compared with total deposits of
$543.3 million at December 31, 1995.
In order to provide flexibility with regard to funding sources, Dime
introduced and sold $3.0 million in retail brokered certificates of deposit
during the fourth quarter of 1996. The Bank had no brokered certificates on
the books prior to this transaction. In addition, Dime is a member of the
Federal Home Loan Bank of Boston (the "FHLBB") and as a member may borrow
from the FHLBB to secure additional funds. During 1996, FHLBB borrowings
remained unchanged and totalled $58.0 million at December 31, 1996 compared
with borrowings of $58.0 million at December 31, 1995. If deposit growth
cannot meet asset growth targets or loan demand, additional funds may be
derived through brokered certificates or FHLBB borrowings if costs are
favorable compared with alternative funding sources.
The asset / liability committee meets weekly to determine pricing levels. In
determining the rate of interest to pay for deposits, many factors are
considered including current treasury rates, cash flow requirements, interest
rate sensitivity position, rates paid by competitors, cost of alternative
funding sources and income objectives.
The following tables illustrate the changes within the deposit structure
during 1996. Lower costing savings type accounts continued to decrease while
higher costing certificates of deposit increased. For additional deposit
information please see "Note 8: Deposits".
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Net increase (decrease)
in deposits
before interest $61,257 $(2,335) $(53,372)
Interest credited 21,497 17,893 14,313
- --------------------------------------------------------------------
Net increase (decrease)
in deposits $82,754 $15,558 $(39,059)
====================================================================
</TABLE>
The net change in deposit accounts of various types, for the periods
indicated was:
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Regular savings and clubs $(17,976) $(45,636) $(31,976)
NOW accounts (1,583) 362 (972)
Demand deposits 1,137 28 4,717
Money market accounts 14,776 (3,255) (3,913)
Certificates of deposit 87,476 64,176 (7,407)
Escrow deposits (1,076) (117) 492
- --------------------------------------------------------------------
Total $82,754 $15,558 $(39,059)
====================================================================
</TABLE>
Other Operating Income
Other income is primarily generated through service charges and other
fee-based income derived from deposit and lending activities. Other
operating income for the year ended December 31, 1996 totalled $2.0 million
compared with other operating income of $2.1 million for the year ended
December 31, 1995. The following table summarizes the categories of other
income:
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Deposit account fees $1,638 $1,578 $1,617
Customer service fees 137 140 147
Fees from savings bank life
insurance sales 149 140 121
Loan and loan servicing fees 47 49 81
Other fees 78 173 241
- ------------------------------------------------------------------
Total other income $2,049 $2,080 $2,207
==================================================================
</TABLE>
Operating Expenses
The Company's operating expenses include salaries and employee benefit costs,
professional and other services, occupancy and equipment costs, and FDIC
insurance costs among other charges. Total operating expenses for the year
ended December 31, 1996 were $13.8 million including net restructure charges
of $77,000 and including a net gain from OREO operations of $117,000. Total
operating expenses for the year ended December 31, 1995 were $17.0 million
including net restructure charges of $1.9 million and including a net gain
from OREO operations of $1.0 million. Operating expenses, excluding net
restructure charges and OREO operations, totalled $13.8 million for the year
ended December 31, 1996 compared with $16.1 million for the year ended
December 31, 1995, representing a decrease of $2.3 million or 14.2%. The
decrease in expenses during 1996 was primarily the result of a general
reduction in expenses due, in part, to the implementation of a major
restructuring program, begun during the second quarter of 1995, as well
as other initiatives.
The net cost of the operation of other real estate owned includes expenses
related to the maintenance of OREO, including real estate taxes and property
insurance. These expenses are reduced by gains recognized on the sales of
OREO. The net cost of the operation of OREO equalled a net gain of $117,000
for the year ended December 31, 1996 compared with a net gain of $1.0 million
for the year ended December 31, 1995 as gains recognized from the sales of
OREO more than offset the costs associated with property operations.
The Company began a restructuring program in the second quarter of 1995 which
reduced the Company's workforce. Additional restructuring plans authorized
by the Board of Directors took effect in the fourth quarter of 1995 with
regard to the outsourcing of the Bank's data processing operations and other
staff reductions. Gross restructure costs totalling $2.8 million were
charged to operations during 1995 resulting primarily from the combination of
severance charges and the writedown to estimated salvage value of fixed
assets associated with data processing. Total restructure charges were
partially offset by the recognition of curtailment gains totalling $949,000 in
the non-contributory defined benefit plan and the defined benefit
postretirement plan. Net charges from both phases of the restructure totalled
$1.9 million for the year ended December 31, 1995.
Additional restructuring was undertaken during 1996, though to a lesser
degree, with gross charges to operations of $340,000 primarily representing
severance charges relating to the termination of approximately 15 employees
or approximately 9% of the total workforce at that time. These gross charges
were partially offset by the recognition of curtailments gains of $263,000 in
the non-contributory defined benefit plan and the defined benefit
postretirement plan. Net charges totalled $77,000 for the year ended
December 31, 1996. The total reduction in full time equivalent employees
since March 31, 1995 is approximately 39%.
Income Taxes
During 1996, the Company recognized $5.8 million of its deferred tax asset as
a result of projected earnings.
The net deferred tax asset at December 31, 1996 totalled $5.2 million as
compared with $4.0 million at December 31, 1995. The addition to the net
deferred tax asset in 1996 is principally due to deferred taxes established
for unrealized losses on the available for sale securities portfolio. At
December 31, 1996, the Company had gross deferred tax assets of $12.8
million, a valuation allowance against the deferred tax assets of $6.6
million and gross deferred tax liabilities of $1.1 million.
In assessing the realizability of the deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax asset will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management believes that it is more likely than not that the
Company will realize the net deferred tax asset recognized at December 31,
1996.
During 1997, management will continue to reassess the level of the valuation
allowance for the deferred tax asset to determine if it should be adjusted.
Liquidity, Sources and Uses of Funds,and Capital Resources
Liquidity involves the ability to meet cash flow requirements of depositors
wanting to withdraw funds or of borrowers needing assurance that sufficient
funds will be available to meet their credit needs. Cash on hand, deposits
at other financial institutions and federal funds sold are the principal
sources of liquidity. Cash and cash equivalents totalled $31.9 million at
December 31, 1996 compared with $35.5 million at December 31, 1995 and
compared with $50.0 million at December 31, 1994. Cash and cash equivalents
were 4.24% of total assets at December 31, 1996 compared with 5.39% of total
assets at December 31, 1995 and compared with 7.83% of total assets at
December 31, 1994.
The primary sources of funds include cash receipts from deposits, loan
principal and interest payments, proceeds from the sale of investments,
earnings from investments, and proceeds from amortizing and maturing
investments. The principal uses of funds include disbursements to fund
investment purchases, loan originations, payment of interest on deposits, and
payments to meet the operating expenses of the Company and Dime.
Net cash used by investing activities totalled $99.8 million during the year
ended December 31, 1996 as the Company reinvested funds provided by the
decrease in the loan portfolio, deposit growth and maturing investments to
fund the purchase of mortgage-backed securities and other investment
securities. The net decrease in the loan portfolio totalled $50.2 million
while deposits increased by $82.8 million and funds provided by maturing and
amortizing investments totalled $40.7 million. Funds provided from the sale
of investments totalled $133.2 million.
At December 31, 1996, FHLBB borrowings totalled $58.0 million, unchanged from
year-end 1995 and compared with $60.0 million at December 31, 1994. The
Company believes that liquidity is sufficient to meet currently known demands
and commitments and may use FHLBB borrowings as a source of new funds, if
needed. The maximum amount that Dime may borrow is at the discretion of the
FHLBB. Based on the level of qualifying collateral available to secure
advances at December 31, 1996, Dime's estimated borrowing limit was $519.2
million.
At December 31, 1996, there were $337.4 million of time certificates of
deposit maturing within one year compared with $242.9 million at December 31,
1995 and compared with $195.0 million at December 31, 1994. The Company
expects that substantially all of these certificates will be renewed or
replaced with new deposits.
The primary source of funds for the Company is the dividends received from
Dime. The liquidity and the capital resources of the Company are largely
dependent upon the liquidity, profitability and capital position of Dime. At
December 31, 1996, the Company's equity to assets ratio was 8.33% compared
with an equity to assets ratio of 7.85% at December 31, 1995 and compared
with an equity to assets ratio of 7.09% at December 31, 1994. The Company
must comply with the capital ratio requirements set by the Board of Governors
of the Federal Reserve while Dime must comply with the capital ratio
requirements set by the FDIC. The following table presents the Company's
risk-based capital and leverage capital ratios:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, Required* 1996 1995
<S> <C> <C> <C>
Tier 1 risk-based capital 6.00% 17.93% 15.15%
Total risk-based capital 10.00% 19.21% 16.44%
Leverage capital 5.00% 8.44% 7.50%
<FN>
<F1> * For an institution to be considered "well capitalized" a capital ratio
in excess of those shown is required.
</FN>
</TABLE>
Recent Accounting Pronouncements
Impairment of Long-Lived Assets
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of ", was issued in March 1995 and is
effective for fiscal years beginning after December 15, 1995. SFAS No.
121 requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount of
an asset may not be recoverable. There have been no events or changes in
circumstances that the Company believes indicate that the carrying value of
an asset may not be recoverable as of December 31, 1996.
Mortgage Servicing Rights
In May 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights" was
issued. SFAS No. 122 requires an enterprise which acquires mortgage
servicing rights through either the purchase or origination of mortgage loans
and sells or securitizes those loans with servicing retained, to allocate the
total cost of the mortgage loans to the mortgage servicing rights and the
loans based on their relative fair values if it is practical to estimate
those fair values. These mortgage servicing rights are to be amortized in
proportion to and over the period of estimated net servicing income and
should be evaluated for impairment based on their fair values. SFAS No. 122
is effective for fiscal years beginning after December 15, 1995. The
adoption of this Statement in 1996 did not have a material effect on the
Company's consolidated financial statements.
Stock Option Plans
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was
issued and is effective for fiscal years beginning after December 15, 1995.
This Statement establishes accounting and reporting standards for stock-based
employee compensation plans and defines a fair value based method of accountin
g for an employee stock option or similar equity instrument. It also allows
an entity to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting in Opinion 25 must make pro
forma disclosures of net income and earnings per share as if the fair value
method of accounting defined in this Statement had been applied. The Company
adopted this statement in 1996, but elected to follow Opinion 25. Proforma
disclosure of net income and earnings per share are included in Note #18
"Stock Based Compensation Plans".
Accounting for Transfers and Servicing of Financial Assets
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" was issued in June 1996, and amended by SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125" issued in December 1996 and is effective January 1, 1997.
This statement provides financial reporting standards for the derecognition
and recognition of financial assets, including the distinction between
transfers of financial assets which should be recorded as sales and those
which should be recorded as secured borrowings. The Company does not
anticipate that the adoption of these statements will have a material effect
on the consolidated financial statements.
Year Ended December 31, 1995, Compared to Year Ended December 31, 1994.
Overview: Net Income for the year ended December 31, 1995 totalled $6.0
million or $1.21 per share compared with a net income of $4.7 million or
$0.94 per share for the year ended December 31, 1994. The change in results
was primarily caused by decreased operating expenses and the recognition of
$2.8 million of the Company's deferred tax asset as the result of improved
earnings projections during 1995.
Interest Income: Interest income for the year ended December 31, 1995
totalled $47.5 million compared with interest income of $44.7 million for the
year ended December 31, 1994. This increase of $2.8 million or 6.20% was due
principally to an increase in the weighted average yield on interest earning
assets from 7.27% for the year ended 1994 to 7.70% for the year ended 1995.
Interest Expense: Interest expense totalled $22.1 million for the year ended
December 31, 1995 compared with interest expense of $18.8 million for the
year ended December 31, 1994. This increase was primarily caused by a general
increase in the rates paid on deposits, the principal source of funding for
the Company. The average cost of interest-bearing liabilities during 1995
equalled 4.05% compared with an average cost of 3.27% during 1994.
Provision for Loan Losses: The provision to the allowance for loan losses
for the year ended December 31, 1995 totalled $7.6 million compared with a
provision for the year ended December 31, 1994 of $4.5 million. The increased
provision during 1995 was primarily due to the Company's assessment, based on
new information, that there was increased potential exposure in the
residential loan portfolio. Approximately 200 new appraisals were received on
a segment of the performing 1 - 4 family residential loan portfolio which
indicated a substantial decline in the value of the collateral securing many
of these loans since the original funding date.
Investment Securities Gains: The Company recognized gains
of $298,000 on the sale of investment securities during the year ended
December 31, 1995 compared with net gains of $6,000 for the year ended
December 31, 1994.
Gain on Sale of Assets Held for Sale: The Company recorded
a gain, in 1994, of $1.3 million on the sale of assets which had been
classified as held for sale. During 1994, all assets classified as held for
sale were sold with the exception of approximately $1.5 million which were
reclassified within non-performing assets at December 31, 1994. No assets
were classified as held for sale at December 31, 1995.
Other Operating Income: Other operating income during 1995 decreased
slightly by $127,000 or 5.75%, and totalled $2.1 million for the year ended
December 31, 1995 compared with other operating income of $2.2 million for
the year ended December 31, 1994. Other operating income consists primarily
of service charges and other fees generated from deposit and lending
activities.
Operating Expenses: Total operating expenses for 1995 were $17.0 million
compared with $20.1 million for 1994, representing a decrease of $3.1 million
or 15.5%. Operating expenses, excluding non-recurring items equalled $16.1
million for the year ended December 31, 1995 compared with $19.0 million for
the year ended December 31, 1994. Non-recurring items excluded were from OREO
operations and net restructure charges during 1995 and OREO operations and
writedowns on assets held for sale during 1994.
Income Taxes: The Company provided only for the minimum State tax during
1995 and 1994 because of tax loss carry forwards available to offset regular
Federal and State income tax provisions. Additionally, the Company recognized
$2.8 million of its deferred tax asset during 1995 as a result of improved
earnings projections.
Consolidated Statements of Condition Dime Financial Corporation
1996 Annual Report
<TABLE>
<CAPTION>
(Dollars in thousands, except share data)
December 31, 1996 1995
<S> <C> <C>
Assets
Cash and amounts due from banks - Note 2 $10,430 $11,172
Interest bearing deposits 149 2,983
Federal funds sold 21,296 21,334
Investment securities available for sale
(amortized cost: $26,304 in 1996; $8,154 in 1995) - Note 4 26,233 8,138
Investment securities held to maturity (market value: $119,238 in 1996; $48,245 in 1995) - Note 4 120,257 47,898
Mortgage-backed securities available for sale
(amortized cost: $160,124 in 1996; $94,809 in 1995) - Note 4 158,728 95,190
Investment in Federal Home Loan Bank of Boston stock - Note 9 7,192 7,192
Loans receivable - Notes 5 and 9 400,222 456,443
Allowance for loan losses (12,929) (12,779)
- --------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 387,293 443,664
Premises and equipment, net - Note 6 5,095 5,926
Accrued income receivable 5,214 4,451
Other real estate owned - Note 7 1,210 1,415
Deferred income taxes - Note 11 5,166 4,012
Other assets 622 2,230
Excess of cost over fair value of net assets acquired 2,418 2,768
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $751,303 $658,373
================================================================================================================================
Liabilities and Shareholders' Equity
Liabilities
Deposits - Note 8 $626,098 $543,344
Federal Home Loan Bank of Boston advances - Note 9 58,000 58,000
Other liabilities 4,594 5,361
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 688,692 606,705
- --------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity - Notes 12, 13 and 17
Preferred stock; no par; 1,000,000 shares authorized; none issued and outstanding -- --
Common stock; $1.00 par value; authorized 9,000,000 shares;
issued 5,480,896 and 5,373,992 in 1996 and 1995, respectively;
outstanding 5,129,289 and 5,022,385 in 1996 and 1995, respectively 5,481 5,374
Additional paid-in capital 52,209 51,117
Retained earnings (deficit) 8,788 (2,166)
Net unrealized gain (loss) on available for sale securities, net of taxes (969) 241
Treasury stock - 351,607 shares at cost (2,898) (2,898)
- --------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 62,611 51,668
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $751,303 $658,373
================================================================================================================================
Commitments and contingencies - Notes 6, 12, 14 and 21
</TABLE>
See accompanying notes to consolidated financial statements
Consolidated Statements of Operations Dime Financial Corporation
1996 Annual Report
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $35,417 $39,781 $40,041
Interest-bearing deposits 23 126 106
Federal funds sold 929 1,174 557
Interest and dividends on investment securities:
U. S. treasury securities 241 649 1,358
U. S. government agency obligations 5,389 2,315 610
REMIC/CMO's 3,152 1,380 --
Non-agency REMIC/CMO's 2,008 -- --
Mortgage-backed securities 3,062 1,069 --
Asset-backed securities 661 -- --
Other bonds and notes 48 475 1,427
Equity securities 1 3 50
Dividends on Federal Home Loan Bank of Boston stock 460 504 554
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 51,391 47,476 44,703
- --------------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest to depositors 21,497 17,893 14,313
Interest on FHLBB advances 3,998 4,186 4,442
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 25,495 22,079 18,755
- --------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 25,896 25,397 25,948
Provision for loan losses - Note 5 2,000 7,550 4,516
- --------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 23,896 17,847 21,432
Investment securities gains, net - Note 4 326 298 6
Gain on sale of assets held for sale -- --
Deposit account fees 1,638 1,578 1,617
Other operating income 411 502 590
- --------------------------------------------------------------------------------------------------------------------------------
Income before other operating expenses 26,271 20,225 24,911
- --------------------------------------------------------------------------------------------------------------------------------
Other Operating Expenses
Salaries and employee benefits 6,770 7,763 9,114
Professional and other services 2,275 2,389 2,704
Bank occupancy and equipment expense 2,611 3,032 3,138
FDIC assessment 79 898 1,633
Writedowns on assets held for sale -- -- 235
Net cost (earnings) of operation of other real estate owned - Note 7 (117) (1,029) 867
Other operating expenses 2,113 2,057 2,432
Restructure expense, net - Note 10 77 1,887 --
- --------------------------------------------------------------------------------------------------------------------------------
Total Other Operating Expenses 13,808 16,997 20,123
- --------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 12,463 3,228 4,788
Income taxes (benefit) - Note 11 (10) (2,813) 60
- --------------------------------------------------------------------------------------------------------------------------------
Net Income $12,473 $6,041 $4,728
================================================================================================================================
Earnings per share - Note 3 $2.45 $ 1.21 $0.94
</TABLE>
See accompanying notes to consolidated financial statements
Consolidated Statements of Changes in Dime Financial Corporation
Shareholders' Equity 1996 Annual Report
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31, 1996, 1995 and 1994
Net
Unrealized
Gain (Loss)
Additional Retained on Available
Common Paid-In Earnings for Sale Treasury
Stock Capital (Deficit) Securities Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $5,345 $50,846 $(12,935) $(2,898) $40,358
- --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1994:
Net unrealized gain on securities available for sale,
upon implementation of change in accounting
for debt and equity securities -- -- -- 218 -- 218
Net income -- -- 4,728 -- 4,728
Change in net unrealized gain on securities
available for sale -- -- -- (108) -- (108)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 5,345 50,846 (8,207) 110 (2,898) 45,196
Year ended December 31, 1995:
Options exercised 29 271 -- -- -- 300
Net income -- -- 6,041 -- -- 6,041
Change in net unrealized gain on securities
available for sale -- -- -- 131 -- 131
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 5,374 51,117 (2,166) 241 (2,898) 51,668
Year ended December 31, 1996:
Options exercised 107 1,092 -- -- 1,199
Net income -- -- 12,473 -- -- 12,473
Dividends paid -- -- (1,519) -- -- (1,519)
Change in net unrealized gain (loss) on
securities available for sale -- -- -- (1,210) -- (1,210)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $5,481 $52,209 $8,788 $(969) $(2,898) $62,611
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
Consolidated Statements of Cash Flows Dime Financial Corporation
1996 Annual Report
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $12,473 $6,041 $4,728
Adjustments to reconcile net income to net cash from operations:
Provision for loan losses 2,000 7,550 4,516
Provision for OREO losses (74) -- 125
Depreciation and amortization 963 1,483 1,446
Premises and equipment restructuring charges -- 1,107 --
Amortization / accretion of investment securities, net (655) 147 1,059
Amortization of intangible assets 350 349 350
Amortization of net deferred loan fees (63) (166) (864)
Deferred income tax benefit (531) (2,831) (555)
Gain on sale of available for sale securities (326) (298) (6)
Gain on sale of assets held for sale -- -- (1,266)
Writedowns on assets held for sale -- -- 235
Other real estate owned gains, net (431) (2,057) (824)
(Increase) decrease in accrued interest receivable (763) (453) 928
Decrease in current income tax receivable -- -- 8,396
(Increase) decrease in other assets 1,608 473 (1,721)
Increase (decrease) in other liabilities (716) 688 836
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,835 12,033 17,383
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Available for sale investment securities:
Investment securities purchased (31,745) -- (3,988)
Proceeds from sales of investment securities 7,076 4,660 11
Proceeds from maturity of investment securities -- 4,000 --
Proceeds from principal payments on asset-backed securities 2,511 -- --
Available for sale mortgage-backed securities:
Mortgage-backed securities purchased (202,368) (98,791) --
Proceeds from principal payments on mortgage-backed securities 11,807 4,265 --
Proceeds from sale of mortgage-backed securities 126,155 -- --
Held to maturity investment securities:
Investment securities purchased (94,680) (71,846) (36,250)
Proceeds from maturity of investment securities 26,400 63,299 62,512
Net (increase) decrease in loans 50,165 41,104 (16,785)
Proceeds from sale of loans 2,835 8,022 --
Loans purchased -- -- (13,846)
Purchase of premises and equipment, net (377) (231) (878)
Proceeds from sale of bank-owned buildings 245 -- --
Proceeds from sale of assets held for sale -- -- 46,960
Proceeds from sale of other real estate owned 2,206 5,230 5,945
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (99,770) (40,288) 43,681
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 82,754 15,558 (39,059)
Proceeds from exercise of stock options 1,086 226 --
Payments of FHLB of Boston advances -- (2,000) (1,000)
Payments of cash dividends (1,519) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 82,321 13,784 (40,059)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (3,614) (14,471) 21,005
- --------------------------------------------------------------------------------------------------------------------------------
Cash & cash equivalents at beginning of period 35,489 49,960 28,955
- --------------------------------------------------------------------------------------------------------------------------------
Cash & cash equivalents at end of period $31,875 $35,489 $49,960
===============================================================================================================================
Supplemental disclosures of cash flow information:
Non-cash investing activities:
Transfer of investment securities from held to maturity to available for sale -- $75,688 --
Transfer of loans to other real estate owned, net $1,434 $878 $1,360
Transfer of loans to assets held for sale -- -- $19,038
Transfer of other real estate owned to assets held for sale -- -- $76
Cash paid during the year for:
Interest to depositors $21,407 $17,875 $14,332
Interest on FHLBB advances $4,022 $4,198 $4,450
Income taxes $311 $103 $40
</TABLE>
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements Dime Financial Corporation
1996 Annual Report
Note 1: Summary of Significant Accounting Policies
The significant accounting policies followed by Dime Financial Corporation
and subsidiary and the method of applying those policies which materially
affect the determination of financial position, presentation of results of
operations and cash flows are summarized as follows:
Basis of Financial Statement Presentation: The consolidated financial
statements include the accounts of Dime Financial Corporation (the "Company")
and its wholly-owned subsidiary, The Dime Savings Bank of Wallingford
("Dime"). The Company became the holding company of Dime on December 2,
1988. Prior to August 15, 1992, the Company had another wholly-owned
subsidiary, City Savings Bank of Meriden ("City"). City merged with and into
Dime at the close of business on August 14, 1992. All significant
intercompany balances and transactions have been eliminated in the
consolidated financial statements.
The Company provides a full range of banking services to individual and
corporate customers through its subsidiary in the New Haven County of
Connecticut including savings and checking products, mortgage loans, and
consumer installment loans. Deposits are insured by the FDIC up to certain
limits under the law. The Company is subject to competition from other
financial institutions. The Company is subject to the regulations of certain
state and federal agencies and undergoes periodic examinations by those
regulatory authorities.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the statement of condition and income and expenses for the period. Actual
results could differ from those estimates.
Material estimates that are particularly susceptible to change relate to the
determination of the allowance for loan losses, the valuation of other real
estate owned acquired in connection with foreclosures or in satisfaction of
loans, and net deferred tax asset valuation allowance. In connection with
the determination of the allowance for loan losses, and the valuation of
other real estate owned, management obtains independent appraisals for
significant properties and uses independent market information.
The vast majority of the Company's loans are secured by real estate in
Connecticut. In addition, almost all of the other real estate owned is
located in those same markets. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loans and the recovery of a substantial
portion of the carrying amount of other real estate owned are susceptible to
changes in market conditions in Connecticut.
Management believes that the allowance for loan losses is adequate, and other
real estate owned is properly valued. While management uses available
information to recognize losses on loans, and other real estate owned, future
additions to the allowance for loan losses or valuation adjustments for other
real estate owned may be necessary based on changes in economic conditions,
particularly in Connecticut. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowance for losses on loans and valuation of other real estate owned. Such
agencies may require the Company to recognize additions to the allowance or
additional writedowns on other real estate owned based on their judgments
about information available to them at the time of their examination.
Loans: Interest on loans is accrued and credited to operations based upon
principal amounts outstanding. The accrual of interest income and the
amortization of loan origination fees is discontinued when a loan becomes 90
days past due, or earlier if there is doubt as to the ultimate collection of
principal or interest. When the accrual of interest ceases, previously
recognized and uncollected interest is reversed against interest income.
Interest income on non-accrual loans residential and consumer in nature is
recognized to the extent payments are received. Interest income on
non-accrual loans commercial in nature is applied as a reduction of the
carrying value to the extent payments are received.
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No.114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114") which was amended in October 1994 by
SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure" which is effective for fiscal years beginning
after December 15, 1994. The Company adopted SFAS No. 114 and SFAS No. 118
on January 1, 1995. These Statements apply to all loans except large groups
of smaller-balance homogeneous loans that are collectively evaluated for
impairment, or loans otherwise carried at fair value or the lower of cost or
fair value. SFAS No. 114 and SFAS No. 118 specifically exclude leases and
debt securities from its valuation standards. These Statements require that
loans that are impaired (due to the inability to collect all contractual
amounts due) be measured and valued based on (1) the present value of
expected future cash flows discounted at the loan's effective rate of
interest, (2) the loan's observable market price, or (3) the fair value of
supporting collateral if the loan is collateral dependent. Because
of the similarities between measurement requirements of SFAS No. 114 and SFAS
No. 118 and methods previously used by the Company to evaluate impaired loans,
SFAS No. 114 and SFAS No. 118 did not have a material impact on the Company's
financial statements when adopted. Interest income on impaired loans is
generally recognized in accordance with the Company's existing income
recognition policy. Management believes that the valuation allowance for
impaired loans is adequate.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount is amortized as an adjustment of the
related loan's yield over the life of the loan using a method which
approximates the interest method.
Investment and Mortgage-backed Securities: The Company's securities
portfolio consists of debt and equity securities. The Company classifies
individual securities into one of three categories, held to maturity,
available for sale or trading. Securities held to maturity are limited to
debt securities for which the Company has the positive intent and ability to
hold to maturity. Trading securities, if any, consist of securities bought
principally for the purpose of selling them in the near term. All other
securities held by the Company are classified as available for sale. Held to
maturity securities are carried at amortized cost; trading securities are
carried at fair value, with unrealized gains and losses reported in earnings;
and available for sale securities are carried at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate component
of shareholders' equity (net of taxes). The adjustments to shareholders' equi
ty will fluctuate in future periods reflecting changes in the unrealized
gains and losses on securities classified as available for sale.
The amortization of premiums and accretion of discounts is recorded over the
life of the security or, in the case of adjustable rate securities, until the
fully indexed yield is obtained using the interest method.
The specific identification method is used in determining the cost of
investment securities sold. Investment securities transactions are recorded
based on the settlement date which does not differ materially from the trade
date. A decline in the value of a security below cost that is deemed other
than temporary is charged to earnings, resulting in the establishment of a
new cost basis for the security.
Assets Held for Sale: Loans and other real estate owned that are classified
as held for sale are carried at the lower of cost or fair value, less
estimated selling costs. Charge-offs and writedowns to reduce the carrying
value of loans and other real estate owned to fair value less estimated
selling costs are recorded against the allowance for loan losses, the
allowance for OREO losses or as other real estate owned expenses. Subsequent
to the transfer of loans to held for sale, payments received are applied to
the carrying value of the asset.
Investment in Federal Home Loan Bank of Boston Stock: The investment in
Federal Home Loan Bank of Boston stock is stated at cost.
Premises and Equipment: Premises and equipment are stated at cost, less
accumulated depreciation and amortization. The provision for depreciation
and amortization is computed by the straight-line method for financial
reporting and under accelerated methods for income tax purposes. Gains or
losses on dispositions are reflected in current income. Major improvements
are capitalized and recurring maintenance and repairs are charged to income
as incurred. Asset lives for bank premises are from 15 to 30 years and for
furniture and equipment from 3 to 7 years.
Other Real Estate Owned: Properties acquired through foreclosure or deed
in-lieu of foreclosure (known collectively as OREO), are transferred to other
real estate owned at the lower of cost or fair market value, less selling
costs, at the transfer date. Subsequent valuation adjustments and writedowns
are made if the fair value of the property, less selling costs, falls below
the carrying value. Gains on the sale of OREO are recognized, to the extent
allowable, upon disposition of the property. Losses on the sale in excess of
amounts previously provided are charged to the allowance for OREO losses.
Allowance for Loan Losses: The provision for losses on loans charged to
operations is the amount which, in the opinion of management, is adequate to
maintain the allowance for loan losses at a level sufficient to absorb losses
in the loan portfolio. Management's determination is based upon an
evaluation of current economic conditions, analysis of the loan portfolio and
other pertinent indicators.
Excess of Cost Over Fair Value of Net Assets Acquired: The excess of cost
over fair value of net assets acquired is being amortized on the
straight-line method over a fifteen year period. Accumulated amortization
was $2,826,000 and $2,476,000 in 1996 and 1995, respectively.
Income Taxes: Deferred income taxes are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date.
Pension Plan: Dime has a non-contributory pension plan which covers
substantially all employees who meet certain age, service and minimum hours
per year requirements. Dime's policy is to fund pension costs sufficient to
meet the funding requirements set forth in the Employee Retirement Income
Security Act of 1974.
Postretirement Benefits: In December 1990, FASB issued Statement No. 106
"Employers Accounting for Postretirement Benefits Other Than Pensions." This
Statement requires employers to accrue the cost and recognize the liability
for benefits to be provided to retired employees over each employee's service
period. The Company adopted the Statement on January 1, 1993 by recognizing
the transition obligation, net of tax, as the cumulative effect of a change
in accounting method in the consolidated statement of operations.
Cash Flows: For purposes of the statements of cash flows, the Company
considers cash on hand, demand deposits at other financial institutions,
interest-bearing deposits with an original maturity of three months or less
and federal funds sold to be cash and cash equivalents.
Reclassifications: Certain reclassifications have been made to the prior
years' amounts to conform with the 1996 presentation.
Note 2: Cash and Due From Banks
Dime is subject to requirements of the Federal Reserve Bank of Boston to
maintain certain average cash reserve balances. At December 31, 1996, and
1995, these reserves were $1.4 million.
Note 3: Per Share Data
Net income per share was calculated by dividing net income by the weighted
average number of common shares. Stock options did not have a significant
dilutive effect.
Note 4: Investment and Mortgage-backed Securities
The Company adopted Statement of Financial Accounting Standard No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115") as of January 1, 1994, and reclassified all equity securities from held
for sale to available for sale. The net unrealized gain on the securities
available for sale on January 1, 1994, of $330,000 less income tax expense of
$112,000 increased shareholders' equity.
The amortized costs, approximate market values, and maturity groupings of
investment and mortgage-backed securities are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996
Yield on
Amortized Unrealized Unrealized Market Debt
Cost Gains Losses Value Securities
<S> <C> <C> <C> <C> <C>
Investment securities available for sale:
U.S. government sponsored agency obligations:
After 1 but within 5 years $4,000 $ -- 45 $3,955 6.50%
After 5 but within 10 years 8,000 -- 140 7,860 6.85%
Asset-backed securities:
After 10 years 14,292 114 -- 14,406 7.30%
Equity securities 12 -- --
- -----------------------------------------------------------------------------------------------------------------
Total investment securities available for sale $26,304 $114 $185 $26,233 7.04%
=================================================================================================================
Mortgage-backed securities available for sale:
Mortgage-backed securities:
GNMA $20,516 $29 $63 $20,482 6.85%
FNMA 2,709 -- -- 2,709 6.49%
FHLMC 671 -- 1 670 6.70%
REMIC / CMO's (includes non-agency) 136,228 39 1,400 134,867 6.79%
- -----------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities available for sale $160,124 $68 $1,464 $158,728 6.79%
=================================================================================================================
Investment securities held to maturity:
U.S. treasury securities:
After 1 but within 5 years $3,452 $56 -- $3,508 6.50%
U.S. government-sponsored agency obligations:
Within 1 year (called) 9,000 -- -- 9,000 7.18%
After 1 but within 5 years 55,853 74 225 55,702 6.84%
After 5 but within 10 years 51,952 -- 924 51,028 6.90%
- -----------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity $120,257 $130 $1,149 $119,238 6.88%
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1995
Yield on
Amortized Unrealized Unrealized Market Debt
Cost Gains Losses Value Securities
<S> <C> <C> <C> <C> <C>
Investment securities available for sale:
U.S. treasury securities:
Within 1 year $4,043 -- 14 4,029 4.18%
Other bonds and notes:
Within 1 year 4,099 1 3 4,097 4.62%
Equity securities 12 -- -- 12
- --------------------------------------------------------------------------------------------------------------------------------
Total investment securities available for sale $8,154 $1 $17 $8,138 4.40%
================================================================================================================================
Mortgage-backed securities available for sale:
Mortgage-backed securities:
GNMA $43,617 $352 15 $43,954 6.55%
FNMA 3,156 9 -- 3,165 6.60%
FHLMC 793 -- -- 793 7.06%
REMIC's / CMO's 47,243 138 103 47,278 6.71%
- --------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities available for sale $94,809 $499 $118 $95,190 6.64%
================================================================================================================================
Investment securities held to maturity:
U.S. treasury securities:
After 5 years but within 10 years $1,013 $89 -- $1,102 7.20%
U.S. government-sponsored agency obligations:
Within 1 year 4,000 -- -- 4,000 7.00%
After 1 year but within 5 years 20,888 108 -- 20,996 6.93%
After 5 years but within 10 years 21,997 150 -- 22,147 7.01%
- --------------------------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity $47,898 $347 -- $48,245 6.98%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the provisions of the FASB's Special Report "A Guide to Implementation
of Statement No. 115 Accounting for Certain Investments in Debt and Equity
Securities - Questions and Answers", the Company reclassified, during 1995,
certain investment securities with an amortized cost of $71.1 million from
Held to Maturity to Available for Sale. The net unrealized gain on the
securities reclassified from Held to Maturity to Available for Sale of
$194,000 less an income tax effect of $66,000 increased shareholders' equity.
Proceeds from the sale of available for sale investment securities were $7.1
million in 1996, and proceeds from the sale of available for sale
mortgage-backed securities were $126.2 million in 1996, with gross gains of
$383,000 partially offset by gross losses of $57,000 realized on those sales.
By comparison, proceeds from the sale of available for sale securities were
$4.7 million in 1995 and proceeds from the sale of investments in equity
securities were $11,000 in 1994. Net gains realized on these sales were $298,
000 and $6,000 in 1995 and 1994, respectively. There were no sales of debt
securities in 1994.
At December 31, 1996, Dime had $1.0 million in U.S. treasury securities
pledged as collateral for public fund deposits. An additional $2.4 million
in U.S. treasury securities were pledged as collateral for treasury, tax and
loan deposits.
Note 5: Loans Receivable
Loans are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995
<S> <C> <C>
Mortgage loans:
Residential:
Real estate owner occupied $288,002 $329,856
Real estate non-owner occupied 31,365 27,699
Commercial real estate 33,448 43,659
Builders' & land 447 1,501
Consumer loans 44,091 49,288
Commercial loans 3,002 4,527
Allowance for loan losses (12,929) (12,779)
Deferred loan origination fees, net (133) (87)
- ------------------------------------------------------------------------
Total loans, net $387,293 $443,664
========================================================================
</TABLE>
At December 31, 1996, 1995 and 1994, the total unpaid principal balances of
non-accrual loans were approximately $2.6 million, $7.7 million and $8.0
million, respectively. During 1996, the Company completed bulk sales of
non-performing loans totalling $3.7 million. These loans were written down
by $1.6 million to $2.1 million prior to sale. In the fourth quarter of
1995, the Company completed a bulk sale of two packages of non-performing
assets, non-performing loans totalling $2.5 million and OREO totalling
$334,000, prior to writedowns. These assets were written down by $1.4
million.
If the non-accrual loans at December 31, 1996, 1995 and 1994 had remained
current in accordance with their contractual payment terms, interest income
of $353,000, $787,000 and $533,000, respectively would have been recognized
compared to interest income of $67,000, $383,000 and $211,000 actually
recognized.
A loan is categorized as a Troubled Debt Restructure ("TDR") if the original
interest rate on such loan, repayment terms, or both were restructured due to
a deterioration in the financial condition of the borrower. There were no
loans categorized as TDR at December 31, 1996. TDR's totalled $885,000 at
December 31, 1995 as compared to $10.8 million at December 31, 1994. If the
restructured loans at December 31, 1995 and 1994 had remained current in
accordance with their contractual payment terms, $181,000 and $1,554,000,
respectively of interest income would have been recognized compared with
interest income of $42,000 and $1,415,000 actually recognized. Included in
TDR's at December 31, 1994 was a loan with a principal balance of $6.4
million which was sold in December, 1995. The remaining TDR's at December
31, 1994 were at market rates at the time of restructure, have performed in
accordance with the restructured terms and were no longer categorized as TDR
at December 31, 1995.
At December 31, 1996 impaired loans totalled $2.5 million with a related
allowance of $425,000 as compared to $5.2 million with a related allowance of
$668,000 at December 31, 1995. All impaired loans at December 31, 1996 had a
related allowance. Approximately $1.4 million of impaired loans at December
31, 1995 did not have a related allowance. The average balance of impaired
loans during 1996 totalled approximately $3.8 million as compared to $6.1
million during 1995. Income recognized during 1996 on these loans totalled
approximately $22,000, cash collected totalled approximately $110,000, and
approximately $88,000 of cash collected was applied against principal.
Income recognized during 1995 on these loans totalled approximately $173,000,
which also approximated cash collected.
Impaired loans are commercial, commercial real estate, non-owner occupied
residential mortgage loans, and individually significant mortgage and
consumer loans for which it is probable that the Company will not be able to
collect all amounts due according to the contractual terms of the loan
agreement.
The definition of "impaired loans" is not the same as the definition of
"nonaccrual loans". Nonaccrual loans include impaired loans and are those
loans on which the accrual of interest is discontinued when collectibility of
principal or interest is uncertain or payments of principal or interest have
become contractually past due 90 days. The Company may choose to place a
loan on nonaccrual status while not classifying the loan as impaired if it is
probable that the Company will collect all amounts due in accordance with the
contractual terms of the loan. Factors considered by management in
determining impairment include payment status and collateral value. The
amount of impairment for impaired loans is determined by the difference
between the fair value of underlying collateral securing the loan and the
recorded amount of the loans.
Mortgage and consumer loans which are not individually significant are
measured for impairment collectively. Loans that experience insignificant
payment delays and insignificant shortfalls in payments generally are not
classified as impaired. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking into considerati
on all of the circumstances surrounding the loan and the borrower, including
the length of the delay, reasons for delay, the borrower's prior payment
record, and the amount of the shortfall in relation to the total debt owed.
Accruing TDR's entered into prior to the adoption of SFAS 114 and SFAS 118
are not required to be reported as impaired unless such loans are not
performing according to the restructured terms at adoption of these
statements. TDR's entered into after adoption of SFAS 114 and SFAS 118 are
reported as impaired and measured for impairment.
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995 1994
<S> <C> <C> <C>
Balance at beginning
of year $12,779 $9,326 $14,062
Provision charged
to expense 2,000 7,550 4,516
Charge-offs (3,767) (4,846) (10,245)
Recoveries 1,917 749 993
- --------------------------------------------------------------------
Balance at end of year $12,929 $12,779 $9,326
====================================================================
</TABLE>
The Company's loans receivable consist primarily of residential and commercial
real estate loans located within its primary market area in Connecticut. The
Company had $8.3 million of loans outstanding concentrated with two borrowers a
t December 31, 1996, as compared to $14.5 million at December 31, 1995. The
Company's policy for collateral requires that, at the time of origination, the
amount of the loan may not exceed 80% of the appraisal value of the property.
In cases where the loan exceeds this percentage, private mortgage insurance is
generally required for that portion of the loan in excess of 80% of the
appraised value of the property.
Note 6: Premises and Equipment
During 1996, the Company disposed of approximately $1.8 million of fully
depreciated furniture and equipment. There were no significant disposals in
1995. The details of premises and equipment are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995
<S> <C> <C>
Bank premises, including land
of $1,038 $7,174 $8,183
Furniture and equipment 7,637 8,783
- --------------------------------------------------------------------
14,811 16,966
Accumulated depreciation
and amortization (9,716) (11,040)
- --------------------------------------------------------------------
Total premises and equipment, net $5,095 $5,926
====================================================================
</TABLE>
Total rental expense under leases for branch locations for 1996, 1995 and 1994
was $160,000, $159,000 and $154,000, respectively. Future minimum payments at
December 31, 1996, under non-cancelable operating leases (initial or remaining
term greater than one year), are shown in the following table. Renewal
options are available for the majority of leased properties for five year
periods which have not been included in the table.
<TABLE>
<CAPTION>
(Dollars in thousands)
<C> <C>
1997 $117
1998 108
1999 99
2000 82
2001 --
- --------------------------------------------------------------------
$406
====================================================================
</TABLE>
Note 7: Other Real Estate Owned
Other real estate owned was comprised of the following at December 31,
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
<S> <C> <C>
Foreclosed real estate $1,210 $1,865
Allowance for losses
on other real estate owned -- (450)
- --------------------------------------------------------------------
Total other real estate owned, net $1,210 $1,415
====================================================================
</TABLE>
The net cost of operation of other real estate owned was
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995 1994
<S> <C> <C> <C>
Net gain on sales of property $(431) $(2,057) $(824)
Provision for losses on OREO (74) -- 125
Net holding costs 388 1,028 1,566
- --------------------------------------------------------------------
Net OREO cost (gain) $(117) $(1,029) $867
====================================================================
</TABLE>
Changes in the allowance for losses on other real estate owned are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $450 $741 $919
Provision (recovery) charged
to expense (74) -- 125
Charge-offs, net (376) (291) (303)
- --------------------------------------------------------------------
Balance at end of year $ -- $450 $741
====================================================================
</TABLE>
Note 8: Deposits
<TABLE>
<CAPTION>
Deposits are summarized as follows: (Dollars in thousands)
December 31,
Weighted Weighted
Average Average
1996 Rate 1995 Rate
<S> <C> <C> <C> <C>
Regular savings and clubs $170,892 2.35% $188,868 2.35%
Negotiable orders of withdrawal (NOW) 21,347 1.74% 22,930 1.74%
Non-interest bearing demand deposits 40,273 -- 39,136 --
Money market accounts 22,860 4.73% 8,084 2.00%
Certificates of deposit 362,417 5.35% 277,910 5.45%
Retail brokered certificates of deposit 2,969 6.23% -- --
Escrow deposits 5,340 3.10% 6,416 2.80%
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits $626,098 4.03% $543,344 3.74%
================================================================================================================================
</TABLE>
Individual interest bearing accounts, including certificates of deposit, with
balances of $100,000 and greater totalled $46.7 million and $39.0 million at
December 31, 1996 and 1995, respectively.
Interest expense on certificates of deposit with balances of $100,000 and
greater totalled approximately $1,005,000, $674,000 and $345,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Certificate maturities with balances of $100,000 and greater are summarized
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995
<S> <C> <C>
Within 3 months $13,174 $5,787
After 3 but within 6 months 7,880 6,170
After 6 but within 12 months 5,229 3,566
Over 12 months 968 1,927
- --------------------------------------------------------------------
Total certificates with balances
of $100,000 and greater $27,251 $17,450
====================================================================
</TABLE>
The maturities of certificates of deposit at December 31, 1996 follow:
<TABLE>
<CAPTION>
(Dollars in thousands)
<C> <C>
Maturity in:
1997 $337,370
1998 18,523
1999 3,728
2000 781
2001 2,015
- --------------------------------------------------------------------
$362,417
====================================================================
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995 1994
<S> <C> <C> <C>
Regular savings and clubs $4,358 $4,886 $5,953
Now accounts 339 340 336
Money market accounts 234 146 202
Certificates of deposits 16,426 12,417 7,737
Retail brokered certificates
of deposit 28 -- --
Escrow deposits 112 104 85
- --------------------------------------------------------------------
Total $21,497 $17,893 $14,313
====================================================================
</TABLE>
Note 9: Federal Home Loan Bank of Boston Advances
Federal Home Loan Bank of Boston ("FHLBB") advances consisted of the
following:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995
<S> <C> <C>
Long-term:
7.07% due 1996 $ -- $33,000
7.16% due 1997 25,000 25,000
6.05% due 1998 15,000 --
6.29% due 1999 10,000 --
6.51% due 2000 8,000 --
- --------------------------------------------------------------------
Total long-term advances $58,000 $58,000
====================================================================
</TABLE>
All stock in the FHLBB and first mortgage loans on residential property are
pledged as collateral to secure the FHLBB advances.
At December 31, 1996, the Company had available for its use a credit line of
$10.2 million with the FHLBB. At December 31, 1996, the Company had no
borrowings outstanding on the credit line.
Note 10: Restructure Expense, Net
The Company recognized net non-recurring restructuring charges of $77,000 and
$1.9 million during 1996 and 1995, respectively, as part of a comprehensive
restructuring program. The restructuring costs resulted from severance and
benefit charges associated with the reduction in the Company's workforce and
costs associated with the disposition of data processing equipment based on a
decision to outsource the Company's data processing operations, disposition
of bank premises, and professional fees incurred to effect the restructure.
These charges were partially offset by the recognition of curtailment gains
in the Company's non-contributory defined benefit plan and defined benefit
postretirement plan as a result of a decrease in projected benefit obligations
due to a reduction in the workforce. The accrued liability for restructure
charges equalled $115,000 and $499,000 at December 31, 1996 and 1995,
respectively.
The following table illustrates the components of the net restructuring
charges for the years ended December 31, 1996 and December 31, 1995. There
were no restructure charges recorded in 1994.
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995
<S> <C> <C>
Severance and benefit charges $340 $1,624
Writedown of data processing equip-
ment to estimated salvage value -- 588
Other -- 624
- --------------------------------------------------------------------
Gross restructuring charges 340 2,836
Less: curtailment gains 263 949
- --------------------------------------------------------------------
Restructuring charges, net $77 $1,887
====================================================================
</TABLE>
Note 11: Income Taxes
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995 1994
<S> <C> <C> <C>
Income tax expense (benefit):
attributable to income (loss)
Current:
Federal $521 -- $555
State -- 18 60
- --------------------------------------------------------------------
521 18 615
- --------------------------------------------------------------------
Deferred:
Federal 3,180 871 998
State 2,089 1,108 551
Change in valuation (5,800) (4,810) (2,104)
- --------------------------------------------------------------------
(531) (2,831) (555)
- --------------------------------------------------------------------
Total $(10) $(2,813) $60
====================================================================
</TABLE>
The principal reasons for the income tax expense (benefit)
differing from the amount of such tax computed by applying
a Federal Statutory tax rate of approximately 34% to reported income
(loss) before income taxes are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Computed expected federal
income taxes (benefit)
based upon statutory rates $4,241 $1,098 $1,628
State income taxes
(net of federal tax effect) 1,379 742 403
Effect of dividends received
deduction -- (1) (12)
Change in the valuation
allowance for deferred
tax assets (5,800) (4,810) (2,104)
Goodwill 119 119 119
Other, net 51 39 26
- --------------------------------------------------------------------
Total income tax
expense (benefit) $(10) $(2,813) $60
====================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and December 31, 1995 are presented below:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses
and related items $6,952 $7,392
Accrued compensation and pension 494 537
Accrued postretirement expense 334 360
Deferred loan origination fees 53 105
Net operating loss carryforward 3,433 7,961
Tax credit carryforwards 549 287
Premises and equipment 178 593
FASB No. 115 Unrealized loss 498 --
Other 339 350
- --------------------------------------------------------------------
Total gross deferred tax assets 12,830 17,585
Less: valuation allowance 6,574 12,374
- --------------------------------------------------------------------
Deferred tax asset, net 6,256 5,211
Deferred tax liabilities:
Net unrealized gain on investments
available for sale -- 124
Excess of tax bad debt reserve over
base year reserve 747 806
Other 343 269
- --------------------------------------------------------------------
Total gross deferred tax liabilities 1,090 1,199
Net deferred tax asset $5,166 $4,012
====================================================================
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1996 was
$12.4 million. The net change in the total valuation allowance for the year
ended December 31, 1996, was a decrease of $5.8 million.
The Company recognized $2.8 million of its deferred tax asset during 1995 as
the result of improved earnings projections.
At December 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of $2.8 million and $2.7 million expiring in 2009
and 2010, respectively, which are available to offset future federal taxable
income. The Company had net operating loss carryforwards to offset future
state taxable income of $3.0 million, $14.6 million and $10.0 million expiring
in 1998, 1999, and 2000 respectively. The Company also had alternative
minimum tax credit carryforwards for federal income tax purposes of
approximately $549,000 which are available to reduce future federal income
taxes, if any, over an indefinite period.
The Company has not provided deferred income taxes for Dime's tax reserve for
bad debts that arose in tax years beginning before December 31, 1987, because
it is not expected that this difference will reverse in the foreseeable
future. The cumulative net amount of income tax temporary difference related
to the reserve for bad debts for which deferred taxes have not been provided
was approximately $12.7 million at December 31, 1996. This potential
liability for which no deferred income taxes have been provided was
approximately $5.2 million as of December 31, 1996. Legislation was enacted
in 1996 which eliminated the Company's ability to compute its tax bad debt
deduction utilizing the percentage-of-taxable income method or the reserve
method based upon experience. The legislation does require the recapture of
the post-1987 tax bad debt reserves over a six year period. Since Dime
previously recognized a deferred tax liability with respect to post 1987
reserves, its income tax expense for financial reporting purposes will not be
affected by the recapture requirement.
Based on the Company's projected pre-tax earnings and estimated reversal of
taxable temporary differences, management believes it is more likely than not
that the Company will realize the benefit of the deferred tax assets, net of
the valuation allowance, and that the existing net deductible temporary
differences will reverse during periods in which the Company generates net
taxable income. The Company would need to generate approximately $13 million
of future taxable income to realize such deferred tax assets. There can be
no assurance that the Company will generate any earnings or any specific
level of continuing earnings.
Note 12: Shareholders' Equity
The Company's ability to pay dividends to shareholders is substantially
dependent on funds received from Dime, subject to regulatory and State of
Connecticut statutory requirements.
The principal source of revenue for the Company is dividends received from
the Bank. The total of all dividends declared by the Bank in a given
calendar year cannot exceed the total of the Bank's net profits for that
year, plus the Bank's retained profits from the preceding two years. Also,
the Bank cannot pay any dividends that would cause it to have insufficient
capital under regulatory guidelines. These limitations did not affect the
dividends paid by the Bank to the Company or the dividends paid by the
Company to the shareholders during 1996.
Note 13: Regulatory Matters
Dime is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material effect on
the financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Dime must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under r
egulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total Tier 1 Capital to risk-weighted assets, and of Tier 1
Capital to average assets. Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the Bank as "well capitalized" under the regulatory framework
for prompt corrective action. To be categorized as well capitalized the Bank
must maintain minimum total risk-based , Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios are also presented in the
following table:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of December 31, 1996:
To be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Company $65,534 19.21% $27,297 8.00% $34,121 10.00%
Bank $65,491 19.19% $27,297 8.00% $34,121 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Company $61,161 17.93% $13,648 4.00% $20,472 6.00%
Bank $61,119 17.91% $13,648 4.00% $20,472 6.00%
Tier 1 Capital (to Average Assets)
Company $61,161 8.44% $28,995 4.00% $36,243 5.00%
Bank $61,119 8.43% $28,995 4.00% $36,243 5.00%
</TABLE>
Note 14: Financial Instruments with Off-Balance Sheet Risk
Dime is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of
credit. Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amounts recognized in the
balance sheet.
The following table summarizes these financial instruments and other
commitments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
<S> <C> <C>
Financial instruments whose
credit risk is represented
by contract amounts:
Commitments to extend credit:
Future loan commitments $745 $446
Unadvanced equity lines of credit 10,577 11,166
Unadvanced commercial
lines of credit 551 1,782
Amounts due to mortgagors 313 1,102
Standby letters of credit 172 399
- --------------------------------------------------------------------
Total off-balance sheet
financial instruments $12,358 $14,895
====================================================================
</TABLE>
At December 31, 1996 and 1995, Dime had no outstanding commitments to
purchase mortgages.
Dime uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since commitments may be expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Dime evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by Dime upon extension of credit is
based on management's credit evaluation of the counterparty. Collateral
held varies but may include accounts receivable,inventory, property, plant
and equipment and income-producing commercial properties.
Standby letters of credit are written conditional commitments issued by Dime
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements.
The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loans to customers.
Note 15: Employee Benefit Plan
Dime's pension plan (the "Plan") is a noncontributory defined benefit plan,
which is qualified under the Employment Retire-ment Income Security Act of
1974, as amended ("ERISA"). The plan covers employees who have in one year
completed at least 1,000 hours of service with the Company or Dime and have
attained the age of 21 years. The benefits are based on years of service
and the employee's average compensation for the five consecutive years of
employment during which compensation is the highest. The Company
uses the services of enrolled actuaries to calculate the amount of pension
expense and contributions to trustees of the Plan. Assets of the Plan are
maintained in separate accounts with Connecticut General Life Insurance
Company.
The following table sets forth the pension plan's funded status at December
31, based on September 30 information:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of $5,148
in 1996 and $5,093 in 1995 $5,148 $5,133
Projected benefit obligation for
service rendered to date 5,370 6,414
Plan assets at fair value 8,027 7,714
- --------------------------------------------------------------------
Projected benefit obligation
compared to plan assets 2,657 1,300
Unrecognized net (gain) loss (1,181) (763)
Prior service cost not yet recognized
in net periodic pension cost (628) 27
Unrecognized net asset (326) (361)
- --------------------------------------------------------------------
Prepaid pension cost $522 $203
====================================================================
</TABLE>
Assumptions used in the accounting for pension cost are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rate 8.0% 7.5% 7.5%
Average wage increase 4.3% 4.5% 5.0%
Expected long-term rate
of return 8.5% 8.8% 8.8%
</TABLE>
Net periodic pension cost included the following components as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995 1994
<S> <C> <C> <C>
Service cost-benefits earned
during the period $171 $308 $435
Interest cost on projected
benefit obligation 414 490 473
Actual return on plan assets (571) (839) (348)
Net amortization and deferral (150) 193 (247)
- --------------------------------------------------------------------
Net periodic pension
cost (benefit) $(136) $152 $313
====================================================================
</TABLE>
During 1995 and continuing into 1996, the Company implemented a
restructuring program which reduced the total workforce by approximately
39%. This program resulted in significant changes to the projected benefit
obligation due to a reduction in the size of the workforce. In the fourth
quarter of 1996, the Company recorded a curtailment gain totalling $182,000
and in the second quarter of 1995 a curtailment gain totalling $839,000 as
the result of these changes. The curtailment gains were recorded as a
reduction of restructuring charges.
Note 16: Postretirement Benefits other than Pensions
Dime sponsors one defined benefit postretirement plan that covers all
employees hired before January 1, 1992. Employees hired on or after
January 1, 1992 are not eligible. The plan provides health (medical and
dental) benefits, and life insurance benefits. The cost of the plan is shared
by the Company and employees retiring after January 1, 1992. Dime
contributions for eligible retired employees over age 50 on December 31, 1991,
equal 75% of the medical and dental premium and 100% of the life insurance
premium up to a combined maximum of $5,500 per year. Dime contributions
(premiums) for all other eligible retired employees will be the same as
provided for active employees up to a maximum of $3,000 per year. Employees
who retired as of December 31, 1991, are grandfathered under the prior plan
provisions. There are no Dime contributions during retirement prior to age
65. Dime does not advance fund its postretirement healthcare and life
insurance plans.
The following table sets forth the plan's combined funded status reconciled
with the amount shown in the statement of financial position at:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $(507) $(396)
Fully eligible active plan participants (28) (124)
Other active plan participants (103) (223)
- --------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets (638) (743)
Unrecognized net gain from
past experience different from that
assumed and from changes in assumptions (214) (141)
Adjustment for contributions between
measurement date and fiscal year end 8 --
- --------------------------------------------------------------------
Accrued postretirement benefit cost $(844) $(884)
====================================================================
Net periodic postretirement benefit cost
included the following components:
Service cost $19 $26
Interest cost 56 61
Net amortization and deferral (3) --
- --------------------------------------------------------------------
Net periodic postretirement benefit cost $72 $87
====================================================================
</TABLE>
For measurement purposes an average 8% annual rate of increase in the per
capita cost of covered healthcare benefits was assumed. Due to the dollar
cap on Company contributions, the healthcare cost trend rate assumption has
a minimal effect on the amounts reported. To illustrate, increasing the
assumed healthcare cost trend rates by 1 percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1996, by $36,256 (approximately 5%).
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0% for December 31, 1996
and 7.5% for December 31, 1995.
During 1995 and 1996, the Company implemented a restructuring program which
reduced the total workforce by approximately 39%. This program resulted in
significant changes to the projected benefit obligation due to a reduction in
the size of the workforce. In the fourth quarter of 1996, the Company
recorded a curtailment gain of $81,000 and in the second quarter of 1995, the
Company recorded a curtailment gain totalling $110,000 as the result of these
changes. The curtailment gain was recorded as a reduction of restructuring
charges.
Note 17: Stock Option and Incentive Plan
In connection with the conversion to a stock institution in July
of 1986, Dime's Board of Directors adopted a Stock Option and Incentive Plan
(the "Stock Plan") which provided for incentive stock options and non-
qualified stock options and stock appreciation rights ("SARs"). The maximum
number of shares issued pursuant to the Stock Plan is 360,000 shares. The
seven outside directors serving on Dime's Board of Directors at the time of
the conversion each received options to purchase 10,000 shares of Dime Common
Stock under a separate 1986 Stock Option Plan for Outside Directors. The Stock
Plan and Outside Directors Plan expired in July of 1996, no additional options
may be granted under these plans.
In connection with the acquisition of City Savings Bank of Meriden in 1988,
all options outstanding at the time under the City Savings Bank of Meriden
1986 Stock Option Plan ("City Plan") were converted into options to purchase
shares of Company common stock in accordance with the provisions of the
Internal Revenue Code. No additional shares may be granted under the City
Plan.
In April of 1996, shareholders approved the 1996 Stock Option and Incentive
Plan which provides for a maximum issuance of 390,000 common shares. In
addition, shareholders approved a non-qualified stock option agreement for
10,000 common shares for the Company's Chairman of the Board in consideration
of extraordinary services rendered by him to the Company. Share-holders also
approved the 1996 Stock Option Plan for Outside Directors. The maximum number
of shares of common stock to be issued pursuant to this plan is 110,000.
The following is a summary of data involving outstanding options and SARs:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 345,352 $10.24 319,904 $10.30 319,804 $10.31
Granted 304,000 14.43 111,500 9.86 2,000 8.88
Exercised (115,534) 10.22 (29,602) 7.99 -- --
Canceled or expired (20,300) 13.51 (56,450) 11.00 (1,900) 11.00
- ------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 513,518 $12.60 345,352 $10.24 319,904 $10.30
- ------------------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 306,568 258,852 319,904
Weighted average fair value of
options granted during the year $5.83 $4.29 --
</TABLE>
(Stock options with stock appreciation rights totalled 9,910, 19,130, and
25,400 at December 31, 1996, 1995, and 1994, respectively. Remaining SARs
are currently exercisable at $11.00 per share)
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Weighted Average
Number Remaining Weighted Number Weighted
Outstanding Contractual Average Exercisable Average
Range at 12/31/96 Life (in years) Exercise Price at 12/31/96 Exercise Price
<C> <C> <C> <C> <C> <C>
$5.38 to $9.00 18,598 3.89 $6.95 18,598 $6.95
$9.01 to $11.00 91,000 8.17 $9.54 76,000 $9.52
$11.01 to $13.00 110,220 5.47 $11.13 99,470 $11.09
$13.01 to $15.00 190,000 9.14 $13.51 100,000 $13.50
$15.01 to $17.00 103,700 9.74 $16.21 12,500 $16.19
- ------------------------------------------------------------------------------------------------------------------------------
$5.38 to $17.00 513,518 8.11 $12.60 306,568 $11.44
</TABLE>
All options with SARs outstanding at December 31, 1996 were exercisable at
that date. At December 31, 1996, 296,658 options without SARs outstanding
were exercisable at that date. The remaining 206,950 options without SARs
outstanding at December 31, 1996 become exercisable between January 1, 1997
and December, 1998.
Note 18: Stock-Based Compensation Plans
The Company applies Accounting Principles Board ("APB") Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans.
Had compensation cost for the Company's stock based compensation plans
been determined consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
(in thousands, except share data)
1996 1995
<S> <S> <C> <C>
Net Income As Reported $12,473 $6,041
Pro forma $11,461 $5,837
Earnings per share As Reported $2.45 $1.21
Pro forma $2.25 $1.17
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions used for grants in 1995 and 1996:
Dividend yield 1.8%
Estimated volatility 28%
Risk-free interest rate 5.5% - 7.5%
Average life of grant 10 years
In addition, for purposes of this disclosure, all options outstanding
at December 31, 1995 and December 31, 1996 were assumed to
vest. In conformity with FASB No. 123, grants made prior to January 1,
1995 are not included within these disclosures.
Note 19: Disclosures of Fair Value of Financial Instruments
Fair value estimates were made at a specific point in time, based on
relevant market conditions and information about the instrument and may
not be reflective of current or future fair values. Due to the highly
subjective nature of the assumptions utilized in valuing some of the
financial instruments and the fact that assets and liabilities that are
not considered financial instruments were excluded, the fair values
presented should not be interpreted as the aggregate current value of
the Company.
These estimates do not reflect any premium or discount that may result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Additionally, the tax ramifications relating to the
realization of the unrealized gains and losses may have a significant effect
on fair value estimates and have not been considered in these estimates.
Fair value estimates, methods, and assumptions are set forth below for the
Company's financial instruments:
Assets for Which Fair Value Approximates Book Value: The fair value of cash
and amounts due from banks, interest bearing deposits, federal funds sold,
and accrued income receivable were estimated to equal their respective book
values.
Securities: The fair value of securities was based on quoted market prices
published in financial newspapers or bid quotations received from securities
dealers. The fair value of Federal Home Loan Bank of Boston stock was
estimated to equal its book value due to the historical experience that these
stocks are redeemed at par.
Loans: The fair values of loans were estimated for portfolios
of loans with similar financial characteristics. The loans were grouped by
type, such as residential mortgage, commercial mortgage, commercial loan and
consumer loan. Each category was then further segmented into fixed and
adjustable rate interest terms and by performing and non-performing
categories. The fair value of performing fixed rate loans was then
calculated by discounting contractual cash flows through their estimated
maturity, adjusting for prepayment assumptions where relevant, using
estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan. Performing variable rate loans were valued by the
same method however, cash flows were discounted using the repricing period
rather than the remaining term. The fair value of non-performing loans was
estimated by the same method using a rate commensurate with the risk
associated with the estimated cash flows.
Liabilities for Which Fair Value Approximates Book Value: The fair value of
deposits with no stated maturity, such as non-interest bearing demand
deposits, savings deposits, escrow deposits, negotiable orders of withdrawal
(NOW accounts), and money market deposits was equal to the amount payable on
demand.
Time Deposits: The fair value of certificates of deposits and brokered
deposits was based on the discounted value of contractual cash flows, using
current offering rates or market rates that would be paid for deposits of
similar remaining maturities.
Borrowed Funds: The fair value of Federal Home Loan Bank of Boston advances
was derived from the cost of paying off the advance at the reporting date.
Letters of Credit: The fair values of commitments to extend credit were
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed rate loan commitments,
fair value also considers the difference between current levels of interest
rates and the committed rates. The fair value of letters of credit is based
on fees currently charged for similar agreements or on the estimated cost to
terminate or otherwise settle the obligations with the counterparties. The
fair value of items with off-balance sheet risk was approximately $4,000 at
December 31, 1996 and approximately $2,000 at December 31, 1995.
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Assets
Cash and amounts due from banks $10,430 $10,430 $11,172 $11,172
Interest bearing deposits 149 149 2,983 2,983
Federal funds sold 21,296 21,296 21,334 21,334
Investment in FHLB of Boston stock 7,192 7,192 7,192 7,192
Investment and mortgage-backed
securities available for sale 184,961 184,961 103,328 103,328
Investment securities held to maturity 120,257 119,238 47,898 48,245
Loans receivable, net 387,293 391,499 443,664 444,418
Accrued income receivable 5,214 5,214 4,451 4,451
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities
Regular savings and clubs $170,892 $170,892 $188,868 $188,868
NOW accounts 21,347 21,347 22,930 22,930
Non-interest bearing demand deposits 40,273 40,273 39,13 39,136
Money market accounts 22,860 22,860 8,084 8,084
Certificate of deposits 362,417 362,794 277,910 278,616
Retail brokered certificates of deposit 2,969 3,009 -- --
Escrow deposits 5,340 5,340 6,416 6,416
- ------------------------------------------------------------------------------------------------------------------------------
Total Deposits $626,098 $626,515 $543,344 $544,050
FHLBB long term borrowings $58,000 $58,418 $58,000 $58,650
</TABLE>
Note 20: Dime Financial Corporation Condensed Parent Company Only Financial
Information
Condensed Statements of Condition
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995
<S> <C> <C>
Assets
Cash and due from banks $70 $409
Investment in Dime 62,569 51,392
Other assets -- 2
- --------------------------------------------------------------------
Total assets $62,639 $51,803
====================================================================
Liabilities and Shareholders' Equity
Liabilities
Other liabilities $28 $135
- --------------------------------------------------------------------
Total liabilities 28 135
- --------------------------------------------------------------------
Shareholders' equity
Preferred stock; no par value;
1,000,000 shares authorized;
none issued and outstanding -- --
Common stock; $1.00 par value;
authorized 9,000,000 shares;
issued 5,480,896 and 5,373,992
in 1996 and 1995, respectively 5,481 5,374
Additional paid-in capital 52,209 51,117
Retained earnings (deficit) 8,788 (2,166)
Net unrealized gain (loss)
on available for sale
securities, net of taxes (969) 241
Treasury stock;
351,607 shares at cost (2,898) (2,898)
- --------------------------------------------------------------------
Total shareholders' equity 62,611 51,668
- --------------------------------------------------------------------
Total liabilities and
shareholders' equity $62,639 $51,803
====================================================================
</TABLE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995 1994
<S> <C> <C> <C>
Dividends from subsidiary $100
Other expenses, net 7 (38) (2)
- --------------------------------------------------------------------
Income before taxes and equity
in earnings of subsidiary 93 38 2
Income tax expenses -- 1 3
- --------------------------------------------------------------------
Income before equity in
earnings of subsidiary 93 37 (1)
Equity in earnings
of subsidiary 12,380 6,004 4,729
- --------------------------------------------------------------------
Net income $12,473 $6,041 $4,728
====================================================================
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996 1995 1994
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income $12,473 $6,041 $4,728
Adjustments to reconcile
net income to cash provided
by operating activities:
Equity in earnings
of subsidiary (12,380) (6,004) (4,729)
Other, net 1 81 32
- --------------------------------------------------------------------
Cash provided by
operating activities 94 118 31
- --------------------------------------------------------------------
Cash flows from
financing activities:
Proceeds from exercise of
stock options 1,086 226 --
Return of cash dividends
from subsidiary -- -- (550)
Payments of cash dividends (1,519) -- --
- --------------------------------------------------------------------
Cash used by financing
activities (433) 226 (550)
- --------------------------------------------------------------------
Net increase (decrease) in cash
and due from banks (339) 344 (519)
- --------------------------------------------------------------------
Cash and cash equivalents
at beginning of year 409 65 584
- --------------------------------------------------------------------
Cash and cash equivalents
at end of year $70 $409 $65
====================================================================
</TABLE>
Note 21: Legal Proceedings
The Company is party to various legal proceedings normally incident to the
kind of business conducted. After reviewing such proceedings with counsel,
management believes that no material liability will result from such
proceedings.
Independent Auditors' Report Dime Financial Corporation
1996 Annual Report
The Board of Directors and Shareholders
Dime Financial Corporation:
We have audited the accompanying consolidated statements of condition of
Dime Financial Corporation and subsidiary (the "Company") as of December 31,
1996 and 1995, and the related consolidated statements of operations, changes
in shareholders equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dime
Financial Corporation and subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
January 17, 1997
Corporate Information as of January 31, 1997 Dime Financial Corporation
1996 Annual Report
Directors of Dime Financial Corporation
Judge Ralph D. Lukens
Chairman of the Board
Dime Financial Corporation
Retired Probate Court Administrator
State of Connecticut
Richard H. Dionne
President and Chief Executive Officer
Dime Financial Corporation
Fred A. Valenti
President
Valenti Auto Sales, Inc.
Rosalind F. Gallagher
President and Co-Owner
Gallagher Travel Shoppe
Robert Nicoletti, Ph.D.
Retired Superintendent of Schools
Shepaug Valley Regional School District 12
M. Joseph Canavan
President and Chief Executive Officer
Diagnostic Medical Laboratory, Inc.
William J. Farrell
President, William J. Farrell, CPA
A Professional Corp.
Richard D. Stapleton
Executive Vice President,Secretary and General Counsel
The Lane Construction Corporation
Gary O. Olson
Of Counsel to the law firm of Luby, Olson,
Mango, Gaffney and De Frances
Theodore H. Horwitz
President and
Chief Executive Officer
Veterans Memorial Medical Center
Officers of Dime Financial Corporation
Richard H. Dionne
President and
Chief Executive Officer
Albert E. Fiacre, Jr.
Senior Vice President and Chief Financial Officer
Timothy R. Stanton
Senior Vice President of Retail Operations
Frank P. LaMonaca
Senior Vice President and Senior Loan and Credit Officer
Robert L. Carmody
Senior Vice President of Lending
Walter A. Galas
Vice President of Operations
Robert P. Simon
Vice President and Comptroller
Peter F. Lenkoski
Vice President of Internal Loan Review
James T. Masters
Vice President of Retail Lending
Eleanor M. Tolla
Assistant Treasurer and Corporate Secretary
Corporate Headquarters
95 Barnes Road
P.O. Box 700
Wallingford, Connecticut 06492
General Counsel
Day, Berry & Howard
CityPlace
Hartford, Connecticut 06103-3499
Transfer Agent
Dime Financial Corporation
c/o The First National
Bank of Boston
c/o Boston EquiServe, L.P.
Investor Relations
Mail Stop: 45-02-64
P.O. Box 644
Boston, Massachusetts 02102-0644
Shareholder Inquiries:
(800) 733-5001
Independent Certified
Public Accountants
KPMG Peat Marwick LLP
CityPlace II
Hartford, Connecticut 06103-4103
Shareholder Relations
Eleanor M. Tolla
Corporate Secretary
Dime Financial Corporation
P.O. Box 700
Wallingford, Connecticut 06492
Phone: (203) 269 - 8881
Stock Listing
Dime Financial Corporation is traded in the over-the-counter
market and is quoted on the NASDAQ National Market System under the symbol
"DIBK." It is found in newspaper stock tables as "Dime Fin'l Corp. -
Connecticut" or an abbreviation thereof, alphabetized in the "D's."
Annual Meeting
April 23, 1997, 10:00 a.m.
Yankee Silversmith Inn
1033 North Colony Road
Wallingford, Connecticut 06492
Form 10-K and Annual Report
The Company's Form 10-K is filed with the Securities and Exchange Commission,
a copy of which is available without charge from:
Shareholder Relations
Dime Financial Corporation
95 Barnes Road
P.O. Box 700
Wallingford, Connecticut 06492
Common Stock Information
The stock is traded on the
NASDAQ National Market
System (the "NMS") under the symbol "DIBK."
On December 31, 1996, there
were 1,743 shareholders of record.
The Company Has Paid Quarterly Dividends as follows:
<TABLE>
<CAPTION>
Payment Date Dividend per share
<S> <C>
February 22, 1996 $0.07
May 23, 1996 $0.07
August 23, 1996 $0.08
November 20, 1996 $0.08
February 24, 1997 $0.09
</TABLE>
Prior to the dividend of $0.07 per share paid to shareholders on February 22,
1996, dividends had been suspended since 1991.
The Company currently expects to continue paying regular quarterly dividends
to its shareholders, dependent on future earnings.
<TABLE>
<CAPTION>
Quarterly Trading Data
Price (Quote) Range*
1996 High Low
<S> <C> <C>
Quarter ended March 31 $14 $12 1/4
Quarter ended June 30 15 1/4 12 3/4
Quarter ended September 30 17 3/4 14 1/2
Quarter ended December 31 18 3/4 16 1/2
1995 High Low
Quarter ended March 31 $10 1/8 $8 1/2
Quarter ended June 30 10 1/2 8 1/2
Quarter ended September 30 12 3/8 9 3/4
Quarter ended December 31 13 1/2 11 1/2
- ------------------------------------------------------------------------------
<FN>
<F1> * Information provided by the National Association of Securities Dealers, Inc.
</FN>
</TABLE>
Corporate Headquarters
Dime Financial Corporation
95 Barnes Road
P.O. Box 700
Wallingford, Connecticut 06492
(203) 269-8881
Branch Offices
Barnes Park Office
95 Barnes Road
Wallingford, Connecticut 06492
(203) 269-8881
Manager: Kathleen Larkin
Assistant Vice President
Main Street Office
2 North Main Street
Wallingford, Connecticut 06492
(203) 284-4080
Manager: John Mattingly
Assistant Vice President
East Side Office
841 East Center Street
Wallingford, Connecticut 06492
(203) 265-5689
Manager: Linda Blakeslee
Assistant Treasurer
Turnpike Office
7 North Turnpike Road
Wallingford, Connecticut 06492
(203) 265-5654
Manager: Elaine Sheahan
East Main Street Office
733 East Main Street
Meriden, Connecticut 06450
(203) 639-5007
Manager: Gail Benigni
Assistant Vice President
Harbor Brook Office
100 Hanover Street
Meriden, Connecticut 06451
(203) 639-5005
Manager: Gregory Rosa
Washington Avenue Office
90 Washington Avenue
North Haven, Connecticut 06473
(203) 239-6497
Manager: Kim Jones
Assistant Vice President
Montowese Office
47 Middletown Avenue
North Haven, Connecticut 06473
(203) 865-1133
Manager: Thomas Flynn
Assistant Treasurer
Mt. Carmel/Hamden Office
3300 Whitney Avenue
Hamden, Connecticut 06518
(203) 287-8115
Manager: Laura Yurczyk
Assistant Vice President
Cheshire Office
595 Highland Avenue
Cheshire, Connecticut 06410
(203) 272-1601
Manager: Leila Graber
Assistant Vice President
Northford Office
859 Forest Road
Northford, Connecticut 06472
(203) 484-0414
Manager: Christopher Krauchick
Consent of Independent Auditors
The Board of Directors
Dime Financial Corporation:
We consent to incorporation by reference in the Registration Statement
(No. 33-23054) on Form S-8 of Dime Financial Corporation of our report dated
January 17, 1997 relating to the consolidated statements of condition of Dime
Financial Corporation and subsidiary as of December 31, 1996 and 1995 and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1996, which report appears in the December 31, 1996 annual report on Form
10-K of Dime Financial Corporation.
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,430
<INT-BEARING-DEPOSITS> 149
<FED-FUNDS-SOLD> 21,296
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 184,961
<INVESTMENTS-CARRYING> 120,257
<INVESTMENTS-MARKET> 119,238
<LOANS> 400,222
<ALLOWANCE> 12,929
<TOTAL-ASSETS> 751,303
<DEPOSITS> 626,098
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,594
<LONG-TERM> 58,000
0
0
<COMMON> 5,481
<OTHER-SE> 57,130
<TOTAL-LIABILITIES-AND-EQUITY> 751,303
<INTEREST-LOAN> 35,417
<INTEREST-INVEST> 14,562
<INTEREST-OTHER> 1,412
<INTEREST-TOTAL> 51,391
<INTEREST-DEPOSIT> 21,497
<INTEREST-EXPENSE> 25,495
<INTEREST-INCOME-NET> 25,896
<LOAN-LOSSES> 2,000
<SECURITIES-GAINS> 326
<EXPENSE-OTHER> 13,808
<INCOME-PRETAX> 12,463
<INCOME-PRE-EXTRAORDINARY> 12,463
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,473
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.45
<YIELD-ACTUAL> 3.85
<LOANS-NON> 2,570
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,779
<CHARGE-OFFS> 3,787
<RECOVERIES> 1,917
<ALLOWANCE-CLOSE> 12,929
<ALLOWANCE-DOMESTIC> 12,929
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
