<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to _____________
Commission file Number 33-58936
Dimeco, Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2250152
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
820 Church Street
-----------------
Honesdale, PA 18431
--------------------
(Address of principal executive offices)
(717) 253-1970
-----------------
(Issuer's Telephone Number)
Not Applicable
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(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 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
--- ---
As of May 1, 1998, there were 669,650 shares outstanding of the issuer's
common stock with an aggregate market value of approximately $33,147,690.
<PAGE>
Dimeco, Inc.
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheet (unaudited) as of
March 31, 1998 and December 31, 1997 3
Consolidated Statement of Income (unaudited) for
the three months ended March 31, 1998 and 1997 4
Consolidated Statement of Changes in Stockholders'
Equity (unaudited) for the three months ended
March 31, 1998 5
Consolidated Statement of Cash Flows (unaudited)
for the three months ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submissions of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
<PAGE>
Dimeco, Inc.
CONSOLIDATED BALANCE SHEET (Unaudited)
March 31, December 31,
1998 1997
------------- -------------
Assets
Cash and due from banks $ 1,560,321 $ 1,358,842
Interest-bearing deposits in other banks 3,177,703 3,121,708
Federal funds sold 5,635,000 -
------------- -------------
Total cash and cash equivalents 10,373,024 4,480,550
------------- -------------
Mortgage loans held for sale 1,770,113 156,871
(market value $ 1,775,980 and $ 160,521)
Investment securities held to maturity
(market value $6,419,063 and $4,602,088) 6,375,065 4,542,486
Investment securities available for sale 24,175,737 30,702,190
Loans (net of unearned income of $1,206,967
and $1,078,581) 107,897,137 108,814,535
Less allowance for loan losses 1,552,345 1,511,123
------------- -------------
Net loans 106,344,792 107,303,412
------------- -------------
Premises and equipment, net 2,897,355 2,945,303
Other real estate 745,234 625,619
Accrued interest receivable 1,036,145 859,177
Other assets 1,868,066 1,805,495
TOTAL ASSETS $ 155,585,531 $ 153,421,103
============= =============
Liabilities
Deposits:
Noninterest-bearing $ 14,366,303 $ 12,965,190
Interest-bearing 123,052,771 122,136,196
------------- -------------
Total Deposits 137,419,074 135,101,386
------------- -------------
Securities sold under agreements
to repurchase 1,677,148 1,605,044
Short-term borrowings - 785,000
Accrued interest payable 751,630 701,099
Other liabilities 801,926 707,929
TOTAL LIABILITIES 140,649,778 138,900,458
------------- -------------
Stockholder's Equity
Common stock, $.50 par value; 3,000,000 shares
authorized, 726,988 and 726,216 shares issued
and outstanding 363,493 363,108
Capital surplus 2,684,399 2,662,333
Retained earnings 11,888,871 11,547,197
Less:treasury stock;1,525 shares at cost - (40,407)
Net unrealized loss on securities (1,010) (11,586)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 14,935,753 14,520,645
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 155,585,531 $ 153,421,103
============= =============
See accompanying notes to the consolidated financial statements.
3
<PAGE>
Dimeco, Inc.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three Months Ended
March 31,
1998 1997
------------- -------------
INTEREST INCOME
Interest and fees on loans $ 2,426,765 $ 2,222,207
Interest-bearing deposits in other banks 61,131 5,737
Federal funds sold and securities purchased
under agreements to resell 128,777 16,649
Investment securities:
Taxable 274,849 309,303
Exempt from federal income tax 51,511 65,852
------------- -------------
Total interest income 2,943,033 2,619,748
------------- -------------
INTEREST EXPENSE
Deposits 1,312,593 1,123,776
Borrowed funds - 4,912
Securities sold under agreements to repurchase 10,775 -
------------- -------------
Total interest expense 1,323,368 1,128,688
------------- -------------
NET INTEREST INCOME 1,619,665 1,491,060
Provision for loan losses 89,500 135,000
------------- -------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,530,165 1,356,060
------------- -------------
OTHER INCOME
Service charges on deposit accounts 47,728 50,686
Gain (loss) on loans available for sale 72,692 13,994
Other operating income 117,079 102,156
------------- -------------
Total other income 237,499 166,836
------------- -------------
OTHER EXPENSES
Salaries and employee benefits 511,925 533,444
Occupancy expense, net 87,530 85,702
Furniture and equipment expense 82,917 70,183
Operations of other real estate 32,697 8,784
Other operating expenses 331,388 295,737
------------- -------------
Total other expenses 1,046,457 993,850
------------- -------------
Income before income taxes 721,207 529,046
Income tax expense 234,135 161,700
------------- -------------
Net income $ 487,072 $ 367,346
============= =============
NET EARNINGS PER SHARE $ .67 $ .51
============= =============
Average shares outstanding 726,483 723,518
See accompanying notes to the consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Dimeco, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Net
Unrealized Total
Common Capital Retained Treasury Gain(Loss) On Stockholders' Comprehensive
Stock Surplus Earnings Stock Securities Equity Income
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 363,108 $ 2,662,333 $11,547,197 $ (40,407) $ (11,586) $14,520,645
Net income 487,072 487,072 487,072
Net unrealized gain on securities
available for sale 10,575 10,575 10,575
-----------
Comprehensive income $ 497,647
===========
Dividend reinvestment plan 385 22,066 40,407 62,858
Cash dividends ($.20 per share) (145,397) (145,397)
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1998 $ 363,493 $ 2,684,399 $11,888,872 $ - $ (1,011) $14,935,753
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
Dimeco, Inc.
STATEMENT OF CASH FLOWS (Unaudited)
For the three months ended March 31, 1998 1997
- ----------------------------------- ------------- -------------
Operating Activities
Net income $ 487,072 $ 367,346
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 89,500 135,000
Depreciation 83,081 75,174
Amortization (accretion) of investments, net (133,865) (6,511)
Net decrease (increase) in loans held
for sale (1,613,242) 206,813
Increase in interest receivable (176,968) (74,869)
Increase in interest payable 50,531 478
Amortization of net deferred loan
origination fees (8,862) (16,528)
Other, net 25,518 7,942
------------- -------------
Net cash provided by(used for) operating
activities (1,197,235) 694,845
------------- -------------
Investing Activities:
Investment securities available for sale:
Proceeds from maturities and repayments 26,867,245 10,782,729
Purchases (20,190,555) (7,938,613)
Investment securities held to maturity:
Proceeds from the maturities or repayments 100,000 2,431,000
Purchases (1,932,927) -
Decrease (increase)in loans, net 758,367 (3,147,465)
Purchase of premises and equipment (35,133) (16,689)
------------- -------------
Net cash used for investing activities 5,566,997 2,110,962
------------- -------------
Financing Activities:
Increase (decrease) in deposits, net 2,317,688 (5,302,379)
Increase in securities sold under
agreements to repurchase 72,104 -
Decrease in short-term borrowings (785,000) -
Proceeds from dividend reinvestment plan 62,858 51,254
Dividends paid (144,938) (129,943)
------------- -------------
Net cash provided by(used for) financing
activities 1,522,712 (5,381,068)
Increase (decrease) in cash and cash
equivalents 5,892,474 (2,575,261)
Cash and cash equivalents January 1, 4,480,550 6,513,692
------------- -------------
Cash and cash equivalents March 31, $ 10,373,024 $ 3,938,431
See accompanying notes to the consolidated financial statements.
6
<PAGE>
Dimeco, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Dimeco, Inc.
(the "Company") and its wholly-owned subsidiary The Dime Bank (the "Bank").
All significant intercompany balances and transactions have been eliminated in
the consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do
not necessarily include all information that would be included in audited
financial statements. The information furnished reflects all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results of operations. All such adjustments are of a normal recurring nature.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
Certain comparative amounts for prior periods have been reclassified to
conform with current year presentation. The reclassifications did not effect
net income or equity capital.
NOTE 2 - Comprehensive Income
On January 1, 1998, the Company adopted the Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income." In adopting Statement No.
130, the company is required to present comprehensive income and its
components in a full set of general purpose financial statements. The Company
has elected to report the effects of Statement No. 130 as part of the
Statement of Changes in Stockholders' Equity.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition
Total assets at March 31, 1998 increased $2,164,000 or 1.4% for the first
quarter of 1998. This increase is in contrast to typical decreases in the
first quarter of the year. Management believes that this growth is the result
of the Company's continuing efforts in the area of business development.
Cash and cash equivalents increased $5,892,000 or 131.5% with liquid funds
held in the form of federal funds sold as a result of the maturities of
commercial paper which were held at December 31, 1997. At the same time,
mortgage loans held for sale increased $1,613,000 with a sale of loans
planned for the month of April 1998.
Investment securities held to maturity increased $1,833,000 or 40.3% due to
purchases of corporate bonds which yielded interest rates above the fed funds
rate for relatively short maturities. Investment securities available for
sale decreased $6,526,000 or 21.2% as a result of maturities of short term
commercial paper. There were no similar investments available upon the
maturity of these securities. With the yield curve remaining as near flat as
it has been, management is not desirous of extending maturities on the curve.
The loan portfolio decreased $917,000 or 0.8% from December 31, 1997 to
March 31, 1998. Management took advantage of an opportunity to sell
$2,723,000 of variable rate residential mortgages in January 1998. This
decline was offset by an increase of $1,216,000 in commercial real estate
loans, which is mainly attributable to a loan to fund day camp improvements.
Noninterest-bearing deposits grew $1,401,000 or 10.8% from December 31, 1997.
Management believes that this increase is attributable to the increase in new
customers generated by the branch locations which were opened in 1995 and
1996.
Short-term borrowing in the form of a flexline advance from the Federal Home
Loan Bank was repaid in January 1998.
Stockholders' Equity increased $415,000 or 2.9% which was mainly due to
earnings of $487,072. A dividend of $0.20 was declared in the first quarter
which decreased equity by $145,000. Participation in dividend reinvestment
contributed $63,000 during the quarter. Management monitors risk-based
capital and leverage capital ratios in order to assess compliance with
regulatory guidelines. At March 31, 1998 the Company had total risk-based
capital of 13.5% which exceeded the requirement of 8.0%. Tier I risk-based
capital was 12.3%, well within the guideline of at least fifty percent of
total risk-based capital. The company's leverage ratio, which by requirement
must be at least 3%, was 9.6%.
The Company has entered into a lease agreement to move their Operations Center
to a new location due to expansion needs. The project is expected to be
completed in the fall of 1998. In conjunction with the move, the Company is
updating its proof equipment. The estimated costs of these projects are
$750,000. These expenditures will provide new technology which will assist
the Company in operating more efficiently.
8
<PAGE>
Results of Operations
Comparison of the three months ended March 31, 1998 and 1997
Net income for the three months ended March 31, 1998 was $487,000, an increase
of 32.6% over the same quarter in 1997.
Interest and fees earned on loans increased $205,000 or 9.2% from 1997 to 1998
due to an increase in the average loan portfolio of $9,092,000 or 9.0%. The
average rate earned on the portfolio increased a slight .03% to 8.62% from
8.59% the previous year. Interest earned on other interest-earning assets
increased $119,000 or 29.9% due to an increase in the average portfolio of
other interest-earning assets of $9,232,000 or 31.6% which was offset by a
decrease in the average rate received on these assets of .07% to 5.37% in 1998
as compared to 5.44% in 1997.
Interest expense increased $195,000 or 17.2% based upon an increase in average
liabilities of $14,765,000 or 12.1% and an increase in the average interest
rate paid from 3.70% to 3.87%. Competitive pressure has caused an increase in
rates paid on certain deposit products including jumbo certificates of deposit
and the new "Financial Manager" account for commercial customers.
The provision for loan losses decreased $46,000 or 33.7% from 1997 to 1998.
Management's analysis of the allowance for loan loss identifies the
appropriate charge to the provision for loan loss. Review of this analysis
suggests that this is the appropriate charge to expense.
Gains on loans available for sale increased $59,000 or 419.5% due to the sale
of $2,723,000 of residential mortgages in the first quarter of 1998 which
recognized a gain of $73,000. In the first quarter of 1997 there were sales
of $450,000 which recognized a gain of $14,000.
Furniture and equipment expense increased $13,000 or 18.1% due to additional
lease expense associated with a computer hardware update placed in service
during 1997 and depreciation on improvements made to office spaces in 1997.
Expenses associated with the operation of other real estate increased $24,000
in the first quarter of 1998 versus the same period in 1997. Delinquent real
estate taxes were paid on a property that was placed in other real estate
owned in 1998. The first quarter of 1997 had no such similar expense.
Other operating expense increased $36,000 or 12.1%. The main addition was in
the area of outside professional fees which increased $11,000 due to the
outsourcing of functions which had previously been done in-house. Postage
expense increased $7,000 with a greater number of accounts being serviced in
1998 than in 1997. The remainder of additional expense is not material in any
one account but small increases were noted in various accounts.
9
<PAGE>
Liquidity and Cash Flows
To ensure that the Company can satisfy customer credit needs for current and
future commitments and deposit withdrawal requirements, the Bank manages the
liquidity position by ensuring that there are adequate short-term funding
sources available for those needs. Liquid assets consists of cash and due
from banks, federal funds sold, interest-bearing deposits with other banks and
investment securities maturing in one year or less. The following table shows
these liquidity sources, minus short-term borrowings, as of March 31, 1998
compared to December 31, 1997:
March 31, December 31,
1998 1997
-------- --------
(dollars in thousands)
Cash and due from banks $ 1,560 $ 1,359
Interest-bearing deposits with other banks 3,178 3,122
Mortgage loans held for sale 1,770 157
Federal funds sold 5,635 -
Investment securities maturing in one year or less 20,111 27,212
-------- --------
32,254 31,850
Less short-term borrowings 1,677 2,390
-------- --------
Net liquidity position $ 30,577 $ 29,460
======== ========
As a percent of total assets 19.7% 19.2%
======== ========
Management monitors liquidity on a consistent basis and feels that liquidity
levels are adequate. In addition to these liquidity sources, the Bank also
has available a credit line with the Federal Home Loan Bank of approximately
$2.9 million. Management feels that with this line of credit available, it is
more prudent to invest available funds in longer maturity investments in order
to increase profits while not hampering liquidity.
Management is not aware of any known trends, events or uncertainties that will
have or is reasonably likely to have a material effect on the Company's
liquidity, capital resources or operations, nor is management aware of any
current recommendations by regulatory authorities which, if implemented, would
have such an effect.
10
<PAGE>
Risk Elements
The table below presents information concerning nonperforming assets including
nonaccrual loans, renegotiated loans, loans 90 days or more past due, other
real estate loans and repossessed assets at March 31, 1998 and December 31,
1997. A loan is classified as nonaccrual when, in the opinion of management,
there are doubts about collectability of interest and principal. At the time
the accrual of interest is discontinued, future income is recognized only when
cash is received. Renegotiated loans are those loans which terms have been
renegotiated to provide a reduction or deferral of principal or interest as a
result of the deterioration of the borrower.
March 31, December 31,
1998 1997
-------- --------
(dollars in thousands)
Loans on nonaccrual basis $ 817 $ 819
Loans past due 90 days or more 740 755
Renegotiated loans 1,215 1,219
-------- --------
Total nonperforming loans 2,772 2,793
Other real estate 745 626
Repossessed assets 7 -
-------- --------
Total nonperforming assets $ 3,524 $ 3,419
======== ========
Nonperforming loans as a percent of total loans 2.6% 2.6%
======== ========
Nonperforming assets as a percent of total assets 2.3% 2.2%
======== ========
Allowance for loan loss as a percent of loans 1.44% 1.39%
======== ========
Management believes the level of the allowance for loan losses at March 31,
1998 is sufficient. The relationship between the allowance for loan loses and
outstanding loans is a function of the credit quality and known risk
attributed to the loan portfolio. The on-going loan review program and credit
approval process is used to determine the adequacy of the allowance for loan
losses.
Included in total loans are loans of $966,260 which management has classified
as impaired under the terms of Financial Accounting Standards Board Statement
No. 114, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure". The related allowance for loan losses on these
loans amounted to $150,785. There were no impaired loans without a related
allowance for loan losses. The average balance of impaired loans for the
period was $967,093.
Management does not believe that loans classified as loss, doubtful
substandard or special mention for internal or regulatory purposes (i)
represent or result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity, or capital
resources, or (ii) represent material loans about which management is aware of
any information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
NONE
Item 2 - Changes in the rights of the Company's security holders
NONE
Item 3 - Defaults by the Company on its senior securities
NONE
Item 4 - Results of votes of security holders
The following represents the results of matters submitted to a
vote of the shareholders at the annual meeting held on April 23,
1998:
Election of Directors:
The following directors were elected with terms to expire
April, 2000:
For Withhold Authority
William E.Schwarz 526,679.6766 5,679.9717
Henry M. Skier 525,968.3391 6,391.3092
Gerald J. Weniger 526,679.6766 5,679.9717
S.R. Snodgrass was elected as the Company's Independent
Auditors for the year ending December 31, 1998 by the
following vote:
For 532,359.6483
Against 0.0000
Item 5 - Other Information
NONE
Item 6 - Exhibits and Reports on Form 8-K
NONE
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIMECO, INC.
Date: May 6, 1998 By:/s/ Joseph J. Murray
------------------------------------
Joseph J. Murray
Executive Vice President and
Chief Executive Officer
Date: May 6, 1998 By:/s/ Maureen H. Beilman
------------------------------------
Maureen H. Beilman
Controller
13
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,560,321
<INT-BEARING-DEPOSITS> 3,177,703
<FED-FUNDS-SOLD> 5,635,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,175,737
<INVESTMENTS-CARRYING> 6,375,065
<INVESTMENTS-MARKET> 6,419,063
<LOANS> 107,847,137
<ALLOWANCE> 1,552,345
<TOTAL-ASSETS> 155,585,531
<DEPOSITS> 137,419,074
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,230,704
<LONG-TERM> 0
0
0
<COMMON> 363,493
<OTHER-SE> 14,572,260
<TOTAL-LIABILITIES-AND-EQUITY> 155,585,531
<INTEREST-LOAN> 2,426,765
<INTEREST-INVEST> 326,360
<INTEREST-OTHER> 189,908
<INTEREST-TOTAL> 2,943,033
<INTEREST-DEPOSIT> 1,312,593
<INTEREST-EXPENSE> 1,323,368
<INTEREST-INCOME-NET> 1,619,665
<LOAN-LOSSES> 89,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,046,457
<INCOME-PRETAX> 721,207
<INCOME-PRE-EXTRAORDINARY> 721,207
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 487,072
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
<YIELD-ACTUAL> 7.78
<LOANS-NON> 817,000
<LOANS-PAST> 740,000
<LOANS-TROUBLED> 1,215,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,511,123
<CHARGE-OFFS> 55,350
<RECOVERIES> 7,072
<ALLOWANCE-CLOSE> 1,552,345
<ALLOWANCE-DOMESTIC> 1,552,345
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
