<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 September 30,1998
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
------------------------------------------------------
(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
----------------------------------
(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 November 5, 1998, there were 673,414 shares outstanding of the issuer's
common stock with an aggregate market value of approximately $29,293,511.
<PAGE>
Dimeco, Inc.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (unaudited) as of
September 30, 1998 and December 31, 1997 3
Consolidated Statement of Income (unaudited)
for the three months and the nine months
ended September 30, 1998 and 1997 4
Consolidated Statement of Cash Flows
(unaudited) for the nine months ended
September 30,1998 and 1997 5
Consolidated Statement of Changes in
Stockholders' Equity 6
Notes to Consolidated Financial
Statements (unaudited) 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8 - 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Default Upon Senior Securities 15
Item 4. Submissions of Matters to a Vote of
Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
Dimeco, Inc.
CONSOLIDATED BALANCE SHEET (Unaudited)
For the For the
September 30, December 31,
1998 1997
------------- -------------
Assets
Cash and due from banks $ 1,412,811 $ 1,358,842
Interest-bearing deposits in other banks 5,633,533 3,121,708
Federal funds sold - -
------------- -------------
Total cash and cash equivalents 7,046,344 4,480,550
------------- -------------
Mortgage loans held for sale 1,101,114 156,871
Investment securities held to maturity
(market value $3,540,129 and
$4,602,088) 3,498,288 4,542,486
Investment securities available
for sale 33,615,874 30,702,190
Loans (net of unearned income
of $1,103,693 and $1,078,580) 122,858,059 108,814,535
Less allowance for loan losses 1,604,068 1,511,123
------------- -------------
Net loans 121,253,991 107,303,412
------------- -------------
Premises and equipment, net 3,314,991 2,945,303
Other real estate 286,513 625,619
Accrued interest receivable 975,790 859,177
Other assets 1,895,719 1,805,495
------------- -------------
TOTAL ASSETS $ 172,988,624 $ 153,421,103
============= =============
Liabilities
Deposits:
Noninterest-bearing $ 14,225,568 $ 12,965,190
Interest-bearing 137,770,409 122,136,196
------------- -------------
Total deposits 151,995,977 135,101,386
------------- -------------
Short term borrowings 3,824,817 2,390,044
Accrued interest payable 750,607 701,099
Other liabilities 775,580 707,929
------------- -------------
TOTAL LIABILITIES 157,346,981 138,900,458
------------- -------------
Stockholders' Equity
Common stock, $.50 par value; 3,000,000
shares authorized, 730,463 and
726,216 shares issued and outstanding 365,232 363,108
Capital surplus 2,825,645 2,662,333
Retained earnings 12,537,522 11,547,197
Less treasury stock(2,000 and 1,525
shares at cost) (87,000) (40,407)
Net unrealized gain (loss) on
securities available for sale 244 (11,586)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 15,641,643 14,520,645
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 172,988,624 $ 153,421,103
============= =============
See accompanying notes to the consolidated financial statements.
Page 3
<PAGE>
Dimeco, Inc.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- -------------------------
1998 1997 1998 1997
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,638,984 $2,402,265 $7,567,738 $6,991,782
Interest-bearing deposits in
other banks 23,722 6,017 147,152 18,025
Federal funds sold and securities
purchased under agreement to resell 52,118 59,564 321,615 106,692
Investment securities:
Taxable 483,700 315,512 1,052,268 915,638
Exempt from federal income tax 26,084 59,900 125,721 188,396
----------- ---------- ---------- ----------
Total interest income 3,224,608 2,843,258 9,214,494 8,220,533
----------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 1,397,216 1,241,874 4,054,819 3,525,238
Short- term borrowings 25,203 2,392 53,920 7,974
----------- ---------- ---------- ----------
Total interest expense 1,422,419 1,244,266 4,108,739 3,533,212
----------- ---------- ---------- ----------
NET INTEREST INCOME 1,802,189 1,598,992 5,105,755 4,687,321
Provision for loan losses 142,000 138,000 323,000 409,500
----------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,660,189 1,460,992 4,782,755 4,277,821
----------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 62,899 57,072 166,966 163,820
Mortgage loans held for sale gains, net 35,666 84,636 121,075 104,667
Other operating income 115,893 110,167 357,796 309,551
Investment securities gains, net 8,900 - 8,900 -
----------- ---------- ---------- ----------
Total noninterest income 223,358 251,875 654,737 578,038
----------- --------- ----------- -----------
NONINTEREST EXPENSES
Salaries and employee benefits 521,933 471,340 1,523,882 1,499,070
Occupancy expenses, net 91,967 82,525 262,114 252,238
Furniture and equipment expense 81,333 75,955 252,332 228,606
Operations of other real estate 51,724 57,133 98,532 69,024
Other operating expense 368,077 343,759 1,090,349 976,546
----------- --------- ----------- -----------
Total noninterest expenses 1,115,034 1,030,712 3,227,209 3,025,484
----------- --------- ----------- -----------
Income before income taxes 768,513 682,155 2,210,283 1,830,375
Income taxes 253,200 206,900 709,735 558,000
----------- --------- ----------- -----------
NET INCOME $ 515,313 $ 475,255 $ 1,500,548 $ 1,272,375
=========== ========= =========== ===========
EARNINGS PER SHARE $ 0.71 $ 0.66 $ 2.06 $ 1.76
=========== ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
Dimeco, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCK HOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Securities Total Equity
Common Capital Retained Treasury Available for Stockholders' Comprehensive
Stock Surplus Earnings Stock Sale Equity Income
--------- ---------- ----------- --------- --------- ----------- ------------
<S> <C> <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 1,500,548 1,500,548 $ 1,500,548
Dividend reinvestment plan 2,124 163,312 40,407 205,843
Purchase treasury stock (87,000) (87,000)
Cash dividends ($.70 per share) (510,223) (510,223)
Other comprehensive income:
Unrealized gain on available
for sale securities 11,830 11,830 11,830
------------
Comprehensive income $ 1,512,378
============
--------- ---------- ----------- --------- --------- -----------
Balance, September 30,1998 $ 365,232 $2,825,645 $12,537,522 $( 87,000) $ 244 $15,641,643
========= ========== =========== ========= ========= ===========
Components of comprehensive income:
Change in net unrealized gain on
investment securities held for sale $ 17,704
Realized gains included in net
income, net of tax ( 5,874)
------------
Total $ 11,830
============
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 5
<PAGE>
Dimeco, Inc.
STATEMENT OF CASH FLOWS (Unaudited)
For the
Nine Months
Ended September 30,
1998 1997
----------- -----------
OPERATING ACTIVITIES
Net income $ 1,500,548 $ 1,272,375
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 323,000 409,500
Depreciation 248,376 247,738
Accretion of investments, net (610,415) (117,457)
Investment securities gains, net (8,900) -
Decrease (increase) in interest receivable (116,613) 88,006
Increase in interest payable 49,508 48,387
Net (increase) decrease in loans held for sale (944,243) 152,920
Amortization of net deferred loan
origination fees (29,089) (54,373)
Other, net (234,166) 70,553
----------- -----------
Net cash provided by operating activities 178,006 2,117,649
----------- -----------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales of investment securities 389,900 -
Proceeds from maturities or repayments
of investment securities 78,878,592 26,068,171
Purchase of investment securities (81,558,372) (28,893,794)
Investment securities:
Proceeds from maturities or repayments
of investment securities 4,069,000 9,611,001
Purchase of investment securities (3,011,368) (2,500,235)
Net increase in loans (14,044,490) (9,599,475)
Purchase of premises and equipment (618,063) (167,106)
Proceeds from sale of other real estate owned 306,927 -
----------- -----------
Net cash used for investing activities (15,587,874) (5,481,438)
----------- -----------
FINANCIAL ACTIVITIES
Increase in deposits, net 16,894,591 7,561,960
Increase in securities sold under agreements 1,364,773 510,244
to repurchase
Increase in borrowed funds 70,000 -
Proceeds from dividend reinvestment plan 205,843 158,586
Cash dividends paid (472,545) (390,130)
Purchase treasury stock (87,000) (148,400)
----------- -----------
Net cash provided by financing activities 17,975,662 7,692,260
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 2,565,794 4,328,471
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,480,550 6,513,692
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,046,344 $10,842,163
=========== ===========
See accompanying notes to consolidated financial statements.
Page 6
<PAGE>
Dimeco, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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-QSB 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 1997 have been reclassified to conform to 1998
classifications.
NOTE: - COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted the Statement of Financial 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
Stockholder's Equity.
Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Total assets at September 30, 1998 increased $19,568,000 or 12.8% to
$172,989,000 from the $153,421,000 reported at December 31, 1997. With the
current volatility in the stock market, management believes that customers are
coming back to the safety of bank deposits. This fact, combined with increased
marketing efforts and a greater market penetration from our branching network
has led to this increased activity.
Cash and cash equivalents increased $2,566,000 or 57.3% with an increase in
interest-bearing deposits in other banks which is needed to fund cash
clearings which are greater due to the increased number of deposit accounts.
Mortgage loans held for sale increased $944,000 from balances at December 31,
1997. With decreases in interest rates, the number of new and refinanced
fixed rate residential mortgages has greatly increased. The Company has made
a practice of originating most of these loans with the specific intent of
selling them in the secondary market and will continue this practice to avoid
the interest rate risk associated with holding this type of asset.
Investment securities held to maturity has decreased $1,044,000 or 23.0% from
December 31, 1997. Included in this category are mainly municipal bonds which
have not shown attractive interest rates as compared to taxable securities in
1998, therefore management has reinvested any matured bonds in other
securities. At the same time, investment securities available for sale has
increased $2,914,000 or 9.5%. Maturities of municipal bonds were reinvested
in high grade commercial paper which offered increased interest rates as
compared to other available investments. As seen in the consolidated
statement of cash flows, there is a much larger turnover in this type of
investment due to the short term nature of commercial paper.
The loan portfolio increased $14,044,000 or 12.9% from December 31, 1997 to
September 30, 1998. Commercial real estate loans account for the majority of
this increase. The Company has had the opportunity to originate a number of
larger dollar loans to businesses with higher loan quality scores. This
activity is in various business lines including summer camps, public
utilities, manufacturing concerns, retail stores and nonprofit agencies.
Total deposits increased $16,895,000 or 12.5% from balances at December 31,
1997 which we believe is due to a combination of recent downturns in the stock
market serving to attract customers back to traditional deposits, competitive
pricing on all deposit products and to the increased effects of additional
branches. Noninterest-bearing deposits increased $1,260,000 or 9.7% due to
new accounts opened during the year and increased balances in existing
business accounts. Interest-bearing accounts increased $15,634,000 or 12.8%
with the majority of this being an increase of $9,538,000 or 14.3% in time
deposits. This growth is attributable to aggressive pricing on these products
coupled with increases in public funds deposits due to their greater cash flow
at this time of the year.
The Company has been attracting liabilities in the form of securities sold
under agreements to repurchase in conjunction with a sweep arrangement for
commercial customers. This product offering has increased balances of this
type $1,365,000 since December 31, 1997.
Equity capital increased $1,121,000 or 7.7% since December 31, 1997,
primarily the result of net earnings for the period of $1,501,000. Dividends
of $510,000 were declared for the nine months ended September 30, 1998 with
the reinvestment of dividends through the plan contributing back $206,000.
Management took advantage of an opportunity to purchase 2,000 shares of
treasury stock and has used these shares to fund the dividend reinvestment
plan for on October 20, 1998.
Page 8
<PAGE>
Management monitors risk-based capital and leverage capital ratios in order to
assess compliance with regulatory guidelines. At September 30, 1998, the bank
had total risk-based capital of 12.5%, exceeding the 8.0% minimum risk-based
capital requirement. Core equity capital, which must be at least fifty
percent of the total risk-based capital, was 11.3%. Additionally, the Company
must maintain a minimum leverage capital ratio of 3%. As of September 30,
1998 the Company's leverage capital ratio was 9.0%.
Page 9
<PAGE>
RESULTS OF OPERATION
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997.
The Company earned $1,501,000 for the nine months ended September 30, 1998, an
increase of $228,000 or 17.9% from the same period in 1997.
Interest and fees earned on loans increased $576,000 or 8.2% due to an
increase of $8,196,000 in average loan balances and a slight increase of .05%
net yield on loans. Interest earned on interest-bearing balances increased
$129,000 in 1998 due to higher balances in our account at the Federal Home
Loan Bank while interest earned on federal funds sold increased significantly
from $107,000 in 1997 to $322,000 in 1998 due to larger balances in these
types of accounts. With a flat or inverted yield curve, management has chosen
to remain in short term liquid funds rather than to extend maturities.
Interest expense increased $576,000 or 16.3% due to an increase in the average
liability base of $ 16,765,000 coupled with an increase in the cost of funds
of .10%. As mentioned earlier, management has priced time deposits more
aggressively in order to maintain customer relationships in a market area in
which there are many community banks competing for deposits. In addition, the
Company has introduced a repurchase account titled the Financial Manager in
which larger business customers have the ability to sweep deposit balances
over a certain dollar amount into securities sold under agreements to
repurchase. Although this type of account pays a higher interest rate than
would be paid on typical interest-bearing checking accounts, it serves the
purpose of maintaining relationships with better customers.
The provision for loan losses decreased $87,000 or 21.1% from 1997 to 1998.
Our internal evaluation of the allowance for loan loss indicates that the
current allowance is adequate and that the provision expense is sufficient.
Management has taken an aggressive stand in charging off any loans that
qualified under more stringent charge-off guidelines and feels that this
policy has strengthened the quality of the remaining loan portfolio. The
level of the allowance for loan loss as a percentage of total loans at
September 30, 1998 was 1.31%, which is consistent with the ratio of 1.32% at
September 30, 1997.
Other operating income increased $48,000 or 15.6% from 1997 to 1998. A
variety of different categories accounted for this, including: $16,000
increase in participation service fees (servicing of loans which have been
sold in the secondary market), $15,000 fees on ATM usage fees which were not
charged until the third quarter of 1997, $10,000 in additional fees received
by participation in the MasterCard network and $17,000 greater fees earned on
mutual fund sales. These increased fees were offset by a decrease in fees
charged to merchants on participation in the credit card program of $12,000.
Other operating expense increased $114,000 or 11.7% from 1997 to 1998. This
category includes a large number of items. The greatest changes were in the
following categories: Advertising expense increased $33,000 or 32.9% with
additional dollars spent on greater coverages in radio and marketing of new
products. Expenses connected with other real estate owned increased $29,000
mainly due to the payment of delinquent real estate taxes in the first
quarter. Legal fees increased $18,000 due to consulting services in connection
with loan collection and product review. Postage expenses increased $9,000
with a greater number of statements mailed due to the greater number of
accounts. Travel expenses connected with education for new software systems
increased with a one-time addition of $12,000 caused by the need for extensive
off-site training on the new mortgage platform system. Fees paid in
connection with our affiliation with Wright Investor Service, our mutual fund
provider, decreased $13,000 because of a one year agreement to lower their
rates. Changes in various other categories account for the remaining
increase, with no one category being a significant dollar amount.
Page 10
<PAGE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 and 1997
Interest and fees on loans increased $237,000 or 9.9% from 1997 to 1998.
This increase is due to an increased average loan volume of $10,218,000
accompanied by a slight increase of.03% net yield on loans. In addition,
interest earned on taxable investment securities increased $168,000 or 53.3%
for the third quarter of 1998 as compared to the same period in 1997. This
increase is due totally to volume increases as the average balance of taxable
investments increased $12,512,000 or 61.7% while the average interest rate
earned dropped to 5.9% in the third quarter of 1998 from 6.2% in the same
quarter of 1997. This is due to investment in short-term assets which reprice
more often coupled with a declining interest rate environment. Interest
expense increased $178,000 or 14.3% due entirely to an increase in average
liabilities, including deposits and securities sold under agreement to
repurchase, of $18,381,000 or 14.1%. The average interest rate paid remained
constant from 1997 to 1998.
Although the provision for loan loss increased only slightly as compared to
the third quarter of 1997, this account did increase in the third quarter from
amounts expended in previous quarters of 1998 due to new, more stringent,
procedures followed regarding charging off problem loans. Management is
continually monitoring the allowance for loan loss and the measurement tools
to establish appropriate balances and methods to categorize loans to determine
the correct balance in this account. In so doing, it was decided to take a
more prudent approach and charge off loans which in the past had remained on
the books while being slow to fully collect. At this time, we are taking the
view that we will now charge off these loans earlier and record repayments, if
any, upon receipt.
Gains on loans available for sale decreased in the third quarter of 1998 as
compared to the third quarter of 1997 with fewer loans sold. Also, in 1997
the Company sold a portion of its variable rate loan portfolio which produced
larger gains due to the experience levels in these assets and timing of the
sale.
In 1998, management took advantage of market price increases in equity
securities to remove these assets from its balance sheet as we have found that
this type of asset was not desirable at the bank level. In so doing, the
Company recognized a net gain of $9,000 on the sales.
Salaries and employee benefits increased $51,000 or 10.7% from 1997 to 1998
with the addition in 1998 of new staff in the trust area coupled with normal
salary increases and related benefits.
Occupancy expense and furniture and equipment expense in the third quarter of
1998 do not show any large increase but are higher than those shown in 1997
due mainly to the establishment of a separate facility to serve as the
operations center for the Company. All non-customer contact personnel will be
located at this leased facility, alleviating the crowded conditions in our
Honesdale office. Management believes that the added expense associated with
this move will be offset by increased productivity of all affected staff and
greater utilization of the space in the Honesdale office, thereby increasing
income.
Page 11
<PAGE>
YEAR 2000 EVALUATION
The Company has been actively working on a project since 1997 in preparation
for the millennium change. As the year 2000 approaches, there has been much
concern worldwide that certain computer systems will not be able to recognize
the difference between the year 1900 and the year 2000 due to programing which
only recognizes the last two digits of a year. The Company has conducted a
survey of all vendors, including not only computer hardware and software
vendors, but also vendors associated with all other aspects of running a
financial institution including security vendors, paper supply vendors,
facility maintenance, etc. Replies have been received from virtually all
assuring us that either they are year 2000 compliant or are working towards
that end. We have begun testing our hardware and software systems and where
problems are occurring we are correcting or replacing and retesting. On
December 13,1998 the Company is scheduled to perform testing on its main
hardware and software systems. Management believes that the most critical
component of software , Jack Henry's Silverlake system, will be compliant.
This software was specifically written as an answer to the Y2K problem and we
do not expect any problems with this system.
The Company does expect to be ready for the year 2000 event, but is
instituting contingency plans if in fact there is a problem. We have decided
that we would be able to service our customers using manual systems if
necessary. We do not expect that this will be necessary, but are prepared to
do so if our computer systems fail. We may still be able use some PC programs
which would help in the event of main system fail. Customer service would
certainly be impacted due to the slower nature of manually processing and the
Company would certainly expend additional dollars in overtime pay and/or
temporary workers. We would work with Jack Henry system until they are ready
while at the same time we would investigate other operating options.
The Company expects to spend at least $50,000 during 1999 to update any
non-compliant systems. We do not feel that this will be a material amount.
This dollar amount represents costs to modify, correct or replace equipment as
well as the time and effort needed by our people to stay abreast of this
complex issue.
Page 12
<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 September 30, 1998
compared to December 31, 1997:
September 30, December 31,
------------ ------------
(dollars in thousands)
Cash and due from banks $ 1,413 $ 1,359
Interest-bearing deposits
with other banks 5,634 3,122
Federal funds sold 0 0
Mortgage loans held for sale 1,101 157
Investment securities
maturing in one year or less 24,771 27,212
------------ ------------
32,919 31,850
Less short-term borrowings 3,825 2,390
------------ ------------
Net liquidity position $ 29,094 $ 29,460
============ ============
As a percent of total assets 16.8% 19.2%
============ ============
Management monitors liquidity on a consistent basis and feels that liquidity
levels are adequate. In addition to these liquidity sources, the Bank has
available also a credit line with the Federal Home Loan Bank in the amount of
$10 million.
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.
Page 13
<PAGE>
RISK ELEMENTS
The table below presents information concerning nonperforming assets including
nonaccrual loans, renegotiated loans, loans 90 days or more past due,
nonaccrual securities, other real estate loans and repossessed assets at
September 30, 1998 and December 31, 1997. A loan is classified as nonaccrual
when, in the opinion of management, there are doubts about collectibility 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.
September 30, December 31,
------------- ------------
(dollars in thousands)
Loans on nonaccrual basis $ 1,062 $ 819
Loans past due 90 days or more 853 755
Renegotiated loans 532 1,219
--------- ---------
Total nonperforming loans 2,447 2,793
Other real estate 287 626
Repossessed assets 15 -
--------- ---------
Total nonperforming assets $ 2,749 $ 3,419
========= =========
Nonperforming loans as a percent
of total loans 2.0% 2.6%
========= =========
Nonperforming assets as a percent
of total assets 1.6% 2.2%
========= =========
Allowance for loan loss as a
percent of loans 1.3% 1.4%
========= =========
Management believes the level of the allowance for loan losses at September
30, 1998 is sufficient. The relationship between the allowance for loan
losses 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 $876,000 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 $117,000. There were no impaired loans without a
related allowance for loan losses.
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.
Page 14
<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 - Submissions of matters to a vote of security holders
NONE
Item 5 - Other information
NONE
Item 6 - Exhibits and Reports on Form 8-K
NONE
Page 15
<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: November 9, 1998 By: /s/ Joseph J. Murray
-------------------------
Joseph J. Murray
President and Chief Executive Officer
Date: November 9, 1998 By: /s/ Maureen H. Beilman
--------------------------
Maureen H. Beilman
Controller/Treasurer
Page 16
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