<PAGE> 1
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, 2000
[ ] 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)
(570) 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 ___
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on a closing sale price: $19,265,387 on October 26, 2000.
As of October 26, 2000, the registrant had outstanding 743,207 shares of its
common stock, par value $.50 share.
<PAGE> 2
Dimeco, Inc.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (unaudited) as of September 30,
2000 and December 31, 1999 3
Consolidated Statement of Income (unaudited) for the
three months, and nine months ended
September 30, 2000 and 1999 4
Consolidated Statement of Changes in Stockholders' Equity 5
Consolidated Statement of Cash Flows (unaudited) for
the nine months ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 8-13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Default Upon Senior Securities 14
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
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<PAGE> 3
Dimeco, Inc.
CONSOLIDATED BALANCE SHEET (Unaudited)
<TABLE>
<CAPTION>
Sept 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,942,876 $ 2,491,460
Interest-bearing deposits in other banks 24,071 1,199,210
Federal funds sold and securities purchased under
agreement to resell 7,735,000 940,000
------------- -------------
Total cash and cash equivalents 13,701,947 4,630,670
Mortgage loans held for sale 445,500 237,000
Investment securities available for sale 37,011,006 31,246,921
Investment securities held to maturity (market value
of $626,567 and $15,653,861) 600,321 15,570,500
Loans (net of unearned income of $766,085
and $750,261) 153,743,301 137,526,437
Less allowance for loan losses 2,041,756 1,833,615
------------- -------------
Net loans 151,701,545 135,692,822
Premises and equipment, net 4,264,150 3,598,780
Other real estate 191,108 355,436
Accrued interest receivable 1,529,619 1,386,655
Other assets 1,992,385 1,947,855
------------- -------------
TOTAL ASSETS $ 211,437,581 $ 194,666,639
============= =============
LIABILITIES
Deposits:
Noninterest-bearing $ 20,463,803 $ 14,627,337
Interest-bearing 161,644,815 152,666,444
------------- -------------
Total deposits 182,108,618 167,293,781
Short-term borrowings 4,184,168 8,184,933
Other borrowings 4,000,000 --
Accrued interest payable 1,328,796 962,542
Other liabilities 921,083 802,167
------------- -------------
TOTAL LIABILITIES 192,542,665 177,243,423
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, $.50 par value; 3,000,000 shares
authorized, 739,999 and 735,564 shares issued 369,999 367,782
Capital surplus 3,136,768 3,004,439
Retained earnings 15,436,479 14,378,134
Accumulated other comprehensive loss (15,740) (245,830)
Treasury stock, at cost (1,000 and 2,144 shares) (32,590) (81,309)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 18,894,916 17,423,216
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 211,437,581 $ 194,666,639
============= =============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE> 4
Dimeco, Inc.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept 30, Ended Sept 30,
-------------- --------------
2000 1999 2000 1999
-------- -------- ------- ------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 3,351,000 $ 2,827,553 $ 9,614,656 $ 8,325,208
Interest-bearing deposits in other banks 395 30,436 13,914 128,021
Federal funds sold and securities
purchased under agreement to resell 66,051 13,913 123,095 228,343
Investment securities:
Taxable 547,562 658,016 1,655,029 1,560,138
Exempt from federal income tax 63,785 27,185 171,190 54,603
------------ ------------ ------------ ------------
Total interest income 4,028,793 3,557,103 11,577,884 10,296,313
------------ ------------ ------------ ------------
INTEREST EXPENSE
Deposits 1,727,868 1,438,353 4,867,129 4,345,701
Short-term borrowings 76,023 86,194 214,670 155,852
Other borrowings 21,307 -- 50,231 --
------------ ------------ ------------ ------------
Total interest expense 1,825,198 1,524,547 5,132,030 4,501,553
------------ ------------ ------------ ------------
NET INTEREST INCOME 2,203,595 2,032,556 6,445,854 5,794,760
Provision for loan losses 259,500 136,500 662,000 342,750
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,944,095 1,896,056 5,783,854 5,452,010
------------ ------------ ------------ ------------
NONINTEREST INCOME
Service charges on deposit accounts 136,286 67,376 355,154 183,615
Mortgage loans held for sale gains (losses), net 20,086 7,320 29,646 (49,270)
Other income 144,925 121,122 402,286 390,925
------------ ------------ ------------ ------------
Total noninterest income 301,297 195,818 787,086 525,270
------------ ------------ ------------ ------------
NONINTEREST EXPENSES
Salaries and employee benefits 645,532 580,483 1,923,525 1,704,815
Occupancy expense, net 116,192 110,159 363,901 344,116
Furniture and equipment expense 112,260 106,377 321,207 307,287
Professional fees 74,870 83,349 253,362 220,871
Other expenses 382,836 361,762 1,147,080 1,051,633
------------ ------------ ------------ ------------
Total noninterest expense 1,331,690 1,242,130 4,009,075 3,628,722
------------ ------------ ------------ ------------
Income before income taxes 913,702 849,744 2,561,865 2,348,558
Income taxes 284,600 278,800 806,682 777,058
------------ ------------ ------------ ------------
NET INCOME $ 629,102 $ 570,944 $ 1,755,183 $ 1,571,500
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ .85 $ .78 $ 2.38 $ 2.15
============ ============ ============ ============
DILUTED EARNINGS PER SHARE $ .85 $ .78 $ 2.38 $ 2.15
============ ============ ============ ============
Average shares outstanding- basic 740,880 731,251 737,877 732,022
Average shares outstanding - diluted 743,674 731,251 738,924 732,022
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 5
Dimeco, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Capital Retained
Stock Surplus Earnings
----- ------- --------
<S> <C> <C> <C>
Balance, December 31, 1999 $ 367,782 $ 3,004,439 $ 14,378,134
Net Income 1,755,183
Other comprehensive income:
Net unrealized gain on
available for sale securities,
net of tax benefit of $118,530
Comprehensive income
Dividend reinvestment plan 2,217 132,329 (31,874)
Purchase treasury stock
Cash dividends ($.90 per
share) (664,964)
------------ ------------ ------------
Balance, September 30, 2000 $ 369,999 $ 3,136,768 $ 15,436,479
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Comprehensive Treasury Stockholders' Comprehensive
Income (Loss) Stock Equity Income
------------- ----- ------ ------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ (245,830) $ (81,309) $ 17,423,216
Net Income 1,755,183 $1,755,183
Other comprehensive income:
Net unrealized gain on
available for sale securities,
net of tax benefit of $118,530 230,090 230,090 230,090
----------
Comprehensive income $1,985,273
==========
Dividend reinvestment plan 183,264 285,936
Purchase treasury stock (134,545) (134,545)
Cash dividends ($.90 per
share) (664,964)
---------- --------- ------------
Balance, September 30, 2000 $ (15,740) $ (32,590) $ 18,894,916
========== ========= ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
Dimeco, Inc.
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<PAGE> 6
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended Sept.30,
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,755,183 $ 1,571,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 662,000 342,750
Depreciation 289,038 294,402
Amortization of computer software 81,314 81,485
Amortization of premium and discount on investment securities, net (20,055) (580,689)
Mortgage loans held for sale, (gains) losses (29,646) 49,270
Net decrease (increase) in loans held for sale (178,854) 875,123
Increase in accrued interest receivable (142,964) (460,644)
Increase (decrease) in accrued interest payable 366,254 (63,281)
Amortization of net deferred loan origination fees (24,997) (32,879)
Other, net (123,249) (400,172)
------------ ------------
Net cash provided by operating activities 2,634,024 1,676,865
------------ ------------
INVESTING ACTIVITIES:
Investment securities available for sale:
Proceeds from maturities or paydown 20,318,328 64,122,703
Purchases (10,843,560) (59,723,811)
Investment securities held to maturity:
Proceeds from maturities or paydown 100,000 2,225,000
Purchases -- (15,067,515)
Net increase in loans (16,832,275) (8,997,993)
Purchase of premises and equipment (954,408) (135,480)
Proceeds from sale of other real estate owned 346,037 26,748
------------ ------------
Net cash used for investing activities (7,865,878) (17,550,348)
------------ ------------
FINANCING ACTIVITIES:
Increase in deposits, net 14,814,837 11,867,829
Increase (decrease) in short term borrowings (4,000,765) 3,365,217
Proceeds from other borrowings 4,000,000 --
Proceeds from dividend reinvestment plan 285,936 207,412
Purchase of treasury stock (134,545) (183,500)
Cash dividends paid (662,332) (547,718)
------------ ------------
Net cash provided by financing activities 14,303,131 14,709,240
------------ ------------
Increase (decrease) in cash and cash equivalents 9,071,277 (1,164,243)
Cash and cash equivalents, beginning of period 4,630,670 6,109,976
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,701,947 $ 4,945,733
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-6-
<PAGE> 7
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-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 prior periods have been reclassified to conform
with current year presentation. The reclassifications did not effect net income
or equity capital.
NOTE 2 - INVESTMENT SECURITIES
In accordance with Financial Accounting Standards Board Statement 133,
"Accounting for Derivative Instruments and Hedging Activities", effective April
1, 2000 the Company reclassified investment securities from held to maturity
classification to the available for sale classification with an amortized cost
of $14,839,000 and estimated market value of $14,777,000.
-7-
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENT
The Private Securities Litigation Act of 1995 contains safe harbor provisions
regarding forward-looking statements. When used in this discussion, the words,
"believes," "anticipates," "contemplated," "expects," and similar expressions
are intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those projected. Those risks and uncertainties include changes
in interest rates, the ability to control costs and expenses, and general
economic conditions. The Company undertakes no obligation to publicly release
the results of any revisions to those forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
FINANCIAL CONDITION
Total assets at September 30, 2000 increased $16,771,000 or 8.62% from December
31,1999. An increase in deposits collected at the branches combined with the
increase in municipal deposits due to their seasonal tax collections has
resulted in the resurgence of growth for the Company.
Cash and due from banks increased $3,451,000 or 138.5% while interest-bearing
deposits in other banks decreased $1,175,000 or 98.0%, mainly due to the
establishment of a relationship directly with the Federal Reserve Bank of
Philadelphia (the"Fed"). This relationship includes a noninterest-bearing
deposit account with the Fed where cash items are cleared. In the past, the
Company utilized the Federal Home Loan Bank of Pittsburgh ("FHLB")to clear items
using an interest-bearing deposit account to facilitate this activity.
Management has evaluated the differences between use of these two entities and
estimates a net increase in annual income of $26,000 to clear cash items through
the Fed.
Federal funds sold increased $6,795,000 or 722.9% during the first nine months
of 2000 as a result of the aforementioned increase in municipal deposits.
Management is aware that these deposits would be bid to all local financial
institutions in October and therefore maintained the funds in liquid assets in
the event that the funds had to be paid out in the near future. As a result of
that bidding process, the Company did maintain over 75% of the funds and has
invested the proceeds in higher-yielding securities and loans as of this
writing.
Management adopted FASB 133, "Accounting for Derivative Instruments and Hedging
Activities" as of April 1, 2000. Although management does not anticipate
participating in hedging or derivative activities, this decision provides
additional liquidity and flexibility. In conjunction with the adoption of FASB
133 management opted to reclassify investment securities with an amortized cost
of $14,839,000 and a market value of $14,777,000 to the available for sale
category from the held to maturity category. As of September 30, 2000,
investment securities available for sale increased $5,764,000 or 18.5%. Strong
loan demand during the past nine months has used some funds available from
maturities of this type of investment. Management has chosen to recognize the
significantly greater interest yields available in loans as compared to
opportunities to purchase acceptable investments per the parameters of our
investment policy.
-8-
<PAGE> 9
The loan portfolio increased $16,217,000 or 11.8% during the first nine months
of the year as the loan portfolio increased to $153,743,000 at the end of the
quarter. The majority of this growth came in the form of commercial loans
amounting to $13,966,000. Of that total, commercial mortgages expanded
$9,945,000, as this segment of loans grew from $50,711,000 to $60,656,000.
Additionally, commercial loans increased $4,021,000 to $21,239,000. Both of
these types of loans were granted for a variety of purposes including
acquisition and expansion of physical plant and purchases of vehicles and
equipment and for working capital. Overall, this commercial lending activity is
evidence that the business sector of our customer base continues to expand in
roughly the same proportion as that of the national business economy. In
addition, residential mortgages on one to four family dwellings increased
$3,003,000 or 8.4%. Loans of this nature were fairly spread across our immediate
market area of Wayne and Pike counties in Pennsylvania and Sullivan County, New
York. This increase reflects the continuation of a good real estate climate in
our local market.
Premises and equipment increased $665,000 or 18.5% due mainly to the remodeling
of the Honesdale and Hawley branches. In order to meet the expectations of our
customers as determined through customer survey, each location was remodeled to
provide more privacy for deposit transactions and implementation of a greeter in
each office who will assist customers as they enter the premises. In addition,
the survey showed that our customers were very interested in additional
electronic banking services. In order to fulfill their requests, management
purchased equipment in conjunction with the introduction of Internet banking and
Telephone banking for our customers. As of this writing, the bank has over 650
customers utilizing the Internet banking product, which was introduced in August
2000. Telephone banking is being tested and management plans to introduce this
feature before the end of 2000.
Total deposits increased $14,815,000 or 8.9% since December 31, 1999.
Noninterest-bearing deposits increased $5,836,000 or 39.9%. A combination of new
deposits which have been garnered through the branches, new deposits in
conjunction with the cash management product and a $1.4 million loan proceeds
check which has not yet cleared are responsible for this increase. In addition,
interest-bearing deposits increased $8,978,000 or 5.9% with the main increase in
our "One Fund" type of account. This product has increased balances from our
municipal customers, whose balances typically increase due to real estate tax
collections in September. In addition, in an effort to maintain or increase our
deposit base as compared to local competition, management has become very
aggressive in pricing certificates of deposit on the consumer side.
Short-term borrowings decreased $4,001,000 or 48.9% since December 31, 1999 due
to the repayment of $4,200,000 to the FHLB for short term borrowings. In
February 2000, management took advantage of an opportunity to borrow funds on a
longer term basis with FHLB. In September 2000, management again took advantage
of an opportunity to borrow funds from FHLB using the proceeds to fund
commercial loans with similar repricing opportunities while recognizing an
interest spread of 3.1% on the borrowing.
Stockholders' equity increased $1,472,000 or 8.6% during the first nine months
of 2000, mainly due to net income of $1,755,000. This increase was offset by
dividends declared of $.90 per share, or $667,000. Participation by shareholders
in the dividend reinvestment plan accounted for an increase of $288,000 in
equity. Management has continued to purchase Dimeco, Inc. stock in the market in
order to fulfill the majority of stock issuance requirements of the dividend
reinvestment plan, resulting in changes in treasury stock. Risk-based capital
and leverage capital ratios are monitored in order to assess compliance with
regulatory guidelines. At September 30, 2000, the Company had total risk-based
capital of 12.6% and Tier I capital of 11.3%, both of which exceed the
regulatory requirements of 8.0% and 4.0%, respectively. The Company's leverage
ratio was 9.4%, which also exceeds the regulatory requirement of 3.0%.
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<PAGE> 10
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
The Company earned $1,755,000 during the first nine months of 2000, which
represents an increase of $184,000 or 11.7% over the same period in 1999.
Interest and fees on loans increased $1,289,000 or 15.5% from 1999 to 2000. This
change is due to a combination of an increase in the size of the average loan
portfolio of $15,203,000 or 11.8% and an increase in the average interest rate
received on the loans of .28% to 8.67% in 2000.
Interest income on interest-bearing deposits in other banks decreased $114,000
or 89.1% due to the transfer of our main correspondent banking to the Fed and to
the maturity of certificates of deposit in March 2000. Interest income earned on
federal funds sold and securities purchased under agreements to resell decreased
$105,000 or 46.1% due to a decrease of $3,641,000 in average balances of this
type of investment, although the average interest rates received increased from
4.9% to 6.4%.
Interest earned on taxable investments increased $95,000 or 6.1% due to an
increase of .66% in interest yield earned on this portfolio, in spite of a
decrease of $1,992,000 in its average balances. At the same time interest earned
on tax-exempt investments increased $117,000 or 213.5% due to an increase of
$3,071,000 in the average size of the portfolio. The average interest yield
remained fairly stable, showing an increase of .14% on a tax-equivalent basis.
Interest expense on deposits increased $521,000 or 12.1% from 1999 to 2000.
Average interest-bearing deposits increased $5,135,000 or 3.8% from 1999 to 2000
and the average interest rate paid for these funds increased .32% from 3.93% to
4.25%. Increased competition for deposit dollars combined with higher interest
rates in general has fueled this increase in interest rates. Interest paid on
short-term borrowings has increased $59,000 or 37.7% due to an increase of .40%
in the average interest rate paid for these liabilities.
The provision for loan losses increased $319,000 or 93.4% from 1999 to 2000. The
loan portfolio increased 15.1% since September 30, 1999 and net loans
charged-off increased from $218,000 during the first nine months of 1999 to
$454,000 during the same time period in 2000. Several commercial loan customers
experienced severe financial problems, causing management to charge-off their
loans in 2000 combined with an increase of 117.7% in consumer loans charge-offs.
Management increased the provision expense in order to maintain our internal
policy limits that are monitored and reported to the board of directors on a
quarterly basis.
Service charges on deposit accounts increased $172,000 or 93.4% from 1999 to
2000. Management, in conjunction with our Profit Improvement Team, analyzed the
structure of existing service charges in the fourth quarter of 1999 and
implemented several changes to the method of calculating and the dollar amount
of charges, which have produced this improvement in service charge income.
Net gains (losses) on sales of mortgage loans has increased $79,000 or 160.2%
due to a more concentrated effort of the management of this function. Loans are
processed and sold in a shorter time frame which abates market risk of selling
these loans in the secondary market.
Salaries and employee benefits increased $219,000 or 12.8% due to annual salary
increases combined with the addition of several new employees to manage new or
expanded activities. In addition, profit sharing accruals
-10-
<PAGE> 11
were not made in the first half of 1999 since the profit goals had not been met
while in 2000 these accruals are recorded due to the accomplishment of the
goals.
Professional fees increased $32,000 or 14.7% in the first nine months of 2000 as
compared to the same period in 1999. The greatest increase was in the area of
legal fees, which increased $30,000 or 69.4% as a result of elevated levels of
loan collection activity, implementation of the stock option plan and research
on prospective lines of business.
Other expense increased $95,000 or 9.1% from 1999 to 2000. This category
includes all noninterest expense items not specifically detailed above and
includes a large number of individual items showing smaller changes. The most
prominent changes are detailed here. Advertising expense increased $30,000 or
26.5% in order to promote the addition of Internet banking in the third quarter
and to attract increased deposits. Maintenance expenses related to contracts on
computer software products increased $19,000 or 38.1% due to the full
implementation of residential loan software package along with maintenance on
additional software installed to assist with imaged check statements and
Internet banking activities. Software packages that are instrumental to the
operation of the bank require a high level of service in the maintenance
contract agreements in order that our customers are properly served. Expenses
related to other real estate owned increased $20,000 or 97.8% in 2000 as
compared to 1999 due mainly to a negative market value adjustment for the
reassessment of property owned. FDIC insurance increased $13,000 or 77.0% due to
a combination of a new assessment structure and an increase in the deposits on
which the assessment is based. The Pennsylvania shares tax increased $12,000 or
11.3% due to increased equity of the bank. Offsetting these increases was a
decrease of $27,000 or 18.2% in bank supply expenses due to one-time expenses
incurred in 1999 along with more aggressive bidding of these items to vendors in
2000.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
During the third quarter of 2000, the Company earned $629,000 or 10.2% more than
the same quarter of 1999.
Interest and fees earned on loans increased $523,000 or 18.5% based upon an
increase of $15,948,000 in average loan balances combined with an increase of
.49% in the average interest rate earned during the third quarter of 2000 as
compared to the same period in 1999. Interest earned on taxable investments
decreased $110,000 or 16.8% when comparing the third quarter of 1999 to 2000 due
to a decrease in the average balance of these investments of $12,437,000 or
26.7% in 2000. The average yield earned on the these investments increased .77%
in 2000 to 6.42% as compared to 5.66% in 1999. Interest earned on investments
which are exempt from federal income tax increased $37,000 or 134.6% over the
same time frame due to an increase in the average balance of $3,008,000 or
145.7% coupled with an increase of .36% in interest yield, on a tax equivalent
basis.
Interest earned on interest -bearing balances in other banks decreased $30,000
or 98.7% because of the maturity of certificates of deposit which were on the
books in 1999 and were not repurchased in 2000 in addition to lower balances
held in the interest-bearing checking account at FHLB. At the same time,
interest earned on federal funds sold increased $52,000 due to am increase in
average balance of $2,913,000, coupled with an increase in average interest
yield of 1.5% to 6.6% in 2000 from 5.1% in 1999.
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<PAGE> 12
Interest expense on deposits increased $290,000 from the same quarter in 1999
due to a combination of an increase of $5,037,000 in average interest-bearing
deposits and an increase of .62% in interest paid for these liabilities.
Management has priced aggressively for certificates of deposit accounts in order
to maintain relationships and introduce the institution to new customers due to
strong local competition for these deposits.
The provision for loan losses increased $123,000 or 90.1% in 2000 as compared to
1999 due to the commercial and consumer loan difficulties mentioned above.
Management increased the provision expense in order to maintain internal policy
limits that are monitored and reported to the board of directors on a quarterly
basis.
Income resulting from service charges increased $69,000 or 102.3% as a result of
the revamping of these items as mentioned above.
Salaries and employee benefits increased $65,000 or 11.2% from 1999 to 2000 due
to annual salary adjustments and the addition of new employees.
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, 2000
compared to December 31, 1999:
<TABLE>
<CAPTION>
Sept 30, Dec 31,
2000 1999
---- ----
(dollars in thousands)
<S> <C> <C>
Cash and due from banks $ 5,943 $ 2,491
Interest-bearing deposits with other banks 24 1,199
Mortgage loans held for sale 446 237
Federal funds sold 7,735 940
Investment securities maturing in one year or less 10,130 21,804
-------- --------
24,278 26,671
Less short-term borrowings 4,184 8,185
-------- --------
Net liquidity position $ 20,094 $ 18,486
======== ========
As a percent of total assets 9.5% 9.5%
==== ====
</TABLE>
Management monitors liquidity on a consistent basis and feels that liquidity
levels are adequate. In addition to these liquidity sources, the Bank also has
the ability to borrow from the Federal Home Loan Bank of Pittsburgh. The maximum
borrowing capacity at September 30, 2000 was $33,986,000.
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.
-12-
<PAGE> 13
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, 2000
and December 31, 1999. 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.
<TABLE>
<CAPTION>
Sept 30, Dec 31,
2000 1999
---- ----
(dollars in thousands)
<S> <C> <C>
Loans on nonaccrual basis $ 950 $1,057
Loans past due 90 days or more 828 832
Renegotiated loans 542 614
------ ------
Total nonperforming loans 2,320 2,503
Other real estate 191 355
Repossessed assets 13 10
------ ------
Total nonperforming assets $2,524 $2,868
====== ======
Nonperforming loans as a percent of total loans 1.5% 1.8%
====== ======
Nonperforming assets as a percent of total assets 1.2% 1.5%
====== ======
Allowance for loan loss as a percent of loans 1.3% 1.3%
====== ======
</TABLE>
Management believes the level of the allowance for loan losses at September 30,
2000 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 $622,202 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
$114,382. There were no impaired loans without a related allowance for loan
losses. The average balance of impaired loans for the period was $655,085.
-13-
<PAGE> 14
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
Exhibit Number:
27 Financial Data Table
99 Independent Accountant's Report
-14-
<PAGE> 15
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 10, 2000 By: /s/ Joseph J. Murray
----------------------------------------
Joseph J. Murray
President and Chief Executive Officer
Date: November 10, 2000 By: /s/ Maureen H. Beilman
----------------------------------------
Maureen H. Beilman
Chief Financial Officer
-15-
