Peoples Financial Services (PFIS) - 2022 Q2 - Quarterly Report

Financial Performance - For the six months ended June 30, 2022, net income was $18,983, or $2.63 per diluted share, a 5.6% increase compared to $18,009, or $2.49 per diluted share for the same period in 2021[174]. - The company reported a net interest income increase of $5,280 for the six months ended June 30, 2022, compared to the same period in 2021[174]. - For the three months ended June 30, 2022, net interest income increased to $24,168, representing a net interest margin of 3.06% compared to $20,656 and 2.82% in the same period last year[200]. - Noninterest income for the three months ended June 30, 2022 was $3,881, an increase of $494 or 14.6% from $3,387 in 2021, primarily due to higher revenue from commercial loan interest rate swaps[205]. - Noninterest income for the six months ended June 30, 2022 was $7,302, an increase of $398 or 5.8% from $6,904 in the year-ago period[206]. Asset and Loan Growth - Total assets increased by $52,056 or 3.1% annualized, reaching $3,421,539 at June 30, 2022, compared to $3,369,483 at December 31, 2021[121]. - Total loans rose to $2,565,579 at June 30, 2022, an increase of $236,406 from $2,329,173 at December 31, 2021, with loan growth excluding PPP loans totaling $278,263 or 24.8% annualized[123][130]. - Commercial real estate loans increased by $226,119 or 33.9% annualized, reaching $1,569,657 at June 30, 2022, compared to $1,343,539 at December 31, 2021[130]. - Consumer loans increased by $6,557 or 17.7% annualized, totaling $81,440 at June 30, 2022, compared to $74,883 at December 31, 2021[131]. - Residential real estate loans increased by $20,048 or 13.6% annualized, reaching $317,672 at June 30, 2022, compared to $297,624 at December 31, 2021[132]. Equity and Capital - Total stockholders' equity decreased by $28,229 or 8.3%, from $340,126 at year-end 2021 to $311,897 at June 30, 2022[121]. - The Tier 1 capital to total average assets ratio was 9.78% as of June 30, 2022, compared to 9.58% at December 31, 2021[172]. - The company's return on average equity (ROE) was 11.71% for the second quarter of 2022, up from 10.71% for the same period in 2021[175]. Interest Rates and Income - The tax-equivalent yield on the entire loan portfolio was 3.84% for the six months ended June 30, 2022, a 12 basis point decrease from the comparable period last year[133]. - Tax-equivalent net interest income for the six months ended June 30, 2022, was $47,243, up from $41,759 in the comparable period last year, reflecting a positive volume variance[189]. - The tax-equivalent yield on earning assets decreased by 15 basis points to 3.28% in 2022 from 3.43% in 2021, resulting in a decrease in interest income of $4,652[193]. - The cost of interest-bearing deposits decreased to 0.28% in 2022 from 0.43% in 2021, reflecting actions taken to lower deposit rates amid net interest margin compression[145]. Asset Quality and Loan Losses - Total nonperforming assets decreased to $4,577 or 0.14% of total assets at June 30, 2022, down from $4,961 or 0.15% at December 31, 2021, indicating improved asset quality[136]. - The allowance for loan losses increased by $991 or 3.49% during the first six months of 2022, totaling $29,374 or 1.14% of loans, net, compared to $28,383 or 1.22% at year-end 2021[142]. - The allowance for loan losses was $28,779 as of June 30, 2022, compared to $27,426 a year earlier, indicating a proactive approach to managing credit risk[202]. - Loans charged-off, net of recoveries, for the six months ended June 30, 2022, were $259 or 0.02% of average loans, compared to $205 or 0.02% for the same period last year[142]. Deposits and Borrowings - Total deposits decreased by $52,114 or 1.76% to $2,911,283 as of June 30, 2022, from $2,963,397 at December 31, 2021, primarily due to outflows from public fund NOW accounts[143]. - Total borrowings increased significantly to $163,816 at June 30, 2022, from $35,711 at December 31, 2021, driven by the need to fund loan growth and replace deposit outflows[147]. - Interest-bearing transaction accounts decreased by $93,945 or 6.5% to $1,345,386 at June 30, 2022, while savings accounts increased by $26,350 to $518,146[144]. Noninterest Expenses - Noninterest expense increased by $2,035 or 15.1% to $15,493 for the three months ended June 30, 2022, compared to $13,458 for the same period in 2021[208]. - Salaries and employee benefits rose by $601 or 8.3% due to annual merit increases and the addition of lending teams in new markets[208]. - For the six months ended June 30, noninterest expense rose by $3,695 or 14.2% to $29,782 in 2022 from $26,087 in 2021[210]. Economic and Market Conditions - The personal consumption index (PCE) for June increased by 6.8% from one year ago, reflecting increases in both goods and services[119]. - The Federal Open Market Committee (FOMC) raised the federal funds target rate by 225 basis points since March 2022 to combat high inflation[220]. - The projected impact of a 100 basis point increase in interest rates would decrease net interest income by 1.7% for the 12 months ending June 30, 2022[221]. - Funding costs may increase in the future due to FOMC rate adjustments and local competition for deposits, potentially impacting net interest income[220]. LIBOR Transition - The company is transitioning LIBOR-indexed loans to alternative indexes, including prime and Term SOFR, in response to the discontinuation of LIBOR[222]. - The company has formed a LIBOR transition team to monitor the transition plan and ensure a smooth shift to alternative reference rates[222].