Peoples Financial Services (PFIS) - 2022 Q3 - Quarterly Report

Financial Performance - For the three months ended September 30, 2022, net income was $10.0 million or $1.38 per diluted share, a 9.6% increase from $9.1 million or $1.26 per share in the same period of 2021[176]. - For the nine months ended September 30, 2022, net income was $29.0 million or $4.01 per diluted share, a 6.8% increase from $27.1 million or $3.74 per diluted share in the same period of 2021[177]. - Net interest income increased by $3.0 million for the three months and $8.3 million for the nine months ended September 30, 2022, compared to the same periods in 2021[176][177]. - Noninterest expenses increased by $1.8 million for the three months and $5.5 million for the nine months ended September 30, 2022, primarily due to higher salaries, benefits, and costs related to market expansion and technology upgrades[176][177]. Asset and Loan Growth - Total assets increased by $147.3 million or 5.9% annualized, reaching $3.5 billion at September 30, 2022[122]. - Total loans rose to $2.6 billion at September 30, 2022, an increase of $294.5 million from December 31, 2021, with loan growth excluding PPP loans totaling $340.7 million or 20.2% annualized[122][130]. - Commercial real estate loans increased by $276.6 million or 27.5% annualized, totaling $1.6 billion at September 30, 2022[131]. - Consumer loans increased by $6.6 million or 11.7% annualized, reaching $81.4 million at September 30, 2022[132]. - Residential real estate loans increased by $28.6 million or 12.8% annualized, totaling $326.2 million at September 30, 2022[133]. Equity and Deposits - Total stockholders' equity decreased by $38.3 million or 11.3%, from $340.1 million at year-end 2021 to $301.8 million at September 30, 2022[122]. - Total deposits increased by $160.7 million or 5.4% to $3.1 billion from $3.0 billion at December 31, 2021[145]. - Noninterest-bearing deposits increased to $770,833 thousand as of September 30, 2022, compared to $696,331 thousand in the previous year[199]. Interest Rates and Income - The tax-equivalent yield on the entire loan portfolio was 3.93% for the nine months ended September 30, 2022, a decrease of 7 basis points from the comparable period last year[134]. - The net interest spread decreased to 2.87% for the three months ended September 30, 2022, down from 2.95% in the same period of 2021[186]. - The overall yield on earning assets increased by 22 basis points to 3.59% for the three months ended September 30, 2022, compared to 3.37% in 2021[187]. - The cost of funds increased by 30 basis points to 0.72% for the three months ended September 30, 2022, compared to 0.42% in the prior year[188]. Loan Losses and Provisions - The allowance for loan losses increased by $1.4 million or 5.1% during the first nine months of 2022, totaling $29.8 million or 1.14% of loans, net[144]. - Loans charged-off, net of recoveries, for the nine months ended September 30, 2022, were $261 thousand, significantly lower than $651 thousand for the same period last year[144]. - The provision for loan losses for the three months ended September 30, 2022, increased to $450 thousand from $400 thousand in the prior year due to improving credit trends[204]. - For the nine months ended September 30, 2022, the provision for loan losses was $1.7 million, compared to no provision in the same period of 2021, attributed to $340.7 million in non-PPP loan growth[205]. Market Conditions - Core inflation was 6.6% for the 12 months ended September 30, 2022, the largest increase since August 1982[116]. - The unemployment rate was 3.5% in September 2022, indicating a strong labor market[119]. Regulatory and Risk Management - The Federal Open Market Committee (FOMC) increased the federal funds target rate by 375 basis points through November 2, 2022, impacting funding costs which increased by 33 basis points compared to the previous quarter[221]. - The Asset Liability Committee (ALCO) regularly reviews interest rate risk exposure and has established policy guidelines to manage liquidity and interest rate risk[215]. - The company is transitioning LIBOR-indexed loans to alternative indexes, including prime and Term SOFR, in response to the discontinuation of LIBOR effective June 30, 2023[223]. - As of September 30, 2022, net interest income simulations indicated that exposure to changing interest rates remained within established tolerance levels[218]. Noninterest Income and Expenses - Noninterest income for the three months ended September 30, 2022, was $3.3 million, a decrease of $132 thousand or 3.8% from $3.4 million in the same quarter a year ago, primarily due to declines in mortgage banking revenue and Wealth Management fees[206]. - For the nine months ended September 30, 2022, noninterest income increased to $10.6 million, an increase of $266 thousand or 2.6% from $10.3 million in the same period a year ago, driven by higher service charges and fees[207]. - Noninterest expense for the three months ended September 30, 2022, increased by $1.8 million or 12.6% to $15.9 million from $14.1 million for the same period a year ago, with salaries and employee benefits rising by $645 thousand or 8.2%[209]. - For the nine months ended September 30, 2022, noninterest expense increased by $5.5 million or 13.6% to $45.7 million from $40.2 million for the same period in 2021, largely due to increased salaries and employee benefits and occupancy expenses[211]. Capital and Funding - The Tier 1 capital to total average assets ratio was 9.63% as of September 30, 2022, compared to 9.58% at December 31, 2021[175]. - The net noncore funding dependence ratio was 4.5% as of September 30, 2022, indicating an increase in reliance on noncore funds compared to a negative 3.0% at year-end 2021[164]. - Total borrowings increased to $48.8 million at September 30, 2022, up from $35.7 million at December 31, 2021[150].