Peoples Financial Services (US:PFIS)2023-08-08 17:12Financial Performance - The company reported net income of $9.4 million or $1.31 per diluted share for Q2 2023, a slight increase of 0.8% compared to $9.4 million or $1.30 per share in Q2 2022[203]. - Peoples reported net income of $17.0 million, or $2.37 per diluted share for the six months ended June 30, 2023, a decrease of 10.4% compared to $19.0 million, or $2.63 per diluted share for the same period in 2022[205]. - Annualized return on average assets (ROA) was 1.04% for Q2 2023, down from 1.12% in Q2 2022; annualized return on average equity (ROE) was 11.42% for Q2 2023, compared to 11.71% for the same period in 2022[206]. Asset and Loan Growth - Total assets increased by $128.3 million or 7.3% annualized, reaching $3.7 billion at June 30, 2023, compared to $3.6 billion at December 31, 2022[152]. - Total loans rose to $2.8 billion at June 30, 2023, an increase of $113.1 million from $2.7 billion at December 31, 2022[152]. - Total loans increased to $2.8 billion at June 30, 2023, up $113.1 million from December 31, 2022, with a loan growth of $25.3 million in the second quarter[160]. - Commercial real estate loans rose by $84.5 million, or 10.0% annualized, to $1.8 billion at June 30, 2023, compared to $1.7 billion at December 31, 2022[161]. - Residential real estate loans increased by $18.2 million, or 11.1% annualized, to $348.9 million at June 30, 2023, driven by higher home equity loan activity[163]. Deposit Trends - Deposits increased by $182.9 million to $3.2 billion at June 30, 2023, driven by a $248.0 million rise in brokered deposits[153]. - Total deposits grew by $182.9 million, or 12.1% annualized, to $3.2 billion from $3.0 billion at December 31, 2022, with a significant increase in interest-bearing deposits[175]. Interest Rates and Income - The tax-equivalent yield on the investment portfolio increased by 11 basis points to 1.78% for the six months ended June 30, 2023, compared to 1.67% for the same period in 2022[157]. - Tax-equivalent net interest income decreased by $1.6 million to $22.6 million in Q2 2023 from $24.2 million in Q2 2022, with a net interest spread decreasing to 2.02% from 2.95%[214]. - Total interest expense increased by $12.5 million to $14.6 million for Q2 2023 from $2.2 million in Q2 2022, with the total cost of funds rising to 2.29% from 0.39%[216]. - Tax-equivalent yield on earning assets increased by 95 basis points to 4.23% in the six months ended June 30, 2023, compared to 3.28% in 2022, resulting in an increase in interest income of $13.5 million[221]. Credit Losses and Allowance - The allowance for credit losses was decreased by $3.0 million upon the adoption of the CECL model, resulting in a cumulative effect adjustment that increased stockholders' equity by $2.4 million, net of tax[140]. - The allowance for credit losses was $23.2 million, or 0.82% of loans, at June 30, 2023, compared to $27.5 million, or 1.01% of loans, at December 31, 2022[173]. - Loans charged-off, net of recoveries, for the six months ended June 30, 2023, were $34 thousand, significantly lower than $259 thousand for the same period last year[173]. - The provision for credit losses decreased by $2.2 million, partially offsetting the impact of higher operating expenses of $3.4 million[205]. Economic and Market Conditions - The Federal Open Market Committee increased the federal funds rate four times in 2023, totaling 525 basis points, which is expected to negatively impact loan demand and deposit flows[146]. - Real GDP increased at a seasonally adjusted annual rate of 2.4% during the three months ended June 30, 2023, reflecting increases in consumer spending and nonresidential fixed investment[149]. - The company continues to monitor balance sheet trends and liquidity needs in light of recent banking industry volatility and economic uncertainty[144]. Investment Portfolio - The investment portfolio decreased by $81.9 million or 17.1% to $395.8 million at June 30, 2023, primarily due to the sale of $65.6 million in securities[155]. - The company reported net unrealized losses of $47.6 million, net of deferred income taxes, at June 30, 2023, compared to $52.0 million at December 31, 2022[158]. - The net unrealized losses on the available-for-sale investment securities portfolio were $60.6 million as of June 30, 2023[191]. Capital and Equity - At June 30, 2023, stockholders' equity totaled $331.8 million or $46.53 per share, an increase from $315.4 million or $44.06 per share at December 31, 2022[199]. - The Bank's Tier 1 capital to total average assets was 9.61% at June 30, 2023, compared to 9.69% at December 31, 2022, meeting all capital adequacy requirements[202]. Noninterest Income and Expenses - Noninterest income for the three months ended June 30, 2023 was $3.6 million, a decrease of $0.3 million or 8.5% from $3.9 million in the same quarter a year ago[232]. - Noninterest expense increased $1.1 million or 7.2% to $16.6 million for the three months ended June 30, 2023, from $15.5 million for the same period a year ago[235]. - Noninterest expense for the six months ended June 30, 2023 was $33.2 million, an increase of $3.4 million from $29.8 million for the same period in 2022[237]. Interest Rate Risk Management - The ALCO reported that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Company as of June 30, 2023[244]. - The projected net interest income for the 12 months ending June 30, 2023, would decrease by 0.7% with a 100 basis point increase in interest rates[249]. - The Company’s exposure to changing interest rates remains within established tolerance levels, with simulations indicating stability in net interest income[244]. - The Company has transitioned its LIBOR-indexed loans to alternative indexes, including prime and Term SOFR, following the discontinuation of the LIBOR index effective June 30, 2023[250].