Peoples Financial Services (PFIS) - 2023 Q3 - Quarterly Report

Merger and Acquisition - On September 27, 2023, Peoples Financial Services Corp. entered into a merger agreement with FNCB Bancorp, Inc., with a fixed exchange ratio of 0.1460 shares of Peoples' common stock for each share of FNCB's common stock[144]. - The merger is expected to be completed in the first half of 2024, pending regulatory and shareholder approvals[145]. - The proposed merger with FNCB is expected to create a bank holding company with nearly $5.5 billion in assets and deliver 59% EPS accretion to Peoples' 2025 estimated EPS[219][220]. - Acquisition-related expenses totaled $1,000 thousand for the nine months ended September 30, 2023, reflecting costs associated with the proposed merger with FNCB[248]. Financial Performance - Net income for the nine months ended September 30, 2023, was $23.8 million, a decrease of 17.5% compared to $29.0 million for the same period in 2022[218]. - Quarterly net income for the three months ended September 30, 2023, was $6.7 million, a 32.3% decrease from $10.0 million in the comparable period of 2022[217]. - Noninterest income for the three months ended September 30, 2023, was $3,700 thousand, an increase of 11.3% from $3,300 thousand in the same quarter a year ago[243]. - Noninterest expense for the nine months ended September 30, 2023, was $50,200 thousand, an increase of 9.8% from $45,700 thousand for the same period in 2022[248]. - The provision for credit losses for the nine months ended September 30, 2023, recorded a credit of $1,100 thousand compared to a provision of $1,700 thousand in the prior year, indicating improved asset quality[242]. Asset and Loan Growth - Total assets increased by $272.3 million or 10.2% annualized, reaching $3.8 billion at September 30, 2023, compared to $3.6 billion at December 31, 2022[165]. - Total loans rose to $2.9 billion at September 30, 2023, an increase of $140.9 million from $2.7 billion at December 31, 2022[172]. - Commercial real estate loans increased by $136.5 million or 10.7% annualized, reaching $1.8 billion at September 30, 2023[173]. - Total loans for the nine months ended September 30, 2023, amounted to $2,822,026 thousand, up from $2,474,796 thousand in the prior year, representing a growth of 14.0%[238]. Deposits and Funding - Deposits increased by $318.5 million to $3.4 billion at September 30, 2023, driven by net growth in brokered deposits of $248.0 million[166]. - Total deposits increased by $318.5 million, or 14.0% annualized, to $3.4 billion as of September 30, 2023, compared to $3.0 billion at December 31, 2022[188]. - Interest-bearing deposits averaged $2.5 billion in 2023, an increase of $269.3 million or 16.3% annualized compared to $2.2 billion in 2022[192]. - The Company’s net noncore funding dependence ratio was 11.3% at September 30, 2023, indicating an increase in reliance on noncore funds compared to 9.6% at year-end 2022[205]. Interest Income and Expense - Total interest income of $111,219 thousand for the nine months ended September 30, 2023, compared to $81,092 thousand for the same period in 2022, marking a significant increase[238]. - Total interest expense increased to $17.5 million for the three months ended September 30, 2023, from $4.2 million in the same period of 2022[227]. - Net interest income adjusted to FTE for the nine months ended September 30, 2023, was $67.9 million, down from $72.7 million in 2022[222]. - The yield on the loan portfolio increased by 84 basis points to 4.77%, contributing an additional $16.7 million to interest income[232]. Economic Environment - The banking industry faced significant volatility in 2023, with notable bank failures leading to concerns about liquidity and deposit outflows[155]. - Core inflation was reported at 4.1% for the 12 months ended September 30, 2023, while the Consumer Price Index (CPI) increased by 3.7% during the same period[158]. - The Federal Open Market Committee (FOMC) raised the federal funds rate four times in 2023, totaling 525 basis points, which is expected to negatively impact the company's investment portfolio[159]. - Economic uncertainty may lead to reduced loan demand and increased loan delinquencies in the near term[163]. Interest Rate Risk Management - The interest rate risk position is more asset-sensitive as of September 30, 2023, compared to December 31, 2022, due to an increase in floating rate overnight federal funds sold[257]. - The Company utilizes various financial instruments, including interest rate swaps, to manage interest rate risk[253]. - The ALCO regularly reviews interest rate shift scenarios, including changes of up to 400 basis points[258]. - The economic value of equity is projected to decrease by 20.0% under a +400 basis points interest rate scenario[260].