Peoples Financial Services Corp.
08/11/2025 | Press release | Distributed by Public on 08/11/2025 14:04
Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report, and with our audited consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" presented in our Annual Report on Form 10-K for the year ended December 31, 2024.
Cautionary Note Regarding Forward-Looking Statements:
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. These statements are based on assumptions and may describe future plans, strategies and expectations of Peoples Financial Services Corp. and its subsidiaries that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond our control). These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. All statements in this report, other than statements of historical facts, are forward-looking statements.
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Important factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to: macroeconomic trends, including interest rates and inflation and their effect on our investment values; the effects of any recession in the United States; the impact on financial markets from geopolitical conflict, including from wars, military conflict or trade policies, including tariffs, or retaliatory tariffs, tariff counter-measures, or the threat of such actions; impairment charges relating to our investment portfolio; credit risks in connection with our lending activities; the economic health of our market area; our exposure to commercial and industrial, construction, commercial real estate, and equipment finance loans; our ability to maintain an adequate allowance for credit losses; access to liquidity; the strength of our customer deposit levels; unrealized losses; reliance on our subsidiaries; accounting procedures, policies and requirements; changes in the value of goodwill; future pension plan costs; our ability to retain key personnel; the strength of our disclosure controls and procedures; environmental liabilities; reliance on third-party vendors and service providers; competition from non-bank entities; the development and us of AI in business processes, services, and products; our ability to prevent, detect and respond to cybersecurity threats and incidents; a failure of information technology, whether due to a breach, cybersecurity incident, or ability to keep pace with growth and developments; our ability to comply with privacy and data protection requirements; changes in U.S. or regional economic conditions; our ability to compete effectively in our industry; the soundness of other financial institutions; adverse changes (or the threat of such changes) in laws and regulations; fiscal and monetary policies of the federal government and its agencies; a failure to meet minimum capital requirements; our ability to realize the anticipated benefits of the FNCB merger; future acquisitions or a change in control. Additional factors that may affect our results are discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, in Part II, Item 1A of this report, and in reports we file with the Securities and Exchange Commission from time to time.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, we do not undertake, and specifically disclaim any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.
Critical Accounting Policies:
The Company's consolidated financial statements are prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to establish critical accounting
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
policies and make accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during those reporting periods.
An accounting estimate requires assumptions about uncertain matters that could have a material effect on the consolidated financial statements if a different amount within a range of estimates were used or if estimates changed from period to period. Readers of this report should understand that estimates are made considering facts and circumstances at a point in time, and changes in those facts and circumstances could produce results that differ from estimates. Management is required to make subjective and/or complex judgments about matters that are inherently uncertain and could be subject to revision as new information becomes available. Management has identified that the determination of ACL and impairment of goodwill are critical estimates that are particularly susceptible to material change within future periods. Actual amounts could differ from those estimates.
For a further discussion of our critical accounting estimates, refer to Note 1 entitled, "Summary of significant accounting policies," and Note 2 entitled, "Business combination," in the Notes to Consolidated Financial Statements included in the Company's 2024 Annual Report on Form 10-K.
Business Combinations:
Assets acquired and liabilities assumed in business combinations are measured at fair value as of the acquisition date. In many cases, determining the fair value of the assets acquired and liabilities assumed requires the Company to estimate the timing and amount of cash flows expected to result from these assets and liabilities and to discount these cash flows at appropriate rates of interest, which require the utilization of significant estimates and judgment in accounting for the acquisition.
Goodwill and Other Intangible Assets:
The Company has goodwill with a net carrying value of $76.0 million at June 30, 2025 and December 31, 2024, respectively. The Company's policy is to test goodwill for impairment annually on December 31 or on an interim basis if an event triggering impairment may have occurred. If a reporting unit's carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. At June 30, 2025, we performed a qualitative evaluation, which involves determining whether any events occurred or circumstances changed that would more likely than not reduce the Company's fair value below its carrying value. We noted no such matters. There is no assurance that changes in events or circumstances in the future will not result in impairment.
Core deposit intangibles are amortized on an accelerated basis using an estimated life of ten years. The core deposit intangibles are evaluated annually for impairment in accordance with GAAP. An impairment loss will be recognized if the carrying amount of the intangible asset is not fully recoverable and exceeds fair value. The carrying amount of the intangible asset is not considered fully recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset.
We believe that the fair values of our intangible assets were in excess of their carrying amounts and therefore there was no impairment of intangible assets at June 30, 2025.
Review of Financial Position:
Total assets increased $16.2 million or 0.6% annualized from December 31, 2024 and totaled $5.1 billion at June 30, 2025. The increase in assets during the six months is primarily due to increases in cash and cash equivalents which is partially offset by decreases in investments. Cash and cash equivalents increased $39.9 million to $175.7 million at June 30, 2025, from $135.8 million at December 31, 2024. Investments decreased $24.1 million to $582.8 million at June 30,
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
2025, from $606.9 million at December 31, 2024, primarily due to maturities and payments. Loans were relatively unchanged at $4.0 billion both at June 30, 2025 and December 31, 2024.
Deposits decreased $120.2 million to $4.3 billion at June 30, 2025 from $4.4 billion at December 31, 2024, primarily due to the redemption of brokered deposits, combined with seasonal outflows of municipal funds. Interest-bearing deposits decreased $84.3 million to $3.4 billion compared to $3.5 billion at December 31, 2024. Noninterest-bearing deposits decreased $35.9 million to $899.6 million at June 30, 2025 from $935.5 million as of December 31, 2024.
Total short-term borrowings at June 30, 2025, were $76.3 million, an increase of $60.4 million from $15.9 million at December 31, 2024. Long term debt increased $4.8 million to $103.4 million at June 30, 2025 from $98.6 million at December 31, 2024. Subordinated debentures increased to $83.2 million at June 30, 2025, from $33.0 million at December 31, 2024, on the net issuance of new and redemption of formerly outstanding debt. Junior subordinated debt totaled $8.1 million and $8.0 million at June 30, 2025 and December 31, 2024, respectively.
Total stockholders' equity increased $25.1 million from $469.0 million at year-end 2024 to $494.1 million at June 30, 2025, due to net income and a decrease to accumulated other comprehensive loss resulting from a reduction in the unrealized loss on available for sale investment securities, partially offset by dividends paid.
For the six months ended June 30, 2025, total assets averaged $5.0 billion, an increase of $1.4 billion from $3.6 billion for the same period of 2024 primarily due to the FNCB merger.
Investment Portfolio:
The majority of the investment portfolio is classified as available for sale, which allows for greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when market opportunities occur. Investment securities available for sale totaled $505.2 million at June 30, 2025, a decrease of $21.1 million, or 4.0% from $526.3 million at December 31, 2024. The decrease was primarily due to maturities, calls, and principal payments, partially offset by purchases and an increase in fair value due to market value adjustments.
Investment securities held to maturity, which consisted of 85.6% mortgage-backed securities and issued or guaranteed by U.S. Government agencies and U.S. Government-sponsored entities and the remainder of tax-exempt municipal securities, totaled $75.1 million at June 30, 2025, a decrease of $3.1 million, or 3.9% from $78.2 million at December 31, 2024. The decrease was primarily due to principal payments on mortgage-backed securities. Held to maturity securities had a market value of $64.3 million at June 30, 2025 compared to $65.2 million at December 31, 2024.
The Company also holds a portfolio of equity investments, consisting primarily of publicly traded bank holding companies, which are carried at fair value. Equity investments totaled $2.5 million at June 30, 2025 compared to $2.4 million at December 31, 2024.
For the six months ended June 30, 2025, investments averaged $635.1 million, an increase of $103.4 million or 19.4% compared to $531.7 million for the same period last year. Average tax-exempt municipal bonds have increased $0.4 million or 0.4% to $87.0 million for the six months ended June 30, 2025, from $86.6 million during the comparable period of 2024, and taxable investments have increased $103.0 million, or 23.2% to $548.1 million from an average of $445.1 million for the six months ended June 30, 2024. The fully tax-equivalent ("FTE") yield on the investment portfolio, a non-GAAP measure, increased 132 basis points to 3.12% for the six months ended June 30, 2025, from 1.80% for the comparable period of 2024.
Securities available for sale are carried at fair value, with unrealized gains or losses net of deferred income taxes reported in the Accumulated Other Comprehensive Loss component of stockholders' equity. We reported net unrealized losses, included as a separate component of stockholders' equity of $32.5 million net of a deferred income tax benefit of
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
$9.1 million at June 30, 2025, and net unrealized losses of $38.3 million, net of deferred income tax benefit of $10.7 million, at December 31, 2024.
Our Asset/Liability Committee ("ALCO") reviews the performance and risk elements of the investment portfolio quarterly. Through active balance sheet management and analysis of the securities portfolio, we endeavor to maintain sufficient liquidity to satisfy depositor requirements and meet the credit needs of our customers.
Loan Portfolio:
Total loans increased $4.0 million or 0.2% annualized since December 31, 2024, and totaled $4.0 billion at June 30, 2025.
Commercial and industrial loans, which include municipal loans, increased $37.1 million to $873.1 million at June 30, 2025, compared to $836.0 million at December 31, 2024.
Commercial real estate loans decreased $41.5 million to $2.3 billion at June 30, 2025, compared to $2.3 billion at December 31, 2024.
Residential real estate loans increased $22.4 million to $573.8 million at June 30, 2025, compared to $551.4 million at December 31, 2024.
Consumer loans, which consist primarily of indirect loans, decreased $14.4 million to $118.5 million at June 30, 2025, compared to $132.9 million at December 31, 2024.
Equipment financing loans increased $0.4 million to $179.5 million at June 30, 2025, compared to $179.1 million at December 31, 2024.
For the six months ended June 30, 2025, total loans averaged $4.0 billion, an increase of $1.1 billion or 39.4% compared to $2.9 billion for the same period of 2024. The FTE yield on the loan portfolio was 5.99% for the six months ended June 30, 2025, a 92 basis point increase from 5.07% for the comparable period last year. The increase in yield was due to the impact of effective interest rates on the loans acquired in the FNCB merger, together with new loan volume and loans that have repriced higher during the current period.
In addition to the risks inherent in our loan portfolio, in the normal course of business, we are also a party to financial instruments with off-balance sheet risk to meet the financing needs of our customers. These instruments include legally binding commitments to extend credit, unused portions of lines of credit and commercial letters of credit made under the same underwriting standards as on-balance sheet instruments, and may involve, to varying degrees, elements of credit risk and interest rate risk ("IRR") in excess of the amount recognized in the consolidated financial statements.
Unused commitments at June 30, 2025, totaled $836.9 million, consisting of $767.1 million in unfunded commitments of existing loan facilities and $69.8 million in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and, therefore, do not represent a significant liquidity risk to us. In comparison, unused commitments at December 31, 2024 totaled $800.9 million, consisting of $740.6 million in unfunded commitments of existing loans and $60.3 million in standby letters of credit. An allowance for credit losses of $0.9 million and $0.3 million was recorded for unused commitments at June 30, 2025 and December 31, 2024, respectively.
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
Asset Quality:
Distribution of nonperforming assets
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except percents) |
|
|
June 30, 2025 |
|
|
December 31, 2024 |
|
|
Nonaccrual loans |
|
$ |
17,390 |
|
$ |
22,499 |
|
|
Accruing loans past due 90 days or more: |
|
|
72 |
|
|
458 |
|
|
Total nonperforming loans |
|
|
17,462 |
|
|
22,957 |
|
|
Foreclosed assets |
|
|
|
|
|
27 |
|
|
Total nonperforming assets |
|
$ |
17,462 |
|
$ |
22,984 |
|
|
Total loans held for investment |
|
$ |
3,997,525 |
|
$ |
3,993,505 |
|
|
Allowance for credit losses |
|
40,890 |
|
41,776 |
|
||
|
Allowance for credit losses as a percentage of loans held for investment |
|
|
1.02 |
% |
|
1.05 |
% |
|
Allowance for credit losses as a percentage of nonaccrual loans |
|
|
235.14 |
% |
185.68 |
% |
|
|
Nonaccrual loans as a percentage of loans held for investment |
|
|
0.44 |
% |
|
0.56 |
% |
|
Nonperforming loans as a percentage of loans, net |
|
0.44 |
% |
0.58 |
% |
||
|
Nonperforming assets as a percentage of total assets |
|
0.34 |
% |
0.45 |
% |
Nonperforming assets decreased by $5.5 million during the first six months of 2025, to $17.5 million, or 0.34% of total assets at June 30, 2025, a decrease from $23.0 million or 0.45% of total assets at December 31, 2024.
Loans on nonaccrual status decreased $5.1 million to $17.4 million at June 30, 2025, from $22.5 million at December 31, 2024. There are currently no foreclosed properties at June 30, 2025 versus one in the amount of $27 thousand at December 31, 2024.
We pursue a goal of maintaining a high loan-to-deposit ratio in order to drive profitability. However, this objective is superseded by our goal of maintaining strong asset quality. We continued our efforts to maintain sound underwriting standards for both commercial and consumer credit.
The allowance for credit losses equaled $40.9 million or 1.02% of loans, net at June 30, 2025, compared to $41.8 million or 1.05% of loans, net, at December 31, 2024. Net charge-offs of $0.8 million were recognized in the six months ended June 30, 2025 and were $76 thousand in the same period in 2024. The provision for the quarter ended June 30, 2025 was a $0.2 million credit compared to a provision of $0.6 million in the same quarter of 2024 and was a credit of $39 thousand in the six months ended June 30, 2025 compared to a provision of $1.3 million in the six months ended June 30, 2024. The provision declines are primarily due a combination of a reduction in specific reserves on individually evaluated loans resulting from a decrease in non-performing loans, and changes in model loss rates, partially offset by an increase in pooled loan reserves for the Company's equipment finance portfolio.
Deposits:
We attract the majority of our deposits from within our market areas through the offering of various deposit instruments including demand deposit accounts, money market deposit accounts, savings accounts, and time deposits, including certificates of deposit and IRAs.
Total deposits decreased $120.2 million or 5.5% annualized to $4.3 billion at June 30, 2025 from $4.4 billion at December 31, 2024. Noninterest-bearing deposits decreased $35.9 million, or 7.7% annualized and interest-bearing deposits decreased $84.3 million, or 4.9% annualized, when comparing June 30, 2025 to December 31, 2024. The decrease in deposits was primarily due to seasonal reductions in municipal deposit balances, coupled with reductions in time deposits, primarily in brokered CDs.
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
Interest-bearing demand and money market accounts decreased $3.0 million and were $2.2 billion at June 30, 2025 and December 31, 2024. Savings accounts increased $8.5 million to $500.7 million as of June 30, 2025, from $492.2 million at December 31, 2024. Time deposits less than $250 thousand decreased $77.5 million to $543.3 million at June 30, 2025, from $620.7 million at December 31, 2024. Time deposits of $250 thousand or more decreased $12.3 million to $171.8 million at June 30, 2025, from $184.0 million at year end 2024.
The deposit base consisted of 42.0% retail accounts, 37.2% commercial accounts, 16.2% municipal relationships and 4.6% brokered deposits at June 30, 2025. At June 30, 2025, total estimated uninsured deposits were approximately $1.3 billion, or 30.7% of total deposits; as compared to approximately $1.4 billion, or 31.3% of total deposits at December 31, 2024.
For the six months ended June 30, interest-bearing deposits averaged $3.4 billion in 2025 compared to $2.5 billion in 2024, an increase of $860.4 million due primarily to the merger with FNCB. The cost of interest-bearing deposits was 2.44% for the six months ended June 30, 2025, compared to 2.91% for the same period last year. The overall cost of interest-bearing liabilities, including the cost of borrowed funds, was 2.59% for the six months ended June 30, 2025 and 2.99% for the same period in 2024. The lower costs are due primarily to decreases in the interest rate environment versus the same period in 2024 and the Company's actions to reduce deposit costs.
Borrowings:
Peoples Bank utilizes borrowings as a secondary source of liquidity for its asset/liability management. Advances are available from the FHLB provided certain standards related to credit worthiness have been met. Repurchase and term agreements are also available from the FHLB. In addition, Peoples Bank may borrow from the Federal Reserve utilizing the Discount Window.
Overall, total borrowings were $271.0 million at June 30, 2025, which included short-term borrowings, long-term debt, and subordinated debt, compared to $155.6 million at December 31, 2024, an increase of $115.4 million. At June 30, 2025, short-term borrowings, which were comprised of both overnight borrowings from the Federal Home Loan Bank of Pittsburgh and cash collateral pledged by derivative counterparties to offset interest rate exposure, totaled $76.3 million compared to $15.9 million at December 31, 2024. Long-term debt was $103.4 million at June 30, 2025 compared with $98.6 million at year end 2024. Long term debt is comprised exclusively of advances from the Federal Home Loan Bank of Pittsburgh. Junior subordinated debt, which was acquired as part of the FNCB merger and reported net of discount, totaled $8.1 million and $8.0 million at June 30, 2025 and December 31, 2024, respectively. Subordinated debt outstanding was $83.2 million at June 30, 2025 and $33.0 million at December 31, 2024. The increase was due to the private placement of $85.0 million in new Subordinated Notes net of $1.8 million in associated issuance costs, partially offset by the redemption of the $33.0 million aggregate principal of the 2020 Notes.
Market Risk Sensitivity:
Market risk is the risk to our earnings or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily IRR associated with our lending, investing and deposit-gathering activities. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in our reported earnings and/or the market value of our net worth. Variations in interest rates affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. Interest rate changes also affect the underlying economic value of our assets, liabilities, and off-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value and provide a basis for the expected change in future earnings related to interest rates. IRR is inherent in the role of banks as financial intermediaries. However, a bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities.
IRR and effectively managing it are important to both bank management and regulators. Bank regulations require us to develop and maintain an IRR management program, overseen by our board of directors and senior management, which involves a comprehensive risk management process in order to effectively identify, measure, monitor and control risk. Should bank regulatory agencies identify a material weakness in our risk management process or high exposure relative to our capital, bank regulatory agencies may take action to remedy these shortcomings. Moreover, the level of IRR exposure and the quality of our risk management process is a determining factor when evaluating capital adequacy.
The ALCO, comprised of members of our board of directors, senior management and other appropriate officers, oversees our IRR management program. Specifically, ALCO analyzes economic data and market interest rate trends, as well as competitive pressures, and utilizes computerized modeling techniques to reveal potential exposure to IRR. This allows us to monitor and attempt to control the influence these factors may have on our rate-sensitive assets ("RSA") and rate-sensitive liabilities ("RSL"), and overall operating results and financial position. One such technique utilizes a static gap model that considers repricing frequencies of RSA and RSL in order to monitor IRR. Gap analysis attempts to measure our interest rate exposure by calculating the net amount of RSA and RSL that reprice within specific time intervals. A positive gap occurs when the amount of RSA repricing in a specific period is greater than the amount of RSL repricing within that same time frame and is indicated by an RSA/RSL ratio greater than 1.0. A negative gap occurs when the amount of RSL repricing is greater than the amount of RSA and is indicated by an RSA/RSL ratio of less than 1.0. A positive gap implies that earnings will be impacted favorably if interest rates rise and adversely if interest rates fall during the period. A negative gap tends to indicate that earnings will be affected inversely to interest rate changes.
Our cumulative one-year RSA/RSL ratio equaled 1.27% at June 30, 2025, an increase from 0.82% at December 31, 2024. As previously mentioned, a positive gap indicates that if interest rates increase, our earnings would likely be favorably impacted. The overall focus of ALCO is to maintain a well-balanced interest rate risk position in order to safeguard future earnings. The current position at June 30, 2025, indicates that the amount of RSA repricing within one year would exceed that of RSL, thereby causing net interest income to increase as market rates increase. However, these forward-looking statements are qualified in the aforementioned section entitled "Cautionary Note Regarding Forward-Looking Statements" in this Management's Discussion and Analysis.
Static gap analysis, although a standard measuring tool, does not fully illustrate the impact of interest rate changes on future earnings. First, market rate changes normally do not equally or simultaneously affect all categories of assets and liabilities. Second, assets and liabilities that can contractually be repriced within the same period may not do so at the same time or to the same magnitude. Third, the interest rate sensitivity analysis presents a one-day position. Variations occur daily as we adjust our rate sensitivity throughout the year. Finally, assumptions must be made in constructing such an analysis.
As the static gap report fails to address the dynamic changes in the balance sheet composition or prevailing interest rates, we utilize a simulation model to enhance our asset/liability management. This model is used to create pro forma net interest income scenarios under various interest rate shocks. Simulation model results at June 30, 2025, produced results similar to those indicated by the one-year static gap position. In addition, parallel and instantaneous shifts in interest rates under various interest rate shocks resulted in changes in net interest income that were well within ALCO policy limits during the first year of simulation. We will continue to monitor our IRR throughout 2025 and endeavor to employ deposit and loan pricing strategies and direct the reinvestment of loan and investment repayments in order to manage our IRR position.
Financial institutions are affected differently by inflation than commercial and industrial companies that have significant investments in fixed assets and inventories. Most of our assets are monetary in nature and change correspondingly with
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
variations in the inflation rate. It is difficult to precisely measure the impact inflation has on us; however, we believe that our exposure to inflation can be mitigated through asset/liability management.
Liquidity:
Liquidity management is essential to our continuing operations and enables us to meet financial obligations as they come due, as well as to take advantage of new business opportunities as they arise. Financial obligations include, but are not limited to, the following:
| ● | Funding new and existing loan commitments; |
| ● | Payment of deposits on demand or at their contractual maturity; |
| ● | Repayment of borrowings as they mature; |
| ● | Payment of lease obligations; and |
| ● | Payment of operating expenses. |
These obligations are managed daily, thus enabling us to effectively monitor fluctuations in our liquidity position and to adapt that position according to market influences and balance sheet trends. Future liquidity needs are forecasted and strategies are developed to ensure adequate liquidity at all times.
Historically, core deposits have been the primary source of liquidity because of their stability and lower cost, in general, than other types of funding. Providing additional sources of funds are loan and investment payments and prepayments and the ability to sell both available for sale securities and mortgage loans held for sale.
Our ALCO generally meets quarterly, and most recently met in May to review our IRR profile, capital adequacy and liquidity. On June 30, 2025, the Company's cash and cash equivalents were $175.7 million. Our maximum borrowing capacity with the FHLB as of June 30, 2025, was $1.6 billion, of which $514.9 million was outstanding in the form of borrowings and irrevocable standby letters of credit, and the remaining $1.1 billion is available. Additionally, the Company maintains $426.8 million of availability at the Federal Reserve Discount Window, through the pledging of securities and through a borrower-in-custody of collateral arrangement, which enables us to pledge certain loans not being used as collateral elsewhere. Additional sources of credit with corresponding banks total $18.0 million, none of which is currently utilized. The Company also maintains an available for sale investment securities portfolio, comprised primarily of highly liquid U.S. Treasury securities, highly-rated municipal securities and U.S. agency-backed mortgage-backed securities. This portfolio serves as an additional source of liquidity and capital. At June 30, 2025, the Company's available for sale investment portfolio totaled $505.2 million, $174.6 million of which was unencumbered. We believe our liquidity is adequate to meet both present and future financial obligations and commitments on a timely basis.
We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans maturing after June 30, 2025. Our noncore funds at June 30, 2025, were comprised of time deposits in denominations of $100 thousand or more, brokered deposits and other borrowings. These funds are not considered to be a strong source of liquidity because they are very interest rate sensitive and are considered to be highly volatile. On June 30, 2025, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 12.8%, while our net short-term noncore funding dependence ratio, noncore funds maturing within one-year, less short-term investments to long-term assets equaled 7.8%. Comparatively, our overall noncore dependence ratio at year-end 2024 was 12.7% and our net short-term noncore funding dependence ratio was 6.6%, indicating that our reliance on noncore funds has increased overall as a result of decreases to our longer-term assets such as loans and investments.
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents, consisting of cash on hand, cash items in the process of collection, deposit balances with other banks and federal funds sold, increased $39.9 million during the six months ended June 30, 2025. Cash and cash equivalents decreased $137.4 million for the same period last year. For the six months ending June 30, 2025, net cash outflows of $17.8 million from financing activities were offset by $34.8 million provided by investing activities and $23.0 million received from operating activities. For the same period of 2024, net cash outflows of $133.2 million from financing activities and $9.2 million from investing activities were partially offset by net cash inflows of $5.0 million from operating activities.
Operating activities provided net cash of $23.0 million for the six months ended June 30, 2025, and provided $5.0 million for the corresponding six months of 2024. Net income, adjusted for the effects of gains and losses along with non-cash transactions such as depreciation, amortization and accretion and the provision for credit losses, is the primary source of funds from operations.
Investing activities primarily include lending activities, and investment portfolio transactions. Investing activities provided net cash of $34.8 million for the six months ended June 30, 2025, compared to using net cash of $9.2 million for the same period of 2024. Proceeds from principal repayments of investments securities were the primary factor causing the net inflow, followed by a reduction in loan balance partially offset by purchases of investment securities.
Financing activities used net cash of $17.8 million for the six months ended June 30, 2025, and used net cash of $133.2 million for the corresponding six months of 2024. In 2025, deposit outflows were the primary factor for the net cash outflow, followed by repayment of subordinated debt and payment of dividends. The current period included $83.1 million of proceeds from the issuance of new subordinated debt. The year ago period amount was primarily the result of deposit outflow partially offset by net advances from short-term borrowings. While a portion of the outflows are seasonal, we continue to seek deposits from new markets and customers as well as existing customers, including municipalities and school districts.
We believe that our future liquidity needs will be satisfied through maintaining an adequate level of cash and cash equivalents, by maintaining readily available access to traditional funding sources, and through proceeds received from the investment and loan portfolios. We believe that our current sources of funds will enable us to meet all cash obligations as they come due.
Capital:
Stockholders' equity totaled $494.1 million or $49.44 per share at June 30, 2025, compared to $469.0 million or $46.94 per share at December 31, 2024. Stockholders' equity increased during the six-month period ended June 30, 2025 primarily due to earnings, and a decrease in other comprehensive loss due to changes in market values of available for sale securities, partially offset by a dividend payout of $12.3 million.
Dividends declared equaled $1.24 per share for the six months ended June 30, 2025, and $0.82 per share for the same period of 2024. The Company has paid cash dividends since its formation as a bank holding company in 1986. On July 25, 2025, the Company's board of directors declared a third quarter dividend of $0.6175 per share payable on September 15, 2025 to shareholders of record as of August 29, 2025. The increase to the quarterly cash dividend, which began in the third quarter of 2024, was contemplated as part of the Merger Agreement between the Company and FNCB. It is the present intention of the Company's board of directors to continue this dividend payment policy. Further dividends, however, must necessarily depend upon earnings, financial condition, appropriate legal restrictions and other factors relevant at the time the board of directors considers payment of dividends.
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
Current rules, which implemented the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act, call for the following capital requirements: (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5%; (ii) a minimum ratio of tier 1 capital to risk-weighted assets of 6%; (iii) a minimum ratio of total capital to risk-weighted assets of 8%; and (iv) a minimum leverage ratio of 4%. In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. If a banking organization fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary bonus payments.
The adequacy of capital is reviewed on an ongoing basis with reference to the size, composition and quality of resources and regulatory guidelines. We seek to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings. At June 30, 2025, Peoples Bank's Tier 1 capital to total average assets was 10.17% as compared to 8.37% at December 31, 2024. Peoples Bank's Tier 1 capital to risk weighted asset ratio was 12.98% and the total capital to risk weighted asset ratio was 13.99% at June 30, 2025. These ratios were 10.95% and 12.04% at December 31, 2024. Peoples Bank's common equity Tier 1 to risk weighted asset ratio was 12.98% at June 30, 2025 compared to 10.95% at December 31, 2024. Peoples Bank met all capital adequacy requirements and was deemed to be well-capitalized under regulatory standards at June 30, 2025.
Review of Financial Performance:
Peoples reported net income of $17.0 million or $1.68 per diluted share for the three months ended June 30, 2025, an increase of $13.7 million when compared to net income of $3.3 million or $0.46 per diluted share for the comparable period of 2024. Quarterly net income included a higher net interest income of $23.3 million due primarily to increases in the volume of earning assets due to the FNCB merger and the $4.0 million net accretion impact of purchase accounting marks on loans, deposits and borrowings acquired and assumed in the FNCB merger. The higher net interest income increased the net interest margin to 3.69% in the current period. Noninterest income was $6.2 million for the three months ended June 30, 2025, an increase of $2.7 million from $3.6 million in the year ago period primarily due to higher levels of income related to higher service charges, fees, and commissions, due to merger related deposit growth and higher transaction volume, together with higher wealth management and merchant services income. Noninterest expenses increased by $10.1 million, which included higher overall expenses due to the FNCB merger. Provision for income tax increased by $3.0 million on higher earnings.
Peoples reported net income of $32.0 million, or $3.18 per diluted share for the six months ended June 30, 2025, compared to $6.7 million, or $0.95 per diluted share for the comparable period of 2024. The increase in earnings in the six months ended June 30, 2025 is a result of higher net interest income of $43.5 million due primarily to increases in the volume of earning assets due to the FNCB merger and the $7.5 million net accretion impact of purchase accounting marks on loans, deposits and borrowings acquired and assumed in the FNCB merger. The higher net interest income increased the net interest margin to 3.60% in the current period compared to 2.29% in the prior year's period. Noninterest income was $12.5 million, an increase of $5.6 million from $6.9 million in the year ago period. Noninterest expenses increased by $19.4 million, which included higher overall expenses due to the FNCB merger. Provision for income tax increased by $5.8 million on higher earnings.
Return on average assets ("ROA") measures our net income in relation to total assets. Our annualized ROA was 1.36% for the second quarter of 2025 compared to 0.37% for the same period of 2024. Return on average equity ("ROE") indicates how effectively we can generate net income on the capital invested by stockholders. Our annualized ROE was 13.87% for the second quarter of 2025 compared to 3.87% for the comparable period in 2024. The increases in our annualized ROA and ROE were due primarily to a higher level of net income resulting from improved margins, lower non-recurring charges related to the FNCB merger, and positive effects from the net accretion impact of purchase accounting marks on loans, deposits, and borrowings.
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
Non-GAAP Financial Measures:
In addition to evaluating its results of operations in accordance with U.S. generally accepted accounting principles ("GAAP"), Peoples routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as interest income adjusted to FTE, net intertest income adjusted to FTE, efficiency ratio, adjusted noninterest expense, and FTE Net interest income plus noninterest income. Peoples believes the reported non-GAAP financial measures provide information useful to investors in understanding its operating performance and trends. For the non-GAAP disclosures used in this report, a reconciliation to the comparable GAAP measure is provided in the accompanying tables. The non-GAAP financial measures Peoples uses may differ from the non-GAAP financial measures of other financial institutions.
The following are non-GAAP financial measures which management believes provide useful insight to the reader of the consolidated financial statements but should be supplemental to GAAP used to prepare Peoples' consolidated financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, Peoples' non-GAAP measures may not be comparable to non-GAAP measures of other companies. The tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% for 2025 and 2024.
The following table reconciles the non-GAAP financial measures of net interest income adjusted to FTE for the three and six months ended June 30, 2025 and 2024:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|||||
|
(Dollars in thousands) |
2025 |
|
2024 |
||||
|
Interest income (GAAP) |
|
$ |
65,335 |
|
|
$ |
38,376 |
|
Adjustment to FTE |
|
718 |
|
|
471 |
||
|
Interest income adjusted to FTE (non-GAAP) |
|
66,053 |
|
|
38,847 |
||
|
Interest expense |
|
23,138 |
|
|
19,460 |
||
|
Net interest income adjusted to FTE (non-GAAP) |
|
$ |
42,915 |
|
|
$ |
19,387 |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|||||
|
(Dollars in thousands) |
2025 |
|
2024 |
||||
|
Interest income (GAAP) |
|
$ |
127,761 |
|
|
$ |
77,373 |
|
Adjustment to FTE |
|
1,420 |
|
|
946 |
||
|
Interest income adjusted to FTE (non-GAAP) |
|
129,181 |
|
|
78,319 |
||
|
Interest expense |
|
46,016 |
|
|
39,139 |
||
|
Net interest income adjusted to FTE (non-GAAP) |
|
$ |
83,165 |
|
|
$ |
39,180 |
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
The efficiency ratio is a non-GAAP measure which we calculated as noninterest expenses, less amortization of intangible assets and acquisition related expenses, as a percentage of FTE net interest income plus noninterest income less gains on equity securities and gains on sale of assets. Management monitors the efficiency ratio to determine how well it is managing its operating expenses; a lower efficiency ratio is generally preferable as it indicates the Company is spending less to generate income. The Company regularly pursues opportunities to enhance net interest income and reduce expenses as a percentage of operating revenues.
The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP for the three and six months ended June 30, 2025 and 2024:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|||||
|
(Dollars in thousands, except percents) |
2025 |
|
2024 |
|||||
|
Efficiency ratio (non-GAAP): |
|
|
|
|
|
|
|
|
|
Noninterest expense (GAAP) |
|
$ |
28,262 |
|
|
$ |
18,171 |
|
|
Less: amortization of intangible assets expense |
|
1,684 |
|
|
|
|
||
|
Less: acquisition related expenses |
|
|
66 |
|
|
|
1,071 |
|
|
Noninterest expense adjusted (non-GAAP) |
|
|
26,512 |
|
|
|
17,100 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (GAAP) |
|
|
42,197 |
|
|
|
18,916 |
|
|
Plus: taxable equivalent adjustment |
|
|
718 |
|
|
|
471 |
|
|
Noninterest income (GAAP) |
|
|
6,247 |
|
|
|
3,554 |
|
|
Less: net losses on equity securities |
|
|
(7) |
|
|
|
(12) |
|
|
Less: net gains on sale of fixed assets |
|
|
|
|
|
|
13 |
|
|
Net interest income (FTE) plus noninterest income (non-GAAP) |
|
$ |
49,169 |
|
|
$ |
22,940 |
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio (non-GAAP) |
|
|
53.9 |
% |
|
|
74.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|||||
|
(Dollars in thousands, except percents) |
2025 |
|
2024 |
|||||
|
Efficiency ratio (non-GAAP): |
|
|
|
|
|
|
|
|
|
Noninterest expense (GAAP) |
|
$ |
55,615 |
|
|
$ |
36,230 |
|
|
Less: amortization of intangible assets expense |
|
3,367 |
|
|
|
|
||
|
Less: acquisition related expenses |
|
|
220 |
|
|
|
1,557 |
|
|
Noninterest expense adjusted (non-GAAP) |
|
|
52,028 |
|
|
|
34,673 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (GAAP) |
|
|
81,745 |
|
|
|
38,234 |
|
|
Plus: taxable equivalent adjustment |
|
|
1,420 |
|
|
|
946 |
|
|
Noninterest income (GAAP) |
|
|
12,503 |
|
|
|
6,947 |
|
|
Less: net gains (losses) on equity securities |
|
|
64 |
|
|
|
(20) |
|
|
Less: net gains on sale of fixed assets |
|
|
680 |
|
|
|
4 |
|
|
Net interest income (FTE) plus noninterest income (non-GAAP) |
|
$ |
94,924 |
|
|
$ |
46,143 |
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio (non-GAAP) |
|
|
54.8 |
% |
|
|
75.1 |
% |
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
Net Interest Income:
Net interest income is the fundamental source of earnings for commercial banks. Fluctuations in the level of net interest income tend to have the greatest impact on net profits. Net interest income is defined as the difference between interest income, interest and fees earned on interest-earning assets, and interest expense, the cost of interest-bearing liabilities supporting those assets. The primary sources of earning assets are loans and investment securities, while interest-bearing deposits, short-term and long-term borrowings, and subordinated debt comprise interest-bearing liabilities. Net interest income is impacted by:
| ● | Variations in the volume, rate and composition of earning assets and interest-bearing liabilities; |
| ● | Changes in general market rates; and |
| ● | The level of nonperforming assets. |
Changes in net interest income are reflected in the net interest spread and net interest margin. Net interest spread, the difference between the average yield earned on earning assets and the average rate incurred on interest-bearing liabilities, illustrates the effects changing interest rates have on profitability. Net interest margin, net interest income as a percentage of earning assets, is a more comprehensive ratio, as it reflects not only the spread, but also the change in the composition of interest-earning assets and interest-bearing liabilities. Tax-exempt loans and investments carry pre-tax yields lower than their taxable counterparts. Therefore, in order to make the analysis of net interest income more comparable, tax-exempt income and yields are reported in this section on an FTE basis, as FTE net interest income, a non-GAAP financial measure, using the prevailing federal statutory tax rate of 21.0% in 2025 and 2024. Tax-exempt loan and investment income is not reported on an FTE basis on the Consolidated Statements of Income and Comprehensive Income.
For the three months ended June 30, 2025, the average balances include $4.0 billion in loans, $627.3 million in investments, $3.4 billion in interest bearing deposits, and $200.4 million in borrowings, which includes $55.6 million in subordinated debt and $8.1 million in junior subordinated debt. For the three months ended June 30, FTE net interest income, a non-GAAP measure, increased $23.5 million to $42.9 million in 2025 from $19.4 million in 2024. The net interest spread increased to 3.08% for the three months ended June 30, 2025, from 1.57% for the three months ended June 30, 2024, as the earning asset yield increased 110 basis points while the average rate paid on interest-bearing liabilities decreased 41 basis points. The FTE net interest margin increased to 3.69% for the second quarter of 2025 from 2.29% for the comparable period of 2024. The increase in tax-equivalent net interest margin from a year ago was primarily from a higher volume of earning assets and the net accretion impact of purchase accounting marks on loans, deposits and borrowings acquired and assumed in the FNCB merger, which totaled $4.0 million of net interest income, and represented 35 basis points of tax-equivalent net interest margin.
For the three months ended June 30, FTE interest income on earning assets, a non-GAAP measure, increased $27.2 million to $66.1 million in 2025 as compared to $38.8 million in 2024. The overall yield on earning assets, on an FTE basis, increased 110 basis points for the three months ended June 30, 2025 to 5.68% as compared to 4.58% for the three months ended June 30, 2024. The increase to FTE interest income is due to the increase in rates for newly acquired assets, and an increase in our earning asset base, including those acquired from the FNCB merger and repricing of lower-yielding assets into higher yields. The overall yield earned on investments increased 149 basis points in the second quarter of 2025 to 3.29% from 1.80% for the second quarter of 2024 primarily as a result of a restructured portfolio mix and acquiring the investment portfolio in the merger with FNCB, at fair value, based on current market rates. Average investment balances were $97.8 million higher when comparing the current and year ago quarter. The yield on loans increased 98 basis points in the second quarter of 2025 to 6.07% from 5.09% for the second quarter of 2024 as a result of loans acquired in the FNCB merger, new loans originated at higher portfolio rates, floating and adjustable loans repricing higher, and the net accretion of the loan marks from the impact of purchase accounting which benefited the yield by 44 basis points. Average loan balances were $1.1 billion higher when compared to the same quarter in 2024.
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
Average federal funds sold increased $26.4 million to $39.1 million for the three months ended June 30, 2025, and yielded 4.46%, as compared to $12.7 million and a yield of 5.68% in the year ago period. We expect an increased level of uncertainty regarding asset yields as changing recessionary metrics and continued uncertainty of the effect of tariffs influence future FOMC actions.
Total interest expense increased $3.7 million to $23.1 million for the three months ended June 30, 2025, from $19.5 million for the three months ended June 30, 2024. The total cost of funds decreased 41 basis points for the three months ended June 30, 2025, to 2.60% as compared to 3.01% in the year ago period. The decrease in costs was primarily due to lower rates paid on both interest-bearing deposits and short-term borrowings, partially offset by amortization of the purchase accounting marks both on the time deposits and borrowings, which added 4 basis points to the funding costs. Average rates paid on deposits decreased as the result of reduced market rates.
Net interest income changes due to rate and volume for the six months ended June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2025 vs 2024 |
|||||||
|
|
|
Increase (decrease) |
|||||||
|
|
|
attributable to |
|||||||
|
(Dollars in thousands) |
|
Total |
|
Rate |
|
Volume |
|||
|
Interest income: |
|
|
|
|
|
|
|||
|
Loans: |
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
44,224 |
|
$ |
13,312 |
|
$ |
30,912 |
|
Tax-exempt |
|
2,190 |
|
|
1,158 |
|
|
1,032 |
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
Taxable |
|
4,993 |
|
|
3,950 |
|
|
1,043 |
|
|
Tax-exempt |
|
67 |
|
|
64 |
|
|
3 |
|
|
Interest-bearing deposits |
|
(26) |
|
|
(99) |
|
|
73 |
|
|
Federal funds sold |
|
(586) |
|
|
(420) |
|
|
(166) |
|
|
Total interest income |
|
50,862 |
|
17,965 |
|
32,897 |
|||
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
Money market accounts |
|
|
(322) |
|
|
944 |
|
|
(1,266) |
|
Interest-bearing demand and NOW accounts |
|
3,061 |
|
|
(7,517) |
|
|
10,578 |
|
|
Savings accounts |
|
182 |
|
|
63 |
|
|
119 |
|
|
Time deposits less than $100 |
|
(82) |
|
|
(426) |
|
|
344 |
|
|
Time deposits $100 or more |
|
1,493 |
|
|
(1,951) |
|
|
3,444 |
|
|
Short-term borrowings |
|
(260) |
|
|
(142) |
|
|
(118) |
|
|
Long-term debt |
|
1,849 |
|
|
70 |
|
|
1,779 |
|
|
Subordinated debt |
|
|
582 |
|
|
236 |
|
|
346 |
|
Junior subordinated debt |
|
|
374 |
|
|
|
|
|
374 |
|
Total interest expense |
|
6,877 |
|
(8,723) |
|
15,600 |
|||
|
FTE net interest income changes (Non-GAAP) |
|
$ |
43,985 |
|
$ |
26,688 |
|
$ |
17,297 |
FTE net interest income, a non-GAAP measure, was $83.2 million in the six months ended June 30, 2025 and $39.2 million in the comparable period last year. There was a positive volume and rate variance. The growth in average interest-earning assets exceeded that of the growth in interest-bearing liabilities, and resulted in an increase in FTE net interest income, a non-GAAP measure, of $17.3 million. A positive rate variance resulted in an increase in net interest income of $26.7 million.
Average earning assets increased $1.2 billion to $4.7 billion for the six months ended June 30, 2025 and accounted for a $32.9 million increase in interest income. Average taxable loans increased $1.1 billion, which caused interest income to increase $30.9 million. Average tax-exempt loans increased $57.5 million which caused interest income to increase $1.0 million. Average taxable investments increased $103.1 million comparing 2025 and 2024, which resulted in increased
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
interest income of $1.0 million while average tax-exempt investments increased $0.3 million, which resulted in a negligible change to interest income. Average interest-bearing deposits with banks increased $1.3 million which resulted in a negligible change to interest income. Average federal funds sold decreased $14.2 million for the six months ended June 30, 2025, which resulted in a decrease of $0.2 million to interest income.
Average interest-bearing liabilities rose $949.7 million to $3.6 billion for the six months ended June 30, 2025 from $2.6 billion for the six months ended June 30, 2024 resulting in a net increase in interest expense of $15.6 million. Non-maturity interest-bearing deposit accounts, including demand, money market, and savings accounts increased $727.0 million which resulted in a total increase in interest expense of $9.4 million. In addition, large denomination time deposits averaged $125.3 million more in the current period and caused interest expense to increase to $3.4 million. An increase of $8.1 million in average time deposits less than $100 thousand which included higher priced callable brokered CDs, resulted in an increase to interest expense of $0.3 million. Short-term borrowings averaged $4.6 million lower which resulted in a total decrease in interest expense of $0.1 million, while long-term borrowing increased $74.4 million and resulted in an increase to interest expense of $1.8 million. Subordinated debt averaged $ 44.4 million and resulted in an increase to interest expense of $0.3 million, and junior subordinated debt increased by $8.1 million and resulted in an increase to interest expense of $0.4 million.
For the six months ended June 30, 2025, a favorable rate variance occurred, as the FTE yield on earning assets increased 102 basis points while there was a 40 basis point decrease in the cost of funds. As a result of these changes in rates, FTE net interest income increased $26.7 million for the six months ended June 30, 2025. The FTE yield on earning assets was 5.59% in the 2025 period compared to 4.57% in 2024 resulting in an increase in interest income of $18.0 million. The yield on the taxable investment portfolio increased 151 basis points to 3.24% during the six months ended June 30, 2025 from 1.73% in the year ago period, resulting in an increase of $4.0 million in interest income. The yield on the tax-exempt investment portfolio increased 15 basis points to 2.33% from 2.18% in the year ago period with a negligible effect to interest income. The FTE yield on the loan portfolio increased 92 basis points to 5.99% in 2025 from 5.07% in 2024 and resulted in an increase to interest income of $14.5 million.
The yield on interest bearing deposits decreased 47 basis points to 2.44% from 2.91% in the year ago period resulting in a decrease in interest expense of $8.9 million. The yield on large denomination time deposits decreased 63 basis points and resulted in a reduction in interest income of $2.0 million and the yield on time deposits less than $100 thousand decreased 11 basis points which resulted in a decrease in interest expense of $0.4 million. The yield on long-term debt increased 50 basis points to 4.84% for the six months ended June 30, 2025 from 4.34% in the year ago period but had a negligible effect to interest expense. The yield on short-term borrowings decreased 94 basis points to 4.59% for the six months ended June 30, 2025 from 5.53% in the year ago period and resulted in a $0.1 million decrease to interest expense. The company issued $85.0 million of 7.75% fixed-to-floating subordinated notes on June 6, 2025, due 2035, and on June 30, 2025, redeemed $33.0 million of its 5.375% fixed-to -floating subordinated notes due 2030. Combined, these notes resulted in an increase in yield of 127 basis points and resulted in a $0.2 increase in interest expense.
The average balances of assets and liabilities, corresponding interest income and expense and resulting average yields or rates paid are summarized as follows. Averages for earning assets include nonaccrual loans. Investment averages include available for sale securities at amortized cost. Income on investment securities and loans is adjusted to an FTE basis using the prevailing federal statutory tax rate of 21%.
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
||||||||||||||
|
|
|
June 30, 2025 |
|
June 30, 2024 |
|
||||||||||||
|
|
|
Average |
|
Interest Income/ |
|
Yield/ |
|
Average |
|
Interest Income/ |
|
Yield/ |
|
||||
|
(Dollars in thousands, except percents) |
Balance |
Expense |
Rate |
Balance |
Expense |
Rate |
|
||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
3,707,650 |
|
$ |
57,459 |
|
6.22 |
% |
$ |
2,637,164 |
|
$ |
34,406 |
|
5.25 |
% |
|
Tax-exempt |
|
|
282,406 |
|
|
2,914 |
|
4.14 |
|
|
222,655 |
|
|
1,771 |
|
3.20 |
|
|
Total loans |
|
|
3,990,056 |
|
|
60,373 |
|
6.07 |
|
|
2,859,819 |
|
|
36,177 |
|
5.09 |
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
540,424 |
|
|
4,644 |
|
3.45 |
|
|
443,146 |
|
|
1,906 |
|
1.73 |
|
|
Tax-exempt |
|
|
86,899 |
|
|
505 |
|
2.33 |
|
|
86,418 |
|
|
470 |
|
2.19 |
|
|
Total investments |
|
|
627,323 |
|
|
5,149 |
|
3.29 |
|
|
529,564 |
|
|
2,376 |
|
1.80 |
|
|
Interest-bearing deposits |
|
|
9,186 |
|
|
96 |
|
4.19 |
|
|
8,763 |
|
|
115 |
|
5.28 |
|
|
Federal funds sold |
|
|
39,084 |
|
|
435 |
|
4.46 |
|
|
12,672 |
|
|
179 |
|
5.68 |
|
|
Total interest-earning assets |
|
|
4,665,649 |
|
|
66,053 |
|
5.68 |
% |
|
3,410,818 |
|
|
38,847 |
|
4.58 |
% |
|
Less: allowance for credit losses |
|
|
41,837 |
|
|
|
|
|
|
|
23,046 |
|
|
|
|
|
|
|
Other assets |
|
|
390,522 |
|
|
|
|
|
|
|
221,294 |
|
|
|
|
|
|
|
Total assets |
|
$ |
5,014,334 |
|
|
|
|
|
|
$ |
3,609,066 |
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts |
|
$ |
708,585 |
|
$ |
6,992 |
|
3.96 |
% |
$ |
714,669 |
|
$ |
6,749 |
|
3.80 |
% |
|
Interest-bearing demand and NOW accounts |
|
|
1,406,998 |
|
|
5,882 |
|
1.68 |
|
|
729,196 |
|
|
4,400 |
|
2.43 |
|
|
Savings accounts |
|
|
501,975 |
|
|
376 |
|
0.30 |
|
|
408,883 |
|
|
280 |
|
0.28 |
|
|
Time deposits less than $100 |
|
|
404,142 |
|
|
3,991 |
|
3.96 |
|
|
403,069 |
|
|
3,964 |
|
3.96 |
|
|
Time deposits $100 or more |
|
|
352,216 |
|
|
3,062 |
|
3.49 |
|
|
240,481 |
|
|
2,721 |
|
4.55 |
|
|
Total interest-bearing deposits |
|
|
3,373,916 |
|
|
20,303 |
|
2.41 |
|
|
2,496,298 |
|
|
18,114 |
|
2.92 |
|
|
Short-term borrowings |
|
|
35,587 |
|
|
410 |
|
4.62 |
|
|
45,383 |
|
|
633 |
|
5.61 |
|
|
Long-term debt |
|
|
101,066 |
|
|
1,211 |
|
4.81 |
|
|
25,000 |
|
|
269 |
|
4.33 |
|
|
Subordinated debt |
|
|
55,622 |
|
|
1,026 |
|
7.40 |
|
|
33,000 |
|
|
444 |
|
5.41 |
|
|
Junior subordinated debt |
|
|
8,075 |
|
|
188 |
|
9.34 |
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
200,350 |
|
|
2,835 |
|
5.68 |
|
|
103,383 |
|
|
1,346 |
|
5.24 |
|
|
Total interest-bearing liabilities |
|
|
3,574,266 |
|
|
23,138 |
|
2.60 |
|
|
2,599,681 |
|
|
19,460 |
|
3.01 |
|
|
Noninterest-bearing deposits |
|
|
897,212 |
|
|
|
|
|
|
|
620,256 |
|
|
|
|
|
|
|
Other liabilities |
|
|
52,608 |
|
|
|
|
|
|
|
48,630 |
|
|
|
|
|
|
|
Stockholders' equity |
|
|
490,248 |
|
|
|
|
|
|
|
340,499 |
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
5,014,334 |
|
|
|
|
|
|
$ |
3,609,066 |
|
|
|
|
|
|
|
Net interest income/spread |
|
|
|
|
$ |
42,915 |
|
3.08 |
% |
|
|
|
$ |
19,387 |
|
1.57 |
% |
|
Net interest margin (Non-GAAP) |
|
|
|
|
|
|
|
3.69 |
% |
|
|
|
|
|
|
2.29 |
% |
|
Tax-equivalent adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
$ |
612 |
|
|
|
|
|
|
$ |
372 |
|
|
|
|
Investments |
|
|
|
|
|
106 |
|
|
|
|
|
|
|
99 |
|
|
|
|
Total adjustments |
|
|
|
|
$ |
718 |
|
|
|
|
|
|
$ |
471 |
|
|
|
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|||||||||||||||
|
|
|
June 30, 2025 |
June 30, 2024 |
||||||||||||||
|
|
|
Average |
|
Interest Income/ |
|
Yield/ |
Average |
|
Interest Income/ |
|
Yield/ |
||||||
|
(Dollars in thousands, except percents) |
Balance |
Expense |
Rate |
Balance |
Expense |
Rate |
|||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
3,702,911 |
|
$ |
112,671 |
6.14 |
% |
$ |
2,634,859 |
|
$ |
68,447 |
5.22 |
% |
||
|
Tax-exempt |
|
281,486 |
|
|
5,756 |
4.12 |
|
|
223,974 |
|
|
3,566 |
3.20 |
|
|||
|
Total loans |
|
|
3,984,397 |
|
|
118,427 |
|
5.99 |
|
|
2,858,833 |
|
|
72,013 |
|
5.07 |
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
548,124 |
|
|
8,819 |
3.24 |
|
|
445,071 |
|
|
3,826 |
1.73 |
|
|||
|
Tax-exempt |
|
86,985 |
|
|
1,006 |
2.33 |
|
|
86,641 |
|
|
939 |
2.18 |
|
|||
|
Total investments |
|
|
635,109 |
|
|
9,825 |
3.12 |
|
|
531,712 |
|
|
4,765 |
1.80 |
|
||
|
Interest-bearing deposits |
|
10,186 |
|
|
209 |
4.14 |
|
|
8,894 |
|
|
235 |
5.31 |
|
|||
|
Federal funds sold |
|
|
32,568 |
|
|
720 |
4.46 |
|
|
46,813 |
|
|
1,306 |
5.61 |
|
||
|
Total interest-earning assets |
|
4,662,260 |
|
129,181 |
5.59 |
% |
3,446,252 |
|
78,319 |
4.57 |
% |
||||||
|
Less: allowance for credit losses |
|
41,960 |
|
|
|
|
|
|
22,668 |
|
|
|
|
|
|
||
|
Other assets |
|
391,221 |
|
|
|
|
|
|
219,324 |
|
|
|
|
|
|
||
|
Total assets |
|
$ |
5,011,521 |
|
|
|
|
|
|
$ |
3,642,908 |
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts |
|
$ |
698,111 |
|
$ |
13,562 |
3.92 |
% |
$ |
734,779 |
|
$ |
13,884 |
3.80 |
% |
||
|
Interest-bearing demand and NOW accounts |
|
1,435,943 |
|
|
12,298 |
1.73 |
|
|
756,827 |
|
|
9,237 |
2.45 |
|
|||
|
Savings accounts |
|
500,392 |
|
|
737 |
0.30 |
|
|
415,849 |
|
|
555 |
0.27 |
|
|||
|
Time deposits less than $100 |
|
414,197 |
|
|
8,219 |
4.00 |
|
|
406,131 |
|
|
8,301 |
4.11 |
|
|||
|
Time deposits $100 or more |
|
356,817 |
|
|
6,334 |
3.58 |
|
|
231,470 |
|
|
4,841 |
4.21 |
|
|||
|
Total interest-bearing deposits |
|
|
3,405,460 |
|
|
41,150 |
2.44 |
|
|
2,545,056 |
|
|
36,818 |
2.91 |
|
||
|
Short-term borrowings |
|
27,925 |
|
|
635 |
4.59 |
|
|
32,535 |
|
|
895 |
5.53 |
|
|||
|
Long-term debt |
|
99,426 |
|
|
2,388 |
4.84 |
|
|
25,000 |
|
|
539 |
4.34 |
|
|||
|
Subordinated debt |
|
|
44,373 |
|
|
1,469 |
6.68 |
|
|
33,000 |
|
|
887 |
5.41 |
|
||
|
Junior subordinated debt |
|
|
8,063 |
|
|
374 |
9.35 |
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
179,787 |
|
|
4,866 |
5.46 |
|
|
90,535 |
|
|
2,321 |
5.16 |
|
||
|
Total interest-bearing liabilities |
|
3,585,247 |
|
|
46,016 |
2.59 |
% |
|
2,635,591 |
|
|
39,139 |
2.99 |
% |
|||
|
Noninterest-bearing deposits |
|
886,193 |
|
|
|
|
|
|
618,433 |
|
|
|
|
|
|
||
|
Other liabilities |
|
55,298 |
|
|
|
|
|
|
48,159 |
|
|
|
|
|
|
||
|
Stockholders' equity |
|
484,783 |
|
|
|
|
|
|
340,725 |
|
|
|
|
|
|
||
|
Total liabilities and stockholders' equity |
|
$ |
5,011,521 |
|
|
|
|
|
|
$ |
3,642,908 |
|
|
|
|
|
|
|
Net interest income/spread |
|
|
|
|
$ |
83,165 |
3.00 |
% |
|
|
|
$ |
39,180 |
1.58 |
% |
||
|
Net interest margin (Non-GAAP) |
|
|
|
|
|
|
3.60 |
% |
|
|
|
|
|
2.29 |
% |
||
|
Tax-equivalent adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
$ |
1,209 |
|
|
|
|
|
|
$ |
749 |
|
|
|
|
Investments |
|
|
|
|
211 |
|
|
|
|
|
|
197 |
|
|
|
||
|
Total adjustments |
|
|
|
|
$ |
1,420 |
|
|
|
|
|
|
$ |
946 |
|
|
|
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
Provision for Credit Losses:
For the three months ended June 30, 2025, a $0.2 million credit was recorded to the provision for credit losses compared to a $0.6 million provision in the year ago period. For the six months ended June 30, 2025, the company recognized a $39 thousand credit to the provision for credit losses compared to a provision of $1.3 million in the same period in 2024. The current and prior period provisions are the result of the application of model loss rates, changes to mix and size of the loan portfolio, actual performance vs. peers, and qualitative adjustments. Based on our most current evaluation, we believe that the allowance is adequate to absorb any known and inherent losses in the portfolio as of June 30, 2025.
Noninterest Income:
Noninterest income for the three months ended June 30, 2025 and 2024 was $6.2 million and $3.6 million, respectively and $12.5 million and $6.9 million for the six months ended June 30, 2025, and 2024, respectively. The increases in both periods were primarily due to higher levels of income related to higher service charges, fees, and commissions, up $1.4 million and $3.1 million for the second quarter and year-to-date periods, respectively, due to merger related deposit growth and higher transaction volume, together with higher wealth management and merchant services income. The Company also recognized $0.7 million in gains on the sale of fixed assets during the first quarter of 2025 due primarily to the sale of our former headquarters property, and an increase of $0.5 million to bank owned life insurance cash surrender value.
Noninterest Expenses:
In general, noninterest expense is categorized into three main groups: employee-related expenses, occupancy and equipment expenses, and other expenses. Employee-related expenses are costs associated with providing salaries, including payroll taxes and benefits, to our employees. Occupancy and equipment expenses, the costs related to the maintenance of facilities and equipment, include depreciation, general maintenance and repairs, real estate taxes, rental expense offset by any rental income, and utility costs. Other expenses include general operating expenses such as advertising, contractual services, insurance, including FDIC assessment, provision for unfunded commitments, other taxes and supplies. Several of these costs and expenses are variable while the remainder are fixed. We utilize budgets and other related strategies in an effort to control the variable expenses.
Noninterest expense increased $10.1 million to $28.3 million for the three months ended June 30, 2025, from $18.2 million for the same period a year ago, and increased $19.4 million to $55.6 million from $36.2 million comparing the six months ended June 30, 2025 and 2024, respectively. Primary drivers of the increase were salaries and employee benefits, up $5.3 million for the quarter ended June 30, 2025 and 2024 and $10.0 million for the six-month period ended June 30, 2025, and 2024. Salary and benefit increases compared to the same period of 2024 were primarily due to merger-related increases in head count. Other increases compared to the same period of 2024 were experienced in occupancy and equipment expenses, up $1.7 million for the quarter when compared to the comparable quarter a year ago and were up $3.6 million in the six-month period ended June 30, 2025, when compared to the same period in 2024, both due to increased technology costs related to system integration and increased account transaction volumes, and higher facilities costs such as snow removal and utilities. Merger related expenses decreased $1.3 million to $0.2 million from $1.6 million during the six-month period ending June 30, 2025, and 2004 respectively, and decreased $1.0 million to $66 thousand from $1.0 million during the three-month periods ending June 30, 2025, and 2024, respectively. Acquisition related amortization expenses were $3.3 million and $1.6 million for the six and three-month periods ending June 30, 2025, respectively with no comparable expenses in the same periods the prior year. Professional services expenses increased $0.7 million to $2.1 million from $1.5 million during the six months ended June 30, 2025, and 2024, and increased $0.4 million to $1.2 million from $0.8 million during the three months ended June 30, 2025 and 2024, respectively. FDIC insurance expenses increased $0.9 million to $2.0 million from $1.1 million during the six months ended June 30, 2025, and 2024, and increased $0.5 million to $1.0 million from $0.5 million during the three-month period ended June 30, 2025, and 2024. Advertising expenses increased $0.8 million to $1.9 million from $1.1 million
Peoples Financial Services Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
when comparing the six months ended June 30, 2025, and 2024, and increased $0.5 million from $1.0 million from $0.6 million when comparing the three-month periods ended June 30, 2025, and 2024. Other expenses increased $1.4 million to $5.8 million from $4.4 million and increased $1.0 million to $3.2 million from $2.2 million during the six and three-month periods ended June 30, 2025, respectively.
Income Taxes:
We recorded an income tax expense of $3.5 million or 17.0% of pre-tax income and $6.7 million or 17.3%, of pre-tax income for the three and six months ended June 30, 2025, respectively. This compares to $0.4 million or 11.4% of pretax income, and $0.9 million or 11.8% for the three and six month periods ended June 30, 2024, respectively. Higher income tax expense was due to higher pre-tax income for both the three and six months ended June 30, 2025.
Peoples Financial Services Corp.
Peoples Financial Services Corp. published this content on August 11, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on August 11, 2025 at 20:04 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]