Peoples Financial Profit Falls as Credit Costs Climb
Net interest margin widened 15 basis points from the prior quarter to 3.82%.
Peoples Financial Services Corp. (PFIS), the bank holding company, reported lower second-quarter profit as credit-loss provisions and operating expenses outweighed stronger net interest income. Net income fell $2.2 million from a year earlier to $14.8 million, and diluted earnings declined to $1.48 a share from $1.68.
The results showed loan growth feeding interest income and credit costs at the same time. Annualized return on average assets slipped to 1.13% from 1.36% a year earlier, while return on average equity fell to 11.10% from 13.87%. Both measures also edged lower from the first quarter.
Net interest income rose $3.4 million from a year earlier and $2.7 million sequentially to $45.6 million, driven by loan growth and higher investment income following a portfolio repositioning. Interest expense increased just $0.3 million from the first quarter and declined $1.0 million from a year earlier as lower deposit and borrowing rates offset greater borrowing use and subordinated-debt costs.
Loans increased $112.6 million during the quarter to $4.3 billion, an annualized growth rate of 10.8%, with commercial and residential real estate more than offsetting declines in indirect auto, equipment-finance and municipal lending. The investment portfolio fell to $529.6 million as securities cash flows helped fund that expansion.
The faster lending pace carried a higher provision. Peoples recorded $3.1 million for credit losses, up from $1.4 million in the first quarter and a $0.2 million benefit a year earlier, primarily because of loan growth. Nonperforming assets rose to $14.7 million, or 0.34% of loans and foreclosed assets, after two loans tied to one commercial relationship entered nonaccrual. The total remained below $17.5 million a year earlier.
Deposits grew $83.5 million sequentially to $4.5 billion, though the mix shifted toward interest-bearing and brokered funding. Brokered deposits reached 7.7% of total deposits from 2.5% in the first quarter as the bank used callable brokered deposits to offset cyclical municipal-deposit outflows. Lower rates on interest-bearing deposits supported funding costs, while the average rate on subordinated debt rose to 8.47% in the first half.
Operating costs also constrained earnings. Noninterest expense rose $2.3 million from a year earlier to $30.6 million, including increases in salaries and benefits and occupancy and equipment costs. The efficiency ratio improved sequentially to 55.16% but remained above the year-earlier 53.92%.
Tangible book value increased to $43.51 a share from $42.29 in the first quarter and $38.75 a year earlier, extending balance-sheet growth as profitability softened.