10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended March 31, 2023

or

☐ Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

for the transition period from

001-36388

(Commission File Number)

PEOPLES FINANCIAL SERVICES CORP.

(Exact name of registrant as specified in its charter)

Pennsylvania	23-2391852
(State of incorporation)	(IRS Employer ID Number)
150 North Washington Avenue, Scranton, PA	18503
(Address of principal executive offices)	(Zip code)

(570) 346-7741

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common stock, $2.00 par value	PFIS	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes  ☐    No  ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: 7,150,757 at May l, 2023.

PEOPLES FINANCIAL SERVICES CORP.

FORM 10-Q

For the Quarter Ended March 31, 2023

Contents		Page No.
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Consolidated Balance Sheets at March 31, 2023 (Unaudited) and December 31, 2022 (Unaudited)	3
	Consolidated Statements of Income and Comprehensive Income (Loss) for the Three Months ended March 31, 2023 and 2022 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, 2023 and 2022 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2023 and 2022 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	55
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	57
	Signatures	58

2

Peoples Financial Services Corp.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

	March 31, 2023		December 31, 2022
Assets:
Cash and cash equivalents
Cash and due from banks	$	31,354	$	37,675
Interest-bearing deposits in other banks		7,129		193
Federal funds sold		102,100
Total cash and cash equivalents		140,583		37,868
Investment securities:
Available-for-sale		418,125		477,703
Equity investments carried at fair value		81		110
Held-to-maturity: Fair value March 31, 2023, $77,073; December 31, 2022, $76,563		89,705		91,179
Total investment securities		507,911		568,992
Loans		2,818,043		2,730,116
Less: allowance for credit losses		25,444		27,472
Net loans		2,792,599		2,702,644
Goodwill		63,370		63,370
Premises and equipment, net		56,561		55,667
Bank owned life insurance		48,598		48,344
Deferred tax assets		16,015		18,739
Accrued interest receivable		11,678		11,715
Intangible assets, net		77		105
Other assets		41,079		46,071
Total assets	$	3,678,471	$	3,553,515
Liabilities:
Deposits:
Noninterest-bearing	$	746,089	$	772,765
Interest-bearing		2,489,878		2,273,833
Total deposits		3,235,967		3,046,598
Short-term borrowings		17,280		114,930
Long-term debt		25,000		555
Subordinated debentures		33,000		33,000
Accrued interest payable		2,304		903
Other liabilities		36,286		42,179
Total liabilities		3,349,837		3,238,165
Stockholders’ equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,150,757 shares at March 31, 2023 and 7,158,017 shares at December 31, 2022		14,323		14,321
Capital surplus		126,231		126,850
Retained earnings		237,522		230,515
Accumulated other comprehensive loss		(49,442)		(56,336)
Total stockholders’ equity		328,634		315,350
Total liabilities and stockholders’ equity	$	3,678,471	$	3,553,515

See notes to unaudited consolidated financial statements

3

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(Dollars in thousands, except per share data)

For the Three Months Ended March 31,	2023		2022
Interest income:
Interest and fees on loans:
Taxable	$	30,049	$	20,853
Tax-exempt		1,389		1,161
Interest and dividends on investment securities:
Taxable		2,124		1,972
Tax-exempt		457		510
Dividends		2
Interest on interest-bearing deposits in other banks		14		2
Interest on federal funds sold		243		73
Total interest income		34,278		24,571
Interest expense:
Interest on deposits		9,678		1,468
Interest on short-term borrowings		1,086
Interest on long-term debt		27		28
Interest on subordinated debt		443		444
Total interest expense		11,234		1,940
Net interest income		23,044		22,631
Provision for credit losses		1,264		300
Net interest income after provision for credit losses		21,780		22,331
Noninterest income:
Service charges, fees, commissions and other		1,965		1,692
Merchant services income		118		114
Commission and fees on fiduciary activities		557		555
Wealth management income		398		351
Mortgage banking income		103		144
Increase in cash surrender value of life insurance		258		218
Interest rate swap revenue		223		343
Net (losses) gains on equity investment securities		(29)		4
Net gains on sale of investment securities available for sale		81
Total noninterest income		3,674		3,421
Salaries and employee benefits expense		9,080		8,040
Net occupancy and equipment expense		4,103		3,825
Amortization of intangible assets		29		96
Net gain on sale of other real estate owned				(458)
Professional fees and outside services		619		470
FDIC insurance and assessments		501		326
Donations		397		334
Other expenses		1,757		1,656
Total noninterest expense		16,486		14,289
Income before income taxes		8,968		11,463
Provision for income tax expense		1,389		1,833
Net income		7,579		9,630
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available-for-sale		10,836		(32,612)
Reclassification adjustment for net gain on sales included in net income		(81)
Change in derivative fair value		(1,970)		(493)
Other comprehensive income (loss)		8,785		(33,105)
Income tax expense (benefit) related to other comprehensive income (loss)		1,891		(6,952)
Other comprehensive income (loss), net of income tax expense (benefit)		6,894		(26,153)
Comprehensive income (loss)	$	14,473	$	(16,523)
Per share data:
Net income:
Basic	$	1.06	$	1.34
Diluted	$	1.05	$	1.33
Average common shares outstanding:
Basic		7,157,553		7,172,455
Diluted		7,198,970		7,216,421
Dividends declared	$	0.41	$	0.39

See notes to unaudited consolidated financial statements

4

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except per share data)

							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings		Loss		Total
Balance, January 1, 2023	$	14,321	$	126,850	$	230,515	$	(56,336)	$	315,350
Cumulative impact of adoption of ASU 2016-13(1), net of tax						2,364				2,364
Net income						7,579				7,579
Other comprehensive income, net of tax								6,894		6,894
Dividends declared: $0.41 per share						(2,936)				(2,936)
Stock based compensation				209						209
Restricted stock issued: 17,640 shares		35		(35)
Share retirement: 16,573 shares		(33)		(793)						(826)
Balance, March 31, 2023	$	14,323	$	126,231	$	237,522	$	(49,442)	$	328,634
(1) See Note 1 for additional details related to adoption of ASU 2016-13.
							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings		Loss		Total
Balance, January 1, 2022	$	14,341	$	127,549	$	203,750	$	(5,514)	$	340,126
Net income						9,630				9,630
Other comprehensive loss, net of tax								(26,153)		(26,153)
Dividends declared: $0.39 per share						(2,796)				(2,796)
Stock based compensation				(28)						(28)
Restricted stock issued: 12,332 shares, (unearned income $210k)		24		(24)
Share retirement: 6,714 shares		(13)		(305)						(318)
Balance, March 31, 2022	$	14,352	$	127,192	$	210,584	$	(31,667)	$	320,461

See notes to unaudited consolidated financial statements

5

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)

For the Three Months Ended March 31,	2023		2022
Cash flows from operating activities:
Net income	$	7,579	$	9,630
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		703		663
Amortization of right-of-use lease asset		124		146
Amortization of deferred loan fees, net		150		949
Amortization of intangibles		29		96
Amortization of low income housing partnerships		121		121
Provision for credit losses		1,264		300
Net unrealized loss (gain) on equity investment securities		29		(4)
Net gain on sale of other real estate owned				(458)
Loans originated for sale		(1,244)		(3,798)
Proceeds from sale of loans originated for sale		1,245		4,069
Net gain on sale of loans originated for sale		(1)		(24)
Net amortization of investment securities		290		431
Net gain on sale of investment securities available-for-sale		(81)
Gain on sale of premises and equipment		(14)		(5)
Increase in cash surrender value of life insurance		(258)		(218)
Deferred income tax expense		183		4
Stock based compensation		209		(28)
Net change in:
Accrued interest receivable		37		(693)
Other assets		(3,019)		(3,869)
Accrued interest payable		1,401		436
Other liabilities		(4,198)		1,388
Net cash provided by operating activities		4,549		9,136
Cash flows from investing activities:
Proceeds from sales of investment securities available-for-sale		67,362
Proceeds from repayments of investment securities:
Available-for-sale		2,791		12,897
Held-to-maturity		1,446		1,207
Purchases of investment securities:
Available-for-sale				(64,051)
Held-to-maturity				(25,873)
Net redemption of restricted equity securities		4,743		1,352
Net increase in loans		(88,086)		(69,733)
Investment in bank owned life insurance				(1,081)
Purchases of premises and equipment		(2,506)		(1,284)
Proceeds from the sale of premises and equipment		14		5
Proceeds from bank owned life insurance				225
Proceeds from sale of other real estate owned				946
Net cash used in investing activities		(14,236)		(145,390)
Cash flows from financing activities:
Net increase in deposits		189,369		1,467
Proceeds from long-term debt		25,000
Repayment of long-term debt		(555)		(529)
Net decrease in short-term borrowings		(97,650)
Retirement of common stock		(826)		(318)
Cash dividends paid		(2,936)		(2,796)
Net cash provided (used) by financing activities		112,402		(2,176)
Net increase (decrease) in cash and cash equivalents		102,715		(138,430)
Cash and cash equivalents at beginning of period		37,868		279,933
Cash and cash equivalents at end of period	$	140,583	$	141,503

6

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)

For the Three Months Ended March 31,	2023		2022
Supplemental disclosures:
Cash paid during the period for:
Interest	$	9,833	$	1,504
Income taxes		47		35
Noncash items:
Initial recognition of right-of-use assets	$	(785)	$
Initial recognition of lease liability		(820)

See notes to unaudited consolidated financial statements

7

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

1. Summary of significant accounting policies:

Nature of operations:

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned subsidiary, Peoples Security Bank and Trust Company (“the Bank”), collectively, the “Company” or “Peoples”. The Company services its retail and commercial customers through twenty-eight full-service community banking offices located within Allegheny, Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna and Wyoming Counties of Pennsylvania, Middlesex County of New Jersey and Broome County of New York.

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three months ended and as of March 31, 2023, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for credit losses, fair value of financial instruments, the valuation of deferred tax assets, and impairment of goodwill. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2022.

Second Quarter Dividend Declaration

On April 28, 2023, the Board of Directors declared a second quarter dividend of $0.41 per share. The dividend is payable on June 15, 2023 to shareholders of record as of May 31, 2023.

Adoption of New Accounting Standard

On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) model.  The Company adopted ASU 2016-13 using a modified retrospective approach. Results for reporting periods beginning after January 1, 2023 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.  At adoption, the Company decreased its allowance for credit losses by $3.0 million. Upon adoption the Company recorded a cumulative effect adjustment that increased stockholders’ equity by $2.4 million, net of tax.

8

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures” effective January 1, 2023. The ASU addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit losses model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.

Allowance for Credit Losses

The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. The allowance for credit losses is reported separately as a contra-asset on the consolidated balance sheets. The expected credit loss for unfunded lending commitments and unfunded loan commitments is reported on the consolidated balance sheets in other liabilities while the provision for credit losses related to unfunded commitments is reported in other non-interest expense in the consolidated statements of income and comprehensive income (loss).

Allowance for Credit Losses on Loans Receivable

The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics. The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk. Such segments include residential real estate, consumer, commercial and industrial, commercial real estate and municipal. At each reporting period, the Company evaluates whether loans within a pool continue to exhibit similar risk characteristics. If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics.  If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. The Company evaluates the pooling methodology at least annually. Loans are charged off against the allowance for credit losses when the Company believes the balances to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.

The Company estimates the allowance for credit losses on loans using an advanced probability of default model which incorporates probability of default, loss given default, exposure at default and probability of attrition attributes. The model considers relevant available information at both the portfolio and loan level from internal data that is supplemented by shared data pool information. The model also incorporates reasonable and supportable economic forecasts. After the reasonable and supportable forecast period, the model reverts to average historical losses. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications.

Also included in the allowance for credit losses on loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis described above. Factors that the Company considers include changes in lending policies and procedures, changes in management, changes in the quality of the loan review process, the existence of any concentrations of credit and other external factors.

9

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Individually Evaluated Loans

On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. The Bank has determined that any loans currently on non-accrual status or are 90 or more days past due and still accruing are considered impaired and should be individually evaluated for losses. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will establish a reserve for the difference between the fair value of the collateral, less costs to sell and carrying costs at the reporting date and the amortized cost basis of the loan. If this amount is deemed uncollectible, the Company will charge-off that amount.

Acquired Loans

Acquired loans are included in the Company's calculation of the allowance for credit losses. How the allowance on an acquired loan is recorded depends on whether or not it has been classified as a Purchased Credit Deteriorated (“PCD”) loan. PCD loans are loans acquired at a discount that is due, in part, to credit quality. PCD loans are accounted for in accordance with ASC Subtopic 326-20 and are initially recorded at fair value as determined by the sum of the present value of expected future cash flows and an allowance for credit losses at acquisition. The allowance for PCD loans is recorded through a gross-up effect, while the allowance for acquired non-PCD loans is recorded through provision expense, consistent with originated loans. Thus, the determination of which loans are PCD and non-PCD can have a significant impact on the accounting for these loans. Subsequent to acquisition, the allowance for PCD loans will generally follow the same estimation, provision and charge-off process as non-PCD acquired and originated loans.

Under FASB ASC Topic 326, a PCD asset is defined as an individual financial asset that as of the date of acquisition has experienced a more than insignificant deterioration in credit quality since origination as determined during the acquisition process. Upon identification of these assets, the amortized cost basis will be adjusted at the time of acquisition to reflect any impairment amount. After acquisition, PCD loans will be either collectively evaluated for reserve requirements or individually evaluated if on nonaccrual status or are 90 or more days past due and still accruing.

Allowance for Credit Losses on Off-Balance Sheet Commitments

The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancelable. To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate. To determine the expected funding rate, the Company uses a historical utilization rate for each segment. As noted above, the allowance for credit losses on unfunded loan commitments is included in other liabilities on the consolidated balance sheets and the related credit expense is recorded in other non-interest expense in the consolidated statements of income and comprehensive income (loss).

Allowance for Credit Losses on Held to Maturity Securities

The Company’s portfolio of held to maturity securities consists of municipal bonds and U.S. agency residential mortgage-backed securities which are highly rated by major rating agencies and have a long history of no credit losses. In estimating the net amount expected to be collected for held to maturity securities in an unrealized loss position, a historical loss based method is utilized.

10

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Allowance for Credit Losses on Available for Sale Securities

For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating by a rating agency, and adverse conditions related to the security, among other factors.  If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses.

Accrued Interest Receivable

The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans, available for sale securities, and held to maturity securities. Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Consolidated Balance Sheets, totaled $9.8 million at March 31, 2023 and is excluded from the estimate of credit losses. Accrued interest receivable on available of sale securities and held to maturity securities, also a component of accrued interest receivable on the Consolidated Balance Sheets, totaled $1.6 million and $191 thousand, respectively, at March 31, 2023 and is excluded from the estimate of credit losses.

Recent accounting standards:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by the Company as of the required effective dates. The following should be read in conjunction with "Note 1 Summary of significant accounting policies" of the Notes to the Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2022.

Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on the Company’s consolidated financial statements.

ASU 2023-01, “Leases (Topic 842) - Common Control Arrangements” (ASU 2023-01) requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with an unrelated party (on the basis of legally enforceable terms and conditions). ASU 2023-01 is effective January 1, 2024 and is not expected to have an impact on our financial statements.

ASU 2023-02 “Investments - Equity Method and Join Ventures (Topic 323) - Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method” (ASU 2023-02) permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective January 1, 2024 and is not expected to have an impact on our financial statements.

11

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

2. Other comprehensive income (loss):

The components of other comprehensive income (loss) and their related tax effects are reported in the consolidated statements of income and comprehensive income (loss). The accumulated other comprehensive loss included in the consolidated balance sheets relates to net unrealized gains and losses on investment securities available-for-sale, benefit plan adjustments and adjustments to derivative fair values.

The components of accumulated other comprehensive loss included in stockholders’ equity at March 31, 2023 and December 31, 2022 are as follows:

(Dollars in thousands)		March 31, 2023		December 31, 2022
Net unrealized loss on investment securities available-for-sale	$	(55,495)	$	(66,250)
Income tax benefit		(11,950)		(14,266)
Net of income taxes		(43,545)		(51,984)
Benefit plan adjustments		(5,499)		(5,499)
Income tax benefit		(1,184)		(1,184)
Net of income taxes		(4,315)		(4,315)
Derivative adjustments		(2,017)		(47)
Income tax benefit		(434)		(10)
Net of income taxes		(1,583)		(37)
Accumulated other comprehensive loss	$	(49,442)	$	(56,336)

3. Earnings per share:

Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

The following table presents the calculation of both basic and diluted earnings per share of common stock for the three months ended March 31, 2023 and 2022:

	2023				2022
(Dollars in thousands, except percents)	Basic		Diluted		Basic		Diluted
Net income	$	7,579	$	7,579	$	9,630	$	9,630
Average common shares outstanding		7,157,553		7,198,970		7,172,455		7,216,421
Earnings per share	$	1.06	$	1.05	$	1.34	$	1.33

12

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

4. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at March 31, 2023 and December 31, 2022 are summarized as follows:

	March 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	197,660	$		$	16,096	$	181,564
U.S. government-sponsored enterprises		16,872				441		16,431
State and municipals:
Taxable		68,426		5		11,227		57,204
Tax-exempt		77,668		1		9,095		68,574
Residential mortgage-backed securities:
U.S. government agencies		942				34		908
U.S. government-sponsored enterprises		95,947				17,735		78,212
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,105				484		11,621
Corporate debt securities		4,000				389		3,611
Total	$	473,620	$	6	$	55,501	$	418,125
Held-to-maturity:
Tax-exempt state and municipals	$	11,228	$	8	$	674	$	10,562
Residential mortgage-backed securities:
U.S. government agencies		16,806				2,541		14,265
U.S. government-sponsored enterprises		61,671				9,425		52,246
Total	$	89,705	$	8	$	12,640	$	77,073

	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	199,937	$		$	19,640	$	180,297
U.S. government-sponsored enterprises		16,955				585		16,370
State and municipals:
Taxable		68,946				13,588		55,358
Tax-exempt		99,774		93		11,460		88,407
Residential mortgage-backed securities:
U.S. government agencies		982				40		942
U.S. government-sponsored enterprises		141,231				20,112		121,119
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,128				544		11,584
Corporate debt securities		4,000				374		3,626
Total	$	543,953	$	93	$	66,343	$	477,703
Held-to-maturity:
Tax-exempt state and municipals	$	11,237	$	1	$	841	$	10,397
Residential mortgage-backed securities:
U.S. government agencies		17,304				3,016		14,288
U.S. government-sponsored enterprises		62,638				10,760		51,878
Total	$	91,179	$	1	$	14,617	$	76,563

13

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The Company had net unrealized losses on available-for-sale securities of $43.5 million net of deferred income taxes of $12.0 million at March 31, 2023 and net unrealized losses on available-for-sale securities of $52.0 million net of deferred income taxes of $14.3 million at December 31, 2022. During the three month period ended March 31, 2023, investment securities, including U.S. Treasury bonds and mortgage-backed securities, with a par value of $65.6 million were sold at a net gain of $81 thousand. The proceeds were used to pay-down higher cost short-term borrowings.

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available-for-sale at March 31, 2023, is summarized as follows:

	Fair
(Dollars in thousands)	Value
Within one year	$	15,202
After one but within five years		176,975
After five but within ten years		66,629
After ten years		66,319
		325,125
Mortgage-backed and other amortizing securities		93,000
Total	$	418,125

 The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at March 31, 2023, is summarized as follows:

	Amortized		Fair
(Dollars in thousands)	Cost		Value
Within one year	$		$
After one but within five years
After five but within ten years		8,877		8,355
After ten years		2,351		2,207
		11,228		10,562
Mortgage-backed securities		78,477		66,511
Total	$	89,705	$	77,073

Securities with a carrying value of $151.2 million and $168.0 million at March 31, 2023 and December 31, 2022, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law.

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-case basis. At March 31, 2023 and December 31, 2022, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. government agencies and sponsored enterprises, which exceeded 10.0 percent of stockholders’ equity.

14

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The fair value and gross unrealized losses of investment securities with unrealized losses at March 31, 2023 and December 31, 2022, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

	March 31, 2023
	Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
(Dollars in thousands)	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities		$		$		43	$	181,564	$	16,096	43	$	181,564	$	16,096
U.S. government-sponsored enterprises						5		16,431		441	5		16,431		441
State and municipals:
Taxable	2		999		19	63		54,709		11,208	65		55,708		11,227
Tax-exempt	7		3,095		29	98		70,366		9,740	105		73,461		9,769
Residential mortgage-backed securities:
U.S. government agencies	2		818		31	7		14,355		2,544	9		15,173		2,575
U.S. government-sponsored enterprises	1		527		12	40		129,931		27,148	41		130,458		27,160
Commercial mortgage-backed securities:
U.S. government agencies
U.S. government-sponsored enterprises	1		1,926		86	3		9,695		398	4		11,621		484
Corporate debt securities						6		3,611		389	6		3,611		389
Total	13	$	7,365	$	177	265	$	480,662	$	67,964	278	$	488,027	$	68,141

	December 31, 2022
	Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
(Dollars in thousands)	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities	5	$	23,700	$	1,887	40	$	156,597	$	17,753	45	$	180,297	$	19,640
U.S. government-sponsored enterprises	4		14,104		197	1		2,266		388	5		16,370		585
State and municipals:
Taxable	21		19,919		2,908	45		34,464		10,680	66		54,383		13,588
Tax-exempt	39		30,973		1,690	84		59,664		10,611	123		90,637		12,301
Residential mortgage-backed securities:
U.S. government agencies	5		904		39	4		14,326		3,017	9		15,230		3,056
U.S. government-sponsored enterprises	19		57,166		2,029	25		115,831		28,843	44		172,997		30,872
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises	4		11,584		544						4		11,584		544
Corporate debt securities	1		953		47	5		2,673		327	6		3,626		374
Total	98	$	159,303	$	9,341	204	$	385,821	$	71,619	302	$	545,124	$	80,960

As described in Note 1, on January 1, 2023 the Company adopted amended accounting guidance that requires an allowance for credit losses be deducted from the amortized cost basis of financial assets, including investment securities held to maturity, to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset. The Company estimated no allowance for credit losses for its investment securities classified as held-to-maturity at January 1, 2023 or March 31, 2023, as the portfolio of held-to-maturity securities consists entirely of U.S. government sponsored enterprises, agencies and states and political subdivisions investments.

The unrealized losses on securities are primarily due to the changes in market interest rates subsequent to purchase. In addition, the Company does not intend to sell and does not believe that it is more likely than not that it will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result, there was no allowance for credit loss required on available-for-sale debt securities in an unrealized loss position at March 31, 2023 and December 31, 2022.

15

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

5. Loans, net and allowance for credit losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at March 31, 2023 and December 31, 2022 are summarized as follows. The Company had net deferred loan origination fees of $0.1 million and $0.3 million at March 31, 2023 and December 31, 2022, respectively.

(Dollars in thousands)		March 31, 2023	December 31, 2022
Commercial and Industrial	$	430,098	$	433,048
Municipal		169,278		166,210
Total		599,376		599,258
Real estate
Commercial		1,782,911		1,709,827
Residential		342,459		330,728
Total		2,125,370		2,040,555
Consumer
Indirect Auto		86,587		76,461
Consumer Other		6,710		13,842
Total		93,297		90,303
Total	$	2,818,043	$	2,730,116

PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP.  These loans carry a fixed rate of 1.00% and a term of two years or five years, if not forgiven, in whole or in part.  Payments are deferred until either the date on which the SBA remits the amount of forgiveness proceeds to the lender or the date that is 10 months after the last day of the covered period if the borrower does not apply for forgiveness within that 10 month period. PPP fees are deferred and accreted into interest income over the contractual period of 24 months or 60 months, as applicable.  Upon SBA forgiveness, unamortized fees are then recognized into interest income. 

The Bank originated additional loans through the PPP, which expired on May 31, 2021.  During 2021, the Bank had generated and received SBA approval on 1,062 PPP loans totaling $121.6 million and generated $4.4 million in related deferred PPP net fees. 

Included in the commercial and industrial balances at March 31, 2023 are Paycheck Protection Program (PPP) loans that

had an outstanding balance of $22.2 million comprised of $10.9 million remaining from those originated during 2021 as part of round two and $11.3 million remaining from loans originated during 2020 under round one of the program. At December 31, 2022, PPP loans had outstanding balances totaling $22.3 million. Net deferred loan origination fees remaining related to PPP loans was $0.2 million at March 31, 2023 and December 31, 2022. The PPP loans are risk rated ‘Pass’ and do not carry an allowance for credit losses due to a 100% SBA guarantee. At March 31, 2023 and December 31, 2022, the outstanding PPP balances were considered current.

16

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The following tables present the balance of the allowance for credit losses at March 31, 2023 and 2022.  For the three months ended March 31, 2023, the balance of the allowance for credit losses is based on the CECL methodology, as presented in Note 1. For the three months ended March 31, 2022, the allowance for loan losses is based upon the calculation methodology as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The tables identify the valuation allowances attributable to specifically identified impairments on individually evaluated loans, including those acquired with deteriorated credit quality, as well as valuation allowances for impairments on loans evaluated collectively. The tables include the underlying balance of loans receivable applicable to each category as of those dates.

					Real estate
March 31, 2023	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for credit losses:	$	4,365	$	1,247	$	17,915	$	3,072	$	873	$	27,472
Impact of adopting ASU 2016-13		(1,683)		747		(3,344)		987		30		(3,263)
Adjusted Beginning Balance January 1, 2023		2,682		1,994		14,571		4,059		903		24,209
Charge-offs		(4)								(71)		(75)
Recoveries						1		16		49		66
Provisions (credits)		(197)		324		1,120		(207)		204		1,244
Ending balance	$	2,481	$	2,318	$	15,692	$	3,868	$	1,085	$	25,444
					Real estate
March 31, 2022	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2022	$	7,466	$	987	$	15,928	$	3,209	$	793	$	28,383
Charge-offs		(161)				(132)				(62)		(355)
Recoveries		9				16		3		51		79
Provisions (credits)		(887)		179		977		43		(12)		300
Ending balance	$	6,427	$	1,166	$	16,789	$	3,255	$	770	$	28,407

The following table represents the allowance for credit losses by major classification of loan and whether the loans were individually or collectively evaluated and collateral dependent by class of loans at March 31, 2023 under ASU 2016-13.

					Real estate
March 31, 2023	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for credit losses:
Ending balance	$	2,481	$	2,318	$	15,692	$	3,868	$	1,085	$	25,444
Ending balance: individually evaluated		14										14
Ending balance: collectively evaluated	$	2,467	$	2,318	$	15,692	$	3,868	$	1,085	$	25,430
Loans receivable:
Ending balance	$	430,098	$	169,278	$	1,782,911	$	342,459	$	93,297	$	2,818,043
Individually evaluated - collateral dependent - real estate		10				867		789				1,666
Individually evaluated - collateral dependent - non-real estate		14										14
Collectively evaluated		430,074		169,278		1,782,044		341,670		93,297		2,816,363

17

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The following table represents the allowance for loan losses by major classification of loan and whether the loans were individually or collectively evaluated for impairment at December 31, 2022 prior to the adoption of ASU 2016-13.

					Real estate
December 31, 2022	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	4,365	$	1,247	$	17,915	$	3,072	$	873	$	27,472
Ending balance: individually evaluated for impairment		19						21				40
Ending balance: collectively evaluated for impairment	$	4,346	$	1,247	$	17,915	$	3,051	$	873	$	27,432
Loans receivable:
Ending balance	$	433,048	$	166,210	$	1,709,827	$	330,728	$	90,303	$	2,730,116
Ending balance: individually evaluated for impairment		98				2,063		1,760				3,921
Ending balance: collectively evaluated for impairment		432,950		166,210		1,707,764		328,968		90,303		2,726,195

Nonaccrual Loans

 The following table presents the Company’s nonaccrual loans at March 31, 2023 and December 31, 2022 and interest income for the quarter that would have been recorded under the original terms of such nonaccrual loans.

		March 31, 2023
								Interest Income
								Recorded for
		Total		Nonaccrual with		Nonaccrual with		Nonaccrual Loans
		Nonaccrual		an Allowance for		no Allowance for		in the three months
(Dollars in thousands)		Loans		Credit Losses		Credit Losses		ended March 31, 2023
Commercial	$	14	$	14	$		$	5
Municipal
Real estate:
Commercial		867				867		374
Residential		723				723
Consumer		194				194
Total	$	1,798	$	14	$	1,784	$	379

		December 31, 2022
								Interest Income
								Recorded for
		Total		Nonaccrual with		Nonaccrual with		Nonaccrual Loans
		Nonaccrual		an Allowance for		no Allowance for		in the three months
(Dollars in thousands)		Loans		Credit Losses		Credit Losses		ended December 31, 2022
Commercial	$	86	$	19	$	67	$
Municipal
Real estate:
Commercial		1,155				1,155
Residential		562				562
Consumer		232				232
Total	$	2,035	$	19	$	2,016	$

18

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The following table summarizes information concerning impaired loans, which include nonaccrual loans, troubled debt restructurings and loans past due 90 days or more and still accruing, as of and for the three months ended March 31, 2022 by major loan classification:

	March 31, 2022
							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(Dollars in thousands)	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	138	$	475	$		$	148	$	2
Municipal
Real estate:
Commercial		2,748		3,505				2,562		12
Residential		874		1,047				874		4
Consumer		207		217				173
Total		3,967		5,244				3,757		18
With an allowance recorded:
Commercial		21		21		21		31
Municipal
Real estate:
Commercial		440		452		45		477		4
Residential		273		274		49		338		3
Consumer
Total		734		747		115		846		7
Total impaired loans
Commercial		159		496		21		179		2
Municipal
Real estate:
Commercial		3,188		3,957		45		3,039		16
Residential		1,147		1,321		49		1,212		7
Consumer		207		217				173
Total	$	4,701	$	5,991	$	115	$	4,603	$	25

The Company segments loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are individually analyzed for credit risk by classifying them within the Company’s internal risk rating system. The Company’s risk rating classifications are defined as follows:

● Pass- A loan to borrowers with acceptable credit quality and risk that is not adversely classified as Substandard, Doubtful, Loss nor designated as Special Mention.

● Special Mention- A loan that has potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified since they do not expose the Company to sufficient risk to warrant adverse classification.

19

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

● Substandard- A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

● Doubtful – A loan classified as Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

● Loss- A loan classified as Loss is considered uncollectible and of such little value that its continuance as bankable loan is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

The following table presents the amortized cost of loans and gross chargeoffs by year of origination and by major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at March 31, 2023:

(Dollars in thousands)		2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial
Pass	$	11,531	$	50,495	$	46,353	$	32,496	$	50,260	$	89,938	$	140,615	$	421,688
Special Mention														67		67
Substandard		15				46				53		276		7,953		8,343
Total Commercial		11,546		50,495		46,399		32,496		50,313		90,214		148,635		430,098
Municipal
Pass		1,400		45,146		91,776		11,850		36		18,983		87		169,278
Special Mention
Substandard
Total Municipal		1,400		45,146		91,776		11,850		36		18,983		87		169,278
Commercial real estate
Pass		55,319		531,819		488,524		151,845		154,002		386,268				1,767,777
Special Mention		1,763								303		3,301				5,367
Substandard		175				1,637		165		628		7,162				9,767
Total Commercial real estate		57,257		531,819		490,161		152,010		154,933		396,731				1,782,911
Residential real estate
Pass		5,741		55,051		69,011		28,927		17,764		93,343		72,014		341,851
Special Mention
Substandard						17		214				377				608
Total Residential real estate		5,741		55,051		69,028		29,141		17,764		93,720		72,014		342,459
Consumer
Pass		17,548		39,005		17,087		8,127		5,179		5,457		700		93,103
Special Mention
Substandard						111		30		19		34				194
Total Consumer		17,548		39,005		17,198		8,157		5,198		5,491		700		93,297
Total Loans	$	93,492	$	721,516	$	714,562	$	233,654	$	228,244	$	605,139	$	221,436	$	2,818,043
Gross charge-offs
Commercial	$		$		$		$		$		$		$	4	$	4
Municipal
Commercial real estate
Residential real estate
Consumer				1		35		17		10		8				71
Total Gross charge-offs	$		$	1	$	35	$	17	$	10	$	8	$	4	$	75

20

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The following table presents the amortized cost of loans by major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at December 31, 2022 as disclosed prior to ASU 2016-13:

	December 31, 2022
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	424,411	$	7,822	$	815	$	$	433,048
Municipal		166,210							166,210
Real estate:
Commercial		1,699,041		7,509		3,277			1,709,827
Residential		329,098				1,630			330,728
Consumer		90,020				283			90,303
Total	$	2,708,780	$	15,331	$	6,005	$	$	2,730,116

The major classifications of loans by past due status are summarized as follows:

	March 31, 2023
					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
(Dollars in thousands)	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	156	$		$	14	$	170	$	429,928	$	430,098	$
Municipal										169,278		169,278
Real estate:
Commercial		92		616		245		953		1,781,958		1,782,911
Residential		1,965		444		467		2,876		339,583		342,459		59
Consumer		487		92		53		632		92,665		93,297
Total	$	2,700	$	1,152	$	779	$	4,631	$	2,813,412	$	2,818,043	$	59

	December 31, 2022
					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
(Dollars in thousands)	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	137	$	38	$	86	$	261	$	432,787	$	433,048	$
Municipal										166,210		166,210
Real estate:
Commercial		102		2		334		438		1,709,389		1,709,827
Residential		1,162		128		988		2,278		328,450		330,728		748
Consumer		690		199		120		1,009		89,294		90,303
Total	$	2,091	$	367	$	1,528	$	3,986	$	2,726,130	$	2,730,116	$	748

21

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Allowance for Credit Losses on Off Balance Sheet Commitments

The following table presents the activity in the ACL on off balance sheet commitments for the three months ended March 31, 2023:

(Dollars in thousands)		March 31, 2023
Balance at December 31, 2022	$	179
Impact of adopting Topic 326		270
Credit recorded in noninterest expense		(185)
Total allowance for credit losses on off balance sheet commitments	$	264

 Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

There were no loans made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023 and hence there were no loans made to borrowers experiencing financial difficulty that subsequently defaulted.

Information on loan modifications prior to the adoption of ASU 2022-02 on January 1, 2023 is presented in accordance with the applicable accounting standards in effect at that time. During the three months ended March 31, 2022, the Company did not modify any loans that were determined to be a troubled debt restructuring.

6. Other assets:

The components of other assets at March 31, 2023 and December 31, 2022 are summarized as follows:

Restricted equity securities declined $4.7 million from December 31, 2022 due to lower FHLB stock requirement resulting from a decrease in borrowings. Interest rate swaps balance represents the fair value of our commercial loan back-to-back swaps and is lower due to a decline in market rates from December 31, 2022.

(Dollars in thousands)		March 31, 2023		December 31, 2022
Other real estate owned	$	121	$	121
Investment in low income housing partnership		5,325		5,446
Mortgage servicing rights		906		914
Restricted equity securities (FHLB and other)		4,887		9,630
Interest rate floor		1		1
Interest rate swaps		18,485		21,794
Other assets		11,354		8,165
Total	$	41,079	$	46,071

22

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

7. Fair value estimates:

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under GAAP. Fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial. Accordingly, such assets and liabilities are excluded from disclosure requirements.

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument.

Current fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction that is not a forced liquidation or distressed sale between participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

In accordance with GAAP, the Company groups its assets and liabilities generally measured at fair value into three levels based on market information or other fair value estimates in which the assets and liabilities are traded or valued and the reliability of the assumptions used to determine fair value. These levels include:

● Level 1: Unadjusted quoted prices of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

● Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

● Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value estimate.

During the periods ended March 31, 2023 and December 31, 2022 there were no transfers in or out of Level 3.

The following methods and assumptions were used by the Company to calculate fair values and related carrying amounts of financial instruments:

Investment securities: The fair values of U.S. Treasury securities and marketable equity securities are based on quoted market prices from active exchange markets. The fair values of debt securities are based on pricing from a matrix pricing model.

Interest rate swaps and options:  The Company’s interest rate swaps and options are reported at fair value utilizing Level 2 inputs. Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for interest rate, forward rates, rate volatility, and volatility surface.

23

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty.

Assets and liabilities measured at fair value on a recurring basis at March 31, 2023 and December 31, 2022 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
(Dollars in thousands)			Identical Assets		Inputs		Inputs
March 31, 2023	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	181,564	$	181,564	$		$
U.S. government-sponsored enterprises		16,431				16,431
State and municipals:
Taxable		57,204				57,204
Tax-exempt		68,574				68,574
Mortgage-backed securities:
U.S. government agencies		908				908
U.S. government-sponsored enterprises		89,833				89,833
Corporate debt securities		3,611				3,611
Common equity securities		81		81
Total investment securities	$	418,206	$	181,645	$	236,561	$
Interest rate floor-other assets	$	1			$	1
Interest rate swap-other assets	$	18,485			$	18,485
Interest rate floor-other liabilities		(1,980)				(1,980)
Interest rate swap-other liabilities	$	(17,914)			$	(17,914)

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
(Dollars in thousands)			Identical Assets		Inputs		Inputs
December 31, 2022	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	180,297	$	180,297	$		$
U.S. government-sponsored enterprises		16,370				16,370
State and municipals:
Taxable		55,358				55,358
Tax-exempt		88,407				88,407
Mortgage-backed securities:
U.S. government agencies		942				942
U.S. government-sponsored enterprises		132,703				132,703
Corporate debt securities		3,626				3,626
Common equity securities		110		110
Total investment securities	$	477,813	$	180,407	$	297,406	$
Interest rate floor-other assets	$	1			$	1
Interest rate swap-other assets	$	21,794			$	21,794
Interest rate swap-other liabilities	$	(21,466)			$	(21,466)

24

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2023 and December 31, 2022 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
(Dollars in thousands)			Identical Assets	Inputs	Inputs
March 31, 2023	Amount		(Level 1)	(Level 2)	(Level 3)
Loans individually evaluated for credit loss	$	1,680	$	$	$	1,680

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
(Dollars in thousands)			Identical Assets	Inputs	Inputs
December 31, 2022	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	220	$	$	$	220

Fair values of impaired loans are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands, except percents)	Fair Value				Range
March 31, 2023	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Loans individually evaluated for credit loss	$	1,680	Appraisal of collateral	Appraisal adjustments	22.8% to 77.0%  (67.3)%
				Liquidation expenses	3.0% to 6.0% (5.2)%

	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands, except percents)	Fair Value				Range
December 31, 2022	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	220	Appraisal of collateral	Appraisal adjustments	21.6% to 97.0%  (77.7)%
				Liquidation expenses	3.0% to 6.0% (4.9)%

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

25

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The carrying and fair values of the Company’s financial instruments at March 31, 2023 and December 31, 2022 and their placement within the fair value hierarchy are as follows:

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
(Dollars in thousands)	Carrying		Fair		Assets		Inputs		Inputs
March 31, 2023	Value		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	140,583	$	140,583	$	140,583	$		$
Investment securities:
Available-for-sale		418,125		418,125		181,564		236,561
Common equity securities		81		81		81
Held-to-maturity		89,705		77,073				77,073
Loans held for sale
Net loans		2,792,599		2,629,921						2,629,921
Accrued interest receivable		11,678		11,678				11,678
Mortgage servicing rights		906		1,747				1,747
Restricted equity securities (FHLB and other)		4,887		4,887				4,887
Interest rate floor		1		1				1
Interest rate swaps		18,485		18,485				18,485
Total	$	3,477,050	$	3,302,580
Financial liabilities:
Deposits	$	3,235,967	$	3,229,495	$		$	3,229,495	$
Short-term borrowings		17,280		17,280				17,280
Long-term debt		25,000		24,982				24,982
Subordinated debentures		33,000		31,898				31,898
Accrued interest payable		2,304		2,304				2,304
Interest rate floor		1,980		1,980				1,980
Interest rate swaps		17,914		17,914				17,914
Total	$	3,333,445	$	3,325,853

26

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
(Dollars in thousands)	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2022	Value		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	37,868	$	37,868	$	37,868	$		$
Investment securities:
Available-for-sale		477,703		477,703		180,297		294,706
Common equity securities		110		110		110
Held-to-maturity		91,179		76,563				76,563
Loans held for sale
Net loans		2,702,644		2,562,780						2,562,780
Accrued interest receivable		11,715		11,715				11,715
Mortgage servicing rights		914		1,762				1,762
Restricted equity securities (FHLB and other)		9,630		9,630				9,630
Interest rate floor		1		1				1
Interest rate swaps		21,794		21,794				21,794
Total	$	3,353,558	$	3,199,926
Financial liabilities:
Deposits	$	3,046,598	$	3,035,615	$		$	3,035,615	$
Short-term borrowings		114,930		114,743				114,743
Long-term debt		555		555				555
Subordinated debentures		33,000		53,998				53,998
Accrued interest payable		903		903				903
Interest rate swaps		21,466		21,466				21,466
Total	$	3,217,452	$	3,227,280

8. Employee benefit plans:

The Company provides an Employee Stock Ownership Plan (“ESOP”) and a Retirement Profit Sharing Plan. The Company also maintains Supplemental Executive Retirement Plans (“SERPs”) and an Employees’ Pension Plan, which is currently frozen.

For the three months ended March 31, salaries and employee benefits expense includes approximately $478 thousand in 2023, and $256 thousand in 2022 relating to the employee benefit plans.

	Pension Benefits
(Dollars in thousands)	2023		2022
Net periodic pension income:
Interest cost	$	164	$	114
Expected return on plan assets		(293)		(352)
Amortization of unrecognized net loss		50		50
Net periodic pension income:	$	(79)	$	(188)

In May 2017, the Company’s stockholders approved the 2017 equity incentive plan (“2017 Plan”). The 2017 Plan allows for eligible participants to be granted equity awards. Under the 2017 Plan the Compensation Committee of the Board of Directors has the authority to, among other things:

27

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

● Select the persons to be granted awards under the 2017 Plan.

● Determine the type, size and term of awards.

● Determine whether such performance objectives and conditions have been met.

● Accelerate the vesting or exercisability of an award.

Persons eligible to receive awards under the 2017 Plan include directors, officers, employees, consultants and other service providers of the Company and its subsidiaries.

As of March 31, 2023, there were 17,364 shares of the Company’s common stock available for grant as awards pursuant to the 2017 Plan. If any outstanding awards under the 2017 Plan are forfeited by the holder or canceled by the Company, the underlying shares would be available for re-grant to others.

The 2017 Plan authorizes grants of stock options, stock appreciation rights, cash awards, performance awards, restricted stock and restricted stock units.

For the three months ended March 31, 2023, the Company granted no awards of restricted stock and restricted stock units under the 2017 Plan. For the three months ended March 31, 2022, the Company granted 19,787 shares underlying such awards, respectively.

The non-performance restricted stock grants made in 2022, 2021 and 2020 vest equally over three years. The performance-based restricted stock units vest over three fiscal years and include conditions based on the Company’s three year cumulative diluted earnings per share and three-year average return on equity or tangible equity that determines the number of restricted stock units that may vest.

The Company expenses the fair value of all-share based compensation over the requisite service period commencing at grant date. The fair value of restricted stock is expensed on a straight-line basis. Compensation is recognized over the vesting period and adjusted based on the performance criteria. The Company classifies share-based compensation for employees within “salaries and employee benefits expense” on the consolidated statements of income and comprehensive income.

The Company recognized net compensation costs of $209 thousand for the three months ended March 31, 2023 for awards granted under the 2017 Plan. The Company recognized compensation expense of $199 thousand for the three months ended March 31, 2022 for awards granted under the 2017 Plan. As of March 31, 2023, the Company had $0.8 million of unrecognized compensation expense associated with restricted stock awards. The remaining cost is expected to be recognized over a weighted average vesting period of under 1.5 years.

9. Derivatives and hedging activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s existing credit derivatives result from participations of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities.

28

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income/expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and floors as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up-front premium. Such derivatives have been used to hedge the variable cash flows associated with existing variable-rate assets and issuances of debt.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense/income as interest payments are made/received on the Company’s variable-rate debt/assets. During the next twelve months, the Company estimates that an additional $32 thousand will be reclassified as a reduction to interest income. 

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain of its fixed-rate pools of assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate, SOFR. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

As of March 31, 2023, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges:

Line Item in the Statement of Financial Position in Which the Hedged Item is Included		Amortized Amount of the Hedged Assets/(Liabilities)				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
(Dollars in Thousands)		2023		2022		2023		2022
AFS Securities (1)	$	100,000	$		$	1,986	$
Total	$	100,000	$		$	1,986	$

(1) These amounts include the amortized cost basis of closed portfolios of fixed rate assets used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At March 31, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $146.1 million. The amounts of the designated hedged items were $138.6 million.

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. As of March 31, 2023, the Company had 96 interest rate swaps with an aggregate notional amount of $209.7 million related to this program.

29

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The Company’s existing credit derivatives result from participations in or out of interest rate swaps provided by or to external lenders as part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain lenders which participate in loans.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of March 31, 2023 and December 31, 2022.

Fair Values of Derivative Instruments
		Derivative Assets								Derivative Liabilities
		As of March 31, 2023				As of December 31, 2022				As of March 31, 2023				As of December 31, 2022
(Dollars in Thousands)		Notional Amount	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value		Notional Amount	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Interest Rate Products	$	25,000	Other Assets	$	1	Other Assets	$	1	$	100,000	Other Liabilities	$	1,970	Other Liabilities	$
Total derivatives designated as hedging instruments				$	1		$	1				$	1,970		$
Derivatives not designated as hedging instruments
Interest Rate Products	$	208,147	Other Assets	$	18,963	Other Assets	$	22,195	$	208,147	Other Liabilities	$	18,392	Other Liabilities	$	21,466
Other Contracts		1,522	Other Assets		6	Other Assets				6,307	Other Liabilities		2	Other Liabilities
Total derivatives not designated as hedging instruments				$	18,969		$	22,195				$	18,394		$	21,466

(1) Amounts include accrued interest.

(2) Notional amount of interest rate floor at December 31, 2022 was $25.0 million. Notional asset amount of interest rate swaps at December 31, 2022 was $187.3 million and $1.5 million for risk participation agreements.

30

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of fair value and cash flow hedge accounting on accumulated other comprehensive income (loss) as of March 31, 2023 and March 31, 2022.

(Dollars in Thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative	Amount of Gain or (Loss) Recognized in OCI Included Component	Amount of Gain or (Loss) Recognized in OCI Excluded Component	Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Included Component	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component
March 31, 2023	2023				2023
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$ 1		$ 1	Interest Income	($ 16)		$ 16
Total	$ 1		$ 1		($ 16)		$ 16
(Dollars in Thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative	Amount of Gain or (Loss) Recognized in OCI Included Component	Amount of Gain or (Loss) Recognized in OCI Excluded Component	Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Included Component	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component
March 31, 2022	2022				2022
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	($ 361)	(439)	$ 78	Interest Income	$ 131	147	($ 16)
Total	($ 361)	($ 439)	$ 78		$ 131	$ 147	($ 16)

* Amounts disclosed are gross and not net of taxes.

Effect of Fair Value and Cash Flow Hedge Accounting on the Statements of Income and Comprehensive Income (Loss)

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of income and comprehensive income (loss) as of  March 31, 2023 and March 31, 2022.

	Location and Amount of Gain or (Loss)
	Recognized in Income on Fair Value and
	Cash Flow Hedging Relationships
	For the three months ended March 31,
		2023		2022
(Dollars in Thousands)		Interest Income		Interest Income
Total amounts of income and expense line items presented in the
statement of financial performance in which the effects of fair value or
cash flow hedges are recorded	$	15	$	131
The effects of fair value and cash flow hedging:
Gain or (loss) on fair value hedging relationships
Interest contracts
Hedged items		1,986
Derivatives designated as hedging instruments		(1,955)
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income		(16)		131
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Included Component				147
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Excluded Component	$	(16)	$	(16)

31

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Effect of Derivative Instruments Not Designated as Hedging Instruments on the Statements of Income and Comprehensive Income (Loss)

The tables below present the effect of the Company’s derivative financial instruments on the consolidated statements of income and comprehensive income (loss) for the three months ended March 31, 2023 and 2022.

		Amount of Gain or (Loss)		Amount of Gain or (Loss)
		Recognized in		Recognized in
	Location of Gain or (Loss)	Income on Derivative		Income on Derivative
	Recognized in Income on	Three Months Ended		Three Months Ended
(Dollars in thousands)	Derivative	March 31, 2023		March 31, 2022
Derivatives Not Designated as Hedging Instruments:
Interest Rate Products	Other income / (expense)	$	(161)	$	240
Other Contracts	Other income / (expense)				2
Total		$	(161)	$	242
Fee Income	Fee income	$	384	$	103

32

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of March 31, 2023 and December 31, 2022. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Balance Sheets.

Offsetting of Derivative Assets
as of March 31, 2023
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Posted		Amount
Derivatives	$	18,964	$	$	18,964	$		$	17,280	$	1,684
Offsetting of Derivative Liabilities
as of March 31, 2023
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Posted*		Amount
Derivatives	$	20,365	$	$	20,365	$	20,365	$		$
*Cash collateral of $1,710 was paid in March 2023, but not presented in the table above.
Offsetting of Derivative Assets
as of December 31, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Posted		Amount
Derivatives	$	22,196	$	$	22,196	$		$	14,530	$	7,666
Offsetting of Derivative Liabilities
as of December 31, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Posted		Amount
Derivatives	$	21,466	$	$	21,466	$	21,466	$		$

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of March 31, 2023, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $2.0 million. As of December 31,

33

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

2022, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $2.0 thousand. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and had posted collateral of $1.7 million with dealer counterparties at March 31, 2023. Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the agreement. The cash collateral is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above. If the Company had breached any of these provisions it could have been required to settle its obligations under the agreements at the termination value.

10. Deposits

The major components of interest-bearing and noninterest-bearing deposits at March 31, 2023 and December 31, 2022 are summarized as follows:

(Dollars in thousands)		March 31, 2023		December 31, 2022
Interest-bearing deposits:
Money market accounts	$	775,511	$	685,323
Now accounts		698,888		772,712
Savings accounts		500,709		523,931
Time deposits less than $250		400,327		199,136
Time deposits $250 or more		114,443		92,731
Total interest-bearing deposits		2,489,878		2,273,833
Noninterest-bearing deposits		746,089		772,765
Total deposits	$	3,235,967	$	3,046,598

The deposit base consisted of 48.6% retail accounts, 33.2% commercial accounts, 12.5% municipal relationships and 5.7% brokered deposits at March 31, 2023. At March 31, 2023, 76.6% of deposits were fully insured by the FDIC while $757.4 million or 23.4% of total deposits were uninsured by the FDIC. In addition, at March 31, 2023, $292.0 million in letters of credit issued by the FHLB were pledged as collateral for municipal deposits. As an additional resource to our uninsured depositors, we offer all depositors access to IntraFi's CDARS and ICS programs which allows deposit customers to obtain full FDIC deposit insurance while maintaining the deposit relationship with our Bank.

11. Borrowings

Short-term borrowings consist of FHLB advances representing overnight borrowings or with stated original terms of less than twelve months and other borrowings related to collateral held from derivative counterparties. Total short-term borrowings at March 31, 2023 were $17.3 million as compared to $114.9 million at December 31, 2022. Other borrowings, which include cash collateral pledged by derivative counterparties to offset interest rate exposure, represented the entire balance of $17.3 million at March 31, 2023. The overall decrease to total short-term borrowings from December 31, 2022 is due to paying-off the overnight borrowings at the FHLB with proceeds from the sale of investment securities and deposit growth.

34

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The table below outlines short-term borrowings at and for the three months ended March 31, 2023 and at and for the year ended December 31, 2022:   

		At and for the three months ended March 31, 2023
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
(Dollars in thousands, except percents)	Balance		Balance		Balance		the Year		of the Period
Other borrowings	$	17,280	$	13,841	$	17,280	4.57	%	4.83	%
FHLB advances				77,689		158,000	4.86
Total short-term borrowings	$	17,280	$	91,530	$	175,280	4.81	%	4.83	%

	At and for the year ended December 31, 2022
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
(Dollars in thousands, except percents)	Balance		Balance		Balance		the Year		of the Year
Other borrowings	$	14,530	$	10,033	$	16,100	2.10	%	4.30	%
FHLB advances		100,400		32,647		125,975	2.73		4.45
Total short-term borrowings	$	114,930	$	42,680	$	142,075	2.58	%	4.43	%

The Company has an agreement with the FHLB which allows for borrowings up to its maximum borrowing capacity based on a percentage of qualifying collateral assets. At March 31, 2023, the maximum borrowing capacity was $1.2 billion of which $25.0 million was outstanding in borrowings and $292.0 million was used to issue standby letters of credit to collateralize public fund deposits. At December 31, 2022, the maximum borrowing capacity was $1.2 billion of which $101.0 million was outstanding in borrowings and $388.8 million was used to issue standby letters of credit to collateralize public fund deposits.

Advances with the FHLB are secured under terms of a blanket collateral agreement by a pledge of FHLB stock and certain other qualifying collateral, such as investments and mortgage-backed securities and mortgage loans. Interest accrues daily on the FHLB advances based on rates of the FHLB discount notes. The overnight borrowing rate resets each day.

Long-term debt consisting of advances from the FHLB at March 31, 2023 and December 31, 2022 is as follows:

	Interest Rate
(Dollars in thousands, except percents)	Fixed			March 31, 2023		December 31, 2022
March 2023	4.69	%	$		$	555
March 2025	4.37			10,000
March 2026	4.20			15,000
			$	25,000	$	555

Maturities of long-term debt, by contractual maturity, for the remainder of 2023 and subsequent years are as follows:

(Dollars in thousands)
2025	$	10,000
2026		15,000
	$	25,000

The advances from the FHLB totaling $25.0 million are not convertible.

12. Subordinated debt

On June 1, 2020, the Company sold $33.0 million aggregate principal amount of Subordinated Notes due 2030 (the “2020 Notes”) to accredited investors. The 2020 Notes qualify as Tier 2 capital for regulatory capital purposes.

35

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The 2020 Notes bear interest at a rate of 5.375% per year for the first five years and then float based on a benchmark rate (as defined), provided that the interest rate applicable to the outstanding principal balance during the period the 2020 Notes are floating will at no time be less the 4.75%.  Interest is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 1, June 1, September 1, and December 1. The 2020 Notes will mature on June 1, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after June 1, 2025 and prior to June 1, 2030. Additionally, if all or any portion of the 2020 Notes cease to be deemed Tier 2 Capital, the Company may redeem, in whole and not in part, at any time upon giving not less than ten days’ notice, an amount equal to one hundred percent (100%) of the principal amount outstanding plus accrued but unpaid interest to but excluding the date fixed for redemption.

Holders of the 2020 Notes may not accelerate the maturity of the 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar proceeding by or against the Company or the Bank.

36

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Item 2. 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, 2022.

Cautionary Note Regarding Forward-Looking Statements:

This report 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. 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: the effects of any recession in the United States; the impact on financial markets from geopolitical conflicts such as the military conflict between Russia and Ukraine; risks associated with business combinations; changes in interest rates; economic conditions, particularly in our market area; legislative and regulatory changes and the ability to comply with the significant laws and regulations governing the banking and financial services business; monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of Treasury and the Federal Reserve System; adverse developments in the financial industry generally, such as the recent bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer and client behavior; credit risk associated with lending activities and changes in the quality and composition of our loan and investment portfolios; demand for loan and other products; deposit flows; competition; changes in the values of real estate and other collateral securing the loan portfolio, particularly in our market area; changes in relevant accounting principles and guidelines; inability of third party service providers to perform; and our ability to prevent, detect and respond to cyberattacks. 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, 2022, 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.

Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are incorporated by reference into the MD&A. Certain prior period amounts may have been reclassified to conform with the current year’s presentation. Any reclassifications did not have any effect on our operating results or financial position.

Critical Accounting Policies:

Disclosure of our significant accounting policies is included in Note 1 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2022, which is incorporated herein by reference. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions.

On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) model.  The Company adopted ASU 2016-13 using a modified retrospective approach. Results for reporting periods beginning after January 1, 2023 are

37

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.  At adoption, the Company decreased its allowance for credit losses by $3.0 million. Upon adoption the Company recorded a cumulative effect adjustment that increased stockholders’ equity by $2.4 million, net of tax. For additional information on ASU 2016-13, see the new “Allowance for Credit Losses” policy included in Note 1 “Summary of Significant Accounting Policies”. Other than this, there have been no material changes to our accounting policies from those disclosed on Form 10-K for the year ended December 31, 2022.

Operating Environment:

The first quarter of 2023 has been centered in uncertainty around the lingering possibility of a recession together with existing inflationary conditions.

In addition to these concerns, the banking industry experienced significant volatility due to two recent high-profile bank failures in March 2023, which were followed by a third bank failure at the end of April 2023. These recent bank failures have resulted in significant concerns within the banking industry related to liquidity, deposit outflows, and unrealized losses on investment securities. These concerns and volatility in the banking industry may persist if other industry participants experience similar high-profile financial challenges or if other banks are closed by federal or state banking regulators. These recent events in the banking industry have reinforced the importance of maintaining access to diverse sources of funding and the benefits of a robust and stable deposit base, but the continuing impact of the volatility and turmoil in the banking industry on the Company, and its financial condition and results of operations for the remainder of 2023, is uncertain and cannot be predicted.

In light of the recent events in the banking industry, the Company continues to actively monitor balance sheet trends, deposit flows, and liquidity needs to ensure that the Company and the Bank are able to meet the needs of the Bank’s customers and maintain financial flexibility. Despite the negative developments within the broader banking industry during the first quarter of 2023, the Company’s and the Bank’s regulatory capital ratios continued to exceed the standards to be considered well-capitalized under regulatory requirements. See the discussion under the heading “Capital” within this Item 2 for additional information about the Company’s regulatory capital position.

While inflation decreased since its peak in 2022, it still remains above the Federal Open Market Committee’s

(“FOMC”) long-term desired 2% level for items other than food and energy. Core inflation, as measured by the Consumer Price Index (“CPI”), excluding items known for their volatility such as food and energy, was 5.6% for the 12 months ended March 31, 2023. When including food and energy, CPI increased 5.0% during the 12 months ended March 31, 2023 due primarily to food costs.

Concerns over the high inflation rate have resulted in central bankers in the U.S. continuing to adjust interest rates. The FOMC has increased the federal funds rate three times in 2023 in addition to seven times in 2022 for a total of 500 basis points. These higher rates are expected to continue to negatively impact the fair value of our investment portfolio and to slow economic activity by curbing spending, hiring and investment which may reduce loan demand and result in deposit outflows.

We saw strong loan growth in the first quarter despite these higher rates. However, we have seen lower mortgage origination and sales volume as interest rates on mortgage loans have reached 20 year highs and the housing market cools off. From a funding perspective, the competition and subsequent costs of deposits have increased and likely will continue to increase as the FOMC adjusts rates.

The labor market remains strong with national unemployment at 3.5% in March 2023. This along with a relatively unchanged number of persons not in the labor force has made it difficult and costly for companies to fill open positions and thus could continue to increase our salaries and benefits expenses.

Real gross domestic product (“GDP”) increased at a seasonally adjusted annual rate of 1.1% during the three months ended March 31, 2023, according to the Bureau of Economic Analysis’s “Advance” estimate, after increasing 2.6% in the three months ended December 31, 2022.  The increase in the most recent period may reflected increases in both

38

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

goods and services. Compared to the fourth quarter, the deceleration in real GDP in the first quarter primarily reflected a downturn in private inventory investment and a slowdown in nonresidential fixed investment.

Economic uncertainty and reductions to spending by retail and commercial customers due to rising costs may reduce loan demand and increase loan delinquencies in the near-term.  

Goodwill:

The Company has goodwill with a net carrying value of $63,370 at March 31, 2023 and December 31, 2022. 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 March 31, 2023, 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.

Review of Financial Position:

Total assets increased $125.0 million or 14.3% annualized, to $3.7 billion at March 31, 2023, from $3.6 billion at December 31, 2022. The increase in assets during the three months was due to increases in loan growth and federal funds sold, funded primarily by an increase in deposits. Total loans increased to $2.8 billion at March 31, 2023, compared to $2.7 billion at December 31, 2022, an increase of $88.0 million. Investments decreased $61.1 million due primarily from the sale of securities, including U.S. Treasury bonds, tax-exempt municipal bonds and mortgage-backed securities, with the proceeds of $67.4 million used to pay down high cost, short term borrowings. Federal funds sold balances increased to $102.1 million at March 31, 2023 from zero at December 31, 2022 due to growth of deposits.

Deposits increased $189.4 million to $3.2 billion at March 31, 2023 from $3.0 billion at December 31, 2022 with a $161.4 million increase in brokered deposits and an increase of $114.0 million in retail and commercial accounts, partially offset by a decrease of $82.3 million in municipal deposits. Interest-bearing deposits increased $216.1 million while noninterest-bearing deposits decreased $26.7 million. Total short-term borrowings at March 31, 2023 were $17.3 million, a decrease of $97.6 million from $114.9 million at December 31, 2022, while long term debt increased to $25.0 million at March 31, 2023 from $0.6 million at December 31, 2022.  Total stockholders’ equity increased $13.3 million from $315.4 million at year-end 2022 to $328.6 million at March 31, 2023 due to net income, a decrease to accumulated other comprehensive loss resulting from a lower unrealized loss on available-for-sale investment securities and an increase to retained earnings from the adoption of and transition to CECL, partially offset by dividends paid. The unrealized losses on the held-to-maturity portfolio totaled $12.6 million and $14.6 million at March 31, 2023 and December 31, 2022, respectively. For the three months ended March 31, 2023, total assets averaged $3.6 billion, an increase of $233.3 million from $3.3 billion for the same period of 2022.

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 $418.1 million at March 31, 2023, a decrease of $59.6 million, or 12.5% from $477.7 million at December 31, 2022. The decrease was primarily due to the sale of $65.6 million in securities, which included U.S. Treasury bonds, tax-exempt municipals and mortgage-backed securities, as part of our strategy to add liquidity and reduce short-term borrowings. Over 65% of our available-for-sale investment portfolio consists of U.S. Treasury, U.S. Government agency or U.S. Government-sponsored entities.

Investment securities held-to-maturity, which consisted of 87.5% of U.S. Government agency and U.S. Government-sponsored entities, totaled $89.7 million at March 31, 2023, a decrease of $1.5 million from $91.2 million at December 31, 2022. HTM securities had a market value of $77.1 million at March 31, 2023.

39

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

For the three months ended March 31, 2023, the investment portfolio averaged $599.7 million, a decrease of $34.0 million or 5.4% compared to $633.7 million for the same period last year. Average tax-exempt municipal bonds have decreased $10.0 million or 9.1% to $100.4 million for the three months ended March 31, 2023 from $110.4 million during the comparable period of 2022 due in part to the sale of five tax-exempt municipal bonds during the current three month period. The tax-equivalent yield on the investment portfolio increased 15 basis points to 1.83% for the three months ended March 31, 2023, from 1.68% for the comparable period of 2022.

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 (AOCL) component of stockholders’ equity. We reported net unrealized losses, included as a separate component of stockholders’ equity of $43.5 million net of deferred income taxes of $12.0 million at March 31, 2023, and net unrealized losses of $52.0 million, net of deferred income taxes of $14.3 million, at December 31, 2022.

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 to $2.8 billion at March 31, 2023 from $2.7 billion at December 31, 2022, an increase of $87.9 million.   Our loan growth is due primarily to increases in commercial real estate loans with increases also from residential real estate and indirect loans.

Commercial real estate loans increased $73.1 million or 17.3% annualized, to $1.8 billion at March 31, 2023 compared to $1.7 billion at December 31, 2022 due to increased activity in all our markets.

Consumer loans increased $3.0 million, or 13.4% on an annualized basis, to $93.3 million at March 31, 2023 compared to $90.3 million at December 31, 2022. The increase in consumer loans was due to growth of dealer indirect auto loan originations.

Residential real estate loans increased $11.7 million, or 14.4% on an annualized basis, to $342.5 million at March 31, 2023 compared to $330.7 million at December 31, 2022. The increase in residential mortgages is due to increased home equity loan activity, and a higher percentage of loans not eligible to be sold into the secondary market, including jumbo mortgages.  

For the three months ended March 31, 2023, total loans averaged $2.8 billion, an increase of $418.1 million or 17.8% compared to $2.4 billion for the same period of 2022. The tax-equivalent yield on the entire loan portfolio was 4.66% for the three months ended March 31, 2023, an 81 basis point increase from the comparable period last year. The increase in yield is primarily due to the FOMC increases and its corresponding effect on our offering rates on new originations and the indices at which our adjustable and floating rate loans reprice.

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 March 31, 2023, totaled $684.2 million, consisting of $629.6 million in unfunded commitments of existing loan facilities and $54.6 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, 2022 totaled $689.4

40

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

million, consisting of $631.8 million in unfunded commitments of existing loans and $57.6 million in standby letters of credit.

Asset Quality:

Distribution of nonperforming assets

(Dollars in thousands, except percents)		March 31, 2023			December 31, 2022
Nonaccrual loans	$	1,798		$	2,035
Troubled debt restructured loans (including nonaccrual TDR)					1,351
Accruing loans past due 90 days or more:		59			748
Total nonperforming loans		1,857			4,134
Foreclosed assets
Total nonperforming assets	$	1,857		$	4,134
Total loans held for investment	$	2,818,043		$	2,730,116
Allowance for credit losses		25,444			27,472
Allowance for credit losses as a percentage of loans held for investment		0.90	%		1.01	%
Allowance for credit losses as a percentage of nonaccrual loans		1415.13			1349.98
Nonaccrual loans as a percentage of loans held for investment		0.06			0.07
Nonperforming loans as a percentage of loans, net		0.07			0.15

We experienced improved asset quality during the first three months of 2023 as evidenced by a decrease of $2.3 million in nonperforming assets. Nonperforming assets totaled $1.9 million or 0.05% of total assets at March 31, 2023, a decrease from $4.1 million or 0.12% of total assets at December 31, 2022. The reduction was the result of the removal of troubled debt restructurings due to a change in accounting guidance, a reduced level of loans 90 days or more past due and still accruing, collection activities, and a sizable principal reduction of one commercial real estate loan.

Loans on nonaccrual status, excluding troubled debt restructured nonaccrual loans, decreased $237 thousand to $1.8 million at March 31, 2023 from $2.0 million at December 31, 2022. The decrease to nonaccrual loans since year-end is due primarily to a decrease in commercial real estate loans of $288 thousand partially offset by an increase of $161 thousand to the residential real estate loan portfolio.  Restructured loans decreased to none from $1.4 million at December 31, 2022 due to changes in the accounting guidance. There were no foreclosed properties at March 31, 2023 and at December 31, 2022.

Generally, maintaining a high loan-to-deposit ratio is our primary goal 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.

Effective January 1, 2023 the Company adopted ASU 2016-23 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The standard replaces the incurred loss methodology we previously used to maintain the allowance for loan losses. Upon adoption, the Company decreased its allowance for credit losses by $3.3 million and increased its reserve for losses of unfunded commitments by $270 thousand. The current standard measures the estimated amount of allowance necessary to cover lifetime losses inherent in financial assets at the balance sheet date. The Company estimates the allowance for credit losses on loans via a quantitative analysis which considers relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts. Also included in the allowance are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis or the forecasts utilized. The Company applies the analysis to loans on a collective, or pooled basis for groups of loans which share similar risk characteristics, and will either assign loans to a different pool or evaluate a loan individually if its risk characteristics change and no longer align with its currently assigned pool of loans. For additional information, see Note 1 “Allowance for Credit Losses”.

41

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

The allowance for credit losses equaled $25.4 million or 0.90% of loans, net at March 31, 2023 compared to $27.5 million or 1.01% of loans, net, at December 31, 2022. In addition to the transition adjustment of $3.3 million noted above, a $1.3 million provision for credit losses was applied. Loans charged-off, net of recoveries, for the three months ended March 31, 2023, equaled $9 thousand and less than 0.01% of average loans, compared to $276 thousand or 0.05% of average loans for the comparable period last year. The decrease to charge-offs in the current period is due to improved credit quality resulting in fewer charge-offs.

Deposits:

We attract the majority of our deposits from within our market area through the offering of various deposit instruments including demand deposit accounts, NOW accounts, money market deposit accounts, savings accounts, and time deposits, including certificates of deposit and IRAs.

For the three months ended March 31, 2023, total deposits increased $189.4 million or 25.2% annualized to $3.2 billion from $3.0 billion at December 31, 2022.  Noninterest-bearing deposits decreased $26.7 million, or 14.0% annualized and interest-bearing deposits increased $216.1 million, or 38.5% annualized during the three months ended March 31, 2023. The increase in deposits was due to a $161.4 million net increase in brokered deposits and a $114.0 million increase in retail and commercial accounts partially offset by an $82.3 million seasonal decrease in municipal deposits. During the three months ended March 31, 2023, the Company utilized a portion of its contingency funding sources and added $166.9 million of longer-term callable brokered CDs to improve its on-balance sheet liquidity position. The Company has the option to call the CDs after an initial three or six month period.

Interest-bearing transaction accounts, including NOW and money market accounts were relatively flat at $1.5 billion at March 31, 2023, and December 31, 2022. Savings accounts decreased $23.2 million to $500.7 million as of March 31, 2023 from $523.9 million at December 31, 2022 as rate sensitive depositors shifted a portion of their balances to higher rate offerings both internally and externally. Time deposits less than $250 thousand increased $201.2 million to $400.3 million at March 31, 2023, from $199.1 million at December 31, 2022 primarily due to the addition of $161.4 million in brokered callable certificates of deposit.  Time deposits $250 thousand or more increased $21.7 million to $114.4 million at March 31, 2023 from $92.7 million at year end 2022.

The deposit base consisted of 48.6% retail accounts, 33.2% commercial accounts, 12.5% municipal relationships and 5.7% brokered deposits at March 31, 2023. At March 31, 2023, an estimated 76.6% of deposits were fully insured by the FDIC while $757.4 million or 23.4% of total deposits were not insured by the FDIC. In addition, at March 31, 2023 $292.0 million in letters of credit issued by the FHLB were pledged as collateral for municipal deposits. As an additional resource to our uninsured depositors, we offer all depositors access to IntraFi's CDARS and ICS programs which allows deposit customers to obtain full FDIC deposit insurance while maintaining their relationship with our Bank.

For the three months ended March 31, interest-bearing deposits averaged $2.3 billion in 2023 compared to $2.2 billion in 2022, an increase of $126.3 million or 23.2% annualized. The cost of interest-bearing deposits was 1.68% in 2023 compared to 0.27% for the same period last year. For the first three months, the overall cost of interest-bearing liabilities, including the cost of borrowed funds, was 1.85% in 2023 and 0.35% in 2022. The higher costs are due primarily to increases in interest rates paid on deposits in order to attract and retain current balances. We anticipate that funding costs will continue to increase in the future as a result of the FOMC rate adjustments, local competition for deposits and the cost of alternative funding. The volume and velocity of the rate increases will place pressure on our funding costs.  

Borrowings:

The Bank utilizes borrowings as a secondary source of liquidity for its asset/liability management. Advances are available from the Federal Home Loan Bank of Pittsburgh (“FHLB”) provided certain standards related to credit worthiness have been met. Repurchase and term agreements are also available from the FHLB. In addition, the Bank may borrow from the Federal Reserve utilizing the Discount Window.

Overall, total borrowings were $75.3 million at March 31, 2023, which included a combination of other

42

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

borrowings, long-term debt, and subordinated debt, compared to $148.5 million at December 31, 2022, a decrease of $73.2 million.  There were no overnight borrowings at March 31, 2023 compared to $100.4 million at December 31, 2022 as proceeds from the sale of investment securities and deposit growth in the current period were utilized to pay-down the balance. Other borrowings, which include cash collateral pledged by derivative counterparties to offset interest rate exposure, totaled $17.3 million compared to $14.5 million at December 31, 2022. The increase was primarily due to higher market interest rates.  Long-term debt was $25.0 million at March 31, 2023 compared to $0.6 million at year end 2022 as the Bank utilized its borrowing capacity at the FHLB to add on-balance sheet liquidity and supplement the funding of the loan portfolio growth. Subordinated debt outstanding at March 31, 2023 and December 31, 2022 was $33.0 million.

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 interest rate risk (“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 most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities.

Market interest rates increased rapidly during 2022 and continued to increase into 2023 as the FOMC has raised the federal funds rate. A total of seven increases for a total of 425 basis points occurred in 2022, and three additional increases totaling 75 basis points have been made so far in 2023, resulting in a total of 500 basis points since the beginning of the FOMC’s initiative to curb inflation. It has become challenging to manage IRR. Due to these factors, IRR and effectively managing it are very 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, that 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 1.15% at March 31, 2023, an increase from 0.69% at December 31, 2022. As previously mentioned, a positive gap indicates that if interest rates increase, our earnings would likely be favorably impacted. Given the current economic conditions and outlook, along with the action by the FOMC to

43

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

increase the federal funds rate we should experience increased net interest income. 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 March 31, 2023, 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 reprice 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. Model results at March 31, 2023, 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 2023 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 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 February to review our interest rate risk profile, capital adequacy and liquidity.  Management believes the Company’s liquidity position is strong. At March 31, 2023, the

44

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Company’s cash and due from banks balances were $140.6 million and we maintained $225.0 million of availability at the Federal Reserve Bank’s discount window. The Company also maintains an available-for-sale investment securities portfolio, comprised primarily of highly liquid U.S. Treasury and U.S. agency securities, highly-rated municipal securities and U.S. agency-backed mortgage backed securities. This portfolio serves as a ready source of liquidity and capital. At March 31, 2023, the Company’s available-for-sale investment securities portfolio totaled $418.1 million, $278.2 million of which were unencumbered. Net unrealized losses on the portfolio were $55.5 million. The Bank’s unused borrowing capacity at the FHLB at March 31, 2023 was $863.8 million.

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 March 31, 2023. Our noncore funds at March 31, 2023, were comprised of time deposits in denominations of $100 or more 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. At March 31, 2023, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 10.8%, while our net short-term noncore funding dependence ratio, noncore funds maturing within one-year, less short-term investments to long-term assets equaled 2.1%. Comparatively, our overall noncore dependence ratio at year-end 2022 was 9.6% and our net short-term noncore funding dependence ratio was negative 8.5%, indicating that our reliance on noncore funds has increased overall due to our relatively static deposit balances but improved in the short-term due to our federal funds sold balances.

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 $102.7 million during the three months ended March 31, 2023. Cash and cash equivalents decreased $138.4 million for the same period last year. For the three months ended March 31, 2023, net cash inflows of $112.4 million from financial activities and $4.5 million from operating activities were offset by net cash outflows of $14.2 million from investing activities. For the same period of 2022, net cash inflows of $9.1 million from operating activities were offset by net cash outflows of $2.2 million from financing activities and by net cash outflows of $145.4 million from investing activities.

Operating activities provided net cash of $4.5 million for the three months ended March 31, 2023, and $9.1 million for the corresponding three months of 2022. Net income, adjusted for the effects of gains and losses along with noncash transactions such as depreciation and the provision for credit losses, is the primary source of funds from operations.

Investing activities primarily include transactions related to our lending activities and investment portfolio. Investing activities used net cash of $14.2 million for the three months ended March 31, 2023, compared to using net cash of $145.4 million for the same period of 2022. A net increase in loans less proceeds from investment sales were the primary factors causing the net cash outflow from investing activities.

Financing activities provided net cash of $112.4 million for the three months ended March 31, 2023, and used net cash of $2.2 million for the corresponding three months of 2022. In 2023, deposit gathering was our predominant financing activity. Deposits provided cash of $189.4 million for the three months ended March 31, 2023 while short term borrowings decreased $97.7 million. 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. The current sources of funds will enable us to meet all cash obligations as they come due.

Capital:

Stockholders’ equity totaled $328.6 million or $45.96 per share at March 31, 2023, compared to $315.4 million or $44.06 per share at December 31, 2022. Stockholders’ equity increased during the three month period ended March 31,

45

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

2023 primarily due to a lower AOCL of $6.9 million resulting from a reduction in the unrealized loss on investment securities and addition of $2.4 million to retained earnings from our adoption of CECL, partially offset by cash dividends declared of $2.9 million and the repurchase of 16,573 common shares totaling $0.8 million. Net income of $7.6 million for the three months ended March 31, 2023 was added to our capital position during the period.

Dividends declared equaled $0.41 per share through the three months ended March 31, 2023 and $0.39 per share for the same period of 2022. The dividend payout ratio was 39.0% for the three months ended March 31, 2023 and 29.3% for the same period of 2022. The Company has paid cash dividends since its formation as a bank holding company in 1986. It is the present intention of the Board of Directors to continue this dividend payment policy. The Board declared on April 28, 2023 a second quarter dividend of $0.41 per share payable on June 15, 2023 to shareholders of record as of May 31, 2023. 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.

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 March 31, 2023, the Bank’s Tier 1 capital to total average assets was 9.66% as compared to 9.69% at December 31, 2022. The Bank’s Tier 1 capital to risk weighted asset ratio was 12.00% and the total capital to risk weighted asset ratio was 12.88% at March 31, 2023. These ratios were 12.27% and 13.26% at December 31, 2022. The Bank’s common equity Tier 1 to risk weighted asset ratio was 12.00% at March 31, 2023 compared to 12.27% at December 31, 2022. The Bank met all capital adequacy requirements and was deemed to be well-capitalized under regulatory standards at March 31, 2023.

Review of Financial Performance:

Peoples reported net income of $7.6 million or $1.05 per diluted share for the three months ended March 31, 2023, a 21.3% decrease when compared to $9.6 million or $1.33 per share for the comparable period of 2022. The decrease in earnings for the three months ended March 31, 2023 was due to a higher provision for credit losses and higher operating expenses which offset an increase in net interest income and noninterest income.

Return on average assets (“ROA”) measures our net income in relation to total assets. Our annualized ROA was 0.86% for the first quarter of 2023 compared to 1.17% for the same period of 2022. Return on average equity (“ROE”) indicates how effectively we can generate net income on the capital invested by stockholders. Our annualized ROE was 9.43% for the first quarter of 2023 compared to 11.82% for the comparable period in 2022.

46

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Non-GAAP Financial Measures:

The following are non-GAAP financial measures which 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 2023 and 2022.

The following table reconciles the non-GAAP financial measures of FTE net interest income for the three months ended March 31, 2023 and 2022:

(Dollars in thousands)	2023		2022
Interest income (GAAP)	$	34,278	$	24,571
Adjustment to FTE		487		445
Interest income adjusted to FTE (non-GAAP)		34,765		25,016
Interest expense		11,234		1,940
Net interest income adjusted to FTE (non-GAAP)	$	23,531	$	23,076

The efficiency ratio is noninterest expenses, less amortization of intangible assets, as a percentage of FTE net interest income plus noninterest income less gains on equity securities and gains on sale of assets. The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP for the three months ended March 31, 2023 and 2022:

(Dollars in thousands, except percents)	2023			2022
Efficiency ratio (non-GAAP):
Noninterest expense (GAAP)	$	16,486		$	14,289
Less: amortization of intangible assets expense		29			96
Noninterest expense adjusted for amortization of assets expense (non-GAAP)		16,457			14,193
Net interest income (GAAP)		23,044			22,631
Plus: taxable equivalent adjustment		487			445
Noninterest income (GAAP)		3,674			3,421
Less: net (losses) gains on equity securities		(29)			4
Less: net (losses) gains on sale of available for sale securities		81
Net interest income (FTE) plus noninterest income (non-GAAP)	$	27,153		$	26,493
Efficiency ratio (non-GAAP)		60.6	%		53.6	%

Net Interest Income:

Net interest income is the fundamental source of earnings for commercial banks. Fluctuations in the level of net interest income can have the greatest impact on net profits. Net interest income is defined as the difference between interest revenue, 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.

47

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Changes in net interest income are measured by 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 herein on a tax-equivalent basis using the prevailing federal statutory tax rate of 21.0% in 2023 and 2022.

For the three months ended March 31, tax-equivalent net interest income increased $455 thousand to $23.5 million in 2023 from $23.1 million in 2022. The net interest spread decreased to 2.31% for the three months ended March 31, 2023 from 2.87% for the three months ended March 31, 2022 as the earning asset yield increased 94 basis points while the average rate paid on interest-bearing liabilities increased 150 basis points. The tax-equivalent net interest margin decreased to 2.81% for the first quarter of 2023 from 2.97% for the comparable period of 2022.

For the three months ended March 31, tax-equivalent interest income, a non-GAAP measure, on earning assets increased $9.7 million to $34.7 million in 2023 as compared to $25.0 million in 2022. The overall yield on earning assets, on a fully tax-equivalent basis, increased 94 basis points for the three months ended March 31, 2023 to 4.16% as compared to 3.22% for the three months ended March 31, 2022. The increase to tax-equivalent interest income is due to the increase in rates for newly acquired assets and rising rate indices, coupled with an increase in our earning asset base of $236.6 million. The overall yield earned on investments increased 15 basis points in the first quarter of 2023 to 1.83% from 1.68% for the first quarter of 2022 as a result of our sale of lower yielding bonds. Average investment balances were $34.0 million lower when comparing the current and year ago quarter. Average federal funds sold decreased $142.9 million to $19.4 million for the three months ended March 31, 2023 and yielded 5.09%, as compared to $162.2 million and yield of 0.18% in the year ago period, to fund our loan growth. We expect asset yields to move upward as asset cash flow reprices higher due to the recent increases to the federal funds rate by the FOMC and expectation of a further rate increase by the FOMC to combat inflation.  

Total interest expense increased $9.3 million to $11.2 million for the three months ended March 31, 2023 from $1.9 million for the three months ended March 31, 2022. The total cost of funds increased 150 basis points for the three months ended March 31, 2023 to 1.85% as compared to 0.35% in the year ago period. The increase in costs was due to higher rates paid on both interest-bearing deposits and short term borrowings, combined with higher average balances in the current period. Average rates paid on deposits increased as the result of the FOMC’s corresponding rate increases and local competition for deposits. We expect funding costs to continue to increase into 2023 as market rates rise as the result of anticipated additional FOMC increases.

48

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Net interest income changes due to rate and volume for the three months ended March 31

	2023 vs 2022
	Increase (decrease)
	attributable to
(Dollars in thousands)	Total		Rate		Volume
Interest income:
Loans:
Taxable	$	9,196	$	4,950	$	4,246
Tax-exempt		287		134		153
Investments:
Taxable		154		655		(501)
Tax-exempt		(70)		(12)		(58)
Interest-bearing deposits		12		23		(11)
Federal funds sold		170		282		(112)
Total interest income		9,749		6,032		3,717
Interest expense:
Money market accounts		4,203		4,105		98
NOW accounts		2,318		2,693		(375)
Savings accounts		123		122		1
Time deposits less than $100		879		666		213
Time deposits $100 or more		687		663		24
Short-term borrowings		1,086				1,086
Long-term debt		(1)		(1)
Subordinated debt		(1)		(1)
Total interest expense		9,294		8,247		1,047
Net interest income - non-GAAP	$	455	$	(2,215)	$	2,670

Tax-equivalent net interest income, a non-GAAP measure, was $23.5 million in the three months ended March 31, 2023 and $23.1 million in the comparable period last year. There was a positive volume variance that was partially offset by a negative rate variance. The growth in average earning assets exceeded that of interest-bearing liabilities, and resulted in additional tax-equivalent net interest income, a non-GAAP measure, of $2.7 million. A rate variance resulted in a decrease in net interest income of $2.2 million.

Average earning assets increased $236.6 million to $3.4 billion for the three months ended March 31, 2023

from $3.2 billion for the three months ended March 31, 2022 and accounted for a $3.7 million increase in interest income. Average loans increased $418.1 million, which caused interest income to increase $4.4 million. Average taxable investments decreased $24.0 million comparing 2023 and 2022, which resulted in decreased interest income of $501 thousand while average tax-exempt investments decreased $10.0 million, which resulted in a decrease to interest income of $58 thousand. Average federal funds sold decreased $142.9 million for the three months ended March 31, 2023 which resulted in a decrease of $112 thousand to interest income.

Average interest-bearing liabilities rose $126.3 million to $2.5 billion for the three months ended March 31, 2023 from $2.2 billion for the three months ended March 31, 2022 resulting in a net increase in interest expense of $1.0 million. Interest-bearing deposit accounts, including money market, NOW and savings accounts grew $44.1 million, however, interest expense decreased $276 thousand. In addition, large denomination time deposits averaged $17.3 million more in the current period and caused interest expense to increase $24 thousand. An increase of $64.9 million in average time deposits less than $100 thousand resulted in an increase to interest expense of $213 thousand. In addition, short-term borrowings averaged $91.5 million higher and increased interest expense $1.1 million while long-term remained relatively unchanged comparing the first three months of 2023 and 2022.

An unfavorable rate variance occurred, as the tax-equivalent yield on earning assets increased 94 basis points while there was a 150 basis point increase in the cost of funds. As a result, tax-equivalent net interest income decreased $2.2 million

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

comparing the three months ended March 31, 2023 and 2022. The tax-equivalent yield on earning assets was 4.16% in the 2023 period compared to 3.22% in 2022 resulting in an increase in interest income of $6.0 million. The yield on the taxable investment portfolio increased 20 basis points to 1.73% during the three months ended March 31, 2023 from 1.53% in the year ago period, resulting in an increase of $655 thousand in interest income. The yield on the tax exempt investment portfolio decreased 4 basis points to 2.33% during the three months ended March 31, 2023 from 2.37% in the year ago period, resulting in a decrease of $12 thousand. The tax-equivalent yield on the loan portfolio increased 81 basis points to 4.66% in 2023 from 3.85% in 2022 and resulted in an increase to interest income of $5.1 million.

The yield on interest bearing deposits increased 141 basis points to 1.68 % from 0.27% in the year ago period resulting in an increase in interest expense of $8.2 million. The yield on long term borrowings and subordinated debt was relatively flat when compared to a year ago.

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 a tax equivalent basis using the prevailing federal statutory tax rate of 21%.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

	Three months ended
	March 31, 2023						March 31, 2022
	Average		Interest Income/		Yield/		Average		Interest Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Earning assets:
Loans:
Taxable	$	2,546,068	$	30,049	4.79	%	$	2,148,251	$	20,853	3.94	%
Tax-exempt		223,917		1,757	3.18			203,645		1,470	2.93
Total loans		2,769,985		31,806	4.66			2,351,896		22,323	3.85
Investments:
Taxable		499,327		2,126	1.73			523,301		1,972	1.53
Tax-exempt		100,368		576	2.33			110,394		646	2.37
Total investments		599,695		2,702	1.83			633,695		2,618	1.68
Interest-bearing deposits		1,218		14	4.66			5,888		2	0.14
Federal funds sold		19,353		243	5.09			162,218		73	0.18
Total earning assets		3,390,251		34,765	4.16	%		3,153,697		25,016	3.22	%
Less: allowance for credit losses		24,557						28,717
Other assets		209,151						216,581
Total assets	$	3,574,845	$	34,765			$	3,341,561	$	25,016
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Money market accounts	$	721,864	$	4,588	2.58	%	$	595,991	$	385	0.26	%
NOW accounts		731,398		2,806	1.56			820,016		488	0.24
Savings accounts		512,655		216	0.17			505,816		93	0.07
Time deposits less than $100		192,519		1,181	2.49			127,610		302	0.96
Time deposits $100 or more		179,515		887	2.00			162,196		200	0.50
Total interest-bearing deposits		2,337,951		9,678	1.68			2,211,629		1,468	0.27
Short-term borrowings		91,530		1,086	4.81
Long-term debt		2,482		27	4.41			2,474		28	4.59
Subordinated debt		33,000		443	5.44			33,000		444	5.38
Total borrowings		127,012		1,556	4.97			35,474		472	5.32
Total interest-bearing liabilities		2,464,963		11,234	1.85			2,247,103		1,940	0.35
Noninterest-bearing deposits		744,931						734,348
Other liabilities		38,917						29,816
Stockholders’ equity		326,034						330,294
Total liabilities and stockholders’ equity	$	3,574,845					$	3,341,561
Net interest income/spread			$	23,531	2.31	%			$	23,076	2.87	%
Net interest margin					2.81	%					2.97	%
Tax-equivalent adjustments:
Loans			$	368					$	309
Investments				119						136
Total adjustments			$	487					$	445

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Provision for Credit Losses:

Effective January 1, 2023 the Company transitioned to ASU 2016-13 Financial Instruments - Credit Losses (Topic 326), commonly referred to as CECL. 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 March 31, 2023. Refer to Note 1 “Summary of Significant Accounting Policies” for additional detail due to CECL adoption impact effective January 1, 2023.

For the three months ended March 31, 2023, the provision for credit losses increased $1.0 million to $1.3 million from $0.3 million in the year ago period primarily due to loan growth and the change to projected portfolio loss rates associated with application and update of the economic forecast in our CECL model.

Noninterest Income:

Noninterest income for the three months ended March 31, 2023 was $3.7 million, an increase of $0.3 million or 7.4% from $3.4 million in the same quarter a year ago. The increase was primarily due to higher retail and commercial account service charges of $273 thousand and a gain of $81 thousand on the sale of available for sale securities, partially offset by a decrease in swap related revenue of $120 thousand.

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, 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 $2.2 million or 15.4% to $16.5 million for the three months ended March 31, 2023, from $14.3 for the same period a year ago. Salaries and employee benefits increased $1.0 million or 12.9% due to annual merit increases, new hires, and higher benefit costs. Occupancy and equipment expenses were higher by $264 thousand in the current period due to an increase in transactional costs relating to our expansion market volume. Other expenses increased $433 thousand primarily due to higher account processing fees, and FDIC assessment accruals increased by $175 thousand. The year ago period included gains on the sale of other real estate owned of $458 thousand, there were no comparable transactions in the current period.

Income Taxes:

We recorded income tax expense of $1.4 million or 15.5% of pre-tax income for the three months ended March 31, 2023. This compares to the three month period ended March 31, 2022 in which we recorded tax expense of $1.8 million or 16.0% of pre-tax income. A slight increase in our tax free loan portfolio average balance resulted in a corresponding slight decrease in tax expense as a percentage of income. Lower income tax expense was due lower pre-tax income for the three months ended March 31, 2023 compared to the prior year’s period.

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Peoples Financial Services Corp.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market risk is the risk to our earnings and/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 interest rate risk (“IRR”), which arises from our lending, investing and deposit gathering activities. Our market risk sensitive instruments consist of derivative and non-derivative financial instruments, none of which are entered into for trading purposes. 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 reported earnings and/or the market value of net worth. Variations in interest rates affect the underlying economic value of 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. Interest rate changes affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. IRR is inherent in the role of banks as financial intermediaries.

A bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities. Interest rate risk is the risk of loss to future earnings due to changes in interest rates. The Asset Liability Committee (“ALCO”) is responsible for establishing policy guidelines on liquidity and acceptable exposure to interest rate risk. Generally quarterly, ALCO reports on the status of liquidity and interest rate risk matters to the Company’s board of directors. The objective of the ALCO is to manage assets and funding sources to produce results that are consistent with the Company’s liquidity, capital adequacy, growth, risk and profitability goals and are within policy limits.

The Company utilizes the pricing and structure of loans and deposits, the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, and off-balance sheet interest rate contracts to manage interest rate risk. The off-balance sheet interest rate contracts may include interest rate swaps, caps and floors. These interest rate contracts involve, to varying degrees, credit risk and interest rate risk. Credit risk is the possibility that a loss may occur if a counterparty to a transaction fails to perform according to terms of the contract. The notional amount of the interest rate contracts is the amount upon which interest and other payments are based. The notional amount is not exchanged, and therefore, should not be taken as a measure of credit risk. See Note 14 to the Audited Consolidated Financial Statements for additional information.

The ALCO uses income simulation to measure interest rate risk inherent in the Company’s on-balance sheet and off-balance sheet financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 24-month horizon and a 60-month horizon. The simulations assume that the size and general composition of the Company’s balance sheet remain static over the simulation horizons, with the exception of certain deposit mix shifts from low-cost time deposits to higher cost time deposits in selected interest rate scenarios. Additionally, the simulations take into account the specific repricing, maturity, call options, and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios. The characteristics of financial instrument classes are reviewed typically quarterly by the ALCO to ensure their accuracy and consistency.

The ALCO reviews simulation results to determine whether the Company’s exposure to a decline in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure. As of March 31, 2023 and December 31, 2022, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Company. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where both interest rates and the composition of the Company’s balance sheet remain stable for a 24-month and 60-month period. In addition to measuring the change in net interest income as compared to an unchanged interest rate scenario, the ALCO also measures the trend of both net interest income and net interest margin over a 24-month and 60-month horizon to ensure the stability and adequacy of this source of earnings in different interest rate scenarios

Model results at March 31, 2023 indicated a lower starting level of net interest income (“NII”) compared to the December 31, 2022 model as balance sheet growth, a shift in balance sheet mix and higher assumed market rates were more than offset by higher interest-bearing liability costs leading to a decrease to the balance sheet spread of 26 basis

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Peoples Financial Services Corp.

points. After the first twelve months of the model simulation, the benefit to NII increases as a result of the higher assumed replacement rates on assets resulting from the FOMC’s increase to the federal funds rate of 500 basis points since March 2022. Our interest rate risk position exhibits a relatively well-matched position to both rising and falling interest rate environments in the first year of simulation while a sustained falling rate environment presents the greatest potential risk to NII over the longer-term horizon. This position at March 31, 2023 is more asset-sensitive than the simulation at December 31, 2022 indicated due to the increase in our floating rate overnight federal funds sold position resulting, in part, to the strategy to add longer term fixed rate callable deposits and fixed rate FHLB advances to mitigate exposure to rising rates.

The ALCO regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including scenarios showing the effect of steepening or flattening changes in the yield curve as well as parallel changes in interest rates of up to 400 basis points. Because income simulations assume that the Company’s balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts.

During 2022, the FOMC increased the federal funds target rate in part to mitigate historically high inflation. Through March 31, 2023, there have been ten rate increases totaling 500 basis points. Although we have realized higher rates on our existing adjustable rate loans and new originations, our average funding costs have been under pressure and during the three months ended March 31, 2023 increased 65 basis points compared to the three months ended December 31, 2022 as rate-sensitive customers seek higher returns. We expect our funding costs to continue to increase in the future due to expectations the FOMC will continue to increase the targeted federal funds rate which may negatively impact our net interest income.

The projected impacts of instantaneous changes in interest rates on our net interest income and economic value of equity at March 31, 2023, based on our simulation model, as compared to our ALCO policy limits are summarized as follows:

	March 31, 2023
	% Change in
Changes in Interest Rates (basis points)	Net Interest Income		Economic Value of Equity
	Metric	Policy	Metric	Policy
+400	(0.7)	(20.0)	13.4	(40.0)
+300	(0.7)	(20.0)	11.0	(30.0)
+200	(0.8)	(10.0)	7.8	(20.0)
+100	(0.1)	(10.0)	5.2	(10.0)
Static
-100	(0.3)	(10.0)	(8.7)	(10.0)
-200	(1.6)	(10.0)	(22.4)	(20.0)
-300	(3.2)	(20.0)	(40.2)	(30.0)
-400	(7.7)	(20.0)	(76.9)	(40.0)

Our simulation model creates pro forma net interest income scenarios under various interest rate shocks. Given instantaneous and parallel shifts in general market rates of plus 100 basis points, our projected net interest income for the 12 months ending March 31, 2023, would decrease 0.1% from model results using current interest rates. Additional disclosures about market risk are included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, and in Part I, Item 2 of this quarterly report, in each case under the heading “Market Risk Sensitivity,” and are incorporated into this Item 3 by reference.

The Company has certain loans and derivative instruments whose interest rate is indexed to the London Inter Bank Offered Rate (“LIBOR”). The LIBOR index will be discontinued for U.S. Dollar settings effective June 30, 2023. The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Funding Rate ("SOFR") replace USD-LIBOR. The Company has contracts that are indexed to USD-LIBOR. The Company formed a LIBOR transition team to monitor this activity. The Company has transitioned the majority of its LIBOR-indexed loans to alternative indexes, including prime and Term SOFR, and adjusting the spread to maintain the overall yield. There are

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Peoples Financial Services Corp.

approximately $7 million in loans which have not yet been transitioned, but the borrowers have been notified that their loans will be converted by June 30, 2023.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

At March 31, 2023, the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that the disclosure controls and procedures, at March 31, 2023, were effective to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosure.

(b) Changes in internal control.

Effective January 1, 2023, the Company adopted the CECL accounting standard. The Company designed new controls and modified existing controls as part of its adoption. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data.

Except for the change in controls relating to the adoption of the CECL accounting standard, there were no other changes in the Company’s internal control over financial reporting in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the fiscal quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The nature of the Company’s business generates a certain amount of litigation involving matters arising out of the ordinary course of business. In the opinion of management, there were no legal proceedings that had or might have a material effect on the consolidated results of operations, liquidity, or the financial position of the Company during the three-months ended March 31, 2023 and through the date of this quarterly report on Form 10-Q.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2022 (2022 Form 10-K) describes market, credit, and business operations risk factors that could affect our business, results of operations or financial condition. Other than the risk factors set forth below, there have been no material changes from the risk factors as previously disclosed in our 2022 Form 10-K.

Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system.

The recent high-profile bank failures involving Silicon Valley Bank and Signature Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the Company. On May 1, 2023 First Republic Bank was also closed by its primary state regulator, which appointed the FDIC as receiver, and the FDIC announced that JP Morgan Chase Bank, National Association agreed to assume all of First Republic Bank’s deposits and substantially all of its assets. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain

55

Peoples Financial Services Corp.

deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.

Rising interest rates have decreased the value of the Company’s held-to-maturity securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the held-to-maturity and available for sale portion of U.S. banks’ securities portfolios. While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company’s expenses and affect the Company’s operations.

The Company also anticipates increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank, designed to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition and the level of uninsured deposits. As primarily a commercial bank, the Bank has a high degree of uninsured deposits compared to larger national banks or smaller community banks with a stronger focus on retail deposits. As a result, the Bank could face increased scrutiny or be viewed as higher risk by regulators and the investor community. Also, as a result of the recent bank failures, future FDIC deposit assessments are expected to increase and may have a material impact of the Company’s profitability.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On January 29, 2021, our board of directors authorized a common stock repurchase plan whereby we are authorized to repurchase up to 343,400 shares of our outstanding common stock through open market purchases. On April 27, 2023, we announced that we have temporarily suspended our repurchase plan.

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Peoples Financial Services Corp.

The following purchases were made by or on behalf of the Company or any “affiliated purchaser,” as defined in the Exchange Act Rule 10b-18(a)(3), of the Company’s common stock during each of the months for the quarter ended March 31, 2023.

				Total Number of	Maximum Number
				Shares Purchased	of Shares that may
				as Part of Publicly	yet be Purchased
	Total Number of		Average Price	Announced	Under the
Month Ending	Shares Purchased		Paid Per Share	Programs	Programs
January 31, 2023	1,342	$	50.00	277,865	274,085
February 28, 2023	6,558		49.82	284,423	267,527
March 31, 2023	8,673		49.73	293,096	258,854

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Item Number	Description
31.1	CEO Certification Pursuant to Rule 13a-14 (a) /15d-14 (a).
31.2	CFO Certification Pursuant to Rule 13a-14 (a) /15d-14 (a). (a).
32	CEO and CFO Certifications Pursuant to Section 1350.
101	The following materials from Peoples Financial Services Corp. Quarterly Report on Form 10-Q for the period ended March 31, 2023, formatted in inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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Peoples Financial Services Corp.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto, duly authorized.

	Peoples Financial Services Corp.
	(Registrant)
Date: May 10, 2023	/s/ Craig W. Best
	Craig W. Best
	Chief Executive Officer
	(Principal Executive Officer)
Date: May 10, 2023	/s/ John R. Anderson, III
	John R. Anderson, III
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

58

EX-31.1

Peoples Financial Services Corp.

Exhibit 31.1

CERTIFICATION

I, Craig W. Best, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2023, of Peoples Financial Services Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13A-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in the quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Craig W. Best

Chief Executive Officer

(Principal Executive Officer)

Date: May 10, 2023

EX-31.2

Peoples Financial Services Corp.

Exhibit 31.2

CERTIFICATION

I, John R. Anderson, III, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2023, of Peoples Financial Services Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13A-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in the quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ John R. Anderson, III

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: May 10, 2023

EX-32

Peoples Financial Services Corp.

Exhibit 32

SECTION 1350 CERTIFICATIONS

In connection with the Quarterly Report on Form 10-Q of Peoples Financial Services Corp. (the “Company”) for the period ended March 31, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, Craig W. Best, Chief Executive Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. To my knowledge, the information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

/s/ Craig W. Best

Chief Executive Officer

(Principal Executive Officer)

Date: May 10, 2023

/s/ John R. Anderson, III

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: May 10, 2023

A signed copy of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2023	May 01, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2023
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Transition Report	false
Entity File Number	001-36388
Entity Registrant Name	PEOPLES FINANCIAL SERVICES CORP.
Entity Incorporation, State or Country Code	PA
Entity Tax Identification Number	23-2391852
Entity Address, Address Line One	150 North Washington Avenue
Entity Address, City or Town	Scranton
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	18503
City Area Code	570
Local Phone Number	346-7741
Title of 12(b) Security	Common stock, $2.00 par value
Trading Symbol	PFIS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		7,150,757
Document Fiscal Period Focus	Q1
Entity Central Index Key	0001056943
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Cash and cash equivalents
Cash and due from banks	$ 31,354	$ 37,675
Interest-bearing deposits in other banks	7,129	193
Federal funds sold	102,100
Total cash and cash equivalents	140,583	37,868
Investment securities:
Available-for-sale	418,125	477,703
Equity investments carried at fair value	81	110
Held-to-maturity: Fair value March 31, 2023, $77,073; December 31, 2022, $76,563	89,705	91,179
Total investment securities	507,911	568,992
Loans	2,818,043
Less: allowance for credit losses	25,444	27,472
Net loans	2,792,599
Loans	2,818,043	2,730,116
Less: allowance for credit losses		27,472
Net loans		2,702,644
Goodwill	63,370	63,370
Premises and equipment, net	56,561	55,667
Bank owned life insurance	48,598	48,344
Deferred tax assets	16,015	18,739
Accrued interest receivable	11,678	11,715
Intangible assets, net	77	105
Other assets	41,079	46,071
Total assets	3,678,471	3,553,515
Deposits:
Noninterest-bearing	746,089	772,765
Interest-bearing	2,489,878	2,273,833
Total deposits	3,235,967	3,046,598
Short-term borrowings	17,280	114,930
Long-term debt	25,000	555
Subordinated debentures	33,000	33,000
Accrued interest payable	2,304	903
Other liabilities	36,286	42,179
Total liabilities	3,349,837	3,238,165
Stockholders' equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,150,757 shares at March 31, 2023 and 7,158,017 shares at December 31, 2022	14,323	14,321
Capital surplus	126,231	126,850
Retained earnings	237,522	230,515
Accumulated other comprehensive loss	(49,442)	(56,336)
Total stockholders' equity	328,634	315,350
Total liabilities and stockholders' equity	$ 3,678,471	$ 3,553,515

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
CONSOLIDATED BALANCE SHEETS
Held-to-maturity, Fair value	$ 77,073	$ 76,563
Common stock, par value	$ 2.00	$ 2.00
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	7,150,757	7,158,017
Common stock, shares outstanding	7,150,757	7,158,017

XML

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Interest and fees on loans:
Taxable	$ 30,049	$ 20,853
Tax-exempt	1,389	1,161
Interest and dividends on investment securities:
Taxable	2,124	1,972
Tax-exempt	457	510
Dividends	2
Interest on interest-bearing deposits in other banks	14	2
Interest on federal funds sold	243	73
Total interest income	34,278	24,571
Interest expense:
Interest on deposits	9,678	1,468
Interest on short-term borrowings	1,086
Interest on long-term debt	27	28
Interest on subordinated debt	443	444
Total interest expense	11,234	1,940
Net interest income	23,044	22,631
Provision for credit losses	1,264	300
Net interest income after provision for credit losses	21,780	22,331
Noninterest income:
Mortgage banking income	103	144
Increase in cash surrender value of life insurance	258	218
Interest rate swap revenue	223	343
Net (losses) gains on equity investment securities	(29)	4
Net gains on sale of investment securities available for sale	81
Total noninterest income	3,674	3,421
Noninterest expense:
Salaries and employee benefits expense	9,080	8,040
Net occupancy and equipment expense	4,103	3,825
Amortization of intangible assets	29	96
Net gain on sale of other real estate owned		(458)
Professional fees and outside services	619	470
FDIC insurance and assessments	501	326
Donations	397	334
Other expenses	1,757	1,656
Total noninterest expense	16,486	14,289
Income before income taxes	8,968	11,463
Provision for income tax expense	1,389	1,833
Net income	7,579	9,630
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available-for-sale	10,836	(32,612)
Reclassification adjustment for net gain on sales included in net income	(81)
Change in derivative fair value	(1,970)	(493)
Other comprehensive income (loss)	8,785	(33,105)
Income tax expense (benefit) related to other comprehensive income (loss)	1,891	(6,952)
Other comprehensive income (loss), net of income tax expense (benefit)	6,894	(26,153)
Comprehensive income (loss)	$ 14,473	$ (16,523)
Per share data:
Basic	$ 1.06	$ 1.34
Diluted	$ 1.05	$ 1.33
Average common shares outstanding:
Basic	7,157,553	7,172,455
Diluted	7,198,970	7,216,421
Dividends declared	$ 0.41	$ 0.39
Service charges, fees, commissions and other
Noninterest income:
Revenue from contracts with customers	$ 1,965	$ 1,692
Merchant services income
Noninterest income:
Revenue from contracts with customers	118	114
Commission and fees on fiduciary activities
Noninterest income:
Revenue from contracts with customers	557	555
Wealth management income
Noninterest income:
Revenue from contracts with customers	$ 398	$ 351

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Capital Surplus	Retained Earnings Cumulative impact of adoption	Retained Earnings	Accumulated Other Comprehensive Loss	Cumulative impact of adoption	Total
Balance at Dec. 31, 2021	$ 14,341	$ 127,549		$ 203,750	$ (5,514)		$ 340,126
Net income				9,630			9,630
Other comprehensive income (loss), net of income tax					(26,153)		(26,153)
Dividends declared				(2,796)			(2,796)
Stock based compensation		(28)					(28)
Restricted stock issued: unearned income	24	(24)
Share retirement	(13)	(305)					(318)
Balance at Mar. 31, 2022	14,352	127,192		210,584	(31,667)		320,461
Balance at Dec. 31, 2022	14,321	126,850		230,515	(56,336)		315,350
Net income				7,579			7,579
Other comprehensive income (loss), net of income tax					6,894		6,894
Dividends declared				(2,936)			(2,936)
Stock based compensation		209					209
Restricted stock issued: unearned income	35	(35)
Share retirement	(33)	(793)					(826)
Balance (ASU 2016-13) at Mar. 31, 2023			$ 2,364			$ 2,364
Balance at Mar. 31, 2023	$ 14,323	$ 126,231		$ 237,522	$ (49,442)		$ 328,634

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Dividends declared (in dollars per share)	$ 0.41	$ 0.39
Restricted stock issued, shares	17,640	12,332
Share retirement, shares	16,573	6,714
Unearned income		$ 210

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Cash flows from operating activities:
Net income	$ 7,579	$ 9,630
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment	703	663
Amortization of right-of-use lease asset	124	146
Amortization of deferred loan fees, net	150	949
Amortization of intangibles	29	96
Amortization of low income housing partnerships	121	121
Provision for credit losses	1,264	300
Net unrealized loss (gain) on equity investment securities	29	(4)
Net gain on sale of other real estate owned		(458)
Loans originated for sale	(1,244)	(3,798)
Proceeds from sale of loans originated for sale	1,245	4,069
Net gain on sale of loans originated for sale	(1)	(24)
Net amortization of investment securities	290	431
Net loss (gain) on sale of investment securities available-for-sale	(81)
Gain on sale of premises and equipment	(14)	(5)
Increase in cash surrender value of life insurance	(258)	(218)
Deferred income tax expense	183	4
Stock based compensation	209	(28)
Net change in:
Accrued interest receivable	37	(693)
Other assets	(3,019)	(3,869)
Accrued interest payable	1,401	436
Other liabilities	(4,198)	1,388
Net cash provided by operating activities	4,549	9,136
Cash flows from investing activities:
Proceeds from sales of investment securities available-for-sale	67,362
Proceeds from repayments of investment securities:
Available-for-sale	2,791	12,897
Held-to-maturity	1,446	1,207
Purchases of investment securities:
Available-for-sale		(64,051)
Held-to-maturity		(25,873)
Net redemption of restricted equity securities	4,743	1,352
Net increase in loans	(88,086)	(69,733)
Investment in bank owned life insurance		(1,081)
Purchases of premises and equipment	(2,506)	(1,284)
Proceeds from the sale of premises and equipment	14	5
Proceeds from bank owned life insurance		225
Proceeds from sale of other real estate owned		946
Net cash used in investing activities	(14,236)	(145,390)
Cash flows from financing activities:
Net increase in deposits	189,369	1,467
Proceeds from long-term debt	25,000
Repayment of long-term debt	(555)	(529)
Net decrease in short-term borrowings	(97,650)
Retirement of common stock	(826)	(318)
Cash dividends paid	(2,936)	(2,796)
Net cash provided (used) by financing activities	112,402	(2,176)
Net increase (decrease) in cash and cash equivalents	102,715	(138,430)
Cash and cash equivalents at beginning of period	37,868	279,933
Cash and cash equivalents at end of period	140,583	141,503
Cash paid during the period for:
Interest	9,833	1,504
Income taxes	47	$ 35
Noncash items:
Initial recognition of right-of-use assets	(785)
Initial recognition of lease liability	$ (820)

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Summary of significant accounting policies

3 Months Ended

Mar. 31, 2023

Summary of significant accounting policies

Summary of significant accounting policies

1. Summary of significant accounting policies:

Nature of operations:

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned subsidiary, Peoples Security Bank and Trust Company (“the Bank”), collectively, the “Company” or “Peoples”. The Company services its retail and commercial customers through twenty-eight full-service community banking offices located within Allegheny, Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna and Wyoming Counties of Pennsylvania, Middlesex County of New Jersey and Broome County of New York.

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three months ended and as of March 31, 2023, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for credit losses, fair value of financial instruments, the valuation of deferred tax assets, and impairment of goodwill. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2022.

Second Quarter Dividend Declaration

On April 28, 2023, the Board of Directors declared a second quarter dividend of $0.41 per share. The dividend is payable on June 15, 2023 to shareholders of record as of May 31, 2023.

Adoption of New Accounting Standard

On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) model.  The Company adopted ASU 2016-13 using a modified retrospective approach. Results for reporting periods beginning after January 1, 2023 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.  At adoption, the Company decreased its allowance for credit losses by $3.0 million. Upon adoption the Company recorded a cumulative effect adjustment that increased stockholders’ equity by $2.4 million, net of tax.

The Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures” effective January 1, 2023. The ASU addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit losses model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.

Allowance for Credit Losses

The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. The allowance for credit losses is reported separately as a contra-asset on the consolidated balance sheets. The expected credit loss for unfunded lending commitments and unfunded loan commitments is reported on the consolidated balance sheets in other liabilities while the provision for credit losses related to unfunded commitments is reported in other non-interest expense in the consolidated statements of income and comprehensive income (loss).

Allowance for Credit Losses on Loans Receivable

The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics. The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk. Such segments include residential real estate, consumer, commercial and industrial, commercial real estate and municipal. At each reporting period, the Company evaluates whether loans within a pool continue to exhibit similar risk characteristics. If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics.  If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. The Company evaluates the pooling methodology at least annually. Loans are charged off against the allowance for credit losses when the Company believes the balances to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.

The Company estimates the allowance for credit losses on loans using an advanced probability of default model which incorporates probability of default, loss given default, exposure at default and probability of attrition attributes. The model considers relevant available information at both the portfolio and loan level from internal data that is supplemented by shared data pool information. The model also incorporates reasonable and supportable economic forecasts. After the reasonable and supportable forecast period, the model reverts to average historical losses. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications.

Also included in the allowance for credit losses on loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis described above. Factors that the Company considers include changes in lending policies and procedures, changes in management, changes in the quality of the loan review process, the existence of any concentrations of credit and other external factors.

Individually Evaluated Loans

On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. The Bank has determined that any loans currently on non-accrual status or are 90 or more days past due and still accruing are considered impaired and should be individually evaluated for losses. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will establish a reserve for the difference between the fair value of the collateral, less costs to sell and carrying costs at the reporting date and the amortized cost basis of the loan. If this amount is deemed uncollectible, the Company will charge-off that amount.

Acquired Loans

Acquired loans are included in the Company's calculation of the allowance for credit losses. How the allowance on an acquired loan is recorded depends on whether or not it has been classified as a Purchased Credit Deteriorated (“PCD”) loan. PCD loans are loans acquired at a discount that is due, in part, to credit quality. PCD loans are accounted for in accordance with ASC Subtopic 326-20 and are initially recorded at fair value as determined by the sum of the present value of expected future cash flows and an allowance for credit losses at acquisition. The allowance for PCD loans is recorded through a gross-up effect, while the allowance for acquired non-PCD loans is recorded through provision expense, consistent with originated loans. Thus, the determination of which loans are PCD and non-PCD can have a significant impact on the accounting for these loans. Subsequent to acquisition, the allowance for PCD loans will generally follow the same estimation, provision and charge-off process as non-PCD acquired and originated loans.

Under FASB ASC Topic 326, a PCD asset is defined as an individual financial asset that as of the date of acquisition has experienced a more than insignificant deterioration in credit quality since origination as determined during the acquisition process. Upon identification of these assets, the amortized cost basis will be adjusted at the time of acquisition to reflect any impairment amount. After acquisition, PCD loans will be either collectively evaluated for reserve requirements or individually evaluated if on nonaccrual status or are 90 or more days past due and still accruing.

Allowance for Credit Losses on Off-Balance Sheet Commitments

The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancelable. To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate. To determine the expected funding rate, the Company uses a historical utilization rate for each segment. As noted above, the allowance for credit losses on unfunded loan commitments is included in other liabilities on the consolidated balance sheets and the related credit expense is recorded in other non-interest expense in the consolidated statements of income and comprehensive income (loss).

Allowance for Credit Losses on Held to Maturity Securities

The Company’s portfolio of held to maturity securities consists of municipal bonds and U.S. agency residential mortgage-backed securities which are highly rated by major rating agencies and have a long history of no credit losses. In estimating the net amount expected to be collected for held to maturity securities in an unrealized loss position, a historical loss based method is utilized.

Allowance for Credit Losses on Available for Sale Securities

For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating by a rating agency, and adverse conditions related to the security, among other factors.  If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses.

Accrued Interest Receivable

The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans, available for sale securities, and held to maturity securities. Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Consolidated Balance Sheets, totaled $9.8 million at March 31, 2023 and is excluded from the estimate of credit losses. Accrued interest receivable on available of sale securities and held to maturity securities, also a component of accrued interest receivable on the Consolidated Balance Sheets, totaled $1.6 million and $191 thousand, respectively, at March 31, 2023 and is excluded from the estimate of credit losses.

Recent accounting standards:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by the Company as of the required effective dates. The following should be read in conjunction with "Note 1 Summary of significant accounting policies" of the Notes to the Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2022.

Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on the Company’s consolidated financial statements.

ASU 2023-01, “Leases (Topic 842) - Common Control Arrangements” (ASU 2023-01) requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with an unrelated party (on the basis of legally enforceable terms and conditions). ASU 2023-01 is effective January 1, 2024 and is not expected to have an impact on our financial statements.

ASU 2023-02 “Investments - Equity Method and Join Ventures (Topic 323) - Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method” (ASU 2023-02) permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective January 1, 2024 and is not expected to have an impact on our financial statements.

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Other comprehensive income (loss)

3 Months Ended

Mar. 31, 2023

Other comprehensive income (loss)

Other comprehensive income (loss)

2. Other comprehensive income (loss):

The components of other comprehensive income (loss) and their related tax effects are reported in the consolidated statements of income and comprehensive income (loss). The accumulated other comprehensive loss included in the consolidated balance sheets relates to net unrealized gains and losses on investment securities available-for-sale, benefit plan adjustments and adjustments to derivative fair values.

The components of accumulated other comprehensive loss included in stockholders’ equity at March 31, 2023 and December 31, 2022 are as follows:

(Dollars in thousands)		March 31, 2023		December 31, 2022
Net unrealized loss on investment securities available-for-sale	$	(55,495)	$	(66,250)
Income tax benefit		(11,950)		(14,266)
Net of income taxes		(43,545)		(51,984)
Benefit plan adjustments		(5,499)		(5,499)
Income tax benefit		(1,184)		(1,184)
Net of income taxes		(4,315)		(4,315)
Derivative adjustments		(2,017)		(47)
Income tax benefit		(434)		(10)
Net of income taxes		(1,583)		(37)
Accumulated other comprehensive loss	$	(49,442)	$	(56,336)

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Earnings per share

3 Months Ended

Mar. 31, 2023

Earnings per share

Earnings per share

3. Earnings per share:

Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

The following table presents the calculation of both basic and diluted earnings per share of common stock for the three months ended March 31, 2023 and 2022:

	2023				2022
(Dollars in thousands, except percents)	Basic		Diluted		Basic		Diluted
Net income	$	7,579	$	7,579	$	9,630	$	9,630
Average common shares outstanding		7,157,553		7,198,970		7,172,455		7,216,421
Earnings per share	$	1.06	$	1.05	$	1.34	$	1.33

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Investment securities

3 Months Ended

Mar. 31, 2023

Investment securities

Investment securities

4. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at March 31, 2023 and December 31, 2022 are summarized as follows:

	March 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	197,660	$		$	16,096	$	181,564
U.S. government-sponsored enterprises		16,872				441		16,431
State and municipals:
Taxable		68,426		5		11,227		57,204
Tax-exempt		77,668		1		9,095		68,574
Residential mortgage-backed securities:
U.S. government agencies		942				34		908
U.S. government-sponsored enterprises		95,947				17,735		78,212
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,105				484		11,621
Corporate debt securities		4,000				389		3,611
Total	$	473,620	$	6	$	55,501	$	418,125
Held-to-maturity:
Tax-exempt state and municipals	$	11,228	$	8	$	674	$	10,562
Residential mortgage-backed securities:
U.S. government agencies		16,806				2,541		14,265
U.S. government-sponsored enterprises		61,671				9,425		52,246
Total	$	89,705	$	8	$	12,640	$	77,073

	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	199,937	$		$	19,640	$	180,297
U.S. government-sponsored enterprises		16,955				585		16,370
State and municipals:
Taxable		68,946				13,588		55,358
Tax-exempt		99,774		93		11,460		88,407
Residential mortgage-backed securities:
U.S. government agencies		982				40		942
U.S. government-sponsored enterprises		141,231				20,112		121,119
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,128				544		11,584
Corporate debt securities		4,000				374		3,626
Total	$	543,953	$	93	$	66,343	$	477,703
Held-to-maturity:
Tax-exempt state and municipals	$	11,237	$	1	$	841	$	10,397
Residential mortgage-backed securities:
U.S. government agencies		17,304				3,016		14,288
U.S. government-sponsored enterprises		62,638				10,760		51,878
Total	$	91,179	$	1	$	14,617	$	76,563

The Company had net unrealized losses on available-for-sale securities of $43.5 million net of deferred income taxes of $12.0 million at March 31, 2023 and net unrealized losses on available-for-sale securities of $52.0 million net of deferred income taxes of $14.3 million at December 31, 2022. During the three month period ended March 31, 2023, investment securities, including U.S. Treasury bonds and mortgage-backed securities, with a par value of $65.6 million were sold at a net gain of $81 thousand. The proceeds were used to pay-down higher cost short-term borrowings.

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available-for-sale at March 31, 2023, is summarized as follows:

	Fair
(Dollars in thousands)	Value
Within one year	$	15,202
After one but within five years		176,975
After five but within ten years		66,629
After ten years		66,319
		325,125
Mortgage-backed and other amortizing securities		93,000
Total	$	418,125

 The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at March 31, 2023, is summarized as follows:

	Amortized		Fair
(Dollars in thousands)	Cost		Value
Within one year	$		$
After one but within five years
After five but within ten years		8,877		8,355
After ten years		2,351		2,207
		11,228		10,562
Mortgage-backed securities		78,477		66,511
Total	$	89,705	$	77,073

Securities with a carrying value of $151.2 million and $168.0 million at March 31, 2023 and December 31, 2022, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law.

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-case basis. At March 31, 2023 and December 31, 2022, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. government agencies and sponsored enterprises, which exceeded 10.0 percent of stockholders’ equity.

The fair value and gross unrealized losses of investment securities with unrealized losses at March 31, 2023 and December 31, 2022, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

	March 31, 2023
	Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
(Dollars in thousands)	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities		$		$		43	$	181,564	$	16,096	43	$	181,564	$	16,096
U.S. government-sponsored enterprises						5		16,431		441	5		16,431		441
State and municipals:
Taxable	2		999		19	63		54,709		11,208	65		55,708		11,227
Tax-exempt	7		3,095		29	98		70,366		9,740	105		73,461		9,769
Residential mortgage-backed securities:
U.S. government agencies	2		818		31	7		14,355		2,544	9		15,173		2,575
U.S. government-sponsored enterprises	1		527		12	40		129,931		27,148	41		130,458		27,160
Commercial mortgage-backed securities:
U.S. government agencies
U.S. government-sponsored enterprises	1		1,926		86	3		9,695		398	4		11,621		484
Corporate debt securities						6		3,611		389	6		3,611		389
Total	13	$	7,365	$	177	265	$	480,662	$	67,964	278	$	488,027	$	68,141

	December 31, 2022
	Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
(Dollars in thousands)	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities	5	$	23,700	$	1,887	40	$	156,597	$	17,753	45	$	180,297	$	19,640
U.S. government-sponsored enterprises	4		14,104		197	1		2,266		388	5		16,370		585
State and municipals:
Taxable	21		19,919		2,908	45		34,464		10,680	66		54,383		13,588
Tax-exempt	39		30,973		1,690	84		59,664		10,611	123		90,637		12,301
Residential mortgage-backed securities:
U.S. government agencies	5		904		39	4		14,326		3,017	9		15,230		3,056
U.S. government-sponsored enterprises	19		57,166		2,029	25		115,831		28,843	44		172,997		30,872
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises	4		11,584		544						4		11,584		544
Corporate debt securities	1		953		47	5		2,673		327	6		3,626		374
Total	98	$	159,303	$	9,341	204	$	385,821	$	71,619	302	$	545,124	$	80,960

As described in Note 1, on January 1, 2023 the Company adopted amended accounting guidance that requires an allowance for credit losses be deducted from the amortized cost basis of financial assets, including investment securities held to maturity, to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset. The Company estimated no allowance for credit losses for its investment securities classified as held-to-maturity at January 1, 2023 or March 31, 2023, as the portfolio of held-to-maturity securities consists entirely of U.S. government sponsored enterprises, agencies and states and political subdivisions investments.

The unrealized losses on securities are primarily due to the changes in market interest rates subsequent to purchase. In addition, the Company does not intend to sell and does not believe that it is more likely than not that it will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result, there was no allowance for credit loss required on available-for-sale debt securities in an unrealized loss position at March 31, 2023 and December 31, 2022.

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Loans, net and allowance for credit losses

3 Months Ended

Mar. 31, 2023

Loans, net and allowance for credit losses

Loans, net and allowance for credit losses

5. Loans, net and allowance for credit losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at March 31, 2023 and December 31, 2022 are summarized as follows. The Company had net deferred loan origination fees of $0.1 million and $0.3 million at March 31, 2023 and December 31, 2022, respectively.

(Dollars in thousands)		March 31, 2023	December 31, 2022
Commercial and Industrial	$	430,098	$	433,048
Municipal		169,278		166,210
Total		599,376		599,258
Real estate
Commercial		1,782,911		1,709,827
Residential		342,459		330,728
Total		2,125,370		2,040,555
Consumer
Indirect Auto		86,587		76,461
Consumer Other		6,710		13,842
Total		93,297		90,303
Total	$	2,818,043	$	2,730,116

PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP.  These loans carry a fixed rate of 1.00% and a term of two years or five years, if not forgiven, in whole or in part.  Payments are deferred until either the date on which the SBA remits the amount of forgiveness proceeds to the lender or the date that is 10 months after the last day of the covered period if the borrower does not apply for forgiveness within that 10 month period. PPP fees are deferred and accreted into interest income over the contractual period of 24 months or 60 months, as applicable.  Upon SBA forgiveness, unamortized fees are then recognized into interest income. 

The Bank originated additional loans through the PPP, which expired on May 31, 2021.  During 2021, the Bank had generated and received SBA approval on 1,062 PPP loans totaling $121.6 million and generated $4.4 million in related deferred PPP net fees. 

Included in the commercial and industrial balances at March 31, 2023 are Paycheck Protection Program (PPP) loans that

had an outstanding balance of $22.2 million comprised of $10.9 million remaining from those originated during 2021 as part of round two and $11.3 million remaining from loans originated during 2020 under round one of the program. At December 31, 2022, PPP loans had outstanding balances totaling $22.3 million. Net deferred loan origination fees remaining related to PPP loans was $0.2 million at March 31, 2023 and December 31, 2022. The PPP loans are risk rated ‘Pass’ and do not carry an allowance for credit losses due to a 100% SBA guarantee. At March 31, 2023 and December 31, 2022, the outstanding PPP balances were considered current.

The following tables present the balance of the allowance for credit losses at March 31, 2023 and 2022.  For the three months ended March 31, 2023, the balance of the allowance for credit losses is based on the CECL methodology, as presented in Note 1. For the three months ended March 31, 2022, the allowance for loan losses is based upon the calculation methodology as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The tables identify the valuation allowances attributable to specifically identified impairments on individually evaluated loans, including those acquired with deteriorated credit quality, as well as valuation allowances for impairments on loans evaluated collectively. The tables include the underlying balance of loans receivable applicable to each category as of those dates.

					Real estate
March 31, 2023	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for credit losses:	$	4,365	$	1,247	$	17,915	$	3,072	$	873	$	27,472
Impact of adopting ASU 2016-13		(1,683)		747		(3,344)		987		30		(3,263)
Adjusted Beginning Balance January 1, 2023		2,682		1,994		14,571		4,059		903		24,209
Charge-offs		(4)								(71)		(75)
Recoveries						1		16		49		66
Provisions (credits)		(197)		324		1,120		(207)		204		1,244
Ending balance	$	2,481	$	2,318	$	15,692	$	3,868	$	1,085	$	25,444
					Real estate
March 31, 2022	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2022	$	7,466	$	987	$	15,928	$	3,209	$	793	$	28,383
Charge-offs		(161)				(132)				(62)		(355)
Recoveries		9				16		3		51		79
Provisions (credits)		(887)		179		977		43		(12)		300
Ending balance	$	6,427	$	1,166	$	16,789	$	3,255	$	770	$	28,407

The following table represents the allowance for credit losses by major classification of loan and whether the loans were individually or collectively evaluated and collateral dependent by class of loans at March 31, 2023 under ASU 2016-13.

					Real estate
March 31, 2023	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for credit losses:
Ending balance	$	2,481	$	2,318	$	15,692	$	3,868	$	1,085	$	25,444
Ending balance: individually evaluated		14										14
Ending balance: collectively evaluated	$	2,467	$	2,318	$	15,692	$	3,868	$	1,085	$	25,430
Loans receivable:
Ending balance	$	430,098	$	169,278	$	1,782,911	$	342,459	$	93,297	$	2,818,043
Individually evaluated - collateral dependent - real estate		10				867		789				1,666
Individually evaluated - collateral dependent - non-real estate		14										14
Collectively evaluated		430,074		169,278		1,782,044		341,670		93,297		2,816,363

The following table represents the allowance for loan losses by major classification of loan and whether the loans were individually or collectively evaluated for impairment at December 31, 2022 prior to the adoption of ASU 2016-13.

					Real estate
December 31, 2022	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	4,365	$	1,247	$	17,915	$	3,072	$	873	$	27,472
Ending balance: individually evaluated for impairment		19						21				40
Ending balance: collectively evaluated for impairment	$	4,346	$	1,247	$	17,915	$	3,051	$	873	$	27,432
Loans receivable:
Ending balance	$	433,048	$	166,210	$	1,709,827	$	330,728	$	90,303	$	2,730,116
Ending balance: individually evaluated for impairment		98				2,063		1,760				3,921
Ending balance: collectively evaluated for impairment		432,950		166,210		1,707,764		328,968		90,303		2,726,195

Nonaccrual Loans

 The following table presents the Company’s nonaccrual loans at March 31, 2023 and December 31, 2022 and interest income for the quarter that would have been recorded under the original terms of such nonaccrual loans.

		March 31, 2023
								Interest Income
								Recorded for
		Total		Nonaccrual with		Nonaccrual with		Nonaccrual Loans
		Nonaccrual		an Allowance for		no Allowance for		in the three months
(Dollars in thousands)		Loans		Credit Losses		Credit Losses		ended March 31, 2023
Commercial	$	14	$	14	$		$	5
Municipal
Real estate:
Commercial		867				867		374
Residential		723				723
Consumer		194				194
Total	$	1,798	$	14	$	1,784	$	379

		December 31, 2022
								Interest Income
								Recorded for
		Total		Nonaccrual with		Nonaccrual with		Nonaccrual Loans
		Nonaccrual		an Allowance for		no Allowance for		in the three months
(Dollars in thousands)		Loans		Credit Losses		Credit Losses		ended December 31, 2022
Commercial	$	86	$	19	$	67	$
Municipal
Real estate:
Commercial		1,155				1,155
Residential		562				562
Consumer		232				232
Total	$	2,035	$	19	$	2,016	$

The following table summarizes information concerning impaired loans, which include nonaccrual loans, troubled debt restructurings and loans past due 90 days or more and still accruing, as of and for the three months ended March 31, 2022 by major loan classification:

	March 31, 2022
							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(Dollars in thousands)	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	138	$	475	$		$	148	$	2
Municipal
Real estate:
Commercial		2,748		3,505				2,562		12
Residential		874		1,047				874		4
Consumer		207		217				173
Total		3,967		5,244				3,757		18
With an allowance recorded:
Commercial		21		21		21		31
Municipal
Real estate:
Commercial		440		452		45		477		4
Residential		273		274		49		338		3
Consumer
Total		734		747		115		846		7
Total impaired loans
Commercial		159		496		21		179		2
Municipal
Real estate:
Commercial		3,188		3,957		45		3,039		16
Residential		1,147		1,321		49		1,212		7
Consumer		207		217				173
Total	$	4,701	$	5,991	$	115	$	4,603	$	25

The Company segments loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are individually analyzed for credit risk by classifying them within the Company’s internal risk rating system. The Company’s risk rating classifications are defined as follows:

● Pass- A loan to borrowers with acceptable credit quality and risk that is not adversely classified as Substandard, Doubtful, Loss nor designated as Special Mention.

● Special Mention- A loan that has potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified since they do not expose the Company to sufficient risk to warrant adverse classification.

● Substandard- A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

● Doubtful – A loan classified as Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

● Loss- A loan classified as Loss is considered uncollectible and of such little value that its continuance as bankable loan is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

The following table presents the amortized cost of loans and gross chargeoffs by year of origination and by major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at March 31, 2023:

(Dollars in thousands)		2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial
Pass	$	11,531	$	50,495	$	46,353	$	32,496	$	50,260	$	89,938	$	140,615	$	421,688
Special Mention														67		67
Substandard		15				46				53		276		7,953		8,343
Total Commercial		11,546		50,495		46,399		32,496		50,313		90,214		148,635		430,098
Municipal
Pass		1,400		45,146		91,776		11,850		36		18,983		87		169,278
Special Mention
Substandard
Total Municipal		1,400		45,146		91,776		11,850		36		18,983		87		169,278
Commercial real estate
Pass		55,319		531,819		488,524		151,845		154,002		386,268				1,767,777
Special Mention		1,763								303		3,301				5,367
Substandard		175				1,637		165		628		7,162				9,767
Total Commercial real estate		57,257		531,819		490,161		152,010		154,933		396,731				1,782,911
Residential real estate
Pass		5,741		55,051		69,011		28,927		17,764		93,343		72,014		341,851
Special Mention
Substandard						17		214				377				608
Total Residential real estate		5,741		55,051		69,028		29,141		17,764		93,720		72,014		342,459
Consumer
Pass		17,548		39,005		17,087		8,127		5,179		5,457		700		93,103
Special Mention
Substandard						111		30		19		34				194
Total Consumer		17,548		39,005		17,198		8,157		5,198		5,491		700		93,297
Total Loans	$	93,492	$	721,516	$	714,562	$	233,654	$	228,244	$	605,139	$	221,436	$	2,818,043
Gross charge-offs
Commercial	$		$		$		$		$		$		$	4	$	4
Municipal
Commercial real estate
Residential real estate
Consumer				1		35		17		10		8				71
Total Gross charge-offs	$		$	1	$	35	$	17	$	10	$	8	$	4	$	75

The following table presents the amortized cost of loans by major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at December 31, 2022 as disclosed prior to ASU 2016-13:

	December 31, 2022
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	424,411	$	7,822	$	815	$	$	433,048
Municipal		166,210							166,210
Real estate:
Commercial		1,699,041		7,509		3,277			1,709,827
Residential		329,098				1,630			330,728
Consumer		90,020				283			90,303
Total	$	2,708,780	$	15,331	$	6,005	$	$	2,730,116

The major classifications of loans by past due status are summarized as follows:

	March 31, 2023
					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
(Dollars in thousands)	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	156	$		$	14	$	170	$	429,928	$	430,098	$
Municipal										169,278		169,278
Real estate:
Commercial		92		616		245		953		1,781,958		1,782,911
Residential		1,965		444		467		2,876		339,583		342,459		59
Consumer		487		92		53		632		92,665		93,297
Total	$	2,700	$	1,152	$	779	$	4,631	$	2,813,412	$	2,818,043	$	59

	December 31, 2022
					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
(Dollars in thousands)	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	137	$	38	$	86	$	261	$	432,787	$	433,048	$
Municipal										166,210		166,210
Real estate:
Commercial		102		2		334		438		1,709,389		1,709,827
Residential		1,162		128		988		2,278		328,450		330,728		748
Consumer		690		199		120		1,009		89,294		90,303
Total	$	2,091	$	367	$	1,528	$	3,986	$	2,726,130	$	2,730,116	$	748

Allowance for Credit Losses on Off Balance Sheet Commitments

The following table presents the activity in the ACL on off balance sheet commitments for the three months ended March 31, 2023:

(Dollars in thousands)		March 31, 2023
Balance at December 31, 2022	$	179
Impact of adopting Topic 326		270
Credit recorded in noninterest expense		(185)
Total allowance for credit losses on off balance sheet commitments	$	264

 Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

There were no loans made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023 and hence there were no loans made to borrowers experiencing financial difficulty that subsequently defaulted.

Information on loan modifications prior to the adoption of ASU 2022-02 on January 1, 2023 is presented in accordance with the applicable accounting standards in effect at that time. During the three months ended March 31, 2022, the Company did not modify any loans that were determined to be a troubled debt restructuring.

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Other assets

3 Months Ended

Mar. 31, 2023

Other assets

Other assets

6. Other assets:

The components of other assets at March 31, 2023 and December 31, 2022 are summarized as follows:

Restricted equity securities declined $4.7 million from December 31, 2022 due to lower FHLB stock requirement resulting from a decrease in borrowings. Interest rate swaps balance represents the fair value of our commercial loan back-to-back swaps and is lower due to a decline in market rates from December 31, 2022.

(Dollars in thousands)		March 31, 2023		December 31, 2022
Other real estate owned	$	121	$	121
Investment in low income housing partnership		5,325		5,446
Mortgage servicing rights		906		914
Restricted equity securities (FHLB and other)		4,887		9,630
Interest rate floor		1		1
Interest rate swaps		18,485		21,794
Other assets		11,354		8,165
Total	$	41,079	$	46,071

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Fair value estimates

3 Months Ended

Mar. 31, 2023

Fair value estimates

Fair value of estimates

7. Fair value estimates:

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under GAAP. Fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial. Accordingly, such assets and liabilities are excluded from disclosure requirements.

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument.

Current fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction that is not a forced liquidation or distressed sale between participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

In accordance with GAAP, the Company groups its assets and liabilities generally measured at fair value into three levels based on market information or other fair value estimates in which the assets and liabilities are traded or valued and the reliability of the assumptions used to determine fair value. These levels include:

● Level 1: Unadjusted quoted prices of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

● Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

● Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value estimate.

During the periods ended March 31, 2023 and December 31, 2022 there were no transfers in or out of Level 3.

The following methods and assumptions were used by the Company to calculate fair values and related carrying amounts of financial instruments:

Investment securities: The fair values of U.S. Treasury securities and marketable equity securities are based on quoted market prices from active exchange markets. The fair values of debt securities are based on pricing from a matrix pricing model.

Interest rate swaps and options:  The Company’s interest rate swaps and options are reported at fair value utilizing Level 2 inputs. Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for interest rate, forward rates, rate volatility, and volatility surface.

Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty.

Assets and liabilities measured at fair value on a recurring basis at March 31, 2023 and December 31, 2022 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
(Dollars in thousands)			Identical Assets		Inputs		Inputs
March 31, 2023	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	181,564	$	181,564	$		$
U.S. government-sponsored enterprises		16,431				16,431
State and municipals:
Taxable		57,204				57,204
Tax-exempt		68,574				68,574
Mortgage-backed securities:
U.S. government agencies		908				908
U.S. government-sponsored enterprises		89,833				89,833
Corporate debt securities		3,611				3,611
Common equity securities		81		81
Total investment securities	$	418,206	$	181,645	$	236,561	$
Interest rate floor-other assets	$	1			$	1
Interest rate swap-other assets	$	18,485			$	18,485
Interest rate floor-other liabilities		(1,980)				(1,980)
Interest rate swap-other liabilities	$	(17,914)			$	(17,914)

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
(Dollars in thousands)			Identical Assets		Inputs		Inputs
December 31, 2022	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	180,297	$	180,297	$		$
U.S. government-sponsored enterprises		16,370				16,370
State and municipals:
Taxable		55,358				55,358
Tax-exempt		88,407				88,407
Mortgage-backed securities:
U.S. government agencies		942				942
U.S. government-sponsored enterprises		132,703				132,703
Corporate debt securities		3,626				3,626
Common equity securities		110		110
Total investment securities	$	477,813	$	180,407	$	297,406	$
Interest rate floor-other assets	$	1			$	1
Interest rate swap-other assets	$	21,794			$	21,794
Interest rate swap-other liabilities	$	(21,466)			$	(21,466)

Assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2023 and December 31, 2022 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
(Dollars in thousands)			Identical Assets	Inputs	Inputs
March 31, 2023	Amount		(Level 1)	(Level 2)	(Level 3)
Loans individually evaluated for credit loss	$	1,680	$	$	$	1,680

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
(Dollars in thousands)			Identical Assets	Inputs	Inputs
December 31, 2022	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	220	$	$	$	220

Fair values of impaired loans are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands, except percents)	Fair Value				Range
March 31, 2023	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Loans individually evaluated for credit loss	$	1,680	Appraisal of collateral	Appraisal adjustments	22.8% to 77.0%  (67.3)%
				Liquidation expenses	3.0% to 6.0% (5.2)%

	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands, except percents)	Fair Value				Range
December 31, 2022	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	220	Appraisal of collateral	Appraisal adjustments	21.6% to 97.0%  (77.7)%
				Liquidation expenses	3.0% to 6.0% (4.9)%

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The carrying and fair values of the Company’s financial instruments at March 31, 2023 and December 31, 2022 and their placement within the fair value hierarchy are as follows:

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
(Dollars in thousands)	Carrying		Fair		Assets		Inputs		Inputs
March 31, 2023	Value		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	140,583	$	140,583	$	140,583	$		$
Investment securities:
Available-for-sale		418,125		418,125		181,564		236,561
Common equity securities		81		81		81
Held-to-maturity		89,705		77,073				77,073
Loans held for sale
Net loans		2,792,599		2,629,921						2,629,921
Accrued interest receivable		11,678		11,678				11,678
Mortgage servicing rights		906		1,747				1,747
Restricted equity securities (FHLB and other)		4,887		4,887				4,887
Interest rate floor		1		1				1
Interest rate swaps		18,485		18,485				18,485
Total	$	3,477,050	$	3,302,580
Financial liabilities:
Deposits	$	3,235,967	$	3,229,495	$		$	3,229,495	$
Short-term borrowings		17,280		17,280				17,280
Long-term debt		25,000		24,982				24,982
Subordinated debentures		33,000		31,898				31,898
Accrued interest payable		2,304		2,304				2,304
Interest rate floor		1,980		1,980				1,980
Interest rate swaps		17,914		17,914				17,914
Total	$	3,333,445	$	3,325,853

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
(Dollars in thousands)	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2022	Value		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	37,868	$	37,868	$	37,868	$		$
Investment securities:
Available-for-sale		477,703		477,703		180,297		294,706
Common equity securities		110		110		110
Held-to-maturity		91,179		76,563				76,563
Loans held for sale
Net loans		2,702,644		2,562,780						2,562,780
Accrued interest receivable		11,715		11,715				11,715
Mortgage servicing rights		914		1,762				1,762
Restricted equity securities (FHLB and other)		9,630		9,630				9,630
Interest rate floor		1		1				1
Interest rate swaps		21,794		21,794				21,794
Total	$	3,353,558	$	3,199,926
Financial liabilities:
Deposits	$	3,046,598	$	3,035,615	$		$	3,035,615	$
Short-term borrowings		114,930		114,743				114,743
Long-term debt		555		555				555
Subordinated debentures		33,000		53,998				53,998
Accrued interest payable		903		903				903
Interest rate swaps		21,466		21,466				21,466
Total	$	3,217,452	$	3,227,280

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Employee benefit plans

3 Months Ended

Mar. 31, 2023

Employee benefit plans

Employee benefit plans

8. Employee benefit plans:

The Company provides an Employee Stock Ownership Plan (“ESOP”) and a Retirement Profit Sharing Plan. The Company also maintains Supplemental Executive Retirement Plans (“SERPs”) and an Employees’ Pension Plan, which is currently frozen.

For the three months ended March 31, salaries and employee benefits expense includes approximately $478 thousand in 2023, and $256 thousand in 2022 relating to the employee benefit plans.

	Pension Benefits
(Dollars in thousands)	2023		2022
Net periodic pension income:
Interest cost	$	164	$	114
Expected return on plan assets		(293)		(352)
Amortization of unrecognized net loss		50		50
Net periodic pension income:	$	(79)	$	(188)

In May 2017, the Company’s stockholders approved the 2017 equity incentive plan (“2017 Plan”). The 2017 Plan allows for eligible participants to be granted equity awards. Under the 2017 Plan the Compensation Committee of the Board of Directors has the authority to, among other things:

● Select the persons to be granted awards under the 2017 Plan.

● Determine the type, size and term of awards.

● Determine whether such performance objectives and conditions have been met.

● Accelerate the vesting or exercisability of an award.

Persons eligible to receive awards under the 2017 Plan include directors, officers, employees, consultants and other service providers of the Company and its subsidiaries.

As of March 31, 2023, there were 17,364 shares of the Company’s common stock available for grant as awards pursuant to the 2017 Plan. If any outstanding awards under the 2017 Plan are forfeited by the holder or canceled by the Company, the underlying shares would be available for re-grant to others.

The 2017 Plan authorizes grants of stock options, stock appreciation rights, cash awards, performance awards, restricted stock and restricted stock units.

For the three months ended March 31, 2023, the Company granted no awards of restricted stock and restricted stock units under the 2017 Plan. For the three months ended March 31, 2022, the Company granted 19,787 shares underlying such awards, respectively.

The non-performance restricted stock grants made in 2022, 2021 and 2020 vest equally over three years. The performance-based restricted stock units vest over three fiscal years and include conditions based on the Company’s three year cumulative diluted earnings per share and three-year average return on equity or tangible equity that determines the number of restricted stock units that may vest.

The Company expenses the fair value of all-share based compensation over the requisite service period commencing at grant date. The fair value of restricted stock is expensed on a straight-line basis. Compensation is recognized over the vesting period and adjusted based on the performance criteria. The Company classifies share-based compensation for employees within “salaries and employee benefits expense” on the consolidated statements of income and comprehensive income.

The Company recognized net compensation costs of $209 thousand for the three months ended March 31, 2023 for awards granted under the 2017 Plan. The Company recognized compensation expense of $199 thousand for the three months ended March 31, 2022 for awards granted under the 2017 Plan. As of March 31, 2023, the Company had $0.8 million of unrecognized compensation expense associated with restricted stock awards. The remaining cost is expected to be recognized over a weighted average vesting period of under 1.5 years.

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Derivatives and hedging activities

3 Months Ended

Mar. 31, 2023

Derivatives and hedging activities

Derivatives and hedging activities

9. Derivatives and hedging activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s existing credit derivatives result from participations of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income/expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and floors as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up-front premium. Such derivatives have been used to hedge the variable cash flows associated with existing variable-rate assets and issuances of debt.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense/income as interest payments are made/received on the Company’s variable-rate debt/assets. During the next twelve months, the Company estimates that an additional $32 thousand will be reclassified as a reduction to interest income. 

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain of its fixed-rate pools of assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate, SOFR. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

As of March 31, 2023, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges:

Line Item in the Statement of Financial Position in Which the Hedged Item is Included		Amortized Amount of the Hedged Assets/(Liabilities)				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
(Dollars in Thousands)		2023		2022		2023		2022
AFS Securities (1)	$	100,000	$		$	1,986	$
Total	$	100,000	$		$	1,986	$

(1) These amounts include the amortized cost basis of closed portfolios of fixed rate assets used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At March 31, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $146.1 million. The amounts of the designated hedged items were $138.6 million.

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. As of March 31, 2023, the Company had 96 interest rate swaps with an aggregate notional amount of $209.7 million related to this program.

The Company’s existing credit derivatives result from participations in or out of interest rate swaps provided by or to external lenders as part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain lenders which participate in loans.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of March 31, 2023 and December 31, 2022.

Fair Values of Derivative Instruments
		Derivative Assets								Derivative Liabilities
		As of March 31, 2023				As of December 31, 2022				As of March 31, 2023				As of December 31, 2022
(Dollars in Thousands)		Notional Amount	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value		Notional Amount	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Interest Rate Products	$	25,000	Other Assets	$	1	Other Assets	$	1	$	100,000	Other Liabilities	$	1,970	Other Liabilities	$
Total derivatives designated as hedging instruments				$	1		$	1				$	1,970		$
Derivatives not designated as hedging instruments
Interest Rate Products	$	208,147	Other Assets	$	18,963	Other Assets	$	22,195	$	208,147	Other Liabilities	$	18,392	Other Liabilities	$	21,466
Other Contracts		1,522	Other Assets		6	Other Assets				6,307	Other Liabilities		2	Other Liabilities
Total derivatives not designated as hedging instruments				$	18,969		$	22,195				$	18,394		$	21,466

(1) Amounts include accrued interest.

(2) Notional amount of interest rate floor at December 31, 2022 was $25.0 million. Notional asset amount of interest rate swaps at December 31, 2022 was $187.3 million and $1.5 million for risk participation agreements.

Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of fair value and cash flow hedge accounting on accumulated other comprehensive income (loss) as of March 31, 2023 and March 31, 2022.

(Dollars in Thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative	Amount of Gain or (Loss) Recognized in OCI Included Component	Amount of Gain or (Loss) Recognized in OCI Excluded Component	Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Included Component	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component
March 31, 2023	2023				2023
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$ 1		$ 1	Interest Income	($ 16)		$ 16
Total	$ 1		$ 1		($ 16)		$ 16
(Dollars in Thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative	Amount of Gain or (Loss) Recognized in OCI Included Component	Amount of Gain or (Loss) Recognized in OCI Excluded Component	Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Included Component	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component
March 31, 2022	2022				2022
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	($ 361)	(439)	$ 78	Interest Income	$ 131	147	($ 16)
Total	($ 361)	($ 439)	$ 78		$ 131	$ 147	($ 16)

* Amounts disclosed are gross and not net of taxes.

Effect of Fair Value and Cash Flow Hedge Accounting on the Statements of Income and Comprehensive Income (Loss)

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of income and comprehensive income (loss) as of  March 31, 2023 and March 31, 2022.

	Location and Amount of Gain or (Loss)
	Recognized in Income on Fair Value and
	Cash Flow Hedging Relationships
	For the three months ended March 31,
		2023		2022
(Dollars in Thousands)		Interest Income		Interest Income
Total amounts of income and expense line items presented in the
statement of financial performance in which the effects of fair value or
cash flow hedges are recorded	$	15	$	131
The effects of fair value and cash flow hedging:
Gain or (loss) on fair value hedging relationships
Interest contracts
Hedged items		1,986
Derivatives designated as hedging instruments		(1,955)
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income		(16)		131
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Included Component				147
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Excluded Component	$	(16)	$	(16)

Effect of Derivative Instruments Not Designated as Hedging Instruments on the Statements of Income and Comprehensive Income (Loss)

The tables below present the effect of the Company’s derivative financial instruments on the consolidated statements of income and comprehensive income (loss) for the three months ended March 31, 2023 and 2022.

		Amount of Gain or (Loss)		Amount of Gain or (Loss)
		Recognized in		Recognized in
	Location of Gain or (Loss)	Income on Derivative		Income on Derivative
	Recognized in Income on	Three Months Ended		Three Months Ended
(Dollars in thousands)	Derivative	March 31, 2023		March 31, 2022
Derivatives Not Designated as Hedging Instruments:
Interest Rate Products	Other income / (expense)	$	(161)	$	240
Other Contracts	Other income / (expense)				2
Total		$	(161)	$	242
Fee Income	Fee income	$	384	$	103

Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of March 31, 2023 and December 31, 2022. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Balance Sheets.

Offsetting of Derivative Assets
as of March 31, 2023
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Posted		Amount
Derivatives	$	18,964	$	$	18,964	$		$	17,280	$	1,684
Offsetting of Derivative Liabilities
as of March 31, 2023
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Posted*		Amount
Derivatives	$	20,365	$	$	20,365	$	20,365	$		$
*Cash collateral of $1,710 was paid in March 2023, but not presented in the table above.
Offsetting of Derivative Assets
as of December 31, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Posted		Amount
Derivatives	$	22,196	$	$	22,196	$		$	14,530	$	7,666
Offsetting of Derivative Liabilities
as of December 31, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Posted		Amount
Derivatives	$	21,466	$	$	21,466	$	21,466	$		$

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of March 31, 2023, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $2.0 million. As of December 31,

2022, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $2.0 thousand. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and had posted collateral of $1.7 million with dealer counterparties at March 31, 2023. Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the agreement. The cash collateral is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above. If the Company had breached any of these provisions it could have been required to settle its obligations under the agreements at the termination value.

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Deposits

3 Months Ended

Mar. 31, 2023

Deposits.

Deposits

10. Deposits

The major components of interest-bearing and noninterest-bearing deposits at March 31, 2023 and December 31, 2022 are summarized as follows:

(Dollars in thousands)		March 31, 2023		December 31, 2022
Interest-bearing deposits:
Money market accounts	$	775,511	$	685,323
Now accounts		698,888		772,712
Savings accounts		500,709		523,931
Time deposits less than $250		400,327		199,136
Time deposits $250 or more		114,443		92,731
Total interest-bearing deposits		2,489,878		2,273,833
Noninterest-bearing deposits		746,089		772,765
Total deposits	$	3,235,967	$	3,046,598

The deposit base consisted of 48.6% retail accounts, 33.2% commercial accounts, 12.5% municipal relationships and 5.7% brokered deposits at March 31, 2023. At March 31, 2023, 76.6% of deposits were fully insured by the FDIC while $757.4 million or 23.4% of total deposits were uninsured by the FDIC. In addition, at March 31, 2023, $292.0 million in letters of credit issued by the FHLB were pledged as collateral for municipal deposits. As an additional resource to our uninsured depositors, we offer all depositors access to IntraFi's CDARS and ICS programs which allows deposit customers to obtain full FDIC deposit insurance while maintaining the deposit relationship with our Bank.

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Borrowings

3 Months Ended

Mar. 31, 2023

Borrowings

Borrowings

11. Borrowings

Short-term borrowings consist of FHLB advances representing overnight borrowings or with stated original terms of less than twelve months and other borrowings related to collateral held from derivative counterparties. Total short-term borrowings at March 31, 2023 were $17.3 million as compared to $114.9 million at December 31, 2022. Other borrowings, which include cash collateral pledged by derivative counterparties to offset interest rate exposure, represented the entire balance of $17.3 million at March 31, 2023. The overall decrease to total short-term borrowings from December 31, 2022 is due to paying-off the overnight borrowings at the FHLB with proceeds from the sale of investment securities and deposit growth.

The table below outlines short-term borrowings at and for the three months ended March 31, 2023 and at and for the year ended December 31, 2022:   

		At and for the three months ended March 31, 2023
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
(Dollars in thousands, except percents)	Balance		Balance		Balance		the Year		of the Period
Other borrowings	$	17,280	$	13,841	$	17,280	4.57	%	4.83	%
FHLB advances				77,689		158,000	4.86
Total short-term borrowings	$	17,280	$	91,530	$	175,280	4.81	%	4.83	%

	At and for the year ended December 31, 2022
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
(Dollars in thousands, except percents)	Balance		Balance		Balance		the Year		of the Year
Other borrowings	$	14,530	$	10,033	$	16,100	2.10	%	4.30	%
FHLB advances		100,400		32,647		125,975	2.73		4.45
Total short-term borrowings	$	114,930	$	42,680	$	142,075	2.58	%	4.43	%

The Company has an agreement with the FHLB which allows for borrowings up to its maximum borrowing capacity based on a percentage of qualifying collateral assets. At March 31, 2023, the maximum borrowing capacity was $1.2 billion of which $25.0 million was outstanding in borrowings and $292.0 million was used to issue standby letters of credit to collateralize public fund deposits. At December 31, 2022, the maximum borrowing capacity was $1.2 billion of which $101.0 million was outstanding in borrowings and $388.8 million was used to issue standby letters of credit to collateralize public fund deposits.

Advances with the FHLB are secured under terms of a blanket collateral agreement by a pledge of FHLB stock and certain other qualifying collateral, such as investments and mortgage-backed securities and mortgage loans. Interest accrues daily on the FHLB advances based on rates of the FHLB discount notes. The overnight borrowing rate resets each day.

Long-term debt consisting of advances from the FHLB at March 31, 2023 and December 31, 2022 is as follows:

	Interest Rate
(Dollars in thousands, except percents)	Fixed			March 31, 2023		December 31, 2022
March 2023	4.69	%	$		$	555
March 2025	4.37			10,000
March 2026	4.20			15,000
			$	25,000	$	555

Maturities of long-term debt, by contractual maturity, for the remainder of 2023 and subsequent years are as follows:

(Dollars in thousands)
2025	$	10,000
2026		15,000
	$	25,000

The advances from the FHLB totaling $25.0 million are not convertible.

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Subordinated debt

3 Months Ended

Mar. 31, 2023

Subordinated debt

Subordinated debt

12. Subordinated debt

On June 1, 2020, the Company sold $33.0 million aggregate principal amount of Subordinated Notes due 2030 (the “2020 Notes”) to accredited investors. The 2020 Notes qualify as Tier 2 capital for regulatory capital purposes.

The 2020 Notes bear interest at a rate of 5.375% per year for the first five years and then float based on a benchmark rate (as defined), provided that the interest rate applicable to the outstanding principal balance during the period the 2020 Notes are floating will at no time be less the 4.75%.  Interest is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 1, June 1, September 1, and December 1. The 2020 Notes will mature on June 1, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after June 1, 2025 and prior to June 1, 2030. Additionally, if all or any portion of the 2020 Notes cease to be deemed Tier 2 Capital, the Company may redeem, in whole and not in part, at any time upon giving not less than ten days’ notice, an amount equal to one hundred percent (100%) of the principal amount outstanding plus accrued but unpaid interest to but excluding the date fixed for redemption.

Holders of the 2020 Notes may not accelerate the maturity of the 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar proceeding by or against the Company or the Bank.

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Summary of significant accounting policies (Policies)

3 Months Ended

Mar. 31, 2023

Summary of significant accounting policies

Nature of operations

Nature of operations:

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned subsidiary, Peoples Security Bank and Trust Company (“the Bank”), collectively, the “Company” or “Peoples”. The Company services its retail and commercial customers through twenty-eight full-service community banking offices located within Allegheny, Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna and Wyoming Counties of Pennsylvania, Middlesex County of New Jersey and Broome County of New York.

Basis of presentation

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three months ended and as of March 31, 2023, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for credit losses, fair value of financial instruments, the valuation of deferred tax assets, and impairment of goodwill. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2022.

Second Quarter Dividend Declaration

Second Quarter Dividend Declaration

On April 28, 2023, the Board of Directors declared a second quarter dividend of $0.41 per share. The dividend is payable on June 15, 2023 to shareholders of record as of May 31, 2023.

Adoption of New Accounting Standard and Recent accounting standards

Adoption of New Accounting Standard

On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) model.  The Company adopted ASU 2016-13 using a modified retrospective approach. Results for reporting periods beginning after January 1, 2023 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.  At adoption, the Company decreased its allowance for credit losses by $3.0 million. Upon adoption the Company recorded a cumulative effect adjustment that increased stockholders’ equity by $2.4 million, net of tax.

The Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures” effective January 1, 2023. The ASU addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit losses model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.

Allowance for Credit Losses

The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. The allowance for credit losses is reported separately as a contra-asset on the consolidated balance sheets. The expected credit loss for unfunded lending commitments and unfunded loan commitments is reported on the consolidated balance sheets in other liabilities while the provision for credit losses related to unfunded commitments is reported in other non-interest expense in the consolidated statements of income and comprehensive income (loss).

Allowance for Credit Losses on Loans Receivable

The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics. The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk. Such segments include residential real estate, consumer, commercial and industrial, commercial real estate and municipal. At each reporting period, the Company evaluates whether loans within a pool continue to exhibit similar risk characteristics. If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics.  If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. The Company evaluates the pooling methodology at least annually. Loans are charged off against the allowance for credit losses when the Company believes the balances to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.

The Company estimates the allowance for credit losses on loans using an advanced probability of default model which incorporates probability of default, loss given default, exposure at default and probability of attrition attributes. The model considers relevant available information at both the portfolio and loan level from internal data that is supplemented by shared data pool information. The model also incorporates reasonable and supportable economic forecasts. After the reasonable and supportable forecast period, the model reverts to average historical losses. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications.

Also included in the allowance for credit losses on loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis described above. Factors that the Company considers include changes in lending policies and procedures, changes in management, changes in the quality of the loan review process, the existence of any concentrations of credit and other external factors.

Individually Evaluated Loans

On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. The Bank has determined that any loans currently on non-accrual status or are 90 or more days past due and still accruing are considered impaired and should be individually evaluated for losses. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will establish a reserve for the difference between the fair value of the collateral, less costs to sell and carrying costs at the reporting date and the amortized cost basis of the loan. If this amount is deemed uncollectible, the Company will charge-off that amount.

Acquired Loans

Acquired loans are included in the Company's calculation of the allowance for credit losses. How the allowance on an acquired loan is recorded depends on whether or not it has been classified as a Purchased Credit Deteriorated (“PCD”) loan. PCD loans are loans acquired at a discount that is due, in part, to credit quality. PCD loans are accounted for in accordance with ASC Subtopic 326-20 and are initially recorded at fair value as determined by the sum of the present value of expected future cash flows and an allowance for credit losses at acquisition. The allowance for PCD loans is recorded through a gross-up effect, while the allowance for acquired non-PCD loans is recorded through provision expense, consistent with originated loans. Thus, the determination of which loans are PCD and non-PCD can have a significant impact on the accounting for these loans. Subsequent to acquisition, the allowance for PCD loans will generally follow the same estimation, provision and charge-off process as non-PCD acquired and originated loans.

Under FASB ASC Topic 326, a PCD asset is defined as an individual financial asset that as of the date of acquisition has experienced a more than insignificant deterioration in credit quality since origination as determined during the acquisition process. Upon identification of these assets, the amortized cost basis will be adjusted at the time of acquisition to reflect any impairment amount. After acquisition, PCD loans will be either collectively evaluated for reserve requirements or individually evaluated if on nonaccrual status or are 90 or more days past due and still accruing.

Allowance for Credit Losses on Off-Balance Sheet Commitments

The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancelable. To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate. To determine the expected funding rate, the Company uses a historical utilization rate for each segment. As noted above, the allowance for credit losses on unfunded loan commitments is included in other liabilities on the consolidated balance sheets and the related credit expense is recorded in other non-interest expense in the consolidated statements of income and comprehensive income (loss).

Allowance for Credit Losses on Held to Maturity Securities

The Company’s portfolio of held to maturity securities consists of municipal bonds and U.S. agency residential mortgage-backed securities which are highly rated by major rating agencies and have a long history of no credit losses. In estimating the net amount expected to be collected for held to maturity securities in an unrealized loss position, a historical loss based method is utilized.

Allowance for Credit Losses on Available for Sale Securities

For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating by a rating agency, and adverse conditions related to the security, among other factors.  If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses.

Accrued Interest Receivable

The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans, available for sale securities, and held to maturity securities. Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Consolidated Balance Sheets, totaled $9.8 million at March 31, 2023 and is excluded from the estimate of credit losses. Accrued interest receivable on available of sale securities and held to maturity securities, also a component of accrued interest receivable on the Consolidated Balance Sheets, totaled $1.6 million and $191 thousand, respectively, at March 31, 2023 and is excluded from the estimate of credit losses.

Recent accounting standards:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by the Company as of the required effective dates. The following should be read in conjunction with "Note 1 Summary of significant accounting policies" of the Notes to the Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2022.

Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on the Company’s consolidated financial statements.

ASU 2023-01, “Leases (Topic 842) - Common Control Arrangements” (ASU 2023-01) requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with an unrelated party (on the basis of legally enforceable terms and conditions). ASU 2023-01 is effective January 1, 2024 and is not expected to have an impact on our financial statements.

ASU 2023-02 “Investments - Equity Method and Join Ventures (Topic 323) - Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method” (ASU 2023-02) permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective January 1, 2024 and is not expected to have an impact on our financial statements.

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Other comprehensive income (loss) (Tables)

3 Months Ended

Mar. 31, 2023

Other comprehensive income (loss)

Schedule of components of accumulated other comprehensive loss

(Dollars in thousands)		March 31, 2023		December 31, 2022
Net unrealized loss on investment securities available-for-sale	$	(55,495)	$	(66,250)
Income tax benefit		(11,950)		(14,266)
Net of income taxes		(43,545)		(51,984)
Benefit plan adjustments		(5,499)		(5,499)
Income tax benefit		(1,184)		(1,184)
Net of income taxes		(4,315)		(4,315)
Derivative adjustments		(2,017)		(47)
Income tax benefit		(434)		(10)
Net of income taxes		(1,583)		(37)
Accumulated other comprehensive loss	$	(49,442)	$	(56,336)

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Earnings per share (Tables)

3 Months Ended

Mar. 31, 2023

Earnings per share

Schedule of earnings per share

	2023				2022
(Dollars in thousands, except percents)	Basic		Diluted		Basic		Diluted
Net income	$	7,579	$	7,579	$	9,630	$	9,630
Average common shares outstanding		7,157,553		7,198,970		7,172,455		7,216,421
Earnings per share	$	1.06	$	1.05	$	1.34	$	1.33

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Investment securities (Tables)

3 Months Ended

Mar. 31, 2023

Investment Securities

Schedule of amortized cost and fair value of investment securities aggregated by investment category

	March 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	197,660	$		$	16,096	$	181,564
U.S. government-sponsored enterprises		16,872				441		16,431
State and municipals:
Taxable		68,426		5		11,227		57,204
Tax-exempt		77,668		1		9,095		68,574
Residential mortgage-backed securities:
U.S. government agencies		942				34		908
U.S. government-sponsored enterprises		95,947				17,735		78,212
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,105				484		11,621
Corporate debt securities		4,000				389		3,611
Total	$	473,620	$	6	$	55,501	$	418,125
Held-to-maturity:
Tax-exempt state and municipals	$	11,228	$	8	$	674	$	10,562
Residential mortgage-backed securities:
U.S. government agencies		16,806				2,541		14,265
U.S. government-sponsored enterprises		61,671				9,425		52,246
Total	$	89,705	$	8	$	12,640	$	77,073

	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	199,937	$		$	19,640	$	180,297
U.S. government-sponsored enterprises		16,955				585		16,370
State and municipals:
Taxable		68,946				13,588		55,358
Tax-exempt		99,774		93		11,460		88,407
Residential mortgage-backed securities:
U.S. government agencies		982				40		942
U.S. government-sponsored enterprises		141,231				20,112		121,119
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,128				544		11,584
Corporate debt securities		4,000				374		3,626
Total	$	543,953	$	93	$	66,343	$	477,703
Held-to-maturity:
Tax-exempt state and municipals	$	11,237	$	1	$	841	$	10,397
Residential mortgage-backed securities:
U.S. government agencies		17,304				3,016		14,288
U.S. government-sponsored enterprises		62,638				10,760		51,878
Total	$	91,179	$	1	$	14,617	$	76,563

Schedule of fair value and unrealized losses of investment securities in continuous unrealized loss position

	March 31, 2023
	Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
(Dollars in thousands)	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities		$		$		43	$	181,564	$	16,096	43	$	181,564	$	16,096
U.S. government-sponsored enterprises						5		16,431		441	5		16,431		441
State and municipals:
Taxable	2		999		19	63		54,709		11,208	65		55,708		11,227
Tax-exempt	7		3,095		29	98		70,366		9,740	105		73,461		9,769
Residential mortgage-backed securities:
U.S. government agencies	2		818		31	7		14,355		2,544	9		15,173		2,575
U.S. government-sponsored enterprises	1		527		12	40		129,931		27,148	41		130,458		27,160
Commercial mortgage-backed securities:
U.S. government agencies
U.S. government-sponsored enterprises	1		1,926		86	3		9,695		398	4		11,621		484
Corporate debt securities						6		3,611		389	6		3,611		389
Total	13	$	7,365	$	177	265	$	480,662	$	67,964	278	$	488,027	$	68,141

	December 31, 2022
	Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
(Dollars in thousands)	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities	5	$	23,700	$	1,887	40	$	156,597	$	17,753	45	$	180,297	$	19,640
U.S. government-sponsored enterprises	4		14,104		197	1		2,266		388	5		16,370		585
State and municipals:
Taxable	21		19,919		2,908	45		34,464		10,680	66		54,383		13,588
Tax-exempt	39		30,973		1,690	84		59,664		10,611	123		90,637		12,301
Residential mortgage-backed securities:
U.S. government agencies	5		904		39	4		14,326		3,017	9		15,230		3,056
U.S. government-sponsored enterprises	19		57,166		2,029	25		115,831		28,843	44		172,997		30,872
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises	4		11,584		544						4		11,584		544
Corporate debt securities	1		953		47	5		2,673		327	6		3,626		374
Total	98	$	159,303	$	9,341	204	$	385,821	$	71,619	302	$	545,124	$	80,960

Available-for-Sale Securities

Investment Securities

Schedule of maturity distribution of fair value

	Fair
(Dollars in thousands)	Value
Within one year	$	15,202
After one but within five years		176,975
After five but within ten years		66,629
After ten years		66,319
		325,125
Mortgage-backed and other amortizing securities		93,000
Total	$	418,125

Held-to-maturity Securities.

Investment Securities

Schedule of maturity distribution of fair value

	Amortized		Fair
(Dollars in thousands)	Cost		Value
Within one year	$		$
After one but within five years
After five but within ten years		8,877		8,355
After ten years		2,351		2,207
		11,228		10,562
Mortgage-backed securities		78,477		66,511
Total	$	89,705	$	77,073

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Loans, net and allowance for credit losses (Tables)

3 Months Ended

Mar. 31, 2023

Loans, net and allowance for credit losses

Schedule of major classifications of loans outstanding

(Dollars in thousands)		March 31, 2023	December 31, 2022
Commercial and Industrial	$	430,098	$	433,048
Municipal		169,278		166,210
Total		599,376		599,258
Real estate
Commercial		1,782,911		1,709,827
Residential		342,459		330,728
Total		2,125,370		2,040,555
Consumer
Indirect Auto		86,587		76,461
Consumer Other		6,710		13,842
Total		93,297		90,303
Total	$	2,818,043	$	2,730,116

Schedule of changes in allowance for loan losses account by major classification of loans

					Real estate
March 31, 2023	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for credit losses:	$	4,365	$	1,247	$	17,915	$	3,072	$	873	$	27,472
Impact of adopting ASU 2016-13		(1,683)		747		(3,344)		987		30		(3,263)
Adjusted Beginning Balance January 1, 2023		2,682		1,994		14,571		4,059		903		24,209
Charge-offs		(4)								(71)		(75)
Recoveries						1		16		49		66
Provisions (credits)		(197)		324		1,120		(207)		204		1,244
Ending balance	$	2,481	$	2,318	$	15,692	$	3,868	$	1,085	$	25,444
					Real estate
March 31, 2022	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2022	$	7,466	$	987	$	15,928	$	3,209	$	793	$	28,383
Charge-offs		(161)				(132)				(62)		(355)
Recoveries		9				16		3		51		79
Provisions (credits)		(887)		179		977		43		(12)		300
Ending balance	$	6,427	$	1,166	$	16,789	$	3,255	$	770	$	28,407

Schedule of nonaccrual loans

		March 31, 2023
								Interest Income
								Recorded for
		Total		Nonaccrual with		Nonaccrual with		Nonaccrual Loans
		Nonaccrual		an Allowance for		no Allowance for		in the three months
(Dollars in thousands)		Loans		Credit Losses		Credit Losses		ended March 31, 2023
Commercial	$	14	$	14	$		$	5
Municipal
Real estate:
Commercial		867				867		374
Residential		723				723
Consumer		194				194
Total	$	1,798	$	14	$	1,784	$	379

		December 31, 2022
								Interest Income
								Recorded for
		Total		Nonaccrual with		Nonaccrual with		Nonaccrual Loans
		Nonaccrual		an Allowance for		no Allowance for		in the three months
(Dollars in thousands)		Loans		Credit Losses		Credit Losses		ended December 31, 2022
Commercial	$	86	$	19	$	67	$
Municipal
Real estate:
Commercial		1,155				1,155
Residential		562				562
Consumer		232				232
Total	$	2,035	$	19	$	2,016	$

Summarized information concerning impaired loans

	March 31, 2022
							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(Dollars in thousands)	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	138	$	475	$		$	148	$	2
Municipal
Real estate:
Commercial		2,748		3,505				2,562		12
Residential		874		1,047				874		4
Consumer		207		217				173
Total		3,967		5,244				3,757		18
With an allowance recorded:
Commercial		21		21		21		31
Municipal
Real estate:
Commercial		440		452		45		477		4
Residential		273		274		49		338		3
Consumer
Total		734		747		115		846		7
Total impaired loans
Commercial		159		496		21		179		2
Municipal
Real estate:
Commercial		3,188		3,957		45		3,039		16
Residential		1,147		1,321		49		1,212		7
Consumer		207		217				173
Total	$	4,701	$	5,991	$	115	$	4,603	$	25

Schedule of major classification of loans portfolio summarized by credit quality

(Dollars in thousands)		2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial
Pass	$	11,531	$	50,495	$	46,353	$	32,496	$	50,260	$	89,938	$	140,615	$	421,688
Special Mention														67		67
Substandard		15				46				53		276		7,953		8,343
Total Commercial		11,546		50,495		46,399		32,496		50,313		90,214		148,635		430,098
Municipal
Pass		1,400		45,146		91,776		11,850		36		18,983		87		169,278
Special Mention
Substandard
Total Municipal		1,400		45,146		91,776		11,850		36		18,983		87		169,278
Commercial real estate
Pass		55,319		531,819		488,524		151,845		154,002		386,268				1,767,777
Special Mention		1,763								303		3,301				5,367
Substandard		175				1,637		165		628		7,162				9,767
Total Commercial real estate		57,257		531,819		490,161		152,010		154,933		396,731				1,782,911
Residential real estate
Pass		5,741		55,051		69,011		28,927		17,764		93,343		72,014		341,851
Special Mention
Substandard						17		214				377				608
Total Residential real estate		5,741		55,051		69,028		29,141		17,764		93,720		72,014		342,459
Consumer
Pass		17,548		39,005		17,087		8,127		5,179		5,457		700		93,103
Special Mention
Substandard						111		30		19		34				194
Total Consumer		17,548		39,005		17,198		8,157		5,198		5,491		700		93,297
Total Loans	$	93,492	$	721,516	$	714,562	$	233,654	$	228,244	$	605,139	$	221,436	$	2,818,043
Gross charge-offs
Commercial	$		$		$		$		$		$		$	4	$	4
Municipal
Commercial real estate
Residential real estate
Consumer				1		35		17		10		8				71
Total Gross charge-offs	$		$	1	$	35	$	17	$	10	$	8	$	4	$	75

	December 31, 2022
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	424,411	$	7,822	$	815	$	$	433,048
Municipal		166,210							166,210
Real estate:
Commercial		1,699,041		7,509		3,277			1,709,827
Residential		329,098				1,630			330,728
Consumer		90,020				283			90,303
Total	$	2,708,780	$	15,331	$	6,005	$	$	2,730,116

Schedule of information concerning nonaccrual loans by major loan classification

					Real estate
March 31, 2023	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for credit losses:
Ending balance	$	2,481	$	2,318	$	15,692	$	3,868	$	1,085	$	25,444
Ending balance: individually evaluated		14										14
Ending balance: collectively evaluated	$	2,467	$	2,318	$	15,692	$	3,868	$	1,085	$	25,430
Loans receivable:
Ending balance	$	430,098	$	169,278	$	1,782,911	$	342,459	$	93,297	$	2,818,043
Individually evaluated - collateral dependent - real estate		10				867		789				1,666
Individually evaluated - collateral dependent - non-real estate		14										14
Collectively evaluated		430,074		169,278		1,782,044		341,670		93,297		2,816,363

					Real estate
December 31, 2022	Commercial		Municipal		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	4,365	$	1,247	$	17,915	$	3,072	$	873	$	27,472
Ending balance: individually evaluated for impairment		19						21				40
Ending balance: collectively evaluated for impairment	$	4,346	$	1,247	$	17,915	$	3,051	$	873	$	27,432
Loans receivable:
Ending balance	$	433,048	$	166,210	$	1,709,827	$	330,728	$	90,303	$	2,730,116
Ending balance: individually evaluated for impairment		98				2,063		1,760				3,921
Ending balance: collectively evaluated for impairment		432,950		166,210		1,707,764		328,968		90,303		2,726,195

Schedule of major classifications of loans by past due status

	March 31, 2023
					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
(Dollars in thousands)	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	156	$		$	14	$	170	$	429,928	$	430,098	$
Municipal										169,278		169,278
Real estate:
Commercial		92		616		245		953		1,781,958		1,782,911
Residential		1,965		444		467		2,876		339,583		342,459		59
Consumer		487		92		53		632		92,665		93,297
Total	$	2,700	$	1,152	$	779	$	4,631	$	2,813,412	$	2,818,043	$	59

	December 31, 2022
					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
(Dollars in thousands)	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	137	$	38	$	86	$	261	$	432,787	$	433,048	$
Municipal										166,210		166,210
Real estate:
Commercial		102		2		334		438		1,709,389		1,709,827
Residential		1,162		128		988		2,278		328,450		330,728		748
Consumer		690		199		120		1,009		89,294		90,303
Total	$	2,091	$	367	$	1,528	$	3,986	$	2,726,130	$	2,730,116	$	748

Schedule of allowance for credit losses on off balance sheet commitments

(Dollars in thousands)		March 31, 2023
Balance at December 31, 2022	$	179
Impact of adopting Topic 326		270
Credit recorded in noninterest expense		(185)
Total allowance for credit losses on off balance sheet commitments	$	264

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Other assets (Tables)

3 Months Ended

Mar. 31, 2023

Other assets

Schedule of components of other assets

(Dollars in thousands)		March 31, 2023		December 31, 2022
Other real estate owned	$	121	$	121
Investment in low income housing partnership		5,325		5,446
Mortgage servicing rights		906		914
Restricted equity securities (FHLB and other)		4,887		9,630
Interest rate floor		1		1
Interest rate swaps		18,485		21,794
Other assets		11,354		8,165
Total	$	41,079	$	46,071

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Fair value estimates (Tables)

3 Months Ended

Mar. 31, 2023

Fair value estimates

Schedule of assets and liabilities measured at fair value on a recurring basis

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
(Dollars in thousands)			Identical Assets		Inputs		Inputs
March 31, 2023	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	181,564	$	181,564	$		$
U.S. government-sponsored enterprises		16,431				16,431
State and municipals:
Taxable		57,204				57,204
Tax-exempt		68,574				68,574
Mortgage-backed securities:
U.S. government agencies		908				908
U.S. government-sponsored enterprises		89,833				89,833
Corporate debt securities		3,611				3,611
Common equity securities		81		81
Total investment securities	$	418,206	$	181,645	$	236,561	$
Interest rate floor-other assets	$	1			$	1
Interest rate swap-other assets	$	18,485			$	18,485
Interest rate floor-other liabilities		(1,980)				(1,980)
Interest rate swap-other liabilities	$	(17,914)			$	(17,914)

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
(Dollars in thousands)			Identical Assets		Inputs		Inputs
December 31, 2022	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	180,297	$	180,297	$		$
U.S. government-sponsored enterprises		16,370				16,370
State and municipals:
Taxable		55,358				55,358
Tax-exempt		88,407				88,407
Mortgage-backed securities:
U.S. government agencies		942				942
U.S. government-sponsored enterprises		132,703				132,703
Corporate debt securities		3,626				3,626
Common equity securities		110		110
Total investment securities	$	477,813	$	180,407	$	297,406	$
Interest rate floor-other assets	$	1			$	1
Interest rate swap-other assets	$	21,794			$	21,794
Interest rate swap-other liabilities	$	(21,466)			$	(21,466)

Schedule of assets and liabilities measured at fair value on a nonrecurring basis

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
(Dollars in thousands)			Identical Assets	Inputs	Inputs
March 31, 2023	Amount		(Level 1)	(Level 2)	(Level 3)
Loans individually evaluated for credit loss	$	1,680	$	$	$	1,680

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
(Dollars in thousands)			Identical Assets	Inputs	Inputs
December 31, 2022	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	220	$	$	$	220

Schedule of additional quantitative information about assets measured at fair value on a nonrecurring basis

	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands, except percents)	Fair Value				Range
March 31, 2023	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Loans individually evaluated for credit loss	$	1,680	Appraisal of collateral	Appraisal adjustments	22.8% to 77.0%  (67.3)%
				Liquidation expenses	3.0% to 6.0% (5.2)%

	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands, except percents)	Fair Value				Range
December 31, 2022	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	220	Appraisal of collateral	Appraisal adjustments	21.6% to 97.0%  (77.7)%
				Liquidation expenses	3.0% to 6.0% (4.9)%

Schedule of carrying and fair values of financial instruments

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
(Dollars in thousands)	Carrying		Fair		Assets		Inputs		Inputs
March 31, 2023	Value		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	140,583	$	140,583	$	140,583	$		$
Investment securities:
Available-for-sale		418,125		418,125		181,564		236,561
Common equity securities		81		81		81
Held-to-maturity		89,705		77,073				77,073
Loans held for sale
Net loans		2,792,599		2,629,921						2,629,921
Accrued interest receivable		11,678		11,678				11,678
Mortgage servicing rights		906		1,747				1,747
Restricted equity securities (FHLB and other)		4,887		4,887				4,887
Interest rate floor		1		1				1
Interest rate swaps		18,485		18,485				18,485
Total	$	3,477,050	$	3,302,580
Financial liabilities:
Deposits	$	3,235,967	$	3,229,495	$		$	3,229,495	$
Short-term borrowings		17,280		17,280				17,280
Long-term debt		25,000		24,982				24,982
Subordinated debentures		33,000		31,898				31,898
Accrued interest payable		2,304		2,304				2,304
Interest rate floor		1,980		1,980				1,980
Interest rate swaps		17,914		17,914				17,914
Total	$	3,333,445	$	3,325,853

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
(Dollars in thousands)	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2022	Value		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	37,868	$	37,868	$	37,868	$		$
Investment securities:
Available-for-sale		477,703		477,703		180,297		294,706
Common equity securities		110		110		110
Held-to-maturity		91,179		76,563				76,563
Loans held for sale
Net loans		2,702,644		2,562,780						2,562,780
Accrued interest receivable		11,715		11,715				11,715
Mortgage servicing rights		914		1,762				1,762
Restricted equity securities (FHLB and other)		9,630		9,630				9,630
Interest rate floor		1		1				1
Interest rate swaps		21,794		21,794				21,794
Total	$	3,353,558	$	3,199,926
Financial liabilities:
Deposits	$	3,046,598	$	3,035,615	$		$	3,035,615	$
Short-term borrowings		114,930		114,743				114,743
Long-term debt		555		555				555
Subordinated debentures		33,000		53,998				53,998
Accrued interest payable		903		903				903
Interest rate swaps		21,466		21,466				21,466
Total	$	3,217,452	$	3,227,280

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Employee benefit plans (Tables)

3 Months Ended

Mar. 31, 2023

Employee benefit plans

Schedule of components of net periodic benefit cost

	Pension Benefits
(Dollars in thousands)	2023		2022
Net periodic pension income:
Interest cost	$	164	$	114
Expected return on plan assets		(293)		(352)
Amortization of unrecognized net loss		50		50
Net periodic pension income:	$	(79)	$	(188)

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Derivatives and hedging activities (Tables)

3 Months Ended

Mar. 31, 2023

Derivatives and hedging activities

Schedule of amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges

Line Item in the Statement of Financial Position in Which the Hedged Item is Included		Amortized Amount of the Hedged Assets/(Liabilities)				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
(Dollars in Thousands)		2023		2022		2023		2022
AFS Securities (1)	$	100,000	$		$	1,986	$
Total	$	100,000	$		$	1,986	$

(1) These amounts include the amortized cost basis of closed portfolios of fixed rate assets used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At March 31, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $146.1 million. The amounts of the designated hedged items were $138.6 million.

Schedule of fair value of derivative financial instruments and balance sheet classification

Fair Values of Derivative Instruments
		Derivative Assets								Derivative Liabilities
		As of March 31, 2023				As of December 31, 2022				As of March 31, 2023				As of December 31, 2022
(Dollars in Thousands)		Notional Amount	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value		Notional Amount	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Interest Rate Products	$	25,000	Other Assets	$	1	Other Assets	$	1	$	100,000	Other Liabilities	$	1,970	Other Liabilities	$
Total derivatives designated as hedging instruments				$	1		$	1				$	1,970		$
Derivatives not designated as hedging instruments
Interest Rate Products	$	208,147	Other Assets	$	18,963	Other Assets	$	22,195	$	208,147	Other Liabilities	$	18,392	Other Liabilities	$	21,466
Other Contracts		1,522	Other Assets		6	Other Assets				6,307	Other Liabilities		2	Other Liabilities
Total derivatives not designated as hedging instruments				$	18,969		$	22,195				$	18,394		$	21,466

(1) Amounts include accrued interest.

(2) Notional amount of interest rate floor at December 31, 2022 was $25.0 million. Notional asset amount of interest rate swaps at December 31, 2022 was $187.3 million and $1.5 million for risk participation agreements.

Schedule of effect of fair value and cash flow hedge accounting on accumulated other comprehensive income

(Dollars in Thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative	Amount of Gain or (Loss) Recognized in OCI Included Component	Amount of Gain or (Loss) Recognized in OCI Excluded Component	Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Included Component	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component
March 31, 2023	2023				2023
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$ 1		$ 1	Interest Income	($ 16)		$ 16
Total	$ 1		$ 1		($ 16)		$ 16
(Dollars in Thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative	Amount of Gain or (Loss) Recognized in OCI Included Component	Amount of Gain or (Loss) Recognized in OCI Excluded Component	Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Included Component	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component
March 31, 2022	2022				2022
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	($ 361)	(439)	$ 78	Interest Income	$ 131	147	($ 16)
Total	($ 361)	($ 439)	$ 78		$ 131	$ 147	($ 16)

* Amounts disclosed are gross and not net of taxes.

Schedule of effect of derivative financial instruments on Income Statement

	Location and Amount of Gain or (Loss)
	Recognized in Income on Fair Value and
	Cash Flow Hedging Relationships
	For the three months ended March 31,
		2023		2022
(Dollars in Thousands)		Interest Income		Interest Income
Total amounts of income and expense line items presented in the
statement of financial performance in which the effects of fair value or
cash flow hedges are recorded	$	15	$	131
The effects of fair value and cash flow hedging:
Gain or (loss) on fair value hedging relationships
Interest contracts
Hedged items		1,986
Derivatives designated as hedging instruments		(1,955)
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income		(16)		131
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Included Component				147
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Excluded Component	$	(16)	$	(16)

Schedule of gain (loss) on derivative instruments not designated as hedging instruments

		Amount of Gain or (Loss)		Amount of Gain or (Loss)
		Recognized in		Recognized in
	Location of Gain or (Loss)	Income on Derivative		Income on Derivative
	Recognized in Income on	Three Months Ended		Three Months Ended
(Dollars in thousands)	Derivative	March 31, 2023		March 31, 2022
Derivatives Not Designated as Hedging Instruments:
Interest Rate Products	Other income / (expense)	$	(161)	$	240
Other Contracts	Other income / (expense)				2
Total		$	(161)	$	242
Fee Income	Fee income	$	384	$	103

Schedule of offsetting derivatives

Offsetting of Derivative Assets
as of March 31, 2023
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Posted		Amount
Derivatives	$	18,964	$	$	18,964	$		$	17,280	$	1,684
Offsetting of Derivative Liabilities
as of March 31, 2023
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Posted*		Amount
Derivatives	$	20,365	$	$	20,365	$	20,365	$		$
*Cash collateral of $1,710 was paid in March 2023, but not presented in the table above.
Offsetting of Derivative Assets
as of December 31, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Posted		Amount
Derivatives	$	22,196	$	$	22,196	$		$	14,530	$	7,666
Offsetting of Derivative Liabilities
as of December 31, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Posted		Amount
Derivatives	$	21,466	$	$	21,466	$	21,466	$		$

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Deposits (Tables)

3 Months Ended

Mar. 31, 2023

Deposits.

Summary of major components of interest-bearing and noninterest-bearing deposits

(Dollars in thousands)		March 31, 2023		December 31, 2022
Interest-bearing deposits:
Money market accounts	$	775,511	$	685,323
Now accounts		698,888		772,712
Savings accounts		500,709		523,931
Time deposits less than $250		400,327		199,136
Time deposits $250 or more		114,443		92,731
Total interest-bearing deposits		2,489,878		2,273,833
Noninterest-bearing deposits		746,089		772,765
Total deposits	$	3,235,967	$	3,046,598

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Borrowings (Tables)

3 Months Ended

Mar. 31, 2023

Borrowings

Summary of short-term borrowings

		At and for the three months ended March 31, 2023
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
(Dollars in thousands, except percents)	Balance		Balance		Balance		the Year		of the Period
Other borrowings	$	17,280	$	13,841	$	17,280	4.57	%	4.83	%
FHLB advances				77,689		158,000	4.86
Total short-term borrowings	$	17,280	$	91,530	$	175,280	4.81	%	4.83	%

	At and for the year ended December 31, 2022
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
(Dollars in thousands, except percents)	Balance		Balance		Balance		the Year		of the Year
Other borrowings	$	14,530	$	10,033	$	16,100	2.10	%	4.30	%
FHLB advances		100,400		32,647		125,975	2.73		4.45
Total short-term borrowings	$	114,930	$	42,680	$	142,075	2.58	%	4.43	%

Schedule of long-term debt consisting of advances

	Interest Rate
(Dollars in thousands, except percents)	Fixed			March 31, 2023		December 31, 2022
March 2023	4.69	%	$		$	555
March 2025	4.37			10,000
March 2026	4.20			15,000
			$	25,000	$	555

Schedule of maturities of long-term debt

(Dollars in thousands)
2025	$	10,000
2026		15,000
	$	25,000

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Summary of significant accounting policies - Nature of operations and Basis of presentation (Details)		3 Months Ended
	Apr. 28, 2023 $ / shares	Mar. 31, 2023 Office $ / shares	Mar. 31, 2022 $ / shares
Summary of significant accounting policies
Number of full-service community banking offices | Office		28
Dividends declared | $ / shares	$ 0.41	$ 0.41	$ 0.39

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Summary of significant accounting policies - Adoption of new accounting standard (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Jan. 01, 2023	Dec. 31, 2022	Mar. 31, 2022	Dec. 31, 2021
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses	$ 25,444		$ 27,472	$ 28,407	$ 28,383
Stockholders' equity	328,634		315,350	$ 320,461	$ 340,126
Accrued interest receivable on loans	9,800
Accrued interest receivable on available of sale securities	1,600
Accrued interest receivable on held to maturity securities	191
Cumulative impact of adoption | ASU 2016-13
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses		$ 3,000	$ (3,263)
Stockholders' equity	$ 2,364	$ 2,400

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Other comprehensive income (loss) - Components of Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Other comprehensive income (loss)
Net unrealized loss on investment securities available-for-sale	$ (55,495)	$ (66,250)
Income tax benefit	(11,950)	(14,266)
Net of income taxes	(43,545)	(51,984)
Benefit plan adjustments	(5,499)	(5,499)
Income tax benefit	1,184	1,184
Net of income taxes	(4,315)	(4,315)
Derivative adjustments	(2,017)	(47)
Income tax (benefit) expense	(434)	(10)
Net of income taxes	(1,583)	(37)
Accumulated other comprehensive loss	$ (49,442)	$ (56,336)

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Earnings per share - Schedule of Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Earnings per share
Net income, Basic	$ 7,579	$ 9,630
Average common shares outstanding - Basic	7,157,553	7,172,455
Earnings per share - Basic	$ 1.06	$ 1.34
Net income, Diluted	$ 7,579	$ 9,630
Average common shares outstanding - Diluted	7,198,970	7,216,421
Earnings per share - Diluted	$ 1.05	$ 1.33

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Investment securities - Amortized Cost and Fair Value of Investment Securities Aggregated by Investment Category (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Investment Securities
Available-for-sale, Amortized Cost	$ 473,620	$ 543,953
Available-for-sale, Gross Unrealized Gains	6	93
Available-for-sale, Gross Unrealized Losses	55,501	66,343
Available-for-sale, Fair Value	418,125	477,703
Held-to-maturity, Amortized Cost	89,705	91,179
Held-to-maturity, Gross Unrealized Gains	8	1
Held-to-maturity, Gross Unrealized Losses	12,640	14,617
Held-to-maturity, Fair value	77,073	76,563
U.S. Treasury securities
Investment Securities
Available-for-sale, Amortized Cost	197,660	199,937
Available-for-sale, Gross Unrealized Losses	16,096	19,640
Available-for-sale, Fair Value	181,564	180,297
U.S. Government-sponsored enterprises state and municipals
Investment Securities
Available-for-sale, Amortized Cost	16,872	16,955
Available-for-sale, Gross Unrealized Losses	441	585
Available-for-sale, Fair Value	16,431	16,370
State and municipals, Taxable
Investment Securities
Available-for-sale, Amortized Cost	68,426	68,946
Available-for-sale, Gross Unrealized Gains	5
Available-for-sale, Gross Unrealized Losses	11,227	13,588
Available-for-sale, Fair Value	57,204	55,358
State and municipals, Tax-exempt
Investment Securities
Available-for-sale, Amortized Cost	77,668	99,774
Available-for-sale, Gross Unrealized Gains	1	93
Available-for-sale, Gross Unrealized Losses	9,095	11,460
Available-for-sale, Fair Value	68,574	88,407
Tax-exempt state and municipals
Investment Securities
Held-to-maturity, Amortized Cost	11,228	11,237
Held-to-maturity, Gross Unrealized Gains	8	1
Held-to-maturity, Gross Unrealized Losses	674	841
Held-to-maturity, Fair value	10,562	10,397
Residential mortgage-backed securities, U.S. government agencies
Investment Securities
Available-for-sale, Amortized Cost	942	982
Available-for-sale, Gross Unrealized Losses	34	40
Available-for-sale, Fair Value	908	942
Held-to-maturity, Amortized Cost	16,806	17,304
Held-to-maturity, Gross Unrealized Losses	2,541	3,016
Held-to-maturity, Fair value	14,265	14,288
Residential mortgage-backed securities, U.S. government-sponsored enterprises
Investment Securities
Available-for-sale, Amortized Cost	95,947	141,231
Available-for-sale, Gross Unrealized Losses	17,735	20,112
Available-for-sale, Fair Value	78,212	121,119
Held-to-maturity, Amortized Cost	61,671	62,638
Held-to-maturity, Gross Unrealized Losses	9,425	10,760
Held-to-maturity, Fair value	52,246	51,878
Commercial mortgage-backed Securities, U.S. government-sponsored enterprises
Investment Securities
Available-for-sale, Amortized Cost	12,105	12,128
Available-for-sale, Gross Unrealized Losses	484	544
Available-for-sale, Fair Value	11,621	11,584
Corporate debt securities
Investment Securities
Available-for-sale, Amortized Cost	4,000	4,000
Available-for-sale, Gross Unrealized Losses	389	374
Available-for-sale, Fair Value	$ 3,611	$ 3,626

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Investment securities - Maturity Distribution of Debt Securities Classified as Available-for-Sale (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Investment securities
Within one year	$ 15,202
After one but within five years	176,975
After five but within ten years	66,629
After ten years	66,319
Available for sale securities	325,125
Mortgage-backed and other amortizing securities	93,000
Total	$ 418,125	$ 477,703

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Investment securities - Summary of Amortized Cost and Fair Value of Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Amortized Cost of Held-to-maturity Securities
Amortized Cost, After five but within ten years, Held to maturity	$ 8,877
Amortized Cost, After ten years, Held to maturity	2,351
Amortized Cost, Held to maturity	11,228
Amortized Cost, Mortgage-backed securities, Held to maturity	78,477
Held-to-maturity, Amortized Cost	89,705	$ 91,179
Fair Value of Held-to-maturity Securities
Fair Value, After five but within ten years, Held to maturity	8,355
Fair Value, After ten years, Held to maturity	2,207
Fair Value, Held to maturity	10,562
Fair Value, Mortgage-backed securities, Held to maturity	66,511
Held to maturity, Fair Value	$ 77,073	$ 76,563

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Investment securities - Pledged Securities (Details) - USD ($) $ in Millions	Mar. 31, 2023	Dec. 31, 2022
Available-for-sale and Held-to-maturity securities
Carrying value of securities pledged	us-gaap:AssetPledgedAsCollateralMember	us-gaap:AssetPledgedAsCollateralMember
Collateral Pledged
Available-for-sale and Held-to-maturity securities
Carrying value of securities pledged	$ 151.2	$ 168.0
U.S. Government-sponsored enterprises state and municipals
Available-for-sale and Held-to-maturity securities
Maximum percentage of stockholders' equity exceeded for securities of any individual issuer	10.00%	10.00%

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Investment securities - Fair Value and Unrealized Losses of Investment Securities in Continuous Unrealized Loss Position (Details) $ in Thousands	Mar. 31, 2023 USD ($) security	Dec. 31, 2022 USD ($) security
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities in a Loss Position	13	98
Less Than 12 Months, Fair Value	$ 7,365	$ 159,303
Less Than 12 Months, Unrealized Losses	$ 177	$ 9,341
12 Months or Greater, Number of Securities in a Loss Position	265	204
12 Months or Greater, Fair Value	$ 480,662	$ 385,821
12 Months or Greater, Unrealized Losses	$ 67,964	$ 71,619
Total, Number of Securities in a Loss Position	278	302
Total, Fair Value	$ 488,027	$ 545,124
Total, Unrealized Losses	$ 68,141	$ 80,960
U.S. Treasury securities
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities in a Loss Position | security		5
Less Than 12 Months, Fair Value		$ 23,700
Less Than 12 Months, Unrealized Losses		$ 1,887
12 Months or Greater, Number of Securities in a Loss Position | security	43	40
12 Months or Greater, Fair Value	$ 181,564	$ 156,597
12 Months or Greater, Unrealized Losses	$ 16,096	$ 17,753
Total, Number of Securities in a Loss Position | security	43	45
Total, Fair Value	$ 181,564	$ 180,297
Total, Unrealized Losses	$ 16,096	$ 19,640
U.S. Government-sponsored enterprises state and municipals
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities in a Loss Position | security		4
Less Than 12 Months, Fair Value		$ 14,104
Less Than 12 Months, Unrealized Losses		$ 197
12 Months or Greater, Number of Securities in a Loss Position | security	5	1
12 Months or Greater, Fair Value	$ 16,431	$ 2,266
12 Months or Greater, Unrealized Losses	$ 441	$ 388
Total, Number of Securities in a Loss Position | security	5	5
Total, Fair Value	$ 16,431	$ 16,370
Total, Unrealized Losses	$ 441	$ 585
State and Municipals, Taxable
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities in a Loss Position | security	2	21
Less Than 12 Months, Fair Value	$ 999	$ 19,919
Less Than 12 Months, Unrealized Losses	$ 19	$ 2,908
12 Months or Greater, Number of Securities in a Loss Position | security	63	45
12 Months or Greater, Fair Value	$ 54,709	$ 34,464
12 Months or Greater, Unrealized Losses	$ 11,208	$ 10,680
Total, Number of Securities in a Loss Position | security	65	66
Total, Fair Value	$ 55,708	$ 54,383
Total, Unrealized Losses	$ 11,227	$ 13,588
State and Municipals, Tax-exempt
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities in a Loss Position | security	7	39
Less Than 12 Months, Fair Value	$ 3,095	$ 30,973
Less Than 12 Months, Unrealized Losses	$ 29	$ 1,690
12 Months or Greater, Number of Securities in a Loss Position | security	98	84
12 Months or Greater, Fair Value	$ 70,366	$ 59,664
12 Months or Greater, Unrealized Losses	$ 9,740	$ 10,611
Total, Number of Securities in a Loss Position | security	105	123
Total, Fair Value	$ 73,461	$ 90,637
Total, Unrealized Losses	$ 9,769	$ 12,301
Residential mortgage-backed securities, U.S. government agencies
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities in a Loss Position | security	2	5
Less Than 12 Months, Fair Value	$ 818	$ 904
Less Than 12 Months, Unrealized Losses	$ 31	$ 39
12 Months or Greater, Number of Securities in a Loss Position | security	7	4
12 Months or Greater, Fair Value	$ 14,355	$ 14,326
12 Months or Greater, Unrealized Losses	$ 2,544	$ 3,017
Total, Number of Securities in a Loss Position | security	9	9
Total, Fair Value	$ 15,173	$ 15,230
Total, Unrealized Losses	$ 2,575	$ 3,056
Residential mortgage-backed securities, U.S. government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities in a Loss Position | security	1	19
Less Than 12 Months, Fair Value	$ 527	$ 57,166
Less Than 12 Months, Unrealized Losses	$ 12	$ 2,029
12 Months or Greater, Number of Securities in a Loss Position | security	40	25
12 Months or Greater, Fair Value	$ 129,931	$ 115,831
12 Months or Greater, Unrealized Losses	$ 27,148	$ 28,843
Total, Number of Securities in a Loss Position | security	41	44
Total, Fair Value	$ 130,458	$ 172,997
Total, Unrealized Losses	$ 27,160	$ 30,872
Commercial mortgage-backed Securities, U.S. government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities in a Loss Position | security	1	4
Less Than 12 Months, Fair Value	$ 1,926	$ 11,584
Less Than 12 Months, Unrealized Losses	$ 86	$ 544
12 Months or Greater, Number of Securities in a Loss Position | security	3
12 Months or Greater, Fair Value	$ 9,695
12 Months or Greater, Unrealized Losses	$ 398
Total, Number of Securities in a Loss Position | security	4	4
Total, Fair Value	$ 11,621	$ 11,584
Total, Unrealized Losses	$ 484	$ 544
Corporate debt securities
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities in a Loss Position | security		1
Less Than 12 Months, Fair Value		$ 953
Less Than 12 Months, Unrealized Losses		$ 47
12 Months or Greater, Number of Securities in a Loss Position | security	6	5
12 Months or Greater, Fair Value	$ 3,611	$ 2,673
12 Months or Greater, Unrealized Losses	$ 389	$ 327
Total, Number of Securities in a Loss Position | security	6	6
Total, Fair Value	$ 3,611	$ 3,626
Total, Unrealized Losses	$ 389	$ 374

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Investment securities (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2023	Dec. 31, 2022	Jan. 01, 2023
Summary of significant accounting policies
Net unrealized losses on available-for-sale securities	$ 43,500	$ 52,000
Deferred income taxes on available-for-sale securities	12,000	14,300
Proceeds from sale of available-for-sale investment securities	65,600
Net gain on available-for-sale securities	81
Allowance for credit loss on available-for-sale debt securities	0	$ 0
Allowance for credit loss on held-to-maturity	$ 0		$ 0

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Loans, net and allowance for credit losses - Net Deferred Loan Costs (Details)	3 Months Ended	12 Months Ended
	Mar. 31, 2023 USD ($)	Dec. 31, 2021 USD ($) loan	Dec. 31, 2022 USD ($)
Net deferred loan costs	$ 100,000		$ 300,000
PPP
Net deferred loan costs	200,000		200,000
Fixed interest rate	1.00
Loans outstanding	$ 22,200,000		$ 22,300,000
PPP | Scenario, Loans Issued Before 5 June 2020 [Member]
Term of paycheck protection program	2 years
Deferral term of paycheck protection program	24 months
PPP | Scenario, Loans Issued After 5 June 2020 [Member]
Term of paycheck protection program	5 years
Deferral term of paycheck protection program	60 months
PPP Two
Net deferred loan costs		$ 4,400,000
Number of loans | loan		1,062
Proceeds from Sale of Loans Receivable		$ 121,600,000
Loans outstanding	$ 10,900,000
PPP One
Loans outstanding	$ 11,300,000

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Loans, net and allowance for credit losses - Major Classifications of Loans Outstanding (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Accounts, Notes, Loans and Financing Receivable
Loans	$ 2,818,043	$ 2,730,116
Loans	2,818,043
Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	430,098	433,048
Loans	430,098
Municipal
Accounts, Notes, Loans and Financing Receivable
Loans	169,278	166,210
Loans	169,278
Commercial, Industrial and Municipal
Accounts, Notes, Loans and Financing Receivable
Loans		599,258
Loans	599,376
Real estate
Accounts, Notes, Loans and Financing Receivable
Loans		2,040,555
Loans	2,125,370
Commercial real estate
Accounts, Notes, Loans and Financing Receivable
Loans	1,782,911	1,709,827
Loans	1,782,911
Residential real estate
Accounts, Notes, Loans and Financing Receivable
Loans	342,459	330,728
Loans	342,459
Consumer
Accounts, Notes, Loans and Financing Receivable
Loans	93,297	90,303
Loans	93,297
Indirect Auto
Accounts, Notes, Loans and Financing Receivable
Loans		76,461
Loans	86,587
Consumer Other
Accounts, Notes, Loans and Financing Receivable
Loans		$ 13,842
Loans	$ 6,710

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Loans, net and allowance for credit losses - Changes in Allowance for Loan Losses Account by Major Classification of Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Allowance for loan losses:
Beginning Balance	$ 27,472	$ 28,383
Charge-offs	(75)	(355)
Recoveries	66	79
Provisions (credits)	1,244	300
Ending balance	25,444	28,407
Cumulative impact of adoption | ASU 2016-13
Allowance for loan losses:
Beginning Balance	(3,263)
Adjusted Balance
Allowance for loan losses:
Beginning Balance	24,209
Commercial
Allowance for loan losses:
Beginning Balance	4,365	7,466
Charge-offs	(4)	(161)
Recoveries		9
Provisions (credits)	197	(887)
Ending balance	2,481	6,427
Commercial | Cumulative impact of adoption | ASU 2016-13
Allowance for loan losses:
Beginning Balance	(1,683)
Commercial | Adjusted Balance
Allowance for loan losses:
Beginning Balance	2,682
Municipal
Allowance for loan losses:
Beginning Balance	1,247	987
Provisions (credits)	324	179
Ending balance	2,318	1,166
Municipal | Cumulative impact of adoption | ASU 2016-13
Allowance for loan losses:
Beginning Balance	747
Municipal | Adjusted Balance
Allowance for loan losses:
Beginning Balance	1,994
Commercial real estate
Allowance for loan losses:
Beginning Balance	17,915	15,928
Charge-offs		(132)
Recoveries	1	16
Provisions (credits)	1,120	977
Ending balance	15,692	16,789
Commercial real estate | Cumulative impact of adoption | ASU 2016-13
Allowance for loan losses:
Beginning Balance	(3,344)
Commercial real estate | Adjusted Balance
Allowance for loan losses:
Beginning Balance	14,571
Residential real estate
Allowance for loan losses:
Beginning Balance	3,072	3,209
Recoveries	16	3
Provisions (credits)	207	43
Ending balance	3,868	3,255
Residential real estate | Cumulative impact of adoption | ASU 2016-13
Allowance for loan losses:
Beginning Balance	987
Residential real estate | Adjusted Balance
Allowance for loan losses:
Beginning Balance	4,059
Consumer
Allowance for loan losses:
Beginning Balance	873	793
Charge-offs	(71)	(62)
Recoveries	49	51
Provisions (credits)	204	(12)
Ending balance	1,085	$ 770
Consumer | Cumulative impact of adoption | ASU 2016-13
Allowance for loan losses:
Beginning Balance	30
Consumer | Adjusted Balance
Allowance for loan losses:
Beginning Balance	$ 903

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Loans, net and allowance for credit losses - Allocation of Allowance for Loan Losses and Related Loans by Major Classification of Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$ 14	$ 40
Ending balance: collectively evaluated for impairment	25,430	27,432
Loans receivable:
Ending balance	2,818,043	2,730,116
Ending balance: individually evaluated for impairment	1,666	3,921
Ending balance: collectively evaluated for impairment	2,816,363	2,726,195
Commercial
Allowance for loan losses:
Ending balance: individually evaluated for impairment	14	19
Ending balance: collectively evaluated for impairment	2,467	4,346
Loans receivable:
Ending balance	430,098	433,048
Ending balance: individually evaluated for impairment	10	98
Ending balance: collectively evaluated for impairment	430,074	432,950
Municipal
Allowance for loan losses:
Ending balance: collectively evaluated for impairment	2,318	1,247
Loans receivable:
Ending balance	169,278	166,210
Ending balance: collectively evaluated for impairment	169,278	166,210
Commercial real estate
Allowance for loan losses:
Ending balance: collectively evaluated for impairment	15,692	17,915
Loans receivable:
Ending balance	1,782,911	1,709,827
Ending balance: individually evaluated for impairment	867	2,063
Ending balance: collectively evaluated for impairment	1,782,044	1,707,764
Residential real estate
Allowance for loan losses:
Ending balance: individually evaluated for impairment		21
Ending balance: collectively evaluated for impairment	3,868	3,051
Loans receivable:
Ending balance	342,459	330,728
Ending balance: individually evaluated for impairment	789	1,760
Ending balance: collectively evaluated for impairment	341,670	328,968
Consumer
Allowance for loan losses:
Ending balance: collectively evaluated for impairment	1,085	873
Loans receivable:
Ending balance	93,297	90,303
Ending balance: collectively evaluated for impairment	$ 93,297	$ 90,303

XML

Loans, net and allowance for credit losses - Nonaccrual Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Nonaccrual Loans	$ 1,798	$ 2,035
Nonaccrual with an Allowance for Credit Losses	14	19
Nonaccrual with no Allowance for Credit Losses	1,784	2,016
Interest Income Not Recorded for Nonaccrual Loans	379
Commercial
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Nonaccrual Loans	14	86
Nonaccrual with an Allowance for Credit Losses	14	19
Nonaccrual with no Allowance for Credit Losses		67
Interest Income Not Recorded for Nonaccrual Loans	5
Commercial real estate
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Nonaccrual Loans	867	1,155
Nonaccrual with no Allowance for Credit Losses	867	1,155
Interest Income Not Recorded for Nonaccrual Loans	374
Residential real estate
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Nonaccrual Loans	723	562
Nonaccrual with no Allowance for Credit Losses	723	562
Consumer
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Nonaccrual Loans	194	232
Nonaccrual with no Allowance for Credit Losses	$ 194	$ 232

XML

Loans, net and allowance for credit losses - Summarized Information in Concerning to Impaired Loans (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2022 USD ($)
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	$ 3,967
Unpaid Principal Balance, With no related allowance, Total	5,244
Average Recorded Investment, With no related allowance, Total	3,757
Interest Income Recognized, With no related allowance, Total	18
Recorded Investment, With an allowance recorded, Total	734
Unpaid Principal Balance, With an allowance recorded, Total	747
Related Allowance, With an allowance recorded, Total	115
Average Recorded Investment, With an allowance recorded, Total	846
Interest Income Recognized, With an allowance recorded, Total	7
Recorded Investment, Total	4,701
Unpaid Principal Balance, Total	5,991
Average Recorded Investment, Total	4,603
Interest Income Recognized, Total	25
Commercial
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	138
Unpaid Principal Balance, With no related allowance, Total	475
Average Recorded Investment, With no related allowance, Total	148
Interest Income Recognized, With no related allowance, Total	2
Recorded Investment, With an allowance recorded, Total	21
Unpaid Principal Balance, With an allowance recorded, Total	21
Related Allowance, With an allowance recorded, Total	21
Average Recorded Investment, With an allowance recorded, Total	31
Recorded Investment, Total	159
Unpaid Principal Balance, Total	496
Average Recorded Investment, Total	179
Interest Income Recognized, Total	2
Commercial real estate
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	2,748
Unpaid Principal Balance, With no related allowance, Total	3,505
Average Recorded Investment, With no related allowance, Total	2,562
Interest Income Recognized, With no related allowance, Total	12
Recorded Investment, With an allowance recorded, Total	440
Unpaid Principal Balance, With an allowance recorded, Total	452
Related Allowance, With an allowance recorded, Total	45
Average Recorded Investment, With an allowance recorded, Total	477
Interest Income Recognized, With an allowance recorded, Total	4
Recorded Investment, Total	3,188
Unpaid Principal Balance, Total	3,957
Average Recorded Investment, Total	3,039
Interest Income Recognized, Total	16
Residential real estate
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	874
Unpaid Principal Balance, With no related allowance, Total	1,047
Average Recorded Investment, With no related allowance, Total	874
Interest Income Recognized, With no related allowance, Total	4
Recorded Investment, With an allowance recorded, Total	273
Unpaid Principal Balance, With an allowance recorded, Total	274
Related Allowance, With an allowance recorded, Total	49
Average Recorded Investment, With an allowance recorded, Total	338
Interest Income Recognized, With an allowance recorded, Total	3
Recorded Investment, Total	1,147
Unpaid Principal Balance, Total	1,321
Average Recorded Investment, Total	1,212
Interest Income Recognized, Total	7
Consumer
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	207
Unpaid Principal Balance, With no related allowance, Total	217
Average Recorded Investment, With no related allowance, Total	173
Recorded Investment, Total	207
Unpaid Principal Balance, Total	217
Average Recorded Investment, Total	$ 173

XML

Loans, net and allowance for credit losses - Major Classification of Loans Portfolio Summarized by Credit Quality (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Accounts, Notes, Loans and Financing Receivable
2023	$ 93,492
2022	721,516
2021	714,562
2020	233,654
2019	228,244
Prior	605,139
Revolving Loans Amortized Cost Basis	221,436
Total	2,818,043
Loans	2,818,043	$ 2,730,116
Gross charge-offs, 2022	1
Gross charge-offs, 2021	35
Gross charge-offs, 2020	17
Gross charge-offs, 2019	10
Gross charge-offs, Prior	8
Gross charge-offs, Revolving Loans Amortized Cost Basis	4
Total	75
Commercial
Accounts, Notes, Loans and Financing Receivable
2023	11,546
2022	50,495
2021	46,399
2020	32,496
2019	50,313
Prior	90,214
Revolving Loans Amortized Cost Basis	148,635
Total	430,098
Loans	430,098	433,048
Gross charge-offs, Revolving Loans Amortized Cost Basis	4
Total	4
Municipal
Accounts, Notes, Loans and Financing Receivable
2023	1,400
2022	45,146
2021	91,776
2020	11,850
2019	36
Prior	18,983
Revolving Loans Amortized Cost Basis	87
Total	169,278
Loans	169,278	166,210
Commercial real estate
Accounts, Notes, Loans and Financing Receivable
2023	57,257
2022	531,819
2021	490,161
2020	152,010
2019	154,933
Prior	396,731
Total	1,782,911
Loans	1,782,911	1,709,827
Residential real estate
Accounts, Notes, Loans and Financing Receivable
2023	5,741
2022	55,051
2021	69,028
2020	29,141
2019	17,764
Prior	93,720
Revolving Loans Amortized Cost Basis	72,014
Total	342,459
Loans	342,459	330,728
Consumer
Accounts, Notes, Loans and Financing Receivable
2023	17,548
2022	39,005
2021	17,198
2020	8,157
2019	5,198
Prior	5,491
Revolving Loans Amortized Cost Basis	700
Total	93,297
Loans	93,297	90,303
Gross charge-offs, 2022	1
Gross charge-offs, 2021	35
Gross charge-offs, 2020	17
Gross charge-offs, 2019	10
Gross charge-offs, Prior	8
Total	71
Pass
Accounts, Notes, Loans and Financing Receivable
Loans		2,708,780
Pass | Commercial
Accounts, Notes, Loans and Financing Receivable
2023	11,531
2022	50,495
2021	46,353
2020	32,496
2019	50,260
Prior	89,938
Revolving Loans Amortized Cost Basis	140,615
Total	421,688
Loans		424,411
Pass | Municipal
Accounts, Notes, Loans and Financing Receivable
2023	1,400
2022	45,146
2021	91,776
2020	11,850
2019	36
Prior	18,983
Revolving Loans Amortized Cost Basis	87
Total	169,278
Loans		166,210
Pass | Commercial real estate
Accounts, Notes, Loans and Financing Receivable
2023	55,319
2022	531,819
2021	488,524
2020	151,845
2019	154,002
Prior	386,268
Total	1,767,777
Loans		1,699,041
Pass | Residential real estate
Accounts, Notes, Loans and Financing Receivable
2023	5,741
2022	55,051
2021	69,011
2020	28,927
2019	17,764
Prior	93,343
Revolving Loans Amortized Cost Basis	72,014
Total	341,851
Loans		329,098
Pass | Consumer
Accounts, Notes, Loans and Financing Receivable
2023	17,548
2022	39,005
2021	17,087
2020	8,127
2019	5,179
Prior	5,457
Revolving Loans Amortized Cost Basis	700
Total	93,103
Loans		90,020
Special Mention
Accounts, Notes, Loans and Financing Receivable
Loans		15,331
Special Mention | Commercial
Accounts, Notes, Loans and Financing Receivable
Revolving Loans Amortized Cost Basis	67
Total	67
Loans		7,822
Special Mention | Commercial real estate
Accounts, Notes, Loans and Financing Receivable
2023	1,763
2019	303
Prior	3,301
Total	5,367
Loans		7,509
Substandard
Accounts, Notes, Loans and Financing Receivable
Loans		6,005
Substandard | Commercial
Accounts, Notes, Loans and Financing Receivable
2023	15
2021	46
2019	53
Prior	276
Revolving Loans Amortized Cost Basis	7,953
Total	8,343
Loans		815
Substandard | Commercial real estate
Accounts, Notes, Loans and Financing Receivable
2023	175
2021	1,637
2020	165
2019	628
Prior	7,162
Total	9,767
Loans		3,277
Substandard | Residential real estate
Accounts, Notes, Loans and Financing Receivable
2021	17
2020	214
Prior	377
Total	608
Loans		1,630
Substandard | Consumer
Accounts, Notes, Loans and Financing Receivable
2021	111
2020	30
2019	19
Prior	34
Total	$ 194
Loans		$ 283

XML

Loans, net and allowance for credit losses - Information Concerning Nonaccrual Loans by Major Loan Classification (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Financing Receivable, Recorded Investment, Past Due.
Nonaccrual loans, Total	$ 1,798	$ 2,035
Commercial
Financing Receivable, Recorded Investment, Past Due.
Nonaccrual loans, Total	14	86
Commercial real estate
Financing Receivable, Recorded Investment, Past Due.
Nonaccrual loans, Total	867	1,155
Residential real estate
Financing Receivable, Recorded Investment, Past Due.
Nonaccrual loans, Total	723	562
Consumer
Financing Receivable, Recorded Investment, Past Due.
Nonaccrual loans, Total	$ 194	$ 232

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Loans, net and allowance for credit losses - Major Classification of Loans by Past Due Status (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Financing Receivable, Recorded Investment, Past Due.
Total Due	$ 2,818,043
Loans	2,818,043	$ 2,730,116
Loans > 90 Days and Accruing	59	748
Financial Assets, Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	4,631	3,986
30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	2,700	2,091
60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	1,152	367
Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due.
Total Due	779	1,528
Financial Assets, Not Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	2,813,412	2,726,130
Commercial
Financing Receivable, Recorded Investment, Past Due.
Total Due	430,098
Loans	430,098	433,048
Commercial | Financial Assets, Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	170	261
Commercial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	156	137
Commercial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due		38
Commercial | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due.
Total Due	14	86
Commercial | Financial Assets, Not Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	429,928	432,787
Municipal
Financing Receivable, Recorded Investment, Past Due.
Total Due	169,278
Loans	169,278	166,210
Municipal | Financial Assets, Not Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	169,278	166,210
Commercial real estate
Financing Receivable, Recorded Investment, Past Due.
Total Due	1,782,911
Loans	1,782,911	1,709,827
Commercial real estate | Financial Assets, Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	953	438
Commercial real estate | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	92	102
Commercial real estate | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	616	2
Commercial real estate | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due.
Total Due	245	334
Commercial real estate | Financial Assets, Not Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	1,781,958	1,709,389
Residential real estate
Financing Receivable, Recorded Investment, Past Due.
Total Due	342,459
Loans	342,459	330,728
Loans > 90 Days and Accruing	59	748
Residential real estate | Financial Assets, Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	2,876	2,278
Residential real estate | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	1,965	1,162
Residential real estate | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	444	128
Residential real estate | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due.
Total Due	467	988
Residential real estate | Financial Assets, Not Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	339,583	328,450
Consumer
Financing Receivable, Recorded Investment, Past Due.
Total Due	93,297
Loans	93,297	90,303
Consumer | Financial Assets, Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	632	1,009
Consumer | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	487	690
Consumer | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	92	199
Consumer | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due.
Total Due	53	120
Consumer | Financial Assets, Not Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	$ 92,665	$ 89,294

XML

Loans, net and allowance for credit losses - Allowance for Credit Losses on Off Balance Sheet Commitments (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($)
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance at December 31, 2022	$ 179
Credit recorded in noninterest expense	(185)
Total allowance for credit losses on off balance sheet commitments	264
Cumulative impact of adoption
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance at December 31, 2022	$ 270

XML

Loans, net and allowance for credit losses - Loan Modifications and Troubled Debt Restructurings (Details)	3 Months Ended
	Mar. 31, 2023 loan
Loans, net and allowance for credit losses
Number of loans	0
Number of subsequently defaulted on loans	0

XML

Other assets - Components of Other Assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Other real estate owned	$ 121	$ 121
Investment in low income housing partnership	5,325	5,446
Mortgage servicing rights	906	914
Restricted equity securities (FHLB and other)	4,887	9,630
Interest rate floor and swaps	18,964	22,196
Other assets	11,354	8,165
Total	41,079	46,071
Decrease in restricted equity securities	4,700
Interest Rate Floor
Interest rate floor and swaps	1	1
Interest Rate Swaps
Interest rate floor and swaps	$ 18,485	$ 21,794

XML

Fair value estimates - Transfers Between Levels (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Fair value estimates
Fair value of assets transfers into level 3	$ 0	$ 0
Fair value of assets transfers out of level 3	0	0
Fair value of liabilities transfers into level 3	0	0
Fair value of liabilities transfers out of level 3	$ 0	$ 0

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Fair value estimates - Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - Recurring Basis - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	$ 418,206	$ 477,813
U.S. Treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	181,564	180,297
U.S. Government-sponsored enterprises state and municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	16,431	16,370
State and Municipals, Taxable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	57,204	55,358
State and Municipals, Tax-exempt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	68,574	88,407
Corporate debt securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	3,611	3,626
Residential mortgage-backed securities, U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	908	942
Residential mortgage-backed securities, U.S. government-sponsored enterprises
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	89,833	132,703
Common equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	81	110
Interest rate floor - other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	1	1
Interest rate swap-other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	18,485	21,794
Interest rate floor-other liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Liabilities measured at fair value	(1,980)
Interest rate swap-other liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Liabilities measured at fair value	(17,914)	(21,466)
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	181,645	180,407
Level 1 | U.S. Treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	181,564	180,297
Level 1 | Common equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	81	110
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	236,561	297,406
Level 2 | U.S. Government-sponsored enterprises state and municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	16,431	16,370
Level 2 | State and Municipals, Taxable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	57,204	55,358
Level 2 | State and Municipals, Tax-exempt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	68,574	88,407
Level 2 | Corporate debt securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	3,611	3,626
Level 2 | Residential mortgage-backed securities, U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	908	942
Level 2 | Residential mortgage-backed securities, U.S. government-sponsored enterprises
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	89,833	132,703
Level 2 | Interest rate floor - other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	1	1
Level 2 | Interest rate swap-other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	18,485	21,794
Level 2 | Interest rate floor-other liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Liabilities measured at fair value	(1,980)
Level 2 | Interest rate swap-other liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Liabilities measured at fair value	$ (17,914)	$ (21,466)

XML

Fair value estimates - Schedule of Assets and Liabilities Measured at Fair Value on Nonrecurring Basis (Details) - Nonrecurring Basis - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Loans individually evaluated for credit loss	$ 1,680
Impaired loans		$ 220
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Loans individually evaluated for credit loss	$ 1,680
Impaired loans		$ 220

XML

Fair value estimates - Additional Quantitative Information about Assets Measured at Fair Value on Nonrecurring Basis (Details) - Nonrecurring Basis - Level 3 - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Loans individually evaluated for credit loss
Fair Value Inputs, Assets, Quantitative Information
Assets measured at fair value	$ 1,680
Loans individually evaluated for credit loss | Minimum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	22.80%
Range and weighted average of liquidation expenses	3.00%
Loans individually evaluated for credit loss | Maximum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	77.00%
Range and weighted average of liquidation expenses	6.00%
Loans individually evaluated for credit loss | Weighted Average
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	67.30%
Range and weighted average of liquidation expenses	5.20%
Impaired Loans
Fair Value Inputs, Assets, Quantitative Information
Assets measured at fair value		$ 220
Impaired Loans | Minimum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments		21.60%
Range and weighted average of liquidation expenses		3.00%
Impaired Loans | Maximum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments		97.00%
Range and weighted average of liquidation expenses		6.00%
Impaired Loans | Weighted Average
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments		77.70%
Range and weighted average of liquidation expenses		4.90%

XML

Fair value estimates - Carrying and Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Investment securities:
Available-for-sale	$ 418,125	$ 477,703
Common equity securities	81	110
Held-to-maturity	77,073	76,563
Mortgage servicing rights	906	914
Financial liabilities:
Subordinated debentures	33,000	33,000
Carrying Value
Financial assets:
Cash and due from banks	140,583	37,868
Investment securities:
Available-for-sale	418,125	477,703
Common equity securities	81	110
Held-to-maturity	89,705	91,179
Net loans	2,792,599	2,702,644
Accrued interest receivable	11,678	11,715
Mortgage servicing rights	906	914
Restricted equity securities (FHLB and other)	4,887	9,630
Interest rate floor	1	1
Interest rate swaps	18,485	21,794
Total assets	3,477,050	3,353,558
Financial liabilities:
Deposits	3,235,967	3,046,598
Short-term borrowings	17,280	114,930
Long-term debt	25,000	555
Subordinated debentures	33,000	33,000
Accrued interest payable	2,304	903
Interest rate floor	1,980
Interest rate swap	17,914	21,466
Total liabilities	3,333,445	3,217,452
Fair Value
Financial assets:
Cash and due from banks	140,583	37,868
Investment securities:
Available-for-sale	418,125	477,703
Common equity securities	81	110
Held-to-maturity	77,073	76,563
Net loans	2,629,921	2,562,780
Accrued interest receivable	11,678	11,715
Mortgage servicing rights	1,747	1,762
Restricted equity securities (FHLB and other)	4,887	9,630
Interest rate floor	1	1
Interest rate swaps	18,485	21,794
Total assets	3,302,580	3,199,926
Financial liabilities:
Deposits	3,229,495	3,035,615
Short-term borrowings	17,280	114,743
Long-term debt	24,982	555
Subordinated debentures	31,898	53,998
Accrued interest payable	2,304	903
Interest rate floor	1,980
Interest rate swap	17,914	21,466
Total liabilities	3,325,853	3,227,280
Level 1
Financial assets:
Cash and due from banks	140,583	37,868
Investment securities:
Available-for-sale	181,564	180,297
Common equity securities	81	110
Level 2
Investment securities:
Available-for-sale	236,561	294,706
Held-to-maturity	77,073	76,563
Accrued interest receivable	11,678	11,715
Mortgage servicing rights	1,747	1,762
Restricted equity securities (FHLB and other)	4,887	9,630
Interest rate floor	1	1
Interest rate swaps	18,485	21,794
Financial liabilities:
Deposits	3,229,495	3,035,615
Short-term borrowings	17,280	114,743
Long-term debt	24,982	555
Subordinated debentures	31,898	53,998
Accrued interest payable	2,304	903
Interest rate floor	1,980
Interest rate swap	17,914	21,466
Level 3
Investment securities:
Net loans	$ 2,629,921	$ 2,562,780

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Employee benefit plans - Components of Net Periodic Benefit Cost (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Components of net periodic pension cost:
Salaries and employee benefits expense	$ 9,080	$ 8,040
Pension Benefits
Components of net periodic pension cost:
Salaries and employee benefits expense	478	256
Interest cost	164	114
Expected return on plan assets	(293)	(352)
Amortization of unrecognized net loss	50	50
Net periodic pension income:	$ (79)	$ (188)

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Employee benefit plans - Additional Information (Details) - 2017 Plan - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Share-based Compensation Arrangement by Share-based Payment Award
Common stock available for grant as awards	17,364
Non-Performance-based restricted stock
Share-based Compensation Arrangement by Share-based Payment Award
Shares or units vesting period	3 years
Performance-based restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award
Shares or units vesting period	3 years
Cumulative diluted earnings per share period used for conditions for vesting of performance-based restricted stock units	3 years
Average return on equity period used for conditions for vesting of performance-based restricted stock units	3 years
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award
Granted shares	0	19,787
Salaries and employee benefits expense	$ 209	$ 199
Unrecognized compensation expense	$ 800
Weighted average vesting period	1 year 6 months

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Derivatives and hedging activities - Cumulative Basis Adjustment for Fair Value Hedges (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022
Derivatives, Fair Value [Line Items]
Amortized Amount of the Hedged Assets/(Liabilities)	$ 18,964	$ 22,196
Derivative Asset, Statement of Financial Position [Extensible Enumeration]	Available-for-sale Securities, Debt Securities		Available-for-sale Securities, Debt Securities
Fair value hedges | Derivatives designated as hedging instruments | Interest Rate Swaps
Derivatives, Fair Value [Line Items]
Amortized Amount of the Hedged Assets/(Liabilities)	$ 100,000
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)	1,986
Amortized Cost Basis Amount of the Hedged Assets	146,100
Amounts of designated hedged items	$ 138,600

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Derivatives and hedging activities - Fair Values of Derivative Instruments on the Balance Sheet (Details)	3 Months Ended
	Mar. 31, 2023 USD ($) security	Mar. 31, 2022 USD ($)	Dec. 31, 2022 USD ($)
Derivatives, Fair Value
Interest rate floor and swaps	$ 18,964,000		$ 22,196,000
Liability Derivatives	20,365,000		21,466,000
Cash collateral	17,280,000		14,530,000
Net Amounts of Assets presented in the Balance Sheet	20,365,000		21,466,000
Interest income
Derivatives, Fair Value
Amount of gain or (loss) reclassified as a increase to interest income		$ 147,000
Interest Rate Swaps
Derivatives, Fair Value
Interest rate floor and swaps	18,485,000		21,794,000
Interest Rate Floor
Derivatives, Fair Value
Interest rate floor and swaps	1,000		1,000
Credit-risk contract
Derivatives, Fair Value
Cash collateral	1,700,000
Net Amounts of Assets presented in the Balance Sheet	2,000,000.0		2,000.0
Derivatives designated as hedging instruments | Other Assets.
Derivatives, Fair Value
Interest rate floor and swaps	1,000		1,000
Derivatives designated as hedging instruments | Other Liabilities.
Derivatives, Fair Value
Liability Derivatives	1,970,000
Derivatives designated as hedging instruments | Interest rate products | Other Assets.
Derivatives, Fair Value
Notional amount	25,000,000
Interest rate floor and swaps	1,000		1,000
Derivatives designated as hedging instruments | Interest rate products | Other Liabilities.
Derivatives, Fair Value
Notional amount	100,000,000
Liability Derivatives	1,970,000
Derivatives not designated as hedging instruments | Other Assets.
Derivatives, Fair Value
Interest rate floor and swaps	18,969,000		22,195,000
Derivatives not designated as hedging instruments | Other Liabilities.
Derivatives, Fair Value
Liability Derivatives	18,394,000		21,466,000
Derivatives not designated as hedging instruments | Interest rate products | Other Assets.
Derivatives, Fair Value
Notional amount	208,147,000
Interest rate floor and swaps	18,963,000		22,195,000
Derivatives not designated as hedging instruments | Interest rate products | Other Liabilities.
Derivatives, Fair Value
Notional amount	208,147,000
Liability Derivatives	18,392,000		21,466,000
Derivatives not designated as hedging instruments | Other | Other Assets.
Derivatives, Fair Value
Notional amount	1,522,000
Interest rate floor and swaps	6,000
Derivatives not designated as hedging instruments | Other | Other Liabilities.
Derivatives, Fair Value
Notional amount	6,307,000
Liability Derivatives	$ 2,000
Derivatives not designated as hedging instruments | Risk participation agreements
Derivatives, Fair Value
Notional amount			1,500,000
Derivatives not designated as hedging instruments | Interest Rate Swaps
Derivatives, Fair Value
Number of instruments held | security	96
Notional amount	$ 209,700,000		187,300,000
Derivatives not designated as hedging instruments | Interest Rate Floor
Derivatives, Fair Value
Notional amount			$ 25,000,000.0
Cash Flow Hedge | Interest income
Derivatives, Fair Value
Amount of gain or (loss) reclassified as a increase to interest income	$ 32,000

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Derivatives and hedging activities - Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Recognized in OCI Included Component	$ (2,017)		$ (47)
Interest income
Derivative Instruments, Gain (Loss)
Amount of Gain Reclassified from Accumulated OCI into Income	(16)	$ 131
Cash Flow Hedge
Derivative Instruments, Gain (Loss)
Amount of (Loss) Recognized in OCI on Derivative	1	(361)
Amount of Gain (Loss) Recognized in OCI Included Component		(439)
Amount of (Loss) Recognized in OCI Excluded Component	1	78
Amount of Gain Reclassified from Accumulated OCI into Income	(16)	131
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Included Component		147
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component	16	(16)
Cash Flow Hedge | Interest rate products | Interest income
Derivative Instruments, Gain (Loss)
Amount of (Loss) Recognized in OCI on Derivative	1	(361)
Amount of Gain (Loss) Recognized in OCI Included Component		(439)
Amount of (Loss) Recognized in OCI Excluded Component	1	78
Amount of Gain Reclassified from Accumulated OCI into Income	(16)	131
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Included Component		147
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component	$ 16	$ (16)

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Derivatives and hedging activities - Effect of Fair Value and Cash Flow Hedge Accounting on the Income Statement (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Derivative Instruments, Gain (Loss)
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$ (1,970)	$ (493)
The effects of fair value and cash flow hedging: Gain or (loss) on cash flow hedging relationships
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$ (16)	$ (16)
Derivative, Excluded Component, Gain (Loss), Statement of Income or Comprehensive Income [Extensible Enumeration]	Interest and Dividend Income, Operating	Interest and Dividend Income, Operating
Interest income
Derivative Instruments, Gain (Loss)
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$ 15	$ 131
The effects of fair value and cash flow hedging: Gain or (loss) on cash flow hedging relationships
Hedged items	1,986
Derivatives designated as hedging instruments	(1,955)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$ (16)	131
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component		$ 147

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Derivatives and hedging activities - Effect of Other Derivative Instruments on the Income Statement (Details) - Derivatives not designated as hedging instruments - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Derivative Instruments, Gain (Loss)
Amount of Gain Recognized in Income	$ (161)	$ 242
Interest Rate Swaps | Interest Rate Swap Revenue
Derivative Instruments, Gain (Loss)
Amount of Gain Recognized in Income	(161)	240
Other
Derivative Instruments, Gain (Loss)
Amount of Gain Recognized in Income		2
Fee Income | Interest Rate Swap Revenue
Derivative Instruments, Gain (Loss)
Amount of Gain Recognized in Income	$ 384	$ 103

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Derivatives and hedging activities - Offsetting Derivatives (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Offsetting of Derivative Assets
Gross Amounts of Recognized Assets	$ 18,964	$ 22,196
Net Amounts of Assets presented in the Balance Sheet	18,964	22,196
Gross Amounts Not Offset presented in the Balance Sheet - Cash Collateral Received	17,280	14,530
Net Amount	1,684	7,666
Offsetting of Derivative Liabilities
Gross Amounts of Recognized Liabilities	20,365	21,466
Net Amounts of Assets presented in the Balance Sheet	20,365	21,466
Gross Amounts Not Offset presented in the Balance Sheet - Financial Instruments	20,365	$ 21,466
Cash collateral paid but not offset	$ 1,710

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Deposits - Components of Interest-bearing and Noninterest-bearing Deposits (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Deposits.
Money market accounts	$ 775,511	$ 685,323
Now accounts	698,888	772,712
Savings accounts	500,709	523,931
Time deposits less than $250	400,327	199,136
Time deposits $250 or more	114,443	92,731
Total interest-bearing deposits	2,489,878	2,273,833
Noninterest-bearing deposits	746,089	772,765
Total deposits	$ 3,235,967	$ 3,046,598

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Deposits (Details) $ in Millions	Mar. 31, 2023 USD ($)
Retail accounts
Cash and Cash Equivalents [Line Items]
Percentage of deposit held	48.60%
Commercial accounts
Cash and Cash Equivalents [Line Items]
Percentage of deposit held	33.20%
Municipal relationships
Cash and Cash Equivalents [Line Items]
Percentage of deposit held	12.50%
Letters of credit pledged as collateral	$ 292.0
Brokered deposits
Cash and Cash Equivalents [Line Items]
Percentage of deposit held	5.70%
Deposit insured by FDIC
Cash and Cash Equivalents [Line Items]
Percentage of deposit held	76.60%
Deposit uninsured by FDIC
Cash and Cash Equivalents [Line Items]
Percentage of deposit held	23.40%
Deposit liabilities uninsured by FDIC	$ 757.4

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Borrowings (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Short-term borrowings
Ending Balance	$ 17,280	$ 114,930
Average Balance	91,530	42,680
Maximum Month-End Balance	$ 175,280	$ 142,075
Weighted Average Rate for the Year	4.81%	2.58%
Weighted Average Rate at End of Year	4.83%	4.43%
Other borrowings
Short-term borrowings
Ending Balance	$ 17,280	$ 14,530
Average Balance	13,841	10,033
Maximum Month-End Balance	$ 17,280	$ 16,100
Weighted Average Rate for the Year	4.57%	2.10%
Weighted Average Rate at End of Year	4.83%	4.30%
FHLB Advances
Short-term borrowings
Ending Balance		$ 100,400
Average Balance	$ 77,689	32,647
Maximum Month-End Balance	$ 158,000	$ 125,975
Weighted Average Rate for the Year	4.86%	2.73%
Weighted Average Rate at End of Year		4.45%

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Borrowings - Additional Information (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Short-term borrowings
Short-term borrowings	$ 17,280	$ 114,930
Other borrowings	17,300
Peoples Bank
Short-term borrowings
Maximum borrowing capacity	1,200,000	1,200,000
Outstanding amount in borrowings	25,000	101,000
Amount of credit facility used to issue standby letters of credit to collateralize public fund deposits	$ 292,000	$ 388,800

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Borrowings - Long-term debt advances (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Debt Instrument
Long-term debt	$ 25,000	$ 555
Long-term 4.69% fixed rate debt due March 2023
Debt Instrument
Long-term debt		$ 555
Fixed interest rate (as a percent)		4.69%
Long-term 4.37% fixed rate debt due March 2025
Debt Instrument
Long-term debt	$ 10,000
Fixed interest rate (as a percent)	4.37%
Long-term 4.20% fixed rate debt due March 2026
Debt Instrument
Long-term debt	$ 15,000
Fixed interest rate (as a percent)	4.20%

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Borrowings - Maturities of long-term debt (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Borrowings
2025	$ 10,000
2026	15,000
Total long-term debt	25,000	$ 555
FHLB long-term advances	$ 25,000

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Subordinated debt (Details) - 2020 Notes $ in Millions	Jun. 01, 2020 USD ($)
Debt Instrument
Aggregate principal amount	$ 33.0
Rate of interest for first five years	5.375%
Duration interest rate in effect	5 years
Percentage of debt redeemed	100.00%
Minimum
Debt Instrument
Floated interest rate	4.75%
Number of days notice to redeem debt	10 days