PR Newswire | Oct 22, 2021 12:52PM EDT

10/22 11:51 CDT

PEOPLES FINANCIAL SERVICES CORP. Reports Third Quarter 2021 Earnings SCRANTON, Pa., Oct. 22, 2021

SCRANTON, Pa., Oct. 22, 2021 /PRNewswire/ -- Peoples Financial Services Corp. ("Peoples") (NASDAQ: PFIS), the bank holding company for Peoples Security Bank and Trust Company, today reported unaudited financial results at and for the three months and nine months ended September 30, 2021. Peoples reported net income of $9.1 million, or $1.26 per diluted share for the three months ended September 30, 2021, an increase of 10.5% when compared to $8.3 million, or $1.14 per diluted share for the comparable period of 2020. The increase in earnings for the three months ended September 30, 2021 is primarily the result of a $2.1 million increase to pre-provision net interest income and a $0.6 million decrease to the provision for loan losses, partially offset by a $1.5 million decrease to noninterest income, primarily from lower interest rate swap revenue, and an increase to noninterest expense of $0.3 million.

Net income for the nine months ended September 30, 2021, totaled $27.1 million or $3.74 per diluted share, a 30.3% increase when compared to $21.2 million or $2.87 per diluted share for the comparable period of 2020. The increase in earnings in the 2021 nine month period is the product of a decrease to our provision for loan losses of $6.3 million, primarily due to an adjustment in the year ago period to the economic qualitative factors included in our allowance for loan losses methodology relating to the impact of COVID-19, an increase to pre-provision net interest income of $3.1 million and a decrease to noninterest expense of $0.4 million. Partially offsetting the increase were a higher income tax provision of $2.3 million and a decrease in noninterest income of $1.6 million.

In addition to evaluating its results of operations in accordance with GAAP, Peoples routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as tangible stockholders' equity and core net income ratios. The reported results included in this release contain items, which Peoples considers non-core, namely gains and losses incurred within the investment securities portfolio. Peoples believes the reported non-GAAP financial measures provide information useful to investors in understanding its operating performance and trends. Where non-GAAP disclosures are used in this press release, a reconciliation to the comparable GAAP measure is provided in the accompanying tables. The non-GAAP financial measures Peoples uses may differ from the non-GAAP financial measures of other financial institutions.

Core net income, which we have defined to exclude gains or losses from our investment securities portfolio, for the three months ended September 30, totaled $9.1 million and $7.9 million in 2021 and 2020, respectively. Core net income per share for the three months ended September 30, 2021 was $1.26, a 15.6% increase from $1.09 reported for the same period in 2020. Core net income in the 2021 third quarter excludes a pre-tax $5 thousand unrealized gain on our equity investment portfolio. Core net income for 2020 excludes a $2 thousand unrealized gain on our equity investment portfolio and a $457 thousand gain on the sale of investment securities.

Core net income for the nine months ended September 30, 2021 was $27.1 million or $3.74 per diluted share, a 33.1% increase when compared to $20.7 million or $2.81 per diluted share for the same period of 2020. Core net income for the current period excludes a pre-tax unrealized gain of $9 thousand on our equity investment portfolio. Core net income for 2020 was impacted by a pre-tax gain of $724 thousand on the sale of debt securities and a $82 thousand unrealized loss on our equity investment securities portfolio

NOTABLES

* Record first nine month earnings of $27.1 million or $3.74 per diluted share. * Dividends declared for nine months ended September 30, 2021 of $1.12 per share represents a 3.7% increase from the same period in 2020. * Core return on average assets was 1.17% and 1.21% for the three and nine months ended September 30, 2021 compared to 1.16% and 1.05% for the three and nine months ended September 30, 2020. * Core return on average equity was 11.01% and 11.23% for the three and nine months ended September 30, 2021 compared to 10.12% and 8.98% for the three and nine months ended September 30, 2020. * Loan growth during 2021, excluding Paycheck Protection Program ("PPP") loans, totaled $133.9 million, or 6.7%. PPP loan balances at September 30, 2021 total $83.5 million. * Assisted our small business customers secure $227.8 million of PPP loan forgiveness during the first nine months of 2021. * Deposits grew $403.8 million or 16.6% for the nine months ended September 30, 2021 and grew $229.2 million or 8.8% during the three months ended September 30, 2021. * Book value per share improved to $45.66 at September 30, 2021 from $43.30 at September 30, 2020, a 5.5% increase. * Tangible book value per share, a non-GAAP measure, increased 6.8% to $36.75 at September 30, 2021 from $34.40 at September 30, 2020. * Tax-equivalent net interest income increased $3.1 million or 5.2% to $64.1 million for the nine months ended September 30, 2021 compared to $61.0 million for the same period in 2020. * Provision for loan losses for the nine months ended September 30, 2021 decreased $6.3 million from the comparable nine month period in 2020. * Nonperforming assets as a percentage of loans and foreclosed assets at September 30, 2021 improved to 0.28% from 0.52% at September 30, 2020, and from 0.33% at June 30, 2021. * Received regulatory approvals to establish de novo branches in Warrendale, Allegheny County, PA to serve the Greater Pittsburgh market and in Piscataway, Middlesex County, NJ to serve the central New Jersey market. * Relocated our Binghamton, New York West Side Office due to its growth to a new branch office at 24 Mary Street, Binghamton to better serve our customers and provide an aesthetic addition to the local community.

Visa Class B Common Stock Sale

On October 8, 2021, Peoples' banking subsidiary, Peoples Security Bank and Trust Company (the "Bank"), agreed to sell 44,982 shares of the Class B common stock of Visa Inc. for a purchase price of $12.2 million. The shares had no carrying value on the Bank's balance sheet and, as the Bank had no historical cost basis in the shares, the entire purchase price will be realized as a pretax gain. The transaction will have a positive impact on the Bank's regulatory capital, which will be used for capital management and to support the Company's organic growth.

The Bank received 73,333 Class B shares of Visa Inc. as part of its membership interest in March 2008, and 28,351 shares were redeemed in connection with Visa's initial public offering in 2008. The sale of the remaining 44,982 Class B shares is expected to settle in October, 2021 and be included in our 2021 fourth-quarter and year-end results as an after-tax gain of $9.6 million. The gain on the sale of the Class B shares is not indicative of the expected results of consolidated operations for those periods.

INCOME STATEMENT REVIEW

Calculated on a fully taxable equivalent basis ("FTE"), our tax-equivalent net interest margin for the three months ended September 30, 2021 was 3.07%, a decrease of 12 basis points when compared to 3.19% for the same period in 2020. Our tax equivalent net interest margin for the nine months ended September 30, 2021 was 3.06%, a decrease of 29 basis points when compared to 3.35% for the nine month period in 2020. The tax-equivalent yield on interest-earning assets decreased 36 basis points to 3.37% during the three months ended September 30, 2021 from 3.73% during the year ago period. For the nine months ended September 30, 2021, the tax-equivalent yield on interest-earning assets decreased 55 basis points to 3.41% from 3.96% during the corresponding period of 2020. The decrease in yield is due to lower market rates, a result of the Federal Open Market Committee ("FOMC") cutting the federal funds rate by 150 basis points in the first three months of 2020. The decrease in market rates resulted in lower rates on our existing adjustable rate loans and affected rates on new originations. Additionally, higher levels of federal funds sold at historically low rates contributed to the decrease in net interest margin. At the same time, we experienced lower interest-bearing liability costs due to lower market rates and our actions to reduce deposit rates. This was partially offset however by the additional interest expense on subordinated debt we issued during the second quarter of 2020. Our cost of funds, which represents our average rate paid on total interest-bearing liabilities, decreased 34 basis points to 0.42% for the three months ended September 30, 2021 when compared to 0.76% during the year ago period. For the nine months ended September 30, 2021 our average rate paid on total interest-bearing liabilities was 0.50% a decrease of 34 basis points when compared to 0.84% for the same period in 2020.

Third Quarter 2021 Results - Comparison to Prior-Year Quarter

Tax-equivalent net interest income for the three months ended September 30, increased $2.1 million or 10.6% to $22.4 million in 2021 from $20.3 million in 2020. The increase in tax equivalent net interest income was largely due to lower deposit costs of $1.1 million due to our focus to decrease deposit rates in the current low market rate environment. Also contributing to the increase was higher loan income of $0.6 million from a higher rate variance due to Small Business Administration ("SBA") accelerated forgiveness of PPP loans in the current quarter which offset the lower rates on the non-PPP loan portfolio, and higher investment and federal funds sold income due to a higher volume variance. Total average earning assets increased $365.8 million or 14.5% from the year ago period due primarily from an increase of $265.6 million in federal funds sold balances resulting from strong deposit growth. PPP loans averaged $122.3 million in the three-month period ended September 30, 2021 with interest and net fees totaling $2.5 million compared to average balances of $216.9 million and interest and fees totaling $1.2 million in the prior period. The tax-equivalent yield on the loan portfolio increased to 4.06% for the three months ended September 30, 2021, compared to 4.02% for the comparable period in 2020 due to $70.8 million of SBA PPP loan forgiveness and the resulting acceleration of the remaining unamortized net fees realized into income. Excluding the PPP loans, the tax-equivalent yield of the loan portfolio was 3.83% and 4.21% at September 30, 2021 and 2020, respectively. Loans, net averaged $2.2 billion for the three months ended September 30, 2021 and 2020. For the three months ended September 30, the tax-equivalent yield on total investments decreased to 2.02% in 2021 from 2.30% in 2020. Average investments totaled $365.5 million in 2021 and $281.5 million in 2020. Average interest-bearing liabilities increased $249.5 million for the three months ended September 30, 2021, compared to the corresponding period last year the result of higher non-maturity deposits due to strong organic deposit growth and growth of public fund deposits which resulted in lowering our short-term and long-term borrowings.

For the three months ended September 30, 2021, the provision for loan losses decreased $0.6 million to $0.4 million from $1.0 million in the year ago period which reflected an increase to the asset quality qualitative factors in our allowance for loan losses methodology due to deferments requested on commercial loans and resulting risk rating migration. The provision for loan losses in the three month period ended September 30, 2021 is the result of growth of non-PPP loans and improved asset quality.

Noninterest income for the three months ended September 30, 2021 decreased to $3.4 million, a $1.5 million decrease from $4.9 million for the three months ended September 30, 2020. The decrease was primarily due to a decrease in revenue generated from our commercial loan interest rate swaps of $1.1 million due to lower transaction volume due to increased market rates. During the year ago period gains of $0.5 million were recognized from the sale of investment securities with no comparable gains recorded in the current period. Mortgage banking revenue decreased $0.2 million in the three month period ended September 30, 2021 from lower volumes of mortgages sold into the secondary market. Services charges, fees, commissions and other were higher in the current period by $0.1 million due to increased debit card interchange revenue and slightly higher service charges on consumer and commercial deposit accounts. Wealth management revenue increased $0.1 million in the three month period ended September 30, 2021 due to an increase to the number of transactions.

Noninterest expense increased $0.3 million or 2.3% to $14.3 million for the three months ended September 30, 2021, from $14.0 million for the three months ended September 30, 2020. Other expenses increased $0.3 million or 11.5% due primarily to higher Pennsylvania shares tax expense, an increase to our FDIC assessment and an increase to losses on bad checks.

Nine-Month Results - Comparison to Prior Year First Nine Months

Tax-equivalent net interest income for the nine months ended September 30, increased $3.1 million or 5.2% to $64.1 million in 2021 from $61.0 million in 2020. The increase in tax equivalent net interest income was largely due to lower interest bearing deposit costs of $3.4 million, as deposit rates were lowered in the historically low market rate environment. Partially offsetting the lower interest-bearing liability costs was a decrease of $0.5 million to our tax equivalent interest income primarily from a $0.8 million decrease in loan interest, as loans continue to reprice lower during the current low market rate environment. The increase to total average earning assets of $373.5 million partially offset the lower yields. PPP loans averaged $179.0 million in the nine-month period ended September 30, 2021 with interest and fees totaling $6.3 million. The tax-equivalent yield on the loan portfolio decreased to 4.00% for the nine months ended September 30, 2021, compared to 4.25% for the comparable period in 2020 due to lower market rates. PPP loan balances yielded 4.69% in the current nine month period compared to 2.32% in the year ago period. The higher yield is the result of SBA PPP loan forgiveness totaling $227.8 million in the current period. The loan yield excluding PPP loans was 3.93% in the current period compared to 4.37% in the year ago period. Loans, net averaged $2.2 billion for the nine months ended September 30, 2021 and $2.1 billion for the nine months ended September 30, 2020, respectively. For the nine months ended September 30, the tax-equivalent yield on total investments decreased to 2.09% in 2021 from 2.41% in 2020. Average investments totaled $347.1 million in 2021 and $299.2 million in 2020. Average interest-bearing deposits increased $320.1 million for the nine months ended September 30, 2021, compared to the corresponding period last year due to strong organic deposit growth of new customer relationships and increased public funds. Total average non-interest bearing deposits increased $129.2 million for the nine months ended September 30, 2021, compared to the comparable period last year which resulted in lowering our higher costing short-term and long-term borrowings.

There was no provision for loan losses for the nine months ended September 30, 2021, a decrease of $6.3 million from the $6.3 million provision for the comparable period of 2020. The lower provision in the nine month period ended September 30, 2021 is due to improved credit quality and the resulting reversal of the COVID-related asset quality qualitative factor adjustment made in the year ago period in our allowance for loan losses methodology. The higher provision in the year ago period reflects changes made to the qualitative factors related to economic and credit quality declines resulting from the onset of the coronavirus pandemic and its uncertain economic impact.

Noninterest income for the nine months ended September 30, 2021 was $10.4 million compared with $11.9 million for the year ago period, a decrease of $1.5 million or 13.1%. The year ago period included a net gain of $0.7 million from the sale of available-for-sale securities, offset by a $0.1 unrealized loss related to our equity security. Service charges, fees, commissions and other are lower in the nine month period ended September 30, 2021 by $0.1 million as an accrual adjustment to a bank owned life insurance benefit, a lower Federal Home Loan Bank dividend and a decrease to service charges on consumer and commercial deposit accounts were partially offset by an increase to our debit card interchange revenue. Wealth management revenue increased $0.3 million in the nine month period ended September 30, 2021 due to a higher number of transactions and commissions while fees on fiduciary activities increased $0.2 million due primarily to market appreciation. Revenue generated from commercial loan interest rate swap transactions decreased $1.2 million in the nine month period ended September 30, 2021 due to a decrease in the number of transactions resulting from unfavorable market rates.

Noninterest expense decreased $0.4 million or 1.0% to $40.4 million for the nine months ended September 30, 2021, from $40.8 million for the nine months ended September 30, 2020. Salaries and employee benefits decreased $1.1 million or 4.8% due to higher deferred costs from an increase in total loan originations which are recorded as a contra-salary expense and lower health insurance costs. Occupancy and equipment expenses were higher by $0.2 million due to information technology investments related to mobile/digital banking solutions in the nine month period ended September 30, 2021. Other expenses were higher by $0.5 million due primarily to higher Pennsylvania shares tax expense and an increase in FDIC insurance assessments in the nine month period ended September 30, 2021 attributed to the receipt of a credit in the year ago period related to the Deposit Insurance Fund's (DIF) minimum reserve ratio assessment.

The provision for income tax expense increased $2.3 million for the nine months ended September 30, 2021 compared to the year ago period due to higher levels of book taxable income and a $0.6 million deferred tax adjustment related to prior periods.

BALANCE SHEET REVIEW

At September 30, 2021, total assets, loans and deposits were $3.2 billion, $2.2 billion and $2.8 billion, respectively. Loan balances increased from December 31, 2020 as loan demand, exclusive of PPP loans, improved as the economy recovers from COVID-19. Loan growth during the first nine months was $133.9 million when excluding a net decrease of $106.2 million of Small Business Administration ("SBA") PPP loans. Commercial real estate and tax-exempt loans made up the majority of growth. During the first nine months of 2021, $227.8 million of PPP loans were forgiven by the SBA. Total investments were $494.4 million at September 30, 2021, an increase of $191.1 million from $303.3 million at December 31, 2021. The increase to the investment portfolio results from investing a portion of our low-yielding federal funds balance into higher-yielding earning assets. Federal funds sold balance at September 30, 2021 was $319.5 million, an increase of $136.5 million during the first nine months of 2020 resulting from strong deposit growth. Total deposits increased $403.8 million or 16.6% from December 31, 2020 due to organic growth of customer relationships throughout all our markets, additional deposits by our commercial customers and seasonal inflows of municipal deposits. Non-interest bearing deposits increased $90.1 million or 14.5% and interest-bearing deposits increased $313.7 million or 17.3% during the nine months ended September 30, 2021.

Stockholders' equity equaled $327.7 million or $45.66 per share at September 30, 2021, and $316.9 million or $43.92 per share at December 31, 2020. The increase in stockholders' equity from December 31, 2020 is attributable to net income, partially offset by a decrease to accumulated other comprehensive income ("AOCI") resulting from a decrease to the unrealized gain on investment securities and dividends paid to shareholders. Tangible stockholders' equity improved to $36.75 per share at September 30, 2021, from $35.00 per share at December 31, 2020. Dividends declared for the nine months ended September 30, 2021 amounted to $1.12 per share, a 3.7% increase from the 2020 period, representing a dividend payout ratio of 29.9%.

ASSET QUALITY REVIEW

Nonperforming assets were $6.1 million or 0.28% of loans, net and foreclosed assets at September 30, 2021, compared to $10.5 million or 0.48% of loans, net and foreclosed assets at December 31, 2020. The decrease in non-performing assets from year end was due to improving credit trends, the payoff of two non-accrual commercial loans and charge-off of a small business line of credit. The Company's allowance for loan losses decreased $0.7 million or 2.4% during the first nine months of 2021. The allowance for loan losses at September 30, 2021 continued to reflect the provisions added during 2020 from our adjustment of qualitative factors in our allowance for loan losses methodology, due to economic decline and expectation of increased credit losses from COVID-19's adverse impact on economic and business operating conditions. The allowance for loan losses equaled $26.7 million or 1.21% of loans, net at September 30, 2021 compared to $27.3 million or 1.26% of loans, net, at December 31, 2020. Excluding PPP loans which do not carry an allowance for losses due to a 100% government guarantee, the ratio equaled 1.26% at September 30, 2021. Loans charged-off, net of recoveries, for the nine months ended September 30, 2021, equaled $0.7 million or 0.04% of average loans, compared to $2.4 million or 0.16% of average loans for the comparable period last year.

About Peoples:

Peoples Financial Services Corp. is the parent company of Peoples Security Bank and Trust Company, a community bank serving Allegheny, Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Schuylkill, Susquehanna, and Wyoming Counties in Pennsylvania, Middlesex County in New Jersey and Broome County in New York through 28 offices. Each office, interdependent with the community, offers a comprehensive array of financial products and services to individuals, businesses, not-for-profit organizations and government entities. Peoples' business philosophy includes offering direct access to senior management and other officers and providing friendly, informed and courteous service, local and timely decision making, flexible and reasonable operating procedures and consistently applied credit policies.

Safe Harbor Forward-Looking Statements:

We make statements in this press release, and we may from time to time make other statements regarding our outlook or expectations for future financial or operating results and/or other matters regarding or affecting Peoples Financial Services Corp. and Peoples Security Bank and Trust Company (collectively, "Peoples") that are considered "forward-looking statements" as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "intend" and "potential." For these statements, Peoples claims the protection of the statutory safe harbors for forward-looking statements.

Peoples cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: prevailing economic and political conditions, particularly in our market area; the COVID-19 crisis and the governmental responses to the crisis; credit risk associated with our lending activities; changes in interest rates, loan demand, real estate values and competition; changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; our ability to identify and address cyber-security risks and other economic, competitive, governmental, regulatory and technological factors affecting Peoples' operations, pricing, products and services and other factors that may be described in Peoples' Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission from time to time.

In addition to these risks, acquisitions and business combinations, present risks other than those presented by the nature of the business acquired. Acquisitions and business combinations may be substantially more expensive to complete than originally anticipated, and the anticipated benefits may be significantly harder-or take longer-to achieve than expected. As regulated financial institutions, our pursuit of attractive acquisition and business combination opportunities could be negatively impacted by regulatory delays or other regulatory issues. Regulatory and/or legal issues related to the pre-acquisition operations of an acquired or combined business may cause reputational harm to Peoples following the acquisition or combination, and integration of the acquired or combined business with ours may result in additional future costs arising as a result of those issues.

The forward-looking statements are made as of the date of this release, and, except as may be required by applicable law or regulation, Peoples assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

[TABULAR MATERIAL FOLLOWS]

Summary DataPeoples Financial Services Corp.Five Quarter Trend(In thousands, except share and per share data)

Sept 30 June 30 Mar 31 Dec 31 Sept 30

2021 2021 2021 2020 2020

Key performancedata:

Share and pershare amounts:

Net income $ 1.26 $ 1.18 $ 1.31 $ 1.13 $ 1.14

Core net income $ 1.26 $ 1.18 $ 1.31 $ 1.10 $ 1.09(1)

Cash dividends $ 0.38 $ 0.37 $ 0.37 $ 0.36 $ 0.36declared

Book value $ 45.66 $ 45.11 $ 44.00 $ 43.92 $ 43.30

Tangible book $ 36.75 $ 36.21 $ 35.10 $ 35.00 $ 34.40value (1)

Market value:

High $ 46.92 $ 45.38 $ 47.34 $ 40.40 $ 39.38

Low $ 41.91 $ 41.10 $ 36.02 $ 34.47 $ 32.51

Closing $ 45.57 $ 42.60 $ 42.24 $ 36.76 $ 34.76

Market $ 327,057 $ 306,836 $ 304,605 $ 265,231 $ 251,743capitalization

Common shares 7,177,028 7,202,728 7,211,293 7,215,202 7,242,326outstanding

Selected ratios:

Return onaverage 11.01 % 10.71 % 12.00 % 10.32 % 10.58 %stockholders'equity

Core return onaverage 11.01 % 10.72 % 11.98 % 10.05 % 10.12 %stockholders'equity (1)

Return onaverage tangible 13.69 % 13.39 % 15.02 % 12.96 % 13.34 %stockholders'equity

Core return onaverage tangible 13.68 % 13.41 % 14.99 % 12.62 % 12.76 %stockholders'equity (1)

Return on 1.17 % 1.14 % 1.32 % 1.13 % 1.21 %average assets

Core return onaverage assets 1.17 % 1.14 % 1.32 % 1.10 % 1.16 %(1)

Stockholders'equity to total 10.14 % 10.84 % 10.59 % 10.99 % 11.18 %assets

Efficiency ratio 54.87 % 55.71 % 50.83 % 56.35 % 55.94 %(2)

Nonperformingassets to loans,net, and 0.28 % 0.33 % 0.38 % 0.48 % 0.52 %foreclosedassets

Net charge-offsto average 0.08 % 0.03 % 0.01 % 0.05 % 0.26 %loans, net

Allowance forloan losses to 1.21 % 1.20 % 1.23 % 1.26 % 1.21 %loans, net

Interest-bearingassets yield 3.37 % 3.32 % 3.55 % 3.49 % 3.73 %(FTE) (3)

Cost of funds 0.42 % 0.50 % 0.57 % 0.67 % 0.76 %

Net interest 2.95 % 2.81 % 2.99 % 2.81 % 2.97 %spread (FTE) (3)

Net interest 3.07 % 2.96 % 3.15 % 3.00 % 3.19 %margin (FTE) (3)

(1) See Reconciliation of Non-GAAP financial measures.

Total noninterest expense less amortization of intangible assets divided by(2) tax-equivalent net interest income and noninterest income less net gains (losses) on investment securities available-for-sale.

(3) Tax-equivalent adjustments were calculated using the federal statutory tax rate prevailing during the indicated periods of 21%.

Peoples Financial Services Corp. Consolidated Statements of Income (In thousands, except per share data)





Sept 30 Sept 30

Nine Months Ended 2021 2020

Interest income:

Interest and fees on loans:

Taxable $62,205 $62,978

Tax-exempt 2,859 2,848

Interest and dividends on investment securities:

Taxable 3,804 4,223

Tax-exempt 1,233 874

Dividends 72 71

Interest on interest-bearing deposits in other 6 27 banks

Interest on federal funds sold 228 19

Total interest income 70,407 71,040

Interest expense:

Interest on deposits 5,731 9,125

Interest on short-term borrowings 78 757

Interest on long-term debt 225 575

Interest on subordinated debt 1,330 591

Total interest expense 7,364 11,048

Net interest income 63,043 59,992

Provision for loan losses 6,350

Net interest income after provision for loan losses 63,043 53,642

Noninterest income:

Service charges, fees, commissions and other 4,476 4,622

Merchant services income 759 723

Commissions and fees on fiduciary activities 1,725 1,574

Wealth management income 1,207 890

Mortgage banking income 764 937

Increase in cash surrender value of life insurance 669 572

Interest rate swap revenue 744 1,947

Net gain (loss) on investment securities 9 (82)

Net gain on sale of investment securities 724 available-for-sale

Total noninterest income 10,353 11,907

Noninterest expense:

Salaries and employee benefits expense 21,649 22,735

Net occupancy and equipment expense 9,464 9,252

Amortization of intangible assets 375 462

Other expenses 8,960 8,418

Total noninterest expense 40,448 40,867

Income before income taxes 32,948 24,682

Provision for income tax expense 5,843 3,513

Net income $27,105 $21,169

Other comprehensive income:

Unrealized gain (loss) on investment securities $(8,409) $9,084 available-for-sale

Reclassification adjustment for gains included in (724) net income

Change in derivative fair value (22) 356

Income tax related to other comprehensive income (1,771) 1,830

Other comprehensive income, net of income taxes (6,660) 6,886

Comprehensive income $20,445 $28,055

Share and per share amounts:

Net income - basic $3.76 $2.89

Net income - diluted 3.74 2.87

Cash dividends declared $1.12 $1.08

Average common shares outstanding - basic 7,204,399 7,332,539

Average common shares outstanding - diluted 7,239,463 7,364,693

Peoples Financial Services Corp. Consolidated Statements of Income (In thousands, except per share data)





Sept 30 June 30 Mar 31 Dec 31 Sept 30

Three months ended 2021 2021 2021 2020 2020

Interest income:

Interest and fees on loans:

Taxable $21,276 $20,029 $20,900 $20,705 $20,901

Tax-exempt 1,024 965 870 888 876

Interest and dividends on investment securities available-for-sale:

Taxable 1,285 1,276 1,243 1,111 1,250

Tax-exempt 432 411 390 304 280

Dividends 24 25 23 26 23

Interest on interest-bearing 2 2 2 4 4 deposits in other banks

Interest on federal 124 55 49 47 12 funds sold

Total interest 24,167 22,763 23,477 23,085 23,346 income

Interest expense:

Interest on 1,698 1,941 2,092 2,614 2,758 deposits

Interest on short-term 6 71 91 82 borrowings

Interest on 41 82 103 127 139 long-term debt

Interest on 443 444 443 444 443 subordinated debt

Total interest 2,182 2,473 2,709 3,276 3,422 expense

Net interest income 21,985 20,290 20,768 19,809 19,924

Provision (credit) 400 100 (500) 1,050 1,050 for loan losses

Net interest income after provision 21,585 20,190 21,268 18,759 18,874 (credit) for loan losses

Noninterest income:

Service charges, fees, commissions 1,667 1,625 1,184 2,187 1,584 and other

Merchant services 158 508 93 101 137 income

Commissions and fees on fiduciary 639 553 533 551 575 activities

Wealth management 432 417 358 392 272 income

Mortgage banking 244 208 312 658 488 income

Increase in cash surrender value of 225 225 219 202 192 life insurance

Interest rate swap 79 (132) 797 374 1,228 revenue (expense)

Net gain (loss) on investment 5 (17) 21 76 2 securities

Net gain on sale of investment 194 457 securities available-for-sale

Total noninterest 3,449 3,387 3,517 4,735 4,935 income

Noninterest expense:

Salaries and employee benefits 7,829 7,250 6,570 7,400 7,831 expense

Net occupancy and 3,150 3,047 3,267 3,588 3,131 equipment expense

Amortization of 125 125 125 144 154 intangible assets

Other expenses 3,187 3,106 2,667 2,869 2,858

Total noninterest 14,291 13,528 12,629 14,001 13,974 expense

Income before 10,743 10,049 12,156 9,493 9,835 income taxes

Income tax expense 1,647 1,518 2,678 1,308 1,523

Net income $9,096 $8,531 $9,478 $8,185 $8,312

Other comprehensive income:

Unrealized gain (loss) on investment $(3,130) $2,470 $(7,749) $(305) $(639) securities available-for-sale

Reclassification adjustment for (194) (457) gains included in net income

Change in benefit (1,398) plan liabilities

Change in derivative fair (128) (135) 242 (41) (137) value

Income tax related to other (684) 490 (1,576) (407) (260) comprehensive income

Other comprehensive income, net of (2,574) 1,845 (5,931) (1,531) (973) income taxes

Comprehensive $6,522 $10,376 $3,547 $6,654 $7,339 income

Share and per share amounts:

Net income - basic $1.26 $1.18 $1.31 $1.13 $1.14

Net income - 1.26 1.18 1.31 1.13 1.14 diluted

Cash dividends $0.38 $0.37 $0.37 $0.36 $0.36 declared

Average common shares outstanding 7,198,125 7,204,261 7,210,952 7,222,810 7,277,189- basic

Average common shares outstanding 7,233,189 7,239,325 7,246,016 7,257,874 7,312,253- diluted

Peoples Financial Services Corp. Details of Net Interest and Net Interest Margin (In thousands, fully taxable equivalent basis)





Sept 30 June 30 Mar 31 Dec 31 Sept 30

Three months ended 2021 2021 2021 2020 2020

Net interest income:

Interest income

Loans, net:

Taxable $21,276 $20,029 $20,900 $20,705 $20,901

Tax-exempt 1,296 1,222 1,101 1,124 1,109

Total loans, net 22,572 21,251 22,001 21,829 22,010

Investments:

Taxable 1,310 1,301 1,266 1,137 1,273

Tax-exempt 547 520 494 385 354

Total investments 1,857 1,821 1,760 1,522 1,627

Interest on interest-bearing 2 2 2 4 4 balances in other banks

Federal funds sold 124 55 49 47 12

Total interest income 24,555 23,129 23,812 23,402 23,653

Interest expense:

Deposits 1,698 1,941 2,092 2,614 2,758

Short-term borrowings 6 71 91 82

Long-term debt 41 82 103 127 139

Subordinated debt 443 444 443 444 443

Total interest 2,182 2,473 2,709 3,276 3,422 expense

Net interest income $22,373 $20,656 $21,103 $20,126 $20,231

Loans, net:

Taxable 4.15 % 3.87 % 4.13 % 3.98 % 4.04 %

Tax-exempt 3.04 % 3.30 % 3.56 % 3.80 % 3.70 %

Total loans, net 4.06 % 3.83 % 4.09 % 3.97 % 4.02 %

Investments:

Taxable 1.85 % 1.97 % 1.97 % 2.03 % 2.09 %

Tax-exempt 2.56 % 2.66 % 2.78 % 3.30 % 3.56 %

Total investments 2.02 % 2.13 % 2.15 % 2.25 % 2.30 %

Interest-bearing 0.07 % 0.08 % 0.06 % 0.06 % 0.08 %balances with banks

Federal funds sold 0.16 % 0.10 % 0.10 % 0.10 % 0.11 %

Total interest-bearing 3.37 % 3.32 % 3.55 % 3.49 % 3.73 %assets

Interest expense:

Deposits 0.34 % 0.41 % 0.46 % 0.57 % 0.65 %

Short-term borrowings 0.33 % 0.57 % 0.72 % 0.65 %

Long-term debt 4.68 % 2.98 % 2.88 % 2.70 % 2.59 %

Subordinated debt 5.37 % 5.38 % 5.38 % 5.38 % 5.37 %

Total interest-bearing 0.42 % 0.50 % 0.57 % 0.67 % 0.76 %liabilities

Net interest spread 2.95 % 2.81 % 2.98 % 2.81 % 2.97 %

Net interest margin 3.07 % 2.96 % 3.15 % 3.00 % 3.19 %

Peoples Financial Services Corp. Consolidated Balance Sheets (In thousands)





Sept 30 June 30 Mar 31 Dec 31 Sept 30

At period end 2021 2021 2021 2020 2020

Assets:

Cash and due from banks $33,662 $41,789 $30,786 $29,287 $42,940

Interest-bearing balances in other banks 7,425 10,262 8,432 15,905 20,972

Federal funds sold 319,500 196,000 264,100 183,000 102,300

Investment securities:

Available-for-sale 461,372 336,449 333,753 295,911 247,404

Equity investments carried at fair value 147 142 159 138 341

Held-to-maturity 32,848 7,104 7,166 7,225 7,297

Loans held for sale 997 1,545 458 837 2,161

Loans, net 2,205,661 2,236,826 2,179,534 2,177,982 2,188,463

Less: allowance for loan losses 26,693 26,739 26,783 27,344 26,584

Net loans 2,178,968 2,210,087 2,152,751 2,150,638 2,161,879

Premises and equipment, net 50,682 46,305 46,777 47,045 47,926

Accrued interest receivable 8,280 7,844 8,206 8,255 8,595

Goodwill 63,370 63,370 63,370 63,370 63,370

Other intangible assets, net 584 710 835 960 1,104

Bank owned life insurance 42,734 42,750 42,530 42,316 37,099

Other assets 32,956 33,379 36,146 38,915 62,274

Total assets $3,233,525$2,997,736$2,995,469$2,883,802$2,805,662

Liabilities:

Deposits:

Noninterest-bearing $712,601 $672,274 $661,262 $622,475 $579,196

Interest-bearing 2,128,318 1,939,492 1,889,154 1,814,638 1,777,688

Total deposits 2,840,919 2,611,766 2,550,416 2,437,113 2,356,884

Short-term borrowings 51,980 50,000 50,000

Long-term debt 3,235 3,752 14,264 14,769 20,269

Subordinated debt 33,000 33,000 33,000 33,000 33,000

Accrued interest payable 872 469 1,120 736 1,289

Other liabilities 27,767 23,858 27,358 31,307 30,597

Total liabilities 2,905,793 2,672,845 2,678,138 2,566,925 2,492,039

Stockholders' equity:

Common stock 14,356 14,407 14,423 14,414 14,468

Capital surplus 127,826 128,719 128,854 129,291 130,038

Retained earnings 190,061 183,702 177,836 171,023 165,437

Accumulated other comprehensive gain (loss) (4,511) (1,937) (3,782) 2,149 3,680

Total stockholders' equity 327,732 324,891 317,331 316,877 313,623

Total liabilities and stockholders' equity $3,233,525$2,997,736$2,995,469$2,883,802$2,805,662

Peoples Financial Services Corp. Consolidated Balance Sheets (In thousands)





Sept 30 June 30 Mar 31 Dec 31 Sept 30

Average quarterly balances2021 2021 2021 2020 2020

Assets:

Loans, net:

Taxable $2,033,752$2,075,808$2,054,120$2,068,600$2,059,357

Tax-exempt 169,273 148,747 125,352 117,650 119,202

Total loans, net 2,203,025 2,224,555 2,179,472 2,186,250 2,178,559

Investments:

Taxable 280,767 264,490 260,238 223,333 241,904

Tax-exempt 84,701 78,521 72,177 46,361 39,591

Total investments 365,468 343,011 332,415 269,694 281,495

Interest-bearing balances 12,004 9,653 13,260 26,232 20,250 with banks

Federal funds sold 311,015 220,247 191,720 185,874 45,439

Total interest-bearing 2,891,512 2,797,466 2,716,867 2,668,050 2,525,743assets

Other assets 202,456 199,082 197,178 204,348 199,433

Total assets $3,093,968$2,996,548$2,914,045$2,872,398$2,725,176

Liabilities and stockholders' equity:

Deposits:

Interest-bearing $2,007,868$1,921,754$1,833,661$1,829,248$1,690,440

Noninterest-bearing 696,331 680,431 634,806 596,880 587,448

Total deposits 2,704,199 2,602,185 2,468,467 2,426,128 2,277,888

Short-term borrowings 7,300 50,470 50,000 50,038

Long-term debt 3,475 11,025 14,509 18,699 21,354

Subordinated debt 33,000 33,000 33,000 33,000 33,000

Other liabilities 25,635 23,420 27,371 28,946 30,454

Total liabilities 2,766,309 2,676,930 2,593,817 2,556,773 2,412,734

Stockholders' equity 327,659 319,618 320,228 315,625 312,442

Total liabilities and $3,093,968$2,996,548$2,914,045$2,872,398$2,725,176stockholders' equity

Peoples Financial Services Corp. Asset Quality Data (In thousands)





Sept 30 June 30 Mar 31 Dec 31 Sept 30

2021 2021 2021 2020 2020

At quarter end

Nonperforming assets:

Nonaccrual/restructured loans $5,559 $7,216 $8,073 $9,799 $10,692

Accruing loans past due 90 78 49 172 71 52 days or more

Foreclosed assets 487 29 131 632 649

Total nonperforming assets $6,124 $7,294 $8,376 $10,502$11,393



Three months ended

Allowance for loan losses:

Beginning balance $26,739$26,783$27,344$26,584$26,957

Charge-offs 466 190 195 522 1,542

Recoveries 20 46 134 232 119

Provision for loan losses 400 100 (500) 1,050 1,050

Ending balance $26,693$26,739$26,783$27,344$26,584

Peoples Financial Services Corp. Reconciliation of Non-GAAP Financial Measures (In thousands, except share and per share data)





Sept 30 June 30 Mar 31 Dec 31 Sept 30

Three months ended2021 2021 2021 2020 2020

Core net income per share:

Net income GAAP $9,096 $8,531 $9,478 $8,185 $8,312

Adjustments:

Less: (gain) loss on investment (5) 17 (21) (270) (459) securities

Add: (gain) loss on investment 1 (4) 4 57 96 securities tax adjustment

Net income Core $9,092 $8,544 $9,461 $7,972 $7,949

Average common shares outstanding 7,233,189 7,239,325 7,246,016 7,257,874 7,312,253 - diluted

Core net income $1.26 $1.18 $1.31 $1.10 $1.09 per share

Tangible book value:

Total stockholders' $327,732 $324,891 $317,331 $316,877 $313,623 equity

Less: Goodwill 63,370 63,370 63,370 63,370 63,370

Less: Other intangible assets, 584 710 835 960 1,104 net

Total tangible stockholders' $263,778 $260,811 $253,126 $252,547 $249,149 equity

Common shares 7,177,028 7,202,728 7,211,293 7,215,202 7,242,326 outstanding

Tangible book $36.75 $36.21 $35.10 $35.00 $34.40 value per share

Core return on average stockholders' equity:

Net income GAAP $9,096 $8,531 $9,478 $8,185 $8,312

Adjustments:

Less: (gain) loss on investment (5) 17 (21) (270) (459) securities

Add: (gain) loss on investment 1 (4) 4 57 96 securities tax adjustment

Net income Core $9,092 $8,544 $9,461 $7,972 $7,949

Average stockholders' $327,659 $319,618 $320,228 $315,625 $312,442 equity

Core return on average 11.01 % 10.72 % 11.98 % 10.05 % 10.12 %stockholders' equity

Return on average tangible equity:

Net income GAAP $9,096 $8,531 $9,478 $8,185 $8,312

Average stockholders' $327,659 $319,618 $320,228 $315,625 $312,442 equity

Less: average 64,017 64,143 64,268 64,402 64,551 intangibles

Average tangible stockholders' $263,642 $255,475 $255,960 $251,223 $247,891 equity

Return on average tangible 13.69 % 13.39 % 15.02 % 12.96 % 13.34 %stockholders' equity

Core return on average tangible stockholders' equity:

Net income GAAP $9,096 $8,531 $9,478 $8,185 $8,312

Adjustments:

Less: (gain) loss on investment (5) 17 (21) (270) (459) securities

Add: (gain) loss on investment 1 (4) 4 57 96 securities tax adjustment

Net income Core $9,092 $8,544 $9,461 $7,972 $7,949

Average stockholders' $327,659 $319,618 $320,228 $315,625 $312,442 equity

Less: average 64,017 64,143 64,268 64,402 64,551 intangibles

Average tangible stockholders' $263,642 $225,475 $255,960 $251,223 $247,891 equity

Core return on average tangible 13.68 % 13.41 % 14.99 % 12.62 % 12.76 %stockholders' equity

Core return on average assets:

Net income GAAP $9,096 $8,531 $9,478 $8,185 $8,312

Adjustments:

Less: (gain) loss on investment (5) 17 (21) (270) (459) securities

Add: (gain) loss on investment 1 (4) 4 57 96 securities tax adjustment

Net income Core $9,092 $8,544 $9,461 $7,972 $7,949

Average assets $3,093,968 $2,996,548 $2,914,045 $2,872,398 $2,725,176

Core return on 1.17 % 1.14 % 1.32 % 1.10 % 1.16 %average assets

Peoples Financial Services Corp. Reconciliation of Non-GAAP Financial Measures (In thousands, except share and per share data)





Sept 30 Sept 30

Nine Months Ended 2021 2020

Core net income per share:

Net income (GAAP) $27,105 $21,169

Adjustments:

Less: Gain on investment securities 724

Less: Gain (loss) on equity securities 9 (82)

Add: Gain on investment securities tax adjustment 152

Add: Gain (loss) on equity securites line tax 2 (17) adjustment

Net income Core $27,098 $20,662

Average basic common shares outstanding 7,204,399 7,332,539

Average diluted common shares outstanding 7,239,463 7,364,693

Core net income per share - basic $3.76 $2.82

Core net income per share - diluted $3.74 $2.81

Peoples Financial Services Corp.Reconciliation of Non-GAAP Financial Measures(In thousands, except share and per share data)

The following table reconciles the non-GAAP financial measures of FTE netinterest income for the three and nine months ended September 30, 2021 and2020:

Three months ended September 30 2021 2020

Interest income (GAAP) $ 24,167 $ 23,346

Adjustment to FTE 388 307

Interest income adjusted to FTE (non-GAAP) 24,555 23,653

Interest expense 2,182 3,422

Net interest income adjusted to FTE (non-GAAP) $ 22,373 $ 20,231

Nine months ended September 30 2021 2020

Interest income (GAAP) $ 70,407 $ 71,040

Adjustment to FTE 1,089 989

Interest income adjusted to FTE (non-GAAP) 71,496 72,029

Interest expense 7,364 11,048

Net interest income adjusted to FTE (non-GAAP) $ 64,132 $ 60,981

The efficiency ratio is noninterest expenses, less amortization of intangibleassets, as a percentage of FTE net interest income plus noninterest incomeless gains on equity securities and gains on sale of assets. The followingtable reconciles the non-GAAP financial measures of the efficiency ratio toGAAP for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30 2021 2020

Efficiency ratio (non-GAAP):

Noninterest expense (GAAP) $ 14,291 $ 13,974

Less: amortization of intangible assets expense 125 154

Noninterest expense adjusted for amortization of 14,166 13,820assets expense (non-GAAP)

Net interest income (GAAP) 21,985 19,924

Plus: taxable equivalent adjustment 388 307

Noninterest income (GAAP) 3,449 4,935

Less: net gains on equity securities 5 2

Less: net gains on sale of securities 457

Net interest income (FTE) plus noninterest income $ 25,817 $ 24,707(non-GAAP)

Efficiency ratio (non-GAAP) 54.87 % 55.94 %

Nine months ended September 30 2021 2020

Efficiency ratio (non-GAAP):

Noninterest expense (GAAP) $ 40,448 $ 40,867

Less: amortization of intangible assets expense 375 462

Noninterest expense adjusted for amortization of 40,073 40,405assets expense (non-GAAP)

Net interest income (GAAP) 63,043 59,992

Plus: taxable equivalent adjustment 1,089 989

Noninterest income (GAAP) 10,353 11,907

Less: net gains (losses) on equity securities 9 (82)

Less: net gains on sale of investment securities 724

Net interest income (FTE) plus noninterest income $ 74,476 $ 72,246(non-GAAP)

Efficiency ratio (non-GAAP) 53.81 % 55.93 %

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SOURCE Peoples Financial Services Corp.