PEOPLES FINANCIAL SERVICES CORP. Reports Unaudited Third Quarter and Year to Date 2025 Earnings

For the nine months ended September 30, 2025, net income was $47.2 million, or $4.69 per diluted share, compared to $2.4 million, or $0.30 per diluted share for the comparable period of 2024. The increase in net income for the current year to date period of $44.8 million was due primarily to higher net interest income and noninterest income, and a lower provision for credit losses which more than offset an increase in noninterest expenses.  On July 1, 2024, the Company completed its merger with FNCB Bancorp, Inc. ("FNCB," such merger the "FNCB merger").  Higher levels of interest-earning assets, higher transaction volumes and purchase accounting related accretion resulting from the FNCB merger resulted in the increase in net interest income and noninterest income when compared to the prior year period.

"We are extremely pleased with another strong quarter driven by disciplined credit quality and balance sheet management," stated Gerard A. Champi, Chief Executive Officer.  "We are building for the future with a focus on efficiency, enhanced customer service and long-term growth as we centralize operations in our new corporate headquarters."

The Company's consolidated financial results for any periods ended or including periods prior to July 1, 2024, do not reflect the financial results of FNCB and its subsidiaries. 

In addition to evaluating its results of operations in accordance with U.S. generally accepted accounting principles ("GAAP"), Peoples routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as tangible stockholders' equity, core net income and pre-provision revenue ratios, and tax-equivalent net interest income and related ratios, among others. The reported results included in this release contain items, which Peoples considers non-core, namely acquisition-related expenses and merger-related adjustments to the allowance for credit losses ("ACL") for nonrecurring provisions for purchase credit deteriorated ("PCD") and non-PCD loans.  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.

NOTABLES IN THE QUARTER

• Non-performing assets to total assets improved to 0.33% at September 30, 2025 compared to 0.34% at June 30, 2025 and 0.45% at December 31, 2024, and non-performing assets to total loans, net and foreclosed assets improved to 0.42% at September 30, 2025 compared to 0.44% at June 30, 2025 and 0.58% at December 31, 2024.
• ROAE on an annualized basis was 12.02% for the three months ended September 30, 2025 compared to 13.87% for the three months ended June 30, 2025, and (3.58)% for the three months ended September 30, 2024.
• ROAA on an annualized basis was 1.19% for the three months ended September 30, 2025 compared to 1.36% for the three months ended June 30, 2025, and (0.33)% for the three months ended September 30, 2024.
• Book value per common share at September 30, 2025 increased to $50.95 as compared to $49.44 and $47.53 at June 30, 2025, and September 30, 2024, respectively.
• Tangible book value per common share, a non-GAAP measure¹, increased to $40.43 on September 30, 2025, compared to $38.75 and $36.24 at June 30, 2025, and September 30, 2024, respectively.
• Loans increased $18.8 million, or 1.9%, on an annualized basis during the three months ended September 30, 2025.
• The Company completed its move to new corporate headquarters in Moosic, PA.

INCOME STATEMENT REVIEW

• Net interest margin ("NIM"), calculated on a fully taxable equivalent ("FTE") basis, a non-GAAP measure¹, for the three months ended September 30, 2025, was 3.54%, an increase of 28 basis points compared to 3.26% for the three months ended September 30, 2024.
• The tax-equivalent yield on interest-earning assets, a non-GAAP measure¹, decreased 7 basis points to 5.56% for the three months ended September 30, 2025, from 5.63% for the three months ended September 30, 2024.
• The cost of funds, which represents the average rate paid on total interest-bearing liabilities, decreased 28 basis points to 2.64% for the three months ended September 30, 2025, when compared to 2.89% for the three months ended September 30, 2024.
• The cost of interest-bearing deposits decreased 37 basis points for the three months ended September 30, 2025 to 2.39% from 2.76% in the three months ended September 30, 2024.
• The cost of total deposits, which includes the impact of noninterest-bearing deposits was 1.88% for the three months ended September 30, 2025, a decrease of 45 basis points from 2.33% for the three months ended September 30, 2024.
• The efficiency ratio¹ was 56.52% for the three months ended September 30, 2025, compared to 53.14% for the three months ended September 30, 2024.

Third Quarter 2025 Results – Comparison to Third Quarter 2024

Net interest income on an FTE basis for the three months ended September 30, 2025 increased $1.9 million to $41.9 million from $40.0 million for the three months ended September 30, 2024.  The increase in FTE net interest income was due to a $3.1 million decrease in tax-equivalent interest income, a non-GAAP measure¹, that was more than offset by a $5.0 million decrease in interest expense.

The reduction in FTE interest income resulted primarily from decreases in average loan, investment and federal funds sold balances, coupled with a reduction in accretion associated with purchase accounting fair value discounts.  Average loans, net, decreased $62.6 million for the three months ended September 30, 2025, compared to the prior year three-month period ended September 30, 2024.  Average investments totaled $651.8 million in the three months ended September 30, 2025, and $700.6 million in the three months ended September 30, 2024, a decrease of $48.8 million.  Average federal funds sold decreased $58.7 million to $33.5 million for the three months ended September 30, 2025, from $92.2 million for the three months ended September 30, 2024.  Accretion associated with purchase accounting fair value discounts on purchased loans was $3.7 million for the three months ended September 30, 2025, a decrease of $1.0 million from $4.7 million for the same period of 2024.

The decrease in interest expense, comparing the three month periods ended September 30, 2025, and September 30, 2024, was due primarily to decreases in average deposit rates, coupled with a reduction in higher cost brokered deposits, partially offset by increases in average volumes and rates on borrowed funds, which were largely related to the net new issuance of subordinated debt in the second quarter of 2025. Average interest-bearing deposits decreased $448.8 million and represented 78.7% of total average deposits for the three months ended September 30, 2025, as compared to 84.2% for the three months ended September 30, 2024.  Average brokered deposits decreased $210.9 million to $178.6 million for the three months ended September 30, 2025, from $389.5 million for the comparable three-month period of 2024. Average noninterest bearing deposits increased $191.6 million and represented 21.3% of total average deposits in the three months ended September 30, 2025, as compared to 15.8% in the three months ended September 30, 2024.

Average total borrowings increased $53.3 million for the three months ended September 30, 2025, as compared to the same period of 2024, which was primarily due to the new issuance of subordinated debt which occurred in the second quarter of 2025.  Additionally, the Company's cost of borrowings increased 67 basis points to 6.01% for the three months ended September 30, 2025, compared to 5.34% for the same three months of 2024. In June 2025, the Company called and redeemed $33 million of its subordinated notes due in June 2030 that repriced to 9.08% and issued $85 million in fixed-to-floating rate subordinated notes due June 2035 at an initial fixed rate through June 2030 of 7.75%.

Short-term borrowings averaged $29.2 million for the three-month period ended September 30, 2025, at an average cost of 4.63% compared to $43.9 million at an average cost of 4.98% during the comparable three-month period in 2024.  Long-term debt averaged $129.5 million for the three-month period ended September 30, 2025, at an average cost of 4.62% compared to $111.8 million at an average cost of 4.94% for the three months ended September 30, 2024. Subordinated debt averaged $83.1 million for the three-month period ended September 30, 2025, at an average cost of 8.34% compared to $33.0 million at an average cost of 5.34% for the three months ended September 30, 2024.

For the three months ended September 30, 2025, $0.8 million was credited to the provision for credit losses compared to an expense of $14.5 million in the prior year's same quarter. The current year credit was due primarily to a reduction in specific reserves on individually evaluated loans associated with a reduction in nonperforming loans coupled with a decline in the overall model loss rate. The provision for the third quarter of 2024 included a non-recurring provision of $14.3 million for non-PCD loans acquired in the FNCB merger. 

Noninterest income was $5.5 million and $5.7 million for the three months ended September 30, 2025, and 2024, respectively.  The current year quarter includes a $0.6 million loss on the pending sale of administrative offices, as the Company has commenced consolidating operations to a new corporate center.  The prior year quarter included gains of $0.2 million on equity investments versus a negligible loss in the current year's quarter.  Wealth management income increased $0.2 million and interest rate swap income increased $0.2 million due to an increase in transactions.

Noninterest expense decreased $6.8 million to $28.7 million for the three months ended September 30, 2025, from $35.5 million for the three months ended September 30, 2024, which primarily reflected a reduction in acquisition-related expenses partially offset by increases in salaries and employee benefits, occupancy and equipment expenses and other expenses. Acquisition-related expenses were $9.7 million in the quarter ended September 30, 2024, with only negligible expenses in the current year's quarter. Salaries and employee benefits increased $0.9 million to $14.1 million for the three months ended September 30, 2025 from $13.2 million for the same three months of 2024 due primarily to higher incentive compensation accruals.  Net occupancy and equipment expenses increased $0.8 million from the prior year's quarter, which included higher lease and maintenance expenses.  Other expenses increased $1.4 million to $5.2 million for the quarter ending September 30, 2025, from $3.8 million for the prior year's quarter. The increase in other expenses was primarily related to an increase in the provision for unfunded commitments. The Company recorded a provision for unfunded commitments of $0.2 million in the third quarter of 2025 compared to a credit to the provision for unfunded commitments of $0.8 million for the same quarter of 2024. 

Income tax expense was $3.6 million for the three months ended September 30, 2025, compared to a benefit of $0.7 million for the three months ended September 30, 2024.  The effective tax rate was 19.1% for the three months ended September 30, 2025, and 13.2% of pre-tax loss for the three months ended September 30, 2024, respectively. 

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

Net interest income for the nine months ended September 30, 2025 increased $45.4 million to $122.9 million from $77.5 million for the nine months ended September 30, 2024. FTE net interest income, a non-GAAP measure¹, for the nine months ended September 30, 2025 increased $45.9 million to $125.0 million from $79.1 million for the nine months ended September 30, 2024. 

Tax-equivalent interest income, a non-GAAP measure¹, increased $47.7 million to $195.1 million due to higher levels of interest-earning assets such as loans and investments and an additional $7.4 million from accretion of purchase accounting marks on loans. Average loans increased $726.4 million and average investments increased $52.0 million comparing the nine months ended September 30, 2025 and 2024, primarily due to assets the Company acquired in the FNCB merger.  The tax-equivalent yield on interest-earning assets, a non-GAAP measure¹ was 5.58% for the first nine months of 2025 compared to 5.01% for the nine months ended September 30, 2024.  Loan yields increased 49 basis points to 5.99% while investment yields increased 82 basis points to 3.11% for the nine months ended September 30, 2025. 

Partially offsetting the increase in tax-equivalent interest income was a $1.8 million increase in interest expense to $70.0 million for the nine months ended September 30, 2025, from $68.2 million for the nine months ended September 30, 2024, which was primarily caused by higher volumes of interest-bearing liabilities, partially offset by a reduction in funding costs. Average interest-bearing liabilities increased $498.0 million to $3.6 billion from $3.1 billion comparing the year-to-date periods of 2025 and 2024, which reflected higher volumes of both deposits and borrowings. The cost of interest-bearing liabilities during the nine-month period ended September 30, 2025 decreased 33 basis points to 2.61% from 2.94% for the nine months ended September 30, 2024.  The cost of interest-bearing deposit products decreased 43 basis points to 2.42% for the nine months ended September 30, 2025 from 2.85% for the comparable prior year period, while borrowing costs increased 44 basis points to 5.69% from 5.25% for the nine months ended September 30, 2024. The increase in the cost of borrowed funds was largely due to the previously mentioned issuance of new subordinated debt, partially offset by a reduction in market rates for short-term borrowings.

For the nine months ended September 30, 2025, a credit to the provision for credit losses of $0.9 million was recorded compared to a prior year provision of $15.8 million. The current year credit was due primarily to a reduction in specific reserves on individually evaluated loans associated with a reduction in nonperforming loans coupled with a decline in the overall model loss rate. The prior year provision included non-recurring provision of $14.3 million for non-PCD loans acquired in the FNCB merger.

Noninterest income was $18.0 million for the nine months ended September 30, 2025 and $12.7 million for the comparable period ended September 30, 2024.  The increase in non-interest income was attributable to the increased size and scale of the Company following the merger. Comparing the year-to-date periods of 2025 and 2024, service charges and fees increased $3.2 million. Wealth management income increased $0.7 million, BOLI cash surrender value increased $0.5 million and merchant services income increased $0.5 million.

Noninterest expense for the nine months ended September 30, 2025 was $84.3 million, an increase of $12.6 million from $71.7 million for the nine months ended September 30, 2024. Almost all noninterest expense line items increased as a result of the FNCB merger and the expanded operations of the combined Company. Salaries and employee benefits expenses increased $10.9 million compared to the year ago period due to the addition of 195 full-time employees from the FNCB merger.  Occupancy and equipment expenses were higher by $4.4 million in the current period due to increased technology costs related to system integration and increased account and transaction volumes, and higher facilities costs. Amortization of intangible assets increased $3.2 million in the nine months ended September 30, 2025, on the amortization of merger-related intangibles, primarily core deposit intangibles. Partially offsetting these increases was a decrease in merger-related expenses to $0.2 million for the nine months ended September 30, 2025 from $11.2 million for the nine months ended September 30, 2024. The efficiency ratio a non-GAAP, measure¹, improved to 55.38% for the nine months ended September 30, 2025 compared to 64.21% for the respective nine months of 2024.

The provision for income taxes for the nine months ended September 30, 2025 totaled $10.3 million and the effective tax rate was 17.9% as compared to $0.2 million and 9.1% in the prior period.  

BALANCE SHEET REVIEW

At September 30, 2025, total assets, loans, and deposits were $5.2 billion, $4.0 billion, and $4.3 billion, respectively.

Total loans, which were $4.0 billion at September 30, 2025, increased $22.9 million as compared to December 31, 2024. Increases in commercial loans and residential real estate loans were partially offset by reductions in commercial real estate, equipment financing, and indirect auto loans.

Total investments were $610.3 million at September 30, 2025, compared to $606.9 million at December 31, 2024.  At September 30, 2025, the available for sale securities totaled $534.5 million and the held to maturity securities totaled $73.3 million.  The unrealized loss on the available for sale securities decreased $14.9 million from $49.0 million at December 31, 2024, to $34.1 million at September 30, 2025.  The unrealized losses on the held to maturity portfolio totaled $9.7 million and $13.0 million at September 30, 2025, and December 31, 2024, respectively.

Total deposits decreased $117.8 million to $4.3 billion at September 30, 2025, due primarily to reductions in brokered CDs.  Noninterest-bearing deposits decreased $23.5 million to $912.0 million at September 30, 2025, from $935.5 million at December 31, 2024, and interest-bearing deposits decreased $94.3 million to $3.4 billion at September 30, 2025, from $3.5 billion at December 31, 2024. Additionally, the Company had $162.2 million and $256.4 million of longer-term brokered CDs at September 30, 2025, and December 31, 2024, respectively. As part of strategic balance sheet management initiatives, the Company reduced its higher rate brokered CD portfolio by $94.2 million during the first nine months of 2025.  

The Company's deposit base is diversified and consisted of 40.9% retail accounts, 36.4% commercial accounts, 18.9% municipal relationships and 3.8% brokered deposits at September 30, 2025.  At September 30, 2025, total uninsured deposits were approximately $1.4 billion, or 32.3% of total deposits.  Included in the uninsured total at September 30, 2025, were $398.6 million of municipal deposits collateralized by letters of credit issued by the FHLB and pledged investment securities, and $1.4 million of affiliate company deposits. 

In addition to deposit gathering and current long-term debt, the Company has additional sources of liquidity available such as cash and cash equivalents, overnight borrowings from the FHLB, the Federal Reserve's Discount Window, correspondent bank lines of credit, brokered deposit capacity and unencumbered securities.  At September 30, 2025, available borrowing capacity totaled $1.1 billion at the FHLB and $388.3 million at the Federal Reserve's Discount Window.  At September 30, 2025, the Company had $179.9 million in cash and cash equivalents, an increase of $44.1 million from $135.8 million at December 31, 2024.  For additional information on the deposit portfolio and additional sources of liquidity, see the tables on page 16.

The Company maintained its well capitalized position at September 30, 2025.  Stockholders' equity equaled $509.3 million or $50.95 per share at September 30, 2025, compared to $469.0 million or $46.94 per share at December 31, 2024.  The increase in stockholders' equity from December 31, 2024, is primarily attributable to net income less dividends to shareholders and an $11.5 million decrease to accumulated other comprehensive loss ("AOCL") resulting primarily from a reduction in the unrealized loss on available for sale securities.  The net after tax unrealized loss on available for sale securities included in AOCL at September 30, 2025, and December 31, 2024, was $26.7 million and $38.3 million, respectively.

Tangible book value, a non-GAAP measure¹, increased to $40.43 per share at September 30, 2025, from $35.88 per share at December 31, 2024.  Dividends declared for the nine months ended September 30, 2025 amounted to $1.86 per share.  

ASSET QUALITY REVIEW

Nonperforming assets, which include nonperforming loans, loans past due 90 days or more and still accruing, and foreclosed assets, were $16.8 million or 0.42% of loans, net, and foreclosed assets at September 30, 2025, compared to $23.0 million or 0.58% of loans, net, and foreclosed assets at December 31, 2024.  As a percentage of total assets, nonperforming assets were 0.33% at September 30, 2025, compared to 0.45% at December 31, 2024.  At September 30, 2025, the Company had one foreclosed commercial property recorded at $1.5 million compared to one foreclosed residential property recorded at $27 thousand at December 31, 2024.

During the nine months ended September 30, 2025, net charge-offs totaled $1.1 million and the Company recognized a credit to the provision for credit losses of $0.9 million.  During the three months ended September 30, 2025, net charge-offs were $0.2 million and the credit to the provision for credit losses was $0.8 million.  The allowance for credit losses equaled $39.8 million or 0.99% of loans, net, at September 30, 2025, compared to $41.8 million or 1.05% of loans, net, at December 31, 2024.

About Peoples:

Peoples Financial Services Corp. is the bank holding company of Peoples Security Bank and Trust Company, an independent community bank serving its retail and commercial customers through 39 full-service community banking offices located within Allegheny, Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna, Wayne and Wyoming Counties in Pennsylvania, Middlesex County in New Jersey and Broome County in New York.  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, and local and timely decision making.  For more information visit psbt.com.

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 its subsidiaries (collectively, "Peoples") and other statements that are not historical facts 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 undue reliance should not be placed on forward-looking statements and 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: macroeconomic trends, including interest rates and inflation and their effect on our investment values; the effects of any recession in the United States; political instability and the consequences thereof, such as the recent shutdown of the U.S. federal government; the impact on financial markets from geopolitical conflict, including from wars, military conflict or trade policies, including tariffs, retaliatory tariffs, tariff counter-measures, or the threat of such actions; impairment charges relating to our investment portfolio; credit risks in connection with our lending activities; the economic health of our market area; our exposure to commercial and industrial, construction, commercial real estate, and equipment finance loans; our ability to maintain an adequate allowance for credit losses; access to liquidity; the strength of our customer deposit levels; unrealized losses; reliance on our subsidiaries; accounting procedures, policies and requirements; changes in the value of goodwill; future pension plan costs; our ability to retain key personnel; the strength of our disclosure controls and procedures; environmental liabilities; reliance on third-party vendors and service providers; competition from non-bank entities; the development and us of AI in business processes, services, and products; our ability to prevent, detect and respond to cybersecurity threats and incidents; a failure of information technology, whether due to a breach, cybersecurity incident, or ability to keep pace with growth and developments; our ability to comply with privacy and data protection requirements; changes in U.S. or regional economic conditions; our ability to compete effectively in our industry; the soundness of other financial institutions; adverse changes (or the threat of such changes) in laws and regulations; fiscal and monetary policies of the federal government and its agencies; a failure to meet minimum capital requirements; our ability to realize the anticipated benefits of the FNCB merger; future acquisitions or a change in control; and other factors that may be described in our 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.

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.

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