Peoples Financial Services Corp. Reports Unaudited First Quarter 2025 Earnings

Net income on a linked-quarter basis, increased primarily due to higher net interest income, a lower provision for credit losses and reduced noninterest expenses. On July 1, 2024, Peoples consummated the merger of FNCB Bancorp, Inc. ("FNCB") into Peoples and the merger of FNCB Bank into the Bank (collectively referred to as the "FNCB merger").  Non-recurring acquisition related expenses totaled $0.2 million in the quarter ended March 31, 2025 compared to $5.0 million in the three months ended December 31, 2024.

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, nonrecurring provisions for non-purchase credit deteriorated ("non-PCD") loans and gain or loss on the sale of securities available for sale.  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 and core earnings per diluted share¹, non-GAAP measures, exclude the non-recurring acquisition related expenses of $0.2 million and $5.0 million incurred during the three months ended March 31, 2025 and December 31, 2024, respectively, and totaled $15.1 million or $1.51 per diluted share for the three months ended March 31, 2025 compared to $10.0 million, or $0.99 per diluted share for the three months ended December 31, 2024.

Income before income taxes was $18.3 million and $5.8 million for the three months ended March 31, 2025 and December 31, 2024, respectively.  Pre-provision net revenue (PPNR)¹ and PPNR per diluted share¹, non-GAAP measures, for the three months ended March 31, 2025 were $18.3 million or $1.82 per diluted share.  The PPNR and PPNR diluted earnings per share for the prior quarter were $9.6 million or $0.96 per diluted share.  Core pre-provision net revenue (PPNR)¹ and core PPNR per diluted share¹, non-GAAP measures, which exclude acquisition related expenses, the provision for credit losses and the provision for credit losses on unfunded commitments from income before taxes, for the three months ended March 31, 2025 were $18.4 million or $1.83 per diluted share.  The core PPNR and core PPNR diluted earnings per share for the prior quarter were $14.6 million or $1.46 per diluted share.

Merger with FNCB

Peoples acquired FNCB and its wholly-owned subsidiary FNCB Bank by merger on July 1, 2024.  The merger and acquisition method of accounting was used to account for the transaction with Peoples as the acquirer.  The Company recorded the assets and liabilities of FNCB at their respective fair values as of July 1, 2024.  The transaction was valued at approximately $133.7 million.  Primary reasons for the merger included: expansion of the branch network and enhancing market share positions in northeastern Pennsylvania; attractive low-cost funding base; strong cultural alignment and a deep commitment to shareholders, customers, employees, and communities served by Peoples and FNCB, meaningful value creation to shareholders; increased trading liquidity for both companies and increased dividends for Peoples shareholders.

At the time of the merger, FNCB contributed, after fair value purchase accounting adjustments, approximately $1.8 billion in assets, $421.9 million in investments, $1.2 billion in loans, $1.4 billion in deposits, $226.3 million in Federal Home Loan Bank ("FHLB") advances and other borrowings, and $8.0 million in junior subordinated debt.  The excess of the merger consideration over the fair value of the net FNCB assets acquired and liabilities assumed resulted in $12.6 million of goodwill.  The FNCB merger also resulted in a core deposit intangible valued at $36.6 million or 5.1% of core deposits.

The Company's financial results for any periods ended prior to July 1, 2024 only reflect Peoples results on a stand-alone basis.  As a result of the FNCB merger and the below listed adjustments related to the FNCB merger, the Company's financial results for the three months ended March 31, 2025 may not be directly comparable to prior reported periods. The following schedule highlights specific merger related activity for the three months ended March 31, 2025 and December 31, 2024:

NOTABLES IN THE QUARTER

• Paid a first quarter dividend of $0.6175 per share, representing an increase of 50.6% over the March 31, 2024 dividend.
• Allowance for credit losses to loans was 1.03% at March 31, 2025 compared to 1.05% and 0.79% at December 31, 2024 and March 31, 2024, respectively.
• Return on average equity for the three months ended March 31, 2025 was 12.70% on an annualized basis compared to 5.07% for the three months ended December 31, 2024; excluding the non-recurring charges, core return on average equity¹, a non-GAAP measure, was 12.80% on an annualized basis for the three months ended March 31, 2025 compared to 8.31% for the three months ended December 31, 2024.
• Return on average assets for the three months ended March 31, 2025 was 1.22% on an annualized basis compared to 0.47% for the three months ended December 31, 2024; excluding the non-recurring charges, core return on average assets¹, a non-GAAP measure, was 1.23% on an annualized basis for the three months ended March 31, 2025 compared to 0.76% for the three months ended December 31, 2024.
• The efficiency ratio¹, a non-GAAP measure, was 55.77% for the three months ended March 31, 2025, compared to 63.03% for the three months ended December 31, 2024
• Book value per common share at March 31, 2025 was $48.21 compared to $46.94 and $48.18 at December 31, 2024 and March 31, 2024, respectively.
• Tangible book value per common share¹, a non-GAAP measure, was $37.35 at March 31, 2025 compared to $35.88 and $39.20 at December 31, 2024 and March 31, 2024, respectively.

INCOME STATEMENT REVIEW

• Net interest margin ("NIM"), calculated on a fully taxable equivalent ("FTE") basis, a non-GAAP measure¹, for the three months ended March 31, 2025 was 3.50%, an increase of 25 basis points compared to 3.25% for the three months ended December 31, 2024. The net accretion impact of purchase accounting marks was $3.7 million of net interest income in each period, which represented 32 basis points and 30 basis points of NIM for the three months ended March 31, 2025 and December 31, 2024, respectively.
• The tax-equivalent yield on interest-earning assets, a non-GAAP measure¹, decreased 1 basis point to 5.50% during the three months ended March 31, 2025 from 5.51% during the three months ended December 31, 2024.
• The cost of funds, which represents the average rate paid on total interest-bearing liabilities, decreased 30 basis points to 2.58% for the three months ended March 31, 2025 when compared to 2.88% during the three months ended December 31, 2024.
• The cost of interest-bearing deposits decreased 29 basis points during the three months ended March 31, 2025 to 2.46% from 2.75% in the three months ended December 31, 2024.
• The cost of total deposits for the three months ended March 31, 2025 was 1.96%, a decrease of 24 basis points from 2.20% for the three months ended December 31, 2024.

First Quarter 2025 Results – Comparison to Fourth Quarter 2024

Net interest income for the three months ended March 31, 2025 increased $1.0 million to $39.5 million from $38.5 million for the three months ended December 31, 2024.  Tax-equivalent net interest income, a non-GAAP measure¹, for the three months ended March 31, 2025 increased $1.0 million or 2.6% to $40.2 million from $39.2 million for the three months ended December 31, 2024.  The increase in tax-equivalent net interest income was due to a $4.4 million decrease in interest expense that was partially offset by a $3.4 million decrease in tax-equivalent interest income.

Lower interest income was the result of decreases in the volume of earning assets and lower rates on floating rate assets resulting from the Federal Open Market Committee's ("FOMC") 100 basis point cut to the federal funds rate since September 2024.  Average loans, net, decreased $57.0 million when comparing the three months ended March 31, 2025 to the prior three month period ended December 31, 2024.  Average investments totaled $643.0 million in the three months ended March 31, 2025 and $628.9 million in the three months ended December 31, 2024 an increase of $14.1 million.  Average federal funds sold decreased $103.5 million to $26.0 million for the three months ended March 31, 2025 as funds were used for seasonal deposit outflows.

The decrease in interest expense for the three months ended March 31, 2025 was due primarily to lowering rates paid on consumer, business, and municipal deposit accounts in response to the FOMC's aforementioned cut to the federal funds rate, coupled with the reduced balances.  The Company's total cost of deposits decreased 24 basis points to 1.96% during the three months ended March 31, 2025 compared to 2.20 % for the prior quarter.  The cost of interest-bearing deposits decreased 29 basis point to 2.46% from 2.75% in the prior quarter.

Average interest-bearing liabilities decreased $168.5 million for the three months ended March 31, 2025, compared to the three months ended December 31, 2024.  Average interest-bearing deposits decreased $136.0 million and represented 79.7% of total average deposits in the three months ended March 31, 2025 as compared to 79.8% in the three months ended December 31, 2024.  Average noninterest-bearing deposits decreased $29.2 million and represented 20.3% of total average deposits in the three months ended March 31, 2025 as compared to 20.2% in the three months ended December 31, 2024.  Short-term borrowings averaged $20.2 million in the three month period ended March 31, 2025 at an average cost of 4.52% compared to $39.3 million in short-term borrowings at an average cost of 4.80% during the three months ended December 31, 2024.  Long-term debt averaged $97.8 million in the three month period ended March 31, 2025 at an average cost of 4.88% compared to $111.1 million at an average cost of 4.97% in the three months ended December 31, 2024.

For the three months ended March 31, 2025, $0.2 million was recorded to the provision for credit losses compared to $3.4 million in the prior quarter.  The provision for the 1st quarter of 2025 declined from the previous quarter due mainly to a reduction in qualitative factors for the equipment financing loan portfolio as a result of stabilized loan balances along with a decline in the model loss rate primarily driven by a change in economic forecasting during the quarter.

Noninterest income was $6.3 million and $5.5 million for the three months ended March 31, 2025 and December 31, 2024, respectively.  Higher noninterest income was due to a $680 thousand gain on the sale of fixed assets due to the sale of the Company's former corporate headquarters in Scranton, PA, coupled with net gains on equity investments and an increased cash surrender value of life insurance, partially offset by lower interest rate swap revenue during the quarter ended March 31, 2025, as compared to the quarter ended December 31, 2024.

Noninterest expense decreased $7.4 million to $27.4 million for the three months ended March 31, 2025, from $34.8 million for the three months ended December 31, 2024.  Excluding acquisition related expenses, which included legal and consulting, core system deconversion fees and severance payments, of $0.2 million in the quarter ended March 31, 2025 and $5.0 million in the prior quarter, noninterest expenses decreased $2.6 million.

Salaries and employee benefits were $1.8 million lower due to the prior period accrual of $1.8 million for year-end cash incentives and a current period $0.5 million accrual adjustment related to the Company's long-term equity incentive plan which was offset by higher payroll taxes of $0.5 million.  

Net occupancy and equipment expense increased $0.2 million from the prior quarter due to higher seasonal snow removal and utility expenses.  Acquisition related expenses decreased $4.8 million to $0.2 million.  Other expenses decreased $1.0 million to $5.4 million for the first quarter which included a $0.2 million credit to the reserve on unfunded commitments.  Additionally, the prior period included a $0.4 million write-down of a former branch property and an additional $0.4 million in check and debit card losses.  These reductions to other expenses, were partially offset by an increase to Pennsylvania bank and trust company shares tax expense and accounting and auditing expenses..

Income tax expense was $3.2 million for the three months ended March 31, 2025, compared to a benefit of $0.3 million for the three months ended December 31, 2024.  The higher tax rate was due to higher pre-tax income.  The prior quarter's lower tax rate was due to the impact of merger-related non-recurring permanent tax adjustments, such as tax-exempt income and BOLI income, on a lower pre-tax income base.

BALANCE SHEET REVIEW

At March 31, 2025, total assets, loans, and deposits were $5.0 billion, $4.0 billion, and $4.3 billion, respectively.

Total loans declined $2.0 million during the first quarter to $4.0 billion at March 31, 2025.  Reductions in commercial real estate, indirect auto, and other consumer loans, were partially offset by growth in commercial loans, residential real estate loans and equipment financing loans. 

Total investments were $582.2 million at March 31, 2025, compared to $606.9 million at December 31, 2024.  At March 31, 2025, the available for sale securities totaled $503.0 million and the held to maturity securities totaled $76.7 million.  The unrealized loss on the available for sale securities decreased $5.6 million from $49.0 million at December 31, 2024, to $43.4 million at March 31, 2025.  The unrealized losses on the held to maturity portfolio totaled $11.9 million and $13.0 million at March 31, 2025, and December 31, 2024, respectively.

Total deposits decreased $90.6 million during the three months ended March 31, 2025, due primarily to seasonal outflows of non-maturity deposits and reductions in brokered CDs.  Noninterest-bearing deposits decreased $34.1 million and interest-bearing deposits decreased $56.5 million during the three months ended March 31, 2025.  The Company had $235.3 million and $256.4 million of longer-term brokered CDs at March 31, 2025, and December 31, 2024, respectively.

The Company's deposit base consisted of 42.0% retail accounts, 35.7% commercial accounts, 16.8% municipal relationships and 5.5% brokered deposits at March 31, 2025.  At March 31, 2025, total estimated uninsured deposits were $1.3 billion, or approximately 30.0% of total deposits.  Included in the uninsured total at March 31, 2025, is $497.3 million of municipal deposits collateralized by letters of credit issued by the FHLB and pledged investment securities, and $2.0 million of affiliate company deposits.  The Bank also offers customers access to CDARS and ICS programs through which their deposits may be allocated to separate FDIC-insured institutions, while they are able to maintain their relationship with the Bank.

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 March 31, 2025, available borrowing capacity totaled $1.1 billion at the FHLB and $583.2 million at the Federal Reserve's Discount Window.  At March 31, 2025, the Company had $77.1 million in cash and cash equivalents, a decrease of $58.8 million from $135.9 million at December 31, 2024.  For additional information on the deposit portfolio and additional sources of liquidity, see the tables on page 14.

The Company maintained its well capitalized position at March 31, 2025.  Stockholders' equity equaled $481.9 million or $48.21 per share at March 31, 2025, and $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 a $4.2 million decrease to accumulated other comprehensive loss ("AOCL") resulting 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 March 31, 2025, and December 31, 2024, was $33.9 million and $38.3 million, respectively.

Tangible book value¹, a non-GAAP measure, increased to $37.35 per share at March 31, 2025, from $35.88 per share at December 31, 2024.  Dividends declared for the three months ended March 31, 2025 amounted to $0.6175 per share.  

ASSET QUALITY REVIEW

Nonperforming assets were $23.7 million or 0.59% of loans, net, and foreclosed assets at March 31, 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 0.47% at March 31, 2025, compared to 0.45% at December 31, 2024.  At March 31, 2025, and December 31, 2024, the Company had one foreclosed property recorded at $27 thousand.

During the three months ended March 31, 2025, net charge-offs were $0.9 million and the provision for credit losses totaled $0.2 million.  The allowance for credit losses equaled $41.1 million or 1.03% of loans, net, at March 31, 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; the impact on financial markets from geopolitical conflict, including from wars, military conflict or trade policies, including tariffs or retaliatory tariffs; 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 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 our merger with FNCB Bancorp, Inc.; 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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