UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

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

for the quarterly period ended September 30, 2021

or

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

for the transition period from

001-36388

(Commission File Number)

PEOPLES FINANCIAL SERVICES CORP.

(Exact name of registrant as specified in its charter)

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

(570) 346-7741

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: 7,172,722 at October 31, 2021.

PEOPLES FINANCIAL SERVICES CORP.

FORM 10-Q

For the Quarter Ended September 30, 2021

Contents		Page No.
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Consolidated Balance Sheets at September 30, 2021 (Unaudited) and December 31, 2020	3
	Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months ended September 30, 2021 and 2020 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, June 30 and September 30, 2021 and 2020 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2021 and 2020 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	60
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults upon Senior Securities	61
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	62
	Signatures	63

2

Peoples Financial Services Corp.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

	September 30, 2021		December 31, 2020
Assets:
Cash and due from banks:
Cash and due from banks	$	33,662	$	29,287
Interest-bearing deposits in other banks		7,425		15,905
Federal funds sold		319,500		183,000
Total cash and due from banks		360,587		228,192
Investment securities:
Available-for-sale		461,372		295,911
Equity investments carried at fair value		147		138
Held-to-maturity: Fair value September 30, 2021, $32,556; December 31, 2020, $7,513		32,848		7,225
Total investment securities		494,367		303,274
Loans		2,205,661		2,177,982
Less: allowance for loan losses		26,693		27,344
Net loans		2,178,968		2,150,638
Loans held for sale		997		837
Premises and equipment, net		50,682		47,045
Accrued interest receivable		8,280		8,255
Goodwill		63,370		63,370
Intangible assets, net		584		960
Bank owned life insurance		42,734		42,316
Other assets		32,956		38,915
Total assets	$	3,233,525	$	2,883,802
Liabilities:
Deposits:
Noninterest-bearing	$	712,601	$	622,475
Interest-bearing		2,128,318		1,814,638
Total deposits		2,840,919		2,437,113
Short-term borrowings				50,000
Long-term debt		3,235		14,769
Subordinated debentures		33,000		33,000
Accrued interest payable		872		736
Other liabilities		27,767		31,307
Total liabilities		2,905,793		2,566,925
Stockholders’ equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,177,028 shares at September 30, 2021 and 7,215,202 shares at December 31, 2020		14,356		14,431
Capital surplus		127,826		129,274
Retained earnings		190,061		171,023
Accumulated other comprehensive income (loss)		(4,511)		2,149
Total stockholders’ equity		327,732		316,877
Total liabilities and stockholders’ equity	$	3,233,525	$	2,883,802

See notes to unaudited consolidated financial statements

3

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

	Three Months Ended				Nine Months Ended
September 30,	2021		2020		2021		2020
Interest income:
Interest and fees on loans:
Taxable	$	21,276	$	20,901	$	62,205	$	62,978
Tax-exempt		1,024		876		2,859		2,848
Interest and dividends on investment securities:
Taxable		1,285		1,250		3,804		4,223
Tax-exempt		432		280		1,233		874
Dividends		24		23		72		71
Interest on interest-bearing deposits in other banks		2		4		6		27
Interest on federal funds sold		124		12		228		19
Total interest income		24,167		23,346		70,407		71,040
Interest expense:
Interest on deposits		1,698		2,758		5,731		9,125
Interest on short-term borrowings		1		82		78		757
Interest on long-term debt		40		139		225		575
Interest on subordinated debt		443		443		1,330		591
Total interest expense		2,182		3,422		7,364		11,048
Net interest income		21,985		19,924		63,043		59,992
Provision for loan losses		400		1,050				6,350
Net interest income after provision for loan losses		21,585		18,874		63,043		53,642
Noninterest income:
Service charges, fees, commissions and other		1,667		1,584		4,476		4,622
Merchant services income		158		137		759		723
Commission and fees on fiduciary activities		639		575		1,725		1,574
Wealth management income		432		272		1,207		890
Mortgage banking income		244		488		764		937
Increase in cash surrender value of life insurance		225		192		669		572
Interest rate swap revenue		79		1,228		744		1,947
Net gain (loss) on equity investment securities		5		2		9		(82)
Net gain on sale of investment securities available-for-sale				457				724
Total noninterest income		3,449		4,935		10,353		11,907
Salaries and employee benefits expense		7,829		7,831		21,649		22,735
Net occupancy and equipment expense		3,150		3,131		9,464		9,252
Amortization of intangible assets		125		154		375		462
Professional fees and outside services		629		617		1,645		1,593
FDIC insurance and assessments		305		241		836		651
Donations		366		340		1,084		1,019
Other expenses		1,887		1,660		5,395		5,155
Total noninterest expense		14,291		13,974		40,448		40,867
Income before income taxes		10,743		9,835		32,948		24,682
Income tax expense		1,647		1,523		5,843		3,513
Net income		9,096		8,312		27,105		21,169
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available-for-sale		(3,130)		(639)		(8,409)		9,084
Reclassification adjustment for net gain on sales included in net income				(457)				(724)
Change in derivative fair value		(128)		(137)		(22)		356
Other comprehensive income (loss)		(3,258)		(1,233)		(8,431)		8,716
Income tax expense (benefit)		(684)		(259)		(1,771)		1,831
Other comprehensive income (loss), net of income taxes		(2,574)		(974)		(6,660)		6,885
Comprehensive income	$	6,522	$	7,338	$	20,445	$	28,054
Per share data:
Net income:
Basic	$	1.26	$	1.14	$	3.76	$	2.89
Diluted	$	1.26	$	1.14	$	3.74	$	2.87
Average common shares outstanding:
Basic		7,198,125		7,277,189		7,204,399		7,332,539
Diluted		7,233,189		7,312,253		7,239,463		7,364,693
Dividends declared	$	0.38	$	0.36		1.12		1.08

See notes to unaudited consolidated financial statements

4

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except per share data)

							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings		Income (Loss)		Total
Balance, January 1, 2021	$	14,431	$	129,274	$	171,023	$	2,149	$	316,877
Net income						9,478				9,478
Other comprehensive loss, net of income taxes								(5,931)		(5,931)
Dividends declared: $0.37 per share						(2,665)				(2,665)
Stock based compensation				89						89
Share retirement: 13,101 shares		(26)		(491)						(517)
Common stock grants awarded, net of unearned compensation of $182: 9,192 shares		18		(18)
Balance, March 31, 2021	$	14,423	$	128,854	$	177,836	$	(3,782)	$	317,331
Net income						8,531				8,531
Other comprehensive income, net of income taxes								1,845		1,845
Dividends declared: $0.37 per share						(2,665)				(2,665)
Stock based compensation				177						177
Share retirement: 7,828 shares		(16)		(312)						(328)
Balance, June 30, 2021		14,407		128,719		183,702		(1,937)		324,891
Net income						9,096				9,096
Other comprehensive income, net of income taxes								(2,574)		(2,574)
Dividends declared: $0.38 per share						(2,737)				(2,737)
Stock based compensation				213						213
Share retirement: 25,699 shares		(51)		(1,106)						(1,157)
Balance, September 30, 2021	$	14,356	$	127,826	$	190,061	$	(4,511)	$	327,732
							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings		Income (Loss)		Total
Balance, January 1, 2020	$	14,777	$	135,251	$	152,187	$	(3,205)	$	299,010
Net income						5,281				5,281
Other comprehensive income, net of income taxes								6,633		6,633
Dividends declared: $0.36 per share						(2,662)				(2,662)
Stock based compensation				5						5
Share retirement: 53,746 shares		(107)		(2,097)						(2,204)
Balance, March 31, 2020	$	14,670	$	133,159	$	154,806	$	3,428	$	306,063
Net income						7,576				7,576
Other comprehensive loss, net of income taxes								1,226		1,226
Dividends declared: $0.36 per share						(2,643)				(2,643)
Stock based compensation				186						186
Share retirement: 10,383 shares		(21)		(343)						(364)
Balance, June 30, 2020	$	14,649	$	133,002	$	159,739	$	4,654	$	312,044