10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

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

for the quarterly period ended September 30, 2022

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: 7,160,198 at November l, 2022.

PEOPLES FINANCIAL SERVICES CORP.

FORM 10-Q

For the Quarter Ended September 30, 2022

Contents		Page No.
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Consolidated Balance Sheets at September 30, 2022 (Unaudited) and December 31, 2021 (Unaudited)	3
	Consolidated Statements of Income and Comprehensive Income (Loss) for the Three and Nine Months ended September 30, 2022 and 2021 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, June 30 and September 30, 2022 and 2021 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2022 and 2021 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	57
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	58
	Signatures	59

2

Peoples Financial Services Corp.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

	September 30, 2022		December 31, 2021
Assets:
Cash and cash equivalents
Cash and due from banks	$	35,000	$	30,415
Interest-bearing deposits in other banks		8,410		7,093
Federal funds sold		69,600		242,425
Total cash and cash equivalents		113,010		279,933
Investment securities:
Available-for-sale		477,590		517,321
Equity investments carried at fair value		103		140
Held-to-maturity: Fair value September 30, 2022, $78,512; December 31, 2021, $70,446		92,771		71,213
Total investment securities		570,464		588,674
Loans		2,623,706		2,329,173
Less: allowance for loan losses		29,822		28,383
Net loans		2,593,884		2,300,790
Loans held for sale		653		408
Premises and equipment, net		54,394		51,502
Accrued interest receivable		10,082		8,528
Goodwill		63,370		63,370
Intangible assets, net		179		468
Bank owned life insurance		48,235		42,754
Other assets		62,535		33,056
Total assets	$	3,516,806	$	3,369,483
Liabilities:
Deposits:
Noninterest-bearing	$	769,935	$	737,756
Interest-bearing		2,354,205		2,225,641
Total deposits		3,124,140		2,963,397
Short-term borrowings		14,700
Long-term debt		1,104		2,711
Subordinated debentures		33,000		33,000
Accrued interest payable		1,129		408
Other liabilities		40,923		29,841
Total liabilities		3,214,996		3,029,357
Stockholders’ equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,162,750 shares at September 30, 2022 and 7,169,372 shares at December 31, 2021		14,330		14,341
Capital surplus		126,845		127,549
Retained earnings		224,238		203,750
Accumulated other comprehensive loss		(63,603)		(5,514)
Total stockholders’ equity		301,810		340,126
Total liabilities and stockholders’ equity	$	3,516,806	$	3,369,483

See notes to unaudited consolidated financial statements

3

Peoples Financial Services Corp.

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

(Dollars in thousands, except per share data)

	Three Months Ended				Nine Months Ended
September 30,	2022		2021		2022		2021
Interest income:
Interest and fees on loans:
Taxable	$	25,128	$	21,276	$	67,990	$	62,205
Tax-exempt		1,338		1,024		3,717		2,859
Interest and dividends on investment securities:
Taxable		2,096		1,285		6,176		3,804
Tax-exempt		521		432		1,546		1,233
Dividends				24		2		72
Interest on interest-bearing deposits in other banks		41		2		61		6
Interest on federal funds sold		106		124		201		228
Total interest income		29,230		24,167		79,693		70,407
Interest expense:
Interest on deposits		3,316		1,698		6,381		5,731
Interest on short-term borrowings		457				579		78
Interest on long-term debt		16		41		67		225
Interest on subordinated debt		443		443		1,330		1,330
Total interest expense		4,232		2,182		8,357		7,364
Net interest income		24,998		21,985		71,336		63,043
Provision for loan losses		450		400		1,700
Net interest income after provision (credit) for loan losses		24,548		21,585		69,636		63,043
Noninterest income:
Service charges, fees, commissions and other		1,714		1,667		5,167		4,476
Merchant services income		157		158		833		759
Commission and fees on fiduciary activities		591		639		1,697		1,725
Wealth management income		339		432		1,064		1,207
Mortgage banking income		135		244		407		764
Increase in cash surrender value of life insurance		269		225		731		669
Interest rate swap revenue		130		79		757		744
Net (losses) gains on equity investment securities		(18)		5		(37)		9
Total noninterest income		3,317		3,449		10,619		10,353
Salaries and employee benefits expense		8,474		7,829		24,365		21,649
Net occupancy and equipment expense		3,898		3,150		11,673		9,464
Amortization of intangible assets		96		125		289		375
Net losses (gains) on sale of other real estate				(97)		(478)		(195)
Professional fees and outside services		664		629		1,900		1,645
FDIC insurance and assessments		324		305		969		836
Donations		373		366		1,038		1,084
Other expenses		2,106		1,840		5,961		5,376
Total noninterest expense		15,935		14,147		45,717		40,234
Income before income taxes		11,930		10,887		34,538		33,162
Income tax expense		1,962		1,791		5,587		6,057
Net income		9,968		9,096		28,951		27,105
Other comprehensive (loss) income:
Unrealized loss on investment securities available-for-sale		(21,510)		(3,130)		(72,791)		(8,409)
Change in derivative fair value		(46)		(128)		(740)		(22)
Other comprehensive loss		(21,556)		(3,258)		(73,531)		(8,431)
Income tax benefit related to other comprehensive loss		(4,527)		(684)		(15,442)		(1,771)
Other comprehensive loss, net of income tax benefit		(17,029)		(2,574)		(58,089)		(6,660)
Comprehensive (loss) income	$	(7,061)	$	6,522	$	(29,138)	$	20,445
Per share data:
Net income:
Basic	$	1.39	$	1.26	$	4.04	$	3.76
Diluted	$	1.38	$	1.26	$	4.01	$	3.74
Average common shares outstanding:
Basic		7,169,809		7,198,125		7,171,382		7,204,399
Diluted		7,213,147		7,233,189		7,214,966		7,239,463
Dividends declared	$	0.40	$	0.38	$	1.18	$	1.12

See notes to unaudited consolidated financial statements

4

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except per share data)

							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings			Loss	Total
Balance, January 1, 2022	$	14,341	$	127,549	$	203,750	$	(5,514)	$	340,126
Net income						9,630				9,630
Other comprehensive loss, net of income taxes								(26,153)		(26,153)
Dividends declared: $0.39 per share						(2,796)				(2,796)
Stock based compensation				(28)						(28)
Restricted stock issued: 12,332 shares, (unearned income $210k)		24		(24)
Share retirement: 6,714 shares		(13)		(305)						(318)
Balance, March 31, 2022	$	14,352	$	127,192	$	210,584	$	(31,667)	$	320,461
Net income						9,353				9,353
Other comprehensive loss, net of income taxes								(14,907)		(14,907)
Dividends declared: $0.39 per share						(2,798)				(2,798)
Stock based compensation				116						116
Restricted stock issued: 4,071 shares, (unearned income $210k)		8		(8)
Share retirement: 6,853 shares		(14)		(314)						(328)
Balance, June 30, 2022	$	14,346	$	126,986	$	217,139	$	(46,574)	$	311,897
Net income						9,968				9,968
Other comprehensive loss, net of income taxes								(17,029)		(17,029)
Dividends declared: $0.40 per share						(2,869)				(2,869)
Stock based compensation				223						223
Share retirement: 7,911 shares		(16)		(364)						(380)
Balance, September 30, 2022	$	14,330	$	126,845	$	224,238	$	(63,603)	$	301,810
							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
Restricted stock issued: 9,192 shares, (unearned income $182k)		18		(18)
Share retirement: 13,101 shares		(26)		(491)						(517)
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 loss, 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

See notes to unaudited consolidated financial statements

5

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)

For the Nine Months Ended September 30,	2022		2021
Cash flows from operating activities:
Net income	$	28,951	$	27,105
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		2,051		1,883
Amortization of right-of-use lease asset		443		320
Amortization (accretion) of deferred loan fees, net		1,314		(4,636)
Amortization of intangibles		289		375
Amortization of low income housing partnerships		362		360
Provision for loan losses		1,700
Net unrealized loss (gain) on equity investment securities		37		(9)
Net gain on sale of other real estate owned		(478)		(195)
Loans originated for sale		(6,139)		(18,462)
Proceeds from sale of loans originated for sale		5,937		18,577
Net gain on sale of loans originated for sale		(43)		(275)
Net amortization of investment securities		1,146		875
Gain on sale of premises and equipment				(20)
Increase in cash surrender value of life insurance		(731)		(669)
Deferred income tax expense				620
Stock based compensation		311		479
Net change in:
Accrued interest receivable		(1,555)		(25)
Other assets		(1,911)		313
Accrued interest payable		721		136
Other liabilities		(2,180)		(1,108)
Net cash provided by operating activities		30,225		25,644
Cash flows from investing activities:
Proceeds from repayments of investment securities:
Available-for-sale		35,314		40,111
Held-to-maturity		4,188		367
Purchases of investment securities:
Available-for-sale		(69,392)		(214,856)
Held-to-maturity		(25,872)		(25,996)
Net (purchase) redemption of restricted equity securities		(457)		1,481
Net increase in loans		(296,108)		(24,238)
Purchases of premises and equipment		(5,386)		(3,668)
Proceeds from the sale of premises and equipment				101
Investment in bank owned life insurance		(5,881)
Proceeds from bank owned life insurance		1,132		251
Proceeds from sale of other real estate owned		967		995
Net cash used in investing activities		(361,495)		(225,452)
Cash flows from financing activities:
Net increase in deposits		160,743		403,806
Repayment of long-term debt		(1,607)		(11,534)
Net increase (decrease) in short-term borrowings		14,700		(50,000)
Retirement of common stock		(1,026)		(2,002)
Cash dividends paid		(8,463)		(8,067)
Net cash provided by financing activities		164,347		332,203
Net (decrease) increase in cash and cash equivalents		(166,923)		132,395
Cash and cash equivalents at beginning of period		279,933		228,192
Cash and cash equivalents at end of period	$	113,010	$	360,587

6

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)

For the Nine Months Ended September 30,	2022		2021
Supplemental disclosures:
Cash paid during the period for:
Interest	$	7,636	$	7,228
Income taxes		7,395		5,600
Noncash items:
Transfers of loans to other real estate			$	545
Initial recognition of right-of-use assets				2,253
Initial recognition of lease liability				2,253

See notes to unaudited consolidated financial statements

7

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

1. Summary of significant accounting policies:

Nature of operations:

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

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three and nine months ended and as of September 30, 2022, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, the valuation of deferred tax assets, and impairment of goodwill. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2021.

Fourth Quarter Dividend Declaration

On October 28, 2022, the Board of Directors declared a fourth quarter dividend of $0.40 per share. The dividend is payable on December 15, 2022 to shareholders of record as of November 30, 2022.

Recent accounting standards:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by the Company as of the required effective dates. The following should be read in conjunction with "Note 1 Summary of significant accounting policies" of the Notes to the Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2021.

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

8

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Recently Issued But Not Yet Effective Accounting Pronouncements

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), as modified by subsequent ASUs, changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology. Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, ASU 2016-13 requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The effect of implementing this ASU is recorded through a cumulative-effect adjustment to retained earnings. The Company has formed a committee and engaged outside vendors to implement a platform to utilize the alternative loss estimation methodologies in determining the impact that adoption of this standard will have on the Company’s financial condition and results of operations. The Company is required to adopt this guidance effective January 1, 2023.

ASU No. 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  This ASU eliminates the accounting guidance for troubled debt restructurings (TDRs) by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while adding disclosures for certain loan restructurings by creditors when a borrower is experiencing financial difficulty.  This guidance requires an entity to determine whether the modification results in a new loan or a continuation of an existing loan.  Additionally, the ASU requires disclosure of current period gross write-offs by year of origination for financing receivables.  The Company is required to adopt this guidance effective January 1, 2023. The Company is currently evaluating the impact adoption of this ASU will have on its financial results and will add the required disclosures for gross charge offs in its financial statements upon adoption of the new standard.

ASU 2020-04, Reference Rate Reform (Topic 848) provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference the London Inter Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. Some specific optional expedients are as follows:

● Simplifies accounting for contract modifications, including modifications to loans receivable and debt, by prospectively adjusting the effective interest rate.

● Simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue.

The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. The Company expects to apply the amendments prospectively for applicable loan and other contracts within the effective period of ASU 2020-04.

2. Other comprehensive loss:

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

9

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The components of accumulated other comprehensive loss included in stockholders’ equity at September 30, 2022 and December 31, 2021 are as follows:

		September 30, 2022		December 31, 2021
Net unrealized loss on investment securities available-for-sale	$	(74,582)	$	(1,791)
Income tax benefit		(15,662)		(376)
Net of income taxes		(58,920)		(1,415)
Benefit plan adjustments		(5,868)		(5,868)
Income tax benefit		(1,232)		(1,232)
Net of income taxes		(4,636)		(4,636)
Derivative adjustments		(60)		680
Income tax (benefit) expense		(13)		143
Net of income taxes		(47)		537
Accumulated other comprehensive loss	$	(63,603)	$	(5,514)

3. Earnings per share:

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

The following table presents the calculation of both basic and diluted earnings per share of common stock for the three and nine months ended September 30, 2022 and 2021:

	2022				2021
For the Three Months Ended September 30,	Basic		Diluted		Basic		Diluted
Net income	$	9,968	$	9,968	$	9,096	$	9,096
Average common shares outstanding		7,169,809		7,213,147		7,198,125		7,233,189
Earnings per share	$	1.39	$	1.38	$	1.26	$	1.26
	2022				2021
For the Nine Months Ended September 30,	Basic		Diluted		Basic		Diluted
Net income	$	28,951	$	28,951	$	27,105	$	27,105
Average common shares outstanding		7,171,382		7,214,966		7,204,399		7,239,463
Earnings per share	$	4.04	$	4.01	$	3.76	$	3.74

10

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

4. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at September 30, 2022 and December 31, 2021 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2022	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	247,812	$		$	23,476	$	224,336
U.S. government-sponsored enterprises		16,976				625		16,351
State and municipals:
Taxable		69,913		1		13,680		56,234
Tax-exempt		100,078		1		15,493		84,586
Residential mortgage-backed securities:
U.S. government agencies		1,130				39		1,091
U.S. government-sponsored enterprises		100,020				20,312		79,708
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,243				564		11,679
Corporate debt securities		4,000				395		3,605
Total	$	552,172	$	2	$	74,584	$	477,590
Held-to-maturity:
Tax-exempt state and municipals	$	11,247	$		$	1,286	$	9,961
Residential mortgage-backed securities:
U.S. government agencies		17,732				2,679		15,053
U.S. government-sponsored enterprises		63,792				10,294		53,498
Total	$	92,771	$		$	14,259	$	78,512

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2021	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	193,849	$	107	$	2,382	$	191,574
U.S. government-sponsored enterprises		33,435		343				33,778
State and municipals:
Taxable		69,066		994		1,082		68,978
Tax-exempt		96,412		2,452		614		98,250
Residential mortgage-backed securities:
U.S. government agencies		1,790		53				1,843
U.S. government-sponsored enterprises		109,018		939		2,925		107,032
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,542		406				12,948
Corporate debt securities		3,000				82		2,918
Total	$	519,112	$	5,294	$	7,085	$	517,321
Held-to-maturity:
Tax-exempt state and municipals	$	11,476	$	126	$	56	$	11,546
Residential mortgage-backed securities:
U.S. government agencies		18,802				392		18,410
U.S. government-sponsored enterprises		40,935		3		448		40,490
Total	$	71,213	$	129	$	896	$	70,446

11

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Restricted Investment In Stock

Restricted investment in stock includes Federal Home Loan Bank (“FHLB”) stock with a carrying cost of $4.5 million and $4.0 million at September 30, 2022 and December 31, 2021, respectively, and Atlantic Community Bankers Bank (“ACBB”) stock with a carrying cost of $42 thousand at September 30, 2022 and December 31, 2021, respectively, which are included in other assets in the consolidated balance sheets. FHLB and ACBB stock was issued as a requirement to facilitate participation in borrowing and other banking services. The investment in FHLB stock may fluctuate, as it is based on the member bank’s use of FHLB’s services.

These restricted investments are carried at cost and evaluated for other-than-temporary impairment (“OTTI”) quarterly. As of September 30, 2022, there was no OTTI associated with these investments.

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available-for-sale at September 30, 2022, is summarized as follows:

	Fair
September 30, 2022	Value
Within one year	$	18,608
After one but within five years		204,991
After five but within ten years		74,710
After ten years		84,516
		382,825
Mortgage-backed and other amortizing securities		94,765
Total	$	477,590

 The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at September 30, 2022, is summarized as follows:

	Amortized		Fair
September 30, 2022	Cost		Value
After five but within ten years	$	8,294	$	7,410
After ten years		2,953		2,551
		11,247		9,961
Mortgage-backed securities		81,524		68,551
Total	$	92,771	$	78,512

Securities with a carrying value of $165.1 million and $203.6 million at September 30, 2022 and December 31, 2021, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law.

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-case basis. At September 30, 2022 and December 31, 2021, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. government agencies and sponsored enterprises, which exceeded 10.0 percent of stockholders’ equity.

12

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The fair value and gross unrealized losses of investment securities with unrealized losses for which an OTTI has not been recognized at September 30, 2022 and December 31, 2021, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

		Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
September 30, 2022	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities	16	$	83,156	$	5,372	37	$	141,180	$	18,104	53	$	224,336	$	23,476
U.S. government-sponsored enterprises	5		16,351		625						5		16,351		625
State and municipals:
Taxable	32		27,779		4,951	34		26,547		8,729	66		54,326		13,680
Tax-exempt	74		57,580		7,835	58		35,886		8,944	132		93,466		16,779
Residential mortgage-backed securities:
U.S. government agencies	6		1,098		39	3		15,046		2,679	9		16,144		2,718
U.S. government-sponsored enterprises	26		54,953		9,141	16		78,254		21,465	42		133,207		30,606
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises	4		11,679		564						4		11,679		564
Corporate debt securities	1		947		53	5		2,658		342	6		3,605		395
Total	164	$	253,543	$	28,580	153	$	299,571	$	60,263	317	$	553,114	$	88,843

		Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
December 31, 2021	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities	42	$	179,974	$	2,382		$		$		42	$	179,974	$	2,382
State and municipals:
Taxable	27		26,827		718	8		8,008		364	35		34,835		1,082
Tax-exempt	61		38,693		357	2		10,319		313	63		49,012		670
Residential mortgage-backed securities:
U.S. government agencies	3		18,398		392						3		18,398		392
U.S. government-sponsored enterprises	13		77,875		1,454	7		48,276		1,919	20		126,151		3,373
Corporate debt securities	4		2,449		51	1		470		31	5		2,919		82
Total	150	$	344,216	$	5,354	18	$	67,073	$	2,627	168	$	411,289	$	7,981

The unrealized losses on securities are primarily due to the changes in market interest rates subsequent to purchase. The Company did not consider these securities to have OTTI at September 30, 2022 or December 31, 2021 since the decline in market value was attributable to changes in interest rates and not to changes in credit quality. In addition, the Company does not intend to sell and does not believe that it is more likely than not that it will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result, no impairment loss was recognized during the nine months ended September 30, 2022 or for the year ended December 31, 2021.

5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at September 30, 2022 and December 31, 2021 are summarized as follows. The Company had net deferred loan origination fees of $0.3 million and $1.6 million at September 30, 2022 and December 31, 2021, respectively. The decrease to the fees since year-end is due in part to the forgiveness by the Small Business Administration (“SBA”) of Paycheck Protection Program (“PPP”) loans.

13

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

At the period end		September 30, 2022	December 31, 2021
Commercial
Taxable	$	371,164	$	424,455
Non-taxable		224,764		188,672
Total		595,928		613,127
Real estate
Commercial		1,620,116		1,343,539
Residential		326,223		297,624
Total		1,946,339		1,641,163
Consumer
Indirect Auto		70,006		65,791
Consumer Other		11,433		9,092
Total		81,439		74,883
Total	$	2,623,706	$	2,329,173

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

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

Net deferred loan origination fees remaining related to PPP loans is $0.3 million at September 30, 2022, compared to $1.7 million at December 31, 2021. The PPP loans are included in the taxable commercial loan classification and had an outstanding balance at September 30, 2022 of $22.7 million comprised of $11.2 million remaining from those originated during 2021 as part of round two and $11.5 million remaining from loans originated during 2020 under round one of the program. At December 31, 2021, PPP loans had outstanding balances totaling $68.9 million. The PPP loans are risk rated ‘Pass’ and do not carry an allowance for loan losses due to a 100% SBA guarantee. At September 30, 2022 and December 31, 2021, the outstanding PPP balances were considered current.

14

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The changes in the allowance for loan losses account by major classification of loan for the three and nine months ended September 30, 2022 and 2021 are summarized as follows:

			Real estate
September 30, 2022	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance July 1, 2022	$	7,766	$	17,569	$	3,220	$	819	$	29,374
Charge-offs				(15)				(86)		(101)
Recoveries		10		32		1		56		99
Provisions (credits)		(5)		437		9		9		450
Ending balance	$	7,771	$	18,023	$	3,230	$	798	$	29,822
			Real estate
September 30, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance July 1, 2021	$	8,520	$	14,281	$	3,069	$	869	$	26,739
Charge-offs		(446)		(12)				(8)		(466)
Recoveries		4		1				15		20
Provisions (credits)		(164)		519		92		(47)		400
Ending balance	$	7,914	$	14,789	$	3,161	$	829	$	26,693

			Real estate
September 30, 2022	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2022	$	8,453	$	15,928	$	3,209	$	793	$	28,383
Charge-offs		(161)		(147)		(2)		(244)		(554)
Recoveries		39		109		4		141		293
Provisions (credits)		(560)		2,133		19		108		1,700
Ending balance	$	7,771	$	18,023	$	3,230	$	798	$	29,822
			Real estate
September 30, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2021	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Charge-offs		(461)		(252)		(24)		(114)		(851)
Recoveries		83		67		2		48		200
Provisions (credits)		(442)		415		54		(27)		—
Ending balance	$	7,914	$	14,789	$	3,161	$	829	$	26,693

15

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The allocation of the allowance for loan losses and the related loans by major classifications of loans at September 30, 2022 and December 31, 2021 is summarized as follows:

			Real estate
September 30, 2022	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	7,771	$	18,023	$	3,230	$	798	$	29,822
Ending balance: individually evaluated for impairment		19		1		21				41
Ending balance: collectively evaluated for impairment	$	7,752	$	18,022	$	3,209	$	798	$	29,781
Loans receivable:
Ending balance	$	595,928	$	1,620,116	$	326,223	$	81,439	$	2,623,706
Ending balance: individually evaluated for impairment		114		2,721		1,161				3,996
Ending balance: collectively evaluated for impairment	$	595,814	$	1,617,395	$	325,062	$	81,439	$	2,619,710

			Real estate
December 31, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	8,453	$	15,928	$	3,209	$	793	$	28,383
Ending balance: individually evaluated for impairment		40		109		26				175
Ending balance: collectively evaluated for impairment	$	8,413	$	15,819	$	3,183	$	793	$	28,208
Loans receivable:
Ending balance	$	613,127	$	1,343,539	$	297,624	$	74,883	$	2,329,173
Ending balance: individually evaluated for impairment		199		2,889		1,274				4,362
Ending balance: collectively evaluated for impairment	$	612,928	$	1,340,650	$	296,350	$	74,883	$	2,324,811

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

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

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

16

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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

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

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

The following tables present the major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at September 30, 2022 and December 31, 2021:

			Special
September 30, 2022	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	587,033	$	8,065	$	830	$	$	595,928
Real estate:
Commercial		1,606,076		7,722		6,318			1,620,116
Residential		324,452		114		1,657			326,223
Consumer		81,170				269			81,439
Total	$	2,598,731	$	15,901	$	9,074	$	$	2,623,706

			Special
December 31, 2021	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	611,151	$	896	$	1,080	$	$	613,127
Real estate:
Commercial		1,324,646		13,939		4,954			1,343,539
Residential		294,892		333		2,399			297,624
Consumer		74,744				139			74,883
Total	$	2,305,433	$	15,168	$	8,572	$	$	2,329,173

The increase to special mention commercial loans is primarily the result of the downgrade of one credit with an outstanding balance of $7.8 million, due to insufficient cash flows as the borrower’s operations have not stabilized in the anticipated timeframe.  The decrease to special mention commercial real estate loans is due in part to an upgrade of a $3.5 million credit resulting from improved financial performance and satisfactory repayment history and the payoff of a $2.4 million credit.   The increase to substandard commercial real estate loans is primarily due to the downgrade of three credits totaling $1.7 million as a result of repayment uncertainty. These downgrades were offset by the payoff/reduction of various credits. Substandard residential real estate loans decreased $0.7 million primarily due to the payoff of a $0.5 million credit.

17

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Information concerning nonaccrual loans by major loan classification at September 30, 2022 and December 31, 2021 is summarized as follows:

		September 30, 2022		December 31, 2021
Commercial	$	102	$	185
Real estate:
Commercial		1,787		1,793
Residential		423		694
Consumer		245		139
Total	$	2,557	$	2,811

Nonaccrual loans decreased $254 thousand from year end December 31, 2021 due to decreases in commercial, commercial real estate and residential loans, partially offset by increases in consumer loans.

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

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
September 30, 2022	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	35	$		$	102	$	137	$	595,791	$	595,928	$
Real estate:
Commercial		146		605		330		1,081		1,619,035		1,620,116
Residential		341		640		565		1,546		324,677		326,223		280
Consumer		405		234		98		737		80,702		81,439
Total	$	927	$	1,479	$	1,095	$	3,501	$	2,620,205	$	2,623,706	$	280

Improved credit quality resulted in lower levels of past due loans from year end.

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2021	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	101		155	$	158	$	414	$	612,713	$	613,127	$
Real estate:
Commercial		768	$	423		834		2,025		1,341,514		1,343,539
Residential		1,552		207		265		2,024		295,600		297,624		13
Consumer		477		163		51		691		74,192		74,883
Total	$	2,898	$	948	$	1,308	$	5,154	$	2,324,019	$	2,329,173	$	13

18

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The following tables summarize information concerning impaired loans as of and for the three and nine months ended September 30, 2022 and September 30, 2021, and as of and for the year ended December 31, 2021 by major loan classification:

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2022	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	94	$	425			$	110	$	3	$	129	$	7
Real estate:
Commercial		2,389		3,193				2,431		9		2,497		31
Residential		918		1,102				957		6		915		16
Consumer		245		256				258				215
Total		3,646		4,976				3,756		18		3,756		54
With an allowance recorded:
Commercial		20		20	$	19		27		—		29		—
Real estate:
Commercial		332		332		1		381		7		429		15
Residential		243		247		21		257		3		297		9
Total		595		599		41		665		10		755		24
Total impaired loans
Commercial		114		445		19		137		3		158		7
Real estate:
Commercial		2,721		3,525		1		2,812		16		2,926		46
Residential		1,161		1,349		21		1,214		9		1,212		25
Consumer		245		256				258				215
Total	$	4,241	$	5,575	$	41	$	4,421	$	28	$	4,511	$	78

19

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2021	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	158	$	481			$	964	$	13
Real estate:
Commercial		2,376		3,120				2,719		22
Residential		873		1,073				1,016		19
Consumer		139		148				100
Total		3,546		4,822				4,799		54
With an allowance recorded:
Commercial		41		41		40		1,091		15
Real estate:
Commercial		513		543		109		802		22
Residential		401		401		26		436		13
Consumer
Total		955		985		175		2,329		50
Total impaired loans
Commercial		199		522		40		2,055		28
Real estate:
Commercial		2,889		3,663		109		3,521		44
Residential		1,274		1,474		26		1,452		32
Consumer		139		148				100
Total	$	4,501	$	5,807	$	175	$	7,128	$	104

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2021	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	634	$	1,097			$	870	$	2	$	1,166	$	9
Real estate:
Commercial		2,560		3,275				2,785		4		2,805		19
Residential		991		1,184				999		5		1,051		15
Consumer		82		96				79				91
Total		4,267		5,652				4,733		11		5,113		43
With an allowance recorded:
Commercial		424		424	$	18		695		5		1,354		15
Real estate:
Commercial		534		564		107		604		4		875		14
Residential		440		446		41		450		3		445		10
Consumer
Total		1,398		1,434		166		1,749		12		2,674		39
Total impaired loans
Commercial		1,058		1,521		18		1,565		7		2,520		24
Real estate:
Commercial		3,094		3,839		107		3,389		8		3,680		33
Residential		1,431		1,630		41		1,449		8		1,496		25
Consumer		82		96				79				91
Total	$	5,665	$	7,086	$	166	$	6,482	$	23	$	7,787	$	82

20

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

 Loan Modifications/Troubled Debt Restructurings/COVID-19

Included in the commercial real estate and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $1.4 million at September 30, 2022, $1.6 million at December 31, 2021 and $2.6 million at September 30, 2021.

Troubled debt restructured loans are loans with original terms, interest rate, or both, that have been modified as a result of a deterioration in the borrower’s financial condition and a concession has been granted that the Company would not otherwise consider. Unless on nonaccrual, interest income on these loans is recognized when earned, using the interest method. The Company offers a variety of modifications to borrowers that would be considered concessions. The modification categories offered generally fall within the following categories:

● Rate Modification - A modification in which the interest rate is changed to a below market rate.

● Term Modification - A modification in which the maturity date, timing of payments or frequency of payments is changed.

● Payment Modification - A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

● Combination Modification - Any other type of modification, including the use of multiple categories above.

There were no loans modified as troubled debt restructurings during the nine months ended September 30, 2022 or 2021.

During the three months and nine ended September 30, 2022 or 2021, there were no payment defaults on troubled debt restructurings.

6. Other assets:

The increase in other assets was due to the increase to the net deferred tax asset related to the higher unrealized loss of the available-for-sale securities portfolio and an increase in the fair value of our commercial customers interest rate swaps due to higher market rates. The components of other assets at September 30, 2022 and December 31, 2021 are summarized as follows:

		September 30, 2022		December 31, 2021
Other real estate owned	$	121	$	609
Investment in low income housing partnership		5,539		5,900
Mortgage servicing rights		931		882
Restricted equity securities (FHLB and other)		4,502		4,045
Net deferred tax asset		20,793		5,355
Interest rate floor		4		844
Interest rate swaps		22,807		9,026
Other assets		7,838		6,395
Total	$	62,535	$	33,056

7. Fair value estimates:

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

21

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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

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

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

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

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

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

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

During the periods ended September 30, 2022 and December 31, 2021 there were no transfers in or out of Level 3.

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

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

Loans held for sale: The fair values of loans held for sale are based upon current delivery prices in the secondary mortgage market.

Interest rate swaps and options:  The Company’s interest rate swaps and options are reported at fair value utilizing Level 2 inputs. Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for interest rate, forward rates, rate volatility, and volatility surface. Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty.

22

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Assets and liabilities measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
September 30, 2022	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	224,336	$	224,336	$		$
U.S. government-sponsored enterprises		16,351				16,351
State and municipals:
Taxable		56,234				56,234
Tax-exempt		84,586				84,586
Mortgage-backed securities:
U.S. government agencies		1,091				1,091
U.S. government-sponsored enterprises		91,387				91,387
Corporate debt securities		3,605				3,605
Common equity securities		103		103
Total investment securities	$	477,693	$	224,439	$	253,254	$
Loan held for sale	$	653			$	653
Interest rate floor-other assets	$	4			$	4
Interest rate swap-other assets	$	22,953			$	22,953
Interest rate swap-other liabilities	$	(22,089)			$	(22,089)

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2021	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	191,574	$	191,574			$
U.S. government-sponsored enterprises		33,778			$	33,778
State and municipals:
Taxable		68,978				68,978
Tax-exempt		98,250				98,250
Mortgage-backed securities:
U.S. government agencies		1,843				1,843
U.S. government-sponsored enterprises		119,980				119,980
Corporate debt securities		2,918				2,918
Common equity securities		140		140
Total investment securities	$	517,461	$	191,714	$	325,747	$
Loan held for sale	$	408			$	408
Interest rate floor-other assets	$	844			$	844
Interest rate swap-other assets	$	9,026			$	9,026
Interest rate swap-other liabilities	$	(8,811)			$	(8,811)

23

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2022 and December 31, 2021 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
September 30, 2022	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	553			$	553

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2021	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	780			$	780
Other real estate owned	$	487			$	487

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

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

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
September 30, 2022	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	553	Appraisal of collateral	Appraisal adjustments	21.6% to 97.0%  (70.6)%
				Liquidation expenses	3.0% to 6.0% (5.2)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2021	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	780	Appraisal of collateral	Appraisal adjustments	6.4% to 97.0%  (65.2)%
				Liquidation expenses	3.0% to 6.0% (5.1)%
Other real estate owned	$	487	Appraisal of collateral	Appraisal adjustments	35.9% to 35.9%  (35.9)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

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

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

24

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The carrying and fair values of the Company’s financial instruments at September 30, 2022 and December 31, 2021 and their placement within the fair value hierarchy are as follows:

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
September 30, 2022	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	113,010	$	113,010	$	113,010
Investment securities:
Available-for-sale		477,590		477,590		224,336	$	253,254
Common equity securities		103		103		103
Held-to-maturity		92,771		78,512				78,512
Loans held for sale		653		653				653
Net loans		2,593,884		2,508,050					$	2,508,050
Accrued interest receivable		10,082		10,082				10,082
Mortgage servicing rights		931		1,433				1,433
Restricted equity securities (FHLB and other)		4,502		4,502				4,502
Interest rate floor		4		4				4
Interest rate swaps		22,953		22,953				22,953
Total	$	3,316,483	$	3,216,892
Financial liabilities:
Deposits	$	3,124,140	$	3,113,415			$	3,113,415
Short-term borrowings		14,700		14,700				14,700
Long-term debt		1,104		1,106				1,106
Subordinated debentures		33,000		33,211				33,211
Accrued interest payable		1,129		1,129				1,129
Interest rate swaps		22,089		22,089				22,089
Total	$	3,196,162	$	3,185,650

25

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2021	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	279,933	$	279,933	$	279,933
Investment securities:
Available-for-sale		517,321		517,321		191,574	$	325,747
Common equity securities		140		140		140
Held-to-maturity		71,213		70,446				70,446
Loans held for sale		408		408				408
Net loans		2,300,790		2,261,586					$	2,261,586
Accrued interest receivable		8,528		8,528				8,528
Mortgage servicing rights		882		1,357				1,357
Restricted equity securities (FHLB and other)		4,045		4,045				4,045
Interest rate floor		844		844				844
Interest rate swaps		9,026		9,026				9,026
Total	$	3,193,130	$	3,153,634
Financial liabilities:
Deposits	$	2,963,397	$	2,963,547			$	2,963,547
Long-term debt		2,711		2,778				2,778
Subordinated debentures		33,000		32,337				32,337
Accrued interest payable		408		408				408
Interest rate swaps		8,811		8,811				8,811
Total	$	3,008,327	$	3,007,881

26

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

8. Employee benefit plans:

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

For the three and nine months ended September 30, salaries and employee benefits expense includes approximately $373 thousand and $970 thousand in 2022, and $343 thousand and $991 thousand in 2021 relating to the employee benefit plans.

	Pension Benefits
Three Months Ended September 30,	2022		2021
Components of net periodic pension benefit:
Interest cost	$	114	$	105
Expected return on plan assets		(352)		(322)
Amortization of unrecognized net gain		50		76
Net periodic benefit	$	(188)	$	(141)
	Pension Benefits
Nine Months Ended September 30,	2022		2021
Components of net periodic pension benefit:
Interest cost	$	342	$	315
Expected return on plan assets		(1,056)		(966)
Amortization of unrecognized net gain		149		227
Net periodic benefit	$	(565)	$	(424)

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

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

● Determine the type, size and term of awards.

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

● Accelerate the vesting or exercisability of an award.

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

As of September 30, 2022, there were 17,364 shares of the Company’s common stock available for grant as awards pursuant to the 2017 Plan. If any outstanding awards under the 2017 Plan are forfeited by the holder or canceled by the Company, the underlying shares would be available for regrant to others.

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

For the nine months ended September 30, 2022 and 2021, the Company granted awards of restricted stock and restricted stock units under the 2017 Plan, with an aggregate of 19,787 shares and 19,818 shares underlying such awards, respectively.

27

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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

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

The Company recognized net compensation costs of $223 thousand and $613 thousand for the three and nine months ended September 30, 2022 for awards granted under the 2017 Plan. The Company recognized compensation expense of $213 thousand and $479 thousand for the three and nine months ended September 30, 2021 for awards granted under the 2017 Plan. As of September 30, 2022, the Company had $1.2 million of unrecognized compensation expense associated with restricted stock awards. The remaining cost is expected to be recognized over a weighted average vesting period of under 1.8 years.

9. Derivatives and hedging activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts principally related to the Company’s assets and borrowings.

Cash Flow Hedges of Interest Rate Risk

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

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense/income as interest payments are made/received on the Company’s variable-rate debt/assets. During the next twelve months, the Company estimates that an additional $64 thousand will be reclassified as an increase to interest income. 

28

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of September 30, 2022, the Company had 86 interest rate swaps with an aggregate notional amount of $386.2 million related to this program.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021.

			Asset Derivatives			Asset Derivatives			Liability Derivatives			Liability Derivatives
			As of September 30, 2022 (1)			As of December 31, 2021 (1)			As of September 30, 2022 (2)			As of December 31, 2021 (2)
		Notional	Balance Sheet			Balance Sheet			Balance Sheet			Balance Sheet
		Amount	Location	Fair Value		Location	Fair Value		Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments
Interest Rate Floor	$	25,000	Other Assets	$	4	Other Assets	$	844
Total derivatives designated as hedging instruments				$	4		$	844		$			$
Derivatives not designated as hedging instruments
Interest Rate Swaps (2)	$	386,171	Other Assets	$	22,953	Other Assets	$	9,026	Other Liabilities	$	22,089	Other Liabilities	$	8,811
Total derivatives not designated as hedging instruments				$	22,953		$	9,026		$	22,089		$	8,811

(1) Amounts include accrued interest.

(2) Notional amount of interest rate swaps at December 31, 2021 was $392,677.

29

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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

The table below presents the effect of fair value and cash flow hedge accounting on accumulated other comprehensive income (loss) as of September 30, 2022 and September 30, 2021.

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain

(Loss)

(Loss)

(Loss)

(Loss)

Recognized from

Gain

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

September 30, 2022

Income

September 30, 2022

Derivatives in Cash Flow Hedging Relationships

Cash Flow Swap

Other expense

Interest Rate Floor (*)

$

(512)

$

(497)

$

(15)

Interest Income

$

228

$

276

$

(48)

Total

$

(512)

$

(497)

$

(15)

$

228

$

276

$

(48)

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain (Loss)

Loss

Gain (Loss)

Gain (Loss)

Gain

Recognized from

Gain (Loss)

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

September 30, 2021

Income

September 30, 2021

Derivatives in Cash Flow Hedging Relationships

Cash Flow Swap

$

401

$

401

Interest Expense

$

(23)

$

(23)

Cash Flow Swap

Other Expense

(25)

(25)

Interest Rate Floor (*)

$

(66)

$

(70)

$

4

Interest Income

$

405

$

453

$

(48)

Total

$

335

$

331

$

4

$

357

$

405

$

(48)

* Amounts disclosed are gross and not net of taxes.

30

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income and Comprehensive Income

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2022 and September 30, 2021.

		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		For the three months ended September 30,
		2022		2022		2021		2021
		Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	4	$		$	137
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	4	$		$	137	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	$	20	$		$	153	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$	(16)			$	(16)	$
		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		For the nine months ended September 30,
		2022		2022		2021		2021
		Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	228	$		$	405	$	(48)
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	228	$		$	405	$	(23)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring							$	(25)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	$	276	$		$	453	$	(48)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$	(48)			$	(48)	$

31

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Effect of Derivative Instruments on the Consolidated Statements of Income and Comprehensive Income

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2022 and 2021.

		Amount of Gain		Amount of Gain		Amount of Gain		Amount of Loss
		Recognized in		Recognized in		Recognized in		Recognized in
	Location of Gain or (Loss)	Income		Income		Income		Income
	Recognized in Income on	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
Derivatives Not Designated as Hedging Instruments	Derivative	September 30, 2022		September 30, 2022		September 30, 2021		September 30, 2021
Interest Rate Swaps	Interest rate swap revenue	$	129	$	652	$	7	$	175
Other Contracts			1		4
Total		$	130	$	656	$	7	$	175
Fee Income	Fee income	$	2	$	106	$	72	$	569

32

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2022 and December 31, 2021. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Balance Sheets.

Offsetting of Derivative Assets
as of September 30, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Received		Amount
Derivatives	$	22,957	$	$	22,957	$		$	14,700	$	8,257
Offsetting of Derivative Liabilities
as of September 30, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Paid*		Amount
Derivatives	$	22,089	$	$	22,089	$	22,089	$		$
*Cash collateral of $7,830 was paid but not presented as an offset above.
Offsetting of Derivative Assets
as of December 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Received		Amount
Derivatives	$	9,870	$	$	9,870	$	3,218	$		$	6,652
Offsetting of Derivative Liabilities
as of December 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Paid		Amount
Derivatives	$	8,818	$	$	8,818	$	3,218	$	5,600	$

Credit-risk-related Contingent Features

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

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

As of September 30, 2022, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $2.2 million. As of December 31, 2021, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $5.6 million. The Company has minimum

33

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

collateral posting thresholds with certain of its derivative counterparties, and had posted collateral of $7.8 million with dealer counterparties at September 30, 2022 and December 31, 2021. Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the agreement. The cash collateral is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above. If the Company had breached any of these provisions it could have been required to settle its obligations under the agreements at the termination value.

10. Deposits

The major components of interest-bearing and noninterest-bearing deposits at September 30, 2022 and December 31, 2021 are summarized as follows:

At the period end	September 30, 2022		December 31, 2021
Interest-bearing deposits:
Money market accounts	$	706,947	$	588,245
Now accounts		813,743		851,086
Savings accounts		530,124		491,796
Time deposits less than $250		224,517		203,719
Time deposits $250 or more		78,874		90,795
Total interest-bearing deposits		2,354,205		2,225,641
Noninterest-bearing deposits		769,935		737,756
Total deposits	$	3,124,140	$	2,963,397

Total deposits increased $160.7 million from December 31, 2021 due to an increase of $128.6 million to interest-bearing deposits and $32.1 million increase to noninterest-bearing deposits. Money market deposits increased $118.7 million, savings accounts increased $38.3 million and time deposits less than $250 thousand increased $20.8 million. Non-maturity deposits, including non-interest checking, money markets and savings accounts increased in part due to growth of new customer relationships in our newest markets in Pittsburgh, Pennsylvania and Piscataway, New Jersey and to depositors holding more cash. Brokered deposits added during the nine months ended September 30, 2022 totaled $33.3 million and were used to offset a portion of the deposit outflows and lock-in then current interest rates during the second quarter 2022, as our expectation is for interest rates to continue to increase throughout the remainder of 2022. Of the brokered deposits added since December 31, 2021, $11.4 million are callable which gives the Bank the option to call the certificates of deposit after the initial three month term.

11. Borrowings

Short-term borrowings consist of FHLB advances representing overnight borrowings or with stated original terms of less than twelve months and other borrowings related to collateral held from derivative counterparties. Total short-term borrowings at September 30, 2022 were $14.7 million as compared to no short-term borrowings at December 31, 2021. Other borrowings, which include cash collateral pledged by derivative counterparties to offset interest rate exposure, totaled $14.7 million and increased due to higher market interest rates. The table below outlines short-term borrowings at and for the nine months ended September 30, 2022 and for the year ended December 31, 2021:   

		At and for the nine months ended September 30, 2022
									Weighted
					Maximum		Weighted		Average
	Ending		Average		Month-End		Average		Rate at End
	Balance		Balance		Balance		Rate		of the Period
Other borrowings	$	14,700	$	8,434	$	14,700	1.17	%	3.08	%
FHLB advances				31,967		125,975	2.11	%
Total short-term borrowings	$	14,700	$	40,401	$	140,675	1.92	%	3.08	%

34

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

	At and for the year ended December 31, 2021
						Weighted		Weighted
				Maximum		Average		Average
	Ending	Average		Month-End		Rate for		Rate at End
	Balance	Balance		Balance		the Year		of the Year
FHLB advances	$	$	13,973	$	50,000	0.56	%		%

The Company has an agreement with the FHLB which allows for borrowings up to its maximum borrowing capacity based on a percentage of qualifying collateral assets. At September 30, 2022, the maximum borrowing capacity was $1.1 billion of which $1.1 million was outstanding in borrowings and $383.2 million was used to issue standby letters of credit to collateralize public fund deposits. At December 31, 2021, the maximum borrowing capacity was $896.1 million of which $2.7 million was outstanding in borrowings and $373.0 million was used to issue standby letters of credit to collateralize public fund deposits.

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

Long-term debt consisting of one advance from the FHLB at September 30, 2022 and December 31, 2021 is as follows:

	Interest Rate
Due	Fixed		September 30, 2022		December 31, 2021
March 2023	4.69	$	1,104		2,711
		$	1,104	$	2,711

Maturities of long-term debt, by contractual maturity, for the remainder of 2022 and subsequent years are as follows:

2022	$	549
2023		555
	$	1,104

The advance from the FHLB totaling $1.1 million is not convertible.

12. Subordinated debt

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

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

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

35

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report, and with our audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report on Form 10-K for the year ended December 31, 2021.

Cautionary Note Regarding Forward-Looking Statements:

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. These statements are based on assumptions and may describe future plans, strategies and expectations of Peoples Financial Services Corp. and its subsidiaries. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. All statements in this report, other than statements of historical facts, are forward-looking statements.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Important factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to: the COVID-19 crisis and the governmental responses to the crisis; the effects of any recession in the United States; the impact on financial markets from geopolitical conflicts such as the military conflict between Russia and Ukraine; risks associated with business combinations; changes in interest rates; economic conditions, particularly in our market area; legislative and regulatory changes and the ability to comply with the significant laws and regulations governing the banking and financial services business; monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of Treasury and the Federal Reserve System; credit risk associated with lending activities and changes in the quality and composition of our loan and investment portfolios; demand for loan and other products; deposit flows; competition; changes in the values of real estate and other collateral securing the loan portfolio, particularly in our market area; changes in relevant accounting principles and guidelines; inability of third party service providers to perform; and our ability to prevent, detect and respond to cyberattacks. Additional factors that may affect our results are discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, in Part II, Item 1A of this report and in reports we file with the Securities and Exchange Commission from time to time.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, we do not undertake, and specifically disclaim any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

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

Critical Accounting Policies:

Disclosure of our significant accounting policies is included in Note 1 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2021, which is incorporated herein by reference. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions.

36

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Operating Environment:

The first nine months of 2022 have been centered in uncertainty around the lingering effects of COVID-19, high inflation, a tight labor market, fear of recession and the global impact of Russia’s invasion of the Ukraine. As COVID-19 restrictions began to ease and commercial and consumer activity returned to pre-pandemic levels, strong demand driven by low interest rates and government stimulus clashed with weakened supply chains and pandemic-related shortages.

Inflation increased during the first half of 2022 to levels well above the Federal Open Market Committee’s

(“FOMC”) long-term desired 2% level for items other than food and energy and remained elevated in the third quarter. Core inflation, as measured by the Consumer Price Index (“CPI”), excluding items known for their volatility such as food and energy, was 6.6% for the 12 months ended September 30, 2022, the largest increase since August 1982. When including food and energy, CPI increased 8.2% during the 12 months ended September 30, 2022 due primarily to higher energy costs.

Concerns over the high inflation rate have resulted in central bankers in the U.S. adjusting interest rates. The FOMC has increased rates six times through November 2, 2022 for a total of 375 basis points and additional increases are expected through year-end and into the first three months of 2023. These higher rates are expected to continue to negatively impact the fair value of our investment portfolio and to slow economic activity by curbing spending, hiring and investment which may reduce loan demand and result in deposit outflows.

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

The labor market remains strong with unemployment at 3.5% in September 2022. This along with reduced labor force participation has made it difficult and costly for companies to fill open positions and thus could increase our salaries and benefits expenses.

Real gross domestic product (“GDP”) increased at a seasonally adjusted annual rate of 2.6% during the three months ended September 30, 2022, according to the Bureau of Economic Analysis’s “Advance” estimate, after decreasing 0.6% in the three months ended June 30, 2022 and after falling 1.6% during the three months ended March 31, 2022.  The increase in the most recent period may likely be a temporary boost rather than an indication of sustainable upward momentum as indications suggest consumers are reducing spending and business spending is slowing.  Durable goods orders increased 0.4% during September 2022 and while the headline growth in orders remains positive heading into the fourth quarter, corporate investment has slowed markedly as businesses struggle amid rising costs of property, labor and parts. Particularly as consumers continue to adjust or downshift their spending patterns, businesses may increasingly struggle to reduce expenditures as sales remain thin.  Economic uncertainty and reductions to spending by retail and commercial customers due to rising costs may reduce loan demand and increase loan delinquencies in the near-term.  

Goodwill:

The Company has goodwill with a net carrying value of $63,370 at September 30, 2022 and December 31, 2021. The Company's policy is to test goodwill for impairment annually on December 31 or on an interim basis if an event triggering impairment may have occurred. If a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. At September 30, 2022, we evaluated whether any events occurred or circumstances changed that would more likely than not reduce the Company's fair value below its carrying value. We noted no such matters. There is no assurance that changes in events or circumstances in the future will not result in impairment.

37

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Review of Financial Position:

Total assets increased $147.3 million or 5.9% annualized, to $3.5 billion at September 30, 2022, from $3.4 billion at December 31, 2021. The increase in assets during the nine months was due to loan growth, funded primarily with our federal funds sold balances and short-term borrowings. Total loans increased to $2.6 billion at September 30 2022, compared to $2.3 billion at December 31, 2021, an increase of $294.5 million. Excluding PPP loans and a net decrease of $46.2 million to PPP loan balances, loan growth during the first nine months of 2022 totaled $340.7 million, or 20.2% annualized.  Investments decreased $18.2 million or 4.1% annualized as the purchase of higher yielding investment securities with a portion of our lower earning excess cash position during the first three months of 2022 was offset by the reduction to the fair value of the available-for-sale investment portfolio due to higher market rates.  Federal funds sold balances decreased $172.8 million to $69.6 million at September 30, 2022 from $242.4 million at December 31, 2021. Deposits increased $160.7 million to $3.1 billion at September 30, 2022 from $3.0 billion. Interest-bearing deposits increased $128.5 million while noninterest-bearing deposits increased $32.2 million. Total short-term borrowings at September 30, 2022 totaled $14.7 million.  Total stockholders’ equity decreased $38.3 million or 11.3%, from $340.1 million at year-end 2021 to $301.8 million at September 30, 2022 as net income was offset by a decrease to accumulated other comprehensive income (“AOCI”), resulting from an increase to the unrealized loss on investment securities, and dividends paid to shareholders. For the nine months ended September 30, 2022, total assets averaged $3.4 billion, an increase of $387.8 million from $3.0 billion for the same period of 2021.

Investment Portfolio:

The majority of the investment portfolio is classified as available-for-sale, which allows for greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when market opportunities occur. Investment securities available-for-sale totaled $477.6 million at September 30, 2022, a decrease of $39.7 million, or 7.7% from $517.3 million at December 31, 2021. The decrease was primarily due to a decline in the market value of the available-for-sale portfolio of $72.8 million since December 31, 2021, due to the rapid increase of market rates, and principal received from mortgage-backed securities and maturing bonds, partially offset by the purchase of U.S. Treasury notes, taxable and tax-exempt municipal bonds and mortgage-backed securities as we deployed a portion of excess cash into higher earning assets primarily during the three months ended March 31. Investment securities held-to-maturity totaled $92.8 million at September 30, 2022, an increase of $21.6 million from $71.2 million at December 31, 2021 as a portion of newly purchased low coupon securities were classified as held-to-maturity to mitigate market value risk.

For the nine months ended September 30, 2022, the investment portfolio averaged $651.6 million, an increase of $304.5 million or 87.7% compared to $347.1 million for the same period last year. Average tax-exempt municipal bonds have increased $32.5 million or 41.4% to $111.0 million for the nine months ended September 30, 2022 from $78.5 million during the comparable period of 2021. The increase in tax-exempt municipal bonds is due to purchases during the last twelve months with a portion of excess liquidity. The tax-equivalent yield on the investment portfolio decreased 42

basis points to 1.67% for the nine months ended September 30, 2022, from 2.09% for the comparable period of 2021. The decrease in yield is due to lower reinvestment rates for cash flow from matured and called bonds.

Securities available-for-sale are carried at fair value, with unrealized gains or losses net of deferred income taxes reported in the AOCI component of stockholders’ equity. We reported net unrealized losses, included as a separate component of stockholders’ equity of $58.9 million net of deferred income taxes of $15.7 million at September 30, 2022, and net unrealized losses of $1.4 million, net of deferred income taxes of $0.4 million, at December 31, 2021. The increase to deferred income taxes, a component of other assets on the balance sheet, of $15.3 million was a primary reason for the increase to other assets since December 31, 2021.

Management, from a credit risk perspective, has taken action to identify and assess its COVID-19 related credit exposures based on asset class. No specific COVID-19 related credit impairment was identified within our investment securities portfolio, including our municipal securities, during the first nine months of 2022.

38

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Our Asset/Liability Committee (“ALCO”) reviews the performance and risk elements of the investment portfolio quarterly. Through active balance sheet management and analysis of the securities portfolio, we endeavor to maintain sufficient liquidity to satisfy depositor requirements and meet the credit needs of our customers.

Loan Portfolio:

Total loans increased to $2.6 billion at September 30, 2022 from $2.3 billion at December 31, 2021, an increase of $294.5 million.  Our recent entrance into the Greater Pittsburgh market and Piscataway, New Jersey via community banking offices has resulted in positive loan opportunities and has contributed to the overall loan growth since year end.

Our loan growth is due to increases in commercial real estate loans and tax-free commercial loans, offset by a reduction in PPP loan balances. At September 30, 2022, we had 13 loans totaling $11.5 million remaining from PPP loans originated during 2020 and 18 loans totaling $11.2 million remaining from the second PPP program, and we expect the majority to be forgiven during 2022. Excluding the PPP loans, total loans have increased $340.7 million or 20.2% annualized, in 2022.

Commercial real estate loans increased $276.6 million or 27.5% annualized, to $1.6 billion at September 30, 2022 compared to $1.3 billion at December 31, 2021 due to increased activity in all our markets. Commercial and industrial loans, excluding PPP, increased $29.0 million to $573.2 million at September 30, 2022 compared to $544.2 million at December 31, 2021 due to growth of tax-exempt loans. We continue to actively pursue commercial and industrial loans as this segment of our loan portfolio provides an attractive yield commensurate with an appropriate level of credit risk and creates opportunities for in-market deposit, treasury management, and wealth management relationships which generate additional fee income.

Consumer loans increased $6.6 million, or 11.7% on an annualized basis, to $81.4 million at September 30, 2022 compared to $74.9 million at December 31, 2021. The increase in consumer loans was due to dealer indirect auto loan origination and other consumer loan volumes.

Residential real estate loans increased $28.6 million, or 12.8% on an annualized basis, to $326.2 million at September 30, 2022 compared to $297.6 million at December 31, 2021. The increase in residential mortgages is due to increased refinance and purchase activity prior to the recent increase to mortgage rates, increased home equity loan activity, and a higher percentage of loans not eligible to be sold into the secondary market, including jumbo

mortgages.  

For the nine months ended September 30, 2022, total loans, excluding PPP loans, averaged $2.4 billion, an increase of $413.5 million or 20.4% compared to $2.0 billion for the same period of 2021. The PPP loans averaged $37.8 million for the nine months ended September 30, 2022 and yielded 5.96% due to the acceleration of unamortized net fees and interest earned. The tax-equivalent yield on the entire loan portfolio was 3.93% for the nine months ended

September 30, 2022, a 7 basis point decrease from the comparable period last year. The decrease in yield is primarily due to lower levels of PPP fees and interest earned.

In addition to the risks inherent in our loan portfolio, in the normal course of business, we are also a party to financial instruments with off-balance sheet risk to meet the financing needs of our customers. These instruments include legally binding commitments to extend credit, unused portions of lines of credit and commercial letters of credit made under the same underwriting standards as on-balance sheet instruments, and may involve, to varying degrees, elements of credit risk and interest rate risk (“IRR”) in excess of the amount recognized in the consolidated financial statements.

Unused commitments at September 30, 2022, totaled $568.0 million, consisting of $508.6 million in unfunded commitments of existing loan facilities and $59.4 million in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and, therefore, do not represent a significant liquidity risk to us. In comparison, unused commitments at December 31, 2021 totaled $553.4 million, consisting of $495.1 in unfunded commitments of existing loans and $58.3 in standby letters of credit.

39

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Asset Quality:

Distribution of nonperforming assets

		September 30, 2022			December 31, 2021
Nonaccrual loans	$	2,557		$	2,811
Troubled debt restructured loans (including nonaccrual TDR)		1,381			1,649
Accruing loans past due 90 days or more:		280			13
Total nonperforming loans		4,218			4,473
Foreclosed assets					488
Total nonperforming assets	$	4,218		$	4,961
Loans modified in a troubled debt restructuring (TDR):
Performing TDR loans	$	1,381		$	1,649
Total TDR loans	$	1,381		$	1,649
Total loans held for investment	$	2,623,706		$	2,329,173
Nonaccrual loans as a percentage of loans held for investment		0.10	%		0.12	%
Allowance for loan losses		29,822			28,383
Allowance for loan losses as a percentage of loans held for investment		1.14	%		1.22	%
Allowance for loan losses as a percentage of nonaccrual loans		1166.29	%		1009.71	%
Nonperforming loans as a percentage of loans, net		0.16	%		0.19	%

We experienced improved asset quality during the first nine months of 2022 as evidenced by a decrease of $743 thousand in nonperforming assets. Nonperforming assets totaled $4.2 million or 0.12% of total assets at September 30, 2022, a decrease from $5.0 million or 0.15% of total assets at December 31, 2021. This was the result of the sale of foreclosed assets during the first quarter 2022.

Loans on nonaccrual status, excluding troubled debt restructured nonaccrual loans, decreased $254 thousand to $2.6 million at September 30, 2022 from $2.8 million at December 31, 2021. The decrease to nonaccrual loans since year-end is due primarily to a decrease to residential real estate loans of $271 thousand partially offset by an increase of $134 thousand to the indirect portfolio.  Restructured loans decreased $268 thousand to $1.4 million at September 30, 2022 from $1.6 million at December 31, 2021 due to payments received. Foreclosed assets decreased $488. There were no foreclosed properties at September 30, 2022 compared to three properties at December 31, 2021.

Generally, maintaining a high loan-to-deposit ratio is our primary goal in order to drive profitability. However, this objective is superseded by our goal of strong asset quality to ensure that asset quality remains strong. We continued our efforts to maintain sound underwriting standards for both commercial and consumer credit.

We maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to specifically identified loans, as well as probable incurred loan losses inherent in the remainder of the loan portfolio as of the balance sheet date. The allowance for loan losses is based on past events and current economic conditions. We employ the Federal Financial Institutions Examination Council Interagency Policy Statement, as amended December 13, 2006, and GAAP in assessing the adequacy of the allowance account. Under GAAP, the adequacy of the allowance account is determined based on the provisions of FASB Accounting Standards Codification (“ASC”) 310, “Receivables,” for loans specifically identified to be individually evaluated for impairment and the requirements of FASB ASC 450, “Contingencies,” for large groups of smaller-balance homogeneous loans to be collectively evaluated for impairment.

We follow our systematic methodology in accordance with procedural discipline by applying it in the same manner regardless of whether the allowance is being determined at a high point or a low point in the economic cycle. Each

40

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

quarter, credit administration identifies those loans to be individually evaluated for impairment and those loans collectively evaluated for impairment utilizing a standard criteria. We consistently use loss experience from the latest twelve quarters in determining the historical loss factor for each pool collectively evaluated for impairment. Qualitative factors are evaluated in the same manner each quarter and are adjusted within a relevant range of values based on current conditions. For additional disclosure related to the allowance for loan losses refer to the note entitled, “Loans, net and Allowance for Loan Losses,” in the Notes to Consolidated Financial Statements to this Quarterly Report.

The Company’s allowance for loan losses increased $1.4 million or 5.1% during the first nine months of 2022. The allowance for loan losses equaled $29.8 million or 1.14% of loans, net at September 30, 2022 compared to $28.4 million or 1.22% of loans, net, at December 31, 2021. Excluding PPP loans that do not carry an allowance for loan losses due to a 100% government guarantee, the ratio equaled 1.15% at September 30, 2022. Loans charged-off, net of recoveries, for the nine months ended September 30, 2022, equaled $261 thousand and less than 0.01% of average loans, compared to $651 thousand or 0.04% of average loans for the comparable period last year. The decrease to charge-offs in the current period is due to improved credit quality resulting in fewer charge-offs.

Deposits:

We attract the majority of our deposits from within our market area through the offering of various deposit instruments including demand deposit accounts, NOW accounts, money market deposit accounts, savings accounts, and time deposits, including certificates of deposit and IRAs. For the nine months ended September 30, 2022, total deposits increased $160.7 million or 5.4% to $3.1 billion from $3.0 billion at December 31, 2021.  Non-maturity deposits, including non-interest checking, money markets and savings accounts increased in part due to growth of new customer relationships in our newest markets in Pittsburgh, Pennsylvania and Piscataway, New Jersey, and to depositors holding more cash. Brokered deposits increased $33.3 million during the nine months ended September 30, 2022, primarily to offset a portion of the deposit outflow that occurred earlier in 2022.

Interest-bearing deposits increased $128.6 million while noninterest-bearing deposits increased $32.2 million.  Interest-bearing transaction accounts, including NOW and money market accounts increased by $81.4 million, or 5.6%, to $1.5 billion at September 30, 2022, from $1.4 billion at December 31, 2021. Savings accounts increased $38.3 million to $530.1 million as of September 30, 2022 from $491.8 million at December 31, 2021.  Time deposits less than $250 thousand increased $20.8 million, or 10.2%, to $224.5 million at September 30, 2022, from $203.7 million at December 31, 2021 primarily due to the addition of $33.3 million in brokered certificates of deposit.  Time deposits $250 thousand or more decreased $11.9 million, or 13.1% to $78.9 million at September 30, 2022 from $90.8 million

at year end 2021 as rate sensitive depositors sought higher rates.

For the nine months ended September 30, interest-bearing deposits averaged $2.2 billion in 2022 compared to

$1.9 billion in 2021, an increase of $281.0 million or 14.6%. The cost of interest-bearing deposits was 0.39% in 2022 compared to 0.40% for the same period last year. For the first nine months, the overall cost of interest-bearing liabilities, including the cost of borrowed funds, was 0.49% in 2022 and 0.50% in 2021. The lower costs are due primarily to our actions to lower deposit rates to mitigate net interest margin compression in the earlier portion of 2022. We intend to monitor deposit rates; the FOMC increased the federal funds target rate three times for a total of 150 basis points

through June 30, 2022 and another 150 basis points by September 30, 2022, with the expectation that the FOMC will continue to move to increase the federal funds rate to combat inflation. The volume and velocity of the rate increases will place pressure on our funding costs.  

Borrowings:

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

Overall, total borrowings were $48.8 million at September 30, 2022, which included a combination of other

41

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

borrowings, long-term debt, and subordinated debt, compared to $35.7 million at December 31, 2021, an increase of $13.1 million.  There were no overnight borrowings at September 30, 2022 and December 31, 2021.  Other borrowings, which include cash collateral pledged by derivative counterparties to offset interest rate exposure, totaled $14.7 million compared to none at December 31, 2021. The increase was primarily due to higher market interest rates.  Long-term debt was $1.1 million at September 30, 2022 compared to $2.7 million at year end 2021. Subordinated debt outstanding at September 30, 2022 and December 31, 2021 was $33.0 million.

Market Risk Sensitivity:

Market risk is the risk to our earnings or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily interest rate risk (“IRR”) associated with our lending, investing and deposit-gathering activities. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in our reported earnings and/or the market value of our net worth. Variations in interest rates affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. Interest rate changes also affect the underlying economic value of our assets, liabilities and off-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value and provide a basis for the expected change in future earnings related to interest rates. IRR is inherent in the role of banks as financial intermediaries. However, a bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities.

Market interest rates have increased rapidly during 2022 from historic lows as the FOMC has raised the federal funds rate 75 basis points at their June, July, September and November meetings, respectively. Market expectations are that the FOMC will continue to raise rates aggressively at their remaining meeting in 2022 to combat high inflation resulting in even higher market rates. It has become challenging to manage IRR. Due to these factors, IRR and effectively managing it are very important to both bank management and regulators. Bank regulations require us to develop and maintain an IRR management program, overseen by our board of directors and senior management, that involves a comprehensive risk management process in order to effectively identify, measure, monitor and control risk. Should bank regulatory agencies identify a material weakness in our risk management process or high exposure relative to our capital, bank regulatory agencies may take action to remedy these shortcomings. Moreover, the level of IRR exposure and the quality of our risk management process is a determining factor when evaluating capital adequacy.

The ALCO, comprised of members of our board of directors, senior management and other appropriate officers, oversees our IRR management program. Specifically, ALCO analyzes economic data and market interest rate trends, as well as competitive pressures, and utilizes computerized modeling techniques to reveal potential exposure to IRR. This allows us to monitor and attempt to control the influence these factors may have on our rate-sensitive assets (“RSA”) and rate-sensitive liabilities (“RSL”), and overall operating results and financial position. One such technique utilizes a static gap model that considers repricing frequencies of RSA and RSL in order to monitor IRR. Gap analysis attempts to measure our interest rate exposure by calculating the net amount of RSA and RSL that reprice within specific time intervals. A positive gap occurs when the amount of RSA repricing in a specific period is greater than the amount of RSL repricing within that same time frame and is indicated by a RSA/RSL ratio greater than 1.0. A negative gap occurs when the amount of RSL repricing is greater than the amount of RSA and is indicated by a RSA/RSL ratio of less than 1.0. A positive gap implies that earnings will be impacted favorably if interest rates rise and adversely if interest rates fall during the period. A negative gap tends to indicate that earnings will be affected inversely to interest rate changes.

Our cumulative one-year RSA/RSL ratio equaled 1.23% at September 30, 2022, an increase from 1.16% at December 31, 2021. As previously mentioned, a positive gap indicates that if interest rates increase, our earnings would likely be favorably impacted. Given the current economic conditions and outlook, and the action by the FOMC to increase the federal funds rate 375 basis points during 2022 and an expectation the FOMC will continue to increase the federal funds rate to mitigate inflation, we should experience increased net interest income. The overall focus of ALCO is to maintain a well-balanced interest rate risk position in order to safeguard future earnings. The current position at September 30,

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

2022, indicates that the amount of RSA repricing within one year would exceed that of RSL, thereby causing net interest income to increase as market rates increase. However, these forward-looking statements are qualified in the aforementioned section entitled “Cautionary Note Regarding Forward-Looking Statements” in this Management’s Discussion and Analysis.

Static gap analysis, although a standard measuring tool, does not fully illustrate the impact of interest rate changes on future earnings. First, market rate changes normally do not equally or simultaneously affect all categories of assets and liabilities. Second, assets and liabilities that can contractually reprice within the same period may not do so at the same time or to the same magnitude. Third, the interest rate sensitivity analysis presents a one-day position. Variations occur daily as we adjust our rate sensitivity throughout the year. Finally, assumptions must be made in constructing such an analysis.

As the static gap report fails to address the dynamic changes in the balance sheet composition or prevailing interest rates, we utilize a simulation model to enhance our asset/liability management. This model is used to create pro forma net interest income scenarios under various interest rate shocks. Model results at September 30, 2022, produced results similar to those indicated by the one-year static gap position. In addition, parallel and instantaneous shifts in interest rates under various interest rate shocks resulted in changes in net interest income that were well within ALCO policy limits during the first year of simulation. We will continue to monitor our IRR throughout 2022 and endeavor to employ deposit and loan pricing strategies and direct the reinvestment of loan and investment repayments in order to manage our IRR position.

Financial institutions are affected differently by inflation than commercial and industrial companies that have significant investments in fixed assets and inventories. Most of our assets are monetary in nature and change correspondingly with variations in the inflation rate. It is difficult to precisely measure the impact inflation has on us, however we believe that our exposure to inflation can be mitigated through asset/liability management.

Liquidity:

Liquidity management is essential to our continuing operations and enables us to meet financial obligations as they come due, as well as to take advantage of new business opportunities as they arise. Financial obligations include, but are not limited to, the following:

● Funding new and existing loan commitments;

● Payment of deposits on demand or at their contractual maturity;

● Repayment of borrowings as they mature;

● Payment of lease obligations; and

● Payment of operating expenses.

These obligations are managed daily, thus enabling us to effectively monitor fluctuations in our liquidity position and to adapt that position according to market influences and balance sheet trends. Future liquidity needs are forecasted and strategies are developed to ensure adequate liquidity at all times.

Historically, core deposits have been the primary source of liquidity because of their stability and lower cost, in general, than other types of funding. Providing additional sources of funds are loan and investment payments and prepayments and the ability to sell both available for sale securities and mortgage loans held for sale.

Our ALCO generally meets quarterly, and most recently met in August, to review our interest rate risk profile, capital adequacy and liquidity.  Management believes the Company’s liquidity position is strong. At September 30, 2022, the Company’s cash and due from banks balances were $43.4 million and we maintained $231.4 million of availability at the Federal Reserve Bank’s discount window. The Company also maintains an available-for-sale investment securities

43

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

portfolio, comprised primarily of highly liquid U.S. Treasury and U.S. agency securities, highly-rated municipal securities and U.S. agency-backed mortgage backed securities. This portfolio serves as a ready source of liquidity and capital. At September 30, 2022, the Company’s available-for-sale investment securities portfolio totaled $477.6 million, $323.7 million of which were unencumbered. Net unrealized losses on the portfolio were $74.6 million. The Bank’s unused borrowing capacity at the FHLB at September 30, 2022 was $715.8 million.

We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans maturing after September 30, 2022. Our noncore funds at September 30, 2022, were comprised of time deposits in denominations of $100 or more and other borrowings. These funds are not considered to be a strong source of liquidity because they are very interest rate sensitive and are considered to be highly volatile. At September 30, 2022, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 4.5%, while our net short-term noncore funding dependence ratio, noncore funds maturing within one-year, less short-term investments to long-term assets equaled 1.3%. Comparatively, our overall noncore dependence ratio at year-end 2021 was negative 3.0% and our net short-term noncore funding dependence ratio was negative 5.6%, indicating that our reliance on noncore funds has increased both in the short-term and overall due to our relatively static deposit balances and use of our federal funds sold to fund loan and investment growth.

The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents, consisting of cash on hand, cash items in the process of collection, deposit balances with other banks and federal funds sold, decreased $166.9 million during the nine months ended September 30, 2022. Cash and cash equivalents increased $132.4 million for the same period last year. For the nine months ended September 30, 2022, net cash inflows of $164.3 million from financial activities and $30.2 million from operating activities were offset by net cash outflows of $361.5 million from investing activities. For the same period of 2021, net cash inflows of $25.7 million from operating activities and $332.2 million from financing activities were partially offset by net cash outflows of $225.5 million from investing activities.

Operating activities provided net cash of $30.2 million for the nine months ended September 30, 2022, and $25.7 million for the corresponding nine months of 2021. Net income, adjusted for the effects of gains and losses along with noncash transactions such as depreciation and the provision for loan losses, is the primary source of funds from operations.

Investing activities primarily include transactions related to our lending activities and investment portfolio. Investing activities used net cash of $361.5 million for the nine months ended September 30, 2022, compared to using net cash of $225.5 million for the same period of 2021. The combination of purchases of investment securities and an increase in lending activities were the primary factors causing the net cash outflow from investing activities in both periods.

Financing activities provided net cash of $164.3 million for the nine months ended September 30, 2022, and provided net cash of $332.2 million for the corresponding nine months of 2021. In 2022 and 2021, deposit gathering was our predominant financing activity. Deposits provided cash of $160.7 million for the nine months ended September 30, 2022 while short term borrowings increased $14.7 million. We continue to seek deposits from new markets and customers as well as existing customers, including municipalities and school districts.

We believe that our future liquidity needs will be satisfied through maintaining an adequate level of cash and cash equivalents, by maintaining readily available access to traditional funding sources, and through proceeds received from the investment and loan portfolios. The current sources of funds will enable us to meet all cash obligations as they come due.

Capital:

Stockholders’ equity totaled $301.8 million or $42.14 per share at September 30, 2022, compared to $340,126 or $47.44 per share at December 31, 2021. Stockholders’ equity was reduced during the nine month period ended September 30, 2022 by cash dividends declared of $8.5 million, a decrease to AOCI of $58.1 million primarily due to an increase to the unrealized loss on investment securities from higher market rates, and the repurchase of 21,478 common shares totaling

44

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

$1.0 million. Net income of $28,951 for the nine months ended September 30, 2022 was added to our capital position during the period.

Higher market rates since year end resulted in a mark-to-market impact on the available for sale portfolio of $57.5 million, which runs through AOCI and affects our book value, but not our regulatory capital ratios.

Dividends declared equaled $1.18 per share through the nine months ended September 30, 2022 and $1.12 per share for the same period of 2021. The dividend payout ratio was 29.4% for the nine months ended September 30, 2022 and 29.9% for the same period of 2021. The Company has paid cash dividends since its formation as a bank holding company in 1986. It is the present intention of the Board of Directors to continue this dividend payment policy. The Board declared on October 28, 2022 a fourth quarter dividend of $0.40 per share payable on December 15, 2022 to shareholders of record as of November 30, 2022. Further dividends, however, must necessarily depend upon earnings, financial condition, appropriate legal restrictions and other factors relevant at the time the Board of Directors considers payment of dividends.

Current rules, which implemented the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act, call for the following capital requirements: (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5%; (ii) a minimum ratio of tier 1 capital to risk-weighted assets of 6%; (iii) a minimum ratio of total capital to risk-weighted assets of 8%; and (iv) a minimum leverage ratio of 4%. In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. If a banking organization fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary bonus payments. 

The adequacy of capital is reviewed on an ongoing basis with reference to the size, composition and quality of resources and regulatory guidelines. We seek to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings. At September 30, 2022, the Bank’s Tier 1 capital to total average assets was 9.63% as compared to 9.58% at December 31, 2021. The Bank’s Tier 1 capital to risk weighted asset ratio was 12.48% and the total capital to risk weighted asset ratio was 13.60% at September 30, 2022. These ratios were 13.76% and 15.01% at December 31, 2021. The Bank’s common equity Tier 1 to risk weighted asset ratio was 12.48% at September 30, 2022 compared to 13.76% at December 31, 2021. The Bank met all capital adequacy requirements and was deemed to be well-capitalized under regulatory standards at September 30, 2022.

Review of Financial Performance:

Peoples reported net income of $10.0 million or $1.38 per diluted share for the three months ended September 30, 2022, a 9.6% increase when compared to $9.1 million or $1.26 per share for the comparable period of 2021. The increase in earnings for the three months ended September 30, 2022 is due to a $3.0 million increase in net interest income during the current three month period when compared to the year ago period. Partially offsetting the increases were higher noninterest expenses of $1.8 million due to higher salaries and benefits and occupancy and equipment costs in part due to our market expansion strategy and digital technology upgrade.

Peoples reported net income of $29.0 million or $4.01 per diluted share for the nine months ended September 30, 2022, an increase of 6.8% when compared to $27.1 million, or $3.74 per diluted share for the comparable period of 2021. The increase in earnings in the nine months ended September 30, 2022 is a result of increased net interest income of $8.3 million and an increase of $266 thousand in noninterest income. Partially offsetting the increases were a $1.7 million increase in provision for loan losses and an increase of $5.5 million to noninterest expense. Strong loan growth drove

an increase in our current provision for loan loss of $1.7 million, as compared to no provision in the year ago period. Higher noninterest expenses were mainly due to higher salaries and benefits of $2.7 million and higher occupancy and equipment costs of $2.2 million in part due to our investment in our market expansion strategy and digital technology upgrade which commenced during the latter half of 2021.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Return on average assets (“ROA”) measures our net income in relation to total assets. Our ROA was 1.14% for the third quarter of 2022 compared to 1.17% for the same period of 2021. Return on average equity (“ROE”) indicates how effectively we can generate net income on the capital invested by stockholders. Our ROE was 12.69% for the third quarter of 2022 compared to 11.01% for the comparable period in 2021.

Non-GAAP Financial Measures:

The following are non-GAAP financial measures which provide useful insight to the reader of the consolidated financial statements but should be supplemental to GAAP used to prepare Peoples’ consolidated financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, Peoples’ non-GAAP measures may not be comparable to non-GAAP measures of other companies. The tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% for 2022 and 2021.

The following table reconciles the non-GAAP financial measures of FTE net interest income for the three and nine months ended September 30, 2022 and 2021:

Three months ended September 30	2022		2021
Interest income (GAAP)	$	29,230	$	24,167
Adjustment to FTE		494		387
Interest income adjusted to FTE (non-GAAP)		29,724		24,554
Interest expense		4,232		2,182
Net interest income adjusted to FTE (non-GAAP)	$	25,492	$	22,372
Nine months ended September 30	2022		2021
Interest income (GAAP)	$	79,693	$	70,407
Adjustment to FTE		1,399		1,088
Interest income adjusted to FTE (non-GAAP)		81,092		71,495
Interest expense		8,357		7,364
Net interest income adjusted to FTE (non-GAAP)	$	72,735	$	64,131

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

The efficiency ratio is noninterest expenses, less amortization of intangible assets, as a percentage of FTE net interest income plus noninterest income less gains on equity securities and gains on sale of assets. The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP for the three and nine months ended September 30, 2022 and 2021:

Three months ended September 30	2022			2021
Efficiency ratio (non-GAAP):
Noninterest expense (GAAP)	$	15,935		$	14,147
Less: amortization of intangible assets expense		96			125
Noninterest expense adjusted for amortization of assets expense (non-GAAP)		15,839			14,022
Net interest income (GAAP)		24,998			21,985
Plus: taxable equivalent adjustment		494			387
Noninterest income (GAAP)		3,317			3,449
Less: net (losses) gains on equity securities		(18)			5
Net interest income (FTE) plus noninterest income (non-GAAP)	$	28,827		$	25,816
Efficiency ratio (non-GAAP)		54.9	%		54.3	%
Nine months ended September 30	2022			2021
Efficiency ratio (non-GAAP):
Noninterest expense (GAAP)	$	45,717		$	40,234
Less: amortization of intangible assets expense		289			375
Noninterest expense adjusted for amortization of assets expense (non-GAAP)		45,428			39,859
Net interest income (GAAP)		71,336			63,043
Plus: taxable equivalent adjustment		1,399			1,088
Noninterest income (GAAP)		10,619			10,353
Less: net (losses) gains on equity securities		(37)			9
Net interest income (FTE) plus noninterest income (non-GAAP)	$	83,391		$	74,475
Efficiency ratio (non-GAAP)		54.5	%		53.5	%

Net Interest Income:

Net interest income is the fundamental source of earnings for commercial banks. Fluctuations in the level of net interest income can have the greatest impact on net profits. Net interest income is defined as the difference between interest revenue, interest and fees earned on interest-earning assets, and interest expense, the cost of interest-bearing liabilities supporting those assets. The primary sources of earning assets are loans and investment securities, while interest-bearing deposits, short-term and long-term borrowings, and subordinated debt comprise interest-bearing liabilities. Net interest income is impacted by:

● Variations in the volume, rate and composition of earning assets and interest-bearing liabilities;

● Changes in general market rates; and

● The level of nonperforming assets.

Changes in net interest income are measured by the net interest spread and net interest margin. Net interest spread, the difference between the average yield earned on earning assets and the average rate incurred on interest-bearing liabilities, illustrates the effects changing interest rates have on profitability. Net interest margin, net interest income as a percentage of earning assets, is a more comprehensive ratio, as it reflects not only the spread, but also the change in the

47

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

composition of interest-earning assets and interest-bearing liabilities. Tax-exempt loans and investments carry pre-tax yields lower than their taxable counterparts. Therefore, in order to make the analysis of net interest income more comparable, tax-exempt income and yields are reported herein on a tax-equivalent basis using the prevailing federal statutory tax rate of 21.0% in 2022 and 2021.

For the three months ended September 30, tax-equivalent net interest income increased $3.1 million to $25.5 million in 2022 from $22.4 million in 2021. The net interest spread decreased to 2.87% for the three months ended September 30, 2022 from 2.95% for the three months ended September 30, 2021 as the earning asset yield increased 22 basis points while the average rate paid on interest-bearing liabilities increased 30 basis points. The tax-equivalent net interest margin increased to 3.08% for the third quarter of 2022 from 3.07% for the comparable period of 2021.

For the three months ended September 30, tax-equivalent interest income, a non-GAAP measure, on earning assets increased $5.2 million to $29.7 million in 2022 as compared to $24.5 million in 2021. The overall yield on earning assets, on a fully tax-equivalent basis, increased 22 basis points for the three months ended September 30, 2022 to

3.59% as compared to 3.37% for the three months ended September 30, 2021. The increase to tax-equivalent interest income is due to the increase in our earning asset base of $391.1 million. PPP loan interest income and net fees

contributed $204 thousand in income for the quarter. Excluding the PPP loans, the loan yield was 4.10%. The overall yield earned on investments decreased 34 basis points in the third quarter of 2022 to 1.67% from 2.01% for the third quarter of 2021 as investment cash flow from high yielding securities matured and pre-refunded municipal bonds are deployed into lower yielding bonds. Average investment balances were $290.9 million higher when comparing the current and year ago quarter. Average federal funds sold decreased $297.4 million to $13.7 million for the three months ended September 30, 2022 and yielded 3.08%, as compared to $311.0 million and yield of 0.16% in the year ago period, to fund our loan growth and investment purchases. We expect asset yields to move upward as asset cash flow reprices higher due to the recent increases to the federal funds rate by the FOMC and expectation of further rate increases by the FOMC to combat inflation.  

Total interest expense increased $2.0 million to $4.2 million for the three months ended September 30, 2022 from $2.2 million for the three months ended September 30, 2021. The total cost of funds increased 30 basis points for the three months ended September 30, 2022 to 0.72% as compared to 0.42% in the year ago period. The increase in costs was due to higher rates on interest-bearing deposits combined with higher average balances including higher short-term borrowings in the current period. Average rates paid on deposits has increased as the result of the FOMC’s corresponding rate increases. We expect our cost of funds to come under pressure over the remaining months of 2022 as market rates have risen rapidly since year end as the FOMC aggressively increases interest rates in an attempt to curb inflation.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Net interest income changes due to rate and volume for the nine months ended September 30

	2022 vs 2021
	Increase (decrease)
	attributable to
	Total		Rate		Volume
Interest income:
Loans:
Taxable	$	5,785	$	(696)	$	6,481
Tax-exempt		1,086		(593)		1,679
Investments:
Taxable		2,302		(1,396)		3,698
Tax-exempt		396		(287)		683
Interest-bearing deposits		55		56		(1)
Federal funds sold		(27)		313		(340)
Total interest income		9,597		(2,603)		12,200
Interest expense:
Money market accounts	$	510	$	304	$	206
NOW accounts		589		98		491
Savings accounts		27		(10)		37
Time deposits less than $100		(135)		(142)		7
Time deposits $100 or more		(341)		(252)		(89)
Short-term borrowings		502		341		161
Long-term debt		(159)		124		(283)
Subordinated debt
Total interest expense		993		463		530
Net interest income - non-GAAP	$	8,604	$	(3,066)	$	11,670

Tax-equivalent net interest income, a non-GAAP measure, was $72.7 million in the nine months ended September 30, 2022 and $64.1 million in the comparable period last year. There was a positive volume variance that was partially offset by a negative rate variance. The growth in average earning assets exceeded that of interest-bearing liabilities, and resulted in additional tax-equivalent net interest income, a non-GAAP measure, of $11.7 million. A rate variance resulted in a decrease in net interest income of $3.1 million.

Average earning assets increased $400.0 million to $3.2 billion for the nine months ended September 30, 2022

from $2.8 billion for the nine months ended September 30, 2021 and accounted for a $12.2 million increase in interest income. Average loans increased $272.4 million, which caused interest income to increase $8.2 million. Specifically, average PPP loans totaled $37.8 million and generated $1.7 million of interest and net fees in the current period compared to average PPP loans of $179.0 million and $6.3 million of interest and fees in the prior period. Average taxable investments increased $271.9 million comparing 2022 and 2021, which resulted in increased interest income of $3.7 million while average tax-exempt investments increased $32.5 million, which resulted in an increase to interest income of $0.7 million. Average federal funds sold decreased $175.0 million for the nine months ended

September 30, 2022 which resulted in a decrease of $0.3 million to interest income.

Average interest-bearing liabilities rose $295.0 million to $2.3 billion for the nine months ended September 30, 2022 from $2.0 billion for the nine months ended September 30, 2021 resulting in a net increase in interest expense of $530 thousand. Interest-bearing transaction accounts, including money market, NOW and savings accounts grew $295.2 million, which in aggregate caused a $734 thousand increase in interest expense. In addition, large denomination time deposits averaged $14.7 million less in the current period and caused interest expense to decrease $89 thousand. An increase of $487 thousand in average time deposits less than $100 thousand resulted in an increase to interest expense

of $7 thousand. In addition, short-term borrowings averaged $21.7 million higher and increased interest expense $161 thousand while long-term debt averaged $7.7 million lower and decreased interest expense by $283 thousand comparing the first nine months of 2022 and 2021.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

A slightly unfavorable rate variance occurred, as the tax-equivalent yield on earning assets decreased 2 basis points while there was a 1 basis point decrease in the cost of funds. As a result, tax-equivalent net interest income decreased $3.1 million comparing the nine months ended September 30, 2022 and 2021. The tax-equivalent yield on earning assets was 3.39% in the 2022 period compared to 3.41% in 2021 resulting in a decrease in interest income of $2.6 million. The yield on the taxable investment portfolio decreased 40 basis points to 1.53% during the nine months ended September 30, 2022 from 1.93% in the year ago period, resulting in a decrease of $1.4 million. The yield on the tax exempt investment portfolio decreased 30 basis points to 2.36% during the nine months ended September 30, 2022 from 2.66% in the year ago period, resulting in a decrease of $287 thousand. The tax-equivalent yield on the loan portfolio decreased 7 basis points to 3.93% in 2022 from 4.00% in 2021 and resulted in a decrease to interest income of $1.3 million.

PPP loans yielded 5.96% during the nine months ended September 30, 2022 compared to 4.69% in the year ago period. The increase resulted from the higher interest income versus PPP loan forgiveness and the accretion of deferred fees.

The cost of deposits and borrowings were relatively flat when compared to a year ago.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

The average balances of assets and liabilities, corresponding interest income and expense and resulting average yields or rates paid are summarized as follows. Averages for earning assets include nonaccrual loans. Investment averages include available-for-sale securities at amortized cost. Income on investment securities and loans is adjusted to a tax equivalent basis using the prevailing federal statutory tax rate of 21%.

	Three months ended
	September 30, 2022						September 30, 2021
	Average		Interest Income/		Yield/		Average		Interest Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Earning assets:
Loans:
Taxable	$	2,377,803	$	25,128	4.19	%	$	2,033,752	$	21,276	4.15	%
Tax-exempt		225,637		1,694	2.98			169,273		1,296	3.04
Total loans		2,603,440		26,822	4.09			2,203,025		22,572	4.06
Investments:
Taxable		544,782		2,096	1.53			280,767	$	1,309	1.85
Tax-exempt		111,578		659	2.34			84,701		547	2.56
Total investments		656,360		2,755	1.67			365,468		1,856	2.01
Interest-bearing deposits		9,180		41	1.77			12,004		2	0.07
Federal funds sold		13,665		106	3.08			311,015		124	0.16
Total earning assets		3,282,645		29,724	3.59	%		2,891,512		24,554	3.37	%
Less: allowance for loan losses		29,863						26,947
Other assets		210,724						229,403
Total assets	$	3,463,506	$	29,724			$	3,093,968	$	24,554
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Money market accounts	$	630,165	$	1,228	0.77	%	$	567,971	$	452	0.32	%
NOW accounts		770,582		1,184	0.61			667,867	$	499	0.30
Savings accounts		527,244		123	0.09			476,966	$	96	0.08
Time deposits less than $100		132,599		358	1.07			128,846	$	338	1.04
Time deposits $100 or more		168,239		423	1.00			166,218	$	313	0.75
Total interest-bearing deposits		2,228,829		3,316	0.59			2,007,868		1,698	0.34
Short-term borrowings		78,922		457	2.30
Long-term debt		1,369		16	4.64			3,475	$	41	4.68
Subordinated debt		33,000		443	5.33			33,000	$	443	5.37
Total borrowings		113,291		916	3.21			36,475		484	0.45
Total interest-bearing liabilities		2,342,120		4,232	0.72			2,044,343		2,182	0.42
Noninterest-bearing deposits		770,833						696,331
Other liabilities		38,840						25,635
Stockholders’ equity		311,713						327,659
Total liabilities and stockholders’ equity	$	3,463,506		4,232			$	3,093,968		2,182
Net interest income/spread			$	25,492	2.87	%			$	22,372	2.95	%
Net interest margin					3.08	%					3.07	%
Tax-equivalent adjustments:
Loans			$	356					$	272
Investments				138						115
Total adjustments			$	494					$	387

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

	Nine months ended
	September 30, 2022						September 30, 2021
	Average		Interest Income/		Yield/		Average		Interest Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Earning assets:
Loans:
Taxable	$	2,260,993	$	67,990	4.02	%	$	2,054,486	$	62,205	4.05	%
Tax-exempt		213,803		4,705	2.94			147,952		3,619	3.27
Total loans		2,474,796		72,695	3.93			2,202,438		65,824	4.00
Investments:
Taxable		540,512		6,178	1.53			268,573		3,876	1.93
Tax-exempt		111,041		1,957	2.36			78,512		1,561	2.66
Total investments		651,553		8,135	1.67			347,085		5,437	2.09
Interest-bearing deposits		9,846		61	0.83			11,589		6	0.07
Federal funds sold		66,057		201	0.41			241,103		228	0.13
Total earning assets		3,202,252		81,092	3.39	%		2,802,215		71,495	3.41	%
Less: allowance for loan losses		29,144						27,264
Other assets		216,960						227,297
Total assets	$	3,390,068	$	81,092			$	3,002,248	$	71,495
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Money market accounts	$	604,918	$	2,061	0.46	%	$	538,524	$	1,551	0.39	%
NOW accounts		790,852		2,248	0.38			616,518		1,659	0.36
Savings accounts		517,381		316	0.08			462,865		289	0.08
Time deposits less than $100		128,639		965	1.00			128,152		1,100	1.15
Time deposits $100 or more		160,949		791	0.66			175,673		1,132	0.86
Total interest-bearing deposits		2,202,739		6,381	0.39			1,921,732		5,731	0.40
Short-term borrowings		40,401		579	1.92			18,682		77	0.55
Long-term debt		1,911		67	4.69			9,629		226	3.14
Subordinated debt		33,000		1,330	5.39			33,000		1,330	5.37
Total borrowings		75,312		1,976	3.51			61,311		1,633	3.56
Total interest-bearing liabilities		2,278,051		8,357	0.49			1,983,043		7,364	0.50
Noninterest-bearing deposits		751,549						670,748
Other liabilities		35,947						25,929
Stockholders’ equity		324,521						322,528
Total liabilities and stockholders’ equity	$	3,390,068		8,357			$	3,002,248		7,364
Net interest income/spread			$	72,735	2.90	%			$	64,131	2.91	%
Net interest margin					3.04	%					3.06	%
Tax-equivalent adjustments:
Loans			$	988					$	760
Investments				411						328
Total adjustments			$	1,399					$	1,088

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Provision for Loan Losses:

We evaluate the adequacy of the allowance for loan losses account on a quarterly basis utilizing our systematic analysis in accordance with procedural discipline. We take into consideration certain factors such as composition of the loan portfolio, volumes of nonperforming loans, volumes of net charge-offs, prevailing economic conditions and other relevant factors when determining the adequacy of the allowance for loan losses account. We generally make monthly provisions to the allowance for loan losses account in order to maintain the allowance at the appropriate level indicated by our evaluations. Based on our most current evaluation, we believe that the allowance is adequate to absorb any known and inherent losses in the portfolio as of September 30, 2022.

For the three months ended September 30, 2022, the provision for loan losses increased to $450 thousand from $400 thousand in the year ago period due to improving credit trends.  The provision for loan losses in the three month period ended September 30, 2022 is the result of growth of non-PPP loans.

The provision for loan losses was $1.7 million for the nine months ended September 30, 2022, compared to no provision for the comparable period of 2021.  The higher provision in the nine month period ended September 30, 2022 is the result of $340.7 million in non-PPP loan growth during the period. The lack of a provision in the prior year period was due to improved credit quality and the reversal of COVID related asset quality adjustments.

Noninterest Income:

Noninterest income for the three months ended September 30, 2022 was $3.3 million, a decrease of $132 thousand or 3.8% from $3.4 million in the same quarter a year ago. The decline was primarily due to decreases in mortgage banking revenue of $109 thousand, due to lower volumes of mortgage loans being sold into the secondary market and a reduction in fees earned from our Wealth Management division of $93 thousand, due to stock market fluctuations. The reductions in quarterly income were partially offset by an increase of $51 thousand from commercial loan interest rate swaps due to higher credit value adjustments in the quarter when compared to the same quarter a year ago.

Noninterest income for the nine months ended September 30, 2022 was $10.6 million, an increase of $266 thousand or 2.6% from $10.3 million in the same period a year ago.  During the period, service charges, fees, and commissions increased $691 thousand due to an increase in consumer and commercial deposit related service charges, and the reversal of an accrual of a $335 thousand bank owned life insurance benefit in the year ago period, partially offset by a decrease in mortgage banking income of $357 thousand due to lower sales volumes.

Noninterest Expenses:

In general, noninterest expense is categorized into three main groups: employee-related expenses, occupancy and equipment expenses and other expenses. Employee-related expenses are costs associated with providing salaries, including payroll taxes and benefits, to our employees. Occupancy and equipment expenses, the costs related to the maintenance of facilities and equipment, include depreciation, general maintenance and repairs, real estate taxes, rental expense offset by any rental income, and utility costs. Other expenses include general operating expenses such as advertising, contractual services, insurance, including FDIC assessment, other taxes and supplies. Several of these costs and expenses are variable while the remainder are fixed. We utilize budgets and other related strategies in an effort to control the variable expenses.

Noninterest expense increased $1.8 million or 12.6% to $15.9 million for the three months ended September 30, 2022, from $14.1 for the same period a year ago. Salaries and employee benefits increased $645 thousand or 8.2% due to annual merit increases and the addition of lending teams and credit support staff in our newest expansion markets of Piscataway, New Jersey and Pittsburgh, Pennsylvania that opened during the fourth quarter of 2021. Occupancy and equipment expenses were higher by $748 thousand in the current period also due to our expansion markets, plus the addition of information technology investments related to mobile/digital banking solutions implemented during the second half of 2021.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

For the nine months ended September 30, 2022, noninterest expense increased $5.5 million or 13.6% to $45.7 million from $40.2 million for the same period in 2021. Salaries and employee benefits expense increased $2.7 million due primarily to annual merit increases, our investment into our newest markets and lower deferred loan origination costs, which are recorded as a contra-salary expense. Occupancy and equipment expense increased $2.2 million due to information technology investments related to mobile/digital banking solutions implemented during the second half of 2021 and additional costs related to entrance into the Piscataway, New Jersey and Pittsburgh, Pennsylvania markets. Other expenses, which include professional, consulting and loan account processing fees increased by $0.9 million due to higher consulting and advisory expenses, Pennsylvania shares taxes and FDIC assessments.

Income Taxes:

We recorded income tax expense of $2.0 million or 16.4% of pre-tax income, and $5.6 million or 16.2% of pre-tax income for the three and nine months ended September 30, 2022, respectively. This compares to the three and nine month periods ended September 30, 2021 in which we recorded tax expense of $1.8 million or 16.5% of pre-tax income, and $6.1 million or 18.2% of pre-tax income, respectively. The current year to date period benefited from a higher level of tax-exempt income while the prior year included a $621 deferred tax adjustment. Excluding this adjustment, the effective tax rate would have been 16.4% for the nine month period ended September 30, 2021.

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Peoples Financial Services Corp.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market risk is the risk to our earnings and/or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily interest rate risk (“IRR”), which arises from our lending, investing and deposit gathering activities. Our market risk sensitive instruments consist of derivative and non-derivative financial instruments, none of which are entered into for trading purposes. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in reported earnings and/or the market value of net worth. Variations in interest rates affect the underlying economic value of assets, liabilities and off-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value, and provide a basis for the expected change in future earnings related to interest rates. Interest rate changes affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. IRR is inherent in the role of banks as financial intermediaries.

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

The Company utilizes the pricing and structure of loans and deposits, the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, and off-balance sheet interest rate contracts to manage interest rate risk. The off-balance sheet interest rate contracts may include interest rate swaps, caps and floors. These interest rate contracts involve, to varying degrees, credit risk and interest rate risk. Credit risk is the possibility that a loss may occur if a counterparty to a transaction fails to perform according to terms of the contract. The notional amount of the interest rate contracts is the amount upon which interest and other payments are based. The notional amount is not exchanged, and therefore, should not be taken as a measure of credit risk. See Note 15 to the Audited Consolidated Financial Statements for additional information.

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

The ALCO reviews simulation results to determine whether the Company’s exposure to a decline in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure. As of September 30, 2022 and December 31, 2021, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Company. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where both interest rates and the composition of the Company’s balance sheet remain stable for a 24-month and 60-month period. In addition to measuring the change in net interest income as compared to an unchanged interest rate scenario, the ALCO also measures the trend of both net interest income and net interest margin over a 24-month and 60-month horizon to ensure the stability and adequacy of this source of earnings in different interest rate scenarios

Model results at September 30, 2022 indicated a significantly higher starting level of net interest income (“NII”) compared to the December 31, 2021 model as balance sheet growth, a shift in balance sheet mix and higher assumed

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Peoples Financial Services Corp.

market rates led to an increase to the balance sheet spread of 27 basis points. After the first twelve months of the model simulation, the benefit to NII increases as a result of the higher assumed replacement rates on assets resulting from the FOMC’s increase to the federal funds rate of 300 basis points during the first nine months of 2022. Our interest rate risk position exhibits a relatively well-matched position to both rising and falling interest rate environments in the first year of simulation while a sustained falling rate environment presents the greatest potential risk to NII over the longer-term horizon. This position at September 30, 2022 is less asset-sensitive than the simulation at December 31, 2021 indicated due to the addition of fixed rate assets to mitigate our exposure to flat and falling rates.

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

During 2022, the FOMC has increased the federal funds target rate in part to mitigate historically high inflation. Through November 2, 2022, there have been six rate increases totaling 375 basis points. Although we have realized higher rates on our existing adjustable rate loans and new originations, our average funding costs have been under pressure and during the three months ended September 30, 2022 increased 33 basis points compared to the three months ended June 30, 2022 as rate-sensitive customers seek higher returns. We expect our funding costs to continue to increase in the future due to expectations the FOMC will continue to increase the targeted federal funds rate which may negatively impact our net interest income.

The projected impacts of instantaneous changes in interest rates on our net interest income and economic value of equity at September 30, 2022, based on our simulation model, as compared to our ALCO policy limits are summarized as follows:

	September 30, 2022
	% Change in
Changes in Interest Rates (basis points)	Net Interest Income		Economic Value of Equity
	Metric	Policy	Metric	Policy
+400	(6.7)	(20.0)	2.5	(40.0)
+300	(5.1)	(20.0)	2.9	(30.0)
+200	(3.6)	(10.0)	2.9	(20.0)
+100	(1.5)	(10.0)	2.6	(10.0)
Static
-100	(1.2)	(10.0)	(6.5)	(10.0)

Our simulation model creates pro forma net interest income scenarios under various interest rate shocks. Given instantaneous and parallel shifts in general market rates of plus 100 basis points, our projected net interest income for the 12 months ending September 30, 2022, would decrease 1.5% from model results using current interest rates. Additional disclosures about market risk are included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, and in Part I, Item 2 of this quarterly report, in each case under the heading “Market Risk Sensitivity,” and are incorporated into this Item 3 by reference.

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

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Peoples Financial Services Corp.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

At September 30, 2022, the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that the disclosure controls and procedures, at September 30, 2022, were effective to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosure.

(b) Changes in internal control.

There were no changes made in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The nature of the Company’s business generates a certain amount of litigation involving matters arising out of the ordinary course of business. In the opinion of management, there were no legal proceedings that had or might have a material effect on the consolidated results of operations, liquidity, or the financial position of the Company during the nine-months ended September 30, 2022 and through the date of this quarterly report on Form 10-Q.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K) describes market, credit, and business operations risk factors that could affect our business, results of operations or financial condition including, among other things, outbreaks of highly infectious or contagious diseases. There have been no material changes from the risk factors as previously disclosed in our 2021 Form 10-K.

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

On January 29, 2021, our board of directors authorized a common stock repurchase plan whereby we are authorized to repurchase up to 343,400 shares of our outstanding common stock through open market purchases.

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Peoples Financial Services Corp.

The following purchases were made by or on behalf of the Company or any “affiliated purchaser,” as defined in the Exchange Act Rule 10b-18(a)(3), of the Company’s common stock during each of the months for the quarter ended September 30, 2022.

				Total Number of	Maximum Number
				Shares Purchased	of Shares that may
				as Part of Publicly	yet be Purchased
	Total Number of		Average Price	Announced	Under the
Month Ending	Shares Purchased		Paid Per Share	Programs	Programs
July 31, 2022		$		263,880	288,070
August 31, 2022				263,880	288,070
September 30, 2022	7,911		47.99	271,791	280,159

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Item Number	Description
31.1	CEO Certification Pursuant to Rule 13a-14 (a) /15d-14 (a).
31.2	CFO Certification Pursuant to Rule 13a-14 (a) /15d-14 (a). (a).
32	CEO and CFO Certifications Pursuant to Section 1350.
101	The following materials from Peoples Financial Services Corp. Quarterly Report on Form 10-Q for the period ended September 30, 2022, formatted in inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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Peoples Financial Services Corp.

SIGNATURES

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

	Peoples Financial Services Corp.
	(Registrant)
Date: November 8, 2022	/s/ Craig W. Best
	Craig W. Best
	Chief Executive Officer
	(Principal Executive Officer)
Date: November 8, 2022	/s/ John R. Anderson, III
	John R. Anderson, III
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

59

EX-31.1

Peoples Financial Services Corp.

Exhibit 31.1

CERTIFICATION

I, Craig W. Best, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2022, of Peoples Financial Services Corp.;

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

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

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

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

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

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

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

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

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

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

/s/ Craig W. Best

Chief Executive Officer

(Principal Executive Officer)

Date: November 8, 2022

EX-31.2

Peoples Financial Services Corp.

Exhibit 31.2

CERTIFICATION

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

1. I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2022, of Peoples Financial Services Corp.;

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

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

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

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

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

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

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

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

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

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

/s/ John R. Anderson, III

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: November 8, 2022

EX-32

Peoples Financial Services Corp.

Exhibit 32

SECTION 1350 CERTIFICATIONS

In connection with the Quarterly Report on Form 10-Q of Peoples Financial Services Corp. (the “Company”) for the period ended September 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), I, Craig W. Best, Chief Executive Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Craig W. Best

Chief Executive Officer

(Principal Executive Officer)

Date: November 8, 2022

/s/ John R. Anderson, III

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: November 8, 2022

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

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2022	Nov. 01, 2022
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Sep. 30, 2022
Entity File Number	001-36388
Entity Registrant Name	PEOPLES FINANCIAL SERVICES CORP.
Entity Incorporation, State or Country Code	PA
Entity Tax Identification Number	23-2391852
Entity Address, Address Line One	150 North Washington Avenue
Entity Address, City or Town	Scranton
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	18503
City Area Code	570
Local Phone Number	346-7741
Title of 12(b) Security	Common stock, $2.00 par value
Trading Symbol	PFIS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		7,160,198
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Entity Central Index Key	0001056943
Amendment Flag	false

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Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Cash and cash equivalents
Cash and due from banks	$ 35,000	$ 30,415
Interest-bearing deposits in other banks	8,410	7,093
Federal funds sold	69,600	242,425
Total cash and cash equivalents	113,010	279,933
Investment securities:
Available-for-sale	477,590	517,321
Equity investments carried at fair value	103	140
Held-to-maturity: Fair value September 30, 2022, $78,512; December 31, 2021, $70,446	92,771	71,213
Total investment securities	570,464	588,674
Loans	2,623,706	2,329,173
Less: allowance for loan losses	29,822	28,383
Net loans	2,593,884	2,300,790
Loans held for sale	653	408
Premises and equipment, net	54,394	51,502
Accrued interest receivable	10,082	8,528
Goodwill	63,370	63,370
Intangible assets, net	179	468
Bank owned life insurance	48,235	42,754
Other assets	62,535	33,056
Total assets	3,516,806	3,369,483
Deposits:
Noninterest-bearing	769,935	737,756
Interest-bearing	2,354,205	2,225,641
Total deposits	3,124,140	2,963,397
Short-term borrowings	14,700	0
Long-term debt	1,104	2,711
Subordinated debentures	33,000	33,000
Accrued interest payable	1,129	408
Other liabilities	40,923	29,841
Total liabilities	3,214,996	3,029,357
Stockholders' equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,162,750 shares at September 30, 2022 and 7,169,372 shares at December 31, 2021	14,330	14,341
Capital surplus	126,845	127,549
Retained earnings	224,238	203,750
Accumulated other comprehensive loss	(63,603)	(5,514)
Total stockholders' equity	301,810	340,126
Total liabilities and stockholders' equity	$ 3,516,806	$ 3,369,483

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Consolidated Balance Sheets
Held-to-maturity, Fair value	$ 78,512	$ 70,446
Common stock, par value	$ 2.00	$ 2.00
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	7,162,750	7,169,372
Common stock, shares outstanding	7,162,750	7,169,372

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Consolidated Statements of Income and Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Interest and fees on loans:
Taxable	$ 25,128	$ 21,276	$ 67,990	$ 62,205
Tax-exempt	1,338	1,024	3,717	2,859
Interest and dividends on investment securities:
Taxable	2,096	1,285	6,176	3,804
Tax-exempt	521	432	1,546	1,233
Dividends		24	2	72
Interest on interest-bearing deposits in other banks	41	2	61	6
Interest on federal funds sold	106	124	201	228
Total interest income	29,230	24,167	79,693	70,407
Interest expense:
Interest on deposits	3,316	1,698	6,381	5,731
Interest on short-term borrowings	457		579	78
Interest on long-term debt	16	41	67	225
Interest on subordinated debt	443	443	1,330	1,330
Total interest expense	4,232	2,182	8,357	7,364
Net interest income	24,998	21,985	71,336	63,043
Provision (credit) for loan losses	450	400	1,700
Net interest income after provision (credit) for loan losses	24,548	21,585	69,636	63,043
Noninterest income:
Mortgage banking income	135	244	407	764
Increase in cash surrender value of life insurance	269	225	731	669
Interest rate swap revenue	130	79	757	744
Net (losses) gains on equity investment securities	(18)	5	(37)	9
Total noninterest income	3,317	3,449	10,619	10,353
Noninterest expense:
Salaries and employee benefits expense	8,474	7,829	24,365	21,649
Net occupancy and equipment expense	3,898	3,150	11,673	9,464
Amortization of intangible assets	96	125	289	375
Net gain on sale of other real estate owned		(97)	(478)	(195)
Professional fees and outside services	664	629	1,900	1,645
FDIC insurance and assessments	324	305	969	836
Donations	373	366	1,038	1,084
Other expenses	2,106	1,840	5,961	5,376
Total noninterest expense	15,935	14,147	45,717	40,234
Income before income taxes	11,930	10,887	34,538	33,162
Income tax expense	1,962	1,791	5,587	6,057
Net income	9,968	9,096	28,951	27,105
Other comprehensive (loss) income:
Unrealized loss on investment securities available-for-sale	(21,510)	(3,130)	(72,791)	(8,409)
Change in derivative fair value	(46)	(128)	(740)	(22)
Other comprehensive loss	(21,556)	(3,258)	(73,531)	(8,431)
Income tax benefit related to other comprehensive loss	(4,527)	(684)	(15,442)	(1,771)
Other comprehensive loss, net of income tax benefit	(17,029)	(2,574)	(58,089)	(6,660)
Comprehensive (loss) income	$ (7,061)	$ 6,522	$ (29,138)	$ 20,445
Net income:
Basic	$ 1.39	$ 1.26	$ 4.04	$ 3.76
Diluted	$ 1.38	$ 1.26	$ 4.01	$ 3.74
Average common shares outstanding:
Basic	7,169,809	7,198,125	7,171,382	7,204,399
Diluted	7,213,147	7,233,189	7,214,966	7,239,463
Dividends declared	$ 0.40	$ 0.38	$ 1.18	$ 1.12
Service charges, fees and commissions
Noninterest income:
Revenue from contracts with customers	$ 1,714	$ 1,667	$ 5,167	$ 4,476
Merchant services income
Noninterest income:
Revenue from contracts with customers	157	158	833	759
Commission and fees on fiduciary activities
Noninterest income:
Revenue from contracts with customers	591	639	1,697	1,725
Wealth management income
Noninterest income:
Revenue from contracts with customers	$ 339	$ 432	$ 1,064	$ 1,207

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Capital Surplus	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Balance at Dec. 31, 2020	$ 14,431	$ 129,274	$ 171,023	$ 2,149	$ 316,877
Net income			9,478		9,478
Other comprehensive income (loss), net of income taxes				(5,931)	(5,931)
Dividends declared			(2,665)		(2,665)
Stock based compensation		89			89
Restricted stock issued	18	(18)
Share retirement	(26)	(491)			(517)
Balance at Mar. 31, 2021	14,423	128,854	177,836	(3,782)	317,331
Balance at Dec. 31, 2020	14,431	129,274	171,023	2,149	316,877
Net income					27,105
Other comprehensive income (loss), net of income taxes					(6,660)
Balance at Sep. 30, 2021	14,356	127,826	190,061	(4,511)	327,732
Balance at Mar. 31, 2021	14,423	128,854	177,836	(3,782)	317,331
Net income			8,531		8,531
Other comprehensive income (loss), net of income taxes				1,845	1,845
Dividends declared			(2,665)		(2,665)
Stock based compensation		177			177
Share retirement	(16)	(312)			(328)
Balance at Jun. 30, 2021	14,407	128,719	183,702	(1,937)	324,891
Net income			9,096		9,096
Other comprehensive income (loss), net of income taxes				(2,574)	(2,574)
Dividends declared			(2,737)		(2,737)
Stock based compensation		213			213
Share retirement	(51)	(1,106)			(1,157)
Balance at Sep. 30, 2021	14,356	127,826	190,061	(4,511)	327,732
Balance at Dec. 31, 2021	14,341	127,549	203,750	(5,514)	340,126
Net income			9,630		9,630
Other comprehensive income (loss), net of income taxes				(26,153)	(26,153)
Dividends declared			(2,796)		(2,796)
Stock based compensation		(28)			(28)
Restricted stock issued	24	(24)
Share retirement	(13)	(305)			(318)
Balance at Mar. 31, 2022	14,352	127,192	210,584	(31,667)	320,461
Balance at Dec. 31, 2021	14,341	127,549	203,750	(5,514)	340,126
Net income					28,951
Other comprehensive income (loss), net of income taxes					(58,089)
Balance at Sep. 30, 2022	14,330	126,845	224,238	(63,603)	301,810
Balance at Mar. 31, 2022	14,352	127,192	210,584	(31,667)	320,461
Net income			9,353		9,353
Other comprehensive income (loss), net of income taxes				(14,907)	(14,907)
Dividends declared			(2,798)		(2,798)
Stock based compensation		116			116
Restricted stock issued	8	(8)
Share retirement	(14)	(314)			(328)
Balance at Jun. 30, 2022	14,346	126,986	217,139	(46,574)	311,897
Net income			9,968		9,968
Other comprehensive income (loss), net of income taxes				(17,029)	(17,029)
Dividends declared			(2,869)		(2,869)
Stock based compensation		223			223
Share retirement	(16)	(364)			(380)
Balance at Sep. 30, 2022	$ 14,330	$ 126,845	$ 224,238	$ (63,603)	$ 301,810

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Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021
Consolidated Statements of Changes in Stockholders' Equity
Dividends declared (in dollars per share)	$ 0.40	$ 0.39	$ 0.39	$ 0.38	$ 0.37	$ 0.37
Restricted stock issued, shares		4,071	12,332			9,192
Share retirement, shares	7,911	6,853	6,714	25,699	7,828	13,101
Unearned income		$ 210	$ 210			$ 182

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Consolidated Statements of Cash Flows $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($)	Sep. 30, 2021 USD ($)
Cash flows from operating activities:
Net income	$ 28,951	$ 27,105
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment	2,051	1,883
Amortization of right-of-use lease asset	443	320
Amortization (accretion) of deferred loan fees, net	1,314	(4,636)
Amortization of intangibles	289	375
Amortization of low income housing partnerships	362	360
Provision (credit) for loan losses	1,700
Net unrealized loss (gain) on equity investment securities	37	(9)
Net gain on sale of other real estate owned	(478)	(195)
Loans originated for sale	(6,139)	(18,462)
Proceeds from sale of loans originated for sale	5,937	18,577
Net gain on sale of loans originated for sale	(43)	(275)
Net amortization of investment securities	1,146	875
Gain on sale of premises and equipment		(20)
Increase in cash surrender value of life insurance	(731)	(669)
Deferred income tax expense		620
Stock based compensation	311	479
Net change in:
Accrued interest receivable	(1,555)	(25)
Other assets	(1,911)	313
Accrued interest payable	721	136
Other liabilities	(2,180)	(1,108)
Net cash provided by operating activities	30,225	25,644
Proceeds from repayments of investment securities:
Available-for-sale	35,314	40,111
Held-to-maturity	4,188	367
Purchases of investment securities:
Available-for-sale	(69,392)	(214,856)
Held-to-maturity	(25,872)	(25,996)
Net (purchase) redemption of restricted equity securities	(457)	1,481
Net increase in loans	(296,108)	(24,238)
Purchases of premises and equipment	(5,386)	(3,668)
Proceeds from the sale of premises and equipment		101
Investment in bank owned life insurance	(5,881)
Proceeds from bank owned life insurance	1,132	251
Proceeds from sale of other real estate owned	967	995
Net cash used in investing activities	(361,495)	(225,452)
Cash flows from financing activities:
Net (decrease) increase in deposits	160,743	403,806
Repayment of long-term debt	(1,607)	(11,534)
Net increase (decrease) in short-term borrowings	14,700	(50,000)
Retirement of common stock	(1,026)	(2,002)
Cash dividends paid	(8,463)	(8,067)
Net cash provided by financing activities	164,347	332,203
Net (decrease) increase in cash and cash equivalents	(166,923)	132,395
Cash and cash equivalents at beginning of period	279,933	228,192
Cash and cash equivalents at end of period	113,010	360,587
Cash paid during the period for:
Interest	7,636	7,228
Income taxes	$ 7,395	5,600
Noncash items:
Transfers of loans to other real estate		545
Initial recognition of right-of-use assets		2,253
Initial recognition of lease liability		$ 2,253

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Summary of significant accounting policies

9 Months Ended

Sep. 30, 2022

Summary of significant accounting policies

Summary of significant accounting policies

1. Summary of significant accounting policies:

Nature of operations:

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

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three and nine months ended and as of September 30, 2022, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, the valuation of deferred tax assets, and impairment of goodwill. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2021.

Fourth Quarter Dividend Declaration

On October 28, 2022, the Board of Directors declared a fourth quarter dividend of $0.40 per share. The dividend is payable on December 15, 2022 to shareholders of record as of November 30, 2022.

Recent accounting standards:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by the Company as of the required effective dates. The following should be read in conjunction with "Note 1 Summary of significant accounting policies" of the Notes to the Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2021.

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

Recently Issued But Not Yet Effective Accounting Pronouncements

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), as modified by subsequent ASUs, changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology. Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, ASU 2016-13 requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The effect of implementing this ASU is recorded through a cumulative-effect adjustment to retained earnings. The Company has formed a committee and engaged outside vendors to implement a platform to utilize the alternative loss estimation methodologies in determining the impact that adoption of this standard will have on the Company’s financial condition and results of operations. The Company is required to adopt this guidance effective January 1, 2023.

ASU No. 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  This ASU eliminates the accounting guidance for troubled debt restructurings (TDRs) by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while adding disclosures for certain loan restructurings by creditors when a borrower is experiencing financial difficulty.  This guidance requires an entity to determine whether the modification results in a new loan or a continuation of an existing loan.  Additionally, the ASU requires disclosure of current period gross write-offs by year of origination for financing receivables.  The Company is required to adopt this guidance effective January 1, 2023. The Company is currently evaluating the impact adoption of this ASU will have on its financial results and will add the required disclosures for gross charge offs in its financial statements upon adoption of the new standard.

ASU 2020-04, Reference Rate Reform (Topic 848) provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference the London Inter Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. Some specific optional expedients are as follows:

● Simplifies accounting for contract modifications, including modifications to loans receivable and debt, by prospectively adjusting the effective interest rate.

● Simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue.

The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. The Company expects to apply the amendments prospectively for applicable loan and other contracts within the effective period of ASU 2020-04.

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Other comprehensive loss

9 Months Ended

Sep. 30, 2022

Other comprehensive loss

Other comprehensive loss

2. Other comprehensive loss:

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

The components of accumulated other comprehensive loss included in stockholders’ equity at September 30, 2022 and December 31, 2021 are as follows:

		September 30, 2022		December 31, 2021
Net unrealized loss on investment securities available-for-sale	$	(74,582)	$	(1,791)
Income tax benefit		(15,662)		(376)
Net of income taxes		(58,920)		(1,415)
Benefit plan adjustments		(5,868)		(5,868)
Income tax benefit		(1,232)		(1,232)
Net of income taxes		(4,636)		(4,636)
Derivative adjustments		(60)		680
Income tax (benefit) expense		(13)		143
Net of income taxes		(47)		537
Accumulated other comprehensive loss	$	(63,603)	$	(5,514)

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Earnings per share

9 Months Ended

Sep. 30, 2022

Earnings per share

Earnings per share

3. Earnings per share:

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

The following table presents the calculation of both basic and diluted earnings per share of common stock for the three and nine months ended September 30, 2022 and 2021:

	2022				2021
For the Three Months Ended September 30,	Basic		Diluted		Basic		Diluted
Net income	$	9,968	$	9,968	$	9,096	$	9,096
Average common shares outstanding		7,169,809		7,213,147		7,198,125		7,233,189
Earnings per share	$	1.39	$	1.38	$	1.26	$	1.26
	2022				2021
For the Nine Months Ended September 30,	Basic		Diluted		Basic		Diluted
Net income	$	28,951	$	28,951	$	27,105	$	27,105
Average common shares outstanding		7,171,382		7,214,966		7,204,399		7,239,463
Earnings per share	$	4.04	$	4.01	$	3.76	$	3.74

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Investment securities

9 Months Ended

Sep. 30, 2022

Investment securities

Investment securities

4. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at September 30, 2022 and December 31, 2021 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2022	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	247,812	$		$	23,476	$	224,336
U.S. government-sponsored enterprises		16,976				625		16,351
State and municipals:
Taxable		69,913		1		13,680		56,234
Tax-exempt		100,078		1		15,493		84,586
Residential mortgage-backed securities:
U.S. government agencies		1,130				39		1,091
U.S. government-sponsored enterprises		100,020				20,312		79,708
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,243				564		11,679
Corporate debt securities		4,000				395		3,605
Total	$	552,172	$	2	$	74,584	$	477,590
Held-to-maturity:
Tax-exempt state and municipals	$	11,247	$		$	1,286	$	9,961
Residential mortgage-backed securities:
U.S. government agencies		17,732				2,679		15,053
U.S. government-sponsored enterprises		63,792				10,294		53,498
Total	$	92,771	$		$	14,259	$	78,512

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2021	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	193,849	$	107	$	2,382	$	191,574
U.S. government-sponsored enterprises		33,435		343				33,778
State and municipals:
Taxable		69,066		994		1,082		68,978
Tax-exempt		96,412		2,452		614		98,250
Residential mortgage-backed securities:
U.S. government agencies		1,790		53				1,843
U.S. government-sponsored enterprises		109,018		939		2,925		107,032
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,542		406				12,948
Corporate debt securities		3,000				82		2,918
Total	$	519,112	$	5,294	$	7,085	$	517,321
Held-to-maturity:
Tax-exempt state and municipals	$	11,476	$	126	$	56	$	11,546
Residential mortgage-backed securities:
U.S. government agencies		18,802				392		18,410
U.S. government-sponsored enterprises		40,935		3		448		40,490
Total	$	71,213	$	129	$	896	$	70,446

Restricted Investment In Stock

Restricted investment in stock includes Federal Home Loan Bank (“FHLB”) stock with a carrying cost of $4.5 million and $4.0 million at September 30, 2022 and December 31, 2021, respectively, and Atlantic Community Bankers Bank (“ACBB”) stock with a carrying cost of $42 thousand at September 30, 2022 and December 31, 2021, respectively, which are included in other assets in the consolidated balance sheets. FHLB and ACBB stock was issued as a requirement to facilitate participation in borrowing and other banking services. The investment in FHLB stock may fluctuate, as it is based on the member bank’s use of FHLB’s services.

These restricted investments are carried at cost and evaluated for other-than-temporary impairment (“OTTI”) quarterly. As of September 30, 2022, there was no OTTI associated with these investments.

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available-for-sale at September 30, 2022, is summarized as follows:

	Fair
September 30, 2022	Value
Within one year	$	18,608
After one but within five years		204,991
After five but within ten years		74,710
After ten years		84,516
		382,825
Mortgage-backed and other amortizing securities		94,765
Total	$	477,590

 The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at September 30, 2022, is summarized as follows:

	Amortized		Fair
September 30, 2022	Cost		Value
After five but within ten years	$	8,294	$	7,410
After ten years		2,953		2,551
		11,247		9,961
Mortgage-backed securities		81,524		68,551
Total	$	92,771	$	78,512

Securities with a carrying value of $165.1 million and $203.6 million at September 30, 2022 and December 31, 2021, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law.

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-case basis. At September 30, 2022 and December 31, 2021, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. government agencies and sponsored enterprises, which exceeded 10.0 percent of stockholders’ equity.

The fair value and gross unrealized losses of investment securities with unrealized losses for which an OTTI has not been recognized at September 30, 2022 and December 31, 2021, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

		Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
September 30, 2022	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities	16	$	83,156	$	5,372	37	$	141,180	$	18,104	53	$	224,336	$	23,476
U.S. government-sponsored enterprises	5		16,351		625						5		16,351		625
State and municipals:
Taxable	32		27,779		4,951	34		26,547		8,729	66		54,326		13,680
Tax-exempt	74		57,580		7,835	58		35,886		8,944	132		93,466		16,779
Residential mortgage-backed securities:
U.S. government agencies	6		1,098		39	3		15,046		2,679	9		16,144		2,718
U.S. government-sponsored enterprises	26		54,953		9,141	16		78,254		21,465	42		133,207		30,606
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises	4		11,679		564						4		11,679		564
Corporate debt securities	1		947		53	5		2,658		342	6		3,605		395
Total	164	$	253,543	$	28,580	153	$	299,571	$	60,263	317	$	553,114	$	88,843

		Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
December 31, 2021	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities	42	$	179,974	$	2,382		$		$		42	$	179,974	$	2,382
State and municipals:
Taxable	27		26,827		718	8		8,008		364	35		34,835		1,082
Tax-exempt	61		38,693		357	2		10,319		313	63		49,012		670
Residential mortgage-backed securities:
U.S. government agencies	3		18,398		392						3		18,398		392
U.S. government-sponsored enterprises	13		77,875		1,454	7		48,276		1,919	20		126,151		3,373
Corporate debt securities	4		2,449		51	1		470		31	5		2,919		82
Total	150	$	344,216	$	5,354	18	$	67,073	$	2,627	168	$	411,289	$	7,981

The unrealized losses on securities are primarily due to the changes in market interest rates subsequent to purchase. The Company did not consider these securities to have OTTI at September 30, 2022 or December 31, 2021 since the decline in market value was attributable to changes in interest rates and not to changes in credit quality. In addition, the Company does not intend to sell and does not believe that it is more likely than not that it will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result, no impairment loss was recognized during the nine months ended September 30, 2022 or for the year ended December 31, 2021.

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Loans, net and allowance for loan losses

9 Months Ended

Sep. 30, 2022

Loans, net and allowance for loan losses

Loans, net and allowance for loan losses

5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at September 30, 2022 and December 31, 2021 are summarized as follows. The Company had net deferred loan origination fees of $0.3 million and $1.6 million at September 30, 2022 and December 31, 2021, respectively. The decrease to the fees since year-end is due in part to the forgiveness by the Small Business Administration (“SBA”) of Paycheck Protection Program (“PPP”) loans.

At the period end		September 30, 2022	December 31, 2021
Commercial
Taxable	$	371,164	$	424,455
Non-taxable		224,764		188,672
Total		595,928		613,127
Real estate
Commercial		1,620,116		1,343,539
Residential		326,223		297,624
Total		1,946,339		1,641,163
Consumer
Indirect Auto		70,006		65,791
Consumer Other		11,433		9,092
Total		81,439		74,883
Total	$	2,623,706	$	2,329,173

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

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

Net deferred loan origination fees remaining related to PPP loans is $0.3 million at September 30, 2022, compared to $1.7 million at December 31, 2021. The PPP loans are included in the taxable commercial loan classification and had an outstanding balance at September 30, 2022 of $22.7 million comprised of $11.2 million remaining from those originated during 2021 as part of round two and $11.5 million remaining from loans originated during 2020 under round one of the program. At December 31, 2021, PPP loans had outstanding balances totaling $68.9 million. The PPP loans are risk rated ‘Pass’ and do not carry an allowance for loan losses due to a 100% SBA guarantee. At September 30, 2022 and December 31, 2021, the outstanding PPP balances were considered current.

The changes in the allowance for loan losses account by major classification of loan for the three and nine months ended September 30, 2022 and 2021 are summarized as follows:

			Real estate
September 30, 2022	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance July 1, 2022	$	7,766	$	17,569	$	3,220	$	819	$	29,374
Charge-offs				(15)				(86)		(101)
Recoveries		10		32		1		56		99
Provisions (credits)		(5)		437		9		9		450
Ending balance	$	7,771	$	18,023	$	3,230	$	798	$	29,822
			Real estate
September 30, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance July 1, 2021	$	8,520	$	14,281	$	3,069	$	869	$	26,739
Charge-offs		(446)		(12)				(8)		(466)
Recoveries		4		1				15		20
Provisions (credits)		(164)		519		92		(47)		400
Ending balance	$	7,914	$	14,789	$	3,161	$	829	$	26,693

			Real estate
September 30, 2022	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2022	$	8,453	$	15,928	$	3,209	$	793	$	28,383
Charge-offs		(161)		(147)		(2)		(244)		(554)
Recoveries		39		109		4		141		293
Provisions (credits)		(560)		2,133		19		108		1,700
Ending balance	$	7,771	$	18,023	$	3,230	$	798	$	29,822
			Real estate
September 30, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2021	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Charge-offs		(461)		(252)		(24)		(114)		(851)
Recoveries		83		67		2		48		200
Provisions (credits)		(442)		415		54		(27)		—
Ending balance	$	7,914	$	14,789	$	3,161	$	829	$	26,693

The allocation of the allowance for loan losses and the related loans by major classifications of loans at September 30, 2022 and December 31, 2021 is summarized as follows:

			Real estate
September 30, 2022	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	7,771	$	18,023	$	3,230	$	798	$	29,822
Ending balance: individually evaluated for impairment		19		1		21				41
Ending balance: collectively evaluated for impairment	$	7,752	$	18,022	$	3,209	$	798	$	29,781
Loans receivable:
Ending balance	$	595,928	$	1,620,116	$	326,223	$	81,439	$	2,623,706
Ending balance: individually evaluated for impairment		114		2,721		1,161				3,996
Ending balance: collectively evaluated for impairment	$	595,814	$	1,617,395	$	325,062	$	81,439	$	2,619,710

			Real estate
December 31, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	8,453	$	15,928	$	3,209	$	793	$	28,383
Ending balance: individually evaluated for impairment		40		109		26				175
Ending balance: collectively evaluated for impairment	$	8,413	$	15,819	$	3,183	$	793	$	28,208
Loans receivable:
Ending balance	$	613,127	$	1,343,539	$	297,624	$	74,883	$	2,329,173
Ending balance: individually evaluated for impairment		199		2,889		1,274				4,362
Ending balance: collectively evaluated for impairment	$	612,928	$	1,340,650	$	296,350	$	74,883	$	2,324,811

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

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

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

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

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

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

The following tables present the major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at September 30, 2022 and December 31, 2021:

			Special
September 30, 2022	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	587,033	$	8,065	$	830	$	$	595,928
Real estate:
Commercial		1,606,076		7,722		6,318			1,620,116
Residential		324,452		114		1,657			326,223
Consumer		81,170				269			81,439
Total	$	2,598,731	$	15,901	$	9,074	$	$	2,623,706

			Special
December 31, 2021	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	611,151	$	896	$	1,080	$	$	613,127
Real estate:
Commercial		1,324,646		13,939		4,954			1,343,539
Residential		294,892		333		2,399			297,624
Consumer		74,744				139			74,883
Total	$	2,305,433	$	15,168	$	8,572	$	$	2,329,173

The increase to special mention commercial loans is primarily the result of the downgrade of one credit with an outstanding balance of $7.8 million, due to insufficient cash flows as the borrower’s operations have not stabilized in the anticipated timeframe.  The decrease to special mention commercial real estate loans is due in part to an upgrade of a $3.5 million credit resulting from improved financial performance and satisfactory repayment history and the payoff of a $2.4 million credit.   The increase to substandard commercial real estate loans is primarily due to the downgrade of three credits totaling $1.7 million as a result of repayment uncertainty. These downgrades were offset by the payoff/reduction of various credits. Substandard residential real estate loans decreased $0.7 million primarily due to the payoff of a $0.5 million credit.

Information concerning nonaccrual loans by major loan classification at September 30, 2022 and December 31, 2021 is summarized as follows:

		September 30, 2022		December 31, 2021
Commercial	$	102	$	185
Real estate:
Commercial		1,787		1,793
Residential		423		694
Consumer		245		139
Total	$	2,557	$	2,811

Nonaccrual loans decreased $254 thousand from year end December 31, 2021 due to decreases in commercial, commercial real estate and residential loans, partially offset by increases in consumer loans.

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

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
September 30, 2022	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	35	$		$	102	$	137	$	595,791	$	595,928	$
Real estate:
Commercial		146		605		330		1,081		1,619,035		1,620,116
Residential		341		640		565		1,546		324,677		326,223		280
Consumer		405		234		98		737		80,702		81,439
Total	$	927	$	1,479	$	1,095	$	3,501	$	2,620,205	$	2,623,706	$	280

Improved credit quality resulted in lower levels of past due loans from year end.

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2021	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	101		155	$	158	$	414	$	612,713	$	613,127	$
Real estate:
Commercial		768	$	423		834		2,025		1,341,514		1,343,539
Residential		1,552		207		265		2,024		295,600		297,624		13
Consumer		477		163		51		691		74,192		74,883
Total	$	2,898	$	948	$	1,308	$	5,154	$	2,324,019	$	2,329,173	$	13

The following tables summarize information concerning impaired loans as of and for the three and nine months ended September 30, 2022 and September 30, 2021, and as of and for the year ended December 31, 2021 by major loan classification:

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2022	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	94	$	425			$	110	$	3	$	129	$	7
Real estate:
Commercial		2,389		3,193				2,431		9		2,497		31
Residential		918		1,102				957		6		915		16
Consumer		245		256				258				215
Total		3,646		4,976				3,756		18		3,756		54
With an allowance recorded:
Commercial		20		20	$	19		27		—		29		—
Real estate:
Commercial		332		332		1		381		7		429		15
Residential		243		247		21		257		3		297		9
Total		595		599		41		665		10		755		24
Total impaired loans
Commercial		114		445		19		137		3		158		7
Real estate:
Commercial		2,721		3,525		1		2,812		16		2,926		46
Residential		1,161		1,349		21		1,214		9		1,212		25
Consumer		245		256				258				215
Total	$	4,241	$	5,575	$	41	$	4,421	$	28	$	4,511	$	78

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2021	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	158	$	481			$	964	$	13
Real estate:
Commercial		2,376		3,120				2,719		22
Residential		873		1,073				1,016		19
Consumer		139		148				100
Total		3,546		4,822				4,799		54
With an allowance recorded:
Commercial		41		41		40		1,091		15
Real estate:
Commercial		513		543		109		802		22
Residential		401		401		26		436		13
Consumer
Total		955		985		175		2,329		50
Total impaired loans
Commercial		199		522		40		2,055		28
Real estate:
Commercial		2,889		3,663		109		3,521		44
Residential		1,274		1,474		26		1,452		32
Consumer		139		148				100
Total	$	4,501	$	5,807	$	175	$	7,128	$	104

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2021	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	634	$	1,097			$	870	$	2	$	1,166	$	9
Real estate:
Commercial		2,560		3,275				2,785		4		2,805		19
Residential		991		1,184				999		5		1,051		15
Consumer		82		96				79				91
Total		4,267		5,652				4,733		11		5,113		43
With an allowance recorded:
Commercial		424		424	$	18		695		5		1,354		15
Real estate:
Commercial		534		564		107		604		4		875		14
Residential		440		446		41		450		3		445		10
Consumer
Total		1,398		1,434		166		1,749		12		2,674		39
Total impaired loans
Commercial		1,058		1,521		18		1,565		7		2,520		24
Real estate:
Commercial		3,094		3,839		107		3,389		8		3,680		33
Residential		1,431		1,630		41		1,449		8		1,496		25
Consumer		82		96				79				91
Total	$	5,665	$	7,086	$	166	$	6,482	$	23	$	7,787	$	82

 Loan Modifications/Troubled Debt Restructurings/COVID-19

Included in the commercial real estate and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $1.4 million at September 30, 2022, $1.6 million at December 31, 2021 and $2.6 million at September 30, 2021.

Troubled debt restructured loans are loans with original terms, interest rate, or both, that have been modified as a result of a deterioration in the borrower’s financial condition and a concession has been granted that the Company would not otherwise consider. Unless on nonaccrual, interest income on these loans is recognized when earned, using the interest method. The Company offers a variety of modifications to borrowers that would be considered concessions. The modification categories offered generally fall within the following categories:

● Rate Modification - A modification in which the interest rate is changed to a below market rate.

● Term Modification - A modification in which the maturity date, timing of payments or frequency of payments is changed.

● Payment Modification - A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

● Combination Modification - Any other type of modification, including the use of multiple categories above.

There were no loans modified as troubled debt restructurings during the nine months ended September 30, 2022 or 2021.

During the three months and nine ended September 30, 2022 or 2021, there were no payment defaults on troubled debt restructurings.

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Other assets

9 Months Ended

Sep. 30, 2022

Other assets

Other assets

6. Other assets:

The increase in other assets was due to the increase to the net deferred tax asset related to the higher unrealized loss of the available-for-sale securities portfolio and an increase in the fair value of our commercial customers interest rate swaps due to higher market rates. The components of other assets at September 30, 2022 and December 31, 2021 are summarized as follows:

		September 30, 2022		December 31, 2021
Other real estate owned	$	121	$	609
Investment in low income housing partnership		5,539		5,900
Mortgage servicing rights		931		882
Restricted equity securities (FHLB and other)		4,502		4,045
Net deferred tax asset		20,793		5,355
Interest rate floor		4		844
Interest rate swaps		22,807		9,026
Other assets		7,838		6,395
Total	$	62,535	$	33,056

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Fair value estimates

9 Months Ended

Sep. 30, 2022

Fair value estimates

Fair value estimates

7. Fair value estimates:

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

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

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

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

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

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

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

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

During the periods ended September 30, 2022 and December 31, 2021 there were no transfers in or out of Level 3.

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

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

Loans held for sale: The fair values of loans held for sale are based upon current delivery prices in the secondary mortgage market.

Interest rate swaps and options:  The Company’s interest rate swaps and options are reported at fair value utilizing Level 2 inputs. Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for interest rate, forward rates, rate volatility, and volatility surface. Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty.

Assets and liabilities measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
September 30, 2022	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	224,336	$	224,336	$		$
U.S. government-sponsored enterprises		16,351				16,351
State and municipals:
Taxable		56,234				56,234
Tax-exempt		84,586				84,586
Mortgage-backed securities:
U.S. government agencies		1,091				1,091
U.S. government-sponsored enterprises		91,387				91,387
Corporate debt securities		3,605				3,605
Common equity securities		103		103
Total investment securities	$	477,693	$	224,439	$	253,254	$
Loan held for sale	$	653			$	653
Interest rate floor-other assets	$	4			$	4
Interest rate swap-other assets	$	22,953			$	22,953
Interest rate swap-other liabilities	$	(22,089)			$	(22,089)

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2021	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	191,574	$	191,574			$
U.S. government-sponsored enterprises		33,778			$	33,778
State and municipals:
Taxable		68,978				68,978
Tax-exempt		98,250				98,250
Mortgage-backed securities:
U.S. government agencies		1,843				1,843
U.S. government-sponsored enterprises		119,980				119,980
Corporate debt securities		2,918				2,918
Common equity securities		140		140
Total investment securities	$	517,461	$	191,714	$	325,747	$
Loan held for sale	$	408			$	408
Interest rate floor-other assets	$	844			$	844
Interest rate swap-other assets	$	9,026			$	9,026
Interest rate swap-other liabilities	$	(8,811)			$	(8,811)

Assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2022 and December 31, 2021 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
September 30, 2022	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	553			$	553

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2021	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	780			$	780
Other real estate owned	$	487			$	487

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

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

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
September 30, 2022	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	553	Appraisal of collateral	Appraisal adjustments	21.6% to 97.0%  (70.6)%
				Liquidation expenses	3.0% to 6.0% (5.2)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2021	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	780	Appraisal of collateral	Appraisal adjustments	6.4% to 97.0%  (65.2)%
				Liquidation expenses	3.0% to 6.0% (5.1)%
Other real estate owned	$	487	Appraisal of collateral	Appraisal adjustments	35.9% to 35.9%  (35.9)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

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

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

The carrying and fair values of the Company’s financial instruments at September 30, 2022 and December 31, 2021 and their placement within the fair value hierarchy are as follows:

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
September 30, 2022	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	113,010	$	113,010	$	113,010
Investment securities:
Available-for-sale		477,590		477,590		224,336	$	253,254
Common equity securities		103		103		103
Held-to-maturity		92,771		78,512				78,512
Loans held for sale		653		653				653
Net loans		2,593,884		2,508,050					$	2,508,050
Accrued interest receivable		10,082		10,082				10,082
Mortgage servicing rights		931		1,433				1,433
Restricted equity securities (FHLB and other)		4,502		4,502				4,502
Interest rate floor		4		4				4
Interest rate swaps		22,953		22,953				22,953
Total	$	3,316,483	$	3,216,892
Financial liabilities:
Deposits	$	3,124,140	$	3,113,415			$	3,113,415
Short-term borrowings		14,700		14,700				14,700
Long-term debt		1,104		1,106				1,106
Subordinated debentures		33,000		33,211				33,211
Accrued interest payable		1,129		1,129				1,129
Interest rate swaps		22,089		22,089				22,089
Total	$	3,196,162	$	3,185,650

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2021	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	279,933	$	279,933	$	279,933
Investment securities:
Available-for-sale		517,321		517,321		191,574	$	325,747
Common equity securities		140		140		140
Held-to-maturity		71,213		70,446				70,446
Loans held for sale		408		408				408
Net loans		2,300,790		2,261,586					$	2,261,586
Accrued interest receivable		8,528		8,528				8,528
Mortgage servicing rights		882		1,357				1,357
Restricted equity securities (FHLB and other)		4,045		4,045				4,045
Interest rate floor		844		844				844
Interest rate swaps		9,026		9,026				9,026
Total	$	3,193,130	$	3,153,634
Financial liabilities:
Deposits	$	2,963,397	$	2,963,547			$	2,963,547
Long-term debt		2,711		2,778				2,778
Subordinated debentures		33,000		32,337				32,337
Accrued interest payable		408		408				408
Interest rate swaps		8,811		8,811				8,811
Total	$	3,008,327	$	3,007,881

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Employee benefit plans

9 Months Ended

Sep. 30, 2022

Employee benefit plans

Employee benefit plans

8. Employee benefit plans:

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

For the three and nine months ended September 30, salaries and employee benefits expense includes approximately $373 thousand and $970 thousand in 2022, and $343 thousand and $991 thousand in 2021 relating to the employee benefit plans.

	Pension Benefits
Three Months Ended September 30,	2022		2021
Components of net periodic pension benefit:
Interest cost	$	114	$	105
Expected return on plan assets		(352)		(322)
Amortization of unrecognized net gain		50		76
Net periodic benefit	$	(188)	$	(141)
	Pension Benefits
Nine Months Ended September 30,	2022		2021
Components of net periodic pension benefit:
Interest cost	$	342	$	315
Expected return on plan assets		(1,056)		(966)
Amortization of unrecognized net gain		149		227
Net periodic benefit	$	(565)	$	(424)

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

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

● Determine the type, size and term of awards.

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

● Accelerate the vesting or exercisability of an award.

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

As of September 30, 2022, there were 17,364 shares of the Company’s common stock available for grant as awards pursuant to the 2017 Plan. If any outstanding awards under the 2017 Plan are forfeited by the holder or canceled by the Company, the underlying shares would be available for regrant to others.

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

For the nine months ended September 30, 2022 and 2021, the Company granted awards of restricted stock and restricted stock units under the 2017 Plan, with an aggregate of 19,787 shares and 19,818 shares underlying such awards, respectively.

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

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

The Company recognized net compensation costs of $223 thousand and $613 thousand for the three and nine months ended September 30, 2022 for awards granted under the 2017 Plan. The Company recognized compensation expense of $213 thousand and $479 thousand for the three and nine months ended September 30, 2021 for awards granted under the 2017 Plan. As of September 30, 2022, the Company had $1.2 million of unrecognized compensation expense associated with restricted stock awards. The remaining cost is expected to be recognized over a weighted average vesting period of under 1.8 years.

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Derivatives and hedging activities

9 Months Ended

Sep. 30, 2022

Derivatives and hedging activities

Derivatives and hedging activities

9. Derivatives and hedging activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts principally related to the Company’s assets and borrowings.

Cash Flow Hedges of Interest Rate Risk

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

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense/income as interest payments are made/received on the Company’s variable-rate debt/assets. During the next twelve months, the Company estimates that an additional $64 thousand will be reclassified as an increase to interest income. 

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of September 30, 2022, the Company had 86 interest rate swaps with an aggregate notional amount of $386.2 million related to this program.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021.

			Asset Derivatives			Asset Derivatives			Liability Derivatives			Liability Derivatives
			As of September 30, 2022 (1)			As of December 31, 2021 (1)			As of September 30, 2022 (2)			As of December 31, 2021 (2)
		Notional	Balance Sheet			Balance Sheet			Balance Sheet			Balance Sheet
		Amount	Location	Fair Value		Location	Fair Value		Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments
Interest Rate Floor	$	25,000	Other Assets	$	4	Other Assets	$	844
Total derivatives designated as hedging instruments				$	4		$	844		$			$
Derivatives not designated as hedging instruments
Interest Rate Swaps (2)	$	386,171	Other Assets	$	22,953	Other Assets	$	9,026	Other Liabilities	$	22,089	Other Liabilities	$	8,811
Total derivatives not designated as hedging instruments				$	22,953		$	9,026		$	22,089		$	8,811

(1) Amounts include accrued interest.

(2) Notional amount of interest rate swaps at December 31, 2021 was $392,677.

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

The table below presents the effect of fair value and cash flow hedge accounting on accumulated other comprehensive income (loss) as of September 30, 2022 and September 30, 2021.

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain

(Loss)

(Loss)

(Loss)

(Loss)

Recognized from

Gain

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

September 30, 2022

Income

September 30, 2022

Derivatives in Cash Flow Hedging Relationships

Cash Flow Swap

Other expense

Interest Rate Floor (*)

$

(512)

$

(497)

$

(15)

Interest Income

$

228

$

276

$

(48)

Total

$

(512)

$

(497)

$

(15)

$

228

$

276

$

(48)

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain (Loss)

Loss

Gain (Loss)

Gain (Loss)

Gain

Recognized from

Gain (Loss)

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

September 30, 2021

Income

September 30, 2021

Derivatives in Cash Flow Hedging Relationships

Cash Flow Swap

$

401

$

401

Interest Expense

$

(23)

$

(23)

Cash Flow Swap

Other Expense

(25)

(25)

Interest Rate Floor (*)

$

(66)

$

(70)

$

4

Interest Income

$

405

$

453

$

(48)

Total

$

335

$

331

$

4

$

357

$

405

$

(48)

* Amounts disclosed are gross and not net of taxes.

Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income and Comprehensive Income

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2022 and September 30, 2021.

		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		For the three months ended September 30,
		2022		2022		2021		2021
		Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	4	$		$	137
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	4	$		$	137	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	$	20	$		$	153	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$	(16)			$	(16)	$
		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		For the nine months ended September 30,
		2022		2022		2021		2021
		Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	228	$		$	405	$	(48)
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	228	$		$	405	$	(23)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring							$	(25)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	$	276	$		$	453	$	(48)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$	(48)			$	(48)	$

Effect of Derivative Instruments on the Consolidated Statements of Income and Comprehensive Income

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2022 and 2021.

		Amount of Gain		Amount of Gain		Amount of Gain		Amount of Loss
		Recognized in		Recognized in		Recognized in		Recognized in
	Location of Gain or (Loss)	Income		Income		Income		Income
	Recognized in Income on	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
Derivatives Not Designated as Hedging Instruments	Derivative	September 30, 2022		September 30, 2022		September 30, 2021		September 30, 2021
Interest Rate Swaps	Interest rate swap revenue	$	129	$	652	$	7	$	175
Other Contracts			1		4
Total		$	130	$	656	$	7	$	175
Fee Income	Fee income	$	2	$	106	$	72	$	569

Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2022 and December 31, 2021. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Balance Sheets.

Offsetting of Derivative Assets
as of September 30, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Received		Amount
Derivatives	$	22,957	$	$	22,957	$		$	14,700	$	8,257
Offsetting of Derivative Liabilities
as of September 30, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Paid*		Amount
Derivatives	$	22,089	$	$	22,089	$	22,089	$		$
*Cash collateral of $7,830 was paid but not presented as an offset above.
Offsetting of Derivative Assets
as of December 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Received		Amount
Derivatives	$	9,870	$	$	9,870	$	3,218	$		$	6,652
Offsetting of Derivative Liabilities
as of December 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Paid		Amount
Derivatives	$	8,818	$	$	8,818	$	3,218	$	5,600	$

Credit-risk-related Contingent Features

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

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

As of September 30, 2022, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $2.2 million. As of December 31, 2021, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $5.6 million. The Company has minimum

collateral posting thresholds with certain of its derivative counterparties, and had posted collateral of $7.8 million with dealer counterparties at September 30, 2022 and December 31, 2021. Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the agreement. The cash collateral is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above. If the Company had breached any of these provisions it could have been required to settle its obligations under the agreements at the termination value.

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Deposits

9 Months Ended

Sep. 30, 2022

Deposits.

Deposits

10. Deposits

The major components of interest-bearing and noninterest-bearing deposits at September 30, 2022 and December 31, 2021 are summarized as follows:

At the period end	September 30, 2022		December 31, 2021
Interest-bearing deposits:
Money market accounts	$	706,947	$	588,245
Now accounts		813,743		851,086
Savings accounts		530,124		491,796
Time deposits less than $250		224,517		203,719
Time deposits $250 or more		78,874		90,795
Total interest-bearing deposits		2,354,205		2,225,641
Noninterest-bearing deposits		769,935		737,756
Total deposits	$	3,124,140	$	2,963,397

Total deposits increased $160.7 million from December 31, 2021 due to an increase of $128.6 million to interest-bearing deposits and $32.1 million increase to noninterest-bearing deposits. Money market deposits increased $118.7 million, savings accounts increased $38.3 million and time deposits less than $250 thousand increased $20.8 million. Non-maturity deposits, including non-interest checking, money markets and savings accounts increased in part due to growth of new customer relationships in our newest markets in Pittsburgh, Pennsylvania and Piscataway, New Jersey and to depositors holding more cash. Brokered deposits added during the nine months ended September 30, 2022 totaled $33.3 million and were used to offset a portion of the deposit outflows and lock-in then current interest rates during the second quarter 2022, as our expectation is for interest rates to continue to increase throughout the remainder of 2022. Of the brokered deposits added since December 31, 2021, $11.4 million are callable which gives the Bank the option to call the certificates of deposit after the initial three month term.

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Borrowings

9 Months Ended

Sep. 30, 2022

Borrowings

Borrowings

11. Borrowings

Short-term borrowings consist of FHLB advances representing overnight borrowings or with stated original terms of less than twelve months and other borrowings related to collateral held from derivative counterparties. Total short-term borrowings at September 30, 2022 were $14.7 million as compared to no short-term borrowings at December 31, 2021. Other borrowings, which include cash collateral pledged by derivative counterparties to offset interest rate exposure, totaled $14.7 million and increased due to higher market interest rates. The table below outlines short-term borrowings at and for the nine months ended September 30, 2022 and for the year ended December 31, 2021:   

		At and for the nine months ended September 30, 2022
									Weighted
					Maximum		Weighted		Average
	Ending		Average		Month-End		Average		Rate at End
	Balance		Balance		Balance		Rate		of the Period
Other borrowings	$	14,700	$	8,434	$	14,700	1.17	%	3.08	%
FHLB advances				31,967		125,975	2.11	%
Total short-term borrowings	$	14,700	$	40,401	$	140,675	1.92	%	3.08	%

	At and for the year ended December 31, 2021
						Weighted		Weighted
				Maximum		Average		Average
	Ending	Average		Month-End		Rate for		Rate at End
	Balance	Balance		Balance		the Year		of the Year
FHLB advances	$	$	13,973	$	50,000	0.56	%		%

The Company has an agreement with the FHLB which allows for borrowings up to its maximum borrowing capacity based on a percentage of qualifying collateral assets. At September 30, 2022, the maximum borrowing capacity was $1.1 billion of which $1.1 million was outstanding in borrowings and $383.2 million was used to issue standby letters of credit to collateralize public fund deposits. At December 31, 2021, the maximum borrowing capacity was $896.1 million of which $2.7 million was outstanding in borrowings and $373.0 million was used to issue standby letters of credit to collateralize public fund deposits.

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

Long-term debt consisting of one advance from the FHLB at September 30, 2022 and December 31, 2021 is as follows:

	Interest Rate
Due	Fixed		September 30, 2022		December 31, 2021
March 2023	4.69	$	1,104		2,711
		$	1,104	$	2,711

Maturities of long-term debt, by contractual maturity, for the remainder of 2022 and subsequent years are as follows:

2022	$	549
2023		555
	$	1,104

The advance from the FHLB totaling $1.1 million is not convertible.

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Subordinated debt

9 Months Ended

Sep. 30, 2022

Subordinated debt

Subordinated debt

12. Subordinated debt

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

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

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

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Summary of significant accounting policies (Policies)

9 Months Ended

Sep. 30, 2022

Summary of significant accounting policies

Nature of operations

Nature of operations:

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

Basis of presentation

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three and nine months ended and as of September 30, 2022, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, the valuation of deferred tax assets, and impairment of goodwill. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2021.

Fourth Quarter Dividend Declaration

Fourth Quarter Dividend Declaration

On October 28, 2022, the Board of Directors declared a fourth quarter dividend of $0.40 per share. The dividend is payable on December 15, 2022 to shareholders of record as of November 30, 2022.

Recent accounting standards and Recently Issued But Not Yet Effective Accounting Pronouncements

Recent accounting standards:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by the Company as of the required effective dates. The following should be read in conjunction with "Note 1 Summary of significant accounting policies" of the Notes to the Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2021.

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

Recently Issued But Not Yet Effective Accounting Pronouncements

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), as modified by subsequent ASUs, changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology. Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, ASU 2016-13 requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The effect of implementing this ASU is recorded through a cumulative-effect adjustment to retained earnings. The Company has formed a committee and engaged outside vendors to implement a platform to utilize the alternative loss estimation methodologies in determining the impact that adoption of this standard will have on the Company’s financial condition and results of operations. The Company is required to adopt this guidance effective January 1, 2023.

ASU No. 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  This ASU eliminates the accounting guidance for troubled debt restructurings (TDRs) by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while adding disclosures for certain loan restructurings by creditors when a borrower is experiencing financial difficulty.  This guidance requires an entity to determine whether the modification results in a new loan or a continuation of an existing loan.  Additionally, the ASU requires disclosure of current period gross write-offs by year of origination for financing receivables.  The Company is required to adopt this guidance effective January 1, 2023. The Company is currently evaluating the impact adoption of this ASU will have on its financial results and will add the required disclosures for gross charge offs in its financial statements upon adoption of the new standard.

ASU 2020-04, Reference Rate Reform (Topic 848) provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference the London Inter Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. Some specific optional expedients are as follows:

● Simplifies accounting for contract modifications, including modifications to loans receivable and debt, by prospectively adjusting the effective interest rate.

● Simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue.

The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. The Company expects to apply the amendments prospectively for applicable loan and other contracts within the effective period of ASU 2020-04.

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Other comprehensive income (loss) (Tables)

9 Months Ended

Sep. 30, 2022

Other comprehensive loss

Schedule of components of accumulated other comprehensive income (loss)

		September 30, 2022		December 31, 2021
Net unrealized loss on investment securities available-for-sale	$	(74,582)	$	(1,791)
Income tax benefit		(15,662)		(376)
Net of income taxes		(58,920)		(1,415)
Benefit plan adjustments		(5,868)		(5,868)
Income tax benefit		(1,232)		(1,232)
Net of income taxes		(4,636)		(4,636)
Derivative adjustments		(60)		680
Income tax (benefit) expense		(13)		143
Net of income taxes		(47)		537
Accumulated other comprehensive loss	$	(63,603)	$	(5,514)

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Earnings per share (Tables)

9 Months Ended

Sep. 30, 2022

Earnings per share

Schedule of earnings per share

	2022				2021
For the Three Months Ended September 30,	Basic		Diluted		Basic		Diluted
Net income	$	9,968	$	9,968	$	9,096	$	9,096
Average common shares outstanding		7,169,809		7,213,147		7,198,125		7,233,189
Earnings per share	$	1.39	$	1.38	$	1.26	$	1.26
	2022				2021
For the Nine Months Ended September 30,	Basic		Diluted		Basic		Diluted
Net income	$	28,951	$	28,951	$	27,105	$	27,105
Average common shares outstanding		7,171,382		7,214,966		7,204,399		7,239,463
Earnings per share	$	4.04	$	4.01	$	3.76	$	3.74

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Investment securities (Tables)

9 Months Ended

Sep. 30, 2022

Investment Securities

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

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2022	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	247,812	$		$	23,476	$	224,336
U.S. government-sponsored enterprises		16,976				625		16,351
State and municipals:
Taxable		69,913		1		13,680		56,234
Tax-exempt		100,078		1		15,493		84,586
Residential mortgage-backed securities:
U.S. government agencies		1,130				39		1,091
U.S. government-sponsored enterprises		100,020				20,312		79,708
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,243				564		11,679
Corporate debt securities		4,000				395		3,605
Total	$	552,172	$	2	$	74,584	$	477,590
Held-to-maturity:
Tax-exempt state and municipals	$	11,247	$		$	1,286	$	9,961
Residential mortgage-backed securities:
U.S. government agencies		17,732				2,679		15,053
U.S. government-sponsored enterprises		63,792				10,294		53,498
Total	$	92,771	$		$	14,259	$	78,512

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2021	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	193,849	$	107	$	2,382	$	191,574
U.S. government-sponsored enterprises		33,435		343				33,778
State and municipals:
Taxable		69,066		994		1,082		68,978
Tax-exempt		96,412		2,452		614		98,250
Residential mortgage-backed securities:
U.S. government agencies		1,790		53				1,843
U.S. government-sponsored enterprises		109,018		939		2,925		107,032
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,542		406				12,948
Corporate debt securities		3,000				82		2,918
Total	$	519,112	$	5,294	$	7,085	$	517,321
Held-to-maturity:
Tax-exempt state and municipals	$	11,476	$	126	$	56	$	11,546
Residential mortgage-backed securities:
U.S. government agencies		18,802				392		18,410
U.S. government-sponsored enterprises		40,935		3		448		40,490
Total	$	71,213	$	129	$	896	$	70,446

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

		Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
September 30, 2022	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities	16	$	83,156	$	5,372	37	$	141,180	$	18,104	53	$	224,336	$	23,476
U.S. government-sponsored enterprises	5		16,351		625						5		16,351		625
State and municipals:
Taxable	32		27,779		4,951	34		26,547		8,729	66		54,326		13,680
Tax-exempt	74		57,580		7,835	58		35,886		8,944	132		93,466		16,779
Residential mortgage-backed securities:
U.S. government agencies	6		1,098		39	3		15,046		2,679	9		16,144		2,718
U.S. government-sponsored enterprises	26		54,953		9,141	16		78,254		21,465	42		133,207		30,606
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises	4		11,679		564						4		11,679		564
Corporate debt securities	1		947		53	5		2,658		342	6		3,605		395
Total	164	$	253,543	$	28,580	153	$	299,571	$	60,263	317	$	553,114	$	88,843

		Less Than 12 Months					12 Months or Greater					Total
	Number of					Number of					Number of
	Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized		Securities in a	Fair		Unrealized
December 31, 2021	Loss Position	Value		Losses		Loss Position	Value		Losses		Loss Position	Value		Losses
U.S. Treasury securities	42	$	179,974	$	2,382		$		$		42	$	179,974	$	2,382
State and municipals:
Taxable	27		26,827		718	8		8,008		364	35		34,835		1,082
Tax-exempt	61		38,693		357	2		10,319		313	63		49,012		670
Residential mortgage-backed securities:
U.S. government agencies	3		18,398		392						3		18,398		392
U.S. government-sponsored enterprises	13		77,875		1,454	7		48,276		1,919	20		126,151		3,373
Corporate debt securities	4		2,449		51	1		470		31	5		2,919		82
Total	150	$	344,216	$	5,354	18	$	67,073	$	2,627	168	$	411,289	$	7,981

Available-for-Sale Securities

Investment Securities

Schedule of maturity distribution of fair value

	Fair
September 30, 2022	Value
Within one year	$	18,608
After one but within five years		204,991
After five but within ten years		74,710
After ten years		84,516
		382,825
Mortgage-backed and other amortizing securities		94,765
Total	$	477,590

Held-to-maturity Securities.

Investment Securities

Schedule of maturity distribution of fair value

	Amortized		Fair
September 30, 2022	Cost		Value
After five but within ten years	$	8,294	$	7,410
After ten years		2,953		2,551
		11,247		9,961
Mortgage-backed securities		81,524		68,551
Total	$	92,771	$	78,512

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Loans, net and allowance for loan losses (Tables)

9 Months Ended

Sep. 30, 2022

Loans, net and allowance for loan losses

Schedule of major classifications of loans outstanding

At the period end		September 30, 2022	December 31, 2021
Commercial
Taxable	$	371,164	$	424,455
Non-taxable		224,764		188,672
Total		595,928		613,127
Real estate
Commercial		1,620,116		1,343,539
Residential		326,223		297,624
Total		1,946,339		1,641,163
Consumer
Indirect Auto		70,006		65,791
Consumer Other		11,433		9,092
Total		81,439		74,883
Total	$	2,623,706	$	2,329,173

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

The changes in the allowance for loan losses account by major classification of loan for the three and nine months ended September 30, 2022 and 2021 are summarized as follows:

			Real estate
September 30, 2022	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance July 1, 2022	$	7,766	$	17,569	$	3,220	$	819	$	29,374
Charge-offs				(15)				(86)		(101)
Recoveries		10		32		1		56		99
Provisions (credits)		(5)		437		9		9		450
Ending balance	$	7,771	$	18,023	$	3,230	$	798	$	29,822
			Real estate
September 30, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance July 1, 2021	$	8,520	$	14,281	$	3,069	$	869	$	26,739
Charge-offs		(446)		(12)				(8)		(466)
Recoveries		4		1				15		20
Provisions (credits)		(164)		519		92		(47)		400
Ending balance	$	7,914	$	14,789	$	3,161	$	829	$	26,693

			Real estate
September 30, 2022	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2022	$	8,453	$	15,928	$	3,209	$	793	$	28,383
Charge-offs		(161)		(147)		(2)		(244)		(554)
Recoveries		39		109		4		141		293
Provisions (credits)		(560)		2,133		19		108		1,700
Ending balance	$	7,771	$	18,023	$	3,230	$	798	$	29,822
			Real estate
September 30, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2021	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Charge-offs		(461)		(252)		(24)		(114)		(851)
Recoveries		83		67		2		48		200
Provisions (credits)		(442)		415		54		(27)		—
Ending balance	$	7,914	$	14,789	$	3,161	$	829	$	26,693

The allocation of the allowance for loan losses and the related loans by major classifications of loans at September 30, 2022 and December 31, 2021 is summarized as follows:

			Real estate
September 30, 2022	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	7,771	$	18,023	$	3,230	$	798	$	29,822
Ending balance: individually evaluated for impairment		19		1		21				41
Ending balance: collectively evaluated for impairment	$	7,752	$	18,022	$	3,209	$	798	$	29,781
Loans receivable:
Ending balance	$	595,928	$	1,620,116	$	326,223	$	81,439	$	2,623,706
Ending balance: individually evaluated for impairment		114		2,721		1,161				3,996
Ending balance: collectively evaluated for impairment	$	595,814	$	1,617,395	$	325,062	$	81,439	$	2,619,710

			Real estate
December 31, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	8,453	$	15,928	$	3,209	$	793	$	28,383
Ending balance: individually evaluated for impairment		40		109		26				175
Ending balance: collectively evaluated for impairment	$	8,413	$	15,819	$	3,183	$	793	$	28,208
Loans receivable:
Ending balance	$	613,127	$	1,343,539	$	297,624	$	74,883	$	2,329,173
Ending balance: individually evaluated for impairment		199		2,889		1,274				4,362
Ending balance: collectively evaluated for impairment	$	612,928	$	1,340,650	$	296,350	$	74,883	$	2,324,811

Schedule of major classification of loans portfolio summarized by credit quality

			Special
September 30, 2022	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	587,033	$	8,065	$	830	$	$	595,928
Real estate:
Commercial		1,606,076		7,722		6,318			1,620,116
Residential		324,452		114		1,657			326,223
Consumer		81,170				269			81,439
Total	$	2,598,731	$	15,901	$	9,074	$	$	2,623,706

			Special
December 31, 2021	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	611,151	$	896	$	1,080	$	$	613,127
Real estate:
Commercial		1,324,646		13,939		4,954			1,343,539
Residential		294,892		333		2,399			297,624
Consumer		74,744				139			74,883
Total	$	2,305,433	$	15,168	$	8,572	$	$	2,329,173

Schedule of information concerning nonaccrual loans by major loan classification

		September 30, 2022		December 31, 2021
Commercial	$	102	$	185
Real estate:
Commercial		1,787		1,793
Residential		423		694
Consumer		245		139
Total	$	2,557	$	2,811

Schedule of major classifications of loans by past due status

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
September 30, 2022	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	35	$		$	102	$	137	$	595,791	$	595,928	$
Real estate:
Commercial		146		605		330		1,081		1,619,035		1,620,116
Residential		341		640		565		1,546		324,677		326,223		280
Consumer		405		234		98		737		80,702		81,439
Total	$	927	$	1,479	$	1,095	$	3,501	$	2,620,205	$	2,623,706	$	280

Improved credit quality resulted in lower levels of past due loans from year end.

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2021	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	101		155	$	158	$	414	$	612,713	$	613,127	$
Real estate:
Commercial		768	$	423		834		2,025		1,341,514		1,343,539
Residential		1,552		207		265		2,024		295,600		297,624		13
Consumer		477		163		51		691		74,192		74,883
Total	$	2,898	$	948	$	1,308	$	5,154	$	2,324,019	$	2,329,173	$	13

Summarized information concerning impaired loans

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2022	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	94	$	425			$	110	$	3	$	129	$	7
Real estate:
Commercial		2,389		3,193				2,431		9		2,497		31
Residential		918		1,102				957		6		915		16
Consumer		245		256				258				215
Total		3,646		4,976				3,756		18		3,756		54
With an allowance recorded:
Commercial		20		20	$	19		27		—		29		—
Real estate:
Commercial		332		332		1		381		7		429		15
Residential		243		247		21		257		3		297		9
Total		595		599		41		665		10		755		24
Total impaired loans
Commercial		114		445		19		137		3		158		7
Real estate:
Commercial		2,721		3,525		1		2,812		16		2,926		46
Residential		1,161		1,349		21		1,214		9		1,212		25
Consumer		245		256				258				215
Total	$	4,241	$	5,575	$	41	$	4,421	$	28	$	4,511	$	78

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2021	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	158	$	481			$	964	$	13
Real estate:
Commercial		2,376		3,120				2,719		22
Residential		873		1,073				1,016		19
Consumer		139		148				100
Total		3,546		4,822				4,799		54
With an allowance recorded:
Commercial		41		41		40		1,091		15
Real estate:
Commercial		513		543		109		802		22
Residential		401		401		26		436		13
Consumer
Total		955		985		175		2,329		50
Total impaired loans
Commercial		199		522		40		2,055		28
Real estate:
Commercial		2,889		3,663		109		3,521		44
Residential		1,274		1,474		26		1,452		32
Consumer		139		148				100
Total	$	4,501	$	5,807	$	175	$	7,128	$	104

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2021	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	634	$	1,097			$	870	$	2	$	1,166	$	9
Real estate:
Commercial		2,560		3,275				2,785		4		2,805		19
Residential		991		1,184				999		5		1,051		15
Consumer		82		96				79				91
Total		4,267		5,652				4,733		11		5,113		43
With an allowance recorded:
Commercial		424		424	$	18		695		5		1,354		15
Real estate:
Commercial		534		564		107		604		4		875		14
Residential		440		446		41		450		3		445		10
Consumer
Total		1,398		1,434		166		1,749		12		2,674		39
Total impaired loans
Commercial		1,058		1,521		18		1,565		7		2,520		24
Real estate:
Commercial		3,094		3,839		107		3,389		8		3,680		33
Residential		1,431		1,630		41		1,449		8		1,496		25
Consumer		82		96				79				91
Total	$	5,665	$	7,086	$	166	$	6,482	$	23	$	7,787	$	82

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Other assets (Tables)

9 Months Ended

Sep. 30, 2022

Other assets

Schedule of components of other assets

		September 30, 2022		December 31, 2021
Other real estate owned	$	121	$	609
Investment in low income housing partnership		5,539		5,900
Mortgage servicing rights		931		882
Restricted equity securities (FHLB and other)		4,502		4,045
Net deferred tax asset		20,793		5,355
Interest rate floor		4		844
Interest rate swaps		22,807		9,026
Other assets		7,838		6,395
Total	$	62,535	$	33,056

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Fair value estimates (Tables)

9 Months Ended

Sep. 30, 2022

Fair value estimates

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

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
September 30, 2022	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	224,336	$	224,336	$		$
U.S. government-sponsored enterprises		16,351				16,351
State and municipals:
Taxable		56,234				56,234
Tax-exempt		84,586				84,586
Mortgage-backed securities:
U.S. government agencies		1,091				1,091
U.S. government-sponsored enterprises		91,387				91,387
Corporate debt securities		3,605				3,605
Common equity securities		103		103
Total investment securities	$	477,693	$	224,439	$	253,254	$
Loan held for sale	$	653			$	653
Interest rate floor-other assets	$	4			$	4
Interest rate swap-other assets	$	22,953			$	22,953
Interest rate swap-other liabilities	$	(22,089)			$	(22,089)

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2021	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	191,574	$	191,574			$
U.S. government-sponsored enterprises		33,778			$	33,778
State and municipals:
Taxable		68,978				68,978
Tax-exempt		98,250				98,250
Mortgage-backed securities:
U.S. government agencies		1,843				1,843
U.S. government-sponsored enterprises		119,980				119,980
Corporate debt securities		2,918				2,918
Common equity securities		140		140
Total investment securities	$	517,461	$	191,714	$	325,747	$
Loan held for sale	$	408			$	408
Interest rate floor-other assets	$	844			$	844
Interest rate swap-other assets	$	9,026			$	9,026
Interest rate swap-other liabilities	$	(8,811)			$	(8,811)

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

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
September 30, 2022	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	553			$	553

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2021	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	780			$	780
Other real estate owned	$	487			$	487

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

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
September 30, 2022	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	553	Appraisal of collateral	Appraisal adjustments	21.6% to 97.0%  (70.6)%
				Liquidation expenses	3.0% to 6.0% (5.2)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2021	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	780	Appraisal of collateral	Appraisal adjustments	6.4% to 97.0%  (65.2)%
				Liquidation expenses	3.0% to 6.0% (5.1)%
Other real estate owned	$	487	Appraisal of collateral	Appraisal adjustments	35.9% to 35.9%  (35.9)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

Schedule of carrying and fair values of financial instruments

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
September 30, 2022	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	113,010	$	113,010	$	113,010
Investment securities:
Available-for-sale		477,590		477,590		224,336	$	253,254
Common equity securities		103		103		103
Held-to-maturity		92,771		78,512				78,512
Loans held for sale		653		653				653
Net loans		2,593,884		2,508,050					$	2,508,050
Accrued interest receivable		10,082		10,082				10,082
Mortgage servicing rights		931		1,433				1,433
Restricted equity securities (FHLB and other)		4,502		4,502				4,502
Interest rate floor		4		4				4
Interest rate swaps		22,953		22,953				22,953
Total	$	3,316,483	$	3,216,892
Financial liabilities:
Deposits	$	3,124,140	$	3,113,415			$	3,113,415
Short-term borrowings		14,700		14,700				14,700
Long-term debt		1,104		1,106				1,106
Subordinated debentures		33,000		33,211				33,211
Accrued interest payable		1,129		1,129				1,129
Interest rate swaps		22,089		22,089				22,089
Total	$	3,196,162	$	3,185,650

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2021	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	279,933	$	279,933	$	279,933
Investment securities:
Available-for-sale		517,321		517,321		191,574	$	325,747
Common equity securities		140		140		140
Held-to-maturity		71,213		70,446				70,446
Loans held for sale		408		408				408
Net loans		2,300,790		2,261,586					$	2,261,586
Accrued interest receivable		8,528		8,528				8,528
Mortgage servicing rights		882		1,357				1,357
Restricted equity securities (FHLB and other)		4,045		4,045				4,045
Interest rate floor		844		844				844
Interest rate swaps		9,026		9,026				9,026
Total	$	3,193,130	$	3,153,634
Financial liabilities:
Deposits	$	2,963,397	$	2,963,547			$	2,963,547
Long-term debt		2,711		2,778				2,778
Subordinated debentures		33,000		32,337				32,337
Accrued interest payable		408		408				408
Interest rate swaps		8,811		8,811				8,811
Total	$	3,008,327	$	3,007,881

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Employee benefit plans (Tables)

9 Months Ended

Sep. 30, 2022

Employee benefit plans

Schedule of components of net periodic benefit cost

	Pension Benefits
Three Months Ended September 30,	2022		2021
Components of net periodic pension benefit:
Interest cost	$	114	$	105
Expected return on plan assets		(352)		(322)
Amortization of unrecognized net gain		50		76
Net periodic benefit	$	(188)	$	(141)
	Pension Benefits
Nine Months Ended September 30,	2022		2021
Components of net periodic pension benefit:
Interest cost	$	342	$	315
Expected return on plan assets		(1,056)		(966)
Amortization of unrecognized net gain		149		227
Net periodic benefit	$	(565)	$	(424)

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Derivatives and hedging activities (Tables)

9 Months Ended

Sep. 30, 2022

Derivatives and hedging activities

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

			Asset Derivatives			Asset Derivatives			Liability Derivatives			Liability Derivatives
			As of September 30, 2022 (1)			As of December 31, 2021 (1)			As of September 30, 2022 (2)			As of December 31, 2021 (2)
		Notional	Balance Sheet			Balance Sheet			Balance Sheet			Balance Sheet
		Amount	Location	Fair Value		Location	Fair Value		Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments
Interest Rate Floor	$	25,000	Other Assets	$	4	Other Assets	$	844
Total derivatives designated as hedging instruments				$	4		$	844		$			$
Derivatives not designated as hedging instruments
Interest Rate Swaps (2)	$	386,171	Other Assets	$	22,953	Other Assets	$	9,026	Other Liabilities	$	22,089	Other Liabilities	$	8,811
Total derivatives not designated as hedging instruments				$	22,953		$	9,026		$	22,089		$	8,811

(1) Amounts include accrued interest.

(2) Notional amount of interest rate swaps at December 31, 2021 was $392,677.

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

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain

(Loss)

(Loss)

(Loss)

(Loss)

Recognized from

Gain

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

September 30, 2022

Income

September 30, 2022

Derivatives in Cash Flow Hedging Relationships

Cash Flow Swap

Other expense

Interest Rate Floor (*)

$

(512)

$

(497)

$

(15)

Interest Income

$

228

$

276

$

(48)

Total

$

(512)

$

(497)

$

(15)

$

228

$

276

$

(48)

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain (Loss)

Loss

Gain (Loss)

Gain (Loss)

Gain

Recognized from

Gain (Loss)

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

September 30, 2021

Income

September 30, 2021

Derivatives in Cash Flow Hedging Relationships

Cash Flow Swap

$

401

$

401

Interest Expense

$

(23)

$

(23)

Cash Flow Swap

Other Expense

(25)

(25)

Interest Rate Floor (*)

$

(66)

$

(70)

$

4

Interest Income

$

405

$

453

$

(48)

Total

$

335

$

331

$

4

$

357

$

405

$

(48)

* Amounts disclosed are gross and not net of taxes.

Schedule of effect of derivative financial instruments on Income Statement

		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		For the three months ended September 30,
		2022		2022		2021		2021
		Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	4	$		$	137
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	4	$		$	137	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	$	20	$		$	153	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$	(16)			$	(16)	$
		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		For the nine months ended September 30,
		2022		2022		2021		2021
		Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	228	$		$	405	$	(48)
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	228	$		$	405	$	(23)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring							$	(25)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	$	276	$		$	453	$	(48)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$	(48)			$	(48)	$

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

		Amount of Gain		Amount of Gain		Amount of Gain		Amount of Loss
		Recognized in		Recognized in		Recognized in		Recognized in
	Location of Gain or (Loss)	Income		Income		Income		Income
	Recognized in Income on	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
Derivatives Not Designated as Hedging Instruments	Derivative	September 30, 2022		September 30, 2022		September 30, 2021		September 30, 2021
Interest Rate Swaps	Interest rate swap revenue	$	129	$	652	$	7	$	175
Other Contracts			1		4
Total		$	130	$	656	$	7	$	175
Fee Income	Fee income	$	2	$	106	$	72	$	569

Schedule of offsetting derivatives

Offsetting of Derivative Assets
as of September 30, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Received		Amount
Derivatives	$	22,957	$	$	22,957	$		$	14,700	$	8,257
Offsetting of Derivative Liabilities
as of September 30, 2022
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Paid*		Amount
Derivatives	$	22,089	$	$	22,089	$	22,089	$		$
*Cash collateral of $7,830 was paid but not presented as an offset above.
Offsetting of Derivative Assets
as of December 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Assets		Balance Sheet	Balance Sheet		Instruments		Received		Amount
Derivatives	$	9,870	$	$	9,870	$	3,218	$		$	6,652
Offsetting of Derivative Liabilities
as of December 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Liabilities
	Recognized		Offset in the	presented in the		Financial		Cash Collateral		Net
	Liabilities		Balance Sheet	Balance Sheet		Instruments		Paid		Amount
Derivatives	$	8,818	$	$	8,818	$	3,218	$	5,600	$

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Deposits (Tables)

9 Months Ended

Sep. 30, 2022

Deposits.

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

At the period end	September 30, 2022		December 31, 2021
Interest-bearing deposits:
Money market accounts	$	706,947	$	588,245
Now accounts		813,743		851,086
Savings accounts		530,124		491,796
Time deposits less than $250		224,517		203,719
Time deposits $250 or more		78,874		90,795
Total interest-bearing deposits		2,354,205		2,225,641
Noninterest-bearing deposits		769,935		737,756
Total deposits	$	3,124,140	$	2,963,397

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Borrowings (Tables)

9 Months Ended

Sep. 30, 2022

Borrowings

Summary of short-term borrowings

		At and for the nine months ended September 30, 2022
									Weighted
					Maximum		Weighted		Average
	Ending		Average		Month-End		Average		Rate at End
	Balance		Balance		Balance		Rate		of the Period
Other borrowings	$	14,700	$	8,434	$	14,700	1.17	%	3.08	%
FHLB advances				31,967		125,975	2.11	%
Total short-term borrowings	$	14,700	$	40,401	$	140,675	1.92	%	3.08	%

	At and for the year ended December 31, 2021
						Weighted		Weighted
				Maximum		Average		Average
	Ending	Average		Month-End		Rate for		Rate at End
	Balance	Balance		Balance		the Year		of the Year
FHLB advances	$	$	13,973	$	50,000	0.56	%		%

Schedule of long-term debt consisting of advances

	Interest Rate
Due	Fixed		September 30, 2022		December 31, 2021
March 2023	4.69	$	1,104		2,711
		$	1,104	$	2,711

Schedule of maturities of long-term debt

2022	$	549
2023		555
	$	1,104

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Summary of significant accounting policies - Nature of operations and Basis of presentation (Details)		3 Months Ended						9 Months Ended
	Oct. 28, 2022 $ / shares	Sep. 30, 2022 $ / shares	Jun. 30, 2022 $ / shares	Mar. 31, 2022 $ / shares	Sep. 30, 2021 $ / shares	Jun. 30, 2021 $ / shares	Mar. 31, 2021 $ / shares	Sep. 30, 2022 Office $ / shares	Sep. 30, 2021 $ / shares
Summary of significant accounting policies
Number of full-service community banking offices | Office								28
Dividends declared | $ / shares	$ 0.40	$ 0.40	$ 0.39	$ 0.39	$ 0.38	$ 0.37	$ 0.37	$ 1.18	$ 1.12

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Other comprehensive loss - Components of Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Other comprehensive loss
Net unrealized loss on investment securities available-for-sale	$ (74,582)	$ (1,791)
Income tax benefit	(15,662)	(376)
Net of income taxes	(58,920)	(1,415)
Benefit plan adjustments	(5,868)	(5,868)
Income tax benefit	1,232	1,232
Net of income taxes	(4,636)	(4,636)
Derivative adjustments	(60)	680
Income tax (benefit) expense	(13)	143
Net of income taxes	(47)	537
Accumulated other comprehensive loss	$ (63,603)	$ (5,514)

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Earnings per share - Schedule of Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Earnings per share
Net income, Basic	$ 9,968	$ 9,096	$ 28,951	$ 27,105
Average common shares outstanding - basic	7,169,809	7,198,125	7,171,382	7,204,399
Net income - basic	$ 1.39	$ 1.26	$ 4.04	$ 3.76
Net income, Diluted	$ 9,968	$ 9,096	$ 28,951	$ 27,105
Average common shares outstanding - diluted	7,213,147	7,233,189	7,214,966	7,239,463
Net income - diluted	$ 1.38	$ 1.26	$ 4.01	$ 3.74

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Investment securities - Amortized Cost and Fair Value of Investment Securities Aggregated by Investment Category (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Investment Securities
Available-for-sale, Amortized Cost	$ 552,172	$ 519,112
Available-for-sale, Gross Unrealized Gains	2	5,294
Available-for-sale, Gross Unrealized Losses	74,584	7,085
Available-for-sale, Fair Value	477,590	517,321
Held-to-maturity, Amortized Cost	92,771	71,213
Held-to-maturity, Gross Unrealized Gains		129
Held-to-maturity, Gross Unrealized Losses	14,259	896
Held-to-maturity, Fair value	78,512	70,446
U.S. Treasury securities
Investment Securities
Available-for-sale, Amortized Cost	247,812	193,849
Available-for-sale, Gross Unrealized Gains		107
Available-for-sale, Gross Unrealized Losses	23,476	2,382
Available-for-sale, Fair Value	224,336	191,574
U.S. Government-sponsored enterprises state and municipals
Investment Securities
Available-for-sale, Amortized Cost	16,976	33,435
Available-for-sale, Gross Unrealized Gains		343
Available-for-sale, Gross Unrealized Losses	625
Available-for-sale, Fair Value	16,351	33,778
State and Municipals, Taxable
Investment Securities
Available-for-sale, Amortized Cost	69,913	69,066
Available-for-sale, Gross Unrealized Gains	1	994
Available-for-sale, Gross Unrealized Losses	13,680	1,082
Available-for-sale, Fair Value	56,234	68,978
State and Municipals, Tax-exempt
Investment Securities
Available-for-sale, Amortized Cost	100,078	96,412
Available-for-sale, Gross Unrealized Gains	1	2,452
Available-for-sale, Gross Unrealized Losses	15,493	614
Available-for-sale, Fair Value	84,586	98,250
State and Municipals Tax-exempt Bonds
Investment Securities
Held-to-maturity, Amortized Cost	11,247	11,476
Held-to-maturity, Gross Unrealized Gains		126
Held-to-maturity, Gross Unrealized Losses	1,286	56
Held-to-maturity, Fair value	9,961	11,546
Mortgage-backed Securities, U.S. Government agencies
Investment Securities
Available-for-sale, Amortized Cost	1,130	1,790
Available-for-sale, Gross Unrealized Gains		53
Available-for-sale, Gross Unrealized Losses	39
Available-for-sale, Fair Value	1,091	1,843
Held-to-maturity, Amortized Cost	17,732	18,802
Held-to-maturity, Gross Unrealized Losses	2,679	392
Held-to-maturity, Fair value	15,053	18,410
Mortgage-backed Securities, U.S. Government-sponsored enterprises
Investment Securities
Available-for-sale, Amortized Cost	100,020	109,018
Available-for-sale, Gross Unrealized Gains		939
Available-for-sale, Gross Unrealized Losses	20,312	2,925
Available-for-sale, Fair Value	79,708	107,032
Held-to-maturity, Amortized Cost	63,792	40,935
Held-to-maturity, Gross Unrealized Gains		3
Held-to-maturity, Gross Unrealized Losses	10,294	448
Held-to-maturity, Fair value	53,498	40,490
Commercial mortgage-backed Securities, U.S. government-sponsored enterprises
Investment Securities
Available-for-sale, Amortized Cost	12,243	12,542
Available-for-sale, Gross Unrealized Gains		406
Available-for-sale, Gross Unrealized Losses	564
Available-for-sale, Fair Value	11,679	12,948
Corporate Debt Securities
Investment Securities
Available-for-sale, Amortized Cost	4,000	3,000
Available-for-sale, Gross Unrealized Losses	395	82
Available-for-sale, Fair Value	$ 3,605	$ 2,918

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Investment securities - Maturity Distribution of Debt Securities Classified as Available-for-Sale (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Investment securities
Within one year	$ 18,608
After one but within five years	204,991
After five but within ten years	74,710
After ten years	84,516
Available for sale securities	382,825
Mortgage-backed and other amortizing securities	94,765
Total	$ 477,590	$ 517,321

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Investment securities - Summary of Amortized Cost and Fair Value of Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Amortized Cost of Held-to-maturity Securities
Amortized Cost, After five but within ten years, Held to maturity	$ 8,294
Amortized Cost, After ten years, Held to maturity	2,953
Amortized Cost, Held to maturity	11,247
Amortized Cost, Mortgage-backed securities, Held to maturity	81,524
Held-to-maturity, Amortized Cost	92,771	$ 71,213
Fair Value of Held-to-maturity Securities
Fair Value, After five but within ten years, Held to maturity	7,410
Fair Value, After ten years, Held to maturity	2,551
Fair Value, Held to maturity	9,961
Fair Value, Mortgage-backed securities, Held to maturity	68,551
Held to maturity, Fair Value	$ 78,512	$ 70,446

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Investment securities - Pledged Securities (Details) - USD ($) $ in Millions	Sep. 30, 2022	Jun. 30, 2022	Dec. 31, 2021
Available-for-sale and Held-to-maturity securities
Carrying value of securities pledged		us-gaap:AssetPledgedAsCollateralMember	us-gaap:AssetPledgedAsCollateralMember
Collateral Pledged
Available-for-sale and Held-to-maturity securities
Carrying value of securities pledged	$ 165.1		$ 203.6
U.S. Government-sponsored enterprises state and municipals
Available-for-sale and Held-to-maturity securities
Maximum percentage of stockholders' equity exceeded for securities of any individual issuer	10.00%		10.00%

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Investment securities - Fair Value and Unrealized Losses of Investment Securities in Continuous Unrealized Loss Position (Details) $ in Thousands	Sep. 30, 2022 USD ($) security	Dec. 31, 2021 USD ($) security
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities	164	150
Less Than 12 Months, Fair Value	$ 253,543	$ 344,216
12 Months or More, Fair Value	$ 299,571	$ 67,073
12 Months or Greater, Number of Securities	153	18
Less Than 12 Months, Unrealized Losses	$ 28,580	$ 5,354
12 Months or More, Unrealized Losses	$ 60,263	$ 2,627
Total, Number of Securities	317	168
Total, Fair Value	$ 553,114	$ 411,289
Total, Unrealized Losses	$ 88,843	$ 7,981
U.S. Treasury securities
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities | security	16	42
Less Than 12 Months, Fair Value	$ 83,156	$ 179,974
12 Months or More, Fair Value	$ 141,180
12 Months or Greater, Number of Securities | security	37
Less Than 12 Months, Unrealized Losses	$ 5,372	$ 2,382
12 Months or More, Unrealized Losses	$ 18,104
Total, Number of Securities | security	53	42
Total, Fair Value	$ 224,336	$ 179,974
Total, Unrealized Losses	$ 23,476	$ 2,382
U.S. Government-sponsored enterprises state and municipals
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities | security	5
Less Than 12 Months, Fair Value	$ 16,351
Less Than 12 Months, Unrealized Losses	$ 625
Total, Number of Securities | security	5
Total, Fair Value	$ 16,351
Total, Unrealized Losses	$ 625
State and Municipals, Taxable
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities | security	32	27
Less Than 12 Months, Fair Value	$ 27,779	$ 26,827
12 Months or More, Fair Value	$ 26,547	$ 8,008
12 Months or Greater, Number of Securities | security	34	8
Less Than 12 Months, Unrealized Losses	$ 4,951	$ 718
12 Months or More, Unrealized Losses	$ 8,729	$ 364
Total, Number of Securities | security	66	35
Total, Fair Value	$ 54,326	$ 34,835
Total, Unrealized Losses	$ 13,680	$ 1,082
State and Municipals, Tax-exempt
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities | security	74	61
Less Than 12 Months, Fair Value	$ 57,580	$ 38,693
12 Months or More, Fair Value	$ 35,886	$ 10,319
12 Months or Greater, Number of Securities | security	58	2
Less Than 12 Months, Unrealized Losses	$ 7,835	$ 357
12 Months or More, Unrealized Losses	$ 8,944	$ 313
Total, Number of Securities | security	132	63
Total, Fair Value	$ 93,466	$ 49,012
Total, Unrealized Losses	$ 16,779	$ 670
Mortgage-backed Securities, U.S. Government agencies
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities | security	6	3
Less Than 12 Months, Fair Value	$ 1,098	$ 18,398
12 Months or More, Fair Value	$ 15,046
12 Months or Greater, Number of Securities | security	3
Less Than 12 Months, Unrealized Losses	$ 39	$ 392
12 Months or More, Unrealized Losses	$ 2,679
Total, Number of Securities | security	9	3
Total, Fair Value	$ 16,144	$ 18,398
Total, Unrealized Losses	$ 2,718	$ 392
Mortgage-backed Securities, U.S. Government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities | security	26	13
Less Than 12 Months, Fair Value	$ 54,953	$ 77,875
12 Months or More, Fair Value	$ 78,254	$ 48,276
12 Months or Greater, Number of Securities | security	16	7
Less Than 12 Months, Unrealized Losses	$ 9,141	$ 1,454
12 Months or More, Unrealized Losses	$ 21,465	$ 1,919
Total, Number of Securities | security	42	20
Total, Fair Value	$ 133,207	$ 126,151
Total, Unrealized Losses	$ 30,606	$ 3,373
Commercial mortgage-backed Securities, U.S. government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities | security	4
Less Than 12 Months, Fair Value	$ 11,679
Less Than 12 Months, Unrealized Losses	$ 564
Total, Number of Securities | security	4
Total, Fair Value	$ 11,679
Total, Unrealized Losses	$ 564
Corporate Debt Securities
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Number of Securities | security	1	4
Less Than 12 Months, Fair Value	$ 947	$ 2,449
12 Months or More, Fair Value	$ 2,658	$ 470
12 Months or Greater, Number of Securities | security	5	1
Less Than 12 Months, Unrealized Losses	$ 53	$ 51
12 Months or More, Unrealized Losses	$ 342	$ 31
Total, Number of Securities | security	6	5
Total, Fair Value	$ 3,605	$ 2,919
Total, Unrealized Losses	$ 395	$ 82

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Investment securities (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Other-than-temporary impairments recognized	$ 0	$ 0
Value of common stock	14,330	14,341
Federal Home Loan Bank of Pittsburgh (FHLB)
Value of common stock	4,500	4,000
Atlantic Community Bankers Bank (ACBB)
Value of common stock	$ 42	$ 42

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Loans, net and allowance for loan losses - Net Deferred Loan Costs (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2022 USD ($)	Dec. 31, 2021 USD ($) loan
Net deferred loan costs	$ 300,000	$ 1,600,000
Loans	2,623,706,000	2,329,173,000
PPP
Net deferred loan costs	300,000	1,700,000
Loans	22,700,000	68,900,000
Fixed interest rate	$ 1.00
PPP | Scenario, Loans Issued Before 5 June 2020 [Member]
Term of paycheck protection program	2 years
Deferral term of paycheck protection program	24 months
PPP | Scenario, Loans Issued After 5 June 2020 [Member]
Term of paycheck protection program	5 years
Deferral term of paycheck protection program	60 months
PPP Two
Net deferred loan costs		$ 4,400,000
Loans	$ 11,200,000
Number of loans | loan		1,062
Proceeds from Sale of Loans Receivable		$ 121,600,000
PPP One
Loans	$ 11,500,000

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Loans, net and allowance for loan losses - Major Classifications of Loans Outstanding (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Accounts, Notes, Loans and Financing Receivable
Loans	$ 2,623,706	$ 2,329,173
Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	595,928	613,127
Taxable
Accounts, Notes, Loans and Financing Receivable
Loans	371,164	424,455
Non-taxable
Accounts, Notes, Loans and Financing Receivable
Loans	224,764	188,672
Real estate
Accounts, Notes, Loans and Financing Receivable
Loans	1,946,339	1,641,163
Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	1,620,116	1,343,539
Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans	326,223	297,624
Consumer
Accounts, Notes, Loans and Financing Receivable
Loans	81,439	74,883
Indirect Auto
Accounts, Notes, Loans and Financing Receivable
Loans	70,006	65,791
Consumer Other
Accounts, Notes, Loans and Financing Receivable
Loans	$ 11,433	$ 9,092

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Loans, net and allowance for loan losses - Changes in Allowance for Loan Losses Account by Major Classification of Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Allowance for loan losses:
Beginning Balance	$ 29,374	$ 26,739	$ 28,383	$ 27,344
Charge-offs	(101)	(466)	(554)	(851)
Recoveries	99	20	293	200
Provisions (credits)	450	400	1,700
Ending balance	29,822	26,693	29,822	26,693
Commercial
Allowance for loan losses:
Beginning Balance	7,766	8,520	8,453	8,734
Charge-offs		(446)	(161)	(461)
Recoveries	10	4	39	83
Provisions (credits)	(5)	(164)	(560)	(442)
Ending balance	7,771	7,914	7,771	7,914
Real estate Commercial
Allowance for loan losses:
Beginning Balance	17,569	14,281	15,928	14,559
Charge-offs	(15)	(12)	(147)	(252)
Recoveries	32	1	109	67
Provisions (credits)	437	519	2,133	415
Ending balance	18,023	14,789	18,023	14,789
Real estate Residential
Allowance for loan losses:
Beginning Balance	3,220	3,069	3,209	3,129
Charge-offs			(2)	(24)
Recoveries	1		4	2
Provisions (credits)	9	92	19	54
Ending balance	3,230	3,161	3,230	3,161
Consumer
Allowance for loan losses:
Beginning Balance	819	869	793	922
Charge-offs	(86)	(8)	(244)	(114)
Recoveries	56	15	141	48
Provisions (credits)	9	(47)	108	(27)
Ending balance	$ 798	$ 829	$ 798	$ 829

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Loans, net and allowance for loan losses - Allocation of Allowance for Loan Losses and Related Loans by Major Classification of Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Jun. 30, 2022	Dec. 31, 2021	Sep. 30, 2021	Jun. 30, 2021	Dec. 31, 2020
Allowance for loan losses:
Ending balance	$ 29,822	$ 29,374	$ 28,383	$ 26,693	$ 26,739	$ 27,344
Ending balance: individually evaluated for impairment	41		175
Ending balance: collectively evaluated for impairment	29,781		28,208
Loans receivable:
Ending balance	2,623,706		2,329,173
Ending balance: individually evaluated for impairment	3,996		4,362
Ending balance: collectively evaluated for impairment	2,619,710		2,324,811
Commercial
Allowance for loan losses:
Ending balance	7,771	7,766	8,453	7,914	8,520	8,734
Ending balance: individually evaluated for impairment	19		40
Ending balance: collectively evaluated for impairment	7,752		8,413
Loans receivable:
Ending balance	595,928		613,127
Ending balance: individually evaluated for impairment	114		199
Ending balance: collectively evaluated for impairment	595,814		612,928
Real estate Commercial
Allowance for loan losses:
Ending balance	18,023	17,569	15,928	14,789	14,281	14,559
Ending balance: individually evaluated for impairment	1		109
Ending balance: collectively evaluated for impairment	18,022		15,819
Loans receivable:
Ending balance	1,620,116		1,343,539
Ending balance: individually evaluated for impairment	2,721		2,889
Ending balance: collectively evaluated for impairment	1,617,395		1,340,650
Real estate Residential
Allowance for loan losses:
Ending balance	3,230	3,220	3,209	3,161	3,069	3,129
Ending balance: individually evaluated for impairment	21		26
Ending balance: collectively evaluated for impairment	3,209		3,183
Loans receivable:
Ending balance	326,223		297,624
Ending balance: individually evaluated for impairment	1,161		1,274
Ending balance: collectively evaluated for impairment	325,062		296,350
Consumer
Allowance for loan losses:
Ending balance	798	$ 819	793	$ 829	$ 869	$ 922
Ending balance: collectively evaluated for impairment	798		793
Loans receivable:
Ending balance	81,439		74,883
Ending balance: collectively evaluated for impairment	$ 81,439		$ 74,883

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Loans, net and allowance for loan losses - Major Classification of Loans Portfolio Summarized by Credit Quality (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($) loan	Dec. 31, 2021 USD ($)
Accounts, Notes, Loans and Financing Receivable
Loans	$ 2,623,706	$ 2,329,173
Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	595,928	613,127
Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	1,620,116	1,343,539
Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans	326,223	297,624
Consumer
Accounts, Notes, Loans and Financing Receivable
Loans	81,439	74,883
Pass
Accounts, Notes, Loans and Financing Receivable
Loans	2,598,731	2,305,433
Pass | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	587,033	611,151
Pass | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	1,606,076	1,324,646
Pass | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans	324,452	294,892
Pass | Consumer
Accounts, Notes, Loans and Financing Receivable
Loans	81,170	74,744
Special Mention
Accounts, Notes, Loans and Financing Receivable
Loans	15,901	15,168
Special Mention | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	$ 8,065	896
Number of loans degraded | loan	1
Increase in loans receivables due to insufficient cash flow	$ 7,800
Decrease in loan due to upgrading credit line	3,500
Decrease in loan due to downgrading credit line	2,400
Special Mention | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	7,722	13,939
Special Mention | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans	114	333
Substandard
Accounts, Notes, Loans and Financing Receivable
Loans	9,074	8,572
Substandard | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	830	1,080
Amount of increase (decrease) in loans and leases receivable due to repayment uncertainty	1,700
Substandard | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	6,318	4,954
Substandard | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans	1,657	2,399
Decrease in loan due to downgrading credit line	700
Decrease in loan due to payoff of credit	500
Substandard | Consumer
Accounts, Notes, Loans and Financing Receivable
Loans	$ 269	$ 139

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Loans, net and allowance for loan losses - Information Concerning Nonaccrual Loans by Major Loan Classification (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2021	Sep. 30, 2022
Financing Receivable, Recorded Investment, Past Due.
Nonaccrual loans, Total	$ 2,811	$ 2,557
Nonaccrual loans increased	254
Commercial
Financing Receivable, Recorded Investment, Past Due.
Nonaccrual loans, Total	185	102
Real estate Commercial
Financing Receivable, Recorded Investment, Past Due.
Nonaccrual loans, Total	1,793	1,787
Real estate Residential
Financing Receivable, Recorded Investment, Past Due.
Nonaccrual loans, Total	694	423
Consumer
Financing Receivable, Recorded Investment, Past Due.
Nonaccrual loans, Total	$ 139	$ 245

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Loans, net and allowance for loan losses - Major Classification of Loans by Past Due Status (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Financing Receivable, Recorded Investment, Past Due.
Loans	$ 2,623,706	$ 2,329,173
Loans > 90 Days and Accruing	280	13
Financial Assets, Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	3,501	5,154
30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	927	2,898
60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	1,479	948
Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due.
Total Due	1,095	1,308
Financial Assets, Not Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	2,620,205	2,324,019
Commercial
Financing Receivable, Recorded Investment, Past Due.
Loans	595,928	613,127
Commercial | Financial Assets, Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	137	414
Commercial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	35	101
Commercial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due		155
Commercial | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due.
Total Due	102	158
Commercial | Financial Assets, Not Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	595,791	612,713
Real estate Commercial
Financing Receivable, Recorded Investment, Past Due.
Loans	1,620,116	1,343,539
Real estate Commercial | Financial Assets, Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	1,081	2,025
Real estate Commercial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	146	768
Real estate Commercial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	605	423
Real estate Commercial | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due.
Total Due	330	834
Real estate Commercial | Financial Assets, Not Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	1,619,035	1,341,514
Real estate Residential
Financing Receivable, Recorded Investment, Past Due.
Loans	326,223	297,624
Loans > 90 Days and Accruing	280	13
Real estate Residential | Financial Assets, Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	1,546	2,024
Real estate Residential | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	341	1,552
Real estate Residential | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	640	207
Real estate Residential | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due.
Total Due	565	265
Real estate Residential | Financial Assets, Not Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	324,677	295,600
Consumer
Financing Receivable, Recorded Investment, Past Due.
Loans	81,439	74,883
Consumer | Financial Assets, Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	737	691
Consumer | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	405	477
Consumer | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	234	163
Consumer | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due.
Total Due	98	51
Consumer | Financial Assets, Not Past Due
Financing Receivable, Recorded Investment, Past Due.
Total Due	$ 80,702	$ 74,192

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Loans, net and allowance for loan losses - Summarized Information in Concerning to Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	$ 3,646	$ 4,267	$ 3,646	$ 4,267	$ 3,546
Unpaid Principal Balance, With no related allowance, Total	4,976	5,652	4,976	5,652	4,822
Average Recorded Investment, With no related allowance, Total	3,756	4,733	3,756	5,113	4,799
Interest Income Recognized, With no related allowance, Total	18	11	54	43	54
Recorded Investment, With an allowance recorded, Total	595	1,398	595	1,398	955
Unpaid Principal Balance, With an allowance recorded, Total	599	1,434	599	1,434	985
Related Allowance, With an allowance recorded, Total	41	166	41	166	175
Average Recorded Investment, With an allowance recorded, Total	665	1,749	755	2,674	2,329
Interest Income Recognized, With an allowance recorded, Total	10	12	24	39	50
Recorded Investment, Total	4,241	5,665	4,241	5,665	4,501
Unpaid Principal Balance, Total	5,575	7,086	5,575	7,086	5,807
Average Recorded Investment, Total	4,421	6,482	4,511	7,787	7,128
Interest Income Recognized, Total	28	23	78	82	104
Commercial
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	94	634	94	634	158
Unpaid Principal Balance, With no related allowance, Total	425	1,097	425	1,097	481
Average Recorded Investment, With no related allowance, Total	110	870	129	1,166	964
Interest Income Recognized, With no related allowance, Total	3	2	7	9	13
Recorded Investment, With an allowance recorded, Total	20	424	20	424	41
Unpaid Principal Balance, With an allowance recorded, Total	20	424	20	424	41
Related Allowance, With an allowance recorded, Total	19	18	19	18	40
Average Recorded Investment, With an allowance recorded, Total	27	695	29	1,354	1,091
Interest Income Recognized, With an allowance recorded, Total		5		15	15
Recorded Investment, Total	114	1,058	114	1,058	199
Unpaid Principal Balance, Total	445	1,521	445	1,521	522
Average Recorded Investment, Total	137	1,565	158	2,520	2,055
Interest Income Recognized, Total	3	7	7	24	28
Real estate Commercial
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	2,389	2,560	2,389	2,560	2,376
Unpaid Principal Balance, With no related allowance, Total	3,193	3,275	3,193	3,275	3,120
Average Recorded Investment, With no related allowance, Total	2,431	2,785	2,497	2,805	2,719
Interest Income Recognized, With no related allowance, Total	9	4	31	19	22
Recorded Investment, With an allowance recorded, Total	332	534	332	534	513
Unpaid Principal Balance, With an allowance recorded, Total	332	564	332	564	543
Related Allowance, With an allowance recorded, Total	1	107	1	107	109
Average Recorded Investment, With an allowance recorded, Total	381	604	429	875	802
Interest Income Recognized, With an allowance recorded, Total	7	4	15	14	22
Recorded Investment, Total	2,721	3,094	2,721	3,094	2,889
Unpaid Principal Balance, Total	3,525	3,839	3,525	3,839	3,663
Average Recorded Investment, Total	2,812	3,389	2,926	3,680	3,521
Interest Income Recognized, Total	16	8	46	33	44
Real estate Residential
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	918	991	918	991	873
Unpaid Principal Balance, With no related allowance, Total	1,102	1,184	1,102	1,184	1,073
Average Recorded Investment, With no related allowance, Total	957	999	915	1,051	1,016
Interest Income Recognized, With no related allowance, Total	6	5	16	15	19
Recorded Investment, With an allowance recorded, Total	243	440	243	440	401
Unpaid Principal Balance, With an allowance recorded, Total	247	446	247	446	401
Related Allowance, With an allowance recorded, Total	21	41	21	41	26
Average Recorded Investment, With an allowance recorded, Total	257	450	297	445	436
Interest Income Recognized, With an allowance recorded, Total	3	3	9	10	13
Recorded Investment, Total	1,161	1,431	1,161	1,431	1,274
Unpaid Principal Balance, Total	1,349	1,630	1,349	1,630	1,474
Average Recorded Investment, Total	1,214	1,449	1,212	1,496	1,452
Interest Income Recognized, Total	9	8	25	25	32
Consumer
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	245	82	245	82	139
Unpaid Principal Balance, With no related allowance, Total	256	96	256	96	148
Average Recorded Investment, With no related allowance, Total	258	79	215	91	100
Recorded Investment, Total	245	82	245	82	139
Unpaid Principal Balance, Total	256	96	256	96	148
Average Recorded Investment, Total	$ 258	$ 79	$ 215	$ 91	$ 100

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Loans, net and allowance for loan losses - Loan Modifications and Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022 USD ($)	Sep. 30, 2021 USD ($)	Sep. 30, 2022 USD ($) loan	Sep. 30, 2021 USD ($) loan	Dec. 31, 2021 USD ($)
Loans, net and allowance for loan losses
Number of loans | loan			0	0
Number of defaults on loans restructured	$ 0	$ 0	$ 0	$ 0
Loans receivable, related parties, considered as nonaccrual, past due or restructured or potential credit risk	$ 1,400	$ 2,600	$ 1,400	$ 2,600	$ 1,600

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Other assets - Components of Other Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Other real estate owned	$ 121	$ 609
Investment in low income housing partnership	5,539	5,900
Mortgage servicing rights	931	882
Restricted equity securities (FHLB and other)	4,502	4,045
Net deferred tax asset	20,793	5,355
Interest rate floor and swaps	22,957	9,870
Other assets	7,838	6,395
Total	62,535	33,056
Interest Rate Floor
Interest rate floor and swaps	4	844
Interest Rate Swaps
Interest rate floor and swaps	$ 22,807	$ 9,026

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Fair value estimates - Transfers Between Levels (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Fair value estimates
Fair value of assets transfers from level 1 to level 2	$ 0	$ 0
Fair value of assets transfers from level 2 to level 1	0	0
Fair value of liabilities transfers from level 1 to level 2	0	0
Fair value of liabilities transfers from level 2 to level 1	0	0
Fair value of assets transfers into level 3	0	0
Fair value of assets transfers out of level 3	0	0
Fair value of liabilities transfers into level 3	0	0
Fair value of liabilities transfers out of level 3	$ 0	$ 0

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Fair value estimates - Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - Recurring Basis - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	$ 477,693	$ 517,461
U.S. Treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	224,336	191,574
U.S. Government-sponsored enterprises state and municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	16,351	33,778
State and Municipals, Taxable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	56,234	68,978
State and Municipals, Tax-exempt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	84,586	98,250
Corporate Debt Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	3,605	2,918
Mortgage-backed Securities, U.S. Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	1,091	1,843
Mortgage-backed Securities, U.S. Government-sponsored enterprises
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	91,387	119,980
Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	103	140
Loan held for sale
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	653	408
Interest rate floor - other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	4	844
Interest rate swap-other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	22,953	9,026
Interest rate swap-other liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Liabilities measured at fair value	(22,089)	(8,811)
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	224,439	191,714
Level 1 | U.S. Treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	224,336	191,574
Level 1 | Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	103	140
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	253,254	325,747
Level 2 | U.S. Government-sponsored enterprises state and municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	16,351	33,778
Level 2 | State and Municipals, Taxable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	56,234	68,978
Level 2 | State and Municipals, Tax-exempt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	84,586	98,250
Level 2 | Corporate Debt Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	3,605	2,918
Level 2 | Mortgage-backed Securities, U.S. Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	1,091	1,843
Level 2 | Mortgage-backed Securities, U.S. Government-sponsored enterprises
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	91,387	119,980
Level 2 | Loan held for sale
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	653	408
Level 2 | Interest rate floor - other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	4	844
Level 2 | Interest rate swap-other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	22,953	9,026
Level 2 | Interest rate swap-other liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Liabilities measured at fair value	$ (22,089)	$ (8,811)

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Fair value estimates - Schedule of Assets and Liabilities Measured at Fair Value on Nonrecurring Basis (Details) - Nonrecurring Basis - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	$ 553	$ 780
Other real estate owned		487
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	$ 553	780
Other real estate owned		$ 487

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Fair value estimates - Additional Quantitative Information about Assets Measured at Fair Value on Nonrecurring Basis (Details) - Nonrecurring Basis - Level 3 - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Impaired Loans
Fair Value Inputs, Assets, Quantitative Information
Assets, Fair Value Estimate	$ 553	$ 780
Range and weighted average of appraisal adjustments	70.60%	65.20%
Range and weighted average of liquidation expenses	5.20%	5.10%
Impaired Loans | Minimum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	21.60%	6.40%
Range and weighted average of liquidation expenses	3.00%	3.00%
Impaired Loans | Maximum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	97.00%	97.00%
Range and weighted average of liquidation expenses	6.00%	6.00%
Other Real Estate Owned
Fair Value Inputs, Assets, Quantitative Information
Assets, Fair Value Estimate		$ 487
Range and weighted average of appraisal adjustments		35.90%
Range and weighted average of liquidation expenses		5.00%
Other Real Estate Owned | Minimum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments		35.90%
Range and weighted average of liquidation expenses		3.00%
Other Real Estate Owned | Maximum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments		35.90%
Range and weighted average of liquidation expenses		6.00%

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Fair value estimates - Carrying and Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Investment securities:
Available-for-sale	$ 477,590	$ 517,321
Common equity securities	103	140
Held-to-maturity	78,512	70,446
Loans held for sale	653	408
Mortgage servicing rights	931	882
Financial liabilities:
Subordinated debentures	33,000	33,000
Carrying Value
Financial assets:
Cash and due from banks	113,010	279,933
Investment securities:
Available-for-sale	477,590	517,321
Common equity securities	103	140
Held-to-maturity	92,771	71,213
Loans held for sale	653	408
Net loans	2,593,884	2,300,790
Accrued interest receivable	10,082	8,528
Mortgage servicing rights	931	882
Restricted equity securities (FHLB and other)	4,502	4,045
Interest rate floor	4	844
Interest rate swaps	22,953	9,026
Total assets	3,316,483	3,193,130
Financial liabilities:
Deposits	3,124,140	2,963,397
Short-term borrowings	14,700
Long-term debt	1,104	2,711
Subordinated debentures	33,000	33,000
Accrued interest payable	1,129	408
Interest rate swap	22,089	8,811
Total liabilities	3,196,162	3,008,327
Fair Value
Financial assets:
Cash and due from banks	113,010	279,933
Investment securities:
Available-for-sale	477,590	517,321
Common equity securities	103	140
Held-to-maturity	78,512	70,446
Loans held for sale	653	408
Net loans	2,508,050	2,261,586
Accrued interest receivable	10,082	8,528
Mortgage servicing rights	1,433	1,357
Restricted equity securities (FHLB and other)	4,502	4,045
Interest rate floor	4	844
Interest rate swaps	22,953	9,026
Total assets	3,216,892	3,153,634
Financial liabilities:
Deposits	3,113,415	2,963,547
Short-term borrowings	14,700
Long-term debt	1,106	2,778
Subordinated debentures	33,211	32,337
Accrued interest payable	1,129	408
Interest rate swap	22,089	8,811
Total liabilities	3,185,650	3,007,881
Level 1
Financial assets:
Cash and due from banks	113,010	279,933
Investment securities:
Available-for-sale	224,336	191,574
Common equity securities	103	140
Level 2
Investment securities:
Available-for-sale	253,254	325,747
Held-to-maturity	78,512	70,446
Loans held for sale	653	408
Accrued interest receivable	10,082	8,528
Mortgage servicing rights	1,433	1,357
Restricted equity securities (FHLB and other)	4,502	4,045
Interest rate floor	4	844
Interest rate swaps	22,953	9,026
Financial liabilities:
Deposits	3,113,415	2,963,547
Short-term borrowings	14,700
Long-term debt	1,106	2,778
Subordinated debentures	33,211	32,337
Accrued interest payable	1,129	408
Interest rate swap	22,089	8,811
Level 3
Investment securities:
Net loans	$ 2,508,050	$ 2,261,586

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Employee benefit plans - Components of Net Periodic Benefit Cost (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Components of net periodic pension cost:
Salaries and employee benefits expense	$ 8,474	$ 7,829	$ 24,365	$ 21,649
Pension Benefits
Components of net periodic pension cost:
Salaries and employee benefits expense	373	343	970	991
Interest cost	114	105	342	315
Expected return on plan assets	(352)	(322)	(1,056)	(966)
Amortization of unrecognized net gain	50	76	149	227
Net periodic benefit	$ (188)	$ (141)	$ (565)	$ (424)

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Employee benefit plans - Additional Information (Details) - 2017 Plan - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Share-based Compensation Arrangement by Share-based Payment Award
Common stock available for grant as awards	17,364		17,364
Salaries and employee benefits expense	$ 223		$ 613
Non-Performance-based restricted stock
Share-based Compensation Arrangement by Share-based Payment Award
Shares or units vesting period			3 years
Performance-based restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award
Shares or units vesting period			3 years
Cumulative diluted earnings per share period used for conditions for vesting of performance-based restricted stock units			3 years
Average return on equity period used for conditions for vesting of performance-based restricted stock units			3 years
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award
Granted shares			19,787	19,818
Salaries and employee benefits expense		$ 213		$ 479
Unrecognized compensation expense	$ 1,200		$ 1,200
Weighted average vesting period			1 year 9 months 18 days

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Derivatives and hedging activities - Fair Values of Derivative Instruments on the Balance Sheet (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022 USD ($) security	Sep. 30, 2021 USD ($)	Sep. 30, 2022 USD ($) security	Sep. 30, 2021 USD ($)	Dec. 31, 2021 USD ($)
Derivatives, Fair Value
Interest rate floor and swaps	$ 22,957		$ 22,957		$ 9,870
Liability Derivatives	22,089		22,089		8,818
Posted collateral	14,700		14,700		3,218
Net Amounts of Assets presented in the Balance Sheet	22,089		22,089		8,818
Interest expense
Derivatives, Fair Value
Amount of gain or (loss) reclassified as a increase to interest income (expense)				$ (48)
Interest income
Derivatives, Fair Value
Amount of gain or (loss) reclassified as a increase to interest income (expense)	20	$ 153	276	$ 453
Interest Rate Floor
Derivatives, Fair Value
Interest rate floor and swaps	4		4		844
Interest Rate Swaps
Derivatives, Fair Value
Interest rate floor and swaps	22,807		22,807		9,026
Credit-risk contract
Derivatives, Fair Value
Posted collateral	7,800		7,800		7,800
Net Amounts of Assets presented in the Balance Sheet	2,200		2,200		5,600
Derivatives designated as hedging instruments
Derivatives, Fair Value
Interest rate floor and swaps	4		4		844
Derivatives designated as hedging instruments | Interest Rate Floor
Derivatives, Fair Value
Notional amount	25,000		25,000
Derivatives designated as hedging instruments | Interest Rate Floor | Other Assets.
Derivatives, Fair Value
Interest rate floor and swaps	4		4		844
Derivatives not designated as hedging instruments
Derivatives, Fair Value
Interest rate floor and swaps	22,953		22,953		9,026
Liability Derivatives	$ 22,089		$ 22,089		8,811
Derivatives not designated as hedging instruments | Interest Rate Swaps
Derivatives, Fair Value
Number of instruments held | security	86		86
Notional amount	$ 386,171		$ 386,171		392,677
Derivatives not designated as hedging instruments | Interest Rate Swaps | Other Assets.
Derivatives, Fair Value
Interest rate floor and swaps	22,953		22,953		9,026
Derivatives not designated as hedging instruments | Interest Rate Swaps | Other Liabilities.
Derivatives, Fair Value
Liability Derivatives	$ 22,089		22,089		$ 8,811
Cash Flow Hedge | Interest income
Derivatives, Fair Value
Amount of gain or (loss) reclassified as a increase to interest income (expense)			$ 64

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Derivatives and hedging activities - Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Recognized in OCI Included Component			$ (60)		$ 680
Interest expense
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income				$ (23)
Interest income
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income	$ 4	$ 137	228	405
Interest Rate Floor | Interest income
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Recognized in OCI on Derivative			(512)	(66)
Amount of Gain (Loss) Recognized in OCI Included Component			(497)	(70)
Amount of Loss Recognized in OCI Excluded Component			(15)	4
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income			228	405
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Included Component			276	453
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Excluded Component			(48)	(48)
Cash Flow Hedge
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Recognized in OCI on Derivative			(512)	335
Amount of Gain (Loss) Recognized in OCI Included Component			(497)	331
Amount of Loss Recognized in OCI Excluded Component			(15)	4
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income			228	357
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Included Component			276	405
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Excluded Component			$ (48)	(48)
Cash Flow Hedge | Interest expense
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Recognized in OCI on Derivative				401
Amount of Gain (Loss) Recognized in OCI Included Component				401
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income				(23)
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Included Component				(23)
Cash Flow Hedge | Other
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income				(25)
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Included Component				$ (25)

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Derivatives and hedging activities - Effect of Fair Value and Cash Flow Hedge Accounting on the Income Statement (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Derivative Instruments, Gain (Loss)
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$ (46)	$ (128)	$ (740)	$ (22)
Interest income
Derivative Instruments, Gain (Loss)
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	4	137	228	405
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	4	137	228	405
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	20	153	276	453
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$ (16)	$ (16)	$ (48)	(48)
Interest expense
Derivative Instruments, Gain (Loss)
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded				(48)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income				(23)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring				(25)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component				$ (48)

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Derivatives and hedging activities - Effect of Other Derivative Instruments on the Income Statement (Details) - Derivatives not designated as hedging instruments - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Recognized in Income	$ 130	$ 7	$ 656	$ 175
Interest Rate Swaps | Interest Rate Swap Revenue
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Recognized in Income	129	7	652	175
Other
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Recognized in Income	1		4
Fee Income | Interest Rate Swap Revenue
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Recognized in Income	$ 2	$ 72	$ 106	$ 569

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Derivatives and hedging activities - Offsetting Derivatives (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Offsetting of Derivative Assets
Gross Amounts of Recognized Assets	$ 22,957	$ 9,870
Net Amounts of Assets presented in the Balance Sheet	22,957	9,870
Gross Amounts Not Offset in the Statement of Financial Position - Cash Collateral Received	14,700	3,218
Net Amount	8,257	6,652
Offsetting of Derivative Liabilities
Gross Amounts of Recognized Liabilities	22,089	8,818
Net Amounts of Assets presented in the Balance Sheet	22,089	8,818
Gross Amounts Not Offset in the Statement of Financial Position - Financial Instruments	22,089	3,218
Gross Amounts Not Offset in the Statement of Financial Position - Cash Collateral Paid		$ 5,600
Cash collateral paid but not offset	$ 7,830

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Deposits - Components of Interest-bearing and Noninterest-bearing Deposits (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Deposits.
Money market accounts	$ 706,947	$ 588,245
Now accounts	813,743	851,086
Savings accounts	530,124	491,796
Time deposits less than $250	224,517	203,719
Time deposits $250 or more	78,874	90,795
Total interest-bearing deposits	2,354,205	2,225,641
Noninterest-bearing deposits	769,935	737,756
Total deposits	$ 3,124,140	$ 2,963,397

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Deposits - Deposit Activity (Details) $ in Millions	9 Months Ended
	Sep. 30, 2022 USD ($)
Cash and Cash Equivalents [Line Items]
Increase (decrease) in deposits	$ 160.7
Brokered deposits increased callable	$ 11.4
Certificates of deposit callable term	3 months
Interest-bearing deposits
Cash and Cash Equivalents [Line Items]
Increase (decrease) in deposits	$ 128.6
Non-interest-bearing deposits
Cash and Cash Equivalents [Line Items]
Increase (decrease) in deposits	32.1
Money market deposits
Cash and Cash Equivalents [Line Items]
Increase (decrease) in deposits	118.7
Savings accounts
Cash and Cash Equivalents [Line Items]
Increase (decrease) in deposits	38.3
Time deposits less than $250 thousand
Cash and Cash Equivalents [Line Items]
Increase (decrease) in deposits	20.8
Brokered deposits
Cash and Cash Equivalents [Line Items]
Increase (decrease) in deposits	$ 33.3

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Borrowings (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Short-term Debt
Ending Balance	$ 14,700	$ 0
Average Balance	40,401
Maximum Month-End Balance	$ 140,675
Weighted Average Rate for the Year	1.92%
Weighted Average Rate at End of Year	3.08%
Other borrowings
Short-term Debt
Ending Balance	$ 14,700
Average Balance	8,434
Maximum Month-End Balance	$ 14,700
Weighted Average Rate for the Year	1.17%
Weighted Average Rate at End of Year	3.08%
FHLB Advances
Short-term Debt
Average Balance	$ 31,967	13,973
Maximum Month-End Balance	$ 125,975	$ 50,000
Weighted Average Rate for the Year	2.11%	0.56%

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Borrowings - Additional Information (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Short-term Debt
Short-term borrowings	$ 14,700	$ 0
Other borrowings	14,700
Peoples Bank
Short-term Debt
Maximum borrowing capacity	1,100,000	896,100
Outstanding amount in borrowings	1,100	2,700
Amount of credit facility used to issue standby letters of credit to collateralize public fund deposits	$ 383,200	$ 373,000

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Borrowings - Long-term debt advances (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Debt Instrument
Long-term debt	$ 1,104	$ 2,711
Long-term 4.69% fixed rate debt due March 2023
Debt Instrument
Long-term debt	$ 1,104	$ 2,711
Fixed interest rate (as a percent)	4.69%	4.69%

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Borrowings - Maturities of long-term debt (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Borrowings
2022	$ 549
2023	555
Total long-term debt	1,104	$ 2,711
FHLB long-term advances	$ 1,100

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