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, 2023

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: 7,040,851 at November l, 2023.

PEOPLES FINANCIAL SERVICES CORP.

FORM 10-Q

For the Quarter Ended September 30, 2023

Contents		Page No.
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Consolidated Balance Sheets at September 30, 2023 (Unaudited) and December 31, 2022 (Unaudited)	3
	Consolidated Statements of Income and Comprehensive (Loss) Income for the Three and Nine Months ended September 30, 2023 and 2022 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, June 30 and September 30, 2023 and 2022 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2023 and 2022 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 4.	Controls and Procedures	66
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	71
	Signatures	72

2

Peoples Financial Services Corp.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

	September 30, 2023		December 31, 2022
Assets:
Cash and cash equivalents
Cash and due from banks	$	39,285	$	37,675
Interest-bearing deposits in other banks		9,550		193
Federal funds sold		205,700
Total cash and cash equivalents		254,535		37,868
Investment securities:
Available-for-sale		382,227		477,703
Equity investments carried at fair value		92		110
Held-to-maturity: Fair value September 30, 2023, $68,808; December 31, 2022, $76,563		86,246		91,179
Total investment securities		468,565		568,992
Loans		2,870,969		2,730,116
Less: allowance for credit losses		23,010		27,472
Net loans		2,847,959		2,702,644
Goodwill		63,370		63,370
Premises and equipment, net		61,936		55,667
Bank owned life insurance		49,123		48,344
Deferred tax assets		17,956		18,739
Accrued interest receivable		12,769		11,715
Intangible assets, net		19		105
Other assets		49,567		46,071
Total assets	$	3,825,799	$	3,553,515
Liabilities:
Deposits:
Noninterest-bearing	$	691,071	$	772,765
Interest-bearing		2,674,012		2,273,833
Total deposits		3,365,083		3,046,598
Short-term borrowings		27,020		114,930
Long-term debt		25,000		555
Subordinated debentures		33,000		33,000
Accrued interest payable		4,777		903
Other liabilities		46,529		42,179
Total liabilities		3,501,409		3,238,165
Stockholders’ equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,040,852 shares at September 30, 2023 and 7,158,017 shares at December 31, 2022		14,093		14,321
Capital surplus		121,870		126,850
Retained earnings		247,857		230,515
Accumulated other comprehensive loss		(59,430)		(56,336)
Total stockholders’ equity		324,390		315,350
Total liabilities and stockholders’ equity	$	3,825,799	$	3,553,515

See notes to unaudited consolidated financial statements

3

Peoples Financial Services Corp.

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

(Dollars in thousands, except per share data)

	Three Months Ended				Nine Months Ended
September 30,	2023		2022		2023		2022
Interest income:
Interest and fees on loans:
Taxable	$	33,095	$	25,128		95,283		67,990
Tax-exempt		1,411		1,338		4,205		3,717
Interest and dividends on investment securities:
Taxable		1,920		2,096		5,973		6,176
Tax-exempt		375		521		1,210		1,546
Dividends						4		2
Interest on interest-bearing deposits in other banks		91		41		190		61
Interest on federal funds sold		1,873		106		2,914		201
Total interest income		38,765		29,230		109,779		79,693
Interest expense:
Interest on deposits		16,481		3,316		39,805		6,381
Interest on short-term borrowings		291		457		1,590		579
Interest on long-term debt		273		16		569		67
Interest on subordinated debt		443		443		1,330		1,330
Total interest expense		17,488		4,232		43,294		8,357
Net interest income		21,277		24,998		66,485		71,336
(Credit to) provision for credit losses		(166)		450		(1,103)		1,700
Net interest income after (credit to) provision for credit losses		21,443		24,548		67,588		69,636
Noninterest income:
Service charges, fees, commissions and other		1,900		1,714		5,847		5,167
Merchant services income		170		157		542		833
Commission and fees on fiduciary activities		606		591		1,691		1,697
Wealth management income		393		339		1,177		1,064
Mortgage banking income		87		135		295		407
Increase in cash surrender value of life insurance		270		269		790		731
Interest rate swap revenue		266		130		512		757
Net losses on equity investment securities				(18)		(17)		(37)
Net gains on sale of investment securities available for sale						81
Total noninterest income		3,692		3,317		10,918		10,619
Noninterest expense:
Salaries and employee benefits expense		8,784		8,474		26,346		24,365
Net occupancy and equipment expense		4,298		4,025		12,678		12,061
Acquisition related expenses		869				990
Amortization of intangible assets		29		96		86		289
Net gains on sale of other real estate owned		(18)				(18)		(478)
Professional fees and outside services		687		733		1,960		1,969
FDIC insurance and assessments		508		324		1,565		969
Donations		389		373		1,254		1,038
Other expenses		1,508		1,910		5,361		5,504
Total noninterest expense		17,054		15,935		50,222		45,717
Income before income taxes		8,081		11,930		28,284		34,538
Provision for income tax expense		1,335		1,962		4,534		5,587
Net income		6,746		9,968		23,750		28,951
Other comprehensive (loss) income:
Unrealized loss on investment securities available for sale		(10,378)		(21,510)		(4,690)		(72,791)
Reclassification adjustment for net gain on sales included in net income						(81)
Change in derivative fair value		747		(46)		826		(740)
Other comprehensive loss		(9,631)		(21,556)		(3,945)		(73,531)
Income tax benefit related to other comprehensive loss		(2,074)		(4,527)		(851)		(15,442)
Other comprehensive loss, net of income tax benefit		(7,557)		(17,029)		(3,094)		(58,089)
Comprehensive (loss) income	$	(811)	$	(7,061)		20,656		(29,138)
Per share data:
Net income:
Basic	$	0.95	$	1.39	$	3.33	$	4.04
Diluted	$	0.95	$	1.38	$	3.31	$	4.01
Average common shares outstanding:
Basic		7,088,745		7,169,809		7,130,506		7,171,382
Diluted		7,120,685		7,213,147		7,165,570		7,214,966
Dividends declared	$	0.41	$	0.40	$	1.23	$	1.18

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, 2023	$	14,321	$	126,850	$	230,515	$	(56,336)	$	315,350
Cumulative impact of adoption of ASU 2016-13(1), net of tax						2,364				2,364
Net income						7,579				7,579
Other comprehensive income, net of tax								6,894		6,894
Dividends declared: $0.41 per share						(2,936)				(2,936)
Stock compensation, including tax effects and expenses				209						209
Restricted stock issued: 17,640 shares		35		(35)
Share retirement: 16,573 shares		(33)		(793)						(826)
Balance, March 31, 2023	$	14,323	$	126,231	$	237,522	$	(49,442)	$	328,634
Net income						9,425				9,425
Other comprehensive loss, net of tax								(2,431)		(2,431)
Dividends declared: $0.41 per share						(2,930)				(2,930)
Stock compensation, including tax effects and expenses				160						160
Share retirement: 25,555 shares		(51)		(1,020)						(1,071)
Balance, June 30, 2023	$	14,272	$	125,371	$	244,017	$	(51,873)	$	331,787
Net income						6,746				6,746
Other comprehensive loss, net of tax								(7,557)		(7,557)
Dividends declared: $0.41 per share						(2,906)				(2,906)
Stock based compensation				259						259
Share retirement: 89,558 shares		(179)		(3,760)						(3,939)
Balance, September 30, 2023	$	14,093	$	121,870	$	247,857	$	(59,430)	$	324,390
(1) See Note 1 for additional details related to adoption of ASU 2016-13.
							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 tax								(26,153)		(26,153)
Dividends declared: $0.39 per share						(2,796)				(2,796)
Stock compensation, including tax effects and expenses				(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 tax								(14,907)		(14,907)
Dividends declared: $0.39 per share						(2,798)				(2,798)
Stock compensation, including tax effects and expenses