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Table of Contents

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, 2020

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: 7,222,842 at October 31, 2020.

Table of Contents

PEOPLES FINANCIAL SERVICES CORP.

FORM 10-Q

For the Quarter Ended September 30, 2020

Contents

Page No.

PART I.

FINANCIAL INFORMATION:

Item 1.

Financial Statements

Consolidated Balance Sheets at September 30, 2020 (Unaudited) and December 31, 2019

3

Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months ended September 30, 2020 and 2019 (Unaudited)

4

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, June 30 and September 30, 2020 and 2019 (Unaudited)

5

Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2020 and 2019 (Unaudited)

6

Notes to Consolidated Financial Statements (Unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

58

Item 4.

Controls and Procedures

60

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

60

Item 1A.

Risk Factors

60

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

Item 3.

Defaults upon Senior Securities

63

Item 4.

Mine Safety Disclosures

63

Item 5.

Other Information

63

Item 6.

Exhibits

63

Signatures

64

2

Table of Contents

Peoples Financial Services Corp.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

    

September 30, 2020

    

December 31, 2019

 

Assets:

Cash and due from banks:

Cash and due from banks

$

42,940

$

26,943

Interest-bearing deposits in other banks

20,972

4,210

Federal funds sold

 

102,300

 

Total cash and due from banks

166,212

31,153

 

Investment securities:

Available-for-sale

 

247,404

 

330,478

Equity investments carried at fair value

341

423

Held-to-maturity: Fair value September 30, 2020, $7,611; December 31, 2019, $7,889

 

7,297

 

7,656

Total investment securities

 

255,042

 

338,557

Loans

 

2,188,463

 

1,938,240

Less: allowance for loan losses

 

26,584

 

22,677

Net loans

 

2,161,879

 

1,915,563

Loans held for sale

2,161

986

Premises and equipment, net

 

47,926

 

47,932

Accrued interest receivable

 

8,595

 

6,981

Goodwill

 

63,370

 

63,370

Intangible assets, net

 

1,104

 

1,565

Other assets

 

99,373

 

69,220

Total assets

$

2,805,662

$

2,475,327

Liabilities:

Deposits:

Noninterest-bearing

$

579,196

$

463,238

Interest-bearing

 

1,777,688

 

1,508,251

Total deposits

 

2,356,884

 

1,971,489

Short-term borrowings

 

50,000

 

152,150

Long-term debt

 

20,269

 

32,733

Subordinated debentures

33,000

Accrued interest payable

 

1,289

 

1,277

Other liabilities

 

30,597

 

18,668

Total liabilities

 

2,492,039

 

2,176,317

Stockholders’ equity:

Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,242,326 shares at September 30, 2020 and 7,388,480 shares at December 31, 2019

 

14,468

 

14,777

Capital surplus

 

130,038

 

135,251

Retained earnings

 

165,437

 

152,187

Accumulated other comprehensive income (loss)

 

3,680

 

(3,205)

Total stockholders’ equity

 

313,623

 

299,010

Total liabilities and stockholders’ equity

$

2,805,662

$

2,475,327

See notes to unaudited consolidated financial statements

3

Table of Contents

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30, 

    

2020

    

2019

    

2020

    

2019

 

Interest income:

Interest and fees on loans:

Taxable

$

20,901

$

20,940

$

62,978

$

61,684

Tax-exempt

 

876

 

1,066

 

2,848

 

3,274

Interest and dividends on investment securities:

Taxable

 

1,250

 

1,092

 

4,223

 

3,127

Tax-exempt

 

280

 

411

 

874

 

1,493

Dividends

 

23

 

19

 

71

 

60

Interest on interest-bearing deposits in other banks

 

4

 

27

 

27

 

50

Interest on federal funds sold

 

12

 

77

19

77

Total interest income

 

23,346

 

23,632

 

71,040

 

69,765

Interest expense:

Interest on deposits

 

2,758

 

3,966

 

9,125

 

11,090

Interest on short-term borrowings

 

82

 

83

 

757

 

1,491

Interest on long-term debt

 

139

 

347

 

575

 

923

Interest on subordinated debt

443

591

Total interest expense

 

3,422

 

4,396

 

11,048

 

13,504

Net interest income

 

19,924

 

19,236

 

59,992

 

56,261

Provision for loan losses

 

1,050

 

700

 

6,350

 

2,100

Net interest income after provision for loan losses

 

18,874

 

18,536

 

53,642

 

54,161

Noninterest income:

Service charges, fees and commissions

 

1,584

 

1,806

 

4,622

 

5,505

Merchant services income

 

137

 

182

 

723

 

837

Commission and fees on fiduciary activities

 

575

 

569

 

1,574

 

1,568

Wealth management income

 

272

 

395

 

890

 

1,142

Mortgage banking income

 

488

 

172

 

937

 

457

Bank owned life insurance income

 

192

 

189

 

572

 

567

Interest rate swap revenue

1,228

355

1,947

1,145

Net gains (losses) on equity investment securities

2

 

14

 

(82)

 

6

Net gains on sale of investment securities available-for-sale

 

457

 

 

724

 

23

Total noninterest income

 

4,935

 

3,682

 

11,907

 

11,250

Salaries and employee benefits expense

 

7,831

 

8,056

 

22,735

 

23,688

Net occupancy and equipment expense

 

3,131

 

2,997

 

9,252

 

8,807

Amortization of intangible assets

 

154

 

183

 

462

 

557

Professional fees and outside services

617

487

1,593

1,343

FDIC insurance and assessments

241

68

651

615

Donations

340

386

1,019

1,077

Other expenses

 

1,660

 

1,902

 

5,155

 

5,911

Total noninterest expense

 

13,974

 

14,079

 

40,867

 

41,998

Income before income taxes

 

9,835

 

8,139

 

24,682

 

23,413

Income tax expense

 

1,523

 

991

 

3,513

 

2,709

Net income

 

8,312

 

7,148

 

21,169

 

20,704

Other comprehensive income :

Unrealized gain (loss) on investment securities available-for-sale

 

(639)

 

161

 

9,084

 

5,211

Reclassification adjustment for net gain on sales included in net income

 

(457)

 

 

(724)

 

(23)

Change in derivative fair value

(137)

153

356

659

Other comprehensive income

 

(1,233)

314

8,716

5,847

Income tax expense

 

(259)

 

66

 

1,831

 

1,228

Other comprehensive income , net of income taxes

 

(974)

 

248

 

6,885

 

4,619

Comprehensive income

$

7,338

$

7,396

$

28,054

$

25,323

Per share data:

Net income:

Basic

$

1.14

$

0.97

$

2.89

$

2.80

Diluted

$

1.14

$

0.96

$

2.87

$

2.79

Average common shares outstanding:

Basic

 

7,277,189

 

7,394,992

 

7,332,539

 

7,397,768

Diluted

 

7,312,253

 

7,417,403

 

7,364,693

 

7,412,865

Dividends declared

$

0.36

$

0.34

1.08

1.02

See notes to unaudited consolidated financial statements

4

Table of Contents

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except per share data)

    

    

    

    

Accumulated

 

Other

 

Common

Capital

Retained

Comprehensive

 

    

Stock  

    

Surplus  

    

Earnings  

    

Income (Loss)  

    

Total

 

Balance, January 1, 2020

$

14,777

$

135,251

$

152,187

$

(3,205)

$

299,010

Net income

 

5,281

5,281

Other comprehensive income, net of income taxes

 

6,633

6,633

Dividends declared: $0.36 per share

 

(2,662)

(2,662)

Stock based compensation

 

5

5

Share retirement: 53,476 shares

(107)

(2,097)

(2,204)

Balance, March 31, 2020

$

14,670

$

133,159

$

154,806

$

3,428

$

306,063

Net income

7,576

7,576

Other comprehensive income, net of income taxes

1,226

1,226

Dividends declared: $0.36 per share

(2,643)

(2,643)

Stock based compensation

186

186

Share retirement: 10,383 shares

(21)

(343)

(364)

Balance, June 30, 2020

14,649

133,002

159,739

4,654

312,044

Net income

 

8,312

8,312

Other comprehensive income, net of income taxes

 

(974)

(974)

Dividends declared: $0.36 per share

 

(2,614)

(2,614)

Stock based compensation

192

192

Share retirement: 90,165 shares

(181)

(3,156)

(3,337)

Balance, September 30, 2020

$

14,468

$

130,038

$

165,437

$

3,680

$

313,623

    

    

    

    

Accumulated

 

Other

 

Common

Capital

Retained

Comprehensive

 

    

Stock  

    

Surplus  

    

Earnings  

    

Income (Loss)  

    

Total

 

Balance, January 1, 2019

$

14,798

$

135,310

$

136,582

$

(8,076)

$

278,614

Net income

 

6,412

6,412

Other comprehensive income, net of income taxes

 

1,976

1,976

Dividends declared: $0.34 per share

 

(2,516)

(2,516)

Stock based compensation

 

83

83

Balance, March 31, 2019

$

14,798

$

135,393

$

140,478

$

(6,100)

$

284,569

Net income

 

7,144

7,144

Other comprehensive loss, net of income taxes

 

2,395

2,395

Dividends declared: $0.34 per share

 

(2,516)

(2,516)

Stock based compensation

 

157

157

Share retirement: 3,830 shares

(8)

(158)

(166)

Common stock grants awarded, net of unearned compensation of $164: 3,854 shares