Peoples Financial Services Corp. Reports Second Quarter 2020 Earnings

SCRANTON, Pa., July 31, 2020 /PRNewswire/ — Peoples Financial Services Corp. (“Peoples”) (NASDAQ: PFIS), the bank holding company for Peoples…

SCRANTON, Pa., July 31, 2020 /PRNewswire/ — Peoples Financial Services Corp. (“Peoples”) (NASDAQ: PFIS), the bank holding company for Peoples Security Bank and Trust Company, today reported unaudited financial results at and for the three and six months ended June 30, 2020.  The results for the three months ended June 30, 2020 reflect the impact of $201.3 million of loans originated through the United States Department of Treasury’s Paycheck Protection Program (“PPP”) and COVID-19 related impacts. Peoples reported net income of $7.6 million, or $1.03 per diluted share for the three months ended June 30, 2020, an increase of 6.0% when compared to $7.1 million, or $0.96 per diluted share for the comparable period of 2019.  The increase in earnings for the three months ended June 30, 2020 is the product of an increase in pre-provision net interest income of $1.8 million, due primarily to lower funding costs of $1.3 million, and lower noninterest expenses of $1.2 million primarily from deferred loan origination cost benefit related to the PPP loans originated in the second quarter. Partially offsetting the increase was a higher provision for loan losses of $1.5 million resulting from the application of our allowance for loan losses methodology, and changes to qualitative factors relating to the adverse impact of the COVID-19 crisis.

Net income for the six months ended June 30, 2020, totaled $12.9 million or $1.74 per diluted share, a 5.2% decrease when compared to $13.6 million or $1.83 per diluted share for the same period last year.  The decrease in earnings in the 2020 six month period is the result of an increase to our provision for loan losses of $3.9 million, primarily due to changes to the qualitative factors included in our allowance for loan losses methodology relating to the impact of COVID-19, and lower noninterest income of $0.6 million.  Partially offsetting the decline were increases in our pre-provision net interest income of $3.0 million, or 8.2%, which were the result of average earning asset growth of $268.8 million and lower funding costs of $1.5 million, and lower noninterest expenses of $1.0 million.

In addition to evaluating its results of operations in accordance with GAAP, Peoples routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as tangible stockholders’ equity and core net income ratios. The reported results included in this release contain items, which Peoples considers non-core, namely gains and losses incurred within the investment securities portfolio. Peoples believes the reported non-GAAP financial measures provide information useful to investors in understanding its operating performance and trends. Where non-GAAP disclosures are used in this press release, a reconciliation to the comparable GAAP measure is provided in the accompanying tables. The non-GAAP financial measures Peoples uses may differ from the non-GAAP financial measures of other financial institutions.

Core net income, which we have defined to exclude losses or gains on investment securities, for the three months ended June 30, totaled $7.5 million and $7.1 million in 2020 and 2019, respectively. Core net income per share for the three months ended June 30, 2020 was $1.03, an increase from $0.96 for the same period in 2019. The results in 2020 exclude a pre-tax $39 thousand unrealized gain on our equity investment portfolio while the results for 2019 exclude a pre-tax $23 thousand gain on the sale of debt securities and a $9 thousand unrealized loss on our equity investment portfolio.  

Core net income for the six months ended June 30, 2020 was $12.7 million or $1.72 per diluted share, a decrease of 6.1% compared to $13.5 million or $1.83 per diluted share for the same period of 2019. Results for the six months ended June 30, 2020 exclude a pre-tax gain of $267 thousand on the sale of debt securities and a $84 thousand unrealized loss on our equity investment securities portfolio. The 2019 results were impacted by a pre-tax gain of $23 thousand on the sale of debt securities and an $8 thousand unrealized loss on our equity investment securities portfolio. 

NOTABLES

  • Loans, net growth of $323.1 million or 17.4% since June 30, 2019, including $201.3 million of PPP commercial loans. Excluding PPP loans, loans increased $121.8 million or 6.6% since June 30, 2019
  • Deposits grew $238.6 million or 12.1% for the six months ended June 30, 2020, due in part to PPP loan proceeds deposited in customer accounts.
  • Efficiency ratio improved to 54.0% for the three months ended June 30, 2020, compared to 61.2% in the year ago period due to lower noninterest expenses.
  • Tangible book value per share improved to $33.74 at June 30, 2020 from $31.68 at December 31, 2019, and from $30.58 at June 30, 2019.
  • Tax-equivalent net interest income increased $2.9 million or 7.5% to $40.8 million for the six months ended June 30, 2020 compared to $37.9 million for the same period in 2019.
  • Provision for loan losses increased $3.9 million or 278.6% to $5.3 million for the six months ended June 30, 2020 from $1.4 million during the year ago period. The increase was due primarily to higher qualitative factors related to economic decline resulting from the adverse impact of COVID-19.
  • The ratio of the allowance for loan losses to total loans was 1.24% and 1.18% at June 30, 2020 and June 30, 2019, respectively. Excluding PPP loans that do not carry an allowance for losses due to a 100% government guarantee, the ratio equaled 1.36% at June 30, 2020, or an impact of 12 basis points.
  • Issued $33.0 million aggregate principal, fixed-to-floating rate subordinated debentures due June 1, 2030, qualifying as Tier 2 Capital.
  • Dividends declared for the six months ended June 30, 2020 amounted to $0.72 per share, a 5.9% increase from 2019, representing a dividend payout ratio of 41.1%.
  • Notified our customers and primary regulators of our intent to close the Duryea, Gouldsboro, and South Scranton offices during the third quarter of 2020.

INCOME STATEMENT REVIEW

Calculated on a fully taxable equivalent basis (“FTE”), our tax-equivalent net interest margin for the three and six months ended June 30 were 3.36% and 3.43% respectively in 2020, compared to 3.62% and 3.60% respectively for the same periods in 2019. The PPP loans’ 1% interest rate negatively impacted the net interest margin by 5 and 2 basis points for the three and six months ended June 30, 2020, respectively.  The tax-equivalent yield on interest-earning assets decreased 59 basis points to 3.90% and decreased 39 basis points to 4.07% for the three and six months ended June 30, 2020 from 4.49% and 4.46% during the corresponding periods of 2019.  The decrease in yield is due to lower market rates the result of the Federal Open Market Committee (“FOMC”) cutting the federal funds rate by 75 basis points during the second half of 2019, and aggressive actions to cut rates 150 basis points in the first quarter of 2020.  The decrease in market rates resulted in lower rates on our existing adjustable rate loans and affected rates on new originations.  At the same time, we experienced lower interest-bearing liability costs due to the lower market rates.  Our cost of funds, which represents our average rate paid on total interest-bearing liabilities, decreased 42 and 27 basis points to 0.75% and 0.88% respectively for the three and six months ended June 30, 2020 when compared to 1.17% and 1.15% respectively for the same periods in 2019. 

Tax-equivalent net interest income for the six months ended June 30, increased $2.9 million or 7.5% to $40.8 million in 2020 from $37.9 million in 2019. The increase in tax equivalent net interest income was due to lower interest expense of $1.5 million, resulting from lower borrowing rates, and a $215.7 million increase in average loans for the six months ended June 30, 2020 when compared to the same period in 2019. PPP loans averaged $81.7 million in the six month period ended June 30, 2020 with interest and fees totaling $1.1 million.  The tax-equivalent yield on the loan portfolio decreased to 4.34% for the six months ended June 30, 2020, compared to 4.75% for the comparable period in 2019 due to lower market rates and the yield earned on PPP loans. Loans, net averaged $2.1 billion for the six months ended June 30, 2020 and $1.8 billion for the comparable period in 2019. For the six months ended June 30, the tax-equivalent yield on total investments decreased to 2.45% in 2020 from 2.53% in 2019. Average investments totaled $309.9 million in 2020 and $274.2 million in 2019. Average interest-bearing liabilities increased $153.0 million for the six months ended June 30, 2020, compared to the corresponding period last year due to higher customer savings rates, new account relationships and the addition of brokered deposits.

The provision for loan losses totaled $5.3 million for the six months ended June 30, 2020 and $1.4 million for the six months ended June 30, 2019. For the quarter ended June 30, the provision for loan losses was $1.8 million in 2020 and $0.4 million in 2019. The increase to the provision in the 2020 period results from the application of our loan losses methodology which includes monitoring of our asset quality and the general economic environment to assure the allowance for loan losses is adequate to cover estimated credit losses in the loan portfolio. Changes to the qualitative factors related to economic decline resulting from the adverse impact of the COVID-19 crisis was the primary reason for the higher provision.

For the six months ended June 30, noninterest income totaled $7.0 million in 2020, a decrease from $7.6 million in 2019.  Service charges, fees, and commissions totaled $3.0 million in the six months ended June 30, 2020 compared to $3.7 million during the corresponding period of 2019 as the volume of consumer and commercial service charge activity fell.  Merchant services and wealth management income both decreased largely due to lower transaction volumes in the COVID-19 environment.  Mortgage banking revenue increased $0.2 million as sold mortgage production volumes increased due to low interest rates, and net gains on the sale of investment securities were higher by $0.2 million in the 2020 period.  For the three months ended June 30, noninterest income totaled $3.4 million in 2020, a decrease from $4.2 million in 2019.  The decrease was due to lower service charges, fees and commissions as the volume of consumer and commercial service charge activity significantly fell, to lower wealth management income due to the prevailing COVID-19 environment, and to a decrease in fee income generated from commercial loan interest rate swap transactions in the 2020 period.  Increased mortgage banking revenue resulting from an increase in sold mortgage production volumes partially offset the decreases.

Noninterest expense decreased $1.0 million or 3.7% to $26.9 million for the six months ended June 30, 2020, from $27.9 million for the six months ended June 30, 2019. Salaries and employee benefits decreased $0.7 million or 4.7% due to an increase to deferred loan origination cost benefit of $1.3 million related to the origination of PPP loans during the second quarter of 2020.  The initial deferred cost benefit will add back to expense primarily over the twenty-four month duration of the PPP loans and may be accelerated based on the timing of the forgiveness of PPP loans made to our borrowers by the Small Business Administration (“SBA”).  In addition, other expenses during the six months ended June 30, 2020 decreased $0.5 million due to lower FDIC assessments and advertising expense.  Occupancy and equipment expenses increased due to our market expansion when comparing the first half of 2020 and 2019 as those expenses increased $0.3 million or 5.4%. Noninterest expense decreased $1.2 million or 8.2% to $13.2 million for the three months ended June 30, 2020, from $14.4 million for the three months ended June 30, 2019. Salaries and employee benefits decreased $1.0 million or 12.3% due to deferred loan origination cost benefit related to the origination of PPP loans during the 2020 period. Decreases to other expenses of $0.4 million were partially offset by higher occupancy and equipment expenses of $0.2 million due to our market expansion when comparing the three months ending June 30, 2020 and 2019.

BALANCE SHEET REVIEW

At June 30, 2020, total assets, loans and deposits were $2.7 billion, $2.2 billion and $2.2 billion, respectively. Loans, net increased $243.7 million or 12.6% from December 31, 2019. The growth in loans was primarily in commercial and industrial loans resulting from our participation in the SBA’s administered PPP, and to a lesser extent in commercial real estate loans.  During the second quarter of 2020 we originated $201.3 million in PPP loans, the majority of which were to existing customers and had initial terms of twenty-four months.  We expect a significant decline in these loan balances during the second half of 2020 as our commercial customers are expected to apply for and receive forgiveness under the PPP program. Total deposits increased $238.6 million or 12.1% from December 31, 2019 due to proceeds of PPP loans retained on deposit by our commercial borrowers, stimulus payments received and retained by our customers, organic growth of customer relationships and $26.3 million of brokered deposits. Non-interest bearing deposits increased $112.0 million or 24.2% and interest-bearing deposits increased $126.6 million or 8.4% during the six months ended June 30, 2020. Total investments were $295.4 million at June 30, 2020, including $288.0 million securities classified as available-for-sale and $7.4 million classified as held-to-maturity.

During the three months ended June 30, 2020, we sold $33.0 million aggregate principal amount of subordinated notes due 2030 (the “2020 Notes”), to accredited investors in a private placement.  The 2020 Notes are intended to be treated 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 will float based on a benchmark rate, 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 than 4.75%. 

Stockholders’ equity equaled $312.0 million or $42.55 per share at June 30, 2020, and $299.0 million or $40.47 per share at December 31, 2019. Tangible stockholders’ equity improved to $33.74 per share at June 30, 2020, from $31.68 per share at December 31, 2019. Dividends declared for the six months ended June 30, 2020 amounted to $0.72 per share, a 5.9% increase from 2019, representing a dividend payout ratio of 41.1%.

ASSET QUALITY REVIEW

Nonperforming assets were $13.5 million or 0.62% of loans, net and foreclosed assets at June 30, 2020, compared to $10.5 million or 0.54% of loans, net and foreclosed assets at December 31, 2019. The increase in non-performing loans was mainly due to the placement of three large commercial loans on non-accrual. All three loans have been individually measured for impairment and have specific reserves allocated. Our allowance for loan losses increased $4.3 million or 18.9% in the first six months of 2020, due largely to the adjustment of qualitative factors in our allowance for loan losses methodology, which reflect economic decline and expectation of increased credit losses due to COVID-19’s adverse impact on economic and business operating conditions. The allowance for loan losses equaled $27.0 million or 1.24% of loans, net at June 30, 2020 compared to $22.7 million or 1.17% of loans, net, at December 31, 2019. Excluding PPP loans that do not carry an allowance for losses due to a 100% government guarantee, the ratio equaled 1.36% at June 30, 2020.  Loans charged-off, net of recoveries, for the six months ended June 30, 2020, equaled $1.0 million or 0.10% of average loans, compared to $0.8 million or 0.09% of average loans for the comparable period last year.

Impact of COVID-19

Operationally, as the COVID-19 events unfold, our priority is to take care of our customers and employees.  Our management team continues to modify and enhance strategies and protocols intended to protect our workforce and customers, maintain services for customers, assure the functional continuity of our operating systems, controls and processes, and mitigate financial risks posed by changing market conditions. We have followed the recommendations of our state governments as to conducting business and opened the lobbies of the majority of our branches while maintaining safety protocols by limiting the number of customers in the lobby at a time and installing protective shields at teller windows.

From a lending perspective, organic loan growth, with the exception of PPP loans, has been slowed as we focus on managing our existing portfolio. We have participated in the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), Paycheck Protection Program, a $350 billion specialized low-interest loan program funded by the U.S. Treasury Department and administered by the U.S. Small Business Administration. The Paycheck Protection Program (“PPP”) provides borrower guarantees for lenders, as well as loan forgiveness incentives for borrowers that utilize the loan proceeds to cover employee compensation-related business operating costs. Our loan officers are guiding our commercial customers through the application and forgiveness process. Through June 30, 2020, we have approved 1,373 PPP loans totaling $201.3 million. Substantially all of the loans were made to existing customers, funded under the two year PPP loan program, and the loan proceeds initially deposited with our institution. At origination, loan fee income totaled $6.6 million and is being earned primarily over the 24 month duration of the loans as a part of the loan yield. At June 30, 2020, $5.9 million remains to be earned in future quarters and may be accelerated based on the timing of forgiveness of PPP loans by the SBA.

From a credit risk perspective, we have taken actions to identify and assess our COVID-19 related credit exposures based on asset class and borrower type. During the second quarter of 2020, we worked to proactively monitor our loan portfolio by contacting many of our borrowers to evaluate the impact of the pandemic on them, their businesses and the underlying collateral for our loans. The Company implemented a customer payment deferral program to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19 related challenges. For borrowers who received a loan payment deferral we are working with the borrowers to evaluate the potential for further deterioration of credit quality at the end of the deferral period. We evaluated our commercial loan and commercial real estate loan portfolios to identify those loans in industries that are most at risk or where other information indicates the borrower may be significantly impacted by the effects of COVID-19. Through July 20, 2020, the Company granted payment deferral requests for up to six months to 298 commercial borrowers with outstanding loan balances of $306.4 million and to 476 consumer borrowers with outstanding balances of $23.2 million. These loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act. Pursuant to the CARES Act, these loan deferrals are not included in our nonperforming loans disclosed below. Loans in deferment status will continue to accrue interest during the deferment period unless otherwise classified as nonperforming.

Our Asset Liability Management Committee met in May to review our capital adequacy and liquidity contingency funding plan due to the high degree of uncertainty around the magnitude and duration of the economic impact of the COVID-19 pandemic. The Company’s capital planning and capital management activities, coupled with its historically strong earnings performance and prudent dividend practices, have allowed us to build strong capital reserves. Because of the uncertain economic impact of COVID-19, however, during the second quarter of 2020 the Company issued $33.0 million aggregate principal amount 5.375% fixed-to-floating rate subordinated notes due June 2030.  The notes are intended to qualify as Tier 2 capital for regulatory purposes. At June 30, 2020, all of the Company’s regulatory capital ratios significantly exceeded all well-capitalized thresholds.

Additionally, management believes the Company’s liquidity position is strong. At June 30, 2020, the Company’s cash and due from banks balances were $51.9 million and we maintained $158.1 million of availability at the Federal Reserve Bank’s discount window. We may also utilize the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) by pledging the PPP loans as collateral; at June 30, $201.3 million would be available to borrow for a term equal to the maturity date of the loans pledged.  The Company also maintains an available-for-sale investment securities 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 June 30, 2020, the Company’s available-for-sale investment securities portfolio totaled $287.7 million, $233.3 million of which were unencumbered. Net unrealized gains on the portfolio were $11.3 million. The Bank’s unused borrowing capacity at the Federal Home Loan Bank of Pittsburgh at June 30, 2020 was $599.4 million.

The COVID-19 crisis is expected to continue to impact the Company’s financial results, as well as demand for its products and services during the second half of 2020 and potentially beyond. The short and long-term implications of the COVID-19 crisis, and related monetary and fiscal stimulus measures, on our future revenues, earnings results, allowance for loan losses, capital reserves, and liquidity are uncertain at this time.

About Peoples:

Peoples Financial Services Corp. is the parent company of Peoples Security Bank and Trust Company, a community bank serving Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Schuylkill, Susquehanna, Wayne and Wyoming Counties in Pennsylvania and Broome County in New York through 29 offices. Each office, interdependent with the community, offers a comprehensive array of financial products and services to individuals, businesses, not-for-profit organizations and government entities. Peoples’ business philosophy includes offering direct access to senior management and other officers and providing friendly, informed and courteous service, local and timely decision making, flexible and reasonable operating procedures and consistently applied credit policies.

 

Safe Harbor Forward-Looking Statements:

We make statements in this press release, and we may from time to time make other statements regarding our outlook or expectations for future financial or operating results and/or other matters regarding or affecting Peoples Financial Services Corp. and Peoples Security Bank and Trust Company (collectively, “Peoples”) that are considered “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “intend” and “potential.” For these statements, Peoples claims the protection of the statutory safe harbors for forward-looking statements.

Peoples cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: prevailing economic and political conditions, particularly in our market area; the unfolding COVID-19 crisis and the governmental responses to the crisis; credit risk associated with our lending activities; changes in interest rates, loan demand, real estate values and competition; changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; our ability to identify and address cyber-security risks and other economic, competitive, governmental, regulatory and technological factors affecting Peoples’ operations, pricing, products and services and other factors that may be described in Peoples’ Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission from time to time.

In addition to these risks, acquisitions and business combinations, present risks other than those presented by the nature of the business acquired. Acquisitions and business combinations may be substantially more expensive to complete than originally anticipated, and the anticipated benefits may be significantly harder-or take longer-to achieve than expected. As regulated financial institutions, our pursuit of attractive acquisition and business combination opportunities could be negatively impacted by regulatory delays or other regulatory issues. Regulatory and/or legal issues related to the pre-acquisition operations of an acquired or combined business may cause reputational harm to Peoples following the acquisition or combination, and integration of the acquired or combined business with ours may result in additional future costs arising as a result of those issues.

The forward-looking statements are made as of the date of this release, and, except as may be required by applicable law or regulation, Peoples assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

 [TABULAR MATERIAL FOLLOWS]

 

Summary Data

Peoples Financial Services Corp.

Five Quarter Trend

(In thousands, except share and per share data)





















June 30


Mar 31


Dec 31


Sept 30


June 30




2020


2020


2019


2019


2019


Key performance data:

















Share and per share amounts:

















Net income


$

1.03


$

0.72


$

0.68


$

0.97


$

0.96


Core net income (1)


$

1.03


$

0.70


$

0.67


$

0.97


$

0.96


Cash dividends declared


$

0.36


$

0.36


$

0.35


$

0.34


$

0.34


Book value


$

42.55


$

41.68


$

40.47


$

40.08


$

39.41


Tangible book value (1)


$

33.74


$

32.86


$

31.68


$

31.27


$

30.58


Market value:

















High


$

38.86


$

50.10


$

53.43


$

48.38


$

45.41


Low


$

30.24


$

35.60


$

44.46


$

42.90


$

42.00


Closing


$

38.19


$

39.74


$

50.35


$

45.29


$

44.99


Market capitalization


$

280,042


$

291,820


$

372,010


$

334,637


$

332,885


Common shares outstanding



7,332,856



7,343,240



7,388,480



7,388,759



7,399,078


Selected ratios:

















Return on average stockholders’ equity



9.87

%


7.05

%


6.69

%


9.65

%


9.98

%

Core return on average stockholders’

equity (1)



9.83

%


6.90

%


6.55

%


9.63

%


9.97

%

Return on average tangible

stockholders’ equity



12.49

%


8.99

%


8.55

%


12.40

%


12.93

%

Core return on average tangible

stockholders’ equity (1)



12.44

%


8.79

%


8.38

%


12.38

%


12.91

%

Return on average assets



1.13

%


0.86

%


0.83

%


1.21

%


1.24

%

Core return on average assets (1)



1.12

%


0.84

%


0.81

%


1.21

%


1.24

%

Stockholders’ equity to total assets



11.56

%


12.03

%


12.08

%


12.48

%


12.55

%

Efficiency ratio (2)



54.01

%


57.88

%


57.63

%


59.65

%


61.15

%

Nonperforming assets to loans, net, and

foreclosed assets



0.62

%


0.60

%


0.54

%


0.61

%


0.68

%

Net charge-offs to average loans, net



0.10

%


0.10

%


0.78

%


0.05

%


0.11

%

Allowance for loan losses to loans, net



1.24

%


1.27

%


1.17

%


1.19

%


1.18

%

Interest-bearing assets yield (FTE) (3)



3.90

%


4.25

%


4.30

%


4.42

%


4.49

%

Cost of funds



0.75

%


1.01

%


1.06

%


1.10

%


1.17

%

Net interest spread (FTE) (3)



3.15

%


3.24

%


3.24

%


3.32

%


3.32

%

Net interest margin (FTE) (3)



3.36

%


3.50

%


3.52

%


3.61

%


3.62

%



(1)

See Reconciliation of Non-GAAP financial measures.

(2)

Total noninterest expense less amortization of intangible assets divided by tax-equivalent net interest income and noninterest income less net gains(losses) on investment securities available-for-sale.

(3)

Tax-equivalent adjustments were calculated using the federal statutory tax rate prevailing during the indicated periods of 21%.


 

 



Peoples Financial Services Corp.

Consolidated Statements of Income

(In thousands, except per share data)












June 30


June 30


Six Months Ended


2020


2019


Interest income:








Interest and fees on loans:








Taxable


$

42,077


$

40,744


Tax-exempt



1,972



2,208


Interest and dividends on investment securities:








Taxable



2,973



2,035


Tax-exempt



594



1,082


Dividends



48



41


Interest on interest-bearing deposits in other banks



30



23


Total interest income



47,694



46,133


Interest expense:








Interest on deposits



6,367



7,124


Interest on short-term borrowings



675



1,408


Interest on long-term debt



436



576


Interest on subordinated debt



148





Total interest expense



7,626



9,108


Net interest income



40,068



37,025


Provision for loan losses



5,300



1,400


Net interest income after provision for loan losses



34,768



35,625


Noninterest income:








Service charges, fees, commissions



3,038



3,700


Merchant services income



586



655


Commissions and fees on fiduciary activities



999



999


Wealth management income



618



747


Mortgage banking income



449



285


Bank owned life insurance income



380



378


Interest rate swap revenue



719



789


Net loss on investment securities



(84)



(8)


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



267



23


Total noninterest income



6,972



7,568


Noninterest expense:








Salaries and employee benefits expense



14,904



15,632


Net occupancy and equipment expense



6,121



5,810


Amortization of intangible assets



308



374


Other expenses



5,560



6,103


Total noninterest expense



26,893



27,919


Income before income taxes



14,847



15,274


Provision for income tax expense



1,990



1,718


Net income


$

12,857


$

13,556


Other comprehensive income:








Unrealized gain on investment securities available-for-sale


$

9,723


$

5,050


Reclassification adjustment for gains included in net income



(267)



(23)


Change in derivative fair value



493



506


Income tax related to other comprehensive income



2,090



1,162


Other comprehensive income, net of income taxes



7,859



4,371


Comprehensive income


$

20,716


$

17,927


Share and per share amounts:








Net income – basic


$

1.75


$

1.83


Net income – diluted



1.74



1.83


Cash dividends declared


$

0.72


$

0.68


Average common shares outstanding – basic



7,360,517



7,399,178


Average common shares outstanding – diluted



7,391,202



7,410,558


 

 

Peoples Financial Services Corp.

Consolidated Statements of Income

(In thousands, except per share data)





















June 30


Mar 31


Dec 31


Sept 30


June 30


Three months ended


2020


2020


2019


2019


2019


Interest income:

















Interest and fees on loans:

















Taxable


$

21,160


$

20,917


$

20,804


$

20,940


$

20,641


Tax-exempt



941



1,031



1,035



1,066



1,109


Interest and dividends on investment securities available-for-sale:

















Taxable



1,425



1,548



1,308



1,092



1,025


Tax-exempt



295



299



385



411



520


Dividends



25



23



24



19



22


Interest on interest-bearing deposits in other banks



6



24



15



27



15


Interest on federal funds sold









45



77





Total interest income



23,852



23,842



23,616



23,632



23,332


Interest expense:

















Interest on deposits



2,864



3,503



3,905



3,966



3,713


Interest on short-term borrowings



102



573



151



83



595


Interest on long-term debt



231



205



308



347



296


Interest on subordinated debt



148














Total interest expense



3,345



4,281



4,364



4,396



4,604


Net interest income



20,507



19,561



19,252



19,236



18,728


Provision for loan losses



1,800



3,500



4,000



700



350


Net interest income after provision for loan losses



18,707



16,061



15,252



18,536



18,378


Noninterest income:

















Service charges, fees, commissions



1,433



1,605



1,730



1,806



1,981


Merchant services income



472



114



136



182



457


Commissions and fees on fiduciary activities



493



506



519



569



492


Wealth management income



231



387



382



395



370


Mortgage banking income



312



137



143



172



137


Bank owned life insurance income



193



187



188



189



192


Interest rate swap revenue



249



470



646



355



509


Net gain (loss) on investment securities



39



(123)



126



14



(9)


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






267









23


Total noninterest income



3,422



3,550



3,870



3,682



4,152


Noninterest expense:

















Salaries and employee benefits expense



7,048



7,856



7,686



8,056



8,037


Net occupancy and equipment expense



3,042



3,079



3,104



2,997



2,849


Amortization of intangible assets



154



154



173



183



182


Other expenses



2,998



2,562



2,681



2,843



3,361


Total noninterest expense



13,242



13,651



13,644



14,079



14,429


Income before income taxes



8,887



5,960



5,478



8,139



8,101


Income tax expense



1,311



679



446



991



957


Net income


$

7,576


$

5,281


$

5,032


$

7,148


$

7,144


Other comprehensive income:

















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


$

2,094


$

7,629


$

(102)


$

161


$

2,611


Reclassification adjustment for gains included in net income






(267)









(23)


Change in pension liability









639








Change in derivative fair value



(543)



1,036



(218)



153



443


Income tax related to other comprehensive income 



326



1,765



67



66



637


Other comprehensive income, net of income taxes



1,225



6,633



252



248



2,394


Comprehensive income


$

8,801


$

11,914


$

5,284


$

7,396


$

9,538


Share and per share amounts:

















Net income – basic


$

1.03


$

0.72


$

0.68


$

0.97


$

0.96


Net income – diluted



1.03



0.71



0.68



0.96



0.96


Cash dividends declared


$

0.36


$

0.36


$

0.35


$

0.34


$

0.34


Average common shares outstanding – basic



7,341,636



7,379,438



7,388,488



7,394,992



7,399,302


Average common shares outstanding – diluted



7,376,700



7,405,703



7,410,899



7,417,403



7,413,114


 


 

 

Peoples Financial Services Corp.

Details of Net Interest and Net Interest Margin

(In thousands, fully taxable equivalent basis)





















June 30


Mar 31


Dec 31


Sept 30


June 30


Three months ended


2020


2020


2019


2019


2019


Net interest income:

















Interest income

















Loans, net:

















Taxable


$

21,160


$

20,917


$

20,804


$

20,940


$

20,641


Tax-exempt



1,191



1,305



1,311



1,348



1,404


Total loans, net



22,351



22,222



22,115



22,288



22,045


Investments:

















Taxable



1,445



1,571



1,332



1,111



1,047


Tax-exempt



374



378



487



520



659


Total investments



1,819



1,949



1,819



1,631



1,706


Interest on interest-bearing balances in other

banks



5



24



15



27



15


Federal funds sold



6






45



77





Total interest income



24,181



24,195



23,994



24,023



23,766


Interest expense:

















Deposits



2,864



3,503



3,905



3,966



3,713


Short-term borrowings



102



573



151



83



595


Long-term debt



231



205



308



347



296


Subordinated debt



148














Total interest expense



3,345



4,281



4,364



4,396



4,604


Net interest income


$

20,836


$

19,914


$

19,630


$

19,627


$

19,162


Loans, net:

















Taxable



4.19

%


4.60

%


4.67

%


4.80

%


4.85

%

Tax-exempt



3.75

%


3.88

%


3.88

%


3.94

%


3.96

%

Total loans, net



4.16

%


4.55

%


4.62

%


4.74

%


4.78

%

Investments:

















Taxable



2.24

%


2.36

%


2.29

%


2.20

%


2.21

%

Tax-exempt



3.46

%


3.10

%


2.88

%


2.93

%


3.20

%

Total investments



2.41

%


2.48

%


2.42

%


2.39

%


2.51

%

Interest-bearing balances with banks



0.16

%


1.17

%


1.12

%


2.14

%


2.67

%

Federal funds sold



0.14

%





1.85

%


2.14

%




Total interest-bearing assets



3.90

%


4.25

%


4.30

%


4.42

%


4.49

%

Interest expense:

















Deposits



0.72

%


0.92

%


1.00

%


1.03

%


1.03

%

Short-term borrowings



0.44

%


1.62

%


2.00

%


2.62

%


2.69

%

Long-term debt



1.13

%


2.54

%


2.52

%


2.61

%


2.83

%

Subordinated debt



5.38

%













Total interest-bearing liabilities



0.75

%


1.01

%


1.06

%


1.10

%


1.17

%

Net interest spread



3.15

%


3.24

%


3.24

%


3.32

%


3.32

%

Net interest margin



3.36

%


3.50

%


3.52

%


3.61

%


3.62

%

 


 

 

Peoples Financial Services Corp.

Consolidated Balance Sheets

(In thousands)





















June 30


Mar 31


Dec 31


Sept 30


June 30


At period end


2020


2020


2019


2019


2019


Assets:

















Cash and due from banks


$

27,146


$

22,181


$

26,943


$

35,908


$

26,615


Interest-bearing balances in other banks



14,788



13,146



4,210



5,275



3,347


Federal funds sold



10,000









10,100





Investment securities:

















Available-for-sale



287,709



302,884



330,478



268,823



261,665


Equity investments carried at fair value



338



299



423



297



283


Held-to-maturity



7,401



7,520



7,656



7,808



7,969


Loans held for sale



1,939



270



986



1,390



831


Loans, net



2,181,909



2,023,155



1,938,240



1,881,090



1,858,799


Less: allowance for loan losses



26,957



25,686



22,677



22,392



21,930


Net loans



2,154,952



1,997,469



1,915,563



1,858,698



1,836,869


Premises and equipment, net



48,378



48,619



47,932



47,437



46,468


Accrued interest receivable



8,368



7,283



6,981



6,655



7,303


Goodwill



63,370



63,370



63,370



63,370



63,370


Other intangible assets, net



1,257



1,411



1,565



1,738



1,921


Other assets



74,778



79,320



69,220



65,200



67,625


Total assets


$

2,700,424


$

2,543,772


$

2,475,327


$

2,372,699


$

2,324,266


Liabilities:

















Deposits:

















Noninterest-bearing


$

575,206


$

467,315


$

463,238


$

440,582


$

419,995


Interest-bearing



1,634,918



1,542,680



1,508,251



1,560,703



1,456,804


Total deposits



2,210,124



2,009,995



1,971,489



2,001,285



1,876,799


Short-term borrowings



50,000



164,150



152,150






82,700


Long-term debt



60,938



32,250



32,733



52,509



52,980


Subordinated debt



33,000














Accrued interest payable



872



1,336



1,277



1,461



1,058


Other liabilities



33,446



29,978



18,668



21,277



19,146


Total liabilities



2,388,380



2,237,709



2,176,317



2,076,532



2,032,683


Stockholders’ equity:

















Common stock



14,649



14,670



14,777



14,778



14,798


Capital surplus



133,002



133,159



135,251



135,106



135,384


Retained earnings



159,739



154,806



152,187



149,740



145,106


Accumulated other comprehensive gain (loss)



4,654



3,428



(3,205)



(3,457)



(3,705)


Total stockholders’ equity



312,044



306,063



299,010



296,167



291,583


Total liabilities and stockholders’ equity


$

2,700,424


$

2,543,772


$

2,475,327


$

2,372,699


$

2,324,266


 


 

 

Peoples Financial Services Corp.

Consolidated Balance Sheets

(In thousands)





















June 30


Mar 31


Dec 31


Sept 30


June 30


Average quarterly balances


2020


2020


2019


2019


2019


Assets:

















Loans, net:

















Taxable


$

2,032,852


$

1,830,455


$

1,766,373


$

1,729,741


$

1,707,730


Tax-exempt



127,624



135,260



134,040



135,580



142,310


Total loans, net



2,160,476



1,965,715



1,900,413



1,865,321



1,850,040


Investments:

















Taxable



260,160



267,179



231,079



200,444



189,265


Tax-exempt



43,466



49,046



67,208



70,381



82,565


Total investments



303,626



316,225



298,287



270,825



271,830


Interest-bearing balances with banks



12,595



8,263



5,317



5,006



2,554


Federal funds sold



17,480






9,629



14,267





Total interest-bearing assets



2,494,177



2,290,203



2,213,646



2,155,419



2,124,424


Other assets



210,017



193,507



192,121



193,041



190,583


Total assets


$

2,704,194


$

2,483,710


$

2,405,767


$

2,348,460


$

2,315,007


Liabilities and stockholders’ equity:

















Deposits:

















Interest-bearing


$

1,605,841


$

1,524,265


$

1,549,978


$

1,521,047


$

1,449,665


Noninterest-bearing



574,194



462,508



459,248



445,238



426,791


Total deposits



2,180,035



1,986,773



2,009,226



1,966,285



1,876,456


Short-term borrowings



93,447



142,121



30,018



12,563



88,792


Long-term debt



82,117



32,477



48,468



52,731



41,948


Subordinated debt



11,074














Other liabilities



28,798



21,096



19,452



22,900



20,773


Total liabilities



2,395,471



2,182,467



2,107,164



2,054,479



2,027,969


Stockholders’ equity



308,723



301,243



298,603



293,981



287,038


Total liabilities and stockholders’ equity


$

2,704,194


$

2,483,710


$

2,405,767


$

2,348,460


$

2,315,007


 


 

 

Peoples Financial Services Corp.

Asset Quality Data

(In thousands)





















June 30


Mar 31


Dec 31


Sept 30


June 30




2020


2020


2019


2019


2019


At quarter end

















Nonperforming assets:

















Nonaccrual/restructured loans


$

12,214


$

10,760


$

9,699


$

10,657


$

11,926


Accruing loans past due 90 days or more



291



423



378



387



341


Foreclosed assets



964



903



450



485



408


Total nonperforming assets


$

13,469


$

12,086


$

10,527


$

11,529


$

12,675



















Three months ended

















Allowance for loan losses:

















Beginning balance


$

25,686


$

22,677


$

22,392


$

21,930


$

22,105


Charge-offs



617



798



3,809



308



576


Recoveries



88



307



94



70



51


Provision for loan losses



1,800



3,500



4,000



700



350


Ending balance


$

26,957


$

25,686


$

22,677


$

22,392


$

21,930


 


 

 

Peoples Financial Services Corp.

Reconciliation of Non-GAAP Financial Measures

(In thousands, except share and per share data)





















June 30


Mar 31


Dec 31


Sept 30


June 30


Three months ended


2020


2020


2019


2019


2019


Core net income per share:

















Net income GAAP


$

7,576


$

5,281


$

5,032


$

7,148


$

7,144


Adjustments:

















Less: (gain) loss on investment securities



(39)



(144)



(126)



(14)



(14)


Add: (gain) loss on investment securities tax adjustment



(8)



(30)



(26)



(3)



(3)


Net income Core


$

7,545


$

5,167


$

4,932


$

7,137


$

7,133


Average common shares outstanding – basic



7,341,636



7,379,438



7,388,488



7,394,992



7,399,302


Core net income per share


$

1.03


$

0.70


$

0.67


$

0.97


$

0.96


Tangible book value:

















Total stockholders’ equity


$

312,044


$

306,063


$

299,010


$

296,167


$

291,583


Less: Goodwill



63,370



63,370



63,370



63,370



63,370


Less: Other intangible assets, net



1,257



1,411



1,565



1,738



1,921


Total tangible stockholders’ equity


$

247,417


$

241,282


$

234,075


$

231,059


$

226,292


Common shares outstanding



7,332,856



7,343,240



7,388,480



7,388,759



7,399,078


Tangible book value per share


$

33.74


$

32.86


$

31.68


$

31.27


$

30.58


Core return on average stockholders’ equity:

















Net income GAAP


$

7,576


$

5,281


$

5,032


$

7,148


$

7,144


Adjustments:

















Less: (gain) loss on investment securities



(39)



(144)



(126)



(14)



(14)


Add: (gain) loss on investment securities tax adjustment



(8)



(30)



(26)



(3)



(3)


Net income Core


$

7,545


$

5,167


$

4,932


$

7,137


$

7,133


Average stockholders’ equity


$

308,723


$

301,243


$

298,603


$

293,981


$

287,038


Core return on average stockholders’ equity



9.83

%


6.90

%


6.55

%


9.63

%


9.97

%

Return on average tangible equity:

















Net income GAAP


$

7,576


$

5,281


$

5,032


$

7,148


$

7,144


Average stockholders’ equity


$

308,723


$

301,243


$

298,603


$

293,981


$

287,038


Less: average intangibles



64,704



64,879



65,022



65,200



65,406


Average tangible stockholders’ equity


$

244,019


$

236,364


$

233,581


$

228,781


$

221,632


Return on average tangible stockholders’ equity



12.49

%


8.99

%


8.55

%


12.40

%


12.93

%

Core return on average tangible stockholders’ equity:

















Net income GAAP


$

7,576


$

5,281


$

5,032


$

7,148


$

7,144


Adjustments:

















Less: (gain) loss on investment securities



(39)



(144)



(126)



(14)



(14)


Add: (gain) loss on investment securities tax adjustment



(8)



(30)



(26)



(3)



(3)


Net income Core


$

7,545


$

5,167


$

4,932


$

7,137


$

7,133


Average stockholders’ equity


$

308,723


$

301,243


$

298,603


$

293,981


$

287,038


Less: average intangibles



64,704



64,879



65,022



65,200



65,406


Average tangible stockholders’ equity


$

244,019


$

236,364


$

233,581


$

228,781


$

221,632


Core return on average tangible stockholders’ equity



12.44

%


8.79

%


8.38

%


12.38

%


12.91

%

Core return on average assets:

















Net income GAAP


$

7,576


$

5,281


$

5,032


$

7,148


$

7,144


Adjustments:

















Less: (gain) loss on investment securities



(39)



(144)



(126)



(14)



(14)


Add: (gain) loss on investment securities tax adjustment



(8)



(30)



(26)



(3)



(3)


Net income Core


$

7,545


$

5,167


$

4,932


$

7,137


$

7,133


Average assets


$

2,704,194


$

2,483,710


$

2,405,767


$

2,348,460


$

2,315,007


Core return on average assets



1.12

%


0.84

%


0.81

%


1.21

%


1.24

%


 

 

Peoples Financial Services Corp.

Reconciliation of Non-GAAP Financial Measures

(In thousands, except share and per share data)












June 30


June 30


Six Months Ended


2020


2019


Core net income per share:








Net income (GAAP)


$

12,857


$

13,556


Adjustments:








Less: Gain on investment securities



(183)



(15)


Add: Gain on investment securities tax adjustment



(38)



(3)


Net income Core


$

12,712


$

13,544


Average basic common shares outstanding



7,360,517



7,399,178


Average diluted common shares outstanding



7,391,202



7,410,558


Core net income per share – basic


$

1.73


$

1.83


Core net income per share – diluted


$

1.72


$

1.83



 

 

 

Peoples Financial Services Corp.

Reconciliation of Non-GAAP Financial Measures

(In thousands, except share and per share data)


The following table reconciles the non-GAAP financial measures of FTE net interest income for the three and six months

ended June 30, 2020 and 2019:










Three months ended June 30


2020


2019


Interest income (GAAP)


$

23,852


$

23,332


Adjustment to FTE



329



434


Interest income adjusted to FTE (non-GAAP)



24,181



23,766


Interest expense



3,345



4,604


Net interest income adjusted to FTE (non-GAAP)


$

20,836


$

19,162










Six months ended June 30


2020


2019


Interest income (GAAP)


$

47,694


$

46,133


Adjustment to FTE



682



875


Interest income adjusted to FTE (non-GAAP)



48,376



47,008


Interest expense



7,626



9,108


Net interest income adjusted to FTE (non-GAAP)


$

40,750


$

37,900



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 six months ended June 30, 2020 and 2019:









Three months ended June 30


2020


2019


Efficiency ratio (non-GAAP):








Noninterest expense (GAAP)


$

13,242


$

14,429


Less: amortization of intangible assets expense



154



182


Noninterest expense adjusted for amortization of assets expense (non-GAAP)



13,088



14,247










Net interest income (GAAP)



20,507



18,728


Plus: taxable equivalent adjustment



329



434


Noninterest income (GAAP)



3,422



4,152


Less: net gains (losses) on equity securities



39



(9)


Less: net gains on sale of securities






23


Net interest income (FTE) plus noninterest income (non-GAAP)


$

24,219


$

23,300










Efficiency ratio (non-GAAP)



54.1

%


61.2

%









Six months ended June 30


2020


2019


Efficiency ratio (non-GAAP):








Noninterest expense (GAAP)


$

26,893


$

27,919


Less: amortization of intangible assets expense



308



374


Noninterest expense adjusted for amortization of assets expense (non-GAAP)



26,585



27,545










Net interest income (GAAP)



40,068



37,025


Plus: taxable equivalent adjustment



682



875


Noninterest income (GAAP)



6,972



7,568


Less: net (losses) gains on equity securities



(84)



(8)


Less: net gains on sale of securities



267



23


Net interest income (FTE) plus noninterest income (non-GAAP)


$

47,539


$

45,453










Efficiency ratio (non-GAAP)



55.9

%


60.6

%

 

 

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/peoples-financial-services-corp-reports-second-quarter-2020-earnings-301104066.html

SOURCE Peoples Financial Services Corp.