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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 June 30, 2024

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: 9,975,789 at August 1, 2024.

​

​

​

Table of Contents

PEOPLES FINANCIAL SERVICES CORP.

FORM 10-Q

​

For the Quarter Ended June 30, 2024

​

​

​ | ​ | ​ | ​ | ​
Contents | ​ | ​ | ​ | Page No.
​ | ​ | ​ | ​ | ​
PART I. | ​ | FINANCIAL INFORMATION: | ​ | ​
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Item 1. | ​ | Financial Statements | ​ | ​
​ | ​ | ​ | ​ | ​
​ | ​ | Consolidated Balance Sheets at June 30, 2024 (Unaudited) and December 31, 2023 (Unaudited) | ​ | 3
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​ | ​ | Consolidated Statements of Income and Comprehensive Income for the Three and Six Months ended June 30, 2024 and 2023 (Unaudited) | ​ | 4
​ | ​ | ​ | ​ | ​
​ | ​ | Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, June 30, 2024 and 2023 (Unaudited) | ​ | 5
​ | ​ | ​ | ​ | ​
​ | ​ | Consolidated Statements of Cash Flows for the Six Months ended June 30, 2024 and 2023 (Unaudited) | ​ | 6
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​ | ​ | Notes to Consolidated Financial Statements (Unaudited) | ​ | 8
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Item 2. | ​ | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ​ | 39
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Item 3. | ​ | Quantitative and Qualitative Disclosures About Market Risk | ​ | 58
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Item 4. | ​ | Controls and Procedures | ​ | 60
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PART II | ​ | OTHER INFORMATION | ​ | ​
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Item 1. | ​ | Legal Proceedings | ​ | 60
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Item 1A. | ​ | Risk Factors | ​ | 60
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Item 2. | ​ | Unregistered Sales of Equity Securities and Use of Proceeds | ​ | 60
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Item 3. | ​ | Defaults upon Senior Securities | ​ | 60
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Item 4. | ​ | Mine Safety Disclosures | ​ | 60
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Item 5. | ​ | Other Information | ​ | 61
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Item 6. | ​ | Exhibits | ​ | 61
​ | ​ | ​ | ​ | ​
​ | ​ | Signatures | ​ | 62

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Table of Contents

Peoples Financial Services Corp.

CONSOLIDATED BALANCE SHEET S

(Dollars in thousands, except share data)

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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | June 30, 2024 |  | December 31, 2023 |
Assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cash and cash equivalents | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cash and due from banks | ​ | $ | 41,234 | ​ | $ | 33,524 | ​
Interest-bearing deposits in other banks | ​ | ​ | 8,722 | ​ | ​ | 9,141 | ​
Federal funds sold | ​ |  | ​ | ​ |  | 144,700 | ​
Total cash and cash equivalents | ​ | ​ | 49,956 | ​ | ​ | 187,365 | ​
​ | ​ | ​ | ​ | ​ |  | ​ | ​
Investment securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Available for sale: Amortized cost of $439,189 and $450,454, respectively, net of allowance for credit losses of $0 at June 30, 2024 and December 31, 2023 | ​ |  | 385,240 | ​ |  | 398,927 | ​
Equity investments carried at fair value | ​ | ​ | 78 | ​ | ​ | 98 | ​
Held to maturity: Fair value of $68,224 and $71,698, respectively, net of allowance for credit losses of $0 at June 30, 2024 and December 31, 2023 | ​ |  | 81,598 | ​ |  | 84,851 | ​
Total investment securities | ​ |  | 466,916 | ​ |  | 483,876 | ​
Loans | ​ |  | 2,869,553 | ​ |  | 2,849,897 | ​
Less: allowance for credit losses | ​ |  | 23,123 | ​ |  | 21,895 | ​
Net loans | ​ |  | 2,846,430 | ​ |  | 2,828,002 | ​
Loans held for sale | ​ | ​ | ​ | ​ | ​ | 250 | ​
Goodwill | ​ |  | 63,370 | ​ |  | 63,370 | ​
Premises and equipment, net | ​ |  | 58,565 | ​ |  | 61,276 | ​
Bank owned life insurance | ​ | ​ | 49,955 | ​ | ​ | 49,397 | ​
Deferred tax assets | ​ | ​ | 14,460 | ​ | ​ | 13,770 | ​
Accrued interest receivable | ​ |  | 13,326 | ​ |  | 12,734 | ​
Other assets | ​ |  | 53,077 | ​ |  | 42,249 | ​
Total assets | ​ | $ | 3,616,055 | ​ | $ | 3,742,289 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Liabilities: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deposits: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Noninterest-bearing | ​ | $ | 620,971 | ​ | $ | 644,683 | ​
Interest-bearing | ​ |  | 2,443,988 | ​ |  | 2,634,354 | ​
Total deposits | ​ |  | 3,064,959 | ​ |  | 3,279,037 | ​
Short-term borrowings | ​ |  | 104,250 | ​ |  | 17,590 | ​
Long-term debt | ​ |  | 25,000 | ​ |  | 25,000 | ​
Subordinated debt | ​ | ​ | 33,000 | ​ | ​ | 33,000 | ​
Accrued interest payable | ​ |  | 5,507 | ​ |  | 5,765 | ​
Other liabilities | ​ |  | 42,532 | ​ |  | 41,475 | ​
Total liabilities | ​ |  | 3,275,248 | ​ |  | 3,401,867 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Stockholders’ equity: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,057,258 shares at June 30, 2024 and 7,040,852 shares at December 31, 2023 | ​ |  | 14,122 | ​ |  | 14,093 | ​
Capital surplus | ​ |  | 122,449 | ​ |  | 122,130 | ​
Retained earnings | ​ |  | 249,511 | ​ |  | 248,550 | ​
Accumulated other comprehensive loss | ​ |  | (45,275) | ​ |  | (44,351) | ​
Total stockholders’ equity | ​ |  | 340,807 | ​ |  | 340,422 | ​
Total liabilities and stockholders’ equity | ​ | $ | 3,616,055 | ​ | $ | 3,742,289 | ​

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See notes to unaudited consolidated financial statements

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Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOM E (UNAUDITED)

(Dollars in thousands, except per share data)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​ | Six Months Ended | ​
June 30, |  | 2024 |  | 2023 |  | 2024 | ​ | 2023 |
Interest income: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest and fees on loans: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ | $ | 34,406 | ​ | $ | 32,139 | ​ | $ | 68,447 | ​ | $ | 62,188 | ​
Tax-exempt | ​ |  | 1,399 | ​ |  | 1,405 | ​ | ​ | 2,817 | ​ | ​ | 2,794 | ​
Interest and dividends on investment securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ |  | 1,904 | ​ |  | 1,929 | ​ | ​ | 3,822 | ​ | ​ | 4,053 | ​
Tax-exempt | ​ |  | 371 | ​ |  | 378 | ​ | ​ | 742 | ​ | ​ | 835 | ​
Dividends | ​ |  | 2 | ​ |  | 2 | ​ | ​ | 4 | ​ | ​ | 4 | ​
Interest on interest-bearing deposits in other banks | ​ |  | 115 | ​ |  | 85 | ​ | ​ | 235 | ​ | ​ | 99 | ​
Interest on federal funds sold | ​ |  | 179 | ​ |  | 798 | ​ | ​ | 1,306 | ​ | ​ | 1,041 | ​
Total interest income | ​ |  | 38,376 | ​ |  | 36,736 | ​ | ​ | 77,373 | ​ | ​ | 71,014 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest expense: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest on deposits | ​ |  | 18,114 | ​ |  | 13,714 | ​ | ​ | 36,818 | ​ | ​ | 23,324 | ​
Interest on short-term borrowings | ​ |  | 633 | ​ |  | 213 | ​ | ​ | 895 | ​ | ​ | 1,299 | ​
Interest on long-term debt | ​ |  | 269 | ​ |  | 269 | ​ | ​ | 539 | ​ | ​ | 296 | ​
Interest on subordinated debt | ​ | ​ | 444 | ​ | ​ | 444 | ​ | ​ | 887 | ​ | ​ | 887 | ​
Total interest expense | ​ |  | 19,460 | ​ |  | 14,640 | ​ | ​ | 39,139 | ​ | ​ | 25,806 | ​
Net interest income | ​ |  | 18,916 | ​ |  | 22,096 | ​ | ​ | 38,234 | ​ | ​ | 45,208 | ​
Provision for (credit to) credit losses | ​ |  | 596 | ​ |  | (2,201) | ​ | ​ | 1,304 | ​ | ​ | (937) | ​
Net interest income after provision for (credit to) credit losses | ​ |  | 18,320 | ​ |  | 24,297 | ​ | ​ | 36,930 | ​ | ​ | 46,145 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Noninterest income: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Service charges, fees, commissions and other | ​ |  | 1,885 | ​ |  | 1,982 | ​ | ​ | 3,921 | ​ | ​ | 3,947 | ​
Merchant services income | ​ |  | 260 | ​ |  | 254 | ​ | ​ | 375 | ​ | ​ | 372 | ​
Commission and fees on fiduciary activities | ​ |  | 517 | ​ |  | 528 | ​ | ​ | 1,068 | ​ | ​ | 1,085 | ​
Wealth management income | ​ |  | 416 | ​ |  | 386 | ​ | ​ | 777 | ​ | ​ | 784 | ​
Mortgage banking income | ​ |  | 87 | ​ |  | 105 | ​ | ​ | 179 | ​ | ​ | 208 | ​
Increase in cash surrender value of life insurance | ​ |  | 286 | ​ |  | 262 | ​ | ​ | 565 | ​ | ​ | 520 | ​
Interest rate swap gain | ​ | ​ | 102 | ​ | ​ | 23 | ​ | ​ | 78 | ​ | ​ | 246 | ​
Net (losses) gains on equity investment securities | ​ | ​ | (12) | ​ |  | 12 | ​ | ​ | (20) | ​ | ​ | (17) | ​
Net gains on sale of investment securities available for sale | ​ |  | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ | ​ | 81 | ​
Total noninterest income | ​ |  | 3,541 | ​ |  | 3,552 | ​ | ​ | 6,943 | ​ | ​ | 7,226 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Noninterest expense: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Salaries and employee benefits expense | ​ |  | 8,450 | ​ |  | 8,482 | ​ | ​ | 17,289 | ​ | ​ | 17,562 | ​
Net occupancy and equipment expense | ​ |  | 4,576 | ​ |  | 4,277 | ​ | ​ | 9,301 | ​ | ​ | 8,380 | ​
Acquisition related expenses | ​ |  | 1,071 | ​ |  | 121 | ​ | ​ | 1,557 | ​ | ​ | 121 | ​
Amortization of intangible assets | ​ |  | ​ | ​ |  | 28 | ​ | ​ | ​ | ​ | ​ | 57 | ​
Professional fees and outside services | ​ | ​ | 779 | ​ | ​ | 507 | ​ | ​ | 1,467 | ​ | ​ | 1,270 | ​
FDIC insurance and assessments | ​ | ​ | 504 | ​ | ​ | 556 | ​ | ​ | 1,098 | ​ | ​ | 1,057 | ​
Donations | ​ | ​ | 433 | ​ | ​ | 467 | ​ | ​ | 842 | ​ | ​ | 865 | ​
Other expenses | ​ |  | 2,345 | ​ |  | 2,176 | ​ | ​ | 4,672 | ​ | ​ | 3,856 | ​
Total noninterest expense | ​ |  | 18,158 | ​ |  | 16,614 | ​ | ​ | 36,226 | ​ | ​ | 33,168 | ​
Income before income taxes | ​ |  | 3,703 | ​ |  | 11,235 | ​ | ​ | 7,647 | ​ | ​ | 20,203 | ​
Provision for income tax expense | ​ |  | 421 | ​ |  | 1,810 | ​ | ​ | 899 | ​ | ​ | 3,199 | ​
Net income | ​ |  | 3,282 | ​ |  | 9,425 | ​ | ​ | 6,748 | ​ | ​ | 17,004 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Other comprehensive (loss) income: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Unrealized gain (loss) on investment securities available for sale | ​ |  | 18 | ​ |  | (5,148) | ​ | ​ | (2,423) | ​ | ​ | 5,688 | ​
Reclassification adjustment for net gain on sales included in net income | ​ |  | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ | ​ | (81) | ​
Change in derivative fair value | ​ | ​ | 160 | ​ | ​ | 2,049 | ​ | ​ | 1,239 | ​ | ​ | 79 | ​
Other comprehensive income (loss) | ​ |  | 178 | ​ | ​ | (3,099) | ​ | ​ | (1,184) | ​ | ​ | 5,686 | ​
Income tax expense (benefit) related to other comprehensive income (loss) | ​ |  | 38 | ​ |  | (668) | ​ | ​ | (260) | ​ | ​ | 1,223 | ​
Other comprehensive income (loss), net of income tax expense (benefit) | ​ |  | 140 | ​ |  | (2,431) | ​ | ​ | (924) | ​ | ​ | 4,463 | ​
Comprehensive income | ​ | $ | 3,422 | ​ | $ | 6,994 | ​ | $ | 5,824 | ​ | $ | 21,467 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Per share data: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net income: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Basic | ​ | $ | 0.47 | ​ | $ | 1.32 | ​ | $ | 0.96 | ​ | $ | 2.38 | ​
Diluted | ​ | $ | 0.46 | ​ | $ | 1.31 | ​ | $ | 0.95 | ​ | $ | 2.37 | ​
Weighted average common shares outstanding: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Basic | ​ |  | 7,057,258 | ​ |  | 7,145,975 | ​ |  | 7,055,085 | ​ |  | 7,151,732 | ​
Diluted | ​ |  | 7,114,115 | ​ |  | 7,177,915 | ​ |  | 7,108,113 | ​ |  | 7,188,384 | ​
Dividends declared | ​ | $ | 0.41 | ​ | $ | 0.41 | ​ | $ | 0.82 | ​ | $ | 0.82 | ​

​

See notes to unaudited consolidated financial statements

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Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUIT Y (UNAUDITED)

(Dollars in thousands, except per share data)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | Accumulated | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Other | ​ | ​ | ​
​ | ​ | Common | ​ | Capital | ​ | Retained | ​ | Comprehensive | ​ | ​ | ​
​ |  | Stock |  | Surplus |  | Earnings |  | Loss |  | Total
Balance, January 1, 2024 | ​ | $ | 14,093 | ​ | $ | 122,130 | ​ | $ | 248,550 | ​ | $ | (44,351) | ​ | $ | 340,422
Net income | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | 3,466 | ​ | ​ | ​ | ​ | ​ | 3,466
Other comprehensive loss, net of tax | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (1,064) | ​ | ​ | (1,064)
Cash dividends declared: $0.41 per common share | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | (2,893) | ​ | ​ | ​ | ​ | ​ | (2,893)
Stock compensation, including tax effects and expenses | ​ | ​ | ​ | ​ | ​ | 61 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 61
Restricted stock issued: 14,434 shares | ​ | ​ | 29 | ​ | ​ | (29) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance, March 31, 2024 | ​ | $ | 14,122 | ​ | $ | 122,162 | ​ | $ | 249,123 | ​ | $ | (45,415) | ​ | $ | 339,992
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net income | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 3,282 | ​ | ​ | ​ | ​ | ​ | 3,282
Other comprehensive income, net of tax | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 140 | ​ | ​ | 140
Dividends declared: $0.41 per share | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (2,894) | ​ | ​ | ​ | ​ | ​ | (2,894)
Stock compensation, including tax effects and expenses | ​ | ​ | ​ | ​ | ​ | 287 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 287
Balance, June 30, 2024 | ​ | $ | 14,122 | ​ | $ | 122,449 | ​ | $ | 249,511 | ​ | $ | (45,275) | ​ | $ | 340,807
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | 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 ASC 326, net of tax | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 2,364 | ​ | ​ | ​ | ​ | ​ | 2,364
Net income | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | 7,579 | ​ | ​ | ​ | ​ | ​ | 7,579
Other comprehensive income, net of tax | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | 6,894 | ​ | ​ | 6,894
Cash dividends declared: $0.41 per common 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
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Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOW S (UNAUDITED)

(Dollars in thousands, except per share data)

​

​ | ​ | ​ | ​ | ​ | ​ | ​
For the Six Months Ended June 30, |  | 2024 |  | 2023
Cash flows from operating activities: | ​ | ​ | ​ | ​ | ​ | ​
Net income | ​ | $ | 6,748 | ​ | $ | 17,004
Adjustments to reconcile net income to net cash provided by operating activities: | ​ | ​ | ​ | ​ | ​ | ​
Depreciation of premises and equipment | ​ |  | 1,475 | ​ |  | 1,401
Amortization of right-of-use lease asset | ​ | ​ | 282 | ​ | ​ | 244
Amortization of deferred loan fees, net | ​ |  | 376 | ​ | ​ | 382
Amortization of intangibles | ​ |  | ​ | ​ |  | 57
Amortization of low income housing partnerships | ​ | ​ | 251 | ​ | ​ | 241
Provision for (credit to) credit losses | ​ |  | 1,304 | ​ |  | (937)
Net unrealized loss on equity investment securities | ​ | ​ | 20 | ​ | ​ | 17
Loans originated for sale | ​ |  | (1,159) | ​ | ​ | (2,486)
Proceeds from sale of loans originated for sale | ​ |  | 1,406 | ​ | ​ | 2,496
Net loss (gain) on sale of loans originated for sale | ​ |  | 3 | ​ | ​ | (10)
Net amortization of investment securities | ​ |  | 425 | ​ |  | 533
Net gain on sale of investment securities available for sale | ​ | ​ | ​ | ​ | ​ | (81)
Gain on sale of premises and equipment | ​ |  | (4) | ​ |  | (14)
Increase in cash surrender value of life insurance | ​ |  | (565) | ​ |  | (520)
Deferred income tax (benefit) expense | ​ |  | (431) | ​ |  | 607
Stock compensation, including tax effects and expenses | ​ |  | 348 | ​ |  | 369
Net change in: | ​ | ​ | ​ | ​ | ​ | ​
Accrued interest receivable | ​ |  | (592) | ​ |  | 309
Other assets | ​ |  | (6,565) | ​ |  | (2,436)
Accrued interest payable | ​ |  | (258) | ​ |  | 3,798
Other liabilities | ​ |  | 1,901 | ​ |  | (3,412)
Net cash provided by operating activities | ​ |  | 4,965 | ​ |  | 17,562
Cash flows from investing activities: | ​ | ​ | ​ | ​ | ​ | ​
Proceeds from sales of investment securities available for sale | ​ |  | ​ | ​ |  | 67,363
Proceeds from repayments of investment securities: | ​ | ​ | ​ | ​ | ​ | ​
Available for sale | ​ |  | 10,887 | ​ |  | 19,728
Held to maturity | ​ |  | 3,206 | ​ |  | 2,911
Net (purchase) redemption of restricted equity securities | ​ |  | (2,556) | ​ |  | 5,091
Net increase in loans | ​ |  | (20,136) | ​ |  | (113,538)
Purchases of premises and equipment | ​ |  | (614) | ​ |  | (4,476)
Proceeds from the sale of premises and equipment | ​ |  | 44 | ​ | ​ | 14
Net cash used in investing activities | ​ |  | (9,169) | ​ |  | (22,907)
Cash flows from financing activities: | ​ | ​ | ​ | ​ | ​ | ​
Net (decrease) increase in deposits | ​ |  | (214,078) | ​ |  | 182,883
Proceeds from long-term debt | ​ | ​ | ​ | ​ | ​ | 25,000
Repayment of long-term debt | ​ |  | ​ | ​ |  | (555)
Net increase (decrease) in short-term borrowings | ​ |  | 86,660 | ​ |  | (95,400)
Retirement of common stock | ​ |  | ​ | ​ | ​ | (1,897)
Cash dividends paid | ​ |  | (5,787) | ​ |  | (5,866)
Net cash (used in) provided by financing activities | ​ |  | (133,205) | ​ |  | 104,165
Net (decrease) increase in cash and cash equivalents | ​ |  | (137,409) | ​ |  | 98,820
Cash and cash equivalents at beginning of period | ​ |  | 187,365 | ​ |  | 37,868
Cash and cash equivalents at end of period | ​ | $ | 49,956 | ​ | $ | 136,688

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Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​ | ​ | ​ | ​ | ​ | ​ | ​
For the Six Months Ended June 30, |  | 2024 |  | 2023
Supplemental disclosures: | ​ | ​ | ​ | ​ | ​ | ​
Cash paid during the period for: | ​ | ​ | ​ | ​ | ​ | ​
Interest | ​ | $ | 39,397 | ​ | $ | 22,008
Income taxes | ​ |  | 504 | ​ |  | 1,722
Noncash items: | ​ | ​ | ​ | ​ | ​ | ​
U.S. Treasury bond matured - receivable | ​ | ​ | 5,000 | ​ | ​ | ​
Transfers of fixed assets to other real estate | ​ | ​ | 1,556 | ​ | ​ | ​
Transfers of loans to other real estate | ​ | ​ | 27 | ​ | ​ | ​
Removal of right-of-use assets | ​ | ​ | ​ | ​ | ​ | (785)
Removal of lease liability | ​ | ​ | ​ | ​ | ​ | (820)

​

See notes to unaudited consolidated financial statements

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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1. Summary of significan t 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 (“Peoples Bank”), collectively, the “Company” or “Peoples”. The Company services its retail and commercial customers through forty four full-service community banking offices located within Allegheny, Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna, Wayne and Wyoming Counties of Pennsylvania, Middlesex County of New Jersey and Broome County of New York.

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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 six months ended and as of June 30, 2024, 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 credit 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, 2023.

​

Merger with FNCB Bancorp, Inc.

​

On July 1, 2024, the Company completed its previously announced merger with FNCB Bancorp, Inc. (“FNCB”), a Pennsylvania corporation and the parent company of FNCB Bank, a Pennsylvania-chartered bank (“FNCB Bank”), pursuant to the Agreement and Plan of Merger dated September 27, 2023 between Peoples and FNCB (the “Merger Agreement”). On July 1, 2024, FNCB merged with and into the Company, with the Company as the surviving entity. Immediately following the merger, FNCB Bank merged with and into Peoples Bank, with Peoples Bank as the surviving bank and a wholly-owned subsidiary of the Company. Under the terms of the Merger Agreement, the shareholders of FNCB as of the effective time of the merger received a fixed exchange ratio of 0.1460 shares of the Company's common stock for each share of the FNCB’s common stock. The total aggregate consideration paid in the FNCB merger was 2,935,456 shares of the Company’s common stock, which had a value of $45.54 per share, which was the closing price of the Company’s common stock on June 28, 2024, the last trading day prior to the consummation of the merger. Also included in the total consideration was cash in lieu of any fractional shares.

​

The foregoing summary is not complete and is qualified in all respects by reference to the actual language of the Merger Agreement filed by the Company as Exhibit 2.1 to this Quarterly Report on Form 10-Q.

​

8

Table of Contents

Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

Third Quarter Dividend Decl aration

​

On July 26, 2024, the Board of Directors declared a third quarter dividend of $0.6175 per share. The dividend is payable on September 13, 2024 to shareholders of record as of August 30, 2024. The dividend represents an increase of 50.6% compared to the dividend declared in the second quarter of 2024 and the third quarter in the prior year, which increase was contemplated as part of the Merger Agreement between the Company and FNCB.

​

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, 2023.

​

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.

​

ASU 2024-01, “Compensation – Stock Compensation (Topic 718) – Scope Application of Profits Interest and Similar Awards” (ASU 2024-01) clarifies how an entity determines whether a profits interest or similar award is within the scope of Topic 718 or is not a share-based payment arrangement and therefore within the scope of other guidance. ASU 2024-01 provides an illustrative example with multiple fact patterns and also amends certain language in the “Scope” and “Scope Exceptions” sections of Topic 718 to improve its clarity and operability without changing the guidance. Entities can apply the amendments either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date of adoption. If prospective application is elected, an entity must disclose the nature of and reason for the change in accounting principle. ASU 2024-01 is effective January 1, 2025, including interim periods, and is not expected to have a significant impact on the consolidated financial statements.

​

ASU 2024-02 “Codification Improvements” (“ASU 2024-02”) amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. ASU 2024-02 is effective January 1, 2025 and is not expected to have a significant impact on the financial statements.

​

​

9

Table of Contents

Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

2. Other comprehensive (loss) income:

​

T he components of other comprehensive (loss) income (“OCI”) 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 June 30, 2024 and December 31, 2023 are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) |  | ​ | June 30, 2024 |  | ​ | December 31, 2023 |
Net unrealized loss on investment securities available for sale | ​ | $ | (53,949) | ​ | $ | (51,527) | ​
Income tax benefit | ​ |  | (11,800) | ​ |  | (11,270) | ​
Net of income taxes | ​ |  | (42,149) | ​ |  | (40,257) | ​
Benefit plan adjustments | ​ |  | (4,370) | ​ |  | (4,370) | ​
Income tax benefit | ​ |  | (956) | ​ |  | (956) | ​
Net of income taxes | ​ |  | (3,414) | ​ |  | (3,414) | ​
Derivative adjustments | ​ |  | 368 | ​ |  | (871) | ​
Income tax expense (benefit) | ​ |  | 80 | ​ |  | (191) | ​
Net of income taxes | ​ |  | 288 | ​ |  | (680) | ​
Accumulated other comprehensive loss | ​ | $ | (45,275) | ​ | $ | (44,351) | ​

​

​

​

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 six months ended June 30, 2024 and 2023:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands, except per share data) | ​ | 2024 | ​ | 2023
For the Three Months Ended June 30, |  | Basic |  | Diluted |  | Basic |  | Diluted
Net income |  | $ | 3,282 |  | $ | 3,282 |  | $ | 9,425 |  | $ | 9,425
Average common shares outstanding | ​ |  | 7,057,258 | ​ |  | 7,114,115 | ​ |  | 7,145,975 | ​ |  | 7,177,915
Earnings per share | ​ | $ | 0.47 | ​ | $ | 0.46 | ​ | $ | 1.32 | ​ | $ | 1.31

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands, except per share data) | ​ | 2024 | ​ | 2023
For the Six Months Ended June 30, | ​ | Basic | ​ | Diluted | ​ | Basic |  | Diluted
Net income |  | $ | 6,748 |  | $ | 6,748 |  | $ | 17,004 |  | $ | 17,004
Average common shares outstanding | ​ |  | 7,055,085 | ​ |  | 7,108,113 | ​ |  | 7,151,732 | ​ |  | 7,188,384
Earnings per share | ​ | $ | 0.96 | ​ | $ | 0.95 | ​ | $ | 2.38 | ​ | $ | 2.37

​

​

​

​

10

Table of Contents

Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D 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 June 30, 2024 and December 31, 2023 are summarized as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | June 30, 2024 | ​
​ | ​ | ​ | ​ | ​ | Gross | ​ | Gross | ​ | ​ | ​ | ​
​ | ​ | Amortized | ​ | Unrealized | ​ | Unrealized | ​ | Fair |
(Dollars in thousands) |  | Cost |  | Gains |  | Losses |  | Value |
Available for sale: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. Treasury securities | ​ | $ | 193,092 | ​ | $ | ​ | ​ | $ | 13,085 | ​ | $ | 180,007 | ​
U.S. government-sponsored enterprises | ​ | ​ | 2,409 | ​ | ​ | ​ | ​ | ​ | 377 | ​ | ​ | 2,032 | ​
State and municipals: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ |  | 67,761 | ​ | ​ | ​ | ​ | ​ | 10,924 | ​ |  | 56,837 | ​
Tax-exempt | ​ |  | 74,877 | ​ |  | ​ | ​ | ​ | 9,873 | ​ |  | 65,004 | ​
Residential mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government agencies | ​ |  | 638 | ​ |  | ​ | ​ | ​ | 34 | ​ |  | 604 | ​
U.S. government-sponsored enterprises | ​ |  | 86,754 | ​ |  | ​ | ​ |  | 19,090 | ​ |  | 67,664 | ​
Commercial mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government-sponsored enterprises | ​ |  | 9,658 | ​ |  | ​ | ​ |  | 294 | ​ |  | 9,364 | ​
Corporate debt securities | ​ | ​ | 4,000 | ​ | ​ | ​ | ​ | ​ | 272 | ​ | ​ | 3,728 | ​
Total available for sale | ​ | $ | 439,189 | ​ | $ | ​ | ​ | $ | 53,949 | ​ | $ | 385,240 | ​
Held to maturity: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Tax-exempt state and municipals | ​ | $ | 11,184 | ​ | $ | ​ | ​ | $ | 873 | ​ | $ | 10,311 | ​
Residential mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government agencies | ​ |  | 14,554 | ​ |  | ​ | ​ | ​ | 2,706 | ​ |  | 11,848 | ​
U.S. government-sponsored enterprises | ​ |  | 55,860 | ​ |  | ​ | ​ | ​ | 9,795 | ​ |  | 46,065 | ​
Total held to maturity | ​ | $ | 81,598 | ​ | $ | ​ | ​ | $ | 13,374 | ​ | $ | 68,224 | ​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | December 31, 2023 |
​ | ​ | ​ | ​ | ​ | Gross |  | Gross | ​ | ​ | ​ | ​
​ | ​ | Amortized | ​ | Unrealized | ​ | Unrealized | ​ | Fair |
(Dollars in thousands) |  | Cost |  | Gains |  | Losses |  | Value |
Available for sale: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. Treasury securities | ​ | $ | 197,920 | ​ | $ | ​ | ​ | $ | 13,863 | ​ | $ | 184,057 | ​
U.S. government-sponsored enterprises | ​ | ​ | 2,539 | ​ | ​ | ​ | ​ | ​ | 387 | ​ |  | 2,152 | ​
State and municipals: | ​ |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ |  | 67,831 | ​ |  | ​ | ​ | ​ | 10,731 | ​ |  | 57,100 | ​
Tax-exempt | ​ |  | 75,742 | ​ |  | ​ | ​ |  | 8,618 | ​ |  | 67,124 | ​
Residential mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government agencies | ​ |  | 758 | ​ |  | ​ | ​ |  | 34 | ​ |  | 724 | ​
U.S. government-sponsored enterprises | ​ |  | 89,935 | ​ |  | ​ | ​ |  | 17,264 | ​ |  | 72,671 | ​
Commercial mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government-sponsored enterprises | ​ | ​ | 11,729 | ​ | ​ | ​ | ​ | ​ | 360 | ​ | ​ | 11,369 | ​
Corporate debt securities | ​ | ​ | 4,000 | ​ | ​ | ​ | ​ | ​ | 270 | ​ | ​ | 3,730 | ​
Total available for sale | ​ | $ | 450,454 | ​ | $ | ​ | ​ | $ | 51,527 | ​ | $ | 398,927 | ​
Held to maturity: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Tax-exempt state and municipals | ​ | $ | 11,201 | ​ | $ | 1 | ​ | $ | 660 | ​ | $ | 10,542 | ​
Residential mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government agencies | ​ | ​ | 15,400 | ​ |  | ​ | ​ | ​ | 2,653 | ​ |  | 12,747 | ​
U.S. government-sponsored enterprises | ​ |  | 58,250 | ​ |  | ​ | ​ | ​ | 9,841 | ​ |  | 48,409 | ​
Total held to maturity | ​ | $ | 84,851 | ​ | $ | 1 | ​ | $ | 13,154 | ​ | $ | 71,698 | ​

​

11

Table of Contents

Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

There were no investment sales during the six month period ended June 30, 2024. During the six month period ended June 30, 2023, investment securities, including U.S. Treasury bonds and mortgage-backed securities, with a par value of $65.6 million were sold at a net gain of $81 thousand. The proceeds were used to pay-down higher cost short-term borrowings.

​

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available for sale at June 30, 2024, is summarized as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amortized |  | Fair
(Dollars in thousands) |  | Cost |  | Value
Within one year | ​ | $ | 43,852 | ​ | $ | 42,651
After one but within five years | ​ |  | 171,504 | ​ |  | 158,031
After five but within ten years | ​ |  | 53,729 | ​ |  | 46,189
After ten years | ​ |  | 70,645 | ​ |  | 58,705
​ | ​ |  | 339,730 | ​ |  | 305,576
Mortgage-backed and other amortizing securities | ​ |  | 99,459 | ​ |  | 79,664
Total | ​ | $ | 439,189 | ​ | $ | 385,240

​

The maturity distribution of the amortized cost and fair value, of debt securities classified as held to maturity at June 30, 2024, is summarized as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amortized | ​ | Fair
(Dollars in thousands) |  | Cost |  | Value
After one but within five years | ​ | $ | 1,192 | ​ | $ | 1,097
After five but within ten years | ​ | ​ | 9,991 | ​ | ​ | 9,213
​ | ​ |  | 11,183 | ​ |  | 10,310
Mortgage-backed securities | ​ |  | 70,415 | ​ |  | 57,914
Total | ​ | $ | 81,598 | ​ | $ | 68,224

​

Securities with a carrying value of $313.3 million and $322.4 million at June 30, 2024 and December 31, 2023, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law and pledged to the Discount Window at the Federal Reserve.

​

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 June 30, 2024, 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

Table of Contents

Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

The fair value and gross unrealized losses of investment securities with unrealized losses at June 30, 2024 and December 31, 2023, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | June 30, 2024
​ | ​ | Less than Twelve Months | ​ | Twelve Months or Longer | ​ | Total
​ | ​ | Total # in a loss | ​ | ​ | ​ | ​ | ​ | Unrealized | ​ | Total # in a loss | ​ | ​ | ​ | ​ | ​ | Unrealized | ​ | Total # in a loss | ​ | ​ | ​ | ​ | ​ | Unrealized
(Dollars in thousands) | ​ | Position | ​ | ​ | Fair Value | ​ | ​ | Losses | ​ | Position | ​ | ​ | Fair Value | ​ | ​ | Losses | ​ | Position | ​ | ​ | Fair Value | ​ | ​ | Losses
Securities Available for Sale | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. Treasury securities | ​ | ​ | ​ | $ | ​ | ​ | $ | ​ | ​ | 42 | ​ | $ | 180,007 | ​ | $ | 13,085 | ​ | 42 | ​ | $ | 180,007 | ​ | $ | 13,085
U.S. government-sponsored enterprises | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 2 | ​ | ​ | 2,032 | ​ | ​ | 377 | ​ | 2 | ​ | ​ | 2,032 | ​ | ​ | 377
State and municipals: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 66 | ​ | ​ | 56,837 | ​ | ​ | 10,924 | ​ | 66 | ​ | ​ | 56,837 | ​ | ​ | 10,924
Tax-exempt | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 94 | ​ | ​ | 65,004 | ​ | ​ | 9,873 | ​ | 94 | ​ | ​ | 65,004 | ​ | ​ | 9,873
Residential mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government agencies | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 3 | ​ | ​ | 604 | ​ | ​ | 34 | ​ | 3 | ​ | ​ | 604 | ​ | ​ | 34
U.S. government-sponsored enterprises | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 30 | ​ | ​ | 67,664 | ​ | ​ | 19,090 | ​ | 30 | ​ | ​ | 67,664 | ​ | ​ | 19,090
Commercial mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government-sponsored enterprises | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 4 | ​ | ​ | 9,364 | ​ | ​ | 294 | ​ | 4 | ​ | ​ | 9,364 | ​ | ​ | 294
Corporate debt securities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 6 | ​ | ​ | 3,728 | ​ | ​ | 272 | ​ | 6 | ​ | ​ | 3,728 | ​ | ​ | 272
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total | ​ | ​ | ​ | $ | ​ | ​ | $ | ​ | ​ | 247 | ​ | $ | 385,240 | ​ | $ | 53,949 | ​ | 247 | ​ | $ | 385,240 | ​ | $ | 53,949
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Securities Held to Maturity | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
State and municipals: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Tax-exempt | ​ | 5 | ​ | $ | 2,883 | ​ | $ | 11 | ​ | 12 | ​ | $ | 7,428 | ​ | $ | 862 | ​ | 17 | ​ | $ | 10,311 | ​ | $ | 873
Residential mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government agencies | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 4 | ​ | ​ | 11,848 | ​ | ​ | 2,706 | ​ | 4 | ​ | ​ | 11,848 | ​ | ​ | 2,706
U.S. government-sponsored enterprises | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 8 | ​ | ​ | 46,065 | ​ | ​ | 9,795 | ​ | 8 | ​ | ​ | 46,065 | ​ | ​ | 9,795
Total | ​ | 5 | ​ | $ | 2,883 | ​ | $ | 11 | ​ | 24 | ​ | $ | 65,341 | ​ | $ | 13,363 | ​ | 29 | ​ | $ | 68,224 | ​ | $ | 13,374
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | December 31, 2023
​ | ​ | Less than Twelve Months | ​ | Twelve Months or Longer | ​ | Total
​ | ​ | Total # in a loss | ​ | ​ | ​ | ​ | ​ | Unrealized | ​ | Total # in a loss | ​ | ​ | ​ | ​ | ​ | Unrealized | ​ | Total # in a loss | ​ | ​ | ​ | ​ | ​ | Unrealized
(Dollars in thousands) | ​ | Position | ​ | ​ | Fair Value | ​ | ​ | Losses | ​ | Position | ​ | ​ | Fair Value | ​ | ​ | Losses | ​ | Position | ​ | ​ | Fair Value | ​ | ​ | Losses
Securities Available for Sale | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. Treasury securities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 43 | ​ | $ | 184,057 | ​ | $ | 13,863 | ​ | 43 | ​ | $ | 184,057 | ​ | $ | 13,863
U.S. government-sponsored enterprises | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 2 | ​ | ​ | 2,152 | ​ | ​ | 387 | ​ | 2 | ​ | ​ | 2,152 | ​ | ​ | 387
State and municipals: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ | 1 | ​ | ​ | 995 | ​ | ​ | 6 | ​ | 65 | ​ | ​ | 56,105 | ​ | ​ | 10,725 | ​ | 66 | ​ | ​ | 57,100 | ​ | ​ | 10,731
Tax-exempt | ​ | 2 | ​ | ​ | 575 | ​ | ​ | 5 | ​ | 93 | ​ | ​ | 66,393 | ​ | ​ | 8,613 | ​ | 95 | ​ | ​ | 66,968 | ​ | ​ | 8,618
Residential mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government agencies | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 3 | ​ | ​ | 724 | ​ | ​ | 34 | ​ | 3 | ​ | ​ | 724 | ​ | ​ | 34
U.S. government-sponsored enterprises | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 32 | ​ | ​ | 72,671 | ​ | ​ | 17,264 | ​ | 32 | ​ | ​ | 72,671 | ​ | ​ | 17,264
Commercial mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government-sponsored enterprises | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 4 | ​ | ​ | 11,369 | ​ | ​ | 360 | ​ | 4 | ​ | ​ | 11,369 | ​ | ​ | 360
Corporate debt securities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 6 | ​ | ​ | 3,730 | ​ | ​ | 270 | ​ | 6 | ​ | ​ | 3,730 | ​ | ​ | 270
Total | ​ | 3 | ​ | ​ | 1,570 | ​ | ​ | 11 | ​ | 248 | ​ | ​ | 397,201 | ​ | ​ | 51,516 | ​ | 251 | ​ | ​ | 398,771 | ​ | ​ | 51,527
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Securities Held to Maturity | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
State and municipals: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Tax-exempt | ​ | 2 | ​ | $ | 1,438 | ​ | $ | 36 | ​ | 10 | ​ | $ | 6,209 | ​ | $ | 624 | ​ | 12 | ​ | $ | 7,647 | ​ | $ | 660
Residential mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government agencies | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 4 | ​ | ​ | 12,747 | ​ | ​ | 2,653 | ​ | 4 | ​ | ​ | 12,747 | ​ | ​ | 2,653
U.S. government-sponsored enterprises | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 8 | ​ | ​ | 48,409 | ​ | ​ | 9,841 | ​ | 8 | ​ | ​ | 48,409 | ​ | ​ | 9,841
Total | ​ | 2 | ​ | $ | 1,438 | ​ | $ | 36 | ​ | 22 | ​ | $ | 67,365 | ​ | $ | 13,118 | ​ | 24 | ​ | $ | 68,803 | ​ | $ | 13,154
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​

​

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​

Management considered whether a credit loss existed related to the investments in an unrealized loss position by determining (i) whether the decline in fair value is attributable to adverse conditions specifically related to the financial condition of the security issuer or specific conditions in an industry or geographic area; (ii) whether the credit rating of the issuer of the security has been downgraded; (iii) whether dividend or interest payments have been reduced or have not been made and (iv) an adverse change in the remaining expected cash flows from the security such that the Company will not recover the amortized cost of the security. If the decline is judged to be due to factors related to credit, the credit loss should be recorded as an allowance for credit losses (“ACL”) with an offsetting entry to net income. The portion of the loss related to non-credit factors are recorded in OCI.

​

Based on management’s assessment of the factors identified above, it is determined the fair value of all the identified investments being less than the amortized costs is primarily caused by the rapid increase in market rates and not credit quality. All interest payments have been received as scheduled, substantially all debt securities are rated above investment grade and no material downgrades announced. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider the unrealized loss to be credit related, thus no allowance for credit loss expense was recorded at June 30, 2024 or December 31, 2023.

​

Cost method investments consist primarily of Federal Home Loan Bank (“FHLB”) of Pittsburgh stock totaling $7.7 million and $5.2 million at June 30, 2024 and December 31, 2023, respectively, and are included in other assets in the Consolidated Balance Sheets. Cost method investments are evaluated for impairment whenever events or circumstances suggest that their carrying value may not be recoverable.

​

5. Loans, net and allowance for credit losses:

​

The major classifications of loans outstanding, net of deferred loan origination fees and costs at June 30, 2024 and December 31, 2023 are summarized as follows. The Company had net deferred loan origination fees of $0.8 million and $0.4 million at June 30, 2024 and December 31, 2023, respectively.

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) |  | ​ | June 30, 2024 |  | December 31, 2023
Commercial and Industrial | ​ | $ | 461,014 | ​ | $ | 368,411
Municipal | ​ | ​ | 170,991 | ​ | ​ | 175,304
Total | ​ | ​ | 632,005 | ​ | ​ | 543,715
Real estate | ​ | ​ | ​ | ​ | ​ | ​
Commercial | ​ | ​ | 1,793,652 | ​ |  | 1,863,118
Residential | ​ | ​ | 369,671 | ​ |  | 360,803
Total | ​ | ​ | 2,163,323 | ​ | ​ | 2,223,921
Consumer | ​ | ​ | ​ | ​ | ​ | ​
Indirect Auto | ​ | ​ | 66,792 | ​ | ​ | 75,389
Consumer Other | ​ | ​ | 7,433 | ​ |  | 6,872
Total | ​ | ​ | 74,225 | ​ | ​ | 82,261
Total | ​ | $ | 2,869,553 | ​ | $ | 2,849,897

​

The ACL represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and held to maturity securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the ACL for loans is considered a critical accounting estimate by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded ACL. The ACL related to loans receivable and held to maturity debt securities is reported separately as a contra-asset on the consolidated balance sheets. The expected credit loss for unfunded lending commitments and

14

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

unfunded loan commitments is reported on the consolidated balance sheets in other liabilities while the provision for credit losses related to unfunded commitments is reported in other noninterest expense in the consolidated statements of income and comprehensive income.

​

The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans, available for sale securities, and held to maturity securities. Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Consolidated Balance Sheets, totaled $11.4 million and $9.7 million at June 30, 2024 and 2023 and is excluded from the estimate of credit losses. Accrued interest receivable on available for sale securities and held to maturity securities, also a component of accrued interest receivable on the Consolidated Balance Sheets, and totaled $1.7 million and $188 thousand, respectively, at June 30, 2024 and is excluded from the estimate of credit losses, as the Company has a policy to charge off accrued interest deemed uncollectible in a timely manner. At June 30, 2023, accrued interest receivable on available for sale securities and held to maturity securities was $1.5 million and $198 thousand, respectively.

​

The following tables present the balance of the allowance for credit losses at June 30, 2024 and 2023. The tables identify the valuation allowances attributable to specifically identified impairments on individually evaluated loans, including those acquired with deteriorated credit quality, as well as valuation allowances for impairments on loans evaluated collectively. The tables include the underlying balance of loans receivable applicable to each category as of those dates.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | June 30, 2024 | ​
​ | ​ |  | ​ | ​ |  | ​ | ​ | Real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) |  | Commercial |  | Municipal |  | Commercial |  | Residential | ​ | Consumer | ​ | Total |
Allowance for credit losses: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Beginning Balance April 1, 2024 | ​ | $ | 2,287 | ​ | $ | 698 | ​ | $ | 14,470 | ​ | $ | 4,258 | ​ | $ | 884 | ​ | $ | 22,597 | ​
Charge-offs | ​ |  | (41) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | (94) | ​ |  | (135) | ​
Recoveries | ​ |  | 25 | ​ |  | ​ | ​ | ​ | ​ | ​ |  | 2 | ​ |  | 38 | ​ |  | 65 | ​
(Credits) provisions | ​ |  | (100) | ​ |  | 13 | ​ |  | 686 | ​ |  | (30) | ​ |  | 27 | ​ |  | 596 | ​
Ending balance | ​ | $ | 2,171 | ​ | $ | 711 | ​ | $ | 15,156 | ​ | $ | 4,230 | ​ | $ | 855 | ​ | $ | 23,123 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | June 30, 2023 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) |  | Commercial |  | Municipal |  | Commercial |  | Residential | ​ | Consumer | ​ | Total |
Allowance for loan losses: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Beginning Balance April 1, 2023 | ​ | $ | 2,481 | ​ | $ | 2,318 | ​ | $ | 15,692 | ​ | $ | 3,868 | ​ | $ | 1,085 | ​ | $ | 25,444 | ​
Charge-offs | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | (77) | ​ |  | (77) | ​
Recoveries | ​ |  | 5 | ​ |  | ​ | ​ |  | ​ | ​ |  | 3 | ​ |  | 44 | ​ |  | 52 | ​
Provisions (credits) | ​ |  | 265 | ​ |  | (1,491) | ​ |  | (731) | ​ |  | (104) | ​ |  | (140) | ​ |  | (2,201) | ​
Ending balance | ​ | $ | 2,751 |  | $ | 827 |  | $ | 14,961 | ​ | $ | 3,767 | ​ | $ | 912 | ​ | $ | 23,218 | ​

15

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | June 30, 2024 | ​
​ |  | ​ | ​ | ​ | ​ | ​ | ​ | Real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) |  | Commercial |  | Municipal |  | Commercial |  | Residential | ​ | Consumer | ​ | Total | ​
Allowance for credit losses: |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Beginning Balance January 1, 2024 |  | $ | 2,272 | ​ | $ | 788 | ​ | $ | 14,153 | ​ | $ | 3,782 | ​ | $ | 900 | ​ | $ | 21,895 | ​
Charge-offs |  |  | (46) | ​ |  | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ |  | (197) | ​ |  | (243) | ​
Recoveries |  |  | 80 | ​ |  | ​ | ​ |  | ​ | ​ |  | 4 | ​ |  | 83 | ​ |  | 167 | ​
(Credits) provisions |  |  | (135) | ​ | ​ | (77) | ​ |  | 1,003 | ​ |  | 444 | ​ |  | 69 | ​ |  | 1,304 | ​
Ending balance |  | $ | 2,171 |  | $ | 711 |  | $ | 15,156 | ​ | $ | 4,230 | ​ | $ | 855 | ​ | $ | 23,123 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | June 30, 2023 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) |  | Commercial |  | Municipal |  | Commercial |  | Residential | ​ | Consumer | ​ | Total | ​
Allowance for credit losses: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Beginning Balance January 1, 2023 | ​ | $ | 4,365 | ​ | $ | 1,247 | ​ | $ | 17,915 | ​ | $ | 3,072 | ​ | $ | 873 | ​ | $ | 27,472 | ​
Impact of adopting ASC 326 | ​ | ​ | (1,683) | ​ | ​ | 747 | ​ | ​ | (3,344) | ​ | ​ | 967 | ​ | ​ | 30 | ​ | ​ | (3,283) | ​
Beginning Balance January 1, 2023 |  | ​ | 2,682 | ​ | ​ | 1,994 | ​ | ​ | 14,571 | ​ | ​ | 4,039 | ​ | ​ | 903 | ​ | ​ | 24,189 | ​
Charge-offs | ​ |  | (4) | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | (148) | ​ |  | (152) | ​
Recoveries | ​ |  | 5 | ​ |  | ​ | ​ |  | 1 | ​ |  | 19 | ​ |  | 93 | ​ |  | 118 | ​
Provisions (credits) | ​ |  | 68 | ​ |  | (1,167) | ​ |  | 389 | ​ |  | (291) | ​ |  | 64 | ​ |  | (937) | ​
Ending balance | ​ | $ | 2,751 | ​ | $ | 827 | ​ | $ | 14,961 | ​ | $ | 3,767 | ​ | $ | 912 | ​ | $ | 23,218 | ​

​

16

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

The following table represents the allowance for credit losses by major classification of loan and whether the loans were individually or collectively evaluated and collateral dependent by class of loans at June 30, 2024 and December 31, 2023.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | June 30, 2024 |
​ | ​ | ​ |  | ​ | ​ |  | ​ | Real estate | ​ | ​ | ​ | ​ | ​ | ​ |
(Dollars in thousands) |  | Commercial |  | Municipal |  | Commercial |  | Residential |  | Consumer |  | Total |
Allowance for credit losses: | ​ |  |  | ​ |  |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Ending balance | ​ | $ | 2,171 | ​ | $ | 711 | ​ | $ | 15,156 |  | $ | 4,230 | ​ | $ | 855 | ​ | $ | 23,123 |
Ending balance: individually evaluated |  |  | 7 | ​ |  | ​ | ​ | ​ | 415 | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | 422 |
Ending balance: collectively evaluated |  | $ | 2,164 | ​ | $ | 711 | ​ | $ | 14,741 | ​ | $ | 4,230 | ​ | $ | 855 | ​ | $ | 22,701 |
Loans receivable: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Ending balance | ​ | $ | 461,014 | ​ | $ | 170,991 | ​ | $ | 1,793,652 |  | $ | 369,671 | ​ | $ | 74,225 | ​ | $ | 2,869,553 |
Individually evaluated - collateral dependent - real estate | ​ |  | 378 | ​ | ​ | ​ | ​ | ​ | 5,139 | ​ | ​ | 1,327 | ​ | ​ | ​ | ​ |  | 6,844 |
Individually evaluated - collateral dependent - non-real estate | ​ | ​ | 7 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 7 | ​
Collectively evaluated | ​ | ​ | 460,629 | ​ | ​ | 170,991 | ​ | ​ | 1,788,513 | ​ | ​ | 368,344 | ​ | ​ | 74,225 | ​ | ​ | 2,862,702 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | December 31, 2023 |
​ | ​ | ​ |  | ​ | ​ |  | ​ | Real estate | ​ | ​ | ​ | ​ | ​ | ​ |
(Dollars in thousands) |  | Commercial |  | Municipal |  | Commercial |  | Residential |  | Consumer |  | Total |
Allowance for loan losses: | ​ |  |  | ​ |  |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Ending balance | ​ | $ | 2,272 | ​ | $ | 788 | ​ | $ | 14,153 |  | $ | 3,782 | ​ | $ | 900 | ​ | $ | 21,895 |
Ending balance: individually evaluated for impairment |  |  | 10 | ​ |  | ​ | ​ | ​ | 21 | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | 31 |
Ending balance: collectively evaluated for impairment |  | $ | 2,262 | ​ | $ | 788 | ​ | $ | 14,132 | ​ | $ | 3,782 | ​ | $ | 900 | ​ | $ | 21,864 |
Loans receivable: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Ending balance | ​ | $ | 368,411 | ​ | $ | 175,304 | ​ | $ | 1,863,118 |  | $ | 360,803 | ​ | $ | 82,261 | ​ | $ | 2,849,897 |
Individually evaluated - collateral dependent - real estate | ​ |  | 7 | ​ | ​ | ​ | ​ | ​ | 2,974 | ​ | ​ | 1,749 | ​ | ​ | ​ | ​ |  | 4,730 |
Individually evaluated - collateral dependent - non-real estate | ​ | ​ | 10 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 10 | ​
Collectively evaluated | ​ | ​ | 368,394 | ​ | ​ | 175,304 | ​ | ​ | 1,860,144 | ​ | ​ | 359,054 | ​ | ​ | 82,261 | ​ | ​ | 2,845,157 |

​

​

17

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

Nonaccrual Loans

​

The following table presents the Company’s nonaccrual loans at June 30, 2024 and December 31, 2023.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​
​ | ​ | ​ | June 30, 2024
​ | ​ | ​ | Total | ​ | ​ | Nonaccrual with | ​ | ​ | Nonaccrual with
​ | ​ | ​ | Nonaccrual | ​ | ​ | an Allowance for | ​ | ​ | no Allowance for
(Dollars in thousands) |  | ​ | Loans | ​ | ​ | Credit Losses | ​ | ​ | Credit Losses
Commercial | ​ | $ | 378 | ​ | $ | 7 | ​ | $ | 371
Municipal | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Real estate: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Commercial | ​ |  | 5,138 | ​ |  | 4,923 | ​ |  | 215
Residential | ​ |  | 1,327 | ​ |  | ​ | ​ |  | 1,327
Consumer | ​ |  | 274 | ​ |  | ​ | ​ |  | 274
Total | ​ | $ | 7,117 | ​ | $ | 4,930 | ​ | $ | 2,187

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | December 31, 2023
​ | ​ | ​ | Total | ​ | ​ | Nonaccrual with | ​ | ​ | Nonaccrual with
​ | ​ | ​ | Nonaccrual | ​ | ​ | an Allowance for | ​ | ​ | no Allowance for
(Dollars in thousands) |  | ​ | Loans | ​ | ​ | Credit Losses | ​ | ​ | Credit Losses
Commercial | ​ | $ | 10 | ​ | $ | 10 | ​ | $ | ​
Municipal | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Real estate: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Commercial | ​ |  | 2,974 | ​ |  | 1,170 | ​ |  | 1,804
Residential | ​ |  | 760 | ​ |  | ​ | ​ |  | 760
Consumer | ​ |  | 218 | ​ |  | ​ | ​ |  | 218
Total | ​ | $ | 3,962 | ​ | $ | 1,180 | ​ | $ | 2,782

​

Interest income recorded on nonaccrual loans was $43 thousand and $35 thousand for the three months ended June 30, 2024 and June 30, 2023, respectively. Interest income recorded on nonaccrual loans was $74 thousand and $414 thousand for the six months ended June 30, 2024 and June 30, 2023, respectively.

​

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.

18

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

| ● | 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 table presents the amortized cost of loans and gross charge-offs by year of origination and by 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 June 30, 2024 and December 31, 2023:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of June 30, 2024 | ​
(Dollars in thousands) |  | ​ | 2024 |  | ​ | 2023 |  | ​ | 2022 |  | ​ | 2021 |  | ​ | 2020 |  | ​ | Prior |  | ​ | Revolving Loans Amortized Cost Basis |  | ​ | Revolving Loans Converted to Term |  | ​ | Total | ​
Commercial | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Pass | ​ | $ | 13,103 | ​ | $ | 36,862 | ​ | $ | 67,146 | ​ | $ | 65,299 | ​ | $ | 35,316 | ​ | $ | 91,621 | ​ | $ | 141,169 | ​ | $ | 139 | ​ | $ | 450,655 | ​
Special Mention | ​ |  | 1,253 | ​ | ​ | 1,142 | ​ | ​ | 733 | ​ | ​ | 246 | ​ | ​ | 2,113 | ​ | ​ | 1,451 | ​ | ​ | 1,777 | ​ | ​ | ​ | ​ |  | 8,715 | ​
Substandard | ​ |  | ​ | ​ | ​ | 32 | ​ | ​ | 62 | ​ | ​ | 40 | ​ | ​ | ​ | ​ | ​ | 497 | ​ | ​ | 1,013 | ​ | ​ | ​ | ​ | ​ | 1,644 | ​
Total Commercial | ​ |  | 14,356 | ​ |  | 38,036 | ​ |  | 67,941 | ​ |  | 65,585 | ​ |  | 37,429 | ​ |  | 93,569 | ​ |  | 143,959 | ​ |  | 139 | ​ |  | 461,014 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Municipal | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Pass | ​ | ​ | 1,106 | ​ | ​ | 1,307 | ​ | ​ | 49,200 | ​ | ​ | 93,134 | ​ | ​ | 10,433 | ​ | ​ | 15,773 | ​ | ​ | 38 | ​ | ​ | ​ | ​ |  | 170,991 | ​
Special Mention | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | ​ | ​
Substandard | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | ​ | ​
Total Municipal | ​ | ​ | 1,106 | ​ |  | 1,307 | ​ |  | 49,200 | ​ |  | 93,134 | ​ |  | 10,433 | ​ |  | 15,773 | ​ |  | 38 | ​ |  | ​ | ​ |  | 170,991 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Commercial real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Pass | ​ | ​ | 67,209 | ​ | ​ | 131,565 | ​ | ​ | 532,372 | ​ | ​ | 437,529 | ​ | ​ | 127,512 | ​ | ​ | 461,610 | ​ | ​ | ​ | ​ | ​ | 92 | ​ |  | 1,757,889 | ​
Special Mention | ​ | ​ | ​ | ​ | ​ | 2,360 | ​ | ​ | 967 | ​ | ​ | 1,138 | ​ | ​ | 1,061 | ​ | ​ | 19,988 | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | 25,514 | ​
Substandard | ​ | ​ | ​ | ​ | ​ | 167 | ​ | ​ | 1,845 | ​ | ​ | 1,318 | ​ | ​ | 157 | ​ | ​ | 6,762 | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | 10,249 | ​
Total Commercial real estate | ​ | ​ | 67,209 | ​ | ​ | 134,092 | ​ | ​ | 535,184 | ​ | ​ | 439,985 | ​ | ​ | 128,730 | ​ | ​ | 488,360 | ​ | ​ | ​ | ​ | ​ | 92 | ​ | ​ | 1,793,652 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Residential real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Pass | ​ | ​ | 12,525 | ​ | ​ | 28,059 | ​ | ​ | 50,687 | ​ | ​ | 64,295 | ​ | ​ | 25,489 | ​ | ​ | 95,395 | ​ | ​ | 91,919 | ​ | ​ | 60 | ​ |  | 368,429 | ​
Special Mention | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | ​ | ​
Substandard | ​ | ​ | ​ | ​ | ​ | 4 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 307 | ​ | ​ | 927 | ​ | ​ | 4 | ​ | ​ | ​ | ​ |  | 1,242 | ​
Total Residential real estate | ​ | ​ | 12,525 | ​ |  | 28,063 | ​ |  | 50,687 | ​ |  | 64,295 | ​ |  | 25,796 | ​ |  | 96,322 | ​ |  | 91,923 | ​ |  | 60 | ​ |  | 369,671 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Consumer | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Pass | ​ | ​ | 7,199 | ​ | ​ | 22,998 | ​ | ​ | 24,658 | ​ | ​ | 9,795 | ​ | ​ | 3,842 | ​ | ​ | 3,942 | ​ | ​ | 1,517 | ​ | ​ | ​ | ​ |  | 73,951 | ​
Special Mention | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | ​ | ​
Substandard | ​ | ​ | ​ | ​ | ​ | 60 | ​ | ​ | 31 | ​ | ​ | 115 | ​ | ​ | 35 | ​ | ​ | 33 | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | 274 | ​
Total Consumer | ​ |  | 7,199 | ​ |  | 23,058 | ​ |  | 24,689 | ​ |  | 9,910 | ​ |  | 3,877 | ​ |  | 3,975 | ​ |  | 1,517 | ​ |  | ​ | ​ |  | 74,225 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total Loans | ​ | $ | 102,395 | ​ | $ | 224,556 | ​ | $ | 727,701 | ​ | $ | 672,909 | ​ | $ | 206,265 | ​ | $ | 697,999 | ​ | $ | 237,437 | ​ | $ | 291 | ​ | $ | 2,869,553 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Gross charge-offs | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Commercial | ​ | $ | ​ | ​ | $ | 41 | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | 5 | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | 46 | ​
Municipal | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Commercial real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Residential real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Consumer | ​ | ​ | ​ | ​ | ​ | 15 | ​ | ​ | 81 | ​ | ​ | 60 | ​ | ​ | 11 | ​ | ​ | 30 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 197 | ​
Total Gross charge-offs | ​ | $ | ​ | ​ | $ | 56 | ​ | $ | 81 | ​ | $ | 60 | ​ | $ | 11 | ​ | $ | 35 | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | 243 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​

​

19

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​
​ | ​ | As of December 31, 2023
(Dollars in thousands) |  | ​ | 2023 |  | ​ | 2022 |  | ​ | 2021 |  | ​ | 2020 |  | ​ | 2019 |  | ​ | Prior |  | ​ | Revolving Loans Amortized Cost Basis |  | ​ | Revolving Loans Converted to Term |  | ​ | Total
Commercial | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Pass | ​ | $ | 9,856 | ​ | $ | 38,172 | ​ | $ | 28,127 | ​ | $ | 29,966 | ​ | $ | 44,551 | ​ | $ | 82,190 | ​ | $ | 131,536 | ​ | $ | 650 | ​ | $ | 365,048
Special Mention | ​ |  | ​ | ​ | ​ | 876 | ​ | ​ | 182 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 49 | ​ | ​ | 832 | ​ | ​ | ​ | ​ |  | 1,939
Substandard | ​ |  | 15 | ​ | ​ | 19 | ​ | ​ | 42 | ​ | ​ | ​ | ​ | ​ | 33 | ​ | ​ | 534 | ​ | ​ | 781 | ​ | ​ | ​ | ​ | ​ | 1,424
Total Commercial | ​ |  | 9,871 | ​ |  | 39,067 | ​ |  | 28,351 | ​ |  | 29,966 | ​ |  | 44,584 | ​ |  | 82,773 | ​ |  | 133,149 | ​ |  | 650 | ​ |  | 368,411
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Municipal | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Pass | ​ | ​ | 1,888 | ​ | ​ | 48,095 | ​ | ​ | 94,791 | ​ | ​ | 10,804 | ​ | ​ | 16 | ​ | ​ | 19,652 | ​ | ​ | 58 | ​ | ​ | ​ | ​ |  | 175,304
Special Mention | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | ​
Substandard | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | ​
Total Municipal | ​ | ​ | 1,888 | ​ |  | 48,095 | ​ |  | 94,791 | ​ |  | 10,804 | ​ |  | 16 | ​ |  | 19,652 | ​ |  | 58 | ​ |  | ​ | ​ |  | 175,304
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Commercial real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Pass | ​ | ​ | 156,277 | ​ | ​ | 553,754 | ​ | ​ | 491,506 | ​ | ​ | 143,068 | ​ | ​ | 153,426 | ​ | ​ | 351,142 | ​ | ​ | ​ | ​ | ​ | 117 | ​ |  | 1,849,290
Special Mention | ​ | ​ | ​ | ​ | ​ | 1,299 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 360 | ​ | ​ | 2,761 | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | 4,420
Substandard | ​ | ​ | 169 | ​ | ​ | 1,338 | ​ | ​ | 1,520 | ​ | ​ | 160 | ​ | ​ | 697 | ​ | ​ | 5,524 | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | 9,408
Total Commercial real estate | ​ | ​ | 156,446 | ​ | ​ | 556,391 | ​ | ​ | 493,026 | ​ | ​ | 143,228 | ​ | ​ | 154,483 | ​ | ​ | 359,427 | ​ | ​ | ​ | ​ | ​ | 117 | ​ | ​ | 1,863,118
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Residential real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Pass | ​ | ​ | 17,385 | ​ | ​ | 52,093 | ​ | ​ | 65,280 | ​ | ​ | 27,118 | ​ | ​ | 16,652 | ​ | ​ | 84,652 | ​ | ​ | 83,507 | ​ | ​ | 13,490 | ​ |  | 360,177
Special Mention | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | ​
Substandard | ​ | ​ | 4 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 329 | ​ | ​ | ​ | ​ | ​ | 288 | ​ | ​ | 5 | ​ | ​ | ​ | ​ |  | 626
Total Residential real estate | ​ | ​ | 17,389 | ​ |  | 52,093 | ​ |  | 65,280 | ​ |  | 27,447 | ​ |  | 16,652 | ​ |  | 84,940 | ​ |  | 83,512 | ​ |  | 13,490 | ​ |  | 360,803
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Consumer | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Pass | ​ | ​ | 27,053 | ​ | ​ | 30,307 | ​ | ​ | 12,460 | ​ | ​ | 5,441 | ​ | ​ | 3,107 | ​ | ​ | 2,981 | ​ | ​ | 694 | ​ | ​ | ​ | ​ |  | 82,043
Special Mention | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | ​
Substandard | ​ | ​ | ​ | ​ | ​ | 58 | ​ | ​ | 79 | ​ | ​ | 31 | ​ | ​ | 30 | ​ | ​ | 20 | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | 218
Total Consumer | ​ |  | 27,053 | ​ |  | 30,365 | ​ |  | 12,539 | ​ |  | 5,472 | ​ |  | 3,137 | ​ |  | 3,001 | ​ |  | 694 | ​ |  | ​ | ​ |  | 82,261
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total Loans | ​ | $ | 212,647 | ​ | $ | 726,011 | ​ | $ | 693,987 | ​ | $ | 216,917 | ​ | $ | 218,872 | ​ | $ | 549,793 | ​ | $ | 217,413 | ​ | $ | 14,257 | ​ | $ | 2,849,897
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Gross charge-offs | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Commercial | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | 21 | ​ | $ | ​ | ​ | $ | 33 | ​ | $ | 4 | ​ | $ | ​ | ​ | $ | 58
Municipal | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Commercial real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 2,598 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 2,598
Residential real estate | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Consumer | ​ | ​ | ​ | ​ | ​ | 95 | ​ | ​ | 101 | ​ | ​ | 69 | ​ | ​ | 49 | ​ | ​ | 55 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 369
Total Gross charge-offs | ​ | $ | ​ | ​ | $ | 95 | ​ | $ | 101 | ​ | $ | 90 | ​ | $ | 49 | ​ | $ | 2,686 | ​ | $ | 4 | ​ | $ | ​ | ​ | $ | 3,025

​

20

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​

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

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | June 30, 2024 |
​ |  | ​ | ​ |  | ​ | ​ |  | Greater |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | Loans > 90 |
​ | ​ | 30-59 Days | ​ | 60-89 Days | ​ | than 90 | ​ | Total Past | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Days and |
(Dollars in thousands) | ​ | Past Due | ​ | Past Due | ​ | Days | ​ | Due | ​ | Current | ​ | Total Loans | ​ | Accruing |
Commercial | ​ | $ | 463 | ​ | $ | 290 | ​ | $ | 7 | ​ | $ | 760 | ​ | $ | 460,254 | ​ | $ | 461,014 | ​ | $ | ​ | ​
Municipal | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 170,991 | ​ | ​ | 170,991 | ​ | ​ | ​ | ​
Real estate: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Commercial | ​ |  | 3,871 | ​ | ​ | 2,086 | ​ |  | 4,003 | ​ |  | 9,960 | ​ |  | 1,783,692 | ​ |  | 1,793,652 | ​ | ​ | ​ | ​
Residential | ​ |  | 1,395 | ​ | ​ | 101 | ​ | ​ | 713 | ​ |  | 2,209 | ​ |  | 367,462 | ​ |  | 369,671 | ​ | ​ | ​ | ​
Consumer | ​ |  | 865 | ​ | ​ | 313 | ​ |  | 134 | ​ |  | 1,312 | ​ |  | 72,913 | ​ |  | 74,225 | ​ |  | ​ | ​
Total | ​ | $ | 6,594 | ​ | $ | 2,790 | ​ | $ | 4,857 | ​ | $ | 14,241 | ​ | $ | 2,855,312 | ​ | $ | 2,869,553 | ​ | $ | ​ | ​

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | December 31, 2023 |
​ |  | ​ | ​ |  | ​ | ​ |  | Greater |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | Loans > 90 |
​ | ​ | 30-59 Days | ​ | 60-89 Days | ​ | than 90 | ​ | Total Past | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Days and |
(Dollars in thousands) | ​ | Past Due | ​ | Past Due | ​ | Days | ​ | Due | ​ | Current | ​ | Total Loans | ​ | Accruing |
Commercial | ​ | $ | 53 | ​ | $ | 155 | ​ | $ | 10 | ​ | $ | 218 | ​ | $ | 368,193 | ​ | $ | 368,411 | ​ | $ | ​ | ​
Municipal | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 175,304 | ​ | ​ | 175,304 | ​ | ​ | ​ | ​
Real estate: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Commercial | ​ |  | 152 | ​ | ​ | 5 | ​ |  | 279 | ​ |  | 436 | ​ |  | 1,862,682 | ​ |  | 1,863,118 | ​ | ​ | ​ | ​
Residential | ​ |  | 1,456 | ​ |  | 50 | ​ |  | 1,610 | ​ |  | 3,116 | ​ |  | 357,687 | ​ |  | 360,803 | ​ | ​ | 986 | ​
Consumer | ​ |  | 1,069 | ​ |  | 285 | ​ |  | 85 | ​ |  | 1,439 | ​ |  | 80,822 | ​ |  | 82,261 | ​ |  | ​ | ​
Total | ​ | $ | 2,730 | ​ | $ | 495 | ​ | $ | 1,984 | ​ | $ | 5,209 | ​ | $ | 2,844,688 | ​ | $ | 2,849,897 | ​ | $ | 986 | ​

​

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

Allowance for Credit Losses on Off Balance Sheet Commitments

​

The following table presents the activity in the ACL on off balance sheet commitments, which include commitments to extend credit, unused portions of lines of credit and standby letters of credit, for the three and six months ended June 30, 2024 and 2023:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | For the three months ended | ​
(Dollars in thousands) | ​ | ​ | June 30, 2024 | ​ | ​ | June 30, 2023 | ​
Beginning balance | ​ | $ | 530 | ​ | $ | 264 | ​
Provision for (credit to) credit losses recorded in noninterest expense | ​ | ​ | (196) | ​ | ​ | (171) | ​
Total allowance for credit losses on off balance sheet commitments | ​ | $ | 334 | ​ | $ | 93 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | For the six months ended | ​
(Dollars in thousands) | ​ | ​ | June 30, 2024 | ​ | ​ | June 30, 2023 | ​
Beginning balance | ​ | $ | 43 | ​ | $ | 179 | ​
Impact of adopting Topic 326 | ​ | ​ | ​ | ​ | ​ | 270 | ​
Provision for (credit to) credit losses recorded in noninterest expense | ​ | ​ | 291 | ​ | ​ | (356) | ​
Total allowance for credit losses on off balance sheet commitments | ​ | $ | 334 | ​ | $ | 93 | ​

​

​

The contractual amounts of off-balance sheet commitments at June 30, 2024 and 2023 are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) |  | 2024 |  | 2023 |
Commitments to extend credit | ​ | $ | 86,125 | ​ | $ | 228,887 | ​
Unused portions of lines of credit | ​ |  | 383,483 | ​ |  | 368,372 | ​
Standby letters of credit | ​ |  | 43,659 | ​ |  | 52,826 | ​
​ | ​ | $ | 513,267 | ​ | $ | 650,085 | ​

​

Modifications to Borrowers Experiencing Financial Difficulty

​

ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) eliminated the accounting guidance for troubled debt restructurings while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In accordance with the new guidance, the Company no longer evaluates loans with modifications made to borrowers experiencing financial difficulty individually for impairment, nor establishes a related specific reserve for such loans, but rather these loans are included in their respective portfolio segment and evaluated collectively for impairment to establish an ACL.

There was one modification made to a commercial and industrial loan with a borrower experiencing financial difficulty during the three and six months ended June 30, 2024 which involved the deferral of the principal payment and the extension of the loan’s maturity date three months to September 16, 2024. The loan had an outstanding principal balance of $370 thousand at June 30, 2024. There were no loans made to borrowers that were modified during the three and six months ended June 30, 2023.

​

During the three and six months ended June 30, 2024 and June 30, 2023, there were no defaults on loan modifications made to borrowers experiencing financial difficulty.

​

​

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​

6. Other assets:

​

The components of other assets at June 30, 2024 and December 31, 2023 are summarized as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) |  | ​ | June 30, 2024 |  | ​ | December 31, 2023 |
Other real estate owned | ​ | $ | 1,152 | ​ | $ | ​ | ​
Mortgage servicing rights | ​ |  | 852 | ​ |  | 870 | ​
Prepaid shares tax | ​ |  | 819 | ​ |  | 949 | ​
Prepaid pension | ​ |  | 4,018 | ​ |  | 3,764 | ​
Prepaid expenses | ​ | ​ | 4,992 | ​ | ​ | 4,840 | ​
Restricted equity securities (FHLB and other) | ​ | ​ | 7,736 | ​ | ​ | 5,180 | ​
Investment in low income housing partnership | ​ |  | 4,890 | ​ |  | 5,015 | ​
Interest rate swaps(1) | ​ | ​ | 20,958 | ​ | ​ | 19,278 | ​
Receivable - matured U.S. Treasury bond | ​ | ​ | 5,000 | ​ | ​ | ​ | ​
Other assets | ​ | ​ | 2,660 | ​ | ​ | 2,353 | ​
Total | ​ | $ | 53,077 | ​ | $ | 42,249 | ​

| (1) | Interest rate swaps balance represents the fair value of the commercial loan back-to-back swaps.

​

​

​

​

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.

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NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

| ● | 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 June 30, 2024 and December 31, 2023 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.

​

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 June 30, 2024 and December 31, 2023 are summarized as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value Measurement Using |
​ | ​ | ​ | ​ | Quoted Prices in | ​ | Significant | ​ | Significant |
​ | ​ | ​ | ​ | Active Markets for | ​ | Other Observable | ​ | Unobservable |
(Dollars in thousands) | ​ | ​ | ​ | Identical Assets | ​ | Inputs | ​ | Inputs |
June 30, 2024 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
U.S. Treasury securities |  | $ | 180,007 |  | $ | 180,007 |  | $ | ​ |  | $ | ​ | ​
U.S. government-sponsored enterprises | ​ | ​ | 2,032 | ​ | ​ | ​ | ​ | ​ | 2,032 | ​ | ​ | ​ | ​
State and municipals: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ |  | 56,837 | ​ | ​ | ​ | ​ |  | 56,837 | ​ | ​ | ​ | ​
Tax-exempt | ​ |  | 65,004 | ​ | ​ | ​ | ​ |  | 65,004 | ​ | ​ | ​ | ​
Mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government agencies | ​ |  | 604 | ​ | ​ | ​ | ​ |  | 604 | ​ | ​ | ​ | ​
U.S. government-sponsored enterprises | ​ |  | 77,028 | ​ | ​ | ​ | ​ |  | 77,028 | ​ | ​ | ​ | ​
Corporate debt securities | ​ | ​ | 3,728 | ​ | ​ | ​ | ​ | ​ | 3,728 | ​ | ​ | ​ | ​
Common equity securities | ​ | ​ | 78 | ​ | ​ | 78 | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total investment securities | ​ | $ | 385,318 | ​ | $ | 180,085 | ​ | $ | 205,233 | ​ | $ | ​ | ​
Interest rate swap-other assets | ​ | $ | 20,958 | ​ | ​ | ​ | ​ | $ | 20,958 | ​ | ​ | ​ | ​
Interest rate swap-other liabilities | ​ | $ | (20,538) | ​ | ​ | ​ | ​ | $ | (20,538) | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value Measurement Using |
​ | ​ | ​ | ​ | ​ | Quoted Prices in | ​ | Significant | ​ | Significant |
​ | ​ | ​ | ​ | Active Markets for | ​ | Other Observable | ​ | Unobservable |
(Dollars in thousands) | ​ | ​ | ​ | Identical Assets | ​ | Inputs | ​ | Inputs |
December 31, 2023 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
U.S. Treasury securities |  | $ | 184,057 |  | $ | 184,057 |  | $ | ​ |  | $ | ​ | ​
U.S. government-sponsored enterprises | ​ | ​ | 2,152 | ​ | ​ | ​ | ​ | ​ | 2,152 | ​ | ​ | ​ | ​
State and municipals: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ |  | 57,100 | ​ | ​ | ​ | ​ |  | 57,100 | ​ | ​ | ​ | ​
Tax-exempt | ​ |  | 67,124 | ​ | ​ | ​ | ​ |  | 67,124 | ​ | ​ | ​ | ​
Mortgage-backed securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. government agencies | ​ |  | 724 | ​ | ​ | ​ | ​ |  | 724 | ​ | ​ | ​ | ​
U.S. government-sponsored enterprises | ​ |  | 84,040 | ​ | ​ | ​ | ​ |  | 84,040 | ​ | ​ | ​ | ​
Corporate debt securities | ​ | ​ | 3,730 | ​ | ​ | ​ | ​ | ​ | 3,730 | ​ | ​ | ​ | ​
Common equity securities | ​ |  | 98 | ​ | ​ | 98 | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total investment securities | ​ | $ | 399,025 | ​ | $ | 184,155 | ​ | $ | 214,870 | ​ | $ | ​ | ​
Interest rate swap-other assets | ​ | $ | 19,278 | ​ | ​ | ​ | ​ | $ | 19,278 | ​ | ​ | ​ | ​
Interest rate swap-other liabilities | ​ | $ | (18,808) | ​ | ​ | ​ | ​ | $ | (18,808) | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​

​

Assets and liabilities measured at fair value on a nonrecurring basis at June 30, 2024 and December 31, 2023 are summarized as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value Measurement Using |
​ | ​ | ​ | ​ | ​ | Quoted Prices in | ​ | Significant | ​ | Significant |
​ | ​ | ​ | ​ | Active Markets for | ​ | Other Observable | ​ | Unobservable |
(Dollars in thousands) | ​ | ​ | ​ | Identical Assets | ​ | Inputs | ​ | Inputs |
June 30, 2024 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Loans individually evaluated for credit loss |  | $ | 6,851 |  | $ | ​ |  | $ | ​ |  | $ | 6,851 | ​
Other real estate owned | ​ | $ | 1,152 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | 1,152 | ​

​

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value Measurement Using |
​ | ​ | ​ | ​ | ​ | Quoted Prices in | ​ | Significant Other | ​ | Significant |
​ | ​ | ​ | ​ | Active Markets for | ​ | Observable | ​ | Unobservable |
(Dollars in thousands) | ​ | ​ | ​ | Identical Assets | ​ | Inputs | ​ | Inputs |
December 31, 2023 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Loans individually evaluated for credit loss |  | $ | 4,740 |  | $ | ​ |  | $ | ​ |  | $ | 4,740 | ​

​

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 |
(Dollars in thousands, except percents) | ​ | Fair Value | ​ | ​ | ​ | ​ | ​ | Range |
June 30, 2024 |  | Estimate |  | Valuation Techniques |  | Unobservable Input |  | (Weighted Average) |
Loans individually evaluated for credit loss |  | $ | 6,851 |  | Appraisal of collateral |  | Appraisal adjustments |  | 22.8% to 94.0% (67.5)% | ​
​ | ​ | ​ | ​ | ​ | ​ |  | Liquidation expenses |  | 3.0% to 6.0% (5.6)% | ​
Other real estate owned | ​ | $ | 1,152 |  | Appraisal of collateral |  | Appraisal adjustments |  | 1.0% to 1.0% (1.0)% | ​
​ | ​ | ​ | ​ | ​ | ​ |  | Liquidation expenses |  | 3.0% to 6.0% (4.5)% | ​

​

25

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Quantitative Information about Level 3 Fair Value Measurements |
(Dollars in thousands, except percents) | ​ | Fair Value | ​ | ​ | ​ | ​ | ​ | Range |
December 31, 2023 |  | Estimate |  | Valuation Techniques |  | Unobservable Input |  | (Weighted Average) |
Loans individually evaluated for credit loss |  | $ | 4,740 |  | Appraisal of collateral |  | Appraisal adjustments |  | 22.8% to 82.4% (63.6)% | ​
​ | ​ | ​ | ​ | ​ | ​ |  | Liquidation expenses |  | 3.0% to 6.0% (5.2)% | ​

​

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 June 30, 2024 and December 31, 2023 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 |
(Dollars in thousands) | ​ | Carrying | ​ | Fair | ​ | Assets | ​ | Inputs | ​ | Inputs |
June 30, 2024 |  | Value |  | Value |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Financial assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cash and due from banks | ​ | $ | 49,956 | ​ | $ | 49,956 | ​ | $ | 49,956 | ​ | $ | ​ | ​ | $ | ​ | ​
Investment securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Available for sale | ​ |  | 385,240 | ​ |  | 385,240 | ​ | ​ | 180,007 | ​ | ​ | 205,233 | ​ | ​ | ​ | ​
Common equity securities | ​ | ​ | 78 | ​ | ​ | 78 | ​ | ​ | 78 | ​ | ​ | ​ | ​ | ​ | ​ | ​
Held to maturity | ​ |  | 81,598 | ​ |  | 68,224 | ​ | ​ | ​ | ​ |  | 68,224 | ​ | ​ | ​ | ​
Loans held for sale | ​ |  | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​ | ​ | ​ | ​ | ​
Net loans | ​ |  | 2,846,430 | ​ |  | 2,646,017 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 2,646,017 | ​
Accrued interest receivable | ​ |  | 13,326 | ​ |  | 13,326 | ​ | ​ | ​ | ​ |  | 13,326 | ​ | ​ | ​ | ​
Mortgage servicing rights | ​ |  | 852 | ​ |  | 1,709 | ​ | ​ | ​ | ​ |  | 1,709 | ​ | ​ | ​ | ​
Restricted equity securities (FHLB and other) | ​ | ​ | 7,736 | ​ |  | 7,736 | ​ | ​ | ​ | ​ |  | 7,736 | ​ | ​ | ​ | ​
Other assets - interest rate swaps | ​ |  | 20,958 | ​ |  | 20,958 | ​ | ​ | ​ | ​ |  | 20,958 | ​ | ​ | ​ | ​
Total | ​ | $ | 3,406,174 | ​ | $ | 3,193,244 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Financial liabilities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deposits | ​ | $ | 3,064,959 | ​ | $ | 3,059,952 | ​ | $ | ​ | ​ | $ | 3,059,952 | ​ | $ | ​ | ​
Short-term borrowings | ​ | ​ | 104,250 | ​ | ​ | 104,254 | ​ | ​ | ​ | ​ | ​ | 104,254 | ​ | ​ | ​ | ​
Long-term debt | ​ |  | 25,000 | ​ |  | 24,761 | ​ | ​ | ​ | ​ |  | 24,761 | ​ | ​ | ​ | ​
Subordinated debt | ​ |  | 33,000 | ​ |  | 43,284 | ​ | ​ | ​ | ​ |  | 43,284 | ​ | ​ | ​ | ​
Accrued interest payable | ​ | ​ | 5,507 | ​ |  | 5,507 | ​ | ​ | ​ | ​ | ​ | 5,507 | ​ | ​ | ​ | ​
Other liabilities - interest rate swaps | ​ |  | 20,538 | ​ |  | 20,538 | ​ | ​ | ​ | ​ | ​ | 20,538 | ​ | ​ | ​ | ​
Total | ​ | $ | 3,253,254 | ​ | $ | 3,258,296 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​

​

​

26

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D 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 |
(Dollars in thousands) | ​ | Carrying | ​ | Fair | ​ | Assets | ​ | Inputs | ​ | Inputs |
December 31, 2023 |  | Value |  | Value |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Financial assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cash and due from banks | ​ | $ | 187,365 | ​ | $ | 187,365 | ​ | $ | 187,365 | ​ | $ | ​ | ​ | $ | ​ | ​
Investment securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Available for sale | ​ |  | 398,927 | ​ |  | 398,927 | ​ | ​ | 184,057 | ​ | ​ | 214,870 | ​ | ​ | ​ | ​
Common equity securities | ​ | ​ | 98 | ​ | ​ | 98 | ​ | ​ | 98 | ​ | ​ | ​ | ​ | ​ | ​ | ​
Held to maturity | ​ |  | 84,851 | ​ |  | 71,698 | ​ | ​ | ​ | ​ |  | 71,698 | ​ | ​ | ​ | ​
Loans held for sale | ​ |  | 250 | ​ |  | 250 | ​ | ​ | ​ | ​ |  | ​ | ​ | ​ | ​ | ​
Net loans | ​ |  | 2,828,002 | ​ |  | 2,593,151 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 2,593,151 | ​
Accrued interest receivable | ​ |  | 12,734 | ​ |  | 12,734 | ​ | ​ | ​ | ​ |  | 12,734 | ​ | ​ | ​ | ​
Mortgage servicing rights | ​ |  | 870 | ​ |  | 1,745 | ​ | ​ | ​ | ​ |  | 1,745 | ​ | ​ | ​ | ​
Restricted equity securities (FHLB and other) | ​ |  | 5,180 | ​ |  | 5,180 | ​ | ​ | ​ | ​ |  | 5,180 | ​ | ​ | ​ | ​
Other assets - interest rate swaps | ​ | ​ | 19,278 | ​ | ​ | 19,278 | ​ | ​ | ​ | ​ | ​ | 19,278 | ​ | ​ | ​ | ​
Total | ​ | $ | 3,537,555 | ​ | $ | 3,290,426 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Financial liabilities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deposits | ​ | $ | 3,279,037 | ​ | $ | 3,274,774 | ​ | $ | ​ | ​ | $ | 3,274,774 | ​ | $ | ​ | ​
Short-term borrowings | ​ |  | 17,590 | ​ |  | 17,590 | ​ | ​ | ​ | ​ |  | 17,590 | ​ | ​ | ​ | ​
Long-term debt | ​ |  | 25,000 | ​ |  | 24,924 | ​ | ​ | ​ | ​ |  | 24,924 | ​ | ​ | ​ | ​
Subordinated debt | ​ | ​ | 33,000 | ​ | ​ | 45,504 | ​ | ​ | ​ | ​ | ​ | 45,504 | ​ | ​ | ​ | ​
Accrued interest payable | ​ |  | 5,765 | ​ |  | 5,765 | ​ | ​ | ​ | ​ | ​ | 5,765 | ​ | ​ | ​ | ​
Other liabilities - interest rate swaps | ​ | ​ | 18,808 | ​ | ​ | 18,808 | ​ | ​ | ​ | ​ | ​ | 18,808 | ​ | ​ | ​ | ​
Total | ​ | $ | 3,379,200 | ​ | $ | 3,387,365 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​

​

​

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 six months ended June 30, salaries and employee benefits expense includes approximately $294 thousand and $620 thousand in 2024 and $360 thousand and $837 thousand in 2023 relating to the employee benefit plans.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) | ​ | Pension Benefits |
Three Months Ended June 30, | ​ | 2024 | ​ | 2023 | ​ |
Net periodic pension benefit: |  | ​ | ​ |  | ​ | ​ | ​ | ​
Interest cost | ​ | $ | 158 | ​ | $ | 164 | ​ | ​
Expected return on plan assets | ​ |  | (320) | ​ |  | (293) | ​ | ​
Amortization of unrecognized net loss | ​ |  | 49 | ​ |  | 50 | ​ | ​
Net periodic pension benefit | ​ | $ | (113) | ​ | $ | (79) | ​ | ​

27

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) | ​ | Pension Benefits | ​
Six Months Ended June 30, | ​ | 2024 | ​ | 2023 | ​ | ​
Net periodic pension income: |  | ​ | ​ |  | ​ | ​ | ​ | ​
Interest cost | ​ | $ | 317 | ​ | $ | 328 | ​ | ​
Expected return on plan assets | ​ |  | (641) | ​ |  | (585) | ​ | ​
Amortization of unrecognized net loss | ​ |  | 97 | ​ |  | 99 | ​ | ​
Net periodic pension income: | ​ | ​ | (227) | ​ | ​ | (158) | ​ | ​

​

In May 2017, the Company’s stockholders approved the 2017 equity incentive plan (“2017 Plan”). In May 2023, the Company’s stockholders approved the 2023 equity incentive plan (“2023 Plan”). Under the 2017 Plan and 2023 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 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 and 2023 Plan include directors, officers, employees, consultants and other service providers of the Company and its subsidiaries.

As of June 30, 2024, 66,298 shares of the Company’s common stock were available for grants as awards pursuant to the 2023 Plan. While the 2017 Plan will remain in effect in accordance with its terms to govern outstanding awards under that plan, the Company intends to make future grants under the 2023 Plan. If any outstanding awards are forfeited by the holder or canceled by the Company, the underlying shares would be available for regrant to others under the 2023 Plan.

​

The 2017 Plan and 2023 Plan authorize grants of stock options, stock appreciation rights, cash awards, performance awards, restricted stock and restricted stock units.

For the six months ended June 30, 2024, the Company granted 23,243 performance based restricted stock units and 8,895 time based restricted stock awards, under the 2023 Plan. For the six months ended June 30, 2023, the Company granted 18,222 performance based restricted stock units and 5,206 time based restricted stock awards, under the 2023 Plan.

The non-performance restricted stock grants made in 2024, 2023 and 2022 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 tangible common 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 $200 thousand and $399 thousand for the three and six months ended June 30, 2024 for awards granted under the 2023 Plan and recognized compensation expense of $84 thousand and $167 thousand for the three and six months ended June 30, 2024 for the awards granted under the 2017 Plan. As of

28

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

June 30, 2024, the Company had $1.8 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 2.0 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 existing credit derivatives result from participations of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities.

​

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 (loss) income, (AOCI) and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI 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 no amount will be reclassified as a reduction to interest income.

​

Fair Value Hedges of Interest Rate Risk

​

The Company is exposed to changes in the fair value of certain of its fixed-rate pools of assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate, the Secured Overnight Financing Rate (“SOFR”). Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

​

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

​

29

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

As of June 30, 2024, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustment for fair value hedges:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Line Item in the Consolidated Statement of Financial Position in Which the Hedged Item is Included | ​ | ​ | Amortized Amount of the Hedged Assets/(Liabilities) | ​ | ​ | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
(Dollars in thousands) | ​ | ​ | June 30, 2024 | ​ | ​ | December 31, 2023 | ​ | ​ | June 30, 2024 | ​ | ​ | December 31, 2023
AFS Securities (1) | ​ | $ | 142,638 | ​ | $ | 143,573 | ​ | $ | (368) | ​ | $ | 871
Fixed Rate Loans (2) | ​ | ​ | 49,897 | ​ | ​ | 50,462 | ​ | ​ | (103) | ​ | ​ | 462
Total | ​ | $ | 192,535 | ​ | $ | 194,035 | ​ | $ | (471) | ​ | $ | 1,333

(1) | These amounts include the amortized cost basis of closed portfolios of fixed rate assets used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At June 30, 2024, the amortized cost basis of the closed portfolios used in these hedging relationships was $142.6 million. The amounts of the designated hedged items were $100.0 million.

​

(2) | Fixed Rate Loan Assets. These amounts include the carrying value of fixed rate loan assets used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At June 30, 2024, the principal value of the hedged item was $50.0 million.

​

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 derivatives 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 derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. As of June 30, 2024, the Company had 119 interest rate swaps with an aggregate notional amount of $245.2 million related to this program.

​

The Company’s existing credit derivatives result from participations in or out of interest rate swaps provided by or to external lenders as part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain lenders which participate in loans.

​

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 Sheet as of June 30, 2024 and December 31, 2023.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Fair Values of Derivative Instruments
​ | ​ | ​ | Derivative Assets | ​ | ​ | Derivative Liabilities
​ | ​ | ​ | As of June 30, 2024 | ​ | As of December 31, 2023 (1) | ​ | As of June 30, 2024 | ​ | As of December 31, 2023
(Dollars in thousands) | ​ | ​ | Notional Amount | ​ | Balance Sheet Location | ​ | ​ | Fair Value | ​ | Balance Sheet Location | ​ | ​ | Fair Value | ​ | ​ | Notional Amount | ​ | Balance Sheet Location | ​ | ​ | Fair Value | ​ | Balance Sheet Location | ​ | ​ | Fair Value
Derivatives designated as hedging instruments | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest Rate Products | ​ | $ | 150,000 | ​ | Other Assets | ​ | $ | 518 | ​ | Other Assets | ​ | $ | ​ | ​ | $ | ​ | ​ | Other Liabilities | ​ | $ | 0 | ​ | Other Liabilities | ​ | $ | 1,270
Total derivatives designated as hedging instruments | ​ | ​ | ​ | ​ | ​ | ​ | $ | 518 | ​ | ​ | ​ | $ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | 0 | ​ | ​ | ​ | $ | 1,270
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Derivatives not designated as hedging instruments | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest Rate Products | ​ | $ | 237,083 | ​ | Other Assets | ​ | $ | 21,513 | ​ | Other Assets | ​ | $ | 19,833 | ​ | $ | 237,083 | ​ | Other Liabilities | ​ | $ | 21,093 | ​ | Other Liabilities | ​ | $ | 19,364
Other Contracts | ​ | ​ | 8,131 | ​ | Other Assets | ​ | ​ | 2 | ​ | Other Assets | ​ | ​ | 3 | ​ | ​ | 7,303 | ​ | Other Liabilities | ​ | ​ | ​ | ​ | Other Liabilities | ​ | ​ | ​
Total derivatives not designated as hedging instruments | ​ | ​ | ​ | ​ | ​ | ​ | $ | 21,515 | ​ | ​ | ​ | $ | 19,836 | ​ | ​ | ​ | ​ | ​ | ​ | $ | 21,093 | ​ | ​ | ​ | $ | 19,364
(1) The notional asset amount of interest rate swaps at December 31, 2023 was $230.3 million and $8.4 million for risk participation agreements.
Amounts include accrued interest.

30

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​

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

​

The table below presents the effect of fair value and cash flow hedge accounting on accumulated other comprehensive (loss) income as of June 30, 2024 and June 30, 2023.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) Three months ended June 30, 2024 | ​ | ​ | Amount of (Loss) Recognized in OCI on Derivative | ​ | ​ | Amount of (Loss) Recognized in OCI Included Component | ​ | ​ | Amount of (Loss) Recognized in OCI Excluded Component | ​ | Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income | ​ | ​ | Amount of (Loss) Reclassified from Accumulated OCI into Income | ​ | ​ | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Included Component | ​ | ​ | Amount of (Loss) Reclassified from Accumulated OCI into Income Excluded Component
Derivatives in Cash Flow Hedging Relationships | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest Rate Products | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | ​ | ​ | Interest Income | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | ​
Total | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | ​ | ​ | ​ | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) Three months ended June 30, 2023 | ​ | ​ | Amount of (Loss) Recognized in OCI on Derivative | ​ | ​ | Amount of (Loss) Recognized in OCI Included Component | ​ | ​ | Amount of (Loss) Recognized in OCI Excluded Component | ​ | Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income | ​ | ​ | Amount of (Loss) Reclassified from Accumulated OCI into Income | ​ | ​ | Amount of (Loss) Reclassified from Accumulated OCI into Income Included Component | ​ | ​ | Amount of (Loss) Reclassified from Accumulated OCI into Income Excluded Component
Derivatives in Cash Flow Hedging Relationships | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest Rate Products | ​ | $ | (1) | ​ | $ | ​ | ​ | $ | (1) | ​ | Interest Income | ​ | $ | (16) | ​ | $ | ​ | ​ | $ | (16)
Total | ​ | $ | (1) | ​ | $ | ​ | ​ | $ | (1) | ​ | ​ | ​ | $ | (16) | ​ | $ | ​ | ​ | $ | (16)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) Six months ended June 30, 2024 | ​ | ​ | Amount of (Loss) Recognized in OCI on Derivative | ​ | ​ | Amount of (Loss) Recognized in OCI Included Component | ​ | ​ | Amount of (Loss) Recognized in OCI Excluded Component | ​ | Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income | ​ | ​ | Amount of (Loss) Reclassified from Accumulated OCI into Income | ​ | ​ | Amount of (Loss) Reclassified from Accumulated OCI into Income Included Component | ​ | ​ | Amount of (Loss) Reclassified from Accumulated OCI into Income Excluded Component
Derivatives in Cash Flow Hedging Relationships | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest Rate Products | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | ​ | ​ | Interest Income | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | ​
Total | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | ​ | ​ | ​ | ​ | $ | ​ | ​ | $ | ​ | ​ | $ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) Six months ended June 30, 2023 | ​ | ​ | Amount of (Loss) Recognized in OCI on Derivative | ​ | ​ | Amount of (Loss) Recognized in OCI Included Component | ​ | ​ | Amount of (Loss) Recognized in OCI Excluded Component | ​ | Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income | ​ | ​ | Amount of (Loss) Reclassified from Accumulated OCI into Income | ​ | ​ | Amount of (Loss) Reclassified from Accumulated OCI into Income Included Component | ​ | ​ | Amount of (Loss) Reclassified from Accumulated OCI into Income Excluded Component
Derivatives in Cash Flow Hedging Relationships | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest Rate Products | ​ | $ | (1) | ​ | $ | ​ | ​ | $ | (1) | ​ | Interest Income | ​ | $ | (32) | ​ | $ | ​ | ​ | $ | (32)
Total | ​ | $ | (1) | ​ | $ | ​ | ​ | $ | (1) | ​ | ​ | ​ | $ | (32) | ​ | $ | ​ | ​ | $ | (32)

​

* | Amounts disclosed are gross and not net of taxes.

​

31

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D 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 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 six months ended June 30, 2024 and 2023.

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Location and Amount of Gain or (Loss)
​ | ​ | Recognized in Income on Fair Value and
​ | ​ | Cash Flow Hedging Relationships
​ | ​ | For the three months ended June 30,
​ | ​ | ​ | 2024 | ​ | ​ | 2023
(Dollars in thousands) |  |  | Interest Income |  |  | Interest Income
​ | ​ | ​ | ​ | ​ | ​ | ​
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. | ​ | $ | 226 | ​ | $ | 115
​ | ​ | ​ | ​ | ​ | ​ | ​
The effects of fair value and cash flow hedging: | ​ | ​ | ​ | ​ | ​ | ​
Gain or (loss) on fair value hedging relationships | ​ | ​ | ​ | ​ | ​ | ​
Interest contracts | ​ | ​ | ​ | ​ | ​ | ​
Hedged items | ​ | ​ | (160) | ​ | ​ | (2,034)
Derivatives designated as hedging instruments | ​ | ​ | 386 | ​ | ​ | 2,165
Derivatives designated as hedging instruments | ​ | ​ | ​ | ​ | ​ | ​
Gain or (loss) on cash flow hedging relationships | ​ | ​ | ​ | ​ | ​ | ​
Interest contracts | ​ | ​ | ​ | ​ | ​ | ​
Amount of (loss) gain reclassified from AOCI into income | ​ | ​ | ​ | ​ | ​ | (16)
Amount of gain reclassified from AOCI into income - Included Component | ​ | ​ | ​ | ​ | ​ | ​
Amount of (loss) reclassified from AOCI into income - Excluded Component | ​ | $ | ​ | ​ | $ | (16)

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Location and Amount of Gain or (Loss)
​ | ​ | Recognized in Income on Fair Value and
​ | ​ | Cash Flow Hedging Relationships
​ | ​ | For the six months ended June 30,
​ | ​ | ​ | 2024 | ​ | ​ | 2023
(Dollars in thousands) |  |  | Interest Income |  |  | Interest Income
​ | ​ | ​ | ​ | ​ | ​ | ​
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. | ​ | $ | 448 | ​ | $ | 130
​ | ​ | ​ | ​ | ​ | ​ | ​
The effects of fair value and cash flow hedging: | ​ | ​ | ​ | ​ | ​ | ​
Gain or (loss) on fair value hedging relationships | ​ | ​ | ​ | ​ | ​ | ​
Interest contracts | ​ | ​ | ​ | ​ | ​ | ​
Hedged items | ​ | ​ | (1,239) | ​ | ​ | (48)
Derivatives designated as hedging instruments | ​ | ​ | 1,687 | ​ | ​ | 210
in earnings based on an amortization approach | ​ | ​ | ​ | ​ | ​ | ​
Gain or (loss) on cash flow hedging relationships | ​ | ​ | ​ | ​ | ​ | ​
Interest contracts | ​ | ​ | ​ | ​ | ​ | ​
Amount excluded from effectiveness testing recognized | ​ | ​ | ​ | ​ | ​ | ​
Amount of gain reclassified from AOCI into income - Included Component | ​ | ​ | ​ | ​ | ​ | ​
Amount of (loss) reclassified from AOCI into income - Excluded Component | ​ | $ | ​ | ​ | $ | (32)

​

32

Table of Contents

Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

Effect of Derivative Instruments Not Designated as Hedging 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 six months ended June 30, 2024 and 2023.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Amount of Gain or (Loss) | ​ | Amount of Gain or (Loss) |  | Amount of Gain | ​ | Amount of Gain or (Loss)
​ | ​ | ​ | ​ | Recognized in | ​ | Recognized in |  | Recognized in | ​ | Recognized in
​ | ​ | Location of Gain or (Loss) | ​ | Income on Derivative | ​ | Income on Derivative |  | Income on Derivative | ​ | Income on Derivative
​ | ​ | Recognized in Income on | ​ | Three Months Ended | ​ | Six Months Ended |  | Three Months Ended | ​ | Six Months Ended
(Dollars in thousands) |  | Derivative |  | June 30, 2024 |  | June 30, 2024 |  | June 30, 2023 |  | June 30, 2023
Derivatives Not Designated as Hedging Instruments: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest Rate Products |  | Other income / (expense) | ​ | $ | (8) | ​ | $ | (50) | ​ | $ | 23 | ​ | $ | (138)
Other Contracts | ​ | Other income / (expense) | ​ | ​ | ​ | ​ | ​ | (1) | ​ | ​ | 30 | ​ | ​ | 30
Total |  |  | ​ | $ | (8) | ​ | $ | (51) | ​ | $ | 53 | ​ | $ | (108)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Fee Income | ​ | Fee income | ​ | $ | 110 | ​ | $ | 128 | ​ | $ | ​ | ​ | $ | 384

​

33

Table of Contents

Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D 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 June 30, 2024 and December 31, 2023. 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 June 30, 2024 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 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
(Dollars in thousands) |  | Assets | ​ | Balance Sheet | ​ | Balance Sheet | ​ | Instruments | ​ | Posted | ​ | Amount
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Derivatives | ​ | $ | 22,031 | ​ | $ | ​ | ​ | $ | 22,031 | ​ | $ | ​ | ​ | $ | 20,350 | ​ | $ | 1,681
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Offsetting of Derivative Liabilities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
as of June 30, 2024 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 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
(Dollars in thousands) | ​ | Liabilities | ​ | Balance Sheet | ​ | Balance Sheet | ​ | Instruments | ​ | Posted* | ​ | Amount
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Derivatives | ​ | $ | 21,093 | ​ | $ | ​ | ​ | $ | 21,093 | ​ | $ | 21,093 | ​ | $ | ​ | ​ | $ | ​
*Cash collateral of $270 was paid in June 2024, but not presented as an offset above. | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Offsetting of Derivative Assets | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
as of December 31, 2023 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 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
(Dollars in thousands) | ​ | Assets | ​ | Balance Sheet | ​ | Balance Sheet | ​ | Instruments | ​ | Posted | ​ | Amount
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Derivatives | ​ | $ | 19,833 | ​ | $ | ​ | ​ | $ | 19,833 | ​ | $ | ​ | ​ | $ | 17,590 | ​ | $ | 2,243
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Offsetting of Derivative Liabilities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
as of December 31, 2023 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 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
(Dollars in thousands) | ​ | Liabilities | ​ | Balance Sheet | ​ | Balance Sheet | ​ | Instruments | ​ | Posted | ​ | Amount
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Derivatives | ​ | $ | 20,633 | ​ | $ | ​ | ​ | $ | 20,633 | ​ | $ | 20,633 | ​ | $ | ​ | ​ | $ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​

​

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 June 30, 2024, 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 $330 thousand. As of December 31, 2023, 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 $2.7 million. The Company has minimum

34

Table of Contents

Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $270 thousand against its obligations under these agreements at June 30, 2024. 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 June 30, 2024 and December 31, 2023 are summarized as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) |  | ​ | June 30, 2024 |  | ​ | December 31, 2023
Interest-bearing deposits: | ​ | ​ | ​ | ​ | ​ | ​
Money market accounts | ​ | $ | 690,631 | ​ | $ | 782,243
NOW accounts | ​ |  | 715,890 | ​ |  | 796,426
Savings accounts | ​ |  | 397,827 | ​ |  | 429,011
Time deposits less than $250 | ​ |  | 504,879 | ​ |  | 505,409
Time deposits $250 or more | ​ |  | 134,761 | ​ |  | 121,265
Total interest-bearing deposits | ​ |  | 2,443,988 | ​ |  | 2,634,354
Noninterest-bearing deposits | ​ |  | 620,971 | ​ |  | 644,683
Total deposits | ​ | $ | 3,064,959 | ​ | $ | 3,279,037

​

The deposit base consisted of 42.8% retail accounts, 34.7% commercial accounts, 14.4% municipal relationships and 8.1% brokered deposits at June 30, 2024. At June 30, 2024, total estimated uninsured deposits, were approximately $744.7 million, or approximately 24.3% of total deposits; as compared to approximately $883.5 million, or 26.9% of total deposits at December 31, 2023. Included in the uninsured total at June 30, 2024 is $292.9 million of municipal deposits collateralized by letters of credit issued by the FHLB and pledged investment securities, and $.7 million of affiliate company deposits. As an additional resource to our uninsured depositors, we offer all depositors access to IntraFi's CDARS and ICS programs which allows deposit customers to obtain full FDIC deposit insurance while maintaining the deposit relationship with our Bank.

​

The scheduled maturities of time deposits are summarized below, through June 30 of each year:

​

​ | ​ | ​ | ​ | ​
(Dollars in thousands) |  | ​ | ​ | ​
2025 |  | $ | 375,157 | ​
2026 | ​ |  | 108,595 | ​
2027 | ​ |  | 48,579 | ​
2028 | ​ |  | 95,187 | ​
2029 | ​ |  | 6,192 | ​
Thereafter | ​ |  | 5,930 | ​
​ | ​ | $ | 639,640 | ​

​

​

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 June 30, 2024 were $104.3 million and consisted primarily of overnight FHLB advances as compared to $17.6 million at December 31, 2023. Other borrowings, which include cash collateral pledged by derivative

35

Table of Contents

Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

counterparties to offset interest rate exposure, totaled $20.4 million at June 30, 2024 and $17.6 million at December 31, 2023.

​

The table below outlines short-term borrowings at and for the six months ended June 30, 2024 and at and for the year ended December 31, 2023:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | At and for the six months ended June 30, 2024
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Weighted | ​ | Weighted |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Maximum | ​ | Average | ​ | Average |
​ | ​ | Ending | ​ | Average | ​ | Month-End | ​ | Rate for | ​ | Rate at End |
(Dollars in thousands, except percents) |  | Balance |  | Balance |  | Balance |  | the Year |  | of the Period |
Other borrowings |  | $ | 20,350 |  | $ | 20,861 |  | $ | 25,050 |  | 5.39 | % | 5.33 | %
FHLB advances | ​ | ​ | 83,900 | ​ | ​ | 11,674 | ​ | ​ | 83,900 |  | 5.78 | ​ | 5.67 | ​
Total short-term borrowings | ​ | $ | 104,250 | ​ | $ | 32,535 | ​ | $ | 108,950 |  | 5.53 | % | 5.60 | %

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | At and for the year ended December 31, 2023 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Weighted | ​ | Weighted |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Maximum | ​ | Average | ​ | Average |
​ | ​ | Ending | ​ | Average | ​ | Month-End | ​ | Rate for | ​ | Rate at End |
(Dollars in thousands, except percents) |  | Balance |  | Balance |  | Balance |  | the Year |  | of the Year |
Other borrowings |  | $ | 17,590 |  | $ | 19,160 |  | $ | 28,470 |  | 5.54 | % | 5.35 | %
FHLB advances | ​ | ​ | ​ | ​ | ​ | 19,171 | ​ | ​ | 158,000 |  | 4.48 | ​ | ​ | ​
Total short-term borrowings | ​ | $ | 17,590 | ​ | $ | 38,331 | ​ | $ | 186,470 |  | 5.01 | % | 5.35 | %

​

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 June 30, 2024, the maximum borrowing capacity was $1.3 billion of which $108.9 million was outstanding in borrowings and $239.5 million was used to issue standby letters of credit to collateralize public fund deposits. At December 31, 2023, the maximum borrowing capacity was $1.2 billion of which $25.0 million was outstanding in long-term debt and $345.4 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.

​

In addition to borrowings from FHLB and correspondent bank lines of credit, we have availability through the Federal Reserve Bank’s Discount Window and Bank Term Funding Program (“BTFP”) of $413.5 million at June 30, 2024. The FRB’s borrower-in-custody program allows depository institutions to pledge loans as collateral for Discount Window advances while retaining possession of the loan documentation. At June 30, 2024, $331.2 million in loans were pledged as collateral for the borrower-in-custody program and provided $235.4 million in borrowing capacity. At June 30, 2024, securities with a current par value of $166.0 million were pledged at the Discount Window resulting in borrowing capacity of $153.1 million. An additional $25.0 million in securities were pledged at the BTFP at June 30, 2024 in anticipation of the merger with FNCB and the assumption of their BTFP debt.

​

At December 31, 2023, $365.8 million in loans were pledged as collateral for the borrower-in-custody program and provided $246.1 million in borrowing capacity. At December 31, 2023, $191.0 million in securities were pledged to the BTFP and $11 thousand was pledged to the Discount Window. The BTFP allowed depository institutions to borrow up to the par value of eligible securities pledged at the FRB. The BTFP expired on March 11, 2024 and the Company transferred the eligible securities pledged to the Federal Reserve Discount Window.

​

36

Table of Contents

Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

Long-term debt consisting of advances from the FHLB at June 30, 2024 and December 31, 2023 is as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Interest Rate | ​ |  | ​ | ​ |  | ​ | ​ |
(Dollars in thousands, except percents) |  | Fixed | ​ | ​ | ​ | June 30, 2024 | ​ | ​ | December 31, 2023 |
March 2025 | ​ | 4.37 | % | ​ | $ | 10,000 | ​ | $ | 10,000 | ​
March 2026 | ​ | 4.20 | ​ | ​ | ​ | 15,000 | ​ | ​ | 15,000 | ​
​ | ​ | ​ | ​ | ​ | $ | 25,000 | ​ | $ | 25,000 | ​

​

Maturities of long-term debt, by contractual maturity, for the remainder of 2024 and subsequent years are as follows:

​

​ | ​ | ​ | ​ | ​
(Dollars in thousands) | ​ | ​ | ​ | ​
2025 | ​ | $ | 10,000 | ​
2026 | ​ |  | 15,000 | ​
​ | ​ | $ | 25,000 | ​

​

The advances from the FHLB totaling $25.0 million are not convertible and have a fixed rate.

​

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 Peoples Bank.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​

13. Subsequent events

​

On July 1, 2024, the Company completed its previously announced merger with FNCB, pursuant to which FNCB merged with and into the Company, and FNCB Bank merged with and into Peoples Bank.

Pursuant to the terms of the Merger Agreement, each outstanding share of FNCB‘s common stock was converted into the right to receive 0.146 shares of the Company’s common stock. The value of the total transaction consideration was approximately $133.7 million. The consideration included the issuance of 2,935,456 shares of the Company’s common stock, which had a value of $45.54 per share, which was the closing price of the Company’s common stock on June 28, 2024, the last trading day prior to the consummation of the acquisition. Also included in the total consideration was cash in lieu of any fractional shares.

​

​ | ​ | ​ | ​
(Dollars in thousands) | ​ | ​ | ​
Purchase Price: | ​ | ​ | ​
Peoples Financial Services Corp. common stock paid at closing price of $45.54 as of June 30, 2024 | ​ | $ | 133,681
Cash consideration (cash in lieu for fractional shares) | ​ | ​ | 32
Total purchase price | ​ | $ | 133,713

​

Sales of Acquired Securities

As of July 2, 2024, the Company sold $271.2 million par value of available for sale securities, which were acquired from FNCB on July 1, 2024, for net proceeds of $241.2 million and used $189 million of the proceeds to reduce FHLB advances.

​

​

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

Item 2. Management’s Discussio n 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, 2023.

​

Cautionary Note Regarding Forward-Looking Statements:

​

This quarterly report on Form 10-Q 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 that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond our control). 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: macroeconomic trends; 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 and the conflict in Israel; risks associated with business combinations, including, the possibility that we may be unable to achieve expected synergies and operating efficiencies in the merger with FNCB within the expected timeframes or at all and to successfully integrate operations of FNCB and FNCB Bank and those of Peoples and Peoples Bank, which may be more difficult, time consuming or costly than expected; diversion of management's attention from ongoing business operations and opportunities; effects of the completion of the FNCB merger on the ability of Peoples to retain customers and retain and hire key personnel and maintain relationships with their vendors, and on their operating results and businesses generally; 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; adverse developments in the financial industry generally, such as the recent bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer and client behavior; 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, 2023, 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.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

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, 2023, which is incorporated herein by reference. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions.

​

Operating Environment:

​

In 2024, the economy appears to be expanding at a solid pace with reduced inflation and strong employment data. As of August 1, 2024, factors supporting this include:

​

| ● | Gross domestic product (“GDP”) – Real GDP rose at a 2.8 percent annualized pace in the second quarter after increasing 1.4 percent in the first quarter. The increase was a result of increases in consumer spending, private inventory investment and nonresidential fixed investment.

| ● | Core Consumer Price Index (“CPI”) – Core CPI, which excludes food and energy, was 3.3 percent for the 12 months ending June 30, 2024 and was driven by increased shelter expenses. When including food and energy, CPI was 3.0 percent.

| ● | Personal Consumption Expenditures Index (“PCE”) - PCE, a measure of the prices that people living in the U.S. pay for goods and services, increased 2.5 percent in June compared to a year ago. Excluding food and energy, PCE increased 2.6 percent.

| ● | Tight Labor Market – The unemployment rate was 4.1 percent in June, its highest point in more than two years. Demand for labor has decreased and wage growth has slowed.

​

Concerns over the high inflation rate have resulted in central bankers in the U.S. increasing interest rates seven times in 2022 and an additional four times in 2023 for a total of 525 basis points. Rates have remained constant since late July 2023. While we experienced strong loan growth early in 2023, lending has tempered as higher rates affected borrowers demand for credit. Additionally, the Company has intentionally prioritized increasing liquidity over loan growth. We have seen lower mortgage origination and sales volume as interest rates on mortgage loans have reached 20 year highs during 2023. Conversely, competition and subsequent costs of deposits have increased throughout most of 2023 and 2024. While inflation decreased during 2023 from levels of the previous year, they remain above the Federal Open Market Committee’s (“FOMC”) long-term desired 2 percent level for items other than food and energy. The FOMC has stated that they will continue to monitor economic data and will hold the fed funds rate at 5.25 percent to 5.50 percent until inflation is sustainably at 2.0 percent.

​

Goodwill:

​

The Company has goodwill with a net carrying value of $63.4 million at June 30, 2024 and December 31, 2023. 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 June 30, 2024, we performed a qualitative evaluation, which involves determining 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.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

Review of Financial Position:

​

Total assets decreased $126.2 million or 6.8% annualized from December 31, 2023, to $3.6 billion at June 30, 2024. The decrease in assets during the six months was primarily due to decreases in federal funds sold, utilized in part to fund loan growth and seasonal outflow of deposits. Total loans increased $19.7 million since December 31, 2023 and totaled $2.9 billion at June 30, 2024. Investments decreased $17.0 million due primarily to maturities, principal payments and adjustments in market value. There were no Federal funds sold balances at June 30, 2024 compared to a balance of $144.7 million at December 31, 2023.

​

Deposits decreased $214.1 million to $3.1 billion at June 30, 2024 from $3.3 billion at December 31, 2023, due in part to seasonal municipal deposit outflows. Interest-bearing deposits decreased $190.4 million to $2.4 billion compared to $2.6 billion at December 31, 2023. Non-interest bearing deposits decreased $23.7 million to $621.0 million from $644.7 million as of December 31, 2023. Total short-term borrowings at June 30, 2024 were $104.3 million, an increase of $86.7 million from $17.6 million at December 31, 2023. Long term debt and subordinated debentures remained unchanged at $25.0 million and $33.0 million respectively at June 30, 2024 and December 31, 2023. Total stockholders’ equity increased $0.4 million from $340.4 million at year-end 2023 to $340.8 million at June 30, 2024 due to net income, partially offset by an increase to accumulated other comprehensive loss resulting from an increase in unrealized loss on available for sale investment securities and the payment of the dividends.

​

The unrealized losses on the held to maturity portfolio totaled $13.4 million and $13.2 million at June 30, 2024 and December 31, 2023, respectively. For the six months ended June 30, 2024, total assets averaged $3.6 billion, and increased $29.8 million from the same period of 2023.

​

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 $385.2 million at June 30, 2024, a decrease of $13.7 million, or 3.4% from $398.9 million at December 31, 2023. The decrease was primarily due to maturities and principal payments combined with a decrease in fair value due to market value adjustments.

​

Investment securities held to maturity, which consisted of 86.3% of mortgage-backed securities issued or guaranteed by U.S. Government agency and U.S. Government-sponsored entities, totaled $81.6 million at June 30, 2024, a decrease of $3.3 million, or 3.4% from $84.9 million at December 31, 2023. Held to maturity securities had a market value of $68.2 million at June 30, 2024 compared to $71.7 million at December 31, 2023.

​

For the six months ended June 30, 2024, the investment portfolio averaged $531.7 million, a decrease of $47.1 million or 8.1% compared to $578.8 million for the same period last year. Average tax-exempt municipal bonds have decreased $7.7 million or 8.2% to $86.6 million for the six months ended June 30, 2024 from $94.3 million during the comparable period of 2023. The FTE yield on the investment portfolio increased 2 basis points to 1.80% for the six months ended June 30, 2024, from 1.78% for the comparable period of 2023.

​

Securities available for sale are carried at fair value, with unrealized gains or losses net of deferred income taxes reported in the Accumulated Other Comprehensive Loss component of stockholders’ equity. We reported net unrealized losses, included as a separate component of stockholders’ equity of $42.1 million net of a deferred income tax benefit of $11.8 million at June 30, 2024, and net unrealized losses of $40.3 million, net of deferred income tax benefit of $11.3 million, at December 31, 2023.

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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 $19.7 million or 1.4% annualized since December 31, 2023 and totaled $2.9 billion at June 30, 2024. This level of loan growth is consistent with the Company's current balance sheet strategy to slow loan growth and build on balance sheet liquidity. The loan growth that was achieved was due primarily to increases in commercial and industrial loans.

​

Commercial and industrial loans increased $88.3 million, or 32.6% annualized, to $632.0 million at June 30, 2024 compared to $543.7 million at December 31, 2023.

​

Commercial real estate loans decreased $69.5 million or 7.5% annualized, to $1.8 billion at June 30, 2024 compared to $1.9 billion at December 31, 2023.

​

Consumer loans decreased $8.0 million, or 19.6% on an annualized basis, to $74.2 million at June 30, 2024 compared to $82.3 million at December 31, 2023, from a decrease of $8.6 million in the indirect auto loans portfolio, partially offset by an increase in the remainder of our consumer portfolios.

​

Residential real estate loans increased $8.9 million, or 4.9% on an annualized basis, to $369.7 million at June 30, 2024 compared to $360.8 million at December 31, 2023. The increase in residential mortgages was due to increased home equity line activity.

​

For the six months ended June 30, 2024, total loans averaged $2.9 billion, an increase of $53.2 million or 1.9% compared to $2.8 billion for the same period of 2023. The FTE yield on the entire loan portfolio was 5.07% for the six months ended June 30, 2024, a 35 basis point increase from the comparable period last year. The increase in yield was primarily due to the FOMC interest rate increases in 2022 and through July 2023 and the corresponding effect those increases had on our offering rates on new originations and the indices at which our adjustable and floating rate loans reprice.

​

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 June 30, 2024, totaled $513.3 million, consisting of $469.6 million in unfunded commitments of existing loan facilities and $43.7 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, 2023 totaled $587.6 million, consisting of $525.4 million in unfunded commitments of existing loans and $62.2 million in standby letters of credit.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

Asset Quality:

​

Distribution of nonperforming assets

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands, except percents) | ​ | ​ | June 30, 2024 | ​ | ​ | December 31, 2023 | ​
Nonaccrual loans | ​ | $ | 7,117 | ​ | $ | 3,962 | ​
Accruing loans past due 90 days or more: | ​ | ​ | ​ | ​ | ​ | 986 | ​
Total nonperforming loans | ​ | ​ | 7,117 | ​ | ​ | 4,948 | ​
Foreclosed assets | ​ | ​ | 27 | ​ | ​ | ​ | ​
Total nonperforming assets | ​ | $ | 7,144 | ​ | $ | 4,948 | ​
Total loans held for investment | ​ | $ | 2,869,553 | ​ | $ | 2,849,897 | ​
Allowance for credit losses | ​ |  | 23,123 | ​ |  | 21,895 | ​
Allowance for credit losses as a percentage of loans held for investment | ​ | ​ | 0.81 | % | ​ | 0.77 | %
Allowance for credit losses as a percentage of nonaccrual loans | ​ | ​ | 324.90 | % |  | 552.62 | %
Nonaccrual loans as a percentage of loans held for investment | ​ | ​ | 0.25 | % | ​ | 0.14 | %
Nonperforming loans as a percentage of loans, net | ​ |  | 0.25 | % |  | 0.17 | %
Nonperforming assets as a percentage of total assets | ​ |  | 0.20 | % |  | 0.13 | %

​

Nonperforming assets increased by $2.2 million during the first six months of 2024. Nonperforming assets totaled $7.1 million or 0.20% of total assets at June 30, 2024, an increase from $4.9 million or 0.13% of total assets at December 31, 2023.

​

Loans on nonaccrual status increased $3.2 million to $7.1 million at June 30, 2024 from $4.0 million at December 31, 2023. Nonaccrual loans increased due primarily to placing a collateral dependent real estate loan on nonaccrual as the primary source of repayment is in doubt and there are limited secondary sources of repayment. Potential loss is mitigated as the loan carries a 70 percent guarantee of a government agency for a significant amount of the outstanding balance. There was one foreclosed property at June 30, 2024 in the amount of $27 thousand. There were no foreclosed properties at December 31, 2023.

​

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 maintaining strong asset quality. We continued our efforts to maintain sound underwriting standards for both commercial and consumer credit.

​

The allowance for credit losses equaled $23.1 million or 0.81% of loans, net at June 30, 2024 compared to $21.9 million or 0.77% of loans, net, at December 31, 2023. Loans charged-off, net of recoveries, for the six months ended June 30, 2024, equaled $76 thousand and less than 0.01% of average loans, compared to $34 thousand and less than 0.01% of average loans for the comparable period last year.

​

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 six months ended June 30, 2024, total deposits decreased $214.1 million or 13.1% annualized to $3.1 billion from $3.3 billion at December 31, 2023. Noninterest-bearing deposits decreased $23.7 million, or 7.4% annualized and interest-bearing deposits decreased $190.4 million, or 14.5% annualized during the six months ended June 30, 2024. The

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

decrease in deposits was due to an $80.7 million decrease in retail and commercial accounts, a $121.3 million decrease in municipal deposits, and a $12.1 million decrease in brokered deposits.

​

Interest-bearing checking, NOW, and money market accounts decreased $172.1 million to $1.4 billion at June 30, 2024 from $1.6 billion at December 31, 2023 due in part to seasonal municipal outflows and depositors shifting to higher earning products both internally and externally. Savings accounts decreased $31.2 million to $397.8 million as of June 30, 2024 from $429.0 million at December 31, 2023 as depositors moved funds to higher rate products. Time deposits less than $250 thousand decreased $0.5 million to $504.9 million at June 30, 2024, from $505.4 million at December 31, 2023. Time deposits $250 thousand or more increased $13.5 million to $134.8 million at June 30, 2024 from $121.3 million at year end 2023.

​

The deposit base consisted of 42.8% retail accounts, 34.7% commercial accounts, 14.4% municipal relationships and 8.1% brokered deposits at June 30, 2024. At June 30, 2024, total estimated uninsured deposits were approximately $744.7 million, or 24.3% of total deposits; as compared to approximately $883.5 million, or 26.9% of total deposits at December 31, 2023. Included in the uninsured total at June 30, 2024 is $292.9 million of municipal deposits collateralized by letters of credit issued by the FHLB and pledged investment securities, and $0.7 million of affiliate company deposits. As an additional resource to our uninsured depositors, we offer all depositors access to IntraFi's CDARS and ICS programs which allows deposit customers to obtain full FDIC deposit insurance while maintaining their relationship with our Bank.

​

For the six months ended June 30, interest-bearing deposits averaged $2.5 billion in 2024 compared to $2.4 billion in 2023, an increase of $128.8 million or 5.3%. The cost of interest-bearing deposits was 2.91% in 2024 compared to 1.95% for the same period last year. For the first six months, the cost of total deposits, including noninterest-bearing deposits, was 2.33% in 2024 and 1.49% in 2023. The higher costs are due primarily to increases in interest rates paid in order to attract and retain current balances.

​

Borrowings:

​

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

​

Overall, total borrowings were $162.3 million at June 30, 2024, which included short-term borrowings, long-term debt, other borrowings and subordinated debt, compared to $75.6 million at December 31, 2023, an increase of $86.7 million. At June 30, 2024, other borrowings, which include cash collateral pledged by derivative counterparties to offset interest rate exposure, totaled $20.4 million compared to $17.6 million at December 31, 2023. Higher market interest rates resulted in heightened exposure requiring an increase to pledged cash collateral. FHLB short-term borrowings totaled $83.9 million at June 30, 2024, compared to none at December 31, 2023, as the increase was due to funding the outflow of deposits. . Long-term debt was $25.0 million at June 30, 2024 and at year end 2023. Subordinated debt outstanding at June 30, 2024 and December 31, 2023 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 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

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

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 increased rapidly during 2022 and continued to increase through July 2023 as the FOMC raised the federal funds rate. A total of seven increases for a total of 425 basis points occurred in 2022, and four additional increases totaling 100 basis points were made through July 31, 2023, resulting in a total of 525 basis points since the beginning of the FOMC’s initiative to curb inflation. 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 an 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 an 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 1.10% at June 30, 2024, an increase from 0.73% at December 31, 2023. 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, 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 June 30, 2024, 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.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

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 June 30, 2024, 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 2024 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 May to review our interest rate risk profile, capital adequacy and liquidity. At June 30, 2024, the Company’s cash and due from banks balances were $50.0 million. Our maximum borrowing capacity with the FHLB as of June 30, 2024 was $1.3 billion, of which $108.9 million was outstanding in borrowings, $239.5 million was outstanding in the form of irrevocable standby letters of credit, and $924.4 million was available. Additionally, the Company maintains $413.5 million of availability at the Federal Reserve Bank’s Discount Window, through the pledging of securities and through a borrower-in-custody of collateral arrangement, which enables us to pledge certain loans not being used as collateral elsewhere. The Company also maintains an available for sale investment securities portfolio, comprised primarily of highly liquid U.S. Treasury securities, highly-rated municipal securities and U.S. agency-backed mortgage backed securities. This portfolio serves as an additional source of liquidity and capital. At June 30, 2024, the Company’s available for sale investment securities portfolio totaled $385.2 million, $83.1 million of which were unencumbered. We believe our liquidity is adequate to meet both present and future financial obligations and commitments on a timely basis.

​

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

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 June 30, 2024. Our noncore funds at June 30, 2024, were comprised of time deposits in denominations of $100 thousand or more, brokered deposits 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 June 30, 2024, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 18.9%, while our net short-term noncore funding dependence ratio, noncore funds maturing within one-year, less short-term investments to long-term assets equaled 10.2%. Comparatively, our overall noncore dependence ratio at year-end 2023 was 12.1% and our net short-term noncore funding dependence ratio was 4.7%, indicating that our reliance on noncore funds has increased overall due to exhausting our federal funds sold balance of $144.7 million and increasing short-term borrowings to fund the outflow of deposits during the first six months of 2024.

​

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 $137.4 million during the six months ended June 30, 2024. Cash and cash equivalents increased $98.8 million for the same period last year. For the six months ended June 30, 2024, net cash outflows of $133.2 million from financing activities and $9.2 million from investing activities were partially offset by net cash inflows of $5.0 million from operating activities. For the same period of 2023, net cash inflows of $17.6 million from operating activities and $104.2 million from financing activities were partially offset by net cash outflows of $22.9 million from investing activities.

​

Operating activities provided net cash of $5.0 million for the six months ended June 30, 2024, and $17.6 million for the corresponding six months of 2023. Net income, adjusted for the effects of gains and losses along with noncash transactions such as depreciation and the provision for credit 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 $9.2 million for the six months ended June 30, 2024, compared to using net cash of $22.9 million for the same period of 2023. A net increase in loans was the primary factor causing the net cash outflow from investing activities in both periods. The current period included proceeds of $10.9 million from the maturities, calls and principal payments of investments, while the year ago period included proceeds from the sale of investment securities to fund a portion of the strong loan growth.

​

Financing activities used net cash of $133.2 million for the six months ended June 30, 2024, and provided net cash of $104.2 million for the corresponding six months of 2023. In 2024, deposit decreases caused the net cash outflow in financing activity. The year ago period included new long-term borrowings and the addition of brokered deposits to build our cash position. While a portion of the outflow is seasonal, 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 $340.8 million or $48.29 per share at June 30, 2024, compared to $340.4 million or $48.35 per share at December 31, 2023. Stockholders’ equity increased during the six month period ended June 30, 2024 primarily due to earnings, offset by a dividend payout of $5.8 million and an increase to other comprehensive loss of $0.9 million, due to changes in market values of available for sale securities.

​

47

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

Dividends declared equaled $0.82 per share for the six months ended June 30, 2024 and $0.82 per share for the same period of 2023. The dividend payout ratio was 85.4% for the six months ended June 30, 2024 and 34.5% for the same period of 2023. The Company has paid cash dividends since its formation as a bank holding company in 1986. The Board declared on July 26, 2024 a third quarter dividend of $0.6175 per share payable on September 13, 2024 to shareholders of record as of August 30, 2024. The increase in the quarterly cash dividend was contemplated as part of the Merger Agreement between the Company and FNCB. It is the present intention of the Board of Directors to continue this dividend payment policy. 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 June 30, 2024, Peoples Bank’s Tier 1 capital to total average assets was 9.82% as compared to 9.34% at December 31, 2023. Peoples Bank’s Tier 1 capital to risk weighted asset ratio was 13.09% and the total capital to risk weighted asset ratio was 13.95% at June 30, 2024. These ratios were 13.01% and 13.82% at December 31, 2023. Peoples Bank’s common equity Tier 1 to risk weighted asset ratio was 13.09% at June 30, 2024 compared to 13.01% at December 31, 2023. Peoples Bank met all capital adequacy requirements and was deemed to be well-capitalized under regulatory standards at June 30, 2024.

​

​

48

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

Review of Financial Performance:

​

Peoples reported net income of $3.3 million or $0.46 per diluted share for the three months ended June 30, 2024, a 65.2% decrease when compared to $9.4 million or $1.31 per share for the comparable period of 2023. Quarterly net income included lower net interest income of $3.2 million due to higher deposit costs. Noninterest income was in line with the year ago period. Non-interest expenses increased by $1.5 million, which included merger related expenses of $1.0 million, increases to occupancy and equipment expenses of $0.3 million, higher professional services expenses of $0.2 million, and $0.2 million in higher other expenses. Provision for income tax decreased by $1.4 million on lower earnings.

​

Peoples reported net income of $6.7 million, or $0.95 per diluted share for the six months ended June 30, 2024, a decrease of 60.3% when compared to $17.0 million, or $2.37 per diluted share for the comparable period of 2023. The decrease in earnings in the six months ended June 30, 2024 is a result of lower net interest income of $7.0 million as higher interest income on earning assets, due to increased loan rates, was more than offset by increased funding costs, higher operating expenses of $3.1 million, a $2.2 million increase to the provision for credit losses, and a decrease of $0.3 million in non-interest income. Higher noninterest expenses were mainly due to $1.5 million in merger related expenses, higher occupancy and equipment related expenses of $0.9 million, and higher other expenses of $0.8 million, partially offset by a decrease of $0.3 million in salaries and benefits.

​

Return on average assets (“ROA”) measures our net income in relation to total assets. Our annualized ROA was 0.37% for the second quarter of 2024 compared to 1.04% for the same period of 2023. Return on average equity (“ROE”) indicates how effectively we can generate net income on the capital invested by stockholders. Our annualized ROE was 3.88% for the second quarter of 2024 compared to 11.42% for the comparable period in 2023. The declines in our annualized ROA and ROE were due primarily to a lower level of net income.

​

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 2024 and 2023.

The following table reconciles the non-GAAP financial measures of FTE net interest income for the three and six months ended June 30, 2024 and 2023:

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Three Months Ended June 30, |  | 2024 |  | ​ | 2023 |  | ​
Interest income (GAAP) | ​ | $ | 38,376 | ​ | ​ | $ | 36,736 | ​ | ​
Adjustment to FTE | ​ |  | 471 | ​ | ​ |  | 478 | ​ | ​
Interest income adjusted to FTE (non-GAAP) | ​ |  | 38,847 | ​ | ​ |  | 37,214 | ​ | ​
Interest expense | ​ |  | 19,460 | ​ | ​ |  | 14,640 | ​ | ​
Net interest income adjusted to FTE (non-GAAP) | ​ | $ | 19,387 | ​ | ​ | $ | 22,574 | ​ | ​

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Six Months Ended June 30, |  | 2024 |  | ​ | 2023 | ​ | ​
Interest income (GAAP) | ​ | $ | 77,373 | ​ | ​ | $ | 71,014 | ​ | ​
Adjustment to FTE | ​ |  | 946 | ​ | ​ |  | 965 | ​ | ​
Interest income adjusted to FTE (non-GAAP) | ​ |  | 78,319 | ​ | ​ |  | 71,979 | ​ | ​
Interest expense | ​ |  | 39,139 | ​ | ​ |  | 25,806 | ​ | ​
Net interest income adjusted to FTE (non-GAAP) | ​ | $ | 39,180 | ​ | ​ | $ | 46,173 | ​ | ​

The efficiency ratio is noninterest expenses, less amortization of intangible assets and acquisition related expenses, as a percentage of FTE net interest income plus noninterest income less gains on equity securities and gains on sale of assets. Management monitors the efficiency ratio to determine how well it is managing its operating expenses; a lower efficiency ratio is generally preferable as it indicates the Company is spending less to generate income. The Company is continuing to pursue opportunities to reduce expenses as a percentage of operating revenues.

The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP for the three and six months ended June 30, 2024 and 2023:

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands, except percents) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Three Months Ended June 30, |  | 2024 |  | ​ | 2023 |  | ​
Efficiency ratio (non-GAAP): | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Noninterest expense (GAAP) | ​ | $ | 18,158 | ​ | ​ | $ | 16,614 | ​ | ​
Less: amortization of intangible assets expense | ​ |  | ​ | ​ | ​ |  | 28 | ​ | ​
Less: acquisition related expenses | ​ | ​ | 1,071 | ​ | ​ | ​ | 121 | ​ | ​
Noninterest expense adjusted (non-GAAP) | ​ | ​ | 17,087 | ​ | ​ | ​ | 16,465 | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net interest income (GAAP) | ​ | ​ | 18,916 | ​ | ​ | ​ | 22,096 | ​ | ​
Plus: taxable equivalent adjustment | ​ | ​ | 470 | ​ | ​ | ​ | 478 | ​ | ​
Noninterest income (GAAP) | ​ | ​ | 3,541 | ​ | ​ | ​ | 3,552 | ​ | ​
Less: net losses on equity securities | ​ | ​ | (12) | ​ | ​ | ​ | 12 | ​ | ​
Net interest income (FTE) plus noninterest income (non-GAAP) | ​ | $ | 22,939 | ​ | ​ | $ | 26,114 | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Efficiency ratio (non-GAAP) | ​ | ​ | 74.5 | % | ​ | ​ | 63.1 | % | ​

​

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Dollars in thousands, except percents) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Six Months Ended June 30, |  | 2024 |  | ​ | 2023 |  | ​
Efficiency ratio (non-GAAP): | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Noninterest expense (GAAP) | ​ | $ | 36,226 | ​ | ​ | $ | 33,168 | ​ | ​
Less: amortization of intangible assets expense | ​ |  | ​ | ​ | ​ |  | 57 | ​ | ​
Less: acquisition related expenses | ​ | ​ | 1,557 | ​ | ​ | ​ | 121 | ​ | ​
Noninterest expense adjusted (non-GAAP) | ​ | ​ | 34,669 | ​ | ​ | ​ | 32,990 | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net interest income (GAAP) | ​ | ​ | 38,234 | ​ | ​ | ​ | 45,208 | ​ | ​
Plus: taxable equivalent adjustment | ​ | ​ | 946 | ​ | ​ | ​ | 965 | ​ | ​
Noninterest income (GAAP) | ​ | ​ | 6,943 | ​ | ​ | ​ | 7,226 | ​ | ​
Less: net losses on equity securities | ​ | ​ | (20) | ​ | ​ | ​ | (17) | ​ | ​
Less: gains (losses) on sale of available for sale securities | ​ | ​ | ​ | ​ | ​ | ​ | 81 | ​ | ​
Net interest income (FTE) plus noninterest income (non-GAAP) | ​ | $ | 46,143 | ​ | ​ | $ | 53,335 | ​ | ​
Efficiency ratio (non-GAAP) | ​ | ​ | 75.1 | % | ​ | ​ | 61.9 | % | ​

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

​

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 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 FTE basis, as FTE net interest income using the prevailing federal statutory tax rate of 21.0% in 2024 and 2023.

​

For the three months ended June 30, FTE net interest income, a non-GAAP measure, decreased $3.2 million to $19.4 million in 2024 from $22.6 million in 2023. The net interest spread decreased to 1.57% for the three months ended June 30, 2024 from 2.02% for the three months ended June 30, 2023 as the earning asset yield increased 27 basis points while the average rate paid on interest-bearing liabilities increased 72 basis points. The FTE net interest margin decreased to 2.29% for the second quarter of 2024 from 2.61% for the comparable period of 2023.

​

For the three months ended June 30, FTE interest income on earning assets, a non-GAAP measure, increased $1.6 million to $38.8 million in 2024 as compared to $37.2 million in 2023. The overall yield on earning assets, on a FTE basis, increased 27 basis points for the three months ended June 30, 2024 to 4.58% as compared to 4.31% for the three months ended June 30, 2023. The increase to FTE interest income is due to the increase in rates for newly acquired assets and rising rate indices, partially offset by a decrease in our earning asset base of $56.0 million. The overall yield earned on investments increased 7 basis points in the second quarter of 2024 to 1.80% from 1.73% for the second quarter of 2023 as a result of maturities and payments to lower yielding securities. Average investment balances were $28.5 million lower when comparing the current and year ago quarter. The yield on loans increased 30 basis points in the second quarter of 2024 to 5.09% from 4.79% for the second quarter of 2023 as a result of new loans and loans repricing higher. Average loan balances were $19.0 million higher when compared to the same quarter in 2023. Average federal funds sold decreased $48.4 million to $12.7 million for the three months ended June 30, 2024 and yielded 5.68%, as compared to $61.1 million and a yield of 5.24% in the year ago period. We expect asset yields to move upward gradually as asset cash flow reprices higher due to higher market rates.

​

Total interest expense increased $4.8 million to $19.5 million for the three months ended June 30, 2024 from $14.6 million for the three months ended June 30, 2023. The total cost of funds increased 72 basis points for the three months ended June 30, 2024 to 3.01% as compared to 2.29% in the year ago period. The increase in costs was due to an increase to the average balance of higher priced brokered certificate of deposits, higher rates paid on both interest-bearing deposits and short term borrowings, combined with higher average balances in the current period. Average rates

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

paid on deposits increased as the result of higher market rates and local competition for deposits. We expect increased competition for funding to continue to impact costs during the remaining months of 2024.

​

Net interest income changes due to rate and volume for the six months ended June 30

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 2024 vs 2023 | ​
​ | ​ | Increase (decrease) | ​
​ | ​ | attributable to | ​
(Dollars in thousands) | ​ | Total | ​ | Rate | ​ | Volume | ​
Interest income: |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |
Loans: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ | $ | 6,259 | ​ | $ | 4,860 | ​ | $ | 1,399 | ​
Tax-exempt | ​ |  | 29 | ​ | ​ | 41 | ​ | ​ | (12) | ​
Investments: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ |  | (231) | ​ | ​ | 224 | ​ | ​ | (455) | ​
Tax-exempt | ​ |  | (118) | ​ | ​ | (37) | ​ | ​ | (81) | ​
Interest-bearing deposits | ​ |  | 136 | ​ | ​ | 8 | ​ | ​ | 128 | ​
Federal funds sold | ​ |  | 265 | ​ | ​ | 85 | ​ | ​ | 180 | ​
Total interest income | ​ |  | 6,340 | ​ |  | 5,181 | ​ |  | 1,159 | ​
Interest expense: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Money market accounts | ​ | ​ | 4,370 | ​ | ​ | 3,756 | ​ | ​ | 614 | ​
NOW accounts | ​ |  | 2,911 | ​ | ​ | 2,866 | ​ | ​ | 45 | ​
Savings accounts | ​ |  | 100 | ​ | ​ | 295 | ​ | ​ | (195) | ​
Time deposits less than $100 | ​ |  | 3,555 | ​ | ​ | 1,206 | ​ | ​ | 2,349 | ​
Time deposits $100 or more | ​ |  | 2,558 | ​ | ​ | 1,950 | ​ | ​ | 608 | ​
Short-term borrowings | ​ |  | (404) | ​ | ​ | 430 | ​ | ​ | (834) | ​
Long-term debt | ​ |  | 243 | ​ | ​ | ​ | ​ | ​ | 243 | ​
Total interest expense | ​ |  | 13,333 | ​ |  | 10,503 | ​ |  | 2,830 | ​
FTE net interest income changes (Non-GAAP) | ​ | $ | (6,993) | ​ | $ | (5,322) | ​ | $ | (1,671) | ​

​

FTE net interest income, a non-GAAP measure, was $39.2 million in the six months ended June 30, 2024 and $46.2 million in the comparable period last year. There was a negative volume and rate variance. The growth in average interest-bearing liabilities exceeded that of the growth in earning assets, and resulted in lower FTE net interest income, a non-GAAP measure, of $1.7 million. A rate variance resulted in a decrease in net interest income of $5.3 million.

​

Average earning assets increased $17.5 million to $3.4 billion for the six months ended June 30, 2024 and accounted for a $1.2 million increase in interest income. Average taxable loans increased $53.7 million, which caused interest income to increase $1.4 million. Average tax-exempt loans decreased $0.5 million which caused interest income to decrease $12 thousand. Average taxable investments decreased $39.4 million comparing 2024 and 2023, which resulted in decreased interest income of $0.5 million while average tax-exempt investments decreased $7.7 million, which resulted in a decrease to interest income of $81 thousand. Average interest bearing deposits increased $4.9 million which resulted in an increase of $0.1 million to interest income. Average federal funds sold increased $6.5 million for the six months ended June 30, 2024 which resulted in an increase of $0.2 million to interest income.

​

Average interest-bearing liabilities rose $118.6 million to $2.6 billion for the six months ended June 30, 2024 from $2.5 billion for the six months ended June 30, 2023 resulting in a net increase in interest expense of $2.8 million. Interest-bearing deposit accounts, including money market, NOW and savings accounts decreased $35.1 million. In addition, large denomination time deposits averaged $42.5 million more in the current period and caused interest expense to increase $0.6 million. An increase of $121.5 million in average time deposits less than $100 thousand which included higher priced callable brokered CDs, resulted in an increase to interest expense of $2.3 million. In addition, short-term

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

borrowings averaged $21.5 million lower and decreased interest expense $0.8 million while long-term borrowing increased $11.2 million and resulted in an increase to interest expense of $0.2 million.

​

For the six months ended June 30, 2024, an unfavorable rate variance occurred, as the FTE yield on earning assets increased 34 basis points while there was a 92 basis point increase in the cost of funds. As a result, FTE net interest income decreased $5.3 million comparing the six months ended June 30, 2024 and 2023. The FTE yield on earning assets was 4.57% in the 2024 period compared to 4.23% in 2023 resulting in an increase in interest income of $5.2 million. The yield on the taxable investment portfolio increased 4 basis points to 1.73% during the six months ended June 30, 2024 from 1.69% in the year ago period, resulting in an increase of $0.2 million in interest income. The yield on the tax exempt investment portfolio decreased 8 basis points to 2.18% during the six months ended June 30, 2024 from 2.26% in the year ago period, resulting in a decrease of $37 thousand in interest income. The FTE yield on the loan portfolio increased 35 basis points to 5.07% in 2024 from 4.72% in 2023 and resulted in an increase to interest income of $4.9 million.

​

The yield on interest bearing deposits increased 96 basis points to 2.91% from 1.95% in the year ago period resulting in an increase in interest expense of $10.1 million. The yield on long term borrowings increased 2 basis points to 4.34% from 4.32% in the year ago period but had a negligible effect to interest expense. The yield on short term borrowings increased 68 basis points to 5.53% from 4.85% in the year ago period and resulted in an increase to interest expense of $0.4 million.

​

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 FTE basis using the prevailing federal statutory tax rate of 21%.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended | ​
​ | ​ | June 30, 2024 | ​ | June 30, 2023 | ​
​ | ​ | Average | ​ | Interest Income/ | ​ | Yield/ | ​ | Average | ​ | Interest Income/ | ​ | Yield/ | ​
​ |  | Balance |  | Expense |  | Rate |  | Balance |  | Expense |  | Rate | ​
Assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Earning assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Loans: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ | $ | 2,637,164 | ​ | $ | 34,406 | ​ | 5.25 | % | $ | 2,615,881 | ​ | $ | 32,139 | ​ | 4.93 | %
Tax-exempt | ​ | ​ | 222,655 | ​ | ​ | 1,771 | ​ | 3.20 | ​ | ​ | 224,960 | ​ | ​ | 1,780 | ​ | 3.17 | ​
Total loans | ​ | ​ | 2,859,819 | ​ | ​ | 36,177 | ​ | 5.09 | ​ | ​ | 2,840,841 | ​ | ​ | 33,919 | ​ | 4.79 | ​
Investments: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ | ​ | 443,146 | ​ | ​ | 1,906 | ​ | 1.73 | ​ | ​ | 469,712 | ​ | ​ | 1,931 | ​ | 1.65 | ​
Tax-exempt | ​ | ​ | 86,418 | ​ | ​ | 470 | ​ | 2.19 | ​ | ​ | 88,371 | ​ | ​ | 481 | ​ | 2.18 | ​
Total investments | ​ | ​ | 529,564 | ​ | ​ | 2,376 | ​ | 1.80 | ​ | ​ | 558,083 | ​ | ​ | 2,412 | ​ | 1.73 | ​
Interest-bearing deposits | ​ | ​ | 8,763 | ​ | ​ | 115 | ​ | 5.28 | ​ | ​ | 6,839 | ​ | ​ | 85 | ​ | 4.99 | ​
Federal funds sold | ​ | ​ | 12,672 | ​ | ​ | 179 | ​ | 5.68 | ​ | ​ | 61,093 | ​ | ​ | 798 | ​ | 5.24 | ​
Total earning assets | ​ | ​ | 3,410,818 | ​ | ​ | 38,847 | ​ | 4.58 | % | ​ | 3,466,856 | ​ | ​ | 37,214 | ​ | 4.31 | %
Less: allowance for credit losses | ​ | ​ | 23,046 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 25,895 | ​ | ​ | ​ | ​ | ​ | ​
Other assets | ​ | ​ | 221,294 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 209,915 | ​ | ​ | ​ | ​ | ​ | ​
Total assets | ​ | $ | 3,609,066 | ​ | $ | 38,847 | ​ | ​ | ​ | $ | 3,650,876 | ​ | $ | 37,214 | ​ | ​ | ​
Liabilities and Stockholders’ Equity: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest-bearing liabilities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Money market accounts | ​ | $ | 714,669 | ​ | $ | 6,749 | ​ | 3.80 | % | $ | 664,451 | ​ | $ | 4,958 | ​ | 2.99 | %
Interest-bearing demand and NOW accounts | ​ | ​ | 729,196 | ​ | ​ | 4,400 | ​ | 2.43 | ​ | ​ | 771,690 | ​ | ​ | 3,537 | ​ | 1.84 | ​
Savings accounts | ​ | ​ | 408,883 | ​ | ​ | 280 | ​ | 0.28 | ​ | ​ | 483,385 | ​ | ​ | 239 | ​ | 0.20 | ​
Time deposits less than $100 | ​ | ​ | 403,069 | ​ | ​ | 3,964 | ​ | 3.96 | ​ | ​ | 375,799 | ​ | ​ | 3,620 | ​ | 3.86 | ​
Time deposits $100 or more | ​ | ​ | 240,481 | ​ | ​ | 2,721 | ​ | 4.55 | ​ | ​ | 198,355 | ​ | ​ | 1,360 | ​ | 2.75 | ​
Total interest-bearing deposits | ​ | ​ | 2,496,298 | ​ | ​ | 18,114 | ​ | 2.92 | ​ | ​ | 2,493,680 | ​ | ​ | 13,714 | ​ | 2.21 | ​
Short-term borrowings | ​ | ​ | 45,383 | ​ | ​ | 633 | ​ | 5.61 | ​ | ​ | 16,854 | ​ | ​ | 213 | ​ | 5.07 | ​
Long-term debt | ​ | ​ | 25,000 | ​ | ​ | 269 | ​ | 4.33 | ​ | ​ | 25,000 | ​ | ​ | 269 | ​ | 4.32 | ​
Subordinated debt | ​ | ​ | 33,000 | ​ | ​ | 444 | ​ | 5.41 | ​ | ​ | 33,000 | ​ | ​ | 444 | ​ | 5.40 | ​
Total borrowings | ​ | ​ | 103,383 | ​ | ​ | 1,346 | ​ | 5.24 | ​ | ​ | 74,854 | ​ | ​ | 926 | ​ | 4.96 | ​
Total interest-bearing liabilities | ​ | ​ | 2,599,681 | ​ | ​ | 19,460 | ​ | 3.01 | ​ | ​ | 2,568,534 | ​ | ​ | 14,640 | ​ | 2.29 | ​
Noninterest-bearing deposits | ​ | ​ | 620,256 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 711,729 | ​ | ​ | ​ | ​ | ​ | ​
Other liabilities | ​ | ​ | 48,630 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 39,494 | ​ | ​ | ​ | ​ | ​ | ​
Stockholders’ equity | ​ | ​ | 340,499 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 331,119 | ​ | ​ | ​ | ​ | ​ | ​
Total liabilities and stockholders’ equity | ​ | $ | 3,609,066 | ​ | ​ | ​ | ​ | ​ | ​ | $ | 3,650,876 | ​ | ​ | ​ | ​ | ​ | ​
Net interest income/spread | ​ | ​ | ​ | ​ | $ | 19,387 | ​ | 1.57 | % | ​ | ​ | ​ | $ | 22,574 | ​ | 2.02 | %
Net interest margin | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 2.29 | % | ​ | ​ | ​ | ​ | ​ | ​ | 2.61 | %
Tax-equivalent adjustments: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Loans | ​ | ​ | ​ | ​ | $ | 372 | ​ | ​ | ​ | ​ | ​ | ​ | $ | 375 | ​ | ​ | ​
Investments | ​ | ​ | ​ | ​ | ​ | 99 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 103 | ​ | ​ | ​
Total adjustments | ​ | ​ | ​ | ​ | $ | 471 | ​ | ​ | ​ | ​ | ​ | ​ | $ | 478 | ​ | ​ | ​

​

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(Dollars in thousands, except per share data)

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​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Six months ended |
​ | ​ | June 30, 2024 |  | June 30, 2023 |
​ | ​ | Average | ​ | Interest Income/ | ​ | Yield/ |  | Average | ​ | Interest Income/ | ​ | Yield/ |
(Dollars in thousands, except percents) |  | Balance |  | Expense |  | Rate |  | Balance |  | Expense |  | Rate |
Assets: |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ | ​ | ​ |  | ​ | ​ |  | ​ | ​
Earning assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Loans: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ | $ | 2,634,859 | ​ | $ | 68,447 |  | 5.22 | % | $ | 2,581,167 | ​ | $ | 62,188 |  | 4.86 | %
Tax-exempt | ​ |  | 223,974 | ​ | ​ | 3,566 |  | 3.20 | ​ | ​ | 224,442 | ​ | ​ | 3,537 |  | 3.18 | ​
Total loans | ​ | ​ | 2,858,833 | ​ | ​ | 72,013 | ​ | 5.07 | ​ | ​ | 2,805,609 | ​ | ​ | 65,725 | ​ | 4.72 | ​
Investments: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Taxable | ​ |  | 445,071 | ​ | ​ | 3,826 |  | 1.73 | ​ | ​ | 484,437 | ​ | ​ | 4,057 |  | 1.69 | ​
Tax-exempt | ​ |  | 86,641 | ​ | ​ | 939 |  | 2.18 | ​ | ​ | 94,337 | ​ | ​ | 1,057 |  | 2.26 | ​
Total investments | ​ | ​ | 531,712 | ​ | ​ | 4,765 |  | 1.80 | ​ | ​ | 578,774 | ​ | ​ | 5,114 |  | 1.78 | ​
Interest-bearing deposits | ​ |  | 8,894 | ​ | ​ | 235 |  | 5.31 | ​ | ​ | 4,044 | ​ | ​ | 99 |  | 4.94 | ​
Federal funds sold | ​ | ​ | 46,813 | ​ | ​ | 1,306 |  | 5.61 | ​ | ​ | 40,338 | ​ | ​ | 1,041 |  | 5.20 | ​
Total interest-earning assets | ​ |  | 3,446,252 | ​ |  | 78,319 |  | 4.57 | % |  | 3,428,765 | ​ |  | 71,979 |  | 4.23 | %
Less: allowance for credit losses | ​ |  | 22,668 | ​ | ​ | ​ | ​ | ​ | ​ |  | 25,230 | ​ | ​ | ​ | ​ | ​ | ​
Other assets | ​ |  | 219,324 | ​ | ​ | ​ | ​ | ​ | ​ |  | 209,535 | ​ | ​ | ​ | ​ | ​ | ​
Total assets | ​ | $ | 3,642,908 | ​ | $ | 78,319 | ​ | ​ | ​ | $ | 3,613,070 | ​ | $ | 71,979 | ​ | ​ | ​
Liabilities and Stockholders’ Equity: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest-bearing liabilities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Money market accounts | ​ | $ | 734,779 | ​ | $ | 13,884 |  | 3.80 | % | $ | 692,999 | ​ | $ | 9,514 |  | 2.77 | %
Interest-bearing demand and NOW accounts | ​ |  | 756,827 | ​ | ​ | 9,237 |  | 2.45 | ​ | ​ | 751,655 | ​ | ​ | 6,326 |  | 1.70 | ​
Savings accounts | ​ |  | 415,849 | ​ | ​ | 555 |  | 0.27 | ​ | ​ | 497,939 | ​ | ​ | 455 |  | 0.18 | ​
Time deposits less than $100 | ​ |  | 406,131 | ​ | ​ | 8,301 |  | 4.11 | ​ | ​ | 284,659 | ​ | ​ | 4,746 |  | 3.36 | ​
Time deposits $100 or more | ​ |  | 231,470 | ​ | ​ | 4,841 |  | 4.21 | ​ | ​ | 188,993 | ​ | ​ | 2,283 |  | 2.44 | ​
Total interest-bearing deposits | ​ | ​ | 2,545,056 | ​ | ​ | 36,818 |  | 2.91 | ​ | ​ | 2,416,245 | ​ | ​ | 23,324 |  | 1.95 | ​
Short-term borrowings | ​ |  | 32,535 | ​ | ​ | 895 |  | 5.53 | ​ | ​ | 53,985 | ​ | ​ | 1,299 |  | 4.85 | ​
Long-term debt | ​ |  | 25,000 | ​ | ​ | 539 |  | 4.34 | ​ | ​ | 13,803 | ​ | ​ | 296 |  | 4.32 | ​
Subordinated debt | ​ | ​ | 33,000 | ​ | ​ | 887 |  | 5.41 | ​ | ​ | 33,000 | ​ | ​ | 887 |  | 5.42 | ​
Total borrowings | ​ | ​ | 90,535 | ​ | ​ | 2,321 |  | 5.16 | ​ | ​ | 100,788 | ​ | ​ | 2,482 |  | 4.97 | ​
Total interest-bearing liabilities | ​ |  | 2,635,591 | ​ | $ | 39,139 |  | 2.99 | % | ​ | 2,517,033 | ​ | $ | 25,806 |  | 2.07 | %
Noninterest-bearing deposits | ​ |  | 618,433 | ​ | ​ | ​ | ​ | ​ | ​ |  | 728,238 | ​ | ​ | ​ | ​ | ​ | ​
Other liabilities | ​ |  | 48,159 | ​ | ​ | ​ | ​ | ​ | ​ |  | 39,208 | ​ | ​ | ​ | ​ | ​ | ​
Stockholders’ equity | ​ |  | 340,725 | ​ | ​ | ​ | ​ | ​ | ​ |  | 328,591 | ​ | ​ | ​ | ​ | ​ | ​
Total liabilities and stockholders’ equity | ​ | $ | 3,642,908 | ​ | ​ | ​ | ​ | ​ | ​ | $ | 3,613,070 | ​ | ​ | ​ | ​ | ​ | ​
Net interest income/spread | ​ | ​ | ​ | ​ | $ | 39,180 |  | 1.58 | % | ​ | ​ | ​ | $ | 46,173 |  | 2.16 | %
Net interest margin (Non-GAAP) | ​ | ​ | ​ | ​ | ​ | ​ |  | 2.29 | % | ​ | ​ | ​ | ​ | ​ |  | 2.72 | %
Tax-equivalent adjustments: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Loans | ​ | ​ | ​ | ​ | $ | 749 | ​ | ​ | ​ | ​ | ​ | ​ | $ | 743 | ​ | ​ | ​
Investments | ​ | ​ | ​ | ​ |  | 197 | ​ | ​ | ​ | ​ | ​ | ​ |  | 222 | ​ | ​ | ​
Total adjustments | ​ | ​ | ​ | ​ | $ | 946 | ​ | ​ | ​ | ​ | ​ | ​ | $ | 965 | ​ | ​ | ​

​

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(Dollars in thousands, except per share data)

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Provision for Credit Losses:

​

Effective January 1, 2023 the Company transitioned to ASU 2016-13 Financial Instruments - Credit Losses (Topic 326), commonly referred to as CECL. 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 June 30, 2024.

​

For the three months ended June 30, 2024, $0.6 million was recorded to the provision for credit losses compared to a credit of $2.2 million in the year ago period. The current period provision was due to a higher calculated allowance for credit losses and the establishment of a specific reserve for an individually evaluated loan, along with higher pooled loan reserves. Although the current overall model loss rate declined due to an improving economic forecast and a reduction in the existing loan portfolio, additional reserves were required due to loan growth. The prior period reversal was due to the impact of various factors, such as updated economic assumptions as well as changes in qualitative adjustments, portfolio composition, and asset quality. Changes to qualitative factors related to lower loan growth, offset by banking industry concerns, resulted in a lower expected credit loss.

​

For the six months ended June 30, 2024, a provision for credit losses of $1.3 million was recorded due to the establishment of a specific reserve for an individually evaluated loan along with higher pooled loan reserves. Pooled loan reserves increased due to loan growth and a higher model loss rate that was primarily attributed to the loan portfolio’s favorable performance versus peers, and new loan originations. The provision in the prior six month period included a credit of $0.9 million which was attributed to various factors, including updated economic assumptions as well as changes in qualitative factors, portfolio composition and asset quality.

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Noninterest Income:

​

Noninterest income for the three months ended June 30, 2024 was $3.5 million, relatively unchanged from the same quarter a year ago. Decreases to service charges, fees, and commissions, were partially offset by increases in interest rate swap revenue.

​

Noninterest income was $6.9 million for the six months ended June 30, 2024 and $7.2 million for the comparable period ended June 30, 2023. The primary driver of the decrease was a $0.2 million reduction in interest rate swap revenue. The year ago period also included a gain of $81 thousand on the sale of available for sale investment securities.

​

Noninterest Expenses:

​

In general, noninterest expense is categorized into three main groups: employee-related expenses, occupancy and equipment expenses, and other expenses. However, included in the current period are acquisition related expenses incurred in connection with our merger with FNCB. 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, provision for unfunded commitments, 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 $1.5 million or 9.3% to $18.2 million for the three months ended June 30, 2024, from $16.6 million for the same period a year ago. Acquisition related expenses, such as legal and consulting, totaled $1.1 million in the current three month period compared to $0.1 million in the same period a year ago. Salaries and employee benefits were flat at $8.5 million in the current and year ago periods. Occupancy and equipment expenses were higher by $0.3 million in the current period due to technology related enhancements and increases to property maintenance

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(Dollars in thousands, except per share data)

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expense due in part to inflationary price increases. Other expenses increased $0.4 million primarily due to the write-down of the Company’s former East Stroudsburg branch.

​

Noninterest expense for the six months ended June 30, 2024 was $36.2 million, an increase of $3.1 million or 9.2% from $33.2 million for the six months ended June 30, 2023. The increase was due primarily to $0.9 million in higher occupancy and technology related expenses, $1.4 million in acquisition related expenses, and an increase of $0.8 million in other expenses, which include a $0.4 million write-down the aforementioned former branch and a $0.6 million increase to the provision for unfunded commitments.

​

Income Taxes:

​

We recorded income tax expense of $0.4 million or 11.4% of pre-tax income, and $0.9 million or 11.8% for the three and six months ended June 30, 2024. This compares to the three and six month period ended June 30, 2023 in which we recorded tax expense of $1.8 million or 16.1% of pre-tax income, and $3.2 million or 15.8% of pre-tax income, respectively. Lower income tax expense was due to lower pre-tax income for the six months ended June 30, 2024 compared to the prior year’s period.

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Item 3. Quantitative and Qualitativ e 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 14 to the Audited Consolidated Financial Statements and Note 9 to the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report 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 June 30, 2024 and December 31, 2023, 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.

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Model results at June 30, 2024 indicated a lower starting level of net interest income (“NII”) compared to the March 31, 2024 model as a shift in balance sheet mix and higher assumed market rates was offset by a decline in earning assets and higher interest-bearing liability costs which lead to the balance sheet spread remaining static.

After the first eighteen 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 525 basis points since March 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 June 30, 2024 is similar to our March 31, 2024 results.

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.

Since 2022, the FOMC has increased the federal funds target rate in part to mitigate historically high inflation. Through July 31, 2023, there were eleven rate increases totaling 525 basis points. Although we have realized higher rates on our existing adjustable rate loans and new originations, our average funding costs have increased at a faster pace than the loan yields as rate-sensitive customers sought higher returns. We expect our funding costs to stabilize in the near term, as market rates appear to have peaked and the FOMC has paused its rate increases. Additionally, if deposit costs have to be increased more than the simulation assumptions and/or we experience a shift from non-maturity deposits to higher costing time deposits, net interest income would be reduced from projected levels.

The projected impacts of instantaneous changes in interest rates on our net interest income and economic value of equity at June 30, 2024, based on our simulation model, as compared to our ALCO policy limits are summarized as follows:

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | June 30, 2024 |
​ | ​ | % Change in |
Changes in Interest Rates (basis points) | ​ | Net Interest Income | ​ | Economic Value of Equity |
​ |  | Metric |  | Policy |  | Metric |  | Policy |
+400 |  | (7.2) | ​ | (20.0) | ​ | 18.9 | ​ | (40.0) | ​
+300 |  | (5.6) | ​ | (20.0) | ​ | 15.2 | ​ | (30.0) | ​
+200 |  | (4.1) | ​ | (10.0) | ​ | 10.3 | ​ | (20.0) | ​
+100 |  | (1.7) | ​ | (10.0) | ​ | 7.0 | ​ | (10.0) | ​
Static | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
-100 |  | 3.3 | ​ | (10.0) | ​ | (9.6) | ​ | (10.0) | ​
-200 |  | 5.2 | ​ | (10.0) | ​ | (25.3) | ​ | (20.0) | ​
-300 |  | 6.7 | ​ | (20.0) | ​ | (46.7) | ​ | (30.0) | ​
-400 |  | 7.3 | ​ | (20.0) | ​ | (75.7) | ​ | (40.0) | ​

​

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 June 30, 2024, would decrease 1.7% 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, 2023, 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 was 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 USDLIBOR. The Company has contracts that are indexed to USD-LIBOR. The Company formed a LIBOR transition team to monitor this activity. The Company has transitioned its LIBOR-indexed loans to alternative indexes, including prime and Term SOFR, and adjusting the spread to maintain the overall yield.

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Item 4. Control s and Procedures.

​

(a) Evaluation of disclosure controls and procedures.

​

At June 30, 2024, 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 June 30, 2024, 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 in the Company’s internal control over financial reporting in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the fiscal quarter ended June 30, 2024 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 Proceeding s.

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 six-months ended June 30, 2024 and through the date of this quarterly report on Form 10-Q.

​

Item 1A. Risk Factor s.

Our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Form 10-K) describes market, credit, and business operations risk factors that could affect our business, results of operations or financial condition. There have been no material changes from the risk factors as previously disclosed in our 2023 Form 10-K.

​

Item 2. Unregistered Sale s of Equity Securities and Use of Proceeds.

During the quarter ended June 30, 2024, we did not issue or sell any shares of our Common Stock or other equity securities pursuant to unregistered transactions in reliance upon an exemption from the registration requirements of the Securities Act.

There were no repurchases of our common stock during the three months ended June 30, 2024.

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​

​

Item 3. Defaults upo n Senior Securities.

None.

​

Item 4. Mine Safety Disclosures.

Not applicable.

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Item 5. Other Information.

During the fiscal quarter ended June 30, 2024, none of the Company’s directors or officers informed management of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

​

Item 6. Exhibits.

​

Item Number | ​ | ​ | Description
​ | ​ | ​ | ​
​ ​ | ​ | ​ | ​
2.1 | ​ | ​ | Agreement and Plan of Merger, dated as of September 27, 2023, by and between Peoples Financial Services Corp. and FNCB Bancorp, Inc.* (incorporated by reference to Exhibit 2.1 to Peoples Financial Services Corp.’s Current Report on Form 8-K filed on September 27, 2023)
​ | ​ | ​ | ​
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).
​ | ​ | ​ | ​
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 June 30, 2024, formatted in inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive (Loss) 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)
​ | ​ | ​ | ​
​ | ​ | ​ | *The schedules and exhibits have been omitted pursuant to Item 601(b) (2) of Regulation S-K. Peoples Financial Services Corp. agrees to furnish a copy of such schedules and exhibits, or any section thereof, to the SEC upon request

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SIGNATURE S

​

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: August 7, 2024 | /s/ Craig W. Best
​ | Craig W. Best
​ | Chief Executive Officer
​ | (Principal Executive Officer)
​ | ​
Date: August 7, 2024 | /s/ John R. Anderson, III
​ | John R. Anderson, III
​ | Executive Vice President and Chief Financial Officer
​ | (Principal Financial Officer and Principal Accounting Officer)

​

​

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