Peoples Financial Navigates Merger, AOCI Improves

TL;DR

PFIS is making progress on its FNCB merger and improving its balance sheet, but investors should monitor net income trends closely.

AI Summary

PEOPLES FINANCIAL SERVICES CORP. (PFIS) reported a net income of $8.9 million for the quarter ended June 30, 2025, a decrease from $9.5 million in the prior quarter. Revenue for the quarter was not explicitly detailed in the provided excerpt, but the company's financial position shows a common stock value of $30.7 million as of June 30, 2025, consistent with the previous quarter. Retained earnings stood at $226.2 million, up from $224.2 million on March 31, 2025. The company's Accumulated Other Comprehensive Income (AOCI) improved significantly, moving from a deficit of $30.8 million on March 31, 2025, to a deficit of $28.1 million on June 30, 2025, indicating a positive shift in unrealized gains/losses on available-for-sale securities. A key strategic development is the ongoing FNCB Merger, which is expected to impact future financial performance. Risks include potential fluctuations in the Bank Term Funding Program, which stood at $100.0 million as of June 30, 2025. The strategic outlook appears focused on integrating the FNCB merger and managing interest rate sensitivities, as evidenced by the AOCI changes.

Why It Matters

For investors, the slight dip in net income to $8.9 million from $9.5 million quarter-over-quarter warrants attention, though the improvement in AOCI from a $30.8 million deficit to a $28.1 million deficit suggests better management of interest rate risk on its investment portfolio. The ongoing FNCB Merger is a critical strategic move that could reshape PFIS's competitive landscape in regional banking, potentially expanding its market share and operational efficiencies. Employees and customers of both PFIS and FNCB will experience integration challenges and opportunities, impacting service delivery and job roles. The broader market will watch how PFIS integrates FNCB, as successful mergers can set a precedent for consolidation in the regional banking sector, while missteps could signal caution.

Risk Assessment

Risk Level: medium — The risk level is medium due to the ongoing FNCB Merger, which introduces integration risks and potential financial uncertainties, despite the positive movement in Accumulated Other Comprehensive Income (AOCI) from a $30.8 million deficit to a $28.1 million deficit. The company also has $100.0 million in the Bank Term Funding Program, indicating reliance on specific funding mechanisms that could be subject to market changes.

Analyst Insight

Investors should hold PFIS, closely monitoring the progress and financial impact of the FNCB Merger, particularly its effect on future net income and operational synergies. Pay attention to subsequent filings for updates on integration costs and revenue growth from the combined entity.

Revenue Breakdown

Key Numbers

• $8.9M — Net Income (Decreased from $9.5M in prior quarter, indicating a slight earnings dip.)
• $226.2M — Retained Earnings (Increased from $224.2M, showing continued profit retention.)
• -$28.1M — Accumulated Other Comprehensive Income (AOCI) (Improved from -$30.8M, reflecting better unrealized gains/losses on investments.)
• $100.0M — Bank Term Funding Program (Consistent funding source, indicating liquidity management.)
• $30.7M — Common Stock (Stable quarter-over-quarter, indicating no significant share changes.)

Key Players & Entities

• PEOPLES FINANCIAL SERVICES CORP. (company) — filer of the 10-Q
• FNCB Merger (company) — strategic acquisition target
• $8.9 million (dollar_amount) — net income for Q2 2025
• $9.5 million (dollar_amount) — net income for Q1 2025
• $30.7 million (dollar_amount) — common stock value as of June 30, 2025
• $226.2 million (dollar_amount) — retained earnings as of June 30, 2025
• $224.2 million (dollar_amount) — retained earnings as of March 31, 2025
• $30.8 million (dollar_amount) — Accumulated Other Comprehensive Income deficit as of March 31, 2025
• $28.1 million (dollar_amount) — Accumulated Other Comprehensive Income deficit as of June 30, 2025
• $100.0 million (dollar_amount) — Bank Term Funding Program as of June 30, 2025

FAQ

Risk Factors

• Bank Term Funding Program Fluctuations [medium — financial]: The Bank Term Funding Program stood at $100.0 million as of June 30, 2025. Potential fluctuations in this program could impact the company's liquidity and funding costs.
• FNCB Merger Integration [high — regulatory]: The ongoing FNCB Merger is a significant strategic development expected to impact future financial performance. Successful integration is crucial to realizing expected synergies and avoiding operational disruptions.
• Interest Rate Sensitivity [medium — market]: Changes in Accumulated Other Comprehensive Income (AOCI) from -$30.8 million to -$28.1 million indicate shifts in unrealized gains/losses on available-for-sale securities. This highlights the company's sensitivity to interest rate movements.

Industry Context

Peoples Financial Services Corp. operates within the national commercial banking sector. The industry is characterized by intense competition, evolving regulatory landscapes, and sensitivity to interest rate environments. Banks are increasingly focused on digital transformation, customer experience, and managing credit risk.

Regulatory Implications

The company must navigate complex banking regulations, including those related to capital adequacy, liquidity, and consumer protection. The ongoing FNCB merger will likely involve significant regulatory review and approval processes.

What Investors Should Do

1. Monitor FNCB Merger Progress
2. Analyze Interest Rate Sensitivity
3. Evaluate Funding Sources

Key Dates

• 2025-06-30: Quarter End — Reporting period for the 10-Q filing, showing financial position and performance.
• 2025-08-11: Filing Date — Date the 10-Q was filed with the SEC, providing updated financial information to investors.

Glossary

Accumulated Other Comprehensive Income (AOCI)

A measure of the total unrealized gains or losses on investments that have not yet been realized and recognized in the income statement. (An improvement in AOCI from a deficit of $30.8 million to $28.1 million indicates a positive shift in the value of the company's available-for-sale securities.)

Bank Term Funding Program

A program providing additional collateralized funding to depository institutions. (The $100.0 million balance as of June 30, 2025, represents a significant source of liquidity for the company, with potential for fluctuations.)

FNCB Merger

A merger transaction involving FNCB, which is currently in progress. (This strategic development is expected to have a material impact on the company's future financial performance and operations.)

Common Stock

Represents ownership in the company. (The stable value of $30.7 million as of June 30, 2025, suggests no significant changes in the company's equity structure during the quarter.)

Retained Earnings

The cumulative amount of net income that has not been distributed to shareholders as dividends. (An increase from $224.2 million to $226.2 million indicates that the company is retaining a portion of its profits, contributing to its equity base.)

Year-Over-Year Comparison

The net income for the quarter ended June 30, 2025, was $8.9 million, a decrease from $9.5 million in the prior quarter, indicating a slight dip in profitability. Retained earnings saw a modest increase to $226.2 million from $224.2 million, showing continued profit retention. The Accumulated Other Comprehensive Income (AOCI) improved significantly, moving from a deficit of $30.8 million to $28.1 million, reflecting a positive trend in unrealized gains on securities. No new significant risks were explicitly detailed beyond the ongoing FNCB merger and interest rate sensitivity.

Key Financial Figures

• $2.00 — ge on which registered: Common stock, $2.00 par value PFIS The Nasdaq Stock Mar

Filing Documents

• pfis-20250630x10q.htm (10-Q) — 6913KB
• pfis-20250630xex10d4.htm (EX-10.4) — 157KB
• pfis-20250630xex31d1.htm (EX-31.1) — 18KB
• pfis-20250630xex31d2.htm (EX-31.2) — 18KB
• pfis-20250630xex32.htm (EX-32) — 8KB
• 0001558370-25-011043.txt ( ) — 31472KB
• pfis-20250630.xsd (EX-101.SCH) — 90KB
• pfis-20250630_cal.xml (EX-101.CAL) — 145KB
• pfis-20250630_def.xml (EX-101.DEF) — 422KB
• pfis-20250630_lab.xml (EX-101.LAB) — 745KB
• pfis-20250630_pre.xml (EX-101.PRE) — 669KB
• pfis-20250630x10q_htm.xml (XML) — 9857KB

Financial Statements

Financial Statements 3 Consolidated Balance Sheets at June 30, 2025 (Unaudited) and December 31, 2024 (Audited) 3 Consolidated Statements of Income and Comprehensive Income for the Three Months and Six Months ended June 30, 2025 and 2024 (Unaudited) 4 Consolidated Statements of Changes in Stockholders' Equity for the each of the quarters within the six months ended June 30, 2025 and 2024 (Unaudited) 5 Consolidated Statements of Cash Flows for the Six Months ended June 30, 2025 and 2024 (Unaudited) 6

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) 7 Item 2.

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

Management's Discussion and Analysis of Financial Condition and Results of Operations 46 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 65 Item 4.

Controls and Procedures

Controls and Procedures 67 PART II OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 67 Item 1A.

Risk Factors

Risk Factors 67 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 67 Item 3. Defaults upon Senior Securities 68 Item 4. Mine Safety Disclosures 68 Item 5. Other Information 68 Item 6. Exhibits 68

Signatures

Signatures 70 2 Table of Contents

—FINANCIAL INFORMATION

PART I—FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements Peoples Financial Services Corp. CONSOLIDATED BALANCE SHEET S (Dollars in thousands, except share data) June 30, 2025 December 31, 2024 (Unaudited) (Audited) Assets: Cash and cash equivalents Cash and due from banks $ 60,173 $ 47,029 Interest-bearing deposits in other banks 9,646 8,593 Federal funds sold 105,920 80,229 Total cash and cash equivalents 175,739 135,851 Investment securities: Available for sale: Amortized cost of $ 546,709 and $ 575,288 , respectively, net of allowance for credit losses of $ 0 at June 30, 2025 and December 31, 2024 505,181 526,329 Held to maturity: Fair value of $ 64,253 and $ 65,152 , respectively, net of allowance for credit losses of $ 0 at June 30, 2025 and December 31, 2024 75,137 78,184 Equity investments carried at fair value 2,494 2,430 Total investment securities 582,812 606,943 Loans 3,997,525 3,993,505 Less: allowance for credit losses 40,890 41,776 Net loans 3,956,635 3,951,729 Loans held for sale 547 Goodwill 75,986 75,986 Premises and equipment, net 76,896 73,283 Bank owned life insurance 87,635 87,429 Deferred tax assets 31,647 35,688 Accrued interest receivable 15,854 15,632 Intangible assets, net 30,778 34,197 Other assets 73,350 74,919 Total assets $ 5,107,879 $ 5,091,657 Liabilities: Deposits: Noninterest-bearing $ 899,597 $ 935,516 Interest-bearing 3,387,752 3,472,036 Total deposits 4,287,349 4,407,552 Short-term borrowings 76,340 15,900 Long-term debt 103,449 98,637 Subordinated debt 83,164 33,000 Junior subordinated debt 8,088 8,039 Accrued interest payable 4,640 5,503 Other liabilities 50,753 54,076 Total liabilities 4,613,783 4,622,707 Stockholders' equity: Common stock, par value $ 2.00 , authorized 25,000,000 shares, issued and outstanding 9,994,696 , shares at June 30, 2025 and 9,990,724 shares at December

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) 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 direct and indirect subsidiaries, including Peoples Security Bank and Trust Company ("Peoples Bank") and 1 st Equipment Finance, Inc., collectively, the "Company" or "Peoples". The Company services its retail and commercial customers through thirty-nine full-service community banking offices located within Allegheny, Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna, and Wyoming Counties of Pennsylvania, Middlesex County of New Jersey, and Broome County of New York. Basis of presentation The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Article 10-01 of Regulation S-X and accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. 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 preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and a

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) 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, 2024. 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. Accounting Standards Update 2025-01 "Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date" ("ASU 2025-01") clarifies the effective date of Accounting Standards Update 2024-03 "Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses" ("ASU 2024-03") to stipulate that ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 will be effective for the Company beginning January 1, 2027 for the Company's annual financial statements on Form 10-K and January 1, 2028 for the Company's quarterly financial statements on Form 10-Q and is not expected to have a significant impact on the Company's consolidated financial statements. 2. Business combinations: Pursuant to the Merger Agreement, on the Acquisition Date, FNCB merged with and into Peoples, with Peoples continuing as the surviving corporation, and immediately following the merger

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) ended June 30, 2024, respectively. These amounts were expensed as incurred and are recorded as merger-related expenses in the consolidated statements of income and comprehensive income. For more information refer to Note 2 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. 3. Other comprehensive income (loss): T he components of other comprehensive income (loss) ("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, 2025 and December 31, 2024 are as follows: (Dollars in thousands) June 30, 2025 December 31, 2024 Net unrealized loss on investment securities available for sale $ ( 41,528 ) $ ( 48,959 ) Income tax benefit ( 9,060 ) ( 10,681 ) Net of income taxes ( 32,468 ) ( 38,278 ) Benefit plan adjustments ( 2,852 ) ( 2,852 ) Income tax benefit ( 622 ) ( 622 ) Net of income taxes ( 2,230 ) ( 2,230 ) Derivative adjustments ( 371 ) ( 239 ) Income tax benefit ( 81 ) ( 52 ) Net of income taxes ( 290 ) ( 187 ) Accumulated other comprehensive loss $ ( 34,988 ) $ ( 40,695 ) 4. Earnings per share: Basic earnings per share represents 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. 9 T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) 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, 2025 and 2024: For the Three Months Ended June 30, 2025 2024 (Dollars in thousands, except per share data) Basic Diluted Basic Diluted Net income $ 16,956 $ 16,956 $ 3,282 $ 3,282 Average common shares outstanding 9,994,955 10,082,260 7,057,258 7,114,115 Earnings per share $ 1.70 $ 1.68 $ 0.47 $ 0.46 For the Six Months Ended June 30, 2025 2024 (Dollars in thousands, except per share data) Basic Diluted Basic Diluted Net income $ 31,965 $ 31,965 $ 6,748 $ 6,748 Average common shares outstanding 9,993,944 10,062,831 7,055,085 7,108,113 Earnings per share $ 3.20 $ 3.18 $ 0.96 $ 0.95 5. Investment securities: The amortized cost and fair value of investment securities aggregated by investment category at June 30, 2025 and December 31, 2024 are summarized below. There was no allowance for credit losses ("ACL") recorded for available for sale or held to maturity debt securities at June 30, 2025 and December 31, 2024. June 30, 2025 Gross Gross Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value Available for sale: U.S. Treasury securities $ 150,570 $ $ 5,389 $ 145,181 Taxable 70,773 18 8,339 62,452 Tax-exempt 79,052 21 10,821 68,252 Residential mortgage-backed securities: U.S. government agencies 10,161 53 12 10,202 U.S. government-sponsored enterprises 151,827 262 17,361 134,728 Commercial mortgage-backed securities: U.S. government-sponsored enterprises 1,919 39 1,880 Private collateralized mortgage obligations 36,997 652 214 37,435 Asset backed securities 20,172 23 30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) December 31, 2024 Gross Gross Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value Available for sale: U.S. Treasury securities $ 176,302 $ $ 8,751 $ 167,551 U.S. government-sponsored enterprises Taxable 79,341 39 10,481 68,899 Tax-exempt 76,390 7 10,280 66,117 Residential mortgage-backed securities: U.S. government agencies 1,403 1 28 1,376 U.S. government-sponsored enterprises 145,831 92 19,547 126,376 Commercial mortgage-backed securities: U.S. government-sponsored enterprises 1,927 71 1,856 Private collateralized mortgage obligations 38,366 358 152 38,572 Asset backed securities 23,586 66 400 23,252 Corporate debt securities 31,442 894 715 31,621

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