Peoples Financial Services Corp. Reports Third Quarter 2019 Earnings

SCRANTON, Pa., Oct. 22, 2019 /PRNewswire/ -- Peoples Financial Services Corp. ("Peoples") (NASDAQ: PFIS), the bank holding company for Peoples Security Bank and Trust Company, today reported unaudited financial results at and for the three and nine months ended September 30, 2019.  Peoples reported net income of $7.1 million, or $0.97 per share for the three months ended September 30, 2019, compared to $6.7 million, or $0.91 per share for the comparable period of 2018. The increase in earnings for the three months ended September 30, 2019 is the product of higher net interest income of $1.3 million due to growth of $116.1 million in our average earning assets from the year ago period and a decrease of $0.4 million to the provision for loan losses when comparing the three months ended September 30, 2019 to the same period in 2018, partially offset by an increase of $1.5 million in noninterest expenses in the current period.

Net income for the nine months ended September 30, 2019, totaled $20.7 million or $2.80 per share, an 11.7% increase when compared to $18.5 million or $2.50 per share for the same period last year.  The increase in earnings in the current period is the result of higher net interest income of $3.5 million due to our earning asset growth coupled with a $1.1 million decrease in the provision for loan losses when comparing the nine months ended September 30, 2019 to the same period in 2018. These positives were partially offset by an increase of $2.4 million in salaries and employee benefit expenses and $0.6 million in occupancy and equipment expenses in support of our growth initiative.

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

Core net income, which we have defined to exclude losses or gains on investment securities and gains from other nonrecurring sources, for the three months ended September 30, totaled $7.1 million and $6.7 million in 2019 and 2018, respectively. Core net income per share for the three months ended September 30, 2019 was $0.97, an increase from $0.91 for the same period in 2018. The results in both 2019 and 2018 exclude a pre-tax $14 thousand gain in the value of our equity investment securities portfolio. 

Core net income for the nine months ended September 30, 2019 was $20.7 million or $2.80 per share, an increase of 13.1% compared to $18.3 million or $2.47 per share for the same period of 2018. Results for the nine months ended September 30, 2019 exclude a pre-tax gain of $23 thousand on the sale of debt securities and a pre-tax $6 thousand gain in the value of our equity investment securities portfolio. The 2018 results were impacted by a pre-tax $14 thousand gain in the value of our equity investment securities portfolio and the pre-tax gain of $291 thousand from the sale of our credit card portfolio.

NOTABLES

• Loans, net growth of $101.6 million or 5.7% since September 30, 2018, with growth of $57.8 million or 4.2% annualized for the nine months ended September 30, 2019.
• Deposit growth of $173.4 million or 9.5% compared to September 30, 2018. Deposits increased $126.3 million or 9.0% annualized for the nine months ended September 30, 2019.
• Tangible book value per share improved to $31.27 at September 30, 2019 from $28.78 at December 31, 2018 and from $27.99 at September 30, 2018.
• Tax-equivalent net interest income increased $3.5 million or 6.5% to $57.5 million for the nine months ended September 30, 2019 compared to $54.0 million for the same period in 2018.
• Return on average assets was 1.21% and 1.19% for the three and nine months ended September 30, 2019 compared to 1.19% and 1.12%, respectively for the comparable periods in 2018. Return on average equity was 9.65% and 9.63% for the three and nine months ended September 30, 2019 compared to 9.81% and 9.21%, respectively for the three and nine months ended September 30, 2018.
• The allowance for loan losses to loans, net was 1.19% at September 30, 2019, an increase from 1.17% at December 31, 2018 and 1.15% at September 30, 2018.

INCOME STATEMENT REVIEW

Calculated on a fully taxable equivalent basis ("FTE"), our tax-equivalent net interest margin for the three and nine months ended September 30 were 3.61% and 3.60% respectively in 2019, compared to 3.57% respectively for the same periods in 2018. The tax-equivalent yield on earning assets increased 17 and 26 basis points to 4.42% and 4.45% for the three and nine months ended September 30, 2019 from 4.25% and 4.19% during the same periods in 2018. At the same time, we experienced higher interest-bearing liability costs due to higher short-term market rates. Our cost of funds, which represents our average rate paid on total interest-bearing liabilities, increased 21 and 33 basis points to 1.10% and 1.14% respectively for the three and nine months ended September 30, 2019 when compared to 0.89% and 0.81% respectively for the same periods in 2018. Although the Federal Open Market Committee (FOMC) has decreased the federal funds rate target 50 basis points to a target range of 1.75% to 2.00%, the short end of the yield curve has remained elevated, resulting in higher deposit costs.

Tax-equivalent net interest income for the nine months ended September 30, increased $3.5 million or 6.5% to $57.5 million in 2019 from $54.0 million in 2018. The increase in tax equivalent net interest income was primarily due to a $110.8 million increase in average loans for the nine months ended September 30, 2019 when compared to the same period in 2018. The tax-equivalent yield on the loan portfolio increased to 4.75% for the nine months ended September 30, 2019, compared to 4.44% for the comparable period in 2018. Loans, net averaged $1.9 billion for the nine months ended September 30, 2019 and $1.7 billion for the comparable period in 2018. For the nine months ended September 30, the tax-equivalent yield on total investments decreased to 2.49% in 2019 from 2.60% in 2018. Average investments totaled $273.1 million in 2019 and $282.3 million in 2018. Average interest-bearing liabilities increased $49.3 million for the nine months ended September 30, 2019, compared to the corresponding period last year due to growth in average deposits.

The provision for loan losses totaled $2.1 million for the nine months ended September 30, 2019 and $3.2 million for the nine months ended September 30, 2018.  For the quarter ended September 30, the provision for loan losses was $0.7 million in 2019 and $1.1 million in 2018.

For the nine months ended September 30, noninterest income totaled $11.3 million in 2019, an increase from $10.5 million in 2018. Fee income generated by commercial loan interest rate swap transactions totaled $1.1 million in the nine months ended September 30, 2019 compared to $0.1 million during the corresponding period of 2018 while in the year ago period, a gain on the sale of our credit card portfolio of $291 thousand and bank owned life insurance income of $365 thousand were recognized. Increases in revenues from merchant services, income from fiduciary activities, and income generated from wealth management services more than offset a slight decrease in income from mortgage banking activities. For the three months ended September 30, noninterest income totaled $3.7 million in 2019, an increase from $3.3 million in 2018.  The increase was due to higher revenue related to commercial loan interest rate swaps, increases in revenues from merchant services, income generated from wealth management services, and income from mortgage banking activities partially offset by a slight decrease in income from fiduciary activities and life insurance investment income.

Noninterest expense increased $2.9 million or 7.4% to $42.0 million for the nine months ended September 30, 2019, from $39.1 million for the nine months ended September 30, 2018. Salaries and employee benefits increased $2.4 million or 11.3% due to annual merit increases and additional staffing in support of our organic growth strategy.  Occupancy and equipment expenses also increased due to our market expansion when comparing the nine months ended September 30, 2019 and 2018 as those expenses increased $0.6 million or 7.2%. In addition, during the nine months ended September 30, 2019, increases to other expenses and donations, were more than offset by decreases in professional fees and outside services, amortization expense recognized and FDIC insurance premiums and assessments. Noninterest expense increased $1.5 million or 12.3% to $14.1 million for the three months ended September 30, 2019, from $12.5 million for the three months ended September 30, 2018. Salaries and employee benefits increased $1.1 million or 16.0% due to annual merit increases and continued investment in our expansion. Occupancy and equipment expenses also increased due to our market expansion when comparing the three months ending September 30, 2019 and 2018 as those expenses increased $0.3 million or 11.8%. In the other noninterest expense categories, increases in professional fees and outside services, donations and other expenses were partially offset by decreases in amortization expense and FDIC insurance and assessments.

BALANCE SHEET REVIEW

At September 30, 2019, total assets, loans and deposits were $2.4 billion, $1.9 billion and $2.0 billion, respectively. Loans, net increased $57.8 million or 4.2% annualized from December 31, 2018. The growth in loans was primarily from commercial real estate and commercial and industrial loans. Total deposits increased $126.3 million or 9.0% annualized from December 31, 2018 due in part to seasonal inflows of public deposits and growth in commercial balances. Non-interest bearing deposits increased $30.3 million or 9.9% annualized while interest-bearing deposits increased $96.0 million or 8.8% annualized during the nine months ended September 30, 2019. The growth in deposits has allowed us to pay down short-term debt and resulted in a federal funds sold position of $10.1 million at September 30, 2019. Total investments were $276.9 million at September 30, 2019, including $268.8 million securities classified as available-for-sale and $7.8 million classified as held-to-maturity.

Stockholders' equity equaled $296.2 million or $40.08 per share at September 30, 2019, and $278.6 million or $37.66 per share at December 31, 2018. Tangible stockholders' equity improved to $31.27 per share at September 30, 2019, from $28.78 per share at December 31, 2018. Dividends declared for the nine months ended September 30, 2019 amounted to $1.02 per share, a 4.1% increase from the year ago period, representing a dividend payout ratio of 36.4%.

ASSET QUALITY REVIEW

Nonperforming assets were $11.5 million or 0.61% of loans, net and foreclosed assets at September 30, 2019, compared to $10.0 million or 0.55% of loans, net and foreclosed assets at December 31, 2018. The increase in nonperforming assets was primarily due to placing a $2.6 million commercial credit on non-accrual. The allowance for loan losses equaled $22.4 million or 1.19% of loans, net at September 30, 2019 compared to $21.4 million or 1.17% of loans, net, at December 31, 2018. Loans charged-off, net of recoveries, for the nine months ended September 30, 2019, equaled $1.1 million or 0.08% of average loans, compared to $1.7 million or 0.10% of average loans for the comparable period last year.

About Peoples:

Peoples Financial Services Corp. is the parent company of Peoples Security Bank and Trust Company, a community bank serving Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Schuylkill, Susquehanna, Wayne and Wyoming Counties in Pennsylvania and Broome County in New York through 28 offices. Each office, interdependent with the community, offers a comprehensive array of financial products and services to individuals, businesses, not-for-profit organizations and government entities. Peoples' business philosophy includes offering direct access to senior management and other officers and providing friendly, informed and courteous service, local and timely decision making, flexible and reasonable operating procedures and consistently applied credit policies.

Safe Harbor Forward-Looking Statements:

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

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

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

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

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