Peoples Financial Services Corp. Reports First Quarter 2019 Earnings

SCRANTON, Pa., April 23, 2019 /PRNewswire/ -- Peoples Financial Services Corp. ("Peoples") PFIS, the bank holding company for Peoples Security Bank and Trust Company, today reported unaudited financial results at and for the three months ended March 31, 2019.  Peoples reported net income of $6.4 million, or $0.87 per share for the first quarter of 2019, compared to $5.9 million, or $0.79 per share for the comparable period of 2018. The increase in earnings for the three months ended March 31, 2019 is the product of higher net interest income of $1.1 million due to growth in our average earning assets of $121.9 million from the year ago period which was partially offset by an increase of $0.4 million in other operating expenses.

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.

NOTABLES

• Loans, net growth of $123.8 million or 7.2% since March 31, 2018, with growth of $26.3 million or 5.9% annualized for the three months ended March 31, 2019.

• Deposits have grown $148.2 million or 8.6% compared to March 31, 2018. Deposits decreased $6.8 million or 1.5% annualized for the three months ended March 31, 2019.

• Tangible book value per share improved to $29.61 at March 31, 2019 from $28.78 at December 31, 2018 and from $27.08 at March 31, 2018.

• Tax-equivalent net interest income increased $1.1 million or 6.4% to $18.7 million for the three months ended March 31, 2019 compared to $17.6 million for the same period in 2018.

• Return on average assets was 1.13% and return on average equity was 9.26% for the three months ended March 31, 2019 compared to 1.08% and 8.89%, respectively for the three months ended March 31, 2018.

• The allowance for loan losses to loans, net was 1.20% at March 31, 2019, an increase from 1.17% at December 31, 2018 and 1.14% at March 31, 2018.

INCOME STATEMENT REVIEW

Calculated on a fully taxable equivalent basis ("FTE"), our tax-equivalent net interest margin for the three months ended March 31 was 3.58% in 2019, compared to 3.57% for the same period in 2018. The tax-equivalent yield on earning assets increased 30 basis points to 4.44% for the three months ended March 31, 2019 from 4.14% during the corresponding period of 2018. At the same time, we experienced higher interest-bearing liability costs due to increases in short-term market rates. Our cost of funds, which represents our average rate paid on total interest-bearing liabilities, increased 40 basis points to 1.14% for the three months ended March 31, 2019 when compared to 0.74% for the same period in 2018, the result of the Federal Open Market Committee's (FOMC) actions to increase the federal funds rate 100 basis points in 2018.

Tax-equivalent net interest income for the three months ended March 31, increased $1.1 million or 6.4% to $18.7 million in 2019 from $17.6 million in 2018. The increase in tax equivalent net interest income was primarily due to a $124.2 million increase in average loans for the three months ended March 31, 2019 when compared to the same period in 2018. The tax-equivalent yield on the loan portfolio increased to 4.72% for the three months ended March 31, 2019, compared to 4.38% for the comparable period in 2018. Loans, net averaged $1.8 billion for the three months ended March 31, 2019 and $1.7 billion for the comparable period in 2018. For the three months ended March 31, the tax-equivalent yield on total investments decreased to 2.55% in 2019 from 2.61% in 2018. Average investments totaled $276.7 million in 2019 and $279.6 million in 2018. Average interest-bearing liabilities increased $69.0 million for the three months ended March 31, 2019, compared to the corresponding period last year.

For the three months ended March 31, noninterest income totaled $3.4 million in 2019, a decrease from $3.6 million in 2018.  The decrease was due to lower service charges, fees and commissions related to the accrual of bank owned life insurance income in the year ago period, lower wealth management and merchant services revenue partially offset by an increase in revenue from interest rate swaps in the current period.

Noninterest expense increased $0.4 million or 3.1% to $13.5 million for the three months ended March 31, 2019, from $13.1 million for the three months ended March 31, 2018. Salaries and employee benefits increased $0.6 million or 9.2% due to 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 March 31, 2019 and 2018 as those expenses increased $0.1 million or 5.2%. Offsetting the increase in salaries and occupancy expenses, professional fees and outside services decreased $0.3 million for the three months ended March 31, 2019.

BALANCE SHEET REVIEW

At March 31, 2019, total assets, loans and deposits were $2.3 billion, $1.8 billion and $1.9 billion, respectively. Loans, net increased $26.3 million or 5.9% annualized from December 31, 2018. The growth in loans was primarily from commercial real estate and commercial and industrial loans. Total deposits decreased $6.8 million or 1.5% annualized from December 31, 2018 as seasonal factors led to lower public fund balances. Non-interest bearing deposits increased $22.6 million or 22.3% annualized while interest-bearing deposits decreased $29.4 million or 8.1% annualized during the three months ended March 31, 2019. To fund balance sheet growth, short-term borrowings increased $22.5 million in conjunction with the decrease in deposits. Total investments were $278.8 million at March 31, 2019, including $270.4 million securities classified as available-for-sale and $8.2 million classified as held-to-maturity. Premises and equipment, net increased $5.8 million and other liabilities increased $8.1 million, primarily due to the adoption of Accounting Standards Update ("ASU") 2016-02 using the optional transition method under ASU 2018-11 on January 1, 2019. With the adoption of this ASU, we recognized a right-of-use asset and corresponding lease liability in the amount of $5.5 million related to leased properties.

Stockholders' equity equaled $284.6 million or $38.46 per share at March 31, 2019, and $278.6 million or $37.66 per share at December 31, 2018. Tangible stockholders' equity improved to $29.61 per share at March 31, 2019, from $28.78 per share at December 31, 2018. Dividends declared for the three months ended March 31, 2019 amounted to $0.34 per share, a 6.3% increase from the year ago period, representing a dividend payout ratio of 39.1%.

ASSET QUALITY REVIEW

Nonperforming assets were $14.0 million or 0.76% of loans, net and foreclosed assets at March 31, 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 due to placing a $4.7 million credit on non-accrual. The allowance for loan losses equaled $22.1 million or 1.20% of loans, net at March 31, 2019 compared to $21.4 million or 1.17% of loans, net, at December 31, 2018. Loans charged-off, net of recoveries, for the three months ended March 31, 2019 and 2018, equaled $0.3 million or 0.07% of average loans.

About Peoples:

Peoples Financial Services Corp. is the parent company of Peoples Security Bank and Trust Company, a community bank serving Bucks, Lackawanna, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Schuylkill, Susquehanna, Wayne and Wyoming Counties in Pennsylvania and Broome County in New York through 27 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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