Peoples Financial Services Corp. Reports Second Quarter 2016 Earnings

SCRANTON, Pa., July 22, 2016 /PRNewswire/ -- Peoples Financial Services Corp. ("Peoples") (NASDAQ: PFIS), the bank holding company for Peoples Security Bank and Trust Company, today reported unaudited financial results at and for the three and six months ended June 30, 2016.  Peoples reported net income of $4.9 million, or $0.66 per share for the second quarter of 2016, compared to $4.4 million, or $0.59 per share, for the comparable period of 2015.

Core net income, excluding net gains on sale of investment securities available-for-sale, net of tax for the three months ended June 30, 2016 was $4.6 million, a $176 thousand increase from $4.4 million for the same period in 2015. Core net income per share for the three months ended June 30, 2016 was $0.62, compared to $0.59 for the same period in 2015.

Net income for the six months ended June 30, 2016, totaled $9.7 million or $1.32 per share compared to $9.5 million or $1.26 per share for the same period last year.

Core net income for the six months ended June 30, 2016 was $9.3 million, an increase of 4.5% from $8.9 million for the same period in 2015. Core net income per share for the six months ended June 30, 2016 was $1.26, an increase from $1.18 for the same period in 2015. The results for the six months ended June 30, 2016 include net gains on sale of investment securities of $623 thousand compared to $832 thousand in the first six months of 2015.

In addition to evaluating its results of operations in accordance with accounting principles generally accepted in the United States of America ("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 for 2016 and 2015 included herein contain items which Peoples considers non-core, namely net gains on sales of investment securities available-for-sale. 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.

SECOND QUARTER NOTABLES

• Loans, net grew $123.9 million, or 18.6% on an annualized basis in the first half of 2016 as demand increased throughout the Lehigh Valley and King of Prussia markets.
• Deposits grew $41.1 million, or 5.7% on an annualized basis in the first six months of 2016.
• Tangible book value per share improved $0.89 to $25.18 at June 30, 2016 from $24.29 at December 31, 2015 and $1.03 from $24.15 at June 30, 2015.
• Tax-equivalent net interest margin remained level at 3.81% in the second quarter of 2016 when compared to the first quarter of 2016, and increased 2 basis points compared to 3.79% for the quarter ended December 31, 2015. Tax-equivalent net interest margin decreased 3 basis points compared to 3.84% for the quarter ended June 30, 2015.
• Tax-equivalent net interest income increased $343 thousand to $16.2 million for the second quarter of 2016 compared to $15.8 million for the first quarter of 2016, and increased $1.2 million when compared to $14.9 million for the second quarter of 2015.

 INCOME STATEMENT REVIEW

The tax-equivalent net interest margins for the three and six months ended June 30, were 3.81% for both periods in 2016, compared to 3.84% and 3.86% in 2015, respectively. Loan accretion included in loan interest income for the six months ended June 30, 2016, related to loans acquired in the fourth quarter of 2013, was $372 thousand, resulting in an increase in the tax-equivalent net interest margin of 4 basis points. For the second quarter of 2016, loan accretion included in loan interest income related to loans acquired was $157 thousand. Loan accretion included in loan interest income in the first half of 2015, related to loans acquired in the fourth quarter of 2013, was $347 thousand, resulting in an increase in the tax-equivalent net interest margin of 4 basis points. For the second quarter of 2015, loan accretion included in loan interest income related to loans acquired was $122 thousand.

Tax-equivalent net interest income for the six months ended June 30, increased $2.2 million to $32.0 million in 2016 from $29.8 million in 2015. The increase in tax equivalent net interest income was primarily due to a $135.5 million increase in earning assets in the first half of 2016 when compared to the same period in 2015. The tax-equivalent yield on the loan portfolio decreased to 4.49% for the six months ended June 30, 2016 compared to 4.66% for the comparable period in 2015. Loans, net averaged $1.4 billion in 2016 and $1.2 billion in 2015. For the six months ended June 30, the tax-equivalent yield on total investments increased to 2.90% in 2016 from 2.76% in 2015. Average investments totaled $279.0 million in 2016 and $310.5 million in 2015. Average interest-bearing liabilities increased $128.3 million for the six months ended June 30, 2016, compared to the corresponding period last year. The cost of funds increased to 0.55% in the six months ended June 30, 2016 from 0.52% for the same period of 2015. Tax-equivalent net interest income for the three months ended June 30, increased to $16.2 million in 2016 from $14.9 million in 2015.

The provision for loan losses totaled $2.4 million for the six months ended June 30, 2016, compared to $1.5 million for the same period last year. For the quarter ended June 30, the provision for loan losses was $1.2 million in 2016 and $750 thousand in 2015. The increase in the provision for loan losses in 2016 was primarily the result of increased loan growth.

For the six months ended June 30, noninterest income totaled $8.0 million in 2016, an increase from $7.9 million in 2015. Net gains on sale of investment securities were $623 thousand in 2016 compared to $832 thousand in 2015. Increases in revenues from merchant services, income from fiduciary activities, wealth management services and life insurance investment income more than offset a decrease in service charges, fees and commissions and income from mortgage banking activities. For the three months ended June 30, 2016, noninterest income totaled $4.1 million, including $381 thousand in recognized gains from sales of investment securities available-for-sale, compared to $3.6 million for the same period in 2015. No gain or loss from the sale of investment securities available-for-sale was recognized during the three months ended June 30, 2015.

Noninterest expense increased $1.1 million or 5.0% to $23.7 million for the six months ended June 30, 2016, from $22.6 million for the six months ended June 30, 2015. For the second quarter, noninterest expense amounted to $12.1 million in 2016 and $11.5 million in 2015. The buildout of our expansion plan, wealth management platform as well as severance costs led to the increases in salaries and employee benefit expense.

 BALANCE SHEET REVIEW

Total assets, loans and deposits totaled $1.9 billion, $1.5 billion and $1.5 billion, respectively, at June 30, 2016. Loans, net grew $123.9 million or 18.6% on an annualized basis in the first half of 2016. Loans, net increased $233.3 million or 18.9% from June 30, 2015 to June 30, 2016. Deposits grew $41.1 million or 5.7% on an annualized basis in the first half of 2016. Total deposits increased $72.1 million or 5.1% at June 30, 2016 when compared to June 30, 2015. Noninterest-bearing deposits increased $2.8 million or 1.8% on an annualized basis while interest-bearing deposits increased $38.3 million or 6.8% on an annualized basis through the first six months of 2016. Total investments were $262.6 million at June 30, 2016, including $251.4 million securities classified as available-for-sale and $11.2 million classified as held-to-maturity.

Stockholders' equity equaled $254.3 million or $34.40 per share at June 30, 2016, and $248.8 million or $33.57 per share at December 31, 2015. Tangible stockholders' equity improved to $25.18 per share at June 30, 2016, from $24.29 per share at December 31, 2015. Dividends declared for the six months ended June 30, 2016 amounted to $0.62 per share representing a dividend payout ratio of 47.0%.

ASSET QUALITY REVIEW

Nonperforming assets were $13.2 million or 0.90% of loans, net and foreclosed assets at June 30, 2016, compared to $12.5 million or 0.93% at December 31, 2015. The allowance for loan losses equaled $14.8 million or 1.01% of loans, net at June 30, 2016 compared to $13.0 million or 0.97% of loans, net, at December 31, 2015. Loans charged-off, net of recoveries, for the six months ended June 30, 2016, equaled $576 thousand or 0.08% of average loans, compared to $410 thousand or 0.07% of average loans for comparable period last year.

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, Susquehanna, Wayne and Wyoming Counties in Pennsylvania and Broome County in New York through 24 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.