PEOPLES FINANCIAL SERVICES CORP. Reports Third Quarter 2015 Earnings

SCRANTON, Pa., Oct. 22, 2015 /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, 2015. Peoples reported net income of $4.4 million, or $0.58 per basic and diluted weighted average share for the third quarter of 2015, compared to $5.2 million, or $0.70 per share, for the comparable period of 2014.

Core net income, excluding net gains on sale of investment securities available-for-sale and merger related expenses, for the three months ended September 30, 2015 was $4.3 million, a decrease from $4.4 million for the second quarter of 2015 and $4.9 million for the same period in 2014. Core net income per share for the three months ended September 30, 2015 was $0.57, compared to $0.59 for the second quarter of 2015 and $0.65 for the same period in 2014.

Net income for the nine months ended September 30, 2015, totaled $13.9 million or $1.84 per share compared to $13.3 million or $1.76 per share for the same period last year. Core net income for the nine months ended September 30, 2015 was $13.2 million, compared to $13.8 million for the same period in 2014. Core net income per share for the nine months ended September 30, 2015 was $1.76, a decrease from $1.83 for the same period in 2014. The results for the nine months ended September 30, 2015 include net gains on sale of investment securities of $979.0 thousand compared to $861.0 thousand in the first nine months of 2014. Pre-tax acquisition related expenses recognized in the first nine months of 2014 approximated $1.7 million.

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 three and nine months ended September 30, reported results for 2015 and 2014 contained items which Peoples considers non-core, namely net gains on sales of investment securities available-for-sale and one-time acquisition related expenses. 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.

THIRD QUARTER NOTABLES

• Loans, net grew $39.0 million or 12.6% annualized in the third quarter of 2015.

• Deposits grew $19.9 million or 5.5% annualized in the third quarter of 2015.

• Tangible book value per share improved $0.35 to $24.49 at the end of the third quarter of 2015 compared to $24.14 at June 30, 2015.

• Through nine months of 2015, return on average assets and core return on average assets were 1.07% and 1.02%, respectively compared to 1.04% and 1.08%, respectively for the same period in 2014.

• Nonperforming assets as a percentage of loans, net and foreclosed assets declined to 0.92% at the end of the third quarter of 2015 from 1.11% at September 30, 2014.

INCOME STATEMENT REVIEW

The tax-equivalent net interest margins for the three and nine months ended September 30, were 3.74% and 3.82% in 2015, compared to 3.84% and 3.88% in 2014, respectively. Loan accretion included in loan interest income for the three and nine months ended September 30, 2015 related to loans acquired in the fourth quarter of 2013 was $128.1 thousand and $474.9 thousand, resulting in an increase in the tax-equivalent net interest margin of 4 basis points for each respective period. Comparatively, loan accretion included in loan interest income for the three and nine months ended September 30, 2014 was $469.9 thousand and $1.9 million, resulting in an increase in the tax-equivalent net interest margin of 12 and 16 basis points, respectively.

Tax-equivalent net interest income for the nine months ended September 30, decreased $577.0 thousand to $44.7 million in 2015 from $45.2 million in 2014. The decrease in tax equivalent net interest income was primarily due to a $1.4 million decrease in loan accretion recognized in the first nine months of 2015 when compared to the same period in 2014. The tax-equivalent yield on the loan portfolio decreased to 4.61% for the nine months ended September 30, 2015 compared to 4.91% for the comparable period in 2014. Loans, net averaged $1.2 billion in 2015 and 2014. For the nine months ended September 30, the tax-equivalent yield on investments was constant at 2.70% in 2015 and 2014. Average investments totaled $314.9 million in 2015 and $331.2 million in 2014. Average interest-bearing liabilities increased slightly for the nine months ended September 30, 2015, compared to the corresponding period last year. The cost of funds declined to 0.51% in the nine months ended September 30, 2015 from 0.58% for the same period of 2014. Tax-equivalent net interest income for the three months ended September 30, decreased to $14.9 million in 2015 from $15.2 million in 2014.

The provision for loan losses totaled $2.4 million for the nine months ended September 30, 2015, compared to $2.7 million for the same period last year. The decrease in the provision for loan losses in 2015 was due to the application of our allowance for loan losses methodology, which was primarily influenced by reporting a lower level of nonperforming assets as a percentage of loans and foreclosed assets. For the quarter ended September 30, the provision for loan losses was $900.0 thousand in 2015 and $666.0 thousand in 2014.

For the nine months ended September 30, noninterest income totaled $12.0 million in 2015, an increase from $11.7 million in 2014. Net gains on sale of investment securities were $979.0 thousand in 2015 compared to $861.0 thousand in 2014. Increases in revenues from merchant services income, wealth management services, mortgage banking activities and life insurance investment income more than offset a decrease in service charges, fees and commissions and income from fiduciary activities. For the three months ended September 30, noninterest income totaled $4.0 million in 2015 and $4.4 million in 2014.

Noninterest expense decreased $0.3 million or 0.9% to $34.3 million for the nine months ended September 30, 2015, from $34.6 million for the nine months ended September 30, 2014. The recognition of acquisition related expense of $1.7 million in 2014, offset by a $1.4 million increase in salaries and employee benefits expense was the primary cause for the decrease in 2015. For the third quarter, noninterest expense amounted to $11.7 million in 2015 and $11.1 million in 2014.

BALANCE SHEET REVIEW

Total assets, loans and deposits totaled $1.8 billion, $1.3 billion and $1.4 billion, respectively, at September 30, 2015. Loans, net grew $39.0 million or 12.6% on an annualized basis in the third quarter of 2015. Year to date, loans, net increased $60.7 million comparing the end of the third quarter 2015 to year-end 2014. Total deposits increased $19.9 million or 5.5% on an annualized basis in the third quarter of 2015. Noninterest-bearing deposits increased $6.9 million or 9.2% on an annualized basis while interest-bearing deposits increased $13.0 million or 4.6% on an annualized basis in 2015. Total investments were $312.9 million at September 30, 2015, including $299.8 million securities classified as available-for-sale and $13.1 million classified as held-to-maturity.

Stockholders' equity equaled $252.1 million or $33.53 per share at September 30, 2015, and $246.8 million or $32.69 per share at December 31, 2014. Tangible stockholders' equity improved to $184.1 million or $24.49 per share at September 30, 2015, compared to $177.9 million or $23.57 per share at year-end 2014. Dividends declared for the nine months ended September 30, 2015 amounted to $0.93 per share representing a dividend payout ratio of 50.5%.

ASSET QUALITY REVIEW

Nonperforming assets were $11.7 million or 0.92% of loans, net and foreclosed assets at September 30, 2015, compared to $10.5 million or 0.86% at June 30, 2015, and $10.9 million or 0.90% at December 31, 2014. The allowance for loan losses equaled $12.0 million or 0.95% of loans, net at September 30, 2015 compared to $10.3 million or 0.85% of loans, net, at December 31, 2014. Loans charged-off, net of recoveries, for the nine months ended September 30, 2015, equaled $695.0 thousand or 0.08% of average loans, compared to $1.2 million or 0.14% of average loans for the nine months ended September 30, 2014.

Peoples Financial Services Corp. is the parent company of Peoples Security Bank and Trust Company, a community bank serving Lackawanna, Lehigh, Luzerne, Monroe, Susquehanna, Wayne and Wyoming Counties in Pennsylvania and Broome County in New York through 26 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; 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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