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Income before taxes was $5.8 million for the three months ended December 31, 2024 compared to a loss of $5.0 million for the three months ended September 30, 2024.  Pre-provision net revenue (PPNR) and PPNR per diluted share¹, non-GAAP measures, for the three months ended December 31, 2024 was $9.6 million or $0.96 per diluted share.  The PPNR and PPNR diluted earnings per share for the prior quarter was $8.7 million or $0.86 per diluted share.  Core pre-provision net revenue (PPNR) and core PPNR per diluted share¹, non-GAAP measures, which exclude acquisition related expenses, the provision for credit losses and the provision for credit losses on unfunded commitments from income before taxes, for the three months ended December 31, 2024 was $14.6 million or $1.46 per diluted share.  The core PPNR and core PPNR diluted earnings per share for the prior quarter was $18.3 million or $1.83 per diluted share.

For the twelve months ended December 31, 2024, net income was $8.5 million, or $0.99 per diluted share, compared to $27.4 million, or $3.83 per diluted share for the comparable period of 2023.  Net income for the current period decreased $18.9 million when compared to the twelve months ended December 31, 2023 due to $30.5 million of non-recurring charges, including $16.2 million of acquisition expenses and a $14.3 million provision for credit losses on non-PCD loans related to the FNCB merger, which were partially offset by higher interest income due to increased levels of earning assets.

Core net income and core earnings per diluted share¹, non-GAAP measures, totaled $32.4 million or $3.77 per diluted share for the twelve months ended December 31, 2024 compared to $28.9 million, or $4.03 per diluted share for the comparable period of 2023.

Pre-provision net revenue (PPNR) and PPNR per diluted share¹, non-GAAP measures, for the twelve months ended December 31, 2024 were $27.6 million and $3.21 per diluted share, respectively.  The PPNR and PPNR diluted earnings per share for the corresponding prior year period was $33.1 million or $4.62 per diluted share.  Core pre-provision net revenue (PPNR) and core PPNR per diluted share¹, non-GAAP measures, for the twelve months ended December 31, 2024 were $43.8 million and $5.10 per diluted share, respectively.  The core PPNR and core PPNR diluted earnings per share for the corresponding prior year period was $34.9 million and $4.88 per diluted share.

Merger with FNCB

Peoples acquired FNCB and its wholly-owned subsidiary FNCB Bank by merger on July 1, 2024.  The merger and acquisition method of accounting was used to account for the transaction with Peoples as the acquirer.  The Company recorded the assets and liabilities of FNCB at their respective fair values as of July 1, 2024.  The transaction was valued at approximately $133.7 million.  Primary reasons for the merger included: expansion of the branch network and commanding market share positions in northeastern Pennsylvania; attractive low-cost funding base; strong cultural alignment and a deep commitment to shareholders, customers, employees, and communities served by Peoples and FNCB, meaningful value creation to shareholders; increased trading liquidity for both companies and increased dividends for Peoples shareholders.

At the time of the merger, FNCB contributed, after fair value purchase accounting adjustments, approximately $1.8 billion in assets, $421.9 million in investments, $1.2 billion in loans, $1.4 billion in deposits, $226.3 million in Federal Home Loan Bank ("FHLB") advances and other borrowings, and $8.0 million in subordinated debt and trust preferred debentures.  The excess of the merger consideration over the fair value of the net FNCB assets acquired and liabilities assumed resulted in $13.0 million of goodwill.  The FNCB merger also resulted in a core deposit intangible valued at $36.6 million or 5.1% of core deposits.

The Company incurred non-recurring expenses of $5.0 million and $30.5 million for the three and twelve months ended December 31, 2024, respectively, related to merger and acquisition costs, and an increased allowance for credit losses related to the acquisition of PCD and non-PCD loans acquired in the FNCB merger.

The Company's financial results for any periods ended prior to July 1, 2024 only reflect Peoples results on a stand alone basis.  As a result of the FNCB merger and the below listed adjustments related to the FNCB merger, the Company's financial results for the three months and twelve months ended December 31, 2024 may not be directly comparable to prior reported periods.  The following schedule highlights specific merger related activity for the three and twelve months ended December 31, 2024:

Schedule of Merger & Acquisition Costs and Non-Recurring Merger Related Activity (Unaudited)

NOTABLES IN THE QUARTER

• Paid a fourth quarter dividend of $0.6175 per share, representing an increase of 50.6% over the year ago quarter's dividend.

• Completed our core operating system integration to achieve highest efficiency.

• Realigned our branch network to achieve maximum coverage with minimum redundancy.

• Allowance for credit losses to loans, net increased to 1.05% at December 31, 2024 from 0.97% and 0.77% at September 30, 2024 and December 31, 2023, respectively.

• Return on average equity for the three months ended December 31, 2024 was 5.07% compared to negative 3.58% for the three months ended September 30, 2024; excluding the non-recurring charges, core return on average equity¹, a non-GAAP measure, was 8.31% on an annualized basis for the three months ended December 31, 2024 compared to 13.61% for the three months ended September 30, 2024.

• Return on average assets for the three months ended December 31, 2024 was 0.47% compared to negative 0.33% for the three months ended September 30, 2024; excluding the non-recurring charges, core return on average assets¹, a non-GAAP measure, was 0.76% on an annualized basis for the three months ended December 31, 2024 compared to 1.24% for the three months ended September 30, 2024.

• At December 31, 2024, the Company had $135.9 million in cash and cash equivalents, a decrease of $149.6 million from September 30, 2024. Additional contingent sources of available liquidity totaled $2.4 billion and include lines of credit at the Federal Reserve Bank and FHLB of Pittsburgh, brokered deposit capacity and unencumbered securities that may be pledged as collateral. The Company's cash and cash equivalents balance and available liquidity represented 50.2% of total assets and 58.0% of total deposits.

• At December 31, 2024, estimated total insured deposits were approximately $3.0 billion, or 68.7% of total deposits. Included in the uninsured total at December 31, 2024 was $487.8 million of municipal deposits collateralized by letters of credit issued by the FHLB and pledged investment securities, and $1.4 million of affiliate company deposits. Total insured and collateralized deposits represented 79.7% of total deposits at December 31, 2024.

INCOME STATEMENT REVIEW

• Net interest margin ("NIM"), calculated on a fully taxable equivalent ("FTE") basis, a non-GAAP measure¹, for the three months ended December 31, 2024 was 3.25%, a decrease of 1 basis point compared to 3.26% for the three months ended September 30, 2024. The decrease in tax-equivalent NIM from the prior quarter was primarily due to a lower yield on interest-earning assets as a result of the Federal Open Market Committee ("FOMC") lowering rates in September and into the fourth quarter.

• The tax-equivalent yield on interest-earning assets, a non-GAAP measure¹, decreased 12 basis points to 5.51% during the three months ended December 31, 2024 from 5.63% during the three months ended September 30, 2024.

• The cost of funds, which represents the average rate paid on total interest-bearing liabilities, decreased 16 basis points to 2.88% for the three months ended December 31, 2024 when compared to 3.04% during the three months ended September 30, 2024.

• The cost of interest-bearing deposits decreased 16 basis points during the three months ended December 31, 2024 to 2.75% from 2.91% in the three months ended September 30, 2024.

• The cost of total deposits for the three months ended December 31, 2024 was 2.20%, a decrease of 13 basis points from 2.33% for the three months ended September 30, 2024.

Fourth Quarter 2024 Results – Comparison to Third Quarter 2024

Net interest income for the three months ended December 31, 2024 decreased $0.7 million to $38.5 million from $39.2 million for the three months ended September 30, 2024.  Tax-equivalent net interest income, a non-GAAP measure¹, for the three months ended December 31, 2024 decreased $0.8 million or 1.9% to $39.2 million from $40.0 million for the three months ended September 30, 2024.  The decrease in tax-equivalent net interest income was due to a $2.5 million decrease in tax-equivalent interest income that was partially offset by a $1.7 million decrease in interest expense.

Lower interest income was the result of decreases in the volume of earning assets and lower rates on floating rate assets resulting from the 100 basis point cut to the federal funds rate since September 2024.  Average loans, net, decreased $32.9 million when comparing the three months ended December 31, 2024 to the prior three month period ended September 30, 2024.  Average investments totaled $628.9 million in the three months ended December 31, 2024 and $700.6 million in the three months ended September 30, 2024.  Average federal funds sold increased $37.3 million to $129.5 million for the three months ended December 31, 2024.

The $1.7 million decrease in interest expense in the three months ended December 31, 2024 was due primarily to lowering rates paid on consumer, business and municipal deposit accounts in response to the FOMC's aforementioned actions, coupled with the reduced balances.  The Company's total cost of deposits decreased 13 basis points to 2.20% during the three months ended December 31, 2024 compared to 2.33 % for the prior quarter.  The cost of interest-bearing deposits decreased 16 basis point to 2.75% from 2.91% in the prior quarter.  Short-term borrowings averaged $39.3 million in the three month period ended December 31, 2024 at an average cost of 4.80% compared to $43.9 million in short-term borrowings at an average cost of 4.98% during the three months ended September 30, 2024.

Average interest-bearing liabilities decreased $39.3 million for the three months ended December 31, 2024, compared to the three months ended September 30, 2024.  Average noninterest-bearing deposits decreased $4.5 million and represented 20.2% of total average deposits in the three months ended December 31, 2024 as compared to 20.1% in the three months ended September 30, 2024.

For the three months ended December 31, 2024, $3.4 million was recorded to the provision for credit losses compared to $14.5 million in the prior quarter.  The prior period provision included a non-recurring provision of $14.3 million for non-PCD loans acquired in the FNCB merger.  Excluding the impact of the FNCB merger, the provision for credit losses for the three months ended September 30, 2024 was $0.2 million.  The higher provision in the three months ended December 31, 2024 was due to higher net charge-offs of $0.9 million primarily in the equipment financing and commercial real estate portfolios which contributed to higher model loss rates.

Noninterest income was $5.7 million for each of the three months ended December 31, 2024 and September 30, 2024.  Higher interest rate swap revenue during the quarter ended December 31, 2024 was partially offset by lower gains on equity investments, as compared to the quarter ended September 30, 2024.

Noninterest expense decreased $0.5 million to $35.0 million for the three months ended December 31, 2024, from $35.5 million for the three months ended September 30, 2024.  Excluding acquisition related expenses of $5.0 million in the quarter ended December 31, 2024 and $9.7 million in the prior quarter, including legal and consulting, core system de-conversion fees, and severance fees, noninterest expenses increased $4.1 million.  Salaries and employee benefits were $2.1 million higher due primarily to year-end employee incentive accruals.  Other expenses increased $1.9 million to $6.5 million for the quarter due to the $0.4 million reserve on unfunded commitments, $0.4 million higher Federal Deposit Insurance Corporation ("FDIC") assessment costs on the Company and a $0.4 million writedown of a former branch property. 

The income tax benefit was $0.3 million and $0.7 million for the three months ended December 31, 2024 and September 30, 2024, respectively.  The lower tax rate was due to the impact of permanent tax adjustments, such as tax exempt income and BOLI income, on a lower pre-tax income base. 

2024 vs. 2023 Full Year Results

Net interest income for the twelve months ended December 31, 2024 increased $29.2 million to $116.0 million from $86.8 million for the twelve months ended December 31, 2023. The FTE NIM, a non-GAAP measure¹, for the twelve months ended December 31, 2024 was 2.84%, an increase of 30 basis points over the prior year's period of 2.54%.  Tax-equivalent net interest income, a non-GAAP measure¹ for the twelve months ended December 31, increased $29.7 million, or 33.5%, to $118.4 million in 2024 from $88.7 million in 2023.  The increase in tax-equivalent net interest income was primarily the result of higher loan interest income due to increased volume and rates on new loans acquired through the FNCB merger and an additional $9.0 million from accretion of purchase accounting marks on purchased loans.  Average investments increased $57.9 million compared to December 31, 2023, due in part to the assumption of $426.1 million in investments from the FNCB merger.  Subsequent to the merger, the Company engaged in investment sales of approximately $271.4 million to repay short-term borrowings and build on balance sheet liquidity.  The tax-equivalent yield on earning assets was 5.14% for the twelve months of 2024 compared to 4.34% for the twelve months ended December 31, 2023.  The cost of interest bearing liabilities during the twelve month period ended December 31, 2024 increased 51 basis points to 2.93% from 2.42% for the twelve months ended December 31, 2023 as the cost of interest-bearing deposit products and short-term borrowing costs increased.  The net impact of the purchase accounting accretion and amortization of the loan, deposit and borrowing marks acquired and assumed in the FNCB merger was $7.3 million and contributed 18 basis points to the NIM.

For the twelve months ended December 31, 2024, a provision for credit losses of $19.1 million was recorded and included a $14.3 million day-one provision for non-PCD loans acquired in the FNCB merger.  The balance includes adjustments through December 31, 2024 for individually evaluated and pooled loans.  Excluding the day-one provision, the increase to the provision is due to $1.1 million in net charge-offs primarily in the equipment financing and indirect loan portfolios and higher ACL model loss rates.

Noninterest income was $18.3 million for the twelve months ended December 31, 2024 and $14.1 million for the comparable period ended December 31, 2023.  During the period, service charges and fees increased $2.9 million, wealth management income increased $0.5 million, bank owned life insurance cash surrender value increased $0.5 million and gains on equity securities increased $0.1 million while interest rate swap revenue decreased $0.1 million on lower loan origination volume and market value adjustments.

Noninterest expense for the twelve months ended December 31, 2024, was $106.7 million, an increase of $38.9 million from $67.8 million for the twelve months ended December 31, 2023.  The increase was due primarily to higher acquisition related expenses, and higher expenses due to additional full time equivalent employees and facilities from the FNCB merger.  Acquisition related expenses totaled $16.2 million compared to $1.8 million a year ago.  Salaries and employee benefits expenses increased $10.5 million compared to the year ago period due to the addition of 195 full time equivalent employees from FNCB at the time of the FNCB merger.  Occupancy and equipment expenses were higher by $5.2 million in the current period due to increased technology costs related to system integration and increased account and transaction volumes, and higher facilities costs.  Other expenses increased $5.6 million to $19.1 million due to increased FDIC insurance assessments, the write down of a former branch office and the inherent costs of a larger organization.  The provision for income taxes for the twelve months ended December 31, 2024 decreased $5.2 million as compared to the prior period due to the impact of increased permanent tax adjustments, such as tax exempt income and BOLI income, on a lower pre-tax income base.

BALANCE SHEET REVIEW

At December 31, 2024, total assets, loans and deposits were $5.1 billion, $4.0 billion and $4.4 billion, respectively.

Loan growth for the twelve months ended December 31, 2024 was $1.1 billion or 40.1%, due primarily to the $1.2 billion in loans acquired in the FNCB merger.  Commercial loans made up the majority of the growth with residential real estate loans also increasing.

Total investments were $606.9 million at December 31, 2024, compared to $483.9 million at December 31, 2023.  At December 31, 2024, the available for sale securities totaled $526.3 million and the held to maturity securities totaled $78.2 million.  The unrealized loss on the available for sale securities decreased $2.5 million from $51.5 million at December 31, 2023 to $49.0 million at December 31, 2024.  The unrealized losses on the held to maturity portfolio totaled $13.0 million and $13.2 million at December 31, 2024 and December 31, 2023, respectively.

At December 31, 2024, goodwill was $76.3 million, an increase of $12.9 million from $63.4 million at December 31, 2023.  Goodwill declined $0.6 million from September 30, 2024 due to an adjustment in the fourth quarter to the fair value of certain assets acquired in the FNCB merger.

Total deposits increased $1.1 billion during the twelve months ended December 31, 2024 due primarily to the $1.4 billion in deposits acquired in the FNCB merger, partially offset by reductions in brokered CDs and seasonal outflows of non-maturity deposits.  Noninterest-bearing deposits increased $290.8 million and interest-bearing deposits increased $837.7 million during the twelve months ended December 31, 2024.  The Company had $256.4 million and $261.0 million of longer-term brokered CDs at December 31, 2024 and December 31, 2023, respectively.  During the quarter ended December 31, 2024, the Company called $100.7 million of its higher cost brokered CDs in order to reduce its cost of funds.

The Company's deposit base consisted of 40.4% retail accounts, 34.9% commercial accounts, 18.9% municipal relationships and 5.8% brokered deposits at December 31, 2024.  At December 31, 2024, total estimated uninsured deposits, were $1.4 billion, or approximately 31.3% of total deposits.  Included in the uninsured total at December 31, 2024 is $487.8 million of municipal deposits collateralized by letters of credit issued by the FHLB and pledged investment securities, and $1.4 million of affiliate company deposits.  We also offer customers access to CDARS and ICS programs through which their deposits may be allocated to separate FDIC-insured institutions, while they are able to maintain their relationship with the bank.

In addition to deposit gathering and current long-term debt, we have additional sources of liquidity available such as cash and cash equivalents, overnight borrowings from the FHLB, the Federal Reserve's Discount Window, correspondent bank lines of credit, brokered deposit capacity and unencumbered securities.  At December 31, 2024, the Company had $135.9 million in cash and cash equivalents, a decrease of $51.5 million from $187.4 million at December 31, 2023.  For additional information on the deposit portfolio and additional sources of liquidity, see the tables on page 17.

The Company maintained its well capitalized position at December 31, 2024.  Stockholders equity equaled $469.0 million or $46.94 per share at December 31, 2024, and $340.4 million or $48.35 per share at December 31, 2023.  The increase in stockholders' equity from December 31, 2023 is primarily attributable to the FNCB merger, net income less dividends to shareholders, partially offset by a $3.7 million decrease to accumulated other comprehensive loss ("AOCL") resulting from a reduction in the unrealized loss on available for sale securities.  The net after tax unrealized loss on available for sale securities included in AOCL at December 31, 2024 and December 31, 2023 was $30.3 million and $40.3 million, respectively.

Tangible book value¹, a non-GAAP measure, decreased to $35.88 per share at December 31, 2024, from $39.35 per share at December 31, 2023.  Dividends declared for the twelve months ended December 31, 2024 amounted to $2.06 per share.

ASSET QUALITY REVIEW

Nonperforming assets were $23.0 million or 0.58% of loans, net and foreclosed assets at December 31, 2024, compared to $4.9 million or 0.17% of loans, net and foreclosed assets at December 31, 2023.  Nonperforming assets at December 31, 2024 included $8.5 million of loans acquired in the FNCB merger, of which, $6.4 million were PCD loans assumed in the FNCB merger.  As a percentage of total assets, nonperforming assets totaled 0.45% at December 31, 2024 compared to 0.13% at December 31, 2023.  At December 31, 2024, the Company had one foreclosed property recorded at $27 thousand.

During the twelve months ended December 31, 2024, net charge-offs were $1.1 million and the provision for credit losses totaled $19.1 million.  The provision for credit losses included a $14.3 million FNCB merger related day one adjustment for non-PCD loans.  The allowance for credit losses equaled $41.8 million or 1.05% of loans, net, at December 31, 2024 compared to $21.9 million or 0.77% of loans, net, at December 31, 2023.  Loans charged-off, net of recoveries, for the three months ended December 31, 2024 were $0.9 million, compared to $2.8 million for the comparable period last year.

About Peoples:

Peoples Financial Services Corp. is the bank holding company of Peoples Security Bank and Trust Company, an independent community bank serving its retail and commercial customers through 39 full-service community banking offices located within Allegheny, Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna, Wayne and Wyoming Counties in Pennsylvania, Middlesex County in New Jersey and Broome County in New York.  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.  For more information visit psbt.com.

In addition to evaluating its results of operations in accordance with U.S. generally accepted accounting principles ("GAAP"), Peoples routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as tangible stockholders' equity, core net income and pre-provision revenue ratios, among others. The reported results included in this release contain items, which Peoples considers non-core, namely acquisition related expenses and gain or loss on the sale of 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.

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. and its subsidiaries (collectively, "Peoples") and other statements that are not historical facts 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 undue reliance should not be placed on forward-looking statements and 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: macroeconomic trends, including interest rates and inflation; the effects of any recession in the United States; the impact on financial markets from geopolitical conflict, including from wars, military conflict or trade policies, including tariffs or retaliatory tariffs; the possibility that Peoples may be unable to achieve the expected synergies and operating efficiencies of the FNCB merger within the expected timeframes or at all; the possibility that Peoples may be unable to successfully integrate operations of FNCB or that the integration may be more difficult, time consuming or costly than expected; the FNCB merger may divert management's attention from ongoing business operations and opportunities; effects of the FNCB merger on our ability to retain customers and retain and hire key personnel and maintain relationships with our vendors, and on our operating results and business generally; the dilution caused by Peoples' issuance of additional shares of its capital stock in connection with the FNCB merger; the outcome of any legal proceedings that may be threatened or instituted against Peoples; changes in interest rates; economic conditions, particularly in our market area; legislative and regulatory changes and the ability to comply with the significant laws and regulations governing the banking and financial services business; monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of Treasury and the Federal Reserve System; adverse developments in the financial industry generally, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer and client behavior; credit risk associated with lending activities and changes in the quality and composition of our loan and investment portfolios; demand for loan and other products; deposit flows; competition; changes in the values of real estate and other collateral securing the loan portfolio, particularly in our market area; changes in relevant accounting principles and guidelines; inability of third party service providers to perform; our ability to prevent, detect and respond to cyberattacks; and other factors that may be described in our 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.

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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The average balances of assets and liabilities, corresponding interest income and expense and resulting average yields or rates paid are summarized as follows. Averages for earning assets include nonaccrual loans. Investment averages include available for sale securities at amortized cost. Income on investment securities and loans is adjusted to a tax-equivalent basis using the prevailing federal statutory tax rate of 21%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Peoples Financial Services Corp.