UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended June 30, 2025

☐	Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

for the transition period from

001-36388

(Commission File Number)

PEOPLES FINANCIAL SERVICES CORP.

(Exact name of registrant as specified in its charter)


Pennsylvania	23-2391852
(State of incorporation)	(IRS Employer ID Number)

102 East Drinker Street, Dunmore PA	18512
(Address of principal executive offices)	(Zip code)

(570) 346-7741

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common stock, $2.00 par value	PFIS	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: 9,994,696 at August 1, 2025.

Table of Contents

PEOPLES FINANCIAL SERVICES CORP.

FORM 10-Q

For the Quarter Ended June 30, 2025


Contents		Page No.

PART I.	FINANCIAL INFORMATION:	3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at June 30, 2025 (Unaudited) and December 31, 2024 (Audited)	3

	Consolidated Statements of Income and Comprehensive Income for the Three Months and Six Months ended June 30, 2025 and 2024 (Unaudited)	4

	Consolidated Statements of Changes in Stockholders’ Equity for the each of the quarters within the six months ended June 30, 2025 and 2024 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Six Months ended June 30, 2025 and 2024 (Unaudited)	6

	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65

Item 4.	Controls and Procedures	67

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	67

Item 1A.	Risk Factors	67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 3.	Defaults upon Senior Securities	68

Item 4.	Mine Safety Disclosures	68

Item 5.	Other Information	68

Item 6.	Exhibits	68

	Signatures	70

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Peoples Financial Services Corp.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)



	June 30, 2025		December 31, 2024
	(Unaudited)		(Audited)
Assets:
Cash and cash equivalents
Cash and due from banks	$	60,173	$	47,029
Interest-bearing deposits in other banks		9,646		8,593
Federal funds sold		105,920		80,229
Total cash and cash equivalents		175,739		135,851

Investment securities:
Available for sale: Amortized cost of $546,709 and $575,288, respectively, net of allowance for credit losses of $0 at June 30, 2025 and December 31, 2024		505,181		526,329
Held to maturity: Fair value of $64,253 and $65,152, respectively, net of allowance for credit losses of $0 at June 30, 2025 and December 31, 2024		75,137		78,184
Equity investments carried at fair value		2,494		2,430
Total investment securities		582,812		606,943
Loans		3,997,525		3,993,505
Less: allowance for credit losses		40,890		41,776
Net loans		3,956,635		3,951,729
Loans held for sale		547
Goodwill		75,986		75,986
Premises and equipment, net		76,896		73,283
Bank owned life insurance		87,635		87,429
Deferred tax assets		31,647		35,688
Accrued interest receivable		15,854		15,632
Intangible assets, net		30,778		34,197
Other assets		73,350		74,919
Total assets	$	5,107,879	$	5,091,657

Liabilities:
Deposits:
Noninterest-bearing	$	899,597	$	935,516
Interest-bearing		3,387,752		3,472,036
Total deposits		4,287,349		4,407,552
Short-term borrowings		76,340		15,900
Long-term debt		103,449		98,637
Subordinated debt		83,164		33,000
Junior subordinated debt		8,088		8,039
Accrued interest payable		4,640		5,503
Other liabilities		50,753		54,076
Total liabilities		4,613,783		4,622,707

Stockholders’ equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 9,994,696, shares at June 30, 2025 and 9,990,724 shares at December 31, 2024		20,015		19,995
Capital surplus		250,468		250,695
Retained earnings		258,601		238,955
Accumulated other comprehensive loss		(34,988)		(40,695)
Total stockholders’ equity		494,096		468,950
Total liabilities and stockholders’ equity	$	5,107,879	$	5,091,657

See notes to unaudited consolidated financial statements.

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Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)


	Three Months Ended				Six Months Ended
June 30,	2025		2024		2025		2024
Interest income:
Interest and fees on loans:
Taxable	$	57,459	$	34,406	$	112,671	$	68,447
Tax-exempt		2,302		1,399		4,547		2,817
Interest and dividends on investment securities:
Taxable		4,604		1,904		8,738		3,822
Tax-exempt		399		371		795		742
Dividends		40		2		81		4
Interest on interest-bearing deposits in other banks		96		115		209		235
Interest on federal funds sold		435		179		720		1,306
Total interest income		65,335		38,376		127,761		77,373

Interest expense:
Interest on deposits		20,303		18,114		41,150		36,818
Interest on short-term borrowings		410		633		635		895
Interest on long-term debt		1,211		269		2,388		539
Interest on subordinated debt		1,026		444		1,469		887
Interest on junior subordinated debt		188				374
Total interest expense		23,138		19,460		46,016		39,139
Net interest income		42,197		18,916		81,745		38,234
(Credit to) provision for credit losses		(239)		596		(39)		1,304
Net interest income after (credit to) provision for credit losses		42,436		18,320		81,784		36,930

Noninterest income:
Service charges, fees, commissions and other		3,664		1,885		7,068		3,921
Merchant services income		584		260		815		375
Commission and fees on fiduciary activities		563		517		1,100		1,068
Wealth management income		619		416		1,269		777
Mortgage banking income		125		87		239		179
Increase in cash surrender value of life insurance		535		286		1,061		565
Interest rate swap income		164		102		207		78
Net (losses) gains on equity investments		(7)		(12)		64		(20)
Net gains on fixed assets				13		680		4
Total noninterest income		6,247		3,554		12,503		6,947

Noninterest expense:
Salaries and employee benefits expense		13,761		8,450		27,242		17,289
Net occupancy and equipment expense		6,284		4,589		12,894		9,305
Acquisition related expenses		66		1,071		220		1,557
Amortization of intangible assets		1,684				3,367
Professional fees and outside services		1,168		779		2,179		1,467
FDIC insurance and assessments		976		504		1,998		1,098
Advertising and corporate business development		1,074		433		1,933		842
Other expenses		3,249		2,345		5,782		4,672
Total noninterest expense		28,262		18,171		55,615		36,230
Income before income taxes		20,421		3,703		38,672		7,647
Provision for income tax expense		3,465		421		6,707		899
Net income		16,956		3,282		31,965		6,748

Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available for sale		1,859		18		7,431		(2,423)
Change in derivative fair value		16		160		(132)		1,239
Other comprehensive income (loss)		1,875		178		7,299		(1,184)
Income tax expense (benefit) related to other comprehensive income (loss)		409		38		1,592		(260)
Other comprehensive income (loss), net of income tax expense (benefit)		1,466		140		5,707		(924)
Comprehensive income	$	18,422	$	3,422	$	37,672	$	5,824

Per share data:
Net income:
Basic	$	1.70	$	0.47	$	3.20	$	0.96
Diluted	$	1.68	$	0.46	$	3.18	$	0.95
Dividends declared	$	0.62	$	0.41	$	1.24	$	0.82
Weighted average common shares outstanding:
Basic		9,994,955		7,057,258		9,993,944		7,055,085
Diluted		10,082,260		7,114,115		10,062,831		7,108,113

See notes to unaudited consolidated financial statements.

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Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except per share data)


							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings		Loss		Total
Balance, January 1, 2025	$	19,995	$	250,695	$	238,955	$	(40,695)	$	468,950
Net income						15,009				15,009
Other comprehensive income, net of tax								4,241		4,241
Cash dividends declared: $0.6175 per common share						(6,158)				(6,158)
Stock compensation, including tax effects and expenses				(188)						(188)
Restricted stock issued: 9,489 shares		19		(19)
Balance, March 31, 2025	$	20,014	$	250,488	$	247,806	$	(36,454)	$	481,854

Net income						16,956				16,956
Other comprehensive income, net of tax								1,466		1,466
Cash dividends declared: $0.6175 per common share						(6,161)				(6,161)
Stock compensation, including tax effects and expenses				(19)						(19)
Restricted stock issued: 416 shares		1		(1)
Balance, June 30, 2025	$	20,015	$	250,468	$	258,601	$	(34,988)	$	494,096



							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings		Loss		Total
Balance, January 1, 2024	$	14,093	$	122,130	$	248,550	$	(44,351)	$	340,422
Net income						3,466				3,466
Other comprehensive loss, net of tax								(1,064)		(1,064)
Cash dividends declared: $0.41 per common share						(2,893)				(2,893)
Stock compensation, including tax effects and expenses				61						61
Restricted stock issued: 14,434 shares		29		(29)
Balance, March 31, 2024	$	14,122	$	122,162	$	249,123	$	(45,415)	$	339,992

Net income						3,282				3,282
Other comprehensive income, net of tax								140		140
Cash dividends declared: $0.41 per share						(2,894)				(2,894)
Stock compensation, including tax effects and expenses				287						287
Balance, June 30, 2024	$	14,122	$	122,449	$	249,511	$	(45,275)	$	340,807

See notes to unaudited consolidated financial statements.

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Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)


For the Six Months Ended June 30,	2025		2024
Cash flows from operating activities:
Net income	$	31,965	$	6,748
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		1,610		1,475
Amortization of right-of-use lease asset		437		282
(Accretion) amortization of deferred loan fees, net		(307)		376
Amortization of debt issuance costs		31
Amortization of CDI and other intangibles		3,419
Amortization expense related to acquired borrowings		230
Accretion income related to acquired loans		(8,463)
Amortization expense related to acquired deposits		528
Amortization of low income housing partnerships		868		251
(Credit to) provision for credit losses		(39)		1,304
Net unrealized (gain) loss on equity investments		(64)		20
Net gain on sale of other real estate owned		5
Loans originated for sale		(2,050)		(1,159)
Proceeds from sale of loans originated for sale		1,504		1,406
Net (gain) loss on sale of loans originated for sale		(1)		3
Net (accretion) amortization of investment securities		(1,936)		425
Gain on sale of premises and equipment		(680)		(4)
Increase in cash surrender value of life insurance		(1,061)		(565)
Gain from bank owned life insurance settlement		(118)
Deferred income tax expense (benefit)		2,449		(431)
Stock compensation, including tax effects and expenses		(207)		348
Net change in:
Accrued interest receivable		(222)		(592)
Other assets		2,170		(6,565)
Accrued interest payable		(863)		(258)
Other liabilities		(6,241)		1,901
Net cash provided by operating activities		22,964		4,965
Cash flows from investing activities:
Proceeds from repayments of investment securities:
Available for sale		58,794		10,887
Held to maturity		2,997		3,206
Purchases of investment securities:
Available for sale		(28,229)
Net purchase of restricted equity securities		(1,491)		(2,556)
Proceeds from the sale of other real estate		22
Net decrease (increase) in loans		3,903		(20,136)
Purchases of premises and equipment		(5,890)		(614)
Proceeds from the sale of premises and equipment		3,696		44
Proceeds from bank owned life insurance		968
Net cash provided by (used in) investing activities		34,770		(9,169)
Cash flows from financing activities:
Net decrease in deposits		(120,731)		(214,078)
Proceeds from long-term debt		15,284
Repayment of long-term borrowings		(10,653)
Net advances in short-term borrowings		60,440		86,660
Proceeds from the issuance of subordinated debt, net of issuance costs		83,133
Repayment of subordinated debt		(33,000)
Cash dividends paid		(12,319)		(5,787)
Net cash used in financing activities		(17,846)		(133,205)
Net increase (decrease) in cash and cash equivalents		39,888		(137,409)
Cash and cash equivalents at beginning of period		135,851		187,365
Cash and cash equivalents at end of period	$	175,739	$	49,956


For the Six Months Ended June 30,	2025		2024
Supplemental disclosures:
Cash paid during the period for:
Interest	$	46,879	$	39,397
Income taxes		3,683		504
Noncash items:
U.S. Treasury bond matured - receivable				5,000
Transfers of fixed assets to other real estate				1,556
Transfers of loans to other real estate				27
Origination of mortgage servicing rights		19
Initial recognition of right-of-use assets		2,786
Initial recognition of lease liability		2,786

See notes to unaudited consolidated financial statements.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

1. Summary of significant accounting policies:

Nature of operations

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned direct and indirect subsidiaries, including Peoples Security Bank and Trust Company (“Peoples Bank”) and 1^st Equipment Finance, Inc., collectively, the “Company” or “Peoples”. The Company services its retail and commercial customers through thirty-nine full-service community banking offices located within Allegheny, Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna, and Wyoming Counties of Pennsylvania, Middlesex County of New Jersey, and Broome County of New York.

Basis of presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Article 10-01 of Regulation S-X and accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for credit losses, business combinations and impairment of goodwill. Actual results could differ from those estimates.

On July 1, 2024 (the “Acquisition Date”), the Company completed the acquisition of FNCB Bancorp, Inc., a Pennsylvania corporation (“FNCB”), in accordance with the definitive Agreement and Plan of Merger dated as of September 27, 2023 (the “Merger Agreement”), by and among the Company and FNCB. The comparability of the Company’s results of operations for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, in general, has been materially impacted by the acquisition of FNCB, as further described in Note 2.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Subsequent events

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of June 30, 2025, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the issuance date of these consolidated financial statements.

On July 25, 2025, the Company’s board of directors declared a dividend of $0.6175 per share for the third quarter of 2025. The dividend is payable on September 15, 2025 to shareholders of record as of August 29, 2025. The per share dividend is equal to the per share dividend declared for the second quarter of 2025.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Recent accounting standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the required effective dates. The following should be read in conjunction with Note 1 Summary of significant accounting policies of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on the Company’s consolidated financial statements.

Accounting Standards Update 2025-01 “Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date” (“ASU 2025-01”) clarifies the effective date of Accounting Standards Update 2024-03 “Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”) to stipulate that ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 will be effective for the Company beginning January 1, 2027 for the Company’s annual financial statements on Form 10-K and January 1, 2028 for the Company’s quarterly financial statements on Form 10-Q and is not expected to have a significant impact on the Company’s consolidated financial statements.

2. Business combinations:

Pursuant to the Merger Agreement, on the Acquisition Date, FNCB merged with and into Peoples, with Peoples continuing as the surviving corporation, and immediately following the merger, FNCB Bank, a Pennsylvania-chartered bank (“FNCB Bank”), merged with and into Peoples Bank, with Peoples Bank as the surviving bank (collectively, the “merger”). The primary reasons for the merger included: expansion of the branch network and enhancing market share positions in northeastern Pennsylvania; an 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; and increased dividends for Peoples shareholders.

In connection with the completion of the merger, former FNCB shareholders received 0.1460 shares of the Company’s common stock per share of FNCB common stock. The value of the total transaction consideration was approximately $133.7 million. The consideration included the issuance of 2,935,456 shares of the Company’s common stock, valued at $45.54 per share, which was the closing price of the Company’s common stock on June 28, 2024, the last trading day prior to the consummation of the merger. Also included in the total consideration was cash in lieu of any fractional shares, which was effectively settled upon closing.

The acquisition of FNCB was accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid are recorded at estimated fair values on the Acquisition Date. The excess consideration paid over the fair value of the net assets acquired has been reported as goodwill in the Company’s consolidated statements of financial condition. The $12.6 million of goodwill created from the merger is not amortizable or deductible for tax purposes. The amount of goodwill represents the excess of both the consideration exchanged and liabilities assumed compared to the fair market value of identifiable assets acquired. Future benefits consist largely of the synergies and economies of scale expected from combining the operations of FNCB and Peoples. Peoples has one reportable segment for GAAP, therefore, the goodwill was assigned to the whole operating company.

Costs related to the acquisition totaled $66 thousand and $220 thousand during the three and six months ended June 30, 2025, respectively. Acquisition related expenses totaled $1.1 million and $1.6 million during the three and six months

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

ended June 30, 2024, respectively. These amounts were expensed as incurred and are recorded as merger-related expenses in the consolidated statements of income and comprehensive income.

For more information refer to Note 2 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

3. Other comprehensive income (loss):

The components of other comprehensive income (loss) (“OCI”) and their related tax effects are reported in the consolidated statements of income and comprehensive income. The accumulated other comprehensive loss included in the consolidated balance sheets relates to net unrealized gains and losses on investment securities available for sale, benefit plan adjustments and adjustments to derivative fair values.

The components of accumulated other comprehensive loss included in stockholders’ equity at June 30, 2025 and December 31, 2024 are as follows:


(Dollars in thousands)		June 30, 2025		December 31, 2024
Net unrealized loss on investment securities available for sale	$	(41,528)	$	(48,959)
Income tax benefit		(9,060)		(10,681)
Net of income taxes		(32,468)		(38,278)
Benefit plan adjustments		(2,852)		(2,852)
Income tax benefit		(622)		(622)
Net of income taxes		(2,230)		(2,230)
Derivative adjustments		(371)		(239)
Income tax benefit		(81)		(52)
Net of income taxes		(290)		(187)
Accumulated other comprehensive loss	$	(34,988)	$	(40,695)

4. Earnings per share:

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The following table presents the calculation of both basic and diluted earnings per share of common stock for the three and six months ended June 30, 2025 and 2024:


	For the Three Months Ended June 30,
	2025				2024
(Dollars in thousands, except per share data)	Basic		Diluted		Basic		Diluted
Net income	$	16,956	$	16,956	$	3,282	$	3,282
Average common shares outstanding		9,994,955		10,082,260		7,057,258		7,114,115
Earnings per share	$	1.70	$	1.68	$	0.47	$	0.46


	For the Six Months Ended June 30,
	2025				2024
(Dollars in thousands, except per share data)	Basic		Diluted		Basic		Diluted
Net income	$	31,965	$	31,965	$	6,748	$	6,748
Average common shares outstanding		9,993,944		10,062,831		7,055,085		7,108,113
Earnings per share	$	3.20	$	3.18	$	0.96	$	0.95

5. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at June 30, 2025 and December 31, 2024 are summarized below. There was no allowance for credit losses (“ACL”) recorded for available for sale or held to maturity debt securities at June 30, 2025 and December 31, 2024.


	June 30, 2025
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available for sale:
U.S. Treasury securities	$	150,570	$		$	5,389	$	145,181
State and municipals:
Taxable		70,773		18		8,339		62,452
Tax-exempt		79,052		21		10,821		68,252
Residential mortgage-backed securities:
U.S. government agencies		10,161		53		12		10,202
U.S. government-sponsored enterprises		151,827		262		17,361		134,728
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		1,919				39		1,880
Private collateralized mortgage obligations		36,997		652		214		37,435
Asset backed securities		20,172		23		305		19,890
Corporate debt securities		24,525		581		665		24,441
Negotiable certificates of deposit		713		7				720
Total available for sale	$	546,709	$	1,617	$	43,145	$	505,181
Held to maturity:
Tax-exempt state and municipals	$	10,829	$		$	903	$	9,926
Residential mortgage-backed securities:
U.S. government agencies		13,069				2,152		10,917
U.S. government-sponsored enterprises		51,239				7,829		43,410
Total held to maturity	$	75,137	$		$	10,884	$	64,253

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)


	December 31, 2024
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available for sale:
U.S. Treasury securities	$	176,302	$		$	8,751	$	167,551
U.S. government-sponsored enterprises
State and municipals:
Taxable		79,341		39		10,481		68,899
Tax-exempt		76,390		7		10,280		66,117
Residential mortgage-backed securities:
U.S. government agencies		1,403		1		28		1,376
U.S. government-sponsored enterprises		145,831		92		19,547		126,376
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		1,927				71		1,856
Private collateralized mortgage obligations		38,366		358		152		38,572
Asset backed securities		23,586		66		400		23,252
Corporate debt securities		31,442		894		715		31,621
Negotiable certificates of deposit		700		9				709
Total available for sale	$	575,288	$	1,466	$	50,425	$	526,329
Held to maturity:
Tax-exempt state and municipals	$	10,846	$		$	1,103	$	9,743
Residential mortgage-backed securities:
U.S. government agencies		13,847				2,643		11,204
U.S. government-sponsored enterprises		53,491				9,286		44,205
Total held to maturity	$	78,184	$		$	13,032	$	65,152

The Company did not sell any investment securities during the six months ended June 30, 2025 and 2024.

The following table summarizes the maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available for sale at June 30, 2025. Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized		Fair
(Dollars in thousands)	Cost		Value
Within one year	$	77,671	$	76,485
After one but within five years		113,620		107,609
After five but within ten years		74,776		67,002
After ten years		59,566		49,950
		325,633		301,046
Mortgage-backed and other amortizing securities		221,076		204,135
Total	$	546,709	$	505,181

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The maturity distribution of the amortized cost and fair value, of debt securities classified as held to maturity at June 30, 2025, is summarized as follows:


	Amortized		Fair
(Dollars in thousands)	Cost		Value
After one but within five years	$	1,186	$	1,096
After five but within ten years		9,643		8,830
		10,829		9,926
Mortgage-backed securities		64,308		54,327
Total	$	75,137	$	64,253

Securities with a carrying value of $410.2 million and $441.5 million at June 30, 2025 and December 31, 2024, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law and pledged to the Discount Window at the Federal Reserve.

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-case basis. At June 30, 2025, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. government agencies and sponsored enterprises, which exceeded 10.0 percent of stockholders’ equity.

The fair value and gross unrealized losses of investment securities with unrealized losses at June 30, 2025 and December 31, 2024, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:


	June 30, 2025
	Less than Twelve Months					Twelve Months or Longer					Total
	Total # in a loss			Unrealized		Total # in a loss			Unrealized		Total # in a loss			Unrealized
(Dollars in thousands)	Position		Fair Value	Losses		Position		Fair Value	Losses		Position		Fair Value	Losses
Securities Available for Sale
U.S. Treasury securities		$		$		32	$	145,181	$	5,389	32	$	145,181	$	5,389
State and municipals:
Taxable						64		57,734		8,339	64		57,734		8,339
Tax-exempt	5		3,893		23	91		61,868		10,798	96		65,761		10,821
Residential mortgage-backed securities:
U.S. government agencies	1		6,349		11	1		1		1	2		6,350		12
U.S. government-sponsored enterprises	14		43,714		454	41		67,327		16,907	55		111,041		17,361
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises						1		1,880		39	1		1,880		39
Private collateralized mortgage obligations	15		13,336		190	1		777		24	16		14,113		214
Asset-backed securities	3		5,040		20	3		4,402		285	6		9,442		305
Corporate debt securities						9		7,951		665	9		7,951		665
Total	38	$	72,332	$	698	243	$	347,121	$	42,447	281	$	419,453	$	43,145

Securities Held to Maturity
Tax-exempt state and municipals	3	$	2,339	$	26	13	$	7,587	$	877	16	$	9,926	$	903
Residential mortgage-backed securities:
U.S. government agencies						4		10,917		2,152	4		10,917		2,152
U.S. government-sponsored enterprises						8		43,410		7,829	8		43,410		7,829
Total	3	$	2,339	$	26	25	$	61,914	$	10,858	28	$	64,253	$	10,884

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)


	December 31, 2024
	Less than Twelve Months					Twelve Months or Longer					Total
	Total # in a loss				Unrealized	Total # in a loss				Unrealized	Total # in a loss				Unrealized
(Dollars in thousands)	Position		Fair Value		Losses	Position		Fair Value		Losses	Position		Fair Value		Losses
Securities Available for Sale
U.S. Treasury securities		$		$		38	$	167,551	$	8,751	38	$	167,551	$	8,751
State and municipals:
Taxable	2		1,097		6	64		55,712		10,475	66		56,809		10,481
Tax-exempt	6		1,874		41	91		62,329		10,239	97		64,203		10,280
Residential mortgage-backed securities:
U.S. government agencies	1		1,299		27	1		3		1	2		1,302		28
U.S. government-sponsored enterprises	29		40,886		622	31		68,732		18,925	60		109,618		19,547
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises						1		1,856		71	1		1,856		71
Private collateralized mortgage obligations	15		12,854		152						15		12,854		152
Asset-backed securities	2		2,659		11	1		1,939		389	3		4,598		400
Corporate debt securities	5		6,083		316	6		3,601		399	11		9,684		715
Total	60	$	66,752	$	1,175	233	$	361,723	$	49,250	293	$	428,475	$	50,425

(Dollars in thousands)
Securities Held to Maturity
Tax-exempt state and municipals	4	$	2,508	$	66	12	$	7,235	$	1,037	16	$	9,743	$	1,103
Residential mortgage-backed securities:
U.S. government agencies						4		11,204		2,643	4		11,204		2,643
U.S. government-sponsored enterprises						8		44,205		9,286	8		44,205		9,286
Total	4	$	2,508	$	66	24	$	62,644	$	12,966	28	$	65,152	$	13,032

Management considered whether a credit loss existed related to investments in an unrealized loss position by determining (i) whether the decline in fair value is attributable to adverse conditions specifically related to the financial condition of the security issuer or specific conditions in an industry or geographic area; (ii) whether the credit rating of the issuer of the security has been downgraded; (iii) whether dividend or interest payments have been reduced or have not been made and (iv) an adverse change in the remaining expected cash flows from the security such that the Company will not recover the amortized cost of the security. If the decline is determined to be due to factors related to credit, the credit loss should be recorded as an ACL with an offsetting entry to net income. The portion of the loss related to non-credit factors are recorded in OCI.

Based on management’s assessment of the factors identified above, it is determined the fair value of all the identified investments being less than the amortized costs was primarily caused by changes in market interest rates and spreads and not credit quality of the issuers. All interest payments have been received as scheduled, substantially all debt securities are rated above investment grade and no material downgrades were announced. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider unrealized losses related to investments to be credit related, thus no allowance for credit losses for these investments was recorded at June 30, 2025 or December 31, 2024.

Equity Securities

Included in equity securities with readily determinable fair values at June 30, 2025, were investments in the common or preferred stock of publicly traded bank holding companies and an investment in a mutual fund comprised of 1-4 family residential mortgage-backed securities collateralized by properties within the Company’s market area. Equity securities

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

with readily determinable fair values are reported at fair value with net unrealized gains and losses recognized in the consolidated statements of income and comprehensive income.

The following table presents unrealized and realized gains and losses recognized in net income on equity securities for the three and six months ended June 30, 2025, and 2024:


		For the three months ended				For the six months ended
(Dollars in thousands)		June 30,2025		June 30,2024		June 30,2025		June 30,2024
Net (losses) gains recognized on equity securities	$	(7)	$	(12)	$	64	$	(20)
Less: net gains realized on equity securities sold
Unrealized (losses) gains on equity securities	$	(7)	$	(12)	$	64	$	(20)

Equity Securities without Readily Determinable Fair Values

At June 30, 2025, and December 31, 2024, equity securities without readily determinable fair values consisted primarily of Federal Home Loan Bank (“FHLB “) of Pittsburgh stock totaling $11.7 million and $10.2 million, respectively. At June 30, 2025, and December 31, 2024, equity securities without readily determinable fair values also included $4.4 million and $4.3 million, respectively in financial technology investments and non-cumulative perpetual preferred stock of a privately-held bank holding company acquired through the merger with FNCB and $0.8 million investment in an insurance agency. Equity securities without readily determinable fair values are evaluated for impairment whenever events or circumstances suggest that their carrying value may not be recoverable are included in other assets in the Consolidated Balance Sheets. There was no credit loss to equity securities without readily determinable values recognized for the six months ended June 30, 2025 and June 30, 2024.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

6. Goodwill and other intangibles:

The following table provides information on the significant components of goodwill and other acquired intangible assets at June 30, 2025, and December 31, 2024.


	June 30, 2025
						Accumulated
		Beginning				Impairment		Year-to-Date		Ending
(Dollars in thousands)		Balance		Additions		Charges		Amortization⁽¹⁾		Balance
Goodwill	$	75,986	$		$		$		$	75,986
Total goodwill	$	75,986	$		$		$		$	75,986

Core deposit intangible	$	33,299	$		$		$	3,329	$	29,970
Wealth management customer list intangible		898						90		808
Total intangible assets, net	$	34,197	$		$		$	3,419	$	30,778

	December 31, 2024
						Accumulated
		Beginning				Impairment		Year-to-Date		Ending
(Dollars in thousands)		Balance		Additions		Charges		Amortization⁽¹⁾		Balance
Goodwill	$	63,370	$	12,616	$		$		$	75,986
Total goodwill	$	63,370	$	12,616	$		$		$	75,986

Core deposit intangible	$		$	36,629	$		$	3,330	$	33,299
Wealth management customer list intangible				988				90		898
Total intangible assets, net	$		$	37,617	$		$	3,420	$	34,197

(1)

Core deposit intangible amortization is included in amortization of intangible assets in the consolidated statements of income and comprehensive income. Wealth management customer list intangible amortization is included in wealth management income on the consolidated statements of income and comprehensive income.

The aggregate amortization expense was $1.7 million and $3.4 million for the three and six months ended June 30, 2025. There was no amortization expense recorded for the three and six months ended June 30, 2024.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

At June 30, 2025, the estimated future remaining amortization of the core deposit intangible and wealth management customer list intangible within the years ending December 31, are as follows:


(Dollars in thousands)	CDI		Wealth management customer list intangible		Total
2025	$	2,998	$	81	$	3,079
2026		5,661		153		5,814
2027		4,995		135		5,130
2028		4,329		117		4,446
2029		3,663		99		3,762
Thereafter		8,324		223		8,547
Total amortizing intangible	$	29,970	$	808	$	30,778

7. Loans, net and allowance for credit losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs and unearned income at June 30, 2025, and December 31, 2024 are summarized as follows. The Company had net deferred loan origination costs of $2.1 million and $1.7 million at June 30, 2025 and December 31, 2024, respectively. Unearned income was $1.4 million at June 30, 2025 and $1.3 million at December 31, 2024.


(Dollars in thousands)	June 30, 2025		December 31, 2024
Commercial
Commercial and Industrial	$	678,539	$	648,102
Municipal		194,529		187,918
Total		873,068		836,020
Real estate
Commercial		2,252,574		2,294,113
Residential		573,864		551,383
Total		2,826,438		2,845,496
Consumer
Indirect Auto		104,618		117,914
Consumer Other		13,929		14,955
Total		118,547		132,869
Equipment Financing		179,472		179,120
Total	$	3,997,525	$	3,993,505

Allowance for Credit Losses

The ACL represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and held to maturity securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the ACL for loans is considered a critical accounting estimate by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

ACL. The ACL related to loans receivable and held to maturity debt securities is reported separately as a contra-asset on the consolidated balance sheets. The expected credit loss for unfunded lending commitments and unfunded loan commitments is reported on the consolidated balance sheets in other liabilities while the provision for credit losses related to unfunded commitments is reported in other noninterest expense in the consolidated statements of income and comprehensive income.

The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans, available for sale securities, and held to maturity securities. Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Consolidated Balance Sheets, totaled $13.6 million and $13.2 million at June 30, 2025 and December 31, 2024, respectively and is excluded from the estimate of credit losses. Accrued interest receivable on available for sale securities and held to maturity securities, also a component of accrued interest receivable on the Consolidated Balance Sheets, and totaled $2.1 million and $174 thousand, respectively, at June 30, 2025 and is excluded from the estimate of credit losses, as the Company has a policy to charge off accrued interest deemed uncollectible in a timely manner. At December 31, 2024, accrued interest receivable on available for sale securities and held to maturity securities was $2.2 million and $179 thousand, respectively.

The following tables present the changes in and period end balance of the allowance for credit losses at and for the three and six months ended June 30, 2025 and 2024.


	June 30, 2025
					Real estate						Equipment
(Dollars in thousands)	Commercial		Municipal		Commercial		Residential		Consumer		Financing		Total
Allowance for credit losses:
Beginning Balance April 1, 2025	$	6,422	$	1,249	$	20,861	$	5,069	$	2,281	$	5,172	$	41,054
Charge-offs		(415)				(62)				(259)		(415)		(1,151)
Recoveries		292				566		64		145		159		1,226
(Credits) provisions		(76)		197		(745)		(127)		14		498		(239)
Ending balance	$	6,223	$	1,446	$	20,620	$	5,006	$	2,181	$	5,414	$	40,890

	June 30, 2024
					Real estate						Equipment
(Dollars in thousands)	Commercial		Municipal		Commercial		Residential		Consumer		Financing		Total
Allowance for credit losses:
Beginning Balance April 1, 2024	$	2,287	$	698	$	14,470	$	4,258	$	884	$		$	22,597
Charge-offs		(41)								(94)				(135)
Recoveries		25						2		38				65
(Credits) provisions		(100)		13		686		(30)		27				596
Ending balance	$	2,171	$	711	$	15,156	$	4,230	$	855	$		$	23,123


	June 30, 2025
					Real estate						Equipment
(Dollars in thousands)	Commercial		Municipal		Commercial		Residential		Consumer		Financing		Total
Allowance for credit losses:
Beginning Balance January 1, 2025	$	6,004	$	1,072	$	21,804	$	4,924	$	2,540	$	5,432	$	41,776
Charge-offs		(572)				(62)		(92)		(646)		(1,012)		(2,384)
Recoveries		305				566		65		318		283		1,537
Provisions (Credits)		486		374		(1,688)		109		(31)		711		(39)
Ending balance	$	6,223	$	1,446	$	20,620	$	5,006	$	2,181	$	5,414	$	40,890

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

	June 30, 2024
					Real estate						Equipment
(Dollars in thousands)	Commercial		Municipal		Commercial		Residential		Consumer		Financing	Total
Allowance for credit losses:
Beginning Balance January 1, 2024	$	2,272	$	788	$	14,153	$	3,782	$	900	$	$	21,895
Charge-offs		(46)								(197)			(243)
Recoveries		80						4		83			167
(Credits) provisions		(135)		(77)		1,003		444		69			1,304
Ending balance	$	2,171	$	711	$	15,156	$	4,230	$	855	$	$	23,123

The following table represents the allowance for credit losses by major classification of loan and whether the loans were individually or collectively evaluated and collateral dependent by class of loans at June 30, 2025 and December 31, 2024.


	June 30, 2025
					Real estate						Equipment
(Dollars in thousands)	Commercial		Municipal		Commercial		Residential		Consumer		Financing		Total
Allowance for credit losses:
Ending balance	$	6,223	$	1,446	$	20,620	$	5,006	$	2,181	$	5,414	$	40,890
Ending balance: individually evaluated		286										385		671
Ending balance: collectively evaluated		5,937		1,446		20,620		5,006		2,181		5,029		40,219
Loans receivable:
Ending balance	$	678,539	$	194,529	$	2,252,574	$	573,864	$	118,547	$	179,472	$	3,997,525
Individually evaluated - collateral dependent - real estate		1,718				10,330		1,960						14,008
Individually evaluated - collateral dependent - non-real estate		376				931						1,471		2,778
Collectively evaluated		676,445		194,529		2,241,313		571,904		118,547		178,001		3,980,739


	December 31, 2024
					Real estate						Equipment
(Dollars in thousands)	Commercial		Municipal		Commercial		Residential		Consumer		Financing		Total
Allowance for loan losses:
Ending balance	$	6,004	$	1,072	$	21,804	$	4,924	$	2,540	$	5,432	$	41,776
Ending balance: individually evaluated for impairment		325				190						434		949
Ending balance: collectively evaluated for impairment		5,679		1,072		21,614		4,924		2,540		4,998		40,827
Loans receivable:
Ending balance	$	648,102	$	187,918	$	2,294,113	$	551,383	$	132,869	$	179,120	$	3,993,505
Individually evaluated - collateral dependent - real estate		906				15,326		3,212						19,444
Individually evaluated - collateral dependent - non-real estate		1,007				284						1,429		2,720
Collectively evaluated		646,189		187,918		2,278,503		548,171		132,869		177,691		3,971,341

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Nonaccrual Loans

The following table presents the Company’s nonaccrual loans, including non-PCD nonaccrual loans, at June 30, 2025 and December 31, 2024.



		June 30, 2025
		Total		Nonaccrual with		Nonaccrual with
		Nonaccrual		an Allowance for		no Allowance for
(Dollars in thousands)		Loans		Credit Losses		Credit Losses
Commercial	$	2,094	$	906	$	1,188
Municipal
Real estate:
Commercial		11,261				11,261
Residential		1,885				1,885
Consumer		699				699
Equipment Financing		1,451		1,196		255
Total	$	17,390	$	2,102	$	15,288



		December 31, 2024
		Total		Nonaccrual with		Nonaccrual with
		Nonaccrual		an Allowance for		no Allowance for
(Dollars in thousands)		Loans		Credit Losses		Credit Losses
Commercial	$	1,907	$	343	$	1,564
Municipal
Real estate:
Commercial		15,609		2,574		13,035
Residential		2,809				2,809
Consumer		744				744
Equipment Financing		1,430		819		611
Total	$	22,499	$	3,736	$	18,763

Interest income recorded on nonaccrual loans was $91 thousand and $43 thousand for the three months ended June 30, 2025 and June 30, 2024, respectively. Interest income recorded on nonaccrual loans was $143 thousand and $74 thousand for the six months ended June 30, 2025 and June 30, 2024, respectively.

The Company segments loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are individually analyzed for credit risk by classifying them within the Company’s internal risk rating system. The Company’s risk rating classifications are defined as follows:

●

Pass - A loan to borrowers with acceptable credit quality and risk that is not adversely classified as Substandard, Doubtful, Loss nor designated as Special Mention.

●

Special Mention - A loan that has potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified since they do not expose the Company to sufficient risk to warrant adverse classification.

●

Substandard - A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that Peoples Bank will sustain some loss if the deficiencies are not corrected.

●

Doubtful – A loan classified as Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

●

Loss - A loan classified as Loss is considered uncollectible and of such little value that its continuance as bankable loan is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The following table presents the amortized cost of loans and gross charge-offs by year of origination and by major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at June 30, 2025 and December 31, 2024:


	As of June 30, 2025
(Dollars in thousands)		2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial
Pass	$	53,110	$	67,936	$	60,956	$	71,046	$	55,199	$	117,515	$	215,243	$	128	$	641,133
Special Mention		378		1,203		1,119		550		4,228		2,849		16,611		906		27,844
Substandard						470		643		808		388		7,253				9,562
Total Commercial		53,488		69,139		62,545		72,239		60,235		120,752		239,107		1,034		678,539

Municipal
Pass		10,194		10,414		1,387		49,464		96,720		24,803		1,547				194,529
Special Mention
Substandard
Total Municipal		10,194		10,414		1,387		49,464		96,720		24,803		1,547				194,529

Commercial real estate
Pass		129,836		151,578		187,238		609,100		472,097		636,185				399		2,186,433
Special Mention		581		96		304		1,207		7,060		26,763				89		36,100
Substandard				1,222		3,517		11,322		4,214		9,766						30,041
Total Commercial real estate		130,417		152,896		191,059		621,629		483,371		672,714				488		2,252,574

Residential real estate
Pass		28,548		38,840		42,289		70,653		109,201		160,240		122,925				572,696
Special Mention
Substandard										123		967		78				1,168
Total Residential real estate		28,548		38,840		42,289		70,653		109,324		161,207		123,003				573,864

Consumer
Pass		14,182		24,671		30,695		29,602		13,655		4,170		835				117,810
Special Mention
Substandard				36		102		245		173		178		3				737
Total Consumer		14,182		24,707		30,797		29,847		13,828		4,348		838				118,547

Equipment Financing
Pass		30,875		60,616		54,862		29,742		1,304								177,399
Special Mention						148		20										168
Substandard		246		226		844		589										1,905
Total Equipment Financing		31,121		60,842		55,854		30,351		1,304								179,472

Total Loans	$	267,950	$	356,838	$	383,931	$	874,183	$	764,782	$	983,824	$	364,495	$	1,522	$	3,997,525

Gross charge-offs
Commercial	$		$		$		$	24	$	57	$	491	$		$		$	572
Municipal
Commercial real estate								62										62
Residential real estate								92										92
Consumer				104		206		256		56		24						646
Equipment Financing						559		453										1,012
Total Gross charge-offs	$		$	104	$	765	$	887	$	113	$	515	$		$		$	2,384

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)



	December 31, 2024
(Dollars in thousands)		2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial
Pass	$	61,657	$	69,329	$	83,123	$	64,488	$	29,950	$	91,906	$	199,737	$	68	$	600,258
Special Mention		1,273		1,131		686		13,475		2,043		1,261		16,840				36,709
Substandard				300		854		904		85		597		8,395				11,135
Total Commercial		62,930		70,760		84,663		78,867		32,078		93,764		224,972		68		648,102

Municipal
Pass		5,072		6,254		50,886		99,064		9,932		13,816		2,894				187,918
Special Mention
Substandard
Total Municipal		5,072		6,254		50,886		99,064		9,932		13,816		2,894				187,918

Commercial real estate
Pass		161,186		196,779		651,254		525,233		156,970		538,905						2,230,327
Special Mention		1,231		46		2,724		4,361		1,635		24,951						34,948
Substandard				3,276		8,883		1,106		1,704		13,869						28,838
Total Commercial real estate		162,417		200,101		662,861		530,700		160,309		577,725						2,294,113

Residential real estate
Pass		39,488		45,172		77,862		123,154		50,831		106,877		105,867		67		549,318
Special Mention
Substandard								126		296		1,565		78				2,065
Total Residential real estate		39,488		45,172		77,862		123,280		51,127		108,442		105,945		67		551,383

Consumer
Pass		28,872		38,223		38,668		18,963		4,132		2,495		853				132,206
Special Mention
Substandard		65		156		209		124		43		64		2				663
Total Consumer		28,937		38,379		38,877		19,087		4,175		2,559		855				132,869

Equipment Financing
Pass		67,100		66,341		39,323		4,259										177,023
Special Mention				261		125												386
Substandard				697		1,014												1,711
Total Equipment Financing		67,100		67,299		40,462		4,259										179,120

Total Loans	$	365,944	$	427,965	$	955,611	$	855,257	$	257,621	$	796,306	$	334,666	$	135	$	3,993,505

Gross charge-offs
Commercial	$		$	41	$		$	2	$		$	8	$		$		$	51
Municipal
Commercial real estate												282						282
Residential real estate
Consumer		90		245		255		183		32		87						892
Equipment Financing				551		109												660
Total Gross charge-offs	$	90	$	837	$	364	$	185	$	32	$	377	$		$		$	1,885

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The major classifications of loans by past due status are summarized as follows at June 30, 2025 and December 31, 2024:


	June 30, 2025
					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
(Dollars in thousands)	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	648	$	200	$	1,922	$	2,770	$	675,769	$	678,539	$
Municipal										194,529		194,529
Real estate:
Commercial		5,049		411		6,984		12,444		2,240,130		2,252,574
Residential		1,599		650		1,504		3,753		570,111		573,864		70
Consumer		2,154		448		312		2,914		115,633		118,547		2
Equipment Financing		1,507		426		424		2,357		177,115		179,472
Total	$	10,957	$	2,135	$	11,146	$	24,238	$	3,973,287	$	3,997,525	$	72


	December 31, 2024
					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
(Dollars in thousands)	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	2,740	$	157	$	838	$	3,735	$	644,367	$	648,102	$
Municipal										187,918		187,918
Real estate:
Commercial		2,800		141		11,164		14,105		2,280,008		2,294,113
Residential		2,390		997		2,477		5,864		545,519		551,383		403
Consumer		2,393		539		492		3,424		129,445		132,869		55
Equipment Financing		639		1,259		815		2,713		176,407		179,120
Total	$	10,962	$	3,093	$	15,786	$	29,841	$	3,963,664	$	3,993,505	$	458

The amount of residential loans in the formal process of foreclosure totaled $0.2 million at June 30, 2025 and December 31, 2024.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Allowance for Credit Losses on Off Balance Sheet Commitments

The following table presents the activity in the ACL on off balance sheet commitments, which includes commitments to extend credit, unused portions of lines of credit and standby letters of credit, for the three and six months ended June 30, 2025 and 2024:


		For the Three Months Ended
(Dollars in thousands)		June 30, 2025		June 30, 2024
Beginning balance	$	677	$	530
Provision for (credit to) credit losses recorded in noninterest expense		172		(196)
Total allowance for credit losses on off balance sheet commitments	$	849	$	334

		For the Six Months Ended
(Dollars in thousands)		June 30, 2025		June 30, 2024
Beginning balance	$	880	$	43
Charge-off		(1)
(Credit to) provision for credit losses recorded in noninterest expense		(30)		291
Total allowance for credit losses on off balance sheet commitments	$	849	$	334

The contractual amounts of off-balance sheet commitments at June 30, 2025 and December 31, 2024 are as follows:


(Dollars in thousands)	June 30, 2025		December 31, 2024
Commitments to extend credit	$	603,551	$	589,725
Unused portions of lines of credit		163,600		150,840
Standby letters of credit		69,775		60,353
	$	836,926	$	800,918

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Modifications to Borrowers Experiencing Financial Difficulty

The following table presents, by class of loans, information regarding nonaccrual modified loans to borrowers experiencing financial difficulty during the three and six months ended June 30, 2025 and 2024. There were no new nonaccrual modified loans during the three months ended June 30, 2025 or 2024.

Other-Than-Insignificant Payment Delay

For the six months ended June 30, 2025 and June 30, 2024

2025

2024

Number
of

Amortized Cost

% of Total Class of Financing

Related

Number
of

Amortized Cost

% of Total Class of Financing

Related

(Dollars in thousands)

Loans

Basis

Receivable

Reserve

Loans

Basis

Receivable

Reserve

Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Commercial and industrial

242

0.036%

Total

242

There was one modification of an accruing loan in 2025. There were no modifications of accruing loans in 2024.

The following table presents, by class of loans, information regarding the financial effect on nonaccrual modified loans to borrowers experiencing financial difficulty during the six months ended June 30, 2025 and 2024.



	Other-Than-Insignificant Payment Delay
(Dollars in thousands)	No. of Loans	Financial Effect
For the Six Months Ended June 30, 2025
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Commercial and Industrial	1	Modified principal and interest payment to interest only for 4 months

Total	1
For the Six Months Ended June 30, 2024
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Commercial and Industrial
Total

The following tables present, by class of loans, the amortized cost and performance status of nonaccrual modified loans to borrowers experiencing financial difficulty that have been modified in the six months ended June 30, 2025 and 2024.

For the six months ended June 30, 2025

(Dollars in thousands)

Current

30-89 Days Past Due

90 Days or More Past Due

Total

Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Commercial and Industrial

242

Total

242

For the six months ended June 30, 2024

(Dollars in thousands)

Current

30-89 Days Past Due

90 Days or More Past Due

Total

Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Commercial and Industrial

Total

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

8. Other assets:

The components of other assets at June 30, 2025 and December 31, 2024 are summarized as follows:


(Dollars in thousands)		June 30, 2025		December 31, 2024
Other real estate owned	$	711	$	738
Mortgage servicing rights ⁽¹⁾		1,218		1,304
Prepaid shares tax		1,463		1,304
Equity investments without readily determinable fair value		5,186		5,080
Prepaid pension		6,105		5,788
Prepaid expenses		8,276		7,031
Restricted equity securities (FHLB and ACBB)		11,711		10,220
Investment in low income housing partnerships		16,156		17,886
Interest rate swaps⁽²⁾		16,325		20,537
Other assets		6,199		5,031
Total	$	73,350	$	74,919

(1)

The Company originates one-to-four family residential mortgage loans for sale in the secondary market with servicing rights retained. Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage loans serviced for others were $177.9 million at June 30, 2025 and $185.2 million at December 31, 2024.

(2)

Interest rate swaps balance represents the fair value of the commercial loan back-to-back swaps.

9. Fair value estimates:

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under GAAP. Fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial. Accordingly, such assets and liabilities are excluded from disclosure requirements.

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument.

Current fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction that is not a forced liquidation or distressed sale between participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

In accordance with GAAP, the Company groups its assets and liabilities generally measured at fair value into three levels based on market information or other fair value estimates in which the assets and liabilities are traded or valued and the reliability of the assumptions used to determine fair value. These levels include:

●

Level 1: Unadjusted quoted prices of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

●

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

●

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value estimate.

At June 30, 2025, the Company owned 26 corporate debt securities with an aggregate amortized cost and fair value of $24.5 million and $24.4 million, respectively. At June 30, 2025, the market for two corporate debt securities was not active based on transaction criteria for similar instruments. The aggregate amortized cost and fair value for these two securities was $1.7 million and $1.9 million, respectively, at June 30, 2025. The Company obtained valuations for these securities from a third-party service provider that prepared the valuations using a market approach that involves identifying a population of transactions for similar instruments and incorporating an evaluation to capture credit risk associated with these bonds. Management takes measures to validate the service providers’ analysis and is actively involved in the valuation process, including reviewing the population and evaluation of credit risk. Management believes this approach to be a conservative approach as it takes into consideration securities that have longer maturities or longer call dates, issuers with smaller asset sizes, and securities with smaller issue amounts. These factors are typically considered to be factors that would add credit spread to a bond, thus resulting in a higher required yield. Management believes the valuation results from this market approach to be consistent with pricing and data for similar deals at June 30, 2025. The Company considers the inputs used in the market approach to be unobservable Level 3 inputs because, while inputs are based on actual transactions, the relative number of transactions in the population is small and subjective assumptions are used in determining and applying factors to incorporate credit spreads into the price determination. Management will continue to monitor the market for these securities to assess the market activity and the availability of observable inputs and will continue to apply these controls and procedures to the valuations received from Peoples’ third-party service provider. During the quarter and six months ended June 30, 2025, there were no transfers into Level 3.

The following methods and assumptions were used by the Company to calculate fair values and related carrying amounts of financial instruments:

Investment securities: The fair values of U.S. Treasury securities and marketable equity securities are based on quoted market prices from active exchange markets. The fair values of debt securities are based on pricing from a matrix pricing model.

Interest rate swaps and floors: The Company’s interest rate swaps and options are reported at fair value utilizing Level 2 inputs. Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for interest rate, forward rates, rate volatility, and volatility surface. Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Individually evaluated loans: Fair values for individually evaluated loans are estimated using underlying collateral values, where applicable.

Other real estate owned: Other real estate owned ("OREO") represents properties that the Company has acquired through foreclosure by either accepting a deed in lieu of foreclosure, or by taking possession of assets that collateralized a loan, and former bank premises that are no longer used for operations or for future expansion. The Company reports OREO at the lower of cost or fair value less cost to sell, adjusted periodically based on a current appraisal. Write-downs and any gain or loss upon the sale of OREO is recorded in other noninterest income. OREO is reported in other assets on the consolidated balance sheets. OREO had a carrying amount of $711 thousand and $738 thousand at June 30, 2025 and December 31, 2024, respectively. During the year ended December 31, 2024, one residential real estate property with a carrying value of $27 thousand and one former community banking office with a carrying value of $711 thousand were transferred to OREO. Other real estate owned is classified within Level 3 in the fair value hierarchy based on appraisals, letters of intent or agreement of sale received from third parties.

Assets and liabilities measured at fair value on a recurring basis at June 30, 2025 and December 31, 2024 are summarized as follows:


	At June 30, 2025
	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
(Dollars in thousands)	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	145,181	$	145,181	$		$
State and municipals:
Taxable		62,452				62,452
Tax-exempt		68,252				68,252
Residential mortgage-backed securities:
U.S. government agencies		10,202				10,202
U.S. government-sponsored enterprises		134,728				134,728
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		1,880				1,880
Private collateralized mortgage obligations		37,435				37,435
Asset backed securities		19,890				19,890
Corporate debt securities		24,441				22,518		1,923
Negotiable certificates of deposit		720				720
Common equity securities		2,494		2,494
Total investment securities	$	507,675	$	147,675	$	358,077	$	1,923
Interest rate swap-other assets	$	16,325			$	16,325
Interest rate swap-other liabilities	$	(16,051)			$	(16,051)

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)


	At December 31, 2024
	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
(Dollars in thousands)	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	167,551	$	167,551	$		$
State and municipals:
Taxable		68,899				68,899
Tax-exempt		66,117				66,117
Residential mortgage-backed securities:
U.S. government agencies		1,376				1,376
U.S. government-sponsored enterprises		126,376				126,376
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		1,856				1,856
Private collateralized mortgage obligations		38,572				38,572
Asset backed securities		23,252				23,252
Corporate debt securities		31,621				26,999		4,622
Negotiable certificates of deposit		709				709
Common equity securities		2,430		2,430
Total investment securities	$	528,759	$	169,981	$	354,156	$	4,622
Interest rate swap-other assets	$	20,537			$	20,537
Interest rate swap-other liabilities	$	(20,151)			$	(20,151)

Assets and liabilities measured at fair value on a nonrecurring basis at June 30, 2025 and December 31, 2024 are summarized as follows:


	June 30, 2025
	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
(Dollars in thousands)	Amount		(Level 1)	(Level 2)	(Level 3)
Loans individually evaluated for credit loss	$	16,785	$	$	$	16,785
Other real estate owned	$	711	$	$	$	711


	December 31, 2024
	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
(Dollars in thousands)	Amount		(Level 1)	(Level 2)	(Level 3)
Loans individually evaluated for credit loss	$	22,164	$	$	$	22,164
Other real estate owned	$	738	$	$	$	738

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis at June 30, 2025 and December 31, 2024 and for which the Company has utilized Level 3 inputs to determine fair value:


	June 30, 2025
	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
(Dollars in thousands, except percents)	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Loans individually evaluated for credit loss	$	16,785	Appraisal of collateral	Appraisal adjustments	2.6% to 98.2% (71.5)%
				Liquidation expenses	3.0% to 6.0% (5.6)%
Other real estate owned	$	711	Appraisal of collateral	Appraisal adjustments	0.0% to 10.0% (9.7)%
				Liquidation expenses	3.0% to 6.0% (5.0)%


	December 31, 2024
	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
(Dollars in thousands, except percents)	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Loans individually evaluated for credit loss	$	22,164	Appraisal of collateral	Appraisal adjustments	3.0% to 111.9% (59.6)%
				Liquidation expenses	0.0% to 6.0% (5.6)%
Other real estate owned	$	738	Appraisal of collateral	Appraisal adjustments	0.0% to 10.0% (9.7)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The carrying and fair values of the Company’s financial instruments at June 30, 2025 and December 31, 2024 and their placement within the fair value hierarchy are as follows:


					June 30, 2025
					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(Dollars in thousands)	Value		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	175,739	$	175,739	$	175,739	$		$
Investment securities:
Available for sale		505,181		505,181		145,181		358,077		1,923
Held to maturity		75,137		64,253				64,253
Common equity securities		2,494		2,494		2,494
Loans held for sale		547		547				547
Net loans		3,956,635		3,889,102						3,889,102
Accrued interest receivable		15,854		15,854				15,854
Mortgage servicing rights		1,218		2,161				2,161
Restricted equity securities (FHLB and other)		11,711		11,711				11,711
Other assets - interest rate swaps		16,325		16,325				16,325
Total	$	4,760,841	$	4,683,367
Financial liabilities:
Deposits	$	4,287,349	$	4,283,514	$		$	4,283,514	$
Short-term borrowings		76,340		76,220				76,220
Long-term debt		103,449		104,334				104,334
Subordinated debt		83,164		83,417				83,417
Junior subordinated debt		8,088		9,037				9,037
Accrued interest payable		4,640		4,640				4,640
Other liabilities - interest rate swaps		16,051		16,051				16,051
Total	$	4,579,081	$	4,577,213

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)


					December 31, 2024
					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(Dollars in thousands)	Value		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	135,851	$	135,851	$	135,851	$		$
Investment securities:
Available for sale		526,329		526,329		167,551		354,156		4,622
Held to maturity		78,184		65,152				65,152
Common equity securities		2,430		2,430		2,430
Loans held for sale
Net loans		3,951,729		3,830,062						3,830,062
Accrued interest receivable		15,632		15,632				15,632
Mortgage servicing rights		1,304		2,314				2,314
Restricted equity securities (FHLB and other)		10,220		10,220				10,220
Other assets - interest rate swaps		20,537		20,537				20,537
Total	$	4,742,216	$	4,608,527
Financial liabilities:
Deposits	$	4,407,552	$	4,404,117	$		$	4,404,117	$
Short-term borrowings		15,900		15,900				15,900
Long-term debt		98,637		98,875				98,875
Subordinated debt		33,000		32,506				32,506
Junior subordinated debt		8,039		8,167				8,167
Accrued interest payable		5,503		5,503				5,503
Other liabilities - interest rate swaps		20,151		20,151				20,151
Total	$	4,588,782	$	4,585,219

10. Employee benefit plans:

The Company provides an Employee Stock Ownership Plan (“ESOP”) and a Retirement Profit Sharing Plan. The Company also maintains Supplemental Executive Retirement Plans (“SERPs”) and an Employees’ Pension Plan, which is currently frozen. On June 25, 2025, the board of directors adopted a resolution to merge the ESOP into the Retirement Profit Sharing Plan effective as of October 31, 2025.

For the three and six months ended June 30, salaries and employee benefits expense includes approximately $454 thousand and $1.2 million in 2025 and $294 thousand and $620 thousand in 2024 relating to the employee benefit plans.


	Three Months Ended June 30,
	Pension Benefits
(Dollars in thousands)	2025		2024
Net periodic pension benefit:
Interest cost	$	165	$	158
Expected return on plan assets		(337)		(320)
Amortization of unrecognized net loss		35		49
Net periodic pension benefit	$	(137)	$	(113)

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)


	Six Months Ended June 30,
	Pension Benefits
(Dollars in thousands)	2025		2024
Net periodic pension benefit:
Interest cost	$	330	$	317
Expected return on plan assets		(674)		(641)
Amortization of unrecognized net loss		70		97
Net periodic pension benefit:		(274)		(227)

In May 2017, the Company’s stockholders approved the 2017 equity incentive plan (“2017 Plan”). In May 2023, the Company’s stockholders approved the 2023 equity incentive plan (“2023 Plan”). The 2017 Plan and 2023 Plan authorize grants of stock options, stock appreciation rights, cash awards, performance awards, restricted stock, and restricted stock units. Under the 2017 Plan and 2023 Plan the compensation committee of the Company’s board of directors has the authority to, among other things:

●

Select the persons to be granted awards under the Plan.

●

Determine the type, size, and term of awards.

●

Determine whether such performance objectives and conditions have been met.

●

Accelerate the vesting or exercisability of an award.

Persons eligible to receive awards under the 2017 Plan and 2023 Plan include directors, officers, employees, consultants and other service providers of the Company and its subsidiaries.

On July 1, 2024, as a result of the FNCB merger, the Company assumed the outstanding and unvested restricted stock awards granted under the FNCB Bancorp, Inc. 2023 Equity Incentive Plan. These awards are being expensed over the remaining life of 47 months. For the three and six months ended June 30, 2025, the Company recognized net compensation expense of $29 thousand and $57 thousand, respectively.

As of June 30, 2025, 37,302 shares of the Company’s common stock were available for grants as awards pursuant to the 2023 Plan. While the 2017 Plan will remain in effect in accordance with its terms to govern outstanding awards under that plan, the Company intends to make future grants under the 2023 Plan. If any awards outstanding under the 2017 Plan or 2023 Plan are forfeited by the holder or canceled by the Company, the underlying shares would be available for regrant to others under the 2023 Plan.

For the six months ended June 30, 2025, the Company granted 39,249 performance based restricted stock units and 17,107 time based restricted stock units under the 2023 Plan. For the six months ended June 30, 2024, the Company granted 23,243 performance based restricted stock units and 8,895 time based restricted stock units under the 2023 Plan.

The non-performance restricted stock awards and restricted stock units made in 2025, 2024 and 2023 vest equally over three years. The performance-based restricted stock units vest over two or three fiscal years and include conditions based on the Company’s two- and three-year cumulative diluted earnings per share and two and three-year average return on tangible common that determines the number of restricted stock units that may vest.

The Company expenses the fair value of all-share based compensation over the requisite service period commencing at grant date. The fair value of restricted stock is expensed on a straight-line basis. Compensation is recognized over the vesting period and adjusted based on the performance criteria. The Company classifies share-based compensation for

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

employees within “salaries and employee benefits expense” on the consolidated statements of income and comprehensive income.

The Company recognized compensation costs of $175 thousand and $455 thousand for the three and six months ended June 30, 2025 for awards granted under the 2023 Plan. In addition, the Company reversed $491 thousand in accrued expense related to the vesting of 2022 performance restricted stock unit awards and $213 thousand related to the 2024 performance stock unit awards.

The Company recognized net compensation costs of $200 thousand and $399 thousand for the three and six months ended June 30, 2024 for awards granted under the 2023 Plan and recognized compensation expense of $84 thousand and $167 thousand for the three and six months ended June 30, 2024 for the awards granted under the 2017 Plan.

As of June 30, 2025, the Company had $2.1 million of unrecognized compensation expense associated with restricted stock and restricted stock unit awards. The remaining cost is expected to be recognized over a weighted average vesting period of under 2.9 years.

11. Derivatives and hedging activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts principally related to the Company’s assets and borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income/expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and floors as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up-front premium. Such derivatives have been used to hedge the variable cash flows associated with existing variable-rate assets and issuances of debt.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive (loss) income, (“AOCI”) and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense/income as interest payments are made/received on the Company’s variable-rate debt/assets. During the next twelve months, the Company estimates that no amount will be reclassified as a reduction to interest income.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain of its fixed-rate pools of assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate, the Secured Overnight Financing Rate (“SOFR”). Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

As of June 30, 2025 and December 31, 2024, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustment for fair value hedges:


Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included		Amortized Amount of the Hedged Assets/(Liabilities)				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
(Dollars in thousands)		June 30, 2025		December 31, 2024		June 30, 2025		December 31, 2024
AFS Securities (1)	$	149,825	$	155,731	$	371	$	239
Fixed Rate Loans (2)		50,065		50,195		65		195
Total	$	199,890	$	205,926	$	436	$	434

(1)

Fixed Rate AFS Securities. These amounts include the amortized cost basis of closed portfolios of fixed rate assets used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. The amounts of the designated hedged items were $75.0 million at June 30, 2025 and $100.0 million at December 31, 2024.

(2)

Fixed Rate Loan Assets. These amounts include the carrying value of fixed rate loan assets used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At June 30, 2025 and December 31, 2024, the principal value of the hedged item was $50.0 million.

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. As of June 30, 2025, the Company had 138 interest rate swaps and 9 associated risk participation agreements with a current asset aggregate notional amount of $323.6 million and a current liability aggregate notional amount of $318.3 million related to this program.

The Company’s existing credit derivatives result from participations in or out of interest rate swaps provided by or to external lenders as part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain lenders which participate in loans.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of June 30, 2025 and December 31, 2024.



Fair Values of Derivative Instruments
		Derivative Assets								Derivative Liabilities

		As of June 30, 2025 (1)				As of December 31, 2024 (1)				As of June 30, 2025 (1)				As of December 31, 2024 (1)
(Dollars in thousands)		Notional Amount	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value		Notional Amount	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Interest rate products	$		Other assets	$		Other assets	$		$	125,000	Other liabilities	$	446	Other liabilities	$	447
Total derivatives designated as hedging instruments				$			$					$	446		$	447

Derivatives not designated as hedging instruments
Interest rate products	$	311,229	Other assets	$	16,700	Other assets	$	21,005	$	311,229	Other liabilities	$	16,426	Other liabilities	$	20,619
Other contracts		12,363	Other assets		2	Other assets		1		7,087	Other liabilities			Other liabilities
Total derivatives not designated as hedging instruments				$	16,702		$	21,006				$	16,426		$	20,619

(1)

The notional asset amount of interest rate swaps at June 30, 2025 was $311.2 million and $24.4 million for risk participation agreements. The notional asset amount of interest rate swaps at December 31, 2024 was $297.9 million and $12.4 million for risk participation agreements. The notional liability amount of interest rate swaps at June 30, 2025 was $311.2 million and $7.1 million for risk participation agreements. The notional liability amount of interest rate swaps at December 31, 2024 was $ 297.9 million and $7.2 million for risk participation agreements. Amounts include accrued interest.

Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income and Comprehensive Income

The tables below present the effect of fair value and cash flow hedge accounting on the Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2025 and December 31, 2024.


	Location and Amount of Gain or (Loss)
	Recognized in Income on Fair Value and
	Cash Flow Hedging Relationships
	For the Three Months Ended June 30,
		2025		2024
(Dollars in thousands)		Interest Income		Interest Income

Total amounts of income and expense line items presented in the consolidated statements of income and
comprehensive income in which the effects of fair value or cash flow hedges are recorded.	$	(13)	$	(793)

The effects of fair value and cash flow hedging:
Gain or (loss) on fair value hedging relationships
Interest contracts
Hedged items		(106)		(237)
Derivatives designated as hedging instruments		93		(556)
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of (loss) gain reclassified from AOCI into income
Amount of gain reclassified from AOCI into income - Included Component
Amount of (loss) reclassified from AOCI into income - Excluded Component

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)


	Location and Amount of Gain or (Loss)
	Recognized in Income on Fair Value and
	Cash Flow Hedging Relationships
	For the Six Months Ended June 30,
		2025		2024
(Dollars in thousands)		Interest Income		Interest Income

Total amounts of income and expense line items presented in the statements of income and
comprehensive income (loss) in which the effects of fair value or cash flow hedges are recorded.	$	(53)	$	632

The effects of fair value and cash flow hedging:
Gain or (loss) on fair value hedging relationships
Interest contracts
Hedged items		1		(1,804)
Derivatives designated as hedging instruments		(54)		2,436
in earnings based on an amortization approach
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of (loss) reclassified from AOCI into income
Amount of gain reclassified from AOCI into income - Included Component
Amount of (loss) reclassified from AOCI into income - Excluded Component	$		$

Effect of Derivative Instruments Not Designated as Hedging Instruments on the Consolidated Statements of Income and Comprehensive Income

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of income and comprehensive income for the three and six months ended June 30, 2025 and 2024.


		Amount of Gain or (Loss)		Amount of Gain or (Loss)		Amount of Gain or (Loss)		Amount of Gain or (Loss)
		Recognized in		Recognized in		Recognized in		Recognized in
	Location of Gain or (Loss)	Income on Derivative		Income on Derivative		Income on Derivative		Income on Derivative
	Recognized in Income	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
(Dollars in thousands)	on Derivatives	June 30, 2025		June 30, 2024		June 30, 2025		June 30, 2024
Derivatives not designated as hedging instruments:
Interest rate products	Other income / (other expense)	$	(48)	$	(8)	$	(111)	$	(50)
Other contracts	Other income / (other expense)		(4)				(4)		(1)
Total		$	(52)	$	(8)	$	(115)	$	(51)

Fee income	Fee income	$	318	$	110	$	212	$	128

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, presentation of the Company’s derivatives as of June 30, 2025 and December 31, 2024. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Balance Sheets.

Offsetting of Derivative Assets

as of June 30, 2025

Gross Amounts Not Offset in the Balance Sheet

Gross

Net Amounts

Amounts of

Gross Amounts

of Assets

Recognized

Offset in the

presented in the

Financial

Cash Collateral

Net

(Dollars in thousands)

Assets

Balance Sheet

Instruments

Posted

Amount

Derivatives

16,700

12,140

4,560

Offsetting of Derivative Liabilities

as of June 30, 2025

Gross Amounts Not Offset in the Balance Sheet

Gross

Net Amounts

Amounts of

Gross Amounts

of Liabilities

Recognized

Offset in the

presented in the

Financial

Cash Collateral

Net

(Dollars in thousands)

Liabilities

Balance Sheet

Instruments

Posted*

Amount

Derivatives

16,872

Offsetting of Derivative Assets

as of December 31, 2024

Gross Amounts Not Offset in the Balance Sheet

Gross

Net Amounts

Amounts of

Gross Amounts

of Assets

Recognized

Offset in the

presented in the

Financial

Cash Collateral

Net

(Dollars in thousands)

Assets

Balance Sheet

Instruments

Posted

Amount

Derivatives

21,005

15,900

5,105

Offsetting of Derivative Liabilities

as of December 31, 2024

Gross Amounts Not Offset in the Balance Sheet

Gross

Net Amounts

Amounts of

Gross Amounts

of Liabilities

Recognized

Offset in the

presented in the

Financial

Cash Collateral

Net

(Dollars in thousands)

Liabilities

Balance Sheet

Instruments

Posted*

Amount

Derivatives

21,065

*Cash collateral of $2.2 million and $0.8 million was paid as of June 30, 2025 and December 31, 2024, respectively, but not presented as an offset above.

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of June 30, 2025, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $2.3 million. As of December 31, 2024, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $350 thousand. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $2.2 million and $0.8 million against its obligations under these agreements at June 30, 2025 and December 31, 2024, respectively. Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the agreement. The cash collateral is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at the termination value.

12. Deposits

The major components of interest-bearing and noninterest-bearing deposits at June 30, 2025 and December 31, 2024 are summarized as follows:


(Dollars in thousands)		June 30, 2025		December 31, 2024
Interest-bearing deposits:
Money market accounts	$	971,136	$	936,239
Interest-bearing demand and NOW accounts		1,200,911		1,238,853
Savings accounts		500,680		492,180
Time deposits less than $250		543,257		620,725
Time deposits $250 or more		171,768		184,039
Total interest-bearing deposits		3,387,752		3,472,036
Noninterest-bearing deposits		899,597		935,516
Total deposits	$	4,287,349	$	4,407,552

The scheduled maturities of all time deposits through June 30 of each year are summarized as follows:


(Dollars in thousands)
2026	$	600,021
2027		80,197
2028		19,103
2029		6,429
2030		7,044
Thereafter		2,231
	$	715,025

13. Borrowings

Short-term borrowings consist of FHLB overnight borrowings or advances with stated original terms of less than twelve months and other borrowings related to collateral held from derivative counterparties. Short-term borrowings at June 30, 2025, which included overnight FHLB advances and collateral pledged by derivative counterparties to offset interest rate

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

exposure, totaled $76.3 million. Short-term borrowings at December 31, 2024 which included cash collateral pledged by derivative counterparties to offset interest rate exposure, totaled $15.9 million.

The table below outlines short-term borrowings at and for the six months ended June 30, 2025 and at and for the year ended December 31, 2024:


		At and for the six months ended June 30, 2025
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
(Dollars in thousands, except percents)	Balance		Balance		Balance		the Period		of the Period
FHLB advances - Overnight	$	64,200	$	12,883	$	64,200	4.77	%	4.71	%
Other borrowings		12,140		15,042		18,160	4.44		4.35
Total short-term borrowings	$	76,340	$	27,925	$	82,360	4.59	%	4.65	%


	At and for the year ended December 31, 2024
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
(Dollars in thousands, except percents)	Balance		Balance		Balance		the Year		of the Year
FHLB advances - Overnight	$		$	6,733	$	83,900	5.53	%		%
Federal Reserve Bank - BTFP				12,352		24,968	5.73
Other borrowings		15,900		18,035		25,050	5.27		4.34
Total short-term borrowings	$	15,900	$	37,120	$	133,918	5.48	%	4.34	%

The Company has an agreement with the FHLB which allows for borrowings up to its maximum borrowing capacity based on a percentage of qualifying collateral assets. Advances with the FHLB are secured under terms of a blanket collateral agreement by a pledge of FHLB stock and certain other qualifying collateral, such as investments and mortgage-backed securities and mortgage loans. Interest accrues daily on the FHLB advances based on rates of the FHLB discount notes. The overnight borrowing rate resets each day.

At June 30, 2025, $2.3 billion in loans were pledged to the FHLB providing a maximum borrowing capacity of $1.6 billion of which $103.8 million was outstanding in borrowings and $345.9 million was used to issue standby letters of credit to primarily collateralize public fund deposits. At December 31, 2024, the maximum borrowing capacity was $1.7 billion, of which $99.1 million was outstanding in long-term debt and $487.8 million was used to issue standby letters of credit to collateralize public fund deposits.

In addition to borrowings from FHLB and correspondent bank lines of credit, the Company has availability through the Federal Reserve Bank’s Discount Window of $426.8 million at June 30, 2025. The FRB’s borrower-in-custody program allows depository institutions to pledge loans as collateral for Discount Window advances while retaining possession of the loan documentation. At June 30, 2025, $414.0 million in loans were pledged as collateral for the borrower-in-custody program and provided $304.0 million in borrowing capacity. At June 30, 2025, securities with a current par value of $128.8 million were pledged at the Discount Window resulting in a borrowing capacity of $122.8 million.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Long-term debt consisting of advances from the FHLB at June 30, 2025 and December 31, 2024 is as follows:


	Interest Rate
(Dollars in thousands, except percents)	Fixed			June 30, 2025		December 31, 2024
March 2025	4.37	%	$		$	10,000
December 2025	4.40			9,567		9,567
December 2025	4.36			20,000		20,000
March 2026	4.78			4,292		4,292
March 2026	4.20			15,000		15,000
May 2026	4.08			5,000		5,000
October 2026	3.95			15,284
June 2027	4.16			5,224		5,224
August 2027	4.40			6,461		6,461
October 2027	5.29			3,288		3,941
October 2027	5.18			5,475		5,475
March 2028	4.45			14,188		14,188
Total FHLB long-term debt				103,779		99,148
Less net fair value discount				(330)		(511)
Total long-term debt			$	103,449	$	98,637

Maturities of long-term debt, by contractual maturity, for the remainder of 2025 and subsequent years are as follows:


(Dollars in thousands)
2025	$	29,567
2026		39,576
2027		20,448
2028		14,188
Total FHLB long-term debt		103,779
Less net fair value discount		(330)
Total long-term debt	$	103,449

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

14. Subordinated debt

On June 30, 2025, the Company redeemed $33.0 million aggregate principal amount of its 5.375% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “2020 Notes”) which were sold to accredited investors on June 1, 2020. The 2020 Notes qualified as Tier 2 capital for regulatory capital purposes. The 2020 Notes bore interest at a rate of 5.375% per year for the first five years and then floated based on a benchmark rate (as defined in the 2020 Notes), provided that the interest rate applicable to the outstanding principal balance during the floating period were at no time to be less than the 4.75%. The interest rate on the 2020 Notes adjusted to 9.08% on June 1, 2025. Interest was payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2020, for the first five years after issuance and would have been payable quarterly in arrears thereafter on March 1, June 1, September 1, and December 1. The 2020 Notes were scheduled to mature on June 1, 2030 and were redeemable in whole or in part, without premium or penalty, at any time on or after June 1, 2025 and prior to June 1, 2030.

On June 6, 2025, the Company entered into Subordinated Note Purchase Agreements (collectively, the “Subordinated Note Purchase Agreements”) with certain qualified institutional buyers and institutional accredited investors (collectively, the “Subordinated Note Purchasers”) pursuant to which the Company issued and sold $85.0 million in aggregate principal amount of its 7.75% Fixed-to-Floating Rate Subordinated Notes due 2035 (the “Subordinated Notes”) at a price equal to 100 percent of the principal amount. The Subordinated Note Purchase Agreements include customary representations, warranties, and covenants. The Subordinated Notes mature on June 15, 2035 and bear interest at an initial fixed annual rate of 7.75%, payable semi-annually in arrears, to but excluding June 15, 2030. From and including June 15, 2030 to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum initially equal to the then-current three month SOFR plus 411 basis points, payable quarterly in arrears. The Company is entitled to redeem the Subordinated Notes, in whole or in part, any time on or after June 15, 2030 on any interest payment date, and to redeem the Subordinated Notes at any time in whole upon certain other events. Any redemption of the Subordinated Notes will be subject to prior regulatory approval to the extent required. The Subordinated Notes were issued under an Indenture, dated June 6, 2025 (the “Indenture”), by and between the Company and U.S. Bank Trust Company, National Association, as trustee. The Subordinated Notes are not subject to any sinking fund and are not convertible into or, other than with respect to the Exchange Notes, exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Subordinated Notes are not subject to redemption at the option of the holders. The Subordinated Notes are unsecured, subordinated obligations of the Company only and are not obligations of, and are not guaranteed by, any subsidiary of the Company. The Subordinated Notes rank junior in right to payment to the Company’s current and future senior indebtedness. The Subordinated Notes are intended to qualify as Tier 2 capital for regulatory capital purposes. In connection with the issuance and sales of the Subordinated Notes, the Company entered into registration rights agreements with the Subordinated Notes Purchasers, pursuant to which the Company agreed to take certain actions to provide for the exchange of the Subordinated Notes for subordinated notes that are registered under the Securities Act and have substantially the same terms as the Subordinated Notes. Under certain circumstances, if the Company fails to meet its obligations under such registration rights agreements, it would be required to pay additional interest to the holders of the Subordinated Notes.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

On July 1, 2024, the Company assumed $10.3 million of floating rate junior subordinated deferrable interest debentures due December 15, 2036 (“Debentures”) as a result of the FNCB merger at a fair market value of $8.0 million. The Debentures are held by First National Community Statutory Trust I, a Delaware statutory trust (the “Trust”). The Debentures and corresponding trust preferred securities (the “Trust Securities”) have a variable interest rate which resets quarterly to 3-month CME Term SOFR plus a spread adjustment of 0.26161% and a margin of 1.67%. The Debentures are unsecured and rank subordinate and junior in right to all indebtedness, liabilities and obligations of the Company. The Debentures represent the sole assets of the Trust. Interest on the Trust Securities is deferrable until a period of twenty consecutive quarters has elapsed. The Trust Securities may be prepaid beginning December 15, 2011. The Company’s investment in the Trust is reflected on a deconsolidated basis. At June 30, 2025, the Debentures totaling $8.1 million, have been reflected in borrowed funds in the consolidated balance sheets under the caption “Junior Subordinated Debentures” and interest expense of $374 thousand on the Debentures is in its consolidated statements of income and comprehensive income.

15. Related party transactions

In conducting its business, Peoples has engaged in, and intends to continue to engage in, banking and financial transactions with directors, executive officers and their related parties.

Peoples Bank has granted loans, letters of credit and lines of credit to directors, executive officers and their related parties. The following table summarizes the changes in the total amounts of such outstanding loans, advances under lines of credit, net of any participations sold, as well as repayments during the period ended June 30, 2025.



(Dollars in thousands)		June 30, 2025
Balance, beginning of period	$	130,563
Additions, new loans and advances		23,081
Repayments and other reductions		(15,299)
Balance, end of period	$	138,345

At June 30, 2025 and December 31, 2024, there were no loans to directors, executive officers and their related parties that were not performing in accordance with the original terms of the loan agreements.

Deposits from directors, executive officers and their related parties held by Peoples Bank at June 30, 2025, and December 31, 2024, were $155.5 million and $132.0 million, respectively.

As of June 30, 2025, the Company redeemed $33.0 million of its 2020 Notes, $3.0 million of which were held by directors, executive officers and their related parties.

In the course of its operations, the Bank acquires goods and services from, and transacts business with various companies of related parties, which include, but are not limited to legal services, rent, vehicle repair and dealer reserve payments. The Bank recorded payments to related parties for goods and services of $136 thousand and $6 thousand for the six-month period ending June 30, 2025 and 2024, respectively, and $50 thousand in the three months ending June 30, 2025 and none in the same year ago three month period.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

16. Regulatory matters

The Company’s ability to pay dividends to its shareholders is largely dependent on Peoples Bank’s ability to pay dividends to the Company. Regulations with respect to the banking industry limit the amount of dividends that may be paid without prior approval of Peoples Bank’s regulatory agency.

The Company and the Peoples Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Peoples Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Peoples Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and Peoples Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Management believes, as of June 30, 2025 and December 31, 2024, that the Company and Peoples Bank met all applicable capital adequacy requirements.

Current quantitative measures established by regulation to ensure capital adequacy require Peoples Bank to maintain minimum amounts and ratios (set forth in the tables below) of Total capital, Tier I capital, and Tier I common equity (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). The following tables present summary information regarding the Company’s and Bank’s risk-based capital and related ratios at June 30, 2025 and December 31, 2024:


	June 30, 2025
									Minimum to be Well
									Capitalized under
					Minimum For Capital				Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
(Dollars in thousands, except percents)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity Tier 1 capital to risk-weighted assets:
Company	$	422,320	10.88	%	$	174,673	4.50	%		NA	NA
Bank		503,023	12.98			174,392	4.50		$	251,899	6.50	%
Tier 1 capital to risk-weighted assets:
Company		432,320	11.14			232,847	6.00			NA	NA
Bank		503,023	12.98			232,522	6.00			310,030	8.00
Total capital to risk-weighted assets:
Company		554,688	14.29			310,532	8.00			NA	NA
Bank		542,227	13.99			310,065	8.00			387,582	10.00
Tier 1 capital to average assets:
Company		432,320	8.73			198,085	4.00			NA	NA
Bank		503,023	10.17			197,846	4.00			247,307	5.00
NA = not applicable

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)


	December 31, 2024
									Minimum to be Well
									Capitalized under
					Minimum For Capital				Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
(Dollars in thousands, except percents)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity Tier 1 capital to risk-weighted assets:
Company	$	399,461	10.16	%	$	176,971	4.50	%		NA	NA
Bank		429,958	10.95			176,640	4.50		$	255,147	6.50	%
Tier 1 capital to risk-weighted assets:
Company		409,461	10.41			235,962	6.00			NA	NA
Bank		429,958	10.95			235,520	6.00			314,027	8.00
Total capital to risk-weighted assets:
Company		485,117	12.34			314,616	8.00			NA	NA
Bank		472,614	12.04			314,027	8.00			392,534	10.00
Tier 1 capital to average assets:
Company		409,461	7.97			205,493	4.00			NA	NA
Bank		429,958	8.37			205,431	4.00			256,788	5.00
NA = not applicable

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report, and with our audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report on Form 10-K for the year ended December 31, 2024.

Cautionary Note Regarding Forward-Looking Statements:

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. These statements are based on assumptions and may describe future plans, strategies and expectations of Peoples Financial Services Corp. and its subsidiaries that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond our control). These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. All statements in this report, other than statements of historical facts, are forward-looking statements.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Important factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to: macroeconomic trends, including interest rates and inflation and their effect on our investment values; 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, tariff counter-measures, or the threat of such actions; impairment charges relating to our investment portfolio; credit risks in connection with our lending activities; the economic health of our market area; our exposure to commercial and industrial, construction, commercial real estate, and equipment finance loans; our ability to maintain an adequate allowance for credit losses; access to liquidity; the strength of our customer deposit levels; unrealized losses; reliance on our subsidiaries; accounting procedures, policies and requirements; changes in the value of goodwill; future pension plan costs; our ability to retain key personnel; the strength of our disclosure controls and procedures; environmental liabilities; reliance on third-party vendors and service providers; competition from non-bank entities; the development and us of AI in business processes, services, and products; our ability to prevent, detect and respond to cybersecurity threats and incidents; a failure of information technology, whether due to a breach, cybersecurity incident, or ability to keep pace with growth and developments; our ability to comply with privacy and data protection requirements; changes in U.S. or regional economic conditions; our ability to compete effectively in our industry; the soundness of other financial institutions; adverse changes (or the threat of such changes) in laws and regulations; fiscal and monetary policies of the federal government and its agencies; a failure to meet minimum capital requirements; our ability to realize the anticipated benefits of the FNCB merger; future acquisitions or a change in control. Additional factors that may affect our results are discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, in Part II, Item 1A of this report, and in reports we file with the Securities and Exchange Commission from time to time.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, we do not undertake, and specifically disclaim any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies:

The Company’s consolidated financial statements are prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to establish critical accounting

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

policies and make accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during those reporting periods.

An accounting estimate requires assumptions about uncertain matters that could have a material effect on the consolidated financial statements if a different amount within a range of estimates were used or if estimates changed from period to period. Readers of this report should understand that estimates are made considering facts and circumstances at a point in time, and changes in those facts and circumstances could produce results that differ from estimates. Management is required to make subjective and/or complex judgments about matters that are inherently uncertain and could be subject to revision as new information becomes available. Management has identified that the determination of ACL and impairment of goodwill are critical estimates that are particularly susceptible to material change within future periods. Actual amounts could differ from those estimates.

For a further discussion of our critical accounting estimates, refer to Note 1 entitled, “Summary of significant accounting policies,” and Note 2 entitled, “Business combination,” in the Notes to Consolidated Financial Statements included in the Company’s 2024 Annual Report on Form 10-K.

Business Combinations:

Assets acquired and liabilities assumed in business combinations are measured at fair value as of the acquisition date. In many cases, determining the fair value of the assets acquired and liabilities assumed requires the Company to estimate the timing and amount of cash flows expected to result from these assets and liabilities and to discount these cash flows at appropriate rates of interest, which require the utilization of significant estimates and judgment in accounting for the acquisition.

Goodwill and Other Intangible Assets:

The Company has goodwill with a net carrying value of $76.0 million at June 30, 2025 and December 31, 2024, respectively. The Company's policy is to test goodwill for impairment annually on December 31 or on an interim basis if an event triggering impairment may have occurred. If a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. At June 30, 2025, we performed a qualitative evaluation, which involves determining whether any events occurred or circumstances changed that would more likely than not reduce the Company's fair value below its carrying value. We noted no such matters. There is no assurance that changes in events or circumstances in the future will not result in impairment.

Core deposit intangibles are amortized on an accelerated basis using an estimated life of ten years. The core deposit intangibles are evaluated annually for impairment in accordance with GAAP. An impairment loss will be recognized if the carrying amount of the intangible asset is not fully recoverable and exceeds fair value. The carrying amount of the intangible asset is not considered fully recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset.

We believe that the fair values of our intangible assets were in excess of their carrying amounts and therefore there was no impairment of intangible assets at June 30, 2025.

Review of Financial Position:

Total assets increased $16.2 million or 0.6% annualized from December 31, 2024 and totaled $5.1 billion at June 30, 2025. The increase in assets during the six months is primarily due to increases in cash and cash equivalents which is partially offset by decreases in investments. Cash and cash equivalents increased $39.9 million to $175.7 million at June 30, 2025, from $135.8 million at December 31, 2024. Investments decreased $24.1 million to $582.8 million at June 30,

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

2025, from $606.9 million at December 31, 2024, primarily due to maturities and payments. Loans were relatively unchanged at $4.0 billion both at June 30, 2025 and December 31, 2024.

Deposits decreased $120.2 million to $4.3 billion at June 30, 2025 from $4.4 billion at December 31, 2024, primarily due to the redemption of brokered deposits, combined with seasonal outflows of municipal funds. Interest-bearing deposits decreased $84.3 million to $3.4 billion compared to $3.5 billion at December 31, 2024. Noninterest-bearing deposits decreased $35.9 million to $899.6 million at June 30, 2025 from $935.5 million as of December 31, 2024.

Total short-term borrowings at June 30, 2025, were $76.3 million, an increase of $60.4 million from $15.9 million at December 31, 2024. Long term debt increased $4.8 million to $103.4 million at June 30, 2025 from $98.6 million at December 31, 2024. Subordinated debentures increased to $83.2 million at June 30, 2025, from $33.0 million at December 31, 2024, on the net issuance of new and redemption of formerly outstanding debt. Junior subordinated debt totaled $8.1 million and $8.0 million at June 30, 2025 and December 31, 2024, respectively.

Total stockholders’ equity increased $25.1 million from $469.0 million at year-end 2024 to $494.1 million at June 30, 2025, due to net income and a decrease to accumulated other comprehensive loss resulting from a reduction in the unrealized loss on available for sale investment securities, partially offset by dividends paid.

For the six months ended June 30, 2025, total assets averaged $5.0 billion, an increase of $1.4 billion from $3.6 billion for the same period of 2024 primarily due to the FNCB merger.

Investment Portfolio:

The majority of the investment portfolio is classified as available for sale, which allows for greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when market opportunities occur. Investment securities available for sale totaled $505.2 million at June 30, 2025, a decrease of $21.1 million, or 4.0% from $526.3 million at December 31, 2024. The decrease was primarily due to maturities, calls, and principal payments, partially offset by purchases and an increase in fair value due to market value adjustments.

Investment securities held to maturity, which consisted of 85.6% mortgage-backed securities and issued or guaranteed by U.S. Government agencies and U.S. Government-sponsored entities and the remainder of tax-exempt municipal securities, totaled $75.1 million at June 30, 2025, a decrease of $3.1 million, or 3.9% from $78.2 million at December 31, 2024. The decrease was primarily due to principal payments on mortgage-backed securities. Held to maturity securities had a market value of $64.3 million at June 30, 2025 compared to $65.2 million at December 31, 2024.

The Company also holds a portfolio of equity investments, consisting primarily of publicly traded bank holding companies, which are carried at fair value. Equity investments totaled $2.5 million at June 30, 2025 compared to $2.4 million at December 31, 2024.

For the six months ended June 30, 2025, investments averaged $635.1 million, an increase of $103.4 million or 19.4% compared to $531.7 million for the same period last year. Average tax-exempt municipal bonds have increased $0.4 million or 0.4% to $87.0 million for the six months ended June 30, 2025, from $86.6 million during the comparable period of 2024, and taxable investments have increased $103.0 million, or 23.2% to $548.1 million from an average of $445.1 million for the six months ended June 30, 2024. The fully tax-equivalent (“FTE”) yield on the investment portfolio, a non-GAAP measure, increased 132 basis points to 3.12% for the six months ended June 30, 2025, from 1.80% for the comparable period of 2024.

Securities available for sale are carried at fair value, with unrealized gains or losses net of deferred income taxes reported in the Accumulated Other Comprehensive Loss component of stockholders’ equity. We reported net unrealized losses, included as a separate component of stockholders’ equity of $32.5 million net of a deferred income tax benefit of

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

$9.1 million at June 30, 2025, and net unrealized losses of $38.3 million, net of deferred income tax benefit of $10.7 million, at December 31, 2024.

Our Asset/Liability Committee (“ALCO”) reviews the performance and risk elements of the investment portfolio quarterly. Through active balance sheet management and analysis of the securities portfolio, we endeavor to maintain sufficient liquidity to satisfy depositor requirements and meet the credit needs of our customers.

Loan Portfolio:

Total loans increased $4.0 million or 0.2% annualized since December 31, 2024, and totaled $4.0 billion at June 30, 2025.

Commercial and industrial loans, which include municipal loans, increased $37.1 million to $873.1 million at June 30, 2025, compared to $836.0 million at December 31, 2024.

Commercial real estate loans decreased $41.5 million to $2.3 billion at June 30, 2025, compared to $2.3 billion at December 31, 2024.

Residential real estate loans increased $22.4 million to $573.8 million at June 30, 2025, compared to $551.4 million at December 31, 2024.

Consumer loans, which consist primarily of indirect loans, decreased $14.4 million to $118.5 million at June 30, 2025, compared to $132.9 million at December 31, 2024.

Equipment financing loans increased $0.4 million to $179.5 million at June 30, 2025, compared to $179.1 million at December 31, 2024.

For the six months ended June 30, 2025, total loans averaged $4.0 billion, an increase of $1.1 billion or 39.4% compared to $2.9 billion for the same period of 2024. The FTE yield on the loan portfolio was 5.99% for the six months ended June 30, 2025, a 92 basis point increase from 5.07% for the comparable period last year. The increase in yield was due to the impact of effective interest rates on the loans acquired in the FNCB merger, together with new loan volume and loans that have repriced higher during the current period.

In addition to the risks inherent in our loan portfolio, in the normal course of business, we are also a party to financial instruments with off-balance sheet risk to meet the financing needs of our customers. These instruments include legally binding commitments to extend credit, unused portions of lines of credit and commercial letters of credit made under the same underwriting standards as on-balance sheet instruments, and may involve, to varying degrees, elements of credit risk and interest rate risk (“IRR”) in excess of the amount recognized in the consolidated financial statements.

Unused commitments at June 30, 2025, totaled $836.9 million, consisting of $767.1 million in unfunded commitments of existing loan facilities and $69.8 million in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and, therefore, do not represent a significant liquidity risk to us. In comparison, unused commitments at December 31, 2024 totaled $800.9 million, consisting of $740.6 million in unfunded commitments of existing loans and $60.3 million in standby letters of credit. An allowance for credit losses of $0.9 million and $0.3 million was recorded for unused commitments at June 30, 2025 and December 31, 2024, respectively.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Asset Quality:

Distribution of nonperforming assets


(Dollars in thousands, except percents)		June 30, 2025			December 31, 2024
Nonaccrual loans	$	17,390		$	22,499
Accruing loans past due 90 days or more:		72			458
Total nonperforming loans		17,462			22,957
Foreclosed assets					27
Total nonperforming assets	$	17,462		$	22,984
Total loans held for investment	$	3,997,525		$	3,993,505
Allowance for credit losses		40,890			41,776
Allowance for credit losses as a percentage of loans held for investment		1.02	%		1.05	%
Allowance for credit losses as a percentage of nonaccrual loans		235.14	%		185.68	%
Nonaccrual loans as a percentage of loans held for investment		0.44	%		0.56	%
Nonperforming loans as a percentage of loans, net		0.44	%		0.58	%
Nonperforming assets as a percentage of total assets		0.34	%		0.45	%

Nonperforming assets decreased by $5.5 million during the first six months of 2025, to $17.5 million, or 0.34% of total assets at June 30, 2025, a decrease from $23.0 million or 0.45% of total assets at December 31, 2024.

Loans on nonaccrual status decreased $5.1 million to $17.4 million at June 30, 2025, from $22.5 million at December 31, 2024. There are currently no foreclosed properties at June 30, 2025 versus one in the amount of $27 thousand at December 31, 2024.

We pursue a goal of maintaining a high loan-to-deposit ratio in order to drive profitability. However, this objective is superseded by our goal of maintaining strong asset quality. We continued our efforts to maintain sound underwriting standards for both commercial and consumer credit.

The allowance for credit losses equaled $40.9 million or 1.02% of loans, net at June 30, 2025, compared to $41.8 million or 1.05% of loans, net, at December 31, 2024. Net charge-offs of $0.8 million were recognized in the six months ended June 30, 2025 and were $76 thousand in the same period in 2024. The provision for the quarter ended June 30, 2025 was a $0.2 million credit compared to a provision of $0.6 million in the same quarter of 2024 and was a credit of $39 thousand in the six months ended June 30, 2025 compared to a provision of $1.3 million in the six months ended June 30, 2024. The provision declines are primarily due a combination of a reduction in specific reserves on individually evaluated loans resulting from a decrease in non-performing loans, and changes in model loss rates, partially offset by an increase in pooled loan reserves for the Company’s equipment finance portfolio.

Deposits:

We attract the majority of our deposits from within our market areas through the offering of various deposit instruments including demand deposit accounts, money market deposit accounts, savings accounts, and time deposits, including certificates of deposit and IRAs.

Total deposits decreased $120.2 million or 5.5% annualized to $4.3 billion at June 30, 2025 from $4.4 billion at December 31, 2024. Noninterest-bearing deposits decreased $35.9 million, or 7.7% annualized and interest-bearing deposits decreased $84.3 million, or 4.9% annualized, when comparing June 30, 2025 to December 31, 2024. The decrease in deposits was primarily due to seasonal reductions in municipal deposit balances, coupled with reductions in time deposits, primarily in brokered CDs.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Interest-bearing demand and money market accounts decreased $3.0 million and were $2.2 billion at June 30, 2025 and December 31, 2024. Savings accounts increased $8.5 million to $500.7 million as of June 30, 2025, from $492.2 million at December 31, 2024. Time deposits less than $250 thousand decreased $77.5 million to $543.3 million at June 30, 2025, from $620.7 million at December 31, 2024. Time deposits of $250 thousand or more decreased $12.3 million to $171.8 million at June 30, 2025, from $184.0 million at year end 2024.

The deposit base consisted of 42.0% retail accounts, 37.2% commercial accounts, 16.2% municipal relationships and 4.6% brokered deposits at June 30, 2025. At June 30, 2025, total estimated uninsured deposits were approximately $1.3 billion, or 30.7% of total deposits; as compared to approximately $1.4 billion, or 31.3% of total deposits at December 31, 2024.

For the six months ended June 30, interest-bearing deposits averaged $3.4 billion in 2025 compared to $2.5 billion in 2024, an increase of $860.4 million due primarily to the merger with FNCB. The cost of interest-bearing deposits was 2.44% for the six months ended June 30, 2025, compared to 2.91% for the same period last year. The overall cost of interest-bearing liabilities, including the cost of borrowed funds, was 2.59% for the six months ended June 30, 2025 and 2.99% for the same period in 2024. The lower costs are due primarily to decreases in the interest rate environment versus the same period in 2024 and the Company’s actions to reduce deposit costs.

Borrowings:

Peoples Bank utilizes borrowings as a secondary source of liquidity for its asset/liability management. Advances are available from the FHLB provided certain standards related to credit worthiness have been met. Repurchase and term agreements are also available from the FHLB. In addition, Peoples Bank may borrow from the Federal Reserve utilizing the Discount Window.

Overall, total borrowings were $271.0 million at June 30, 2025, which included short-term borrowings, long-term debt, and subordinated debt, compared to $155.6 million at December 31, 2024, an increase of $115.4 million. At June 30, 2025, short-term borrowings, which were comprised of both overnight borrowings from the Federal Home Loan Bank of Pittsburgh and cash collateral pledged by derivative counterparties to offset interest rate exposure, totaled $76.3 million compared to $15.9 million at December 31, 2024. Long-term debt was $103.4 million at June 30, 2025 compared with $98.6 million at year end 2024. Long term debt is comprised exclusively of advances from the Federal Home Loan Bank of Pittsburgh. Junior subordinated debt, which was acquired as part of the FNCB merger and reported net of discount, totaled $8.1 million and $8.0 million at June 30, 2025 and December 31, 2024, respectively. Subordinated debt outstanding was $83.2 million at June 30, 2025 and $33.0 million at December 31, 2024. The increase was due to the private placement of $85.0 million in new Subordinated Notes net of $1.8 million in associated issuance costs, partially offset by the redemption of the $33.0 million aggregate principal of the 2020 Notes.

Market Risk Sensitivity:

Market risk is the risk to our earnings or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily IRR associated with our lending, investing and deposit-gathering activities. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in our reported earnings and/or the market value of our net worth. Variations in interest rates affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. Interest rate changes also affect the underlying economic value of our assets, liabilities, and off-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value and provide a basis for the expected change in future earnings related to interest rates. IRR is inherent in the role of banks as financial intermediaries. However, a bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities.

IRR and effectively managing it are important to both bank management and regulators. Bank regulations require us to develop and maintain an IRR management program, overseen by our board of directors and senior management, which involves a comprehensive risk management process in order to effectively identify, measure, monitor and control risk. Should bank regulatory agencies identify a material weakness in our risk management process or high exposure relative to our capital, bank regulatory agencies may take action to remedy these shortcomings. Moreover, the level of IRR exposure and the quality of our risk management process is a determining factor when evaluating capital adequacy.

The ALCO, comprised of members of our board of directors, senior management and other appropriate officers, oversees our IRR management program. Specifically, ALCO analyzes economic data and market interest rate trends, as well as competitive pressures, and utilizes computerized modeling techniques to reveal potential exposure to IRR. This allows us to monitor and attempt to control the influence these factors may have on our rate-sensitive assets (“RSA”) and rate-sensitive liabilities (“RSL”), and overall operating results and financial position. One such technique utilizes a static gap model that considers repricing frequencies of RSA and RSL in order to monitor IRR. Gap analysis attempts to measure our interest rate exposure by calculating the net amount of RSA and RSL that reprice within specific time intervals. A positive gap occurs when the amount of RSA repricing in a specific period is greater than the amount of RSL repricing within that same time frame and is indicated by an RSA/RSL ratio greater than 1.0. A negative gap occurs when the amount of RSL repricing is greater than the amount of RSA and is indicated by an RSA/RSL ratio of less than 1.0. A positive gap implies that earnings will be impacted favorably if interest rates rise and adversely if interest rates fall during the period. A negative gap tends to indicate that earnings will be affected inversely to interest rate changes.

Our cumulative one-year RSA/RSL ratio equaled 1.27% at June 30, 2025, an increase from 0.82% at December 31, 2024. As previously mentioned, a positive gap indicates that if interest rates increase, our earnings would likely be favorably impacted. The overall focus of ALCO is to maintain a well-balanced interest rate risk position in order to safeguard future earnings. The current position at June 30, 2025, indicates that the amount of RSA repricing within one year would exceed that of RSL, thereby causing net interest income to increase as market rates increase. However, these forward-looking statements are qualified in the aforementioned section entitled “Cautionary Note Regarding Forward-Looking Statements” in this Management’s Discussion and Analysis.

Static gap analysis, although a standard measuring tool, does not fully illustrate the impact of interest rate changes on future earnings. First, market rate changes normally do not equally or simultaneously affect all categories of assets and liabilities. Second, assets and liabilities that can contractually be repriced within the same period may not do so at the same time or to the same magnitude. Third, the interest rate sensitivity analysis presents a one-day position. Variations occur daily as we adjust our rate sensitivity throughout the year. Finally, assumptions must be made in constructing such an analysis.

As the static gap report fails to address the dynamic changes in the balance sheet composition or prevailing interest rates, we utilize a simulation model to enhance our asset/liability management. This model is used to create pro forma net interest income scenarios under various interest rate shocks. Simulation model results at June 30, 2025, produced results similar to those indicated by the one-year static gap position. In addition, parallel and instantaneous shifts in interest rates under various interest rate shocks resulted in changes in net interest income that were well within ALCO policy limits during the first year of simulation. We will continue to monitor our IRR throughout 2025 and endeavor to employ deposit and loan pricing strategies and direct the reinvestment of loan and investment repayments in order to manage our IRR position.

Financial institutions are affected differently by inflation than commercial and industrial companies that have significant investments in fixed assets and inventories. Most of our assets are monetary in nature and change correspondingly with

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

variations in the inflation rate. It is difficult to precisely measure the impact inflation has on us; however, we believe that our exposure to inflation can be mitigated through asset/liability management.

Liquidity:

Liquidity management is essential to our continuing operations and enables us to meet financial obligations as they come due, as well as to take advantage of new business opportunities as they arise. Financial obligations include, but are not limited to, the following:

●

Funding new and existing loan commitments;

●

Payment of deposits on demand or at their contractual maturity;

●

Repayment of borrowings as they mature;

●

Payment of lease obligations; and

●

Payment of operating expenses.

These obligations are managed daily, thus enabling us to effectively monitor fluctuations in our liquidity position and to adapt that position according to market influences and balance sheet trends. Future liquidity needs are forecasted and strategies are developed to ensure adequate liquidity at all times.

Historically, core deposits have been the primary source of liquidity because of their stability and lower cost, in general, than other types of funding. Providing additional sources of funds are loan and investment payments and prepayments and the ability to sell both available for sale securities and mortgage loans held for sale.

Our ALCO generally meets quarterly, and most recently met in May to review our IRR profile, capital adequacy and liquidity. On June 30, 2025, the Company’s cash and cash equivalents were $175.7 million. Our maximum borrowing capacity with the FHLB as of June 30, 2025, was $1.6 billion, of which $514.9 million was outstanding in the form of borrowings and irrevocable standby letters of credit, and the remaining $1.1 billion is available. Additionally, the Company maintains $426.8 million of availability at the Federal Reserve Discount Window, through the pledging of securities and through a borrower-in-custody of collateral arrangement, which enables us to pledge certain loans not being used as collateral elsewhere. Additional sources of credit with corresponding banks total $18.0 million, none of which is currently utilized. The Company also maintains an available for sale investment securities portfolio, comprised primarily of highly liquid U.S. Treasury securities, highly-rated municipal securities and U.S. agency-backed mortgage-backed securities. This portfolio serves as an additional source of liquidity and capital. At June 30, 2025, the Company’s available for sale investment portfolio totaled $505.2 million, $174.6 million of which was unencumbered. We believe our liquidity is adequate to meet both present and future financial obligations and commitments on a timely basis.

We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans maturing after June 30, 2025. Our noncore funds at June 30, 2025, were comprised of time deposits in denominations of $100 thousand or more, brokered deposits and other borrowings. These funds are not considered to be a strong source of liquidity because they are very interest rate sensitive and are considered to be highly volatile. On June 30, 2025, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 12.8%, while our net short-term noncore funding dependence ratio, noncore funds maturing within one-year, less short-term investments to long-term assets equaled 7.8%. Comparatively, our overall noncore dependence ratio at year-end 2024 was 12.7% and our net short-term noncore funding dependence ratio was 6.6%, indicating that our reliance on noncore funds has increased overall as a result of decreases to our longer-term assets such as loans and investments.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents, consisting of cash on hand, cash items in the process of collection, deposit balances with other banks and federal funds sold, increased $39.9 million during the six months ended June 30, 2025. Cash and cash equivalents decreased $137.4 million for the same period last year. For the six months ending June 30, 2025, net cash outflows of $17.8 million from financing activities were offset by $34.8 million provided by investing activities and $23.0 million received from operating activities. For the same period of 2024, net cash outflows of $133.2 million from financing activities and $9.2 million from investing activities were partially offset by net cash inflows of $5.0 million from operating activities.

Operating activities provided net cash of $23.0 million for the six months ended June 30, 2025, and provided $5.0 million for the corresponding six months of 2024. Net income, adjusted for the effects of gains and losses along with non-cash transactions such as depreciation, amortization and accretion and the provision for credit losses, is the primary source of funds from operations.

Investing activities primarily include lending activities, and investment portfolio transactions. Investing activities provided net cash of $34.8 million for the six months ended June 30, 2025, compared to using net cash of $9.2 million for the same period of 2024. Proceeds from principal repayments of investments securities were the primary factor causing the net inflow, followed by a reduction in loan balance partially offset by purchases of investment securities.

Financing activities used net cash of $17.8 million for the six months ended June 30, 2025, and used net cash of $133.2 million for the corresponding six months of 2024. In 2025, deposit outflows were the primary factor for the net cash outflow, followed by repayment of subordinated debt and payment of dividends. The current period included $83.1 million of proceeds from the issuance of new subordinated debt. The year ago period amount was primarily the result of deposit outflow partially offset by net advances from short-term borrowings. While a portion of the outflows are seasonal, we continue to seek deposits from new markets and customers as well as existing customers, including municipalities and school districts.

We believe that our future liquidity needs will be satisfied through maintaining an adequate level of cash and cash equivalents, by maintaining readily available access to traditional funding sources, and through proceeds received from the investment and loan portfolios. We believe that our current sources of funds will enable us to meet all cash obligations as they come due.

Capital:

Stockholders’ equity totaled $494.1 million or $49.44 per share at June 30, 2025, compared to $469.0 million or $46.94 per share at December 31, 2024. Stockholders’ equity increased during the six-month period ended June 30, 2025 primarily due to earnings, and a decrease in other comprehensive loss due to changes in market values of available for sale securities, partially offset by a dividend payout of $12.3 million.

Dividends declared equaled $1.24 per share for the six months ended June 30, 2025, and $0.82 per share for the same period of 2024. The Company has paid cash dividends since its formation as a bank holding company in 1986. On July 25, 2025, the Company’s board of directors declared a third quarter dividend of $0.6175 per share payable on September 15, 2025 to shareholders of record as of August 29, 2025. The increase to the quarterly cash dividend, which began in the third quarter of 2024, was contemplated as part of the Merger Agreement between the Company and FNCB. It is the present intention of the Company’s board of directors to continue this dividend payment policy. Further dividends, however, must necessarily depend upon earnings, financial condition, appropriate legal restrictions and other factors relevant at the time the board of directors considers payment of dividends.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Current rules, which implemented the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act, call for the following capital requirements: (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5%; (ii) a minimum ratio of tier 1 capital to risk-weighted assets of 6%; (iii) a minimum ratio of total capital to risk-weighted assets of 8%; and (iv) a minimum leverage ratio of 4%. In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. If a banking organization fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary bonus payments.

The adequacy of capital is reviewed on an ongoing basis with reference to the size, composition and quality of resources and regulatory guidelines. We seek to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings. At June 30, 2025, Peoples Bank’s Tier 1 capital to total average assets was 10.17% as compared to 8.37% at December 31, 2024. Peoples Bank’s Tier 1 capital to risk weighted asset ratio was 12.98% and the total capital to risk weighted asset ratio was 13.99% at June 30, 2025. These ratios were 10.95% and 12.04% at December 31, 2024. Peoples Bank’s common equity Tier 1 to risk weighted asset ratio was 12.98% at June 30, 2025 compared to 10.95% at December 31, 2024. Peoples Bank met all capital adequacy requirements and was deemed to be well-capitalized under regulatory standards at June 30, 2025.

Review of Financial Performance:

Peoples reported net income of $17.0 million or $1.68 per diluted share for the three months ended June 30, 2025, an increase of $13.7 million when compared to net income of $3.3 million or $0.46 per diluted share for the comparable period of 2024. Quarterly net income included a higher net interest income of $23.3 million due primarily to increases in the volume of earning assets due to the FNCB merger and the $4.0 million net accretion impact of purchase accounting marks on loans, deposits and borrowings acquired and assumed in the FNCB merger. The higher net interest income increased the net interest margin to 3.69% in the current period. Noninterest income was $6.2 million for the three months ended June 30, 2025, an increase of $2.7 million from $3.6 million in the year ago period primarily due to higher levels of income related to higher service charges, fees, and commissions, due to merger related deposit growth and higher transaction volume, together with higher wealth management and merchant services income. Noninterest expenses increased by $10.1 million, which included higher overall expenses due to the FNCB merger. Provision for income tax increased by $3.0 million on higher earnings.

Peoples reported net income of $32.0 million, or $3.18 per diluted share for the six months ended June 30, 2025, compared to $6.7 million, or $0.95 per diluted share for the comparable period of 2024. The increase in earnings in the six months ended June 30, 2025 is a result of higher net interest income of $43.5 million due primarily to increases in the volume of earning assets due to the FNCB merger and the $7.5 million net accretion impact of purchase accounting marks on loans, deposits and borrowings acquired and assumed in the FNCB merger. The higher net interest income increased the net interest margin to 3.60% in the current period compared to 2.29% in the prior year’s period. Noninterest income was $12.5 million, an increase of $5.6 million from $6.9 million in the year ago period. Noninterest expenses increased by $19.4 million, which included higher overall expenses due to the FNCB merger. Provision for income tax increased by $5.8 million on higher earnings.

Return on average assets (“ROA”) measures our net income in relation to total assets. Our annualized ROA was 1.36% for the second quarter of 2025 compared to 0.37% for the same period of 2024. Return on average equity (“ROE”) indicates how effectively we can generate net income on the capital invested by stockholders. Our annualized ROE was 13.87% for the second quarter of 2025 compared to 3.87% for the comparable period in 2024. The increases in our annualized ROA and ROE were due primarily to a higher level of net income resulting from improved margins, lower non-recurring charges related to the FNCB merger, and positive effects from the net accretion impact of purchase accounting marks on loans, deposits, and borrowings.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Non-GAAP Financial Measures:

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 interest income adjusted to FTE, net intertest income adjusted to FTE, efficiency ratio, adjusted noninterest expense, and FTE Net interest income plus noninterest income. Peoples believes the reported non-GAAP financial measures provide information useful to investors in understanding its operating performance and trends. For the non-GAAP disclosures used in this report, 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.

The following are non-GAAP financial measures which management believes provide useful insight to the reader of the consolidated financial statements but should be supplemental to GAAP used to prepare Peoples’ consolidated financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, Peoples’ non-GAAP measures may not be comparable to non-GAAP measures of other companies. The tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% for 2025 and 2024.

The following table reconciles the non-GAAP financial measures of net interest income adjusted to FTE for the three and six months ended June 30, 2025 and 2024:


	Three Months Ended June 30,
(Dollars in thousands)	2025		2024
Interest income (GAAP)	$	65,335	$	38,376
Adjustment to FTE		718		471
Interest income adjusted to FTE (non-GAAP)		66,053		38,847
Interest expense		23,138		19,460
Net interest income adjusted to FTE (non-GAAP)	$	42,915	$	19,387


	Six Months Ended June 30,
(Dollars in thousands)	2025		2024
Interest income (GAAP)	$	127,761	$	77,373
Adjustment to FTE		1,420		946
Interest income adjusted to FTE (non-GAAP)		129,181		78,319
Interest expense		46,016		39,139
Net interest income adjusted to FTE (non-GAAP)	$	83,165	$	39,180

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

The efficiency ratio is a non-GAAP measure which we calculated as noninterest expenses, less amortization of intangible assets and acquisition related expenses, as a percentage of FTE net interest income plus noninterest income less gains on equity securities and gains on sale of assets. Management monitors the efficiency ratio to determine how well it is managing its operating expenses; a lower efficiency ratio is generally preferable as it indicates the Company is spending less to generate income. The Company regularly pursues opportunities to enhance net interest income and reduce expenses as a percentage of operating revenues.

The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP for the three and six months ended June 30, 2025 and 2024:


	Three Months Ended June 30,
(Dollars in thousands, except percents)	2025			2024
Efficiency ratio (non-GAAP):
Noninterest expense (GAAP)	$	28,262		$	18,171
Less: amortization of intangible assets expense		1,684
Less: acquisition related expenses		66			1,071
Noninterest expense adjusted (non-GAAP)		26,512			17,100

Net interest income (GAAP)		42,197			18,916
Plus: taxable equivalent adjustment		718			471
Noninterest income (GAAP)		6,247			3,554
Less: net losses on equity securities		(7)			(12)
Less: net gains on sale of fixed assets					13
Net interest income (FTE) plus noninterest income (non-GAAP)	$	49,169		$	22,940

Efficiency ratio (non-GAAP)		53.9	%		74.5	%


	Six Months Ended June 30,
(Dollars in thousands, except percents)	2025			2024
Efficiency ratio (non-GAAP):
Noninterest expense (GAAP)	$	55,615		$	36,230
Less: amortization of intangible assets expense		3,367
Less: acquisition related expenses		220			1,557
Noninterest expense adjusted (non-GAAP)		52,028			34,673

Net interest income (GAAP)		81,745			38,234
Plus: taxable equivalent adjustment		1,420			946
Noninterest income (GAAP)		12,503			6,947
Less: net gains (losses) on equity securities		64			(20)
Less: net gains on sale of fixed assets		680			4
Net interest income (FTE) plus noninterest income (non-GAAP)	$	94,924		$	46,143

Efficiency ratio (non-GAAP)		54.8	%		75.1	%

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Net Interest Income:

Net interest income is the fundamental source of earnings for commercial banks. Fluctuations in the level of net interest income tend to have the greatest impact on net profits. Net interest income is defined as the difference between interest income, interest and fees earned on interest-earning assets, and interest expense, the cost of interest-bearing liabilities supporting those assets. The primary sources of earning assets are loans and investment securities, while interest-bearing deposits, short-term and long-term borrowings, and subordinated debt comprise interest-bearing liabilities. Net interest income is impacted by:

●

Variations in the volume, rate and composition of earning assets and interest-bearing liabilities;

●

Changes in general market rates; and

●

The level of nonperforming assets.

Changes in net interest income are reflected in the net interest spread and net interest margin. Net interest spread, the difference between the average yield earned on earning assets and the average rate incurred on interest-bearing liabilities, illustrates the effects changing interest rates have on profitability. Net interest margin, net interest income as a percentage of earning assets, is a more comprehensive ratio, as it reflects not only the spread, but also the change in the composition of interest-earning assets and interest-bearing liabilities. Tax-exempt loans and investments carry pre-tax yields lower than their taxable counterparts. Therefore, in order to make the analysis of net interest income more comparable, tax-exempt income and yields are reported in this section on an FTE basis, as FTE net interest income, a non-GAAP financial measure, using the prevailing federal statutory tax rate of 21.0% in 2025 and 2024. Tax-exempt loan and investment income is not reported on an FTE basis on the Consolidated Statements of Income and Comprehensive Income.

For the three months ended June 30, 2025, the average balances include $4.0 billion in loans, $627.3 million in investments, $3.4 billion in interest bearing deposits, and $200.4 million in borrowings, which includes $55.6 million in subordinated debt and $8.1 million in junior subordinated debt. For the three months ended June 30, FTE net interest income, a non-GAAP measure, increased $23.5 million to $42.9 million in 2025 from $19.4 million in 2024. The net interest spread increased to 3.08% for the three months ended June 30, 2025, from 1.57% for the three months ended June 30, 2024, as the earning asset yield increased 110 basis points while the average rate paid on interest-bearing liabilities decreased 41 basis points. The FTE net interest margin increased to 3.69% for the second quarter of 2025 from 2.29% for the comparable period of 2024. The increase in tax-equivalent net interest margin from a year ago was primarily from a higher volume of earning assets and the net accretion impact of purchase accounting marks on loans, deposits and borrowings acquired and assumed in the FNCB merger, which totaled $4.0 million of net interest income, and represented 35 basis points of tax-equivalent net interest margin.

For the three months ended June 30, FTE interest income on earning assets, a non-GAAP measure, increased $27.2 million to $66.1 million in 2025 as compared to $38.8 million in 2024. The overall yield on earning assets, on an FTE basis, increased 110 basis points for the three months ended June 30, 2025 to 5.68% as compared to 4.58% for the three months ended June 30, 2024. The increase to FTE interest income is due to the increase in rates for newly acquired assets, and an increase in our earning asset base, including those acquired from the FNCB merger and repricing of lower-yielding assets into higher yields. The overall yield earned on investments increased 149 basis points in the second quarter of 2025 to 3.29% from 1.80% for the second quarter of 2024 primarily as a result of a restructured portfolio mix and acquiring the investment portfolio in the merger with FNCB, at fair value, based on current market rates. Average investment balances were $97.8 million higher when comparing the current and year ago quarter. The yield on loans increased 98 basis points in the second quarter of 2025 to 6.07% from 5.09% for the second quarter of 2024 as a result of loans acquired in the FNCB merger, new loans originated at higher portfolio rates, floating and adjustable loans repricing higher, and the net accretion of the loan marks from the impact of purchase accounting which benefited the yield by 44 basis points. Average loan balances were $1.1 billion higher when compared to the same quarter in 2024.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Average federal funds sold increased $26.4 million to $39.1 million for the three months ended June 30, 2025, and yielded 4.46%, as compared to $12.7 million and a yield of 5.68% in the year ago period. We expect an increased level of uncertainty regarding asset yields as changing recessionary metrics and continued uncertainty of the effect of tariffs influence future FOMC actions.

Total interest expense increased $3.7 million to $23.1 million for the three months ended June 30, 2025, from $19.5 million for the three months ended June 30, 2024. The total cost of funds decreased 41 basis points for the three months ended June 30, 2025, to 2.60% as compared to 3.01% in the year ago period. The decrease in costs was primarily due to lower rates paid on both interest-bearing deposits and short-term borrowings, partially offset by amortization of the purchase accounting marks both on the time deposits and borrowings, which added 4 basis points to the funding costs. Average rates paid on deposits decreased as the result of reduced market rates.

Net interest income changes due to rate and volume for the six months ended June 30


	2025 vs 2024
	Increase (decrease)
	attributable to
(Dollars in thousands)	Total		Rate		Volume
Interest income:
Loans:
Taxable	$	44,224	$	13,312	$	30,912
Tax-exempt		2,190		1,158		1,032
Investments:
Taxable		4,993		3,950		1,043
Tax-exempt		67		64		3
Interest-bearing deposits		(26)		(99)		73
Federal funds sold		(586)		(420)		(166)
Total interest income		50,862		17,965		32,897
Interest expense:
Money market accounts		(322)		944		(1,266)
Interest-bearing demand and NOW accounts		3,061		(7,517)		10,578
Savings accounts		182		63		119
Time deposits less than $100		(82)		(426)		344
Time deposits $100 or more		1,493		(1,951)		3,444
Short-term borrowings		(260)		(142)		(118)
Long-term debt		1,849		70		1,779
Subordinated debt		582		236		346
Junior subordinated debt		374				374
Total interest expense		6,877		(8,723)		15,600
FTE net interest income changes (Non-GAAP)	$	43,985	$	26,688	$	17,297

FTE net interest income, a non-GAAP measure, was $83.2 million in the six months ended June 30, 2025 and $39.2 million in the comparable period last year. There was a positive volume and rate variance. The growth in average interest-earning assets exceeded that of the growth in interest-bearing liabilities, and resulted in an increase in FTE net interest income, a non-GAAP measure, of $17.3 million. A positive rate variance resulted in an increase in net interest income of $26.7 million.

Average earning assets increased $1.2 billion to $4.7 billion for the six months ended June 30, 2025 and accounted for a $32.9 million increase in interest income. Average taxable loans increased $1.1 billion, which caused interest income to increase $30.9 million. Average tax-exempt loans increased $57.5 million which caused interest income to increase $1.0 million. Average taxable investments increased $103.1 million comparing 2025 and 2024, which resulted in increased

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

interest income of $1.0 million while average tax-exempt investments increased $0.3 million, which resulted in a negligible change to interest income. Average interest-bearing deposits with banks increased $1.3 million which resulted in a negligible change to interest income. Average federal funds sold decreased $14.2 million for the six months ended June 30, 2025, which resulted in a decrease of $0.2 million to interest income.

Average interest-bearing liabilities rose $949.7 million to $3.6 billion for the six months ended June 30, 2025 from $2.6 billion for the six months ended June 30, 2024 resulting in a net increase in interest expense of $15.6 million. Non-maturity interest-bearing deposit accounts, including demand, money market, and savings accounts increased $727.0 million which resulted in a total increase in interest expense of $9.4 million. In addition, large denomination time deposits averaged $125.3 million more in the current period and caused interest expense to increase to $3.4 million. An increase of $8.1 million in average time deposits less than $100 thousand which included higher priced callable brokered CDs, resulted in an increase to interest expense of $0.3 million. Short-term borrowings averaged $4.6 million lower which resulted in a total decrease in interest expense of $0.1 million, while long-term borrowing increased $74.4 million and resulted in an increase to interest expense of $1.8 million. Subordinated debt averaged $ 44.4 million and resulted in an increase to interest expense of $0.3 million, and junior subordinated debt increased by $8.1 million and resulted in an increase to interest expense of $0.4 million.

For the six months ended June 30, 2025, a favorable rate variance occurred, as the FTE yield on earning assets increased 102 basis points while there was a 40 basis point decrease in the cost of funds. As a result of these changes in rates, FTE net interest income increased $26.7 million for the six months ended June 30, 2025. The FTE yield on earning assets was 5.59% in the 2025 period compared to 4.57% in 2024 resulting in an increase in interest income of $18.0 million. The yield on the taxable investment portfolio increased 151 basis points to 3.24% during the six months ended June 30, 2025 from 1.73% in the year ago period, resulting in an increase of $4.0 million in interest income. The yield on the tax-exempt investment portfolio increased 15 basis points to 2.33% from 2.18% in the year ago period with a negligible effect to interest income. The FTE yield on the loan portfolio increased 92 basis points to 5.99% in 2025 from 5.07% in 2024 and resulted in an increase to interest income of $14.5 million.

The yield on interest bearing deposits decreased 47 basis points to 2.44% from 2.91% in the year ago period resulting in a decrease in interest expense of $8.9 million. The yield on large denomination time deposits decreased 63 basis points and resulted in a reduction in interest income of $2.0 million and the yield on time deposits less than $100 thousand decreased 11 basis points which resulted in a decrease in interest expense of $0.4 million. The yield on long-term debt increased 50 basis points to 4.84% for the six months ended June 30, 2025 from 4.34% in the year ago period but had a negligible effect to interest expense. The yield on short-term borrowings decreased 94 basis points to 4.59% for the six months ended June 30, 2025 from 5.53% in the year ago period and resulted in a $0.1 million decrease to interest expense. The company issued $85.0 million of 7.75% fixed-to-floating subordinated notes on June 6, 2025, due 2035, and on June 30, 2025, redeemed $33.0 million of its 5.375% fixed-to -floating subordinated notes due 2030. Combined, these notes resulted in an increase in yield of 127 basis points and resulted in a $0.2 increase in interest expense.

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 an FTE basis using the prevailing federal statutory tax rate of 21%.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)


	Three months ended
	June 30, 2025						June 30, 2024
	Average		Interest Income/		Yield/		Average		Interest Income/		Yield/
(Dollars in thousands, except percents)	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Earning assets:
Loans:
Taxable	$	3,707,650	$	57,459	6.22	%	$	2,637,164	$	34,406	5.25	%
Tax-exempt		282,406		2,914	4.14			222,655		1,771	3.20
Total loans		3,990,056		60,373	6.07			2,859,819		36,177	5.09
Investments:
Taxable		540,424		4,644	3.45			443,146		1,906	1.73
Tax-exempt		86,899		505	2.33			86,418		470	2.19
Total investments		627,323		5,149	3.29			529,564		2,376	1.80
Interest-bearing deposits		9,186		96	4.19			8,763		115	5.28
Federal funds sold		39,084		435	4.46			12,672		179	5.68
Total interest-earning assets		4,665,649		66,053	5.68	%		3,410,818		38,847	4.58	%
Less: allowance for credit losses		41,837						23,046
Other assets		390,522						221,294
Total assets	$	5,014,334					$	3,609,066
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Money market accounts	$	708,585	$	6,992	3.96	%	$	714,669	$	6,749	3.80	%
Interest-bearing demand and NOW accounts		1,406,998		5,882	1.68			729,196		4,400	2.43
Savings accounts		501,975		376	0.30			408,883		280	0.28
Time deposits less than $100		404,142		3,991	3.96			403,069		3,964	3.96
Time deposits $100 or more		352,216		3,062	3.49			240,481		2,721	4.55
Total interest-bearing deposits		3,373,916		20,303	2.41			2,496,298		18,114	2.92
Short-term borrowings		35,587		410	4.62			45,383		633	5.61
Long-term debt		101,066		1,211	4.81			25,000		269	4.33
Subordinated debt		55,622		1,026	7.40			33,000		444	5.41
Junior subordinated debt		8,075		188	9.34
Total borrowings		200,350		2,835	5.68			103,383		1,346	5.24
Total interest-bearing liabilities		3,574,266		23,138	2.60			2,599,681		19,460	3.01
Noninterest-bearing deposits		897,212						620,256
Other liabilities		52,608						48,630
Stockholders’ equity		490,248						340,499
Total liabilities and stockholders’ equity	$	5,014,334					$	3,609,066
Net interest income/spread			$	42,915	3.08	%			$	19,387	1.57	%
Net interest margin (Non-GAAP)					3.69	%					2.29	%
Tax-equivalent adjustments:
Loans			$	612					$	372
Investments				106						99
Total adjustments			$	718					$	471

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)


	Six months ended
	June 30, 2025						June 30, 2024
	Average		Interest Income/		Yield/		Average		Interest Income/		Yield/
(Dollars in thousands, except percents)	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Earning assets:
Loans:
Taxable	$	3,702,911	$	112,671	6.14	%	$	2,634,859	$	68,447	5.22	%
Tax-exempt		281,486		5,756	4.12			223,974		3,566	3.20
Total loans		3,984,397		118,427	5.99			2,858,833		72,013	5.07
Investments:
Taxable		548,124		8,819	3.24			445,071		3,826	1.73
Tax-exempt		86,985		1,006	2.33			86,641		939	2.18
Total investments		635,109		9,825	3.12			531,712		4,765	1.80
Interest-bearing deposits		10,186		209	4.14			8,894		235	5.31
Federal funds sold		32,568		720	4.46			46,813		1,306	5.61
Total interest-earning assets		4,662,260		129,181	5.59	%		3,446,252		78,319	4.57	%
Less: allowance for credit losses		41,960						22,668
Other assets		391,221						219,324
Total assets	$	5,011,521					$	3,642,908
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Money market accounts	$	698,111	$	13,562	3.92	%	$	734,779	$	13,884	3.80	%
Interest-bearing demand and NOW accounts		1,435,943		12,298	1.73			756,827		9,237	2.45
Savings accounts		500,392		737	0.30			415,849		555	0.27
Time deposits less than $100		414,197		8,219	4.00			406,131		8,301	4.11
Time deposits $100 or more		356,817		6,334	3.58			231,470		4,841	4.21
Total interest-bearing deposits		3,405,460		41,150	2.44			2,545,056		36,818	2.91
Short-term borrowings		27,925		635	4.59			32,535		895	5.53
Long-term debt		99,426		2,388	4.84			25,000		539	4.34
Subordinated debt		44,373		1,469	6.68			33,000		887	5.41
Junior subordinated debt		8,063		374	9.35
Total borrowings		179,787		4,866	5.46			90,535		2,321	5.16
Total interest-bearing liabilities		3,585,247		46,016	2.59	%		2,635,591		39,139	2.99	%
Noninterest-bearing deposits		886,193						618,433
Other liabilities		55,298						48,159
Stockholders’ equity		484,783						340,725
Total liabilities and stockholders’ equity	$	5,011,521					$	3,642,908
Net interest income/spread			$	83,165	3.00	%			$	39,180	1.58	%
Net interest margin (Non-GAAP)					3.60	%					2.29	%
Tax-equivalent adjustments:
Loans			$	1,209					$	749
Investments				211						197
Total adjustments			$	1,420					$	946

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Provision for Credit Losses:

For the three months ended June 30, 2025, a $0.2 million credit was recorded to the provision for credit losses compared to a $0.6 million provision in the year ago period. For the six months ended June 30, 2025, the company recognized a $39 thousand credit to the provision for credit losses compared to a provision of $1.3 million in the same period in 2024. The current and prior period provisions are the result of the application of model loss rates, changes to mix and size of the loan portfolio, actual performance vs. peers, and qualitative adjustments. Based on our most current evaluation, we believe that the allowance is adequate to absorb any known and inherent losses in the portfolio as of June 30, 2025.

Noninterest Income:

Noninterest income for the three months ended June 30, 2025 and 2024 was $6.2 million and $3.6 million, respectively and $12.5 million and $6.9 million for the six months ended June 30, 2025, and 2024, respectively. The increases in both periods were primarily due to higher levels of income related to higher service charges, fees, and commissions, up $1.4 million and $3.1 million for the second quarter and year-to-date periods, respectively, due to merger related deposit growth and higher transaction volume, together with higher wealth management and merchant services income. The Company also recognized $0.7 million in gains on the sale of fixed assets during the first quarter of 2025 due primarily to the sale of our former headquarters property, and an increase of $0.5 million to bank owned life insurance cash surrender value.

Noninterest Expenses:

In general, noninterest expense is categorized into three main groups: employee-related expenses, occupancy and equipment expenses, and other expenses. Employee-related expenses are costs associated with providing salaries, including payroll taxes and benefits, to our employees. Occupancy and equipment expenses, the costs related to the maintenance of facilities and equipment, include depreciation, general maintenance and repairs, real estate taxes, rental expense offset by any rental income, and utility costs. Other expenses include general operating expenses such as advertising, contractual services, insurance, including FDIC assessment, provision for unfunded commitments, other taxes and supplies. Several of these costs and expenses are variable while the remainder are fixed. We utilize budgets and other related strategies in an effort to control the variable expenses.

Noninterest expense increased $10.1 million to $28.3 million for the three months ended June 30, 2025, from $18.2 million for the same period a year ago, and increased $19.4 million to $55.6 million from $36.2 million comparing the six months ended June 30, 2025 and 2024, respectively. Primary drivers of the increase were salaries and employee benefits, up $5.3 million for the quarter ended June 30, 2025 and 2024 and $10.0 million for the six-month period ended June 30, 2025, and 2024. Salary and benefit increases compared to the same period of 2024 were primarily due to merger-related increases in head count. Other increases compared to the same period of 2024 were experienced in occupancy and equipment expenses, up $1.7 million for the quarter when compared to the comparable quarter a year ago and were up $3.6 million in the six-month period ended June 30, 2025, when compared to the same period in 2024, both due to increased technology costs related to system integration and increased account transaction volumes, and higher facilities costs such as snow removal and utilities. Merger related expenses decreased $1.3 million to $0.2 million from $1.6 million during the six-month period ending June 30, 2025, and 2004 respectively, and decreased $1.0 million to $66 thousand from $1.0 million during the three-month periods ending June 30, 2025, and 2024, respectively. Acquisition related amortization expenses were $3.3 million and $1.6 million for the six and three-month periods ending June 30, 2025, respectively with no comparable expenses in the same periods the prior year. Professional services expenses increased $0.7 million to $2.1 million from $1.5 million during the six months ended June 30, 2025, and 2024, and increased $0.4 million to $1.2 million from $0.8 million during the three months ended June 30, 2025 and 2024, respectively. FDIC insurance expenses increased $0.9 million to $2.0 million from $1.1 million during the six months ended June 30, 2025, and 2024, and increased $0.5 million to $1.0 million from $0.5 million during the three-month period ended June 30, 2025, and 2024. Advertising expenses increased $0.8 million to $1.9 million from $1.1 million

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MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

when comparing the six months ended June 30, 2025, and 2024, and increased $0.5 million from $1.0 million from $0.6 million when comparing the three-month periods ended June 30, 2025, and 2024. Other expenses increased $1.4 million to $5.8 million from $4.4 million and increased $1.0 million to $3.2 million from $2.2 million during the six and three-month periods ended June 30, 2025, respectively.

Income Taxes:

We recorded an income tax expense of $3.5 million or 17.0% of pre-tax income and $6.7 million or 17.3%, of pre-tax income for the three and six months ended June 30, 2025, respectively. This compares to $0.4 million or 11.4% of pretax income, and $0.9 million or 11.8% for the three and six month periods ended June 30, 2024, respectively. Higher income tax expense was due to higher pre-tax income for both the three and six months ended June 30, 2025.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market risk is the risk to our earnings and/or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily interest rate risk (“IRR”), which arises from our lending, investing and deposit gathering activities. Our market risk sensitive instruments consist of derivative and non-derivative financial instruments, none of which are entered into for trading purposes. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in reported earnings and/or the market value of net worth. Variations in interest rates affect the underlying economic value of assets, liabilities, and off-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value, and provide a basis for the expected change in future earnings related to interest rates. Interest rate changes affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. IRR is inherent in the role of banks as financial intermediaries.

A bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities. Interest rate risk is the risk of loss to future earnings due to changes in interest rates. The Asset Liability Management Committee (“ALCO”) is responsible for establishing policy guidelines on liquidity and acceptable exposure to interest rate risk. Generally quarterly, ALCO reports on the status of liquidity and interest rate risk matters to the Company’s board of directors. The objective of the ALCO is to manage assets and funding sources to produce results that are consistent with the Company’s liquidity, capital adequacy, growth, risk and profitability goals and are within policy limits.

The Company utilizes the pricing and structure of loans and deposits, the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, and off-balance sheet interest rate contracts to manage interest rate risk. The off-balance sheet interest rate contracts may include interest rate swaps, caps and floors. These interest rate contracts involve, to varying degrees, credit risk and interest rate risk. Credit risk is the possibility that a loss may occur if a counterparty to a transaction fails to perform according to the terms of the contract. The notional amount of the interest rate contracts is the amount upon which interest and other payments are based. The notional amount is not exchanged and therefore should not be taken as a measure of credit risk. See Note 13 to the Audited Consolidated Financial Statements contained in Part II, Item 8 of our Annual Report on Form 10-K for the period ended December 31, 2024 and Note 11 to the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report for additional information.

The ALCO uses income simulation to measure interest rate risk inherent in the Company’s on-balance sheet and off-balance sheet financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 24-month horizon and a 60-month horizon. The simulations assume that the size and general composition of the Company’s balance sheet remain static over the simulation horizons, with the exception of certain deposit mix shifts from low-cost time deposits to higher cost time deposits in selected interest rate scenarios. Additionally, the simulations take into account the specific repricing, maturity, call options, and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios. The characteristics of financial instrument classes are typically reviewed by the ALCO on a quarterly basis to ensure their accuracy and consistency.

The ALCO reviews simulation results to determine whether the Company’s exposure to a decline in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure. As of June 30, 2025 and December 31, 2024, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Company. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where both interest rates and the general composition of the Company’s balance sheet remain stable for a 24-month and 60-month period. In addition to measuring the change in net interest income as compared to an unchanged interest rate scenario, the ALCO also measures the trend of both net interest income and net interest margin over a 24-month and 60-month horizon to ensure the stability and adequacy of this source of earnings in different interest rate scenarios.

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Model results at June 30, 2025 indicated a higher starting level of net interest income (“NII”) compared to the December 31, 2024 model due to a higher earning asset yield coupled with lower deposit costs. During the current period, asset cashflows were repriced higher and management implemented a strategy to reduce deposit costs.

Our interest rate risk position exhibits a relatively well-matched position to both rising and falling interest rate environments in the first twelve months of the simulation while a sustained falling rate and parallel downward shifting yield curve presents the greatest potential risk to NII over the long-term horizon. A steeper yield curve mitigates a portion of the exposure to falling rates. After the first eighteen months of the model simulation, the benefit to NII increases in a rising rate environment as a result of the higher assumed replacement rates on assets repricing while funding costs stabilize. This position at June 30, 2025 is similar to our December 31, 2024 model results.

The ALCO regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including scenarios showing the effect of steepening or flattening changes in the yield curve as well as parallel changes in interest rates of up to 400 basis points. Because income simulations assume that the Company’s balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts.

Since September 2024, the FOMC has decreased the federal funds target rate by 75 basis points which has resulted in our floating rate loans repricing lower and negatively impacting NII. During the three months ended June 30, 2025, management called approximately $120.0 million of high costing brokered certificate of deposits (“CDs”) and replaced them with lower costing brokered CDs to reduce projected levels of interest expense and mitigate the impact to NII from the asset side of the balance sheet. Management expects cash flow from the investment portfolio to reprice higher than current portfolio rates, adjustable-rate loans to reprice higher than current portfolio rates and new loan originations be added at higher than current portfolio rates to mitigate the lower interest from the floating rate loans. If we experience an outflow of deposits due to lower rates which could result in a shift to higher costing funding sources, expected levels of NII will be reduced.

The projected impacts of instantaneous changes in interest rates on our net interest income and economic value of equity at June 30, 2025, based on our simulation model, as compared to our ALCO policy limits are summarized as follows:


	June 30, 2025
	% Change in
Changes in Interest Rates (basis points)	Net Interest Income		Economic Value of Equity
	Metric	Policy	Metric	Policy
+400	(2.1)	(20.0)	4.4	(40.0)
+300	(1.5)	(20.0)	3.9	(30.0)
+200	(0.9)	(10.0)	2.9	(20.0)
+100	(0.1)	(10.0)	2.1	(10.0)
Static
-100	(0.1)	(10.0)	(4.0)	(10.0)
-200	(1.2)	(10.0)	(10.0)	(20.0)
-300	(2.0)	(20.0)	(18.0)	(30.0)
-400	(2.7)	(20.0)	(31.0)	(40.0)

Our simulation model creates pro forma net interest income scenarios under various interest rate shocks. Given instantaneous and parallel shifts in general market rates of plus 100 basis points, our projected net interest income for the 12 months ending June 30, 2025, would decrease 0.1% from model results using current interest rates. Additional disclosures about market risk are included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024, and in Part I, Item 2 of this quarterly report, in each case under the heading “Market Risk Sensitivity,” and are incorporated into this Item 3 by reference.

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Peoples Financial Services Corp.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

At June 30, 2025, the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that the disclosure controls and procedures, at June 30, 2025, were effective to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting.

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the fiscal quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The nature of the Company’s business generates a certain amount of litigation involving matters arising out of the ordinary course of business. In the opinion of management, there were no legal proceedings that had or might have a material effect on the consolidated results of operations, liquidity, or the financial position of the Company during the six months ended June 30, 2025 and through the date of this quarterly report on Form 10-Q.

Item 1A. Risk Factors.

Our Annual Report on Form 10-K for the year ended December 31, 2024 (2024 Form 10-K) describes market, credit, and business operations risk factors that could affect our business, results of operations or financial condition. There have been no material changes from the risk factors as previously disclosed in our 2024 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following purchases were made by or on behalf of the Company or any “affiliated purchaser,” as defined in the Exchange Act Rule 10b-18(a)(3), of the Company’s common stock during each of the months in the quarter ended June 30, 2025.


					Maximum number
				Total number of	(or approximate dollar value)
				shares purchased	of shares that may
				as part of publicly	yet be purchased
	Total number of		Average price	announced plans or	under the plans or
Period	shares purchased		paid per share	programs	programs
April 1 - April 30		$
May 1 - May 31	787		50.55
June 1 - June 30
Total	787	$	50.55

During the three months ended June 30, 2025 and through the date of this report, the Company did not have any publicly announced share repurchase plans or programs. All of the purchases noted in the table above reflect shares delivered by

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Peoples Financial Services Corp.

participants in the Company’s equity incentive plans to pay withholding tax liabilities incident to the vesting of restricted stock awards.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

During the fiscal quarter ended June 30, 2025, none of the Company’s directors or officers informed management of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

Item 6. Exhibits.

Item Number			Description


3.1			Peoples Financial Services Corp. Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the registrant’s Form 10-K filed with the Commission on March 17, 2014).

3.2			Articles of Amendment to the Articles of Incorporation of Peoples Financial Services Corp., effective as of May 19, 2020 (incorporated by reference to Exhibit 3.2 to registrant's quarterly report on Form 10-Q filed with the Commission on August 10, 2020)

3.3			Peoples Financial Services Corp. Second Amended and Restated Bylaws, as amended (incorporated by reference to Exhibit 3.1 to the registrant’s quarterly report on Form 10-Q filed with the Commission on November 14, 2024)

4.1			Indenture, dated June 6, 2025, between Peoples Financial Services Corp. and U.S. Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the registrant’s Form 8-K filed with the Commission on June 6, 2025)

4.2			Form of Subordinated Note (incorporated by reference to Exhibit A-1 to Exhibit 4.1 to the registrant’s Form 8-K filed with the Commission on June 6, 2025)

10.1			Form of Subordinated Note Purchase Agreement (incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed with the Commission on June 6, 2025)

10.2			Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 to the registrant’s Form 8-K filed with the Commission on June 6, 2025)

10.3			Purchase and Sale Agreement by and between Moosic Holdings, LLC and Peoples Security Bank and Trust Company (incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed with the Commission on June 27, 2025)

10.4*			Change in Control Severance Agreement dated as of October 24, 2024, by and between Peoples Security Bank and Trust Company and Stephanie A. Westington, CPA

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31.1*			CEO Certification Pursuant to Rule 13a-14 (a) /15d-14 (a)

31.2*			CFO Certification Pursuant to Rule 13a-14 (a) /15d-14 (a).

32*			CEO and CFO Certifications Pursuant to Section 1350.

101*			The following materials from Peoples Financial Services Corp. Quarterly Report on Form 10-Q for the period ended June 30 2025, formatted in inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements

104*			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto, duly authorized.

	Peoples Financial Services Corp.
	(Registrant)

Date: August 11, 2025	/s/ Gerard A. Champi
	Gerard A. Champi
	Chief Executive Officer
	Principal Executive Officer

Date: August 11, 2025	/s/ James M. Bone, Jr., CPA
	James M. Bone, Jr., CPA
	Executive Vice President and Chief Financial Officer
	Principal Financial Officer

Date: August 11, 2025	/s/ Stephanie A. Westington, CPA
	Stephanie A. Westington, CPA
	Senior Vice President and Chief Accounting Officer
	Principal Accounting Officer