Peoples Financial Services PFIS Form 10-Q filing Q1 FY2026

Item 1. Financial Statements

Peoples Financial Services Corp.

CONSOLIDATED BALANCE SHEET****S

(Dollars in thousands, except share data)

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See notes to unaudited consolidated financial statements.

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Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOM****E (UNAUDITED)

(Dollars in thousands, except per share data)

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See notes to unaudited consolidated financial statements.

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Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUIT****Y (UNAUDITED)

(Dollars in thousands, except per share data)

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See notes to unaudited consolidated financial statements.

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Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOW****S (UNAUDITED)

(Dollars in thousands, except per share data)

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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)

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1. Summary of significan****t accounting policies:

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Nature of operations

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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 (the “Bank”) and 1st Equipment Finance, Inc., collectively, the “Company” or “Peoples”. The Company services its retail and commercial customers through forty full-service community banking offices located within Allegheny, Bucks, Lackawanna, Lancaster, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna, and Wyoming Counties of Pennsylvania, Middlesex County of New Jersey, and Broome County of New York.

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Basis of presentation

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The accompanying unaudited interim 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.

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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 and impairment of goodwill. Actual results could differ from those estimates.

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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, 2025.

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Subsequent events

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The Company has evaluated events and transactions occurring subsequent to the balance sheet date of March 31, 2026, 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.

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On April 24, 2026, the Company’s board of directors declared a dividend of $0.6250 per share for the second quarter of 2026. The dividend is payable on June 15, 2026 to shareholders of record as of May 29, 2026. The per share dividend is equal to the per share dividend declared for the first quarter of 2026.

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Recent accounting standards

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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 entitled “Summary of significant accounting policies” of the Notes to the

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

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ASU 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements” is intended to improve the navigability and clarity of interim reporting requirements under Topic 270. ASU 2025-11 clarifies when Topic 270 applies, adds a comprehensive list of required interim disclosures, and introduces a disclosure principle requiring entities to disclose events occurring after the most recent annual period that have a material impact on the entity. The ASU does not expand or reduce overall interim disclosure requirements but instead compiles and organizes them to improve consistency and comparability. The guidance also clarifies form-and-content expectations for interim financial statements, including the use of condensed statements, and aligns GAAP with prior SEC requirements regarding material events.

The amendments are effective for interim reporting periods beginning after December 15, 2027, for public business entities and one year later for all other entities. Early adoption is permitted, with prospective or retrospective application available. ASU 2025-11 will be effective for the interim beginning January 1, 2028, for the Company’s quarterly financial statements on Form 10-Q and is not expected to have a material impact on the Company’s consolidated financial statements.

ASU 2025-08 “Financial Instruments – Credit Losses (Topic 326): Purchased Loans” (“ASU 2025-08”) expands the use of the gross up-approach in ASC 326, Credit Losses, to “purchased seasoned loans,” which the guidance defines as loans, excluding purchased financial assets with credit deterioration, credit card receivables, debt securities, and trade receivables, that are (1) acquired in a business combination or (2) obtained through a transfer that is not a business combination or initially recognized through the consolidation of a variable interest entity, if certain seasoning criteria are met. This approach was previously only applied to purchased financial assets with credit deterioration. The guidance is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Entities are required to apply the guidance prospectively. Early adoption is permitted. The Company is currently in the process of evaluating this guidance.

ASU 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 material impact on the Company’s consolidated financial statements, but is expected to result in additional disclosures and potential changes to line items on the consolidated statements of income and comprehensive income.

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2. Accumulated other comprehensive loss:

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The components of other comprehensive (loss) income and their related tax effects are reported in the consolidated statements of income and comprehensive income. The accumulated other comprehensive loss (“AOCL”) 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.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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The components of AOCL included in stockholders’ equity at March 31, 2026 and December 31, 2025 are as follows:

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Other comprehensive (loss) income and related tax effects for March 31, 2026 and December 31, 2025 are as follows:

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(1) Represents amounts reclassified out of accumulated other comprehensive (loss) income and included in gains on the sale of investment securities on the consolidated statements of income and comprehensive income.

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3. Earnings per share:

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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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The following table presents the calculation of both basic and diluted earnings per share of common stock for the three months ended March 31, 2026 and 2025:

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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4. Investment securities:

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The amortized cost and fair value of investment securities aggregated by investment category at March 31, 2026 and December 31, 2025 are summarized below. There was no allowance for credit losses (“ACL”) recorded for available for sale or held to maturity debt securities at March 31, 2026 and December 31, 2025.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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During the three months ended March 31, 2026, the Company completed a partial repositioning of its investment security portfolio. The Company sold a portion of its available-for-sale residential mortgage-backed securities with an amortized cost of $31.9 million. Proceeds received on the securities sold totaled $32.4 million. The Company realized gross gains of $510 thousand, which is included in noninterest income in the consolidated statements of income and comprehensive income for the three months ended March 31, 2026. There were no gross losses realized upon the sales.

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There were no available-for-sale securities sold during the three months ended March 31, 2025.

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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 March 31, 2026. Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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The maturity distribution of the amortized cost and fair value, of debt securities classified as held to maturity at March 31, 2026, is summarized as follows:

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Securities with a carrying value of $370.6 million at March 31, 2026 were pledged to secure public deposits and certain other deposits as required or permitted by law. At December 31, 2025, securities with a carrying value of $381.8 million 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.

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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 March 31, 2026, 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.

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The fair value and gross unrealized losses of investment securities with unrealized losses at March 31, 2026 and December 31, 2025, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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Management considered whether a credit loss existed related to the 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 judged 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 AOCL.

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Based on an assessment of the factors identified above, management determined the fair value of all the identified investments being less than the amortized costs is primarily caused by the changes in market rates and not credit quality. All interest payments have been received as scheduled, substantially all debt securities are rated above investment grade, and no material downgrades were sustained. 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 at maturity. Based on its assessment, management does not consider the unrealized loss to be credit related, thus no allowance for credit loss was recorded at March 31, 2026 or December 31, 2025.

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Equity Securities

Included in equity securities with readily determinable fair values at March 31, 2026, 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 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.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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The following table presents unrealized and realized gains recognized in net income on equity securities for the three months ended March 31, 2026, and 2025:

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Equity Securities without Readily Determinable Fair Values

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At March 31, 2026 and December 31, 2025, equity securities without readily determinable fair values consisted primarily of Federal Home Loan Bank (“FHLB”) of Pittsburgh stock totaling $17.9 million and $12.4 million, respectively. Equity securities without readily determinable fair values also included equity interests in two FinTech companies and an equity interest in an insurance agency. The Company evaluates equity securities without readily determinable fair values for impairment quarterly, or more frequently should events or circumstances indicate that their respective carrying values may not be recoverable. Based on the evaluations, management concluded that the equity securities without readily determinable fair values were not impaired at March 31, 2026 and December 31, 2025. There were no adjustments for impairment related to these securities for the three months ended March 31, 2026.

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5. Loans, net and allowance for credit losses:

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The major classifications of loans outstanding, net of deferred loan origination fees and costs, unearned income and net unaccreted discounts on acquired loans, at March 31, 2026, and December 31, 2025 are summarized as follows. The Company had net deferred loan origination costs of $2.1 million and $1.9 million at March 31, 2026 and December 31, 2025, respectively. Unearned income was $1.5 million at March 31, 2026, and $1.5 million at December 31, 2025. The balance of net unaccreted discounts on acquired loans was $39.6 million and $42.7 million at March 31, 2026 and December 31, 2025, respectively.

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Allowance for Credit Losses

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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

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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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 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.

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The Company excludes 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, totaling $15.2 million and $14.7 million at March 31, 2026 and December 31, 2025, respectively and is excluded from the estimate of credit losses, as the Company has a policy to reverse accrued interest when a loan is placed on nonaccrual status. 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, totaled $2.8 million and $3.0 million, respectively, at March 31, 2026 and December 31, 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.

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For a further discussion of our methodology related to the ACL, refer to Note 1 entitled, “Summary of significant accounting policies,” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

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The following tables present the changes in and period end balance of the allowance for credit losses at and for the three months ended March 31, 2026 and 2025.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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The following table represents the allowance for credit losses by major classification of loans and whether the loans were individually or collectively evaluated and collateral dependent by class of loans at March 31, 2026 and December 31, 2025.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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Nonaccrual Loans

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The following table presents the Company’s nonaccrual loans, including non-PCD nonaccrual loans, at March 31, 2026 and December 31, 2025.

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Interest income recorded on nonaccrual loans was $49 thousand and $52 thousand for the three months ended March 31, 2026, and March 31, 2025, respectively.

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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:

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• Pass - A loan to a borrower 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

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the 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 realized in the future.

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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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 March 31, 2026 and December 31, 2025:

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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The major classifications of loans by past due status are summarized as follows at March 31, 2026 and December 31, 2025:

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There were no residential loans in the formal process of foreclosure at March 31, 2026. Residential real estate loans in the formal process of foreclosure were $0.6 million at December 31, 2025.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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Allowance for Credit Losses on Off Balance Sheet Commitments

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Off balance sheet commitments include commitments to extend credit, unused portions of lines of credit and standby letters of credit. The Company establishes an ACL for off-balance sheet commitments, which is included in other liabilities on the consolidated balance sheets, to provide probable losses that may be incurred related to these instruments. The following table presents the activity in the ACL related to off balance sheet commitments, for the three months ended March 31, 2026 and 2025:

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The contractual amounts of off-balance sheet commitments at March 31, 2026 and December 31, 2025 are as follows:

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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Modifications to Borrowers Experiencing Financial Difficulty

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The following table presents, by class of loans, information regarding modified loans to borrowers experiencing financial difficulty during the three months ended March 31, 2026 and 2025.

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The following table presents, by class of loans, information regarding the financial effect on modified loans to borrowers experiencing financial difficulty during the three months ended March 31, 2025.

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There were no modifications made to loans to borrowers experiencing financial difficulties during the three months ended March 31, 2026.

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6. Other assets:

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The components of other assets at March 31, 2026 and December 31, 2025 are summarized as follows:

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(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 $176.4 million at March 31, 2026, and $174.3 million at December 31, 2025.

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

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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Investments in limited partnerships

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The Company is a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved low-income housing investment tax credit projects. These investments are accounted for using the proportional amortization method of accounting and are included in other assets in the consolidated balance sheets. The limited partnerships are considered to be variable interest entities (“VIEs”) as they generally do not have equity investors with voting rights or have equity investors that do not provide sufficient financial resources to support their activities. The VIEs have not been consolidated because the Company is not considered the primary beneficiary. All of the Company’s investments in limited partnerships are privately held, and their market values are not readily available. As of March 31, 2026, and December 31, 2025, the Company had $25.4 million and $15.5 million, respectively, invested in these partnerships. At March 31, 2026, the Company also recognized the unconditional unfunded equity commitments of $10.9 million within other liabilities on the consolidated balance sheets. There was no unfunded equity commitments recognized at December 31, 2025. The Company classifies the amortization of the investment as a component of income tax expense and proportionally amortizes the investment over the tax credit period. The amortization for the three months ended March 31, 2026 and 2025 was $0.8 million and $0.3 million, respectively. The tax benefits attributed to these partnerships include low-income housing tax credits, which are included in income tax expense, and are projected to total $2.5 million for 2026. For 2025, tax benefits totaled $2.2 million.

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The following table presents the scheduled equity commitments to be paid to the limited partnerships over the next five years and in the aggregate thereafter as of March 31, 2026.

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7. Fair value estimates:

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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.

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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.

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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

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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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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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:

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• 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.

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At March 31, 2026, the Company owned 24 corporate debt securities with an aggregate amortized cost and fair value of $21.3 million and $21.6 million, respectively. At March 31, 2026, the market was not active for one corporate debt security based on transaction criteria for similar instruments. The amortized cost of this security was $0.9 million at March 31, 2026. Management considered this security to be immaterial in relation to the total available for sale investment portfolio to warrant further analysis. Accordingly, management considered the amortized cost of this security to be representative of its fair value at March 31, 2026. During the quarter ended March 31, 2026, there were no transfers into Level 3.

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

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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.

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

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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

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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and any gain or loss upon the sale of OREO is recorded in other non-interest income. OREO is reported in other assets on the consolidated balance sheets. The carrying value of OREO was $1.7 million at both March 31, 2026, and December 31, 2025. Other real estate owned is classified within Level 3 in the fair value hierarchy based on appraisals, letters of intent or agreements of sale received from third parties.

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Assets and liabilities measured at fair value on a recurring basis at March 31, 2026 and December 31, 2025 are summarized as follows:

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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Assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2026, and December 31, 2025, are summarized as follows:

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis at March 31, 2026, and December 31, 2025, and for which the Company has utilized Level 3 inputs to determine fair value:

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

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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 percentage of the appraisal.

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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The carrying and fair values of the Company’s financial instruments at March 31, 2026, and December 31, 2025, and their placement within the fair value hierarchy are as follows:

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

8. Employee benefit and stock plans:

​

Employee benefit plans

​

The Company sponsors a Retirement Profit Sharing 401(k) Plan and previously sponsored an Employee Stock Ownership Plan (“ESOP”). On June 25, 2025, the board of directors adopted a resolution to merge the ESOP into the Retirement Profit Sharing 401(k) Plan, which became effective on October 15, 2025. The Company also maintains Supplemental Executive Retirement Plans (“SERPs”) and an Employees’ Pension Plan, which is currently frozen. Expenses related to these plans, which is included in salaries and employee benefits expense, totaled $0.7 million for each of the three months ended March 31, 2026 and 2025.

​

The components of net periodic pension benefit for the three months ended March 31, 2026 and 2025 are summarized in the following tables:

​

​

Stock plans

​

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.

As of March 31, 2026, 12,649 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.

​

On January 30, 2026, a total of 4,455 shares of restricted stock awards with a fair value of $50.61 per share were granted under the 2023 Plan to the Bank’s non-employee directors with each director receiving 297 shares. On January 31, 2025, a total of 3,080 shares of restricted stock awards with a fair value of $53.64 per share were granted under the 2023 Plan

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

to the Bank’s non-employee directors. The restricted stock awards granted in January 2026 and 2025 vested immediately upon grant. Director compensation expense related to these grants was $56 thousand and $56 thousand for the three months ended March 31, 2026 and 2025 and is included in other expenses in the consolidated statements of income and comprehensive income.

​

There were no time based or performance awards granted to employees during the three months ended March 31, 2026. For the three months ended March 31, 2025, the Company granted 40,237 performance based restricted stock units and 13,917 time based restricted stock units to employees under the 2023 Plan. The time-based restricted stock awards and restricted stock units granted to employees in 2025, 2024 and 2023 vest equally over three, five or seven years, as applicable. 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 equity which determines the number of restricted stock units that may vest.

​

The Company expenses the fair value of all employee 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 employees within “salaries and employee benefits expense” on the consolidated statements of income and comprehensive income. The Company recognized compensation costs of $218 thousand and $279 thousand for the three months ended March 31, 2026, and 2025, for awards granted under the 2023 Plan. The Company recognized net compensation costs of $186 thousand for the three months ended March 31, 2025 for the awards granted under the 2017 Plan.

​

As of March 31, 2026, the Company had $2.3 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 3.6 years.

​

9. 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.

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCL and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCL 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.

​

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 March 31, 2026 and December 31, 2025, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustment for fair value hedges:

​

(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. At March 31, 2026, the amortized cost basis of the closed portfolios used in these hedging relationships was $136.3 million. The amounts of the designated hedged items were $25.0 million. At December 31, 2025, the amortized cost basis of the closed portfolios used in these hedging relationships was $139.2 million. The amounts of the designated hedged items were $75.0 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 March 31, 2026, the Company had 179 interest rate swaps with an asset notional of $446.0 million and a liability notional of $415.6 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.

​

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 March 31, 2026 and December 31, 2025.

​

​

(1) The notional asset amount of interest rate swaps and risk participation agreements were $408.7 million and $37.3 million, respectively, at March 31, 2026, and $368.5 million and $34.0 million, respectively, at December 31, 2025.

​

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 months ended March 31, 2026 and 2025.

​

​

​

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​

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 months ended March 31, 2026 and 2025.

​

​

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 and a net presentation of the Company’s derivatives as of March 31, 2026 and December 31, 2025. 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.

​

(1) Cash collateral of $1.0 million and $2.2 million was paid as of March 31, 2026 and December 31, 2025, 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.

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.

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

As of March 31, 2026, 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 $1.5 million. As of December 31, 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.

The Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $1.0 million and $2.2 million against its obligations under these agreements at March 31, 2026 and December 31, 2025, 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.

​

10. Deposits

​

The major components of interest-bearing and noninterest-bearing deposits at March 31, 2026 and December 31, 2025 are summarized as follows:

​

​

​

Time deposits less than $250 thousand included brokered deposits of $112.1 million at March 31, 2026 and $152.3 million at December 31, 2025.

​

The scheduled maturities of all time deposits through March 31 of each year are summarized as follows:

​

​

​

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

​

11. Borrowings

​

Short-term borrowings, which included FHLB overnight borrowings or advances with stated original terms of less than twelve months and other borrowings related to collateral held from derivative counterparties, totaled $179.3 million at March 31, 2026, and $32.7 million at December 31, 2025.

​

The table below outlines short-term borrowings at and for the three months ended March 31, 2026, and at and for the year ended December 31, 2025:

​

​

​

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 March 31, 2026, $2.4 billion in loans were pledged to the FHLB providing a maximum borrowing capacity of $1.7 billion of which $304.1 million was outstanding in short-term and long-term advances and $452.3 million was used to issue standby letters of credit to primarily 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 borrower-in-custody program which allows depository institutions to pledge loans as collateral for Discount Window advances while retaining possession of the loan documentation. At March 31, 2026, $719.0 million in loans were pledged as collateral for the borrower-in-custody program and provided $506.4 million in borrowing capacity. There were no borrowings outstanding under this program at March 31, 2026 and December 31, 2025.

​

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 March 31, 2026 and December 31, 2025 is as follows:

​

​

Maturities of long-term debt, by contractual maturity, for the remainder of 2026 and subsequent years are as follows:

​

​

​

12. Subordinated debt

​

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

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

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 exchanged most of the Subordinated Notes for subordinated notes that are registered under the Securities Act and have substantially the same terms as the Subordinated Notes. The Subordinated Notes are presented net of unamortized debt issuance costs and included in borrowed funds in the consolidated balance sheets under the caption “Subordinated Debentures.” Subordinated debentures were $83.3 million, net of unamortized debt issuance costs of $1.7 million at March 31, 2026, and $83.2 million, net of unamortized debt issuance costs of $1.8 million at December 31, 2025. Interest expense on the Subordinated Notes was $1.7 million for the three months ended March 31, 2026.

​

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 repriced to 9.08% based on a benchmark rate. For the three months ended March 31, 2025, interest expense on the 2020 Notes was $443 thousand.

​

The Company assumed $10.3 million of floating rate junior subordinated deferrable interest debentures due December 15, 2036 (“Debentures”) in its 2024 merger with FNCB Bancorp, Inc (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 March 31, 2026 and December 31, 2025, the Debentures were $8.2 million and $8.1 million respectively and are included in borrowed funds in the consolidated balance sheets under the caption “Junior Subordinated Debentures.” Interest expense on the Debentures was $173 thousand for the three months ended March 31, 2026, and $186 thousand for the three months ended March 31, 2025.

​

13. 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 Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

The 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 for the three months ended March 31, 2026 and 2025.

​

​

At March 31, 2026 and December 31, 2025, 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 The Bank at March 31, 2026, and December 31, 2025, were $173.7 million and $161.5 million, respectively.

​

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 $78 thousand for the three months ended March 31, 2026, and $86 thousand for the three months ended March 31, 2025.

​

14. Regulatory matters

​

The Company’s ability to pay dividends to its shareholders is largely dependent on The 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 The Bank’s regulatory agency.

​

The Company and The 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 The Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and The Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and The 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 March 31, 2026 and December 31, 2025, that the Company and The Bank met all applicable capital adequacy requirements.

​

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

​

Current quantitative measures established by regulation to ensure capital adequacy require The Bank to maintain minimum amounts and ratios (set forth in the tables below) of Total capital, Tier 1 capital, and Tier 1 common equity (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 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 March 31, 2026 and December 31, 2025:

​

​

​

​

​

​

​

​

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, 2025.

​

​

​

​

​

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

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 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 the 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,” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

​

Goodwill and Other Intangible Assets:

​

The Company has goodwill with a net carrying value of $76.0 million at both March 31, 2026 and December 31, 2025. 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 the Company’s carrying amount exceeds the fair value of the goodwill, the Company would record an impairment charge based on that difference. At March 31, 2026, we performed a qualitative evaluation, which involves determining whether any events occurred or circumstances changed that would more likely than not reduce the fair value of the Company’s goodwill 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 March 31, 2026.

​

Review of Financial Position:

​

Total assets increased $152.8 million, or 11.8 percent annualized to $5.4 billion at March 31, 2026, from $5.3 billion at December 31, 2025. The increase in the balance sheet was primarily due to increases in loans and cash and cash equivalents, partially offset by a decrease in investment securities. Loans, net increased $123.3 million, or 12.3 percent annualized to $4.2 billion, at March 31, 2026, from $4.1 billion at December 31, 2025. Cash and cash equivalents increased $59.6 million to $328.6 million at March 31, 2026, from $269.0 million at December 31, 2025. Investments decreased $44.3 million to $542.9 million at March 31, 2026, from $587.2 million at December 31, 2025

​

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

Total deposits decreased $8.7 million to $4.4 billion at March 31, 2026, from $4.4 billion at December 31, 2025. Interest-bearing deposits decreased $23.5 million to $3.5 billion at March 31, 2026, compared to $3.5 billion at December 31, 2025. Noninterest-bearing deposits increased $14.8 million to $969.3 million at March 31, 2026, from $954.5 million as of December 31, 2025.

​

Total short-term borrowings at March 31, 2026, were $179.3 million, an increase of $146.6 million from $32.7 million at December 31, 2025. Long term debt increased $0.4 million to $134.8 million at March 31, 2026, from $134.4 million at December 31, 2025.

​

Total stockholders’ equity increased $5.7 million from $519.8 million at year-end 2025 to $525.5 million at March 31, 2026, due largely to net income, partially offset by dividends paid to shareholders and an increase in accumulated other comprehensive loss resulting from an increase in the unrealized loss on available-for-sale investment securities. Book value per share increased $0.49 to $52.50 at March 31, 2026, from $52.01 at December 31, 2025. The Bank and the Company were considered well capitalized at March 31, 2026 and December 31, 2025, with regulatory capital ratios that exceeded minimum regulatory capital ratios required to be well capitalized under applicable regulations.

​

Investment Portfolio:

​

The majority of the investment portfolio is classified as available for sale, which provides 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 $469.3 million at March 31, 2026, a decrease of $43.3 million, or 34.3 percent annualized, from $512.6 million at December 31, 2025. The decrease was primarily due to additional sales associated with an ongoing portfolio repositioning strategy to replace lower-yielding investment securities with higher-yielding instruments. In the quarter ended March 31, 2026, the Company completed a partial repositioning of the investment securities portfolio, selling $31.9 million of U.S. government agency and sponsored agency mortgage-backed securities resulting in pre-tax gain of approximately $0.5 million. Approximately half of the $32.4 million in proceeds received from the sale were re-deployed back into the available for sale investment portfolio with the remaining proceeds used to fund loan demand. This repositioning followed a previous repositioning completed in the fourth quarter of 2025.

​

Investment securities held to maturity, which consisted of 84.7 percent mortgage-backed securities issued or guaranteed by U.S. Government agencies and U.S. Government-sponsored entities and 15.3 percent tax-exempt municipal securities, totaled $70.5 million at March 31, 2026, a decrease of $1.5 million, or 8.4 percent annualized from $72.0 million at December 31, 2025. The decrease was primarily due to principal payments on mortgage-backed securities. Held to maturity securities had a market value of $61.0 million at March 31, 2026, compared to $62.8 million at December 31, 2025.

​

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 $3.1 million at March 31, 2026, compared to $2.6 million at December 31, 2025.

​

For the three months ended March 31, 2026, investments averaged $611.0 million, a decrease of $32.0 million or 5.0 percent compared to $643.0 million for the same three months of 2025. Average taxable investments decreased $94.6 million, or 17.0 percent to $461.3 million from $555.9 million for the three months ended March 31, 2025. Partially offsetting this decrease was an increase in average tax-exempt municipal bonds of $62.6 million or 71.9 percent to $149.7 million for the three months ended March 31, 2026, from $87.1 million for the comparable period of 2025. Despite the reduction and due to portfolio repositioning strategies, the fully tax-equivalent (“FTE”) yield on the

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

​

investment portfolio, a non-GAAP measure, increased 85 basis points to 3.80 percent for the three months ended March 31, 2026, from 2.95 percent for the comparable period of 2025.

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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 $25.8 million net of a deferred income tax benefit of $7.2 million at March 31, 2026, and net unrealized losses of $22.8 million, net of deferred income tax benefit of $6.4 million, at December 31, 2025.

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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.

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Loan Portfolio:

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Total loans increased $123.3 million or 12.3 percent annualized from $4.1 billion at December 31, 2025, to $4.2 billion at March 31, 2026. The increase was due primarily to strong demand for commercial and residential real estate loans, commercial loans and municipal loans, partially offset by reductions in commercial equipment financing, indirect automobile loans and other consumer loans during the first quarter of 2026.

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Commercial and industrial loans increased $7.5 million to $675.4 million at March 31, 2026, compared to $667.9 million at December 31, 2025.

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Municipal loans increased $10.3 million to $212.6 million compared to $202.3 million at December 31, 2025.

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Commercial real estate loans, which were $2.4 billion at March 31, 2026, increased $108.9 million from $2.3 billion at December 31, 2025.

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Residential real estate loans increased $15.8 million to $618.1 million at March 31, 2026, compared to $602.3 million at December 31, 2025.

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Consumer loans, which consist primarily of indirect auto loans, decreased $9.9 million to $101.3 million at March 31, 2026, compared to $111.2 million at December 31, 2025.

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Equipment financing loans decreased $9.3 million to $159.7 million at March 31, 2026, compared to $169.0 million at December 31, 2025.

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For the three months ended March 31, 2026, total loans averaged $4.1 billion, an increase of $139.7 million or 3.5 percent compared to $4.0 billion for the same period of 2025. The FTE yield on the loan portfolio was 5.80 percent for the three months ended March 31, 2026, a 12-basis point decrease from 5.92 percent for the comparable period last year.

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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 certain 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.

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Unused commitments at March 31, 2026 totaled $904.9 million, consisting of $842.2 million in unfunded commitments of existing loan facilities and $62.7 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

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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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, 2025 totaled $894.0 million, consisting of $839.0 million in unfunded commitments of existing loans and $55.0 million in standby letters of credit. An allowance for credit losses, included in other liabilities on the consolidated balance sheets of $1.1 million and $1.3 million was recorded for unused commitments at March 31, 2026, and December 31, 2025, respectively.

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Asset Quality:

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Distribution of nonperforming assets

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Nonperforming assets increased $0.2 million to $12.3 million, or 0.23 percent of total assets, at March 31, 2026, from $12.1 million, or 0.23 percent of total assets, at December 31, 2025. The increase was primarily caused by an increase in nonaccrual loans, partially offset by a decrease in accruing loans past due 90 days or more.

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Loans on nonaccrual status increased $0.6 million to $11.4 million at March 31, 2026, from $10.8 million at December 31, 2025. The increase was primarily related to one commercial real estate credit that was placed on nonaccrual status during the first quarter of 2026. There was one foreclosed property with a carrying value of $750 thousand at March 31, 2026, and at December 31, 2025.

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While we pursue a goal of maintaining a high loan-to-deposit ratio in order to drive profitability, 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.

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The allowance for credit losses equaled $39.6 million or 0.94 percent of loans, net, at March 31, 2026, compared to $39.0 million, or 0.96 percent of loans, net, at December 31, 2025. Net charge-offs of $0.8 million were recognized during the three months ended March 31, 2026, and were $0.9 million in the same period in 2025. The provision for credit losses for the quarter ended March 31, 2026, was $1.4 million compared to a provision of $0.2 million in the same quarter of 2025. The provision in 2026 was due primarily to the increase in loan volume, partially offset by decreases in qualitative factor adjustments primarily related to the seasoning of the commercial equipment financing portfolio.

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Deposits:

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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.

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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Total deposits decreased $8.7 million, or 0.8 percent annualized, to $4.4 billion at March 31, 2026, from $4.4 billion at December 31, 2025. Interest-bearing deposits decreased $23.6 million, or 2.8 percent annualized, and were $3.5 billion at March 31, 2026 and December 31, 2025, respectively. Partially offsetting the decrease in interest-bearing deposits was an increase in noninterest-bearing deposits of $14.9 million, or 6.3 percent annualized, when comparing March 31, 2026, to December 31, 2025. The decrease in interest-bearing deposits was primarily due to reductions in brokered and retail time deposits, coupled with cyclical fluctuations in municipal deposit balances, partially offset by increases in money market deposits and savings accounts.

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Interest-bearing demand deposits and NOW accounts decreased $33.2 million, and were $1.3 billion at March 31, 2026, and December 31, 2025. The decrease was primarily caused by cyclical outflows of municipal deposits. Money market accounts increased $65.7 million and were $1.1 billion at March 31, 2026, from $1.0 billion at December 31, 2025. Savings accounts increased $14.5 million to $512.0 million as of March 31, 2026, from $497.5 million at December 31, 2025. Time deposits less than $250 thousand decreased $52.1 million to $425.0 million at March 31, 2026, from $477.1 million at December 31, 2025, due primarily to a reduction of $40.1 million in brokered CDs. Time deposits of $250 thousand or more decreased $18.5 million to $211.4 million at March 31, 2026, from $229.9 million at year end 2025.

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Our deposit base is diversified and consisted of 41.4 percent retail accounts, 36.4 percent commercial accounts, 19.7 percent municipal relationships and 2.5 percent brokered deposits at March 31, 2026. At March 31, 2026, total estimated uninsured deposits were approximately $1.5 billion, or 34.5 percent of total deposits; as compared to approximately $1.5 billion, or 34.3 percent of total deposits at December 31, 2025.

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Interest-bearing deposits averaged $3.4 billion for the three months ended March 31, 2026, a decrease of $34.5 million compared to $3.4 billion for the same three months of 2025. The cost of interest-bearing deposits was 2.16 percent for the three months ended March 31, 2026, a decrease of 30 basis points compared to 2.46 percent for the same period of 2025, which reflected overall lower market interest rates.

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Borrowings:

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The 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, The Bank may borrow from the Federal Reserve utilizing the Discount Window.

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Overall, total borrowings were $405.5 million at March 31, 2026, which included short-term borrowings, long-term debt, and subordinated debt, compared to $258.4 million at December 31, 2025, an increase of $147.1 million. At March 31, 2026, short-term borrowings, which were comprised of both overnight borrowings from the FHLB and cash collateral pledged by derivative counterparties to offset interest rate exposure, totaled $179.3 million compared to $32.7 million at December 31, 2025, an increase of $146.6 million. The increase in short-term borrowings was used to support on balance sheet liquidity at March 31, 2026. Long-term debt was $134.8 million at March 31, 2026, compared with $134.4 million at year end 2025, and was comprised exclusively of advances from the FHLB. Junior subordinated debt, which was acquired as part of the 2024 FNCB merger and reported net of discount, totaled $8.2 million and $8.1 million at March 31, 2026, and December 31, 2025, respectively. Subordinated debt outstanding was $83.3 million at March 31, 2026, and $83.2 million at December 31, 2025.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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Liquidity:

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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:

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• Funding new and existing loan commitments;

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• Payment of deposits on demand or at their contractual maturity;

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• Repayment of borrowings as they mature;

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• Payment of lease obligations; and

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• Payment of operating expenses.

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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 maintain adequate liquidity.

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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.

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Management actively monitors the Company’s liquidity position, sources of available liquidity in relation to funding and cash flow needs. Additionally, the Company’s ALCO generally meets quarterly, and most recently met in February 2026 to review our IRR profile, capital adequacy and liquidity. On March 31, 2026, the Company’s cash and cash equivalents were $328.6 million. In addition to cash and cash equivalents, the Company had ample sources of additional liquidity including available borrowing capacity with the FHLB and Federal Reserve Discount Window and federal fund lines of credit with correspondent banks. Our maximum borrowing capacity with the FHLB as of March 31, 2026, was $1.7 billion, of which $756.4 million was outstanding in the form of borrowings and irrevocable standby letters of credit, with remaining availability of $0.9 billion. Additionally, the Company maintains $506.4 million of availability at the Federal Reserve Discount Window, 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 $27.0 million, none of which are 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 March 31, 2026, the Company’s available for sale investment portfolio totaled $469.3 million, of which $165.5 million was unencumbered. We believe our liquidity position is sufficient to meet our current and anticipated financial obligations and commitments in a timely manner.

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We employ several 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 March 31, 2026. Our noncore funds at March 31, 2026, 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 could be highly volatile. On March 31, 2026, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 12.1 percent, while our net short-term noncore funding dependence ratio, noncore funds maturing within one-year, less short-term investments to long-term assets equaled 7.3 percent. Our reliance on non-core funding at March 31, 2026 increased modestly as compared to our reliance at December 31, 2025, which primarily reflected an increase in non-core

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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funds outstanding, specifically short-term borrowings. Our overall noncore dependence ratio at December 31, 2025 was 11.2 percent and our net short-term noncore funding dependence ratio was 6.3 percent.

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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 $59.6 million during the three months ended March 31, 2026. Comparatively, cash and cash equivalents decreased $58.7 million for the same period last year. For the three months ending March 31, 2026, net cash inflows of $8.3 million from operating activities and $131.6 million from financing activities were offset by $80.3 million used in investing activities. For the same period of 2025, net cash outflows of $108.5 million from financing activities were offset by $40.7 million received in investing activities and $9.1 million received in operating activities.

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Operating activities provided net cash of $8.3 million for the three months ended March 31, 2026, and provided $9.1 million for the corresponding three months of 2025. 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.

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Investing activities primarily include lending activities, and investment portfolio transactions. Investing activities used net cash of $80.3 million for the three months ended March 31, 2026, compared to providing net cash of $40.7 million for the same period of 2025. Increases in loans and purchases of investments, partially offset by proceeds received from repayments and sales of investment securities, were the primary factors causing the net outflow.

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Financing activities provided net cash of $131.6 million for the three months ended March 31, 2026, and used net cash of $108.5 million for the corresponding three months of 2025. For the three months ended March 31, 2026, the net increase was primarily driven by increases in short term borrowings and long-term debt, partially offset by decreased deposits, and dividends paid to shareholders. The net outflow of cash for the comparative period of 2025 was primarily caused by decreases in deposits, borrowings and payment of dividends to shareholders. While a portion of the deposit outflows are seasonal, we continue to seek deposits from new markets and customers as well as existing customers, including municipalities and school districts.

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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.

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Capital:

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Stockholders’ equity totaled $525.5 million or $52.50 per share at March 31, 2026, an increase of $5.7 million compared to $519.8 million or $52.01 per share at December 31, 2025. The increase in stockholders’ equity was primarily due to net income, partially offset by cash dividends paid and an increase in accumulated other comprehensive loss which was largely due to changes in market values of available for sale investment securities.

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Dividends declared equaled $0.625 per share for the three months ended March 31, 2026, and $0.6175 per share for the same period of 2025. The Company has paid cash dividends since its formation as a bank holding company in 1986. On April 24, 2026, the Company’s board of directors declared a second quarter dividend of $0.625 per share payable on June 15, 2026, to shareholders of record as of May 29, 2026. It is the present intention of the Company’s board of directors to continue to pay comparable quarterly dividends. Future 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)

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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 percent; (ii) a minimum ratio of tier 1 capital to risk-weighted assets of 6 percent; (iii) a minimum ratio of total capital to risk-weighted assets of 8 percent; and (iv) a minimum leverage ratio of 4 percent. In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5 percent 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 March 31, 2026, The Bank’s Tier 1 capital to total average assets was 10.42 percent as compared to 10.22 percent at December 31, 2025. The Bank’s Tier 1 capital to risk weighted asset ratio was 12.95 percent and the total capital to risk weighted asset ratio was 13.89 percent at March 31, 2026. The respective ratios were 13.06 percent and 14.01 percent at December 31, 2025. The Bank’s common equity Tier 1 to risk weighted asset ratio was 12.95 percent at March 31, 2026, compared to 13.06 percent at December 31, 2025. The Bank met all capital adequacy requirements and was deemed to be well-capitalized under regulatory standards at March 31, 2026.

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At March 31, 2026, the Company’s Tier 1 capital to total average assets was 9.03 percent as compared to 8.84 percent at December 31, 2025. The Company’s Tier 1 capital to risk weighted asset ratio was 11.20 percent and the total capital to risk weighted asset ratio was 14.16 percent at March 31, 2026. These ratios were 11.28 percent and 14.31 percent at December 31, 2025. The Company’s common equity Tier 1 to risk weighted asset ratio was 10.96 percent at March 31, 2026, compared to 11.03 percent at December 31, 2025.

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Review of Financial Performance:

The Company reported net income of $14.7 million or $1.47 per diluted share for the three months ended March 31, 2026, a decrease of $0.3 million when compared to a net income of $15.0 million or $1.49 per diluted share for the comparable period of 2025. The $0.3 million reduction in net income comparing the three months ended March 31, 2026 and 2025 was primarily due to an increase in the provision for credit losses due to strong loan growth, coupled with an increase in non-interest expense, which were partially offset by increases in net interest income and non-interest income. The Company recorded a $1.4 million provision for credit losses during the first quarter of 2026 compared to a $0.2 million provision for the comparable quarter of 2025. Noninterest expenses increased by $2.5 million, primarily due to increases in salaries and benefits and net occupancy and equipment expenses. For the three months ended March 31, 2026, net interest income increased $3.4 million to $42.9 million from $39.5 million for the three months ended March 31, 2025. Noninterest income was $6.9 million for the three months ended March 31, 2026, an increase of $0.6 million from $6.3 million in the year ago period. The current period includes a gain of $0.5 million from the sale of available-for-sale investment securities and an increase of $0.4 million in positive market value adjustments on equity securities.

Return on average assets (“ROAA”) measures our net income in relation to total assets. Our annualized ROAA was 1.15 percent for the first quarter of 2026 compared to 1.22 percent for the same period of 2025. Return on average equity (“ROAE”) indicates how effectively we can generate net income on the capital invested by stockholders. Our annualized ROAE was 11.26 percent for the first quarter of 2026 compared to 12.70 percent for the comparable period in 2025.

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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Non-GAAP Financial Measures:

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In addition to evaluating its results of operations in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as interest income adjusted to FTE, net interest income adjusted to FTE, efficiency ratio, adjusted noninterest expense, and FTE net interest income plus noninterest income. The Company 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 the Company uses may differ from the non-GAAP financial measures of other financial institutions.

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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 the Company’s consolidated financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, the Company’s 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 21.0 percent for 2026 and 2025.

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The following table reconciles the non-GAAP financial measures of net interest income adjusted to FTE for the three months ended March 31, 2026 and 2025:

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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.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP for the three months ended March 31, 2026 and 2025:

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Net Interest Income:

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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:

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

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• Changes in general market rates; and

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• The level of nonperforming assets.

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On September 17, 2025, the Federal Open Market Committee (FOMC) reduced the target federal funds rate by 25 basis points to 4.25 percent, after maintaining the rate at 4.50 percent since December 18, 2024. The Committee—whose mandate is to promote maximum employment and maintain inflation at 2 percent over the longer run—cited rising economic uncertainty and increasing risks to the labor market as key reasons for the rate cut. Following this action, the national prime rate declined by 25 basis points, from 7.50 percent to 7.25 percent. The FOMC implemented two additional 25 basis point cuts on October 29 and December 10, 2025, bringing the federal funds target rate to 3.75 percent by year end. In response, the national prime rate also fell, ending 2025 at 6.75 percent. During the first quarter, the FOMC signaled that the existing rate level was sufficiently restrictive to guide inflation lower while avoiding undue pressure on employment. The FOMC emphasized that future adjustments would depend on incoming data, but no rate cuts or hikes occurred during the quarter. Due to the recent conflict in the Middle East, we expect uncertainty with respect to economic conditions to remain elevated, which may result in future FOMC actions. Any additional rate actions by the FOMC could have a negative impact on Peoples’ net interest margin and net interest income.

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Changes in net interest income are measured by 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

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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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 net interest margin analysis more comparable, tax-exempt income and yields are reported in this analysis on a tax-equivalent basis, using the prevailing federal statutory tax rate of 21.0 percent in 2026 and 2025. Tax-exempt loan and investment income is not reported on an FTE basis on the consolidated statements of income and comprehensive income.

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For the three months ended March 31, 2026, the average balances included $4.1 billion in loans, $611.0 million in investments, $3.4 billion in interest bearing deposits, and $264.5 million in borrowings, which was comprised of $83.2 million in subordinated debt and $8.2 million in junior subordinated debt. For the three months ended March 31, FTE net interest income, a non-GAAP measure, increased $3.4 million to $43.7 million in 2026 from $40.3 million in 2025. The FTE net interest spread increased to 3.10 percent for the three months ended March 31, 2026, from 2.92 percent for the three months ended March 31, 2025, which was caused by a 17-basis point decrease in the average rate paid on interest-bearing liabilities, and a 1 basis point increase in the earning asset yield. The FTE net interest margin increased 17 basis points to 3.67 percent for the first quarter of 2026 from 3.50 percent for the comparable period of 2025. The increase in tax-equivalent net interest margin from a year ago was primarily due to decreases in average deposit rates, specifically money market demand accounts and time deposits, coupled with higher volumes of earning assets, partially offset by decreases in average loan rates and increases in average volumes and rates of subordinated debt.

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For the three months ended March 31, FTE interest income on earning assets, a non-GAAP measure, increased $2.4 million to $65.5 million in 2026 as compared to $63.1 million in 2025. The increase to FTE interest income was primarily due to increases in the volume of earning assets and increases in FTE yields on taxable investment securities due to our ongoing portfolio repositioning, as new purchases were added at higher yields than the securities sold. Average loan balances were $139.7 million higher when compared to the same quarter in 2025 while average investment balances were $32.0 million lower when compared to the year ago quarter. Meanwhile, average federal funds sold increased $62.1 million to $88.1 million for the three months ended March 31, 2026, from $26.0 million for the same three months of 2025. The overall yield on earning assets, on an FTE basis, increased 1 basis point for the three months ended March 31, 2026, to 5.51 percent as compared to 5.50 percent for the three months ended March 31, 2025. The yield on loans decreased 12 basis points in the first quarter of 2026 to 5.80 percent from 5.92 percent for the first quarter of 2025, while the yield on federal funds sold decreased 75 basis points to 3.70 percent from 4.45 percent when comparing the first quarters of 2026 and 2025, respectively. FOMC rate actions in the second half of 2025 contributed to the decreases in yields on loans and federal funds sold. Partially offsetting the reductions in loan and federal funds sold yields, was an 85 basis point increase in the yield earned on investments in the first quarter of 2026 to 3.80 percent from 2.95 percent for the first quarter of 2025, which was primarily due to the partial repositioning transactions completed in both the fourth quarter of 2025 and the first quarter of 2026 where cash flows received from the sales were reinvested into higher yielding securities.

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Total interest expense decreased $1.1 million to $21.8 million for the three months ended March 31, 2026, from $22.9 million for the three months ended March 31, 2025. The decrease in interest expense was primarily due to a reduction in average deposit rates, especially in money market accounts as well as lower rates paid on time deposits and on short and long term-term borrowings, partially offset by an increase in the average balance and rate of subordinated debt. In June 2025, the Company called and redeemed $33.0 million of its subordinated notes due in June 2030, which had repriced to 9.08 percent and issued $85.0 million in fixed-to-floating rated subordinated notes due June 2035 at an initial fixed rate through June 2030 of 7.75 percent. The total cost of funds, including the impact of noninterest-bearing deposits, decreased 15 basis points for the three months ended March 31, 2026, to 1.93 percent as compared to 2.08 percent in the year ago period. Average noninterest bearing deposits increased $54.6 million to $929.7 million for the three months ended March 31, 2026, compared to $875.1 million for the same three months of 2025.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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Net interest income changes due to rate and volume for the three months ended March 31

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FTE net interest income, a non-GAAP measure, was $43.7 million for the three months ended March 31, 2026, and $40.3 million in the comparable period last year. Contributing to the $3.4 million increase in FTE net interest income was a positive rate variance partially offset by a negative volume variance. The positive rate variance resulted in an increase in net interest income of $6.1 million comparing the first quarters of 2026 and 2025, while the impact from changes in average interest-earning assets and interest-bearing liabilities resulted in a decrease in FTE net interest income, a non-GAAP measure, of $2.6 million.

For the three months ended March 31, 2026, the favorable rate variance resulted primarily from a 17-basis point decrease in the cost of funds. With regard to the decrease in funding costs, the average rate paid on interest-bearing deposits decreased 30 basis points to 2.16 percent from 2.46 percent in the year ago period resulting in a decrease in interest expense of $9.1 million. The reduction in interest-bearing deposits costs was largely influenced by decreases in the average rate paid of money market deposits and time deposits. Comparing the first quarters of 2026 and 2025, the average cost of money market deposits decreased 131 basis points to 2.57 percent from 3.88 percent, respectively, which resulted in a decrease in interest expense of $10.6 million. Additionally, the yield on large denomination time deposits decreased 29 basis points and resulted in a decrease in interest expense of $1.0 million and the yield on time deposits less than $100 thousand decreased 88 basis points, which resulted in a decrease in interest expense of $0.8 million. Partially offsetting the reduction in money market and time deposit costs were increases in the average rate paid for interest-bearing demand deposits and NOW accounts and savings of 19 basis points and 5 basis points, respectively, which caused a combined increase to interest expense of $3.3 million. The yield on long-term debt decreased 63 basis points to 4.25 percent for the three months ended March 31, 2026, from 4.88 percent for the same three-month period ended March 31, 2025, and resulted in a decrease of $0.9 million in interest expense. The yield on short-term borrowings

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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decreased 67 basis points to 3.85 percent for the three months ended March 31, 2026 from 4.52 percent for the same three months of period in 2025 and resulted in a $0.2 million decrease to interest expense. The Company issued $85.0 million of 7.75 percent fixed-to-floating subordinated notes on June 6, 2025, due 2035, and on June 30, 2025, redeemed $33.0 million of its 5.375 percent fixed-to -floating subordinated notes due 2030. Combined, these notes resulted in an increase in yield of 308 basis points and resulted in a $0.4 million increase in interest expense.

Comparing the three months ended March 31, 2026, and 2025, the FTE yield on earning assets was 5.51 percent for the first quarter of 2026, a decrease of 1 basis points from 5.50 percent in 2025. A 12-basis point decrease in the FTE yield on average loans overshadowed the positive impact of an 85-basis point increase in the average FTE yield on investments, resulting in a $3.8 million reduction to FTE interest income due to changes in rate. The FTE yield on the loan portfolio decreased 12 basis points to 5.80 percent in 2026 from 5.92 percent in 2025 and resulted in a decrease to interest income of $6.3 million. The yield on the taxable investment portfolio increased 73 basis points to 3.78 percent during the three months ended March 31, 2026, from 3.05 percent in the year ago period, resulting in an increase of $3.4 million in interest income. The yield on the tax-exempt investment portfolio increased 155 basis points to 3.88 percent from 2.33 percent in the year ago period resulting in a $0.4 million increase to interest income.

Average earning assets increased $168.1 million to $4.8 billion for the three months ended March 31, 2026, from $4.7 billion for the same three months of 2025 and accounted for a $6.2 million increase in interest income. The impact of the increase in average earning assets was more than entirely offset by a $71.0 million increase in average interest-bearing liabilities, which resulted in an $8.8 million increase in interest expense.

Average taxable loans increased $161.5 million, which caused interest income to increase by $7.4 million. Average tax-exempt loans decreased $21.8 million, which caused interest income to decrease $0.2 million. Average taxable investments decreased $94.6 million comparing March 31, 2026, and 2025, which resulted in a decrease to interest income of $3.3 million. Average tax-exempt investments increased $62.6 million, which resulted in an increase to interest income of $0.5 million. An increase in average federal funds sold balances of $62.1 million resulted in an increase of $1.9 million in interest income for the three months ended March 31, 2026.

Average interest-bearing liabilities increased $71.0 million to $3.7 billion for the three months ended March 31, 2026, from $3.6 billion for the three months ended March 31, 2025, resulting in a net increase in interest expense of $8.8 million. Non-maturing interest-bearing deposit accounts, including demand, money market, and savings accounts increased $97.2 million which resulted in a total increase in interest expense of $6.8 million. In addition, large denomination time deposits averaged $22.4 million more comparing the three months ended March 31, 2026 and 2025 and caused interest expense to increase to $0.9 million. A decrease of $154.1 million in average time deposits of less than $100 thousand, which included a decrease of $127.5 million in higher priced callable brokered CDs, resulted in a decrease to interest expense of $1.3 million. Short-term borrowings averaged $19.0 million higher, which resulted in an increase in interest expense of $0.4 million, while average long-term borrowing increased $36.2 million and resulted in an increase to interest expense of $1.1 million. Average subordinated debt increased $50.2 million and resulted in an increase to interest expense of $1.0 million. Junior subordinated debt saw negligible changes to average balances and interest expense in the three months ended March 31, 2026.

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 percent.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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Provision for Credit Losses:

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For the three months ended March 31, 2026, a $1.4 million provision for credit losses was recorded compared to a $0.2 million provision for the same three months of 2025. The increase was primarily due to the impact of significant loan growth during the quarter ended March 31, 2026, partially offset by decreases in qualitative factor adjustments primarily related to seasoning of the commercial equipment financing portfolio. Based on our most current evaluation, we believe that the ACL is adequate to absorb any known and inherent losses in the loan portfolio as of March 31, 2026.

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Noninterest Income:

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Noninterest income for the three months ended March 31, 2026, was $6.9 million, an increase of $0.6 million from $6.3 million for the same three months of 2025. The increase in non-interest income was primarily due to increases in interest rate swap income, net gains on equity securities and mortgage banking income. Interest rate swap income increased to $0.6 million from a negligible amount due to increased transaction volume. Noninterest income in the first quarter of 2026 included gains of $0.5 million on equity securities, an increase of $0.4 million compared to $0.1 million for the same quarter in 2025, primarily reflecting an increase in market value of the Company’s holdings of common stock of publicly traded bank holding companies. Mortgage banking income, which includes gains on the sale of residential mortgage loans and commission income received on brokered mortgages, increased $0.1 million comparing the first quarters of 2026 and 2025 due primarily to an initiative to grow this line of business. Additionally, noninterest income for the first quarter of 2026 included a $0.5 million gain on the sale of available for sale investment securities. Noninterest income for the first quarter of 2025 included a $0.7 million gain on the sale of the Company’s former corporate headquarters located in Scranton, Pennsylvania.

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Noninterest Expenses:

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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.

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Noninterest expense increased $2.5 million to $29.9 million for the three months ended March 31, 2026, from $27.4 million for the three months ended March 31, 2025, which primarily reflected an increase in salaries and employee benefits, net occupancy and equipment expenses, advertising, and other expenses, with negligible changes in other areas. Salaries and employee benefits increased $1.0 million to $14.5 million for the three months ended March 31, 2026, from $13.4 million for the same three months of 2025, reflecting annual merit increases and higher health insurance costs. Net occupancy and equipment expenses increased $1.1 million to $7.7 million for the quarter ended March 31, 2026, from $6.6 million for the same quarter of 2025, due primarily to higher building lease and maintenance expenses and data processing costs. Advertising increased $0.4 million to $1.3 million in the three months ended March 31, 2026, from $0.9 million in the three months ended March 31, 2025. Other expenses increased $0.3 million to $2.3 million for the three months ended March 31, 2026, from $2.0 million for the three months ended March 31, 2025. The increase in other expenses primarily reflected an increase in bank shares tax expense.

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Income Taxes:

We recorded an income tax expense of $3.8 million or 20.4% of pre-tax income for the three months ended March 31, 2026. In comparison, we recorded an income tax expense of $3.2 million, or 17.8% of pre-tax income for the three-month period ended March 31, 2025. The increase in the effective tax rate was largely due to an increase in amortization related to the Company’s low-income housing tax credit investments, coupled with an increase in the provision for state income taxes.

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Peoples Financial Services Corp.

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