10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

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

for the quarterly period ended March 31, 2021

or

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

for the transition period from

001-36388

(Commission File Number)

PEOPLES FINANCIAL SERVICES CORP.

(Exact name of registrant as specified in its charter)

Pennsylvania	23-2391852
(State of incorporation)	(IRS Employer ID Number)
150 North Washington Avenue, Scranton, PA	18503
(Address of principal executive offices)	(Zip code)

(570) 346-7741

(Registrant’s telephone number, including area code)

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

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

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

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

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: 7,203,641 at April 30, 2021.

PEOPLES FINANCIAL SERVICES CORP.

FORM 10-Q

For the Quarter Ended March 31, 2021

Contents		Page No.
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Consolidated Balance Sheets at March 31, 2021 (Unaudited) and December 31, 2020	3
	Consolidated Statements of Income and Comprehensive Income for the Three Months ended March 31, 2021 and 2020 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, 2021 and 2020 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2021 and 2020 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	54
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	56
Item 6.	Exhibits	56
	Signatures	57

2

Peoples Financial Services Corp.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

	March 31, 2021		December 31, 2020
Assets:
Cash and due from banks:
Cash and due from banks	$	30,786	$	29,287
Interest-bearing deposits in other banks		8,432		15,905
Federal funds sold		264,100		183,000
Total cash and due from banks		303,318		228,192
Investment securities:
Available-for-sale		333,753		295,911
Equity investments carried at fair value		159		138
Held-to-maturity: Fair value March 31, 2021, $7,389; December 31, 2020, $7,513		7,166		7,225
Total investment securities		341,078		303,274
Loans		2,179,534		2,177,982
Less: allowance for loan losses		26,783		27,344
Net loans		2,152,751		2,150,638
Loans held for sale		458		837
Premises and equipment, net		46,777		47,045
Accrued interest receivable		8,206		8,255
Goodwill		63,370		63,370
Intangible assets, net		835		960
Bank owned life insurance		42,530		42,316
Other assets		36,146		38,915
Total assets	$	2,995,469	$	2,883,802
Liabilities:
Deposits:
Noninterest-bearing	$	661,262	$	622,475
Interest-bearing		1,889,154		1,814,638
Total deposits		2,550,416		2,437,113
Short-term borrowings		51,980		50,000
Long-term debt		14,264		14,769
Subordinated debentures		33,000		33,000
Accrued interest payable		1,120		736
Other liabilities		27,358		31,307
Total liabilities		2,678,138		2,566,925
Stockholders’ equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,211,293 shares at March 31, 2021 and 7,215,202 shares at December 31, 2020		14,423		14,431
Capital surplus		128,854		129,274
Retained earnings		177,836		171,023
Accumulated other comprehensive income (loss)		(3,782)		2,149
Total stockholders’ equity		317,331		316,877
Total liabilities and stockholders’ equity	$	2,995,469	$	2,883,802

See notes to unaudited consolidated financial statements

3

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

For the Three Months Ended March 31,	2021		2020
Interest income:
Interest and fees on loans:
Taxable	$	20,900	$	20,917
Tax-exempt		870		1,031
Interest and dividends on investment securities:
Taxable		1,243		1,548
Tax-exempt		390		299
Dividends		23		23
Interest on interest-bearing deposits in other banks		2		24
Interest on federal funds sold		49
Total interest income		23,477		23,842
Interest expense:
Interest on deposits		2,092		3,503
Interest on short-term borrowings		71		573
Interest on long-term debt		103		205
Interest on subordinated debt		443
Total interest expense		2,709		4,281
Net interest income		20,768		19,561
(Credit) provision for loan losses		(500)		3,500
Net interest income after (credit) provision for loan losses		21,268		16,061
Noninterest income:
Service charges, fees, commissions and other		1,184		1,605
Merchant services income		93		114
Commission and fees on fiduciary activities		533		506
Wealth management income		358		387
Mortgage banking income		312		137
Increase in cash surrender value of life insurance		219		187
Interest rate swap revenue		797		470
Net gain (loss) on equity investment securities		21		(123)
Net gain on sale of investment securities available-for-sale				267
Total noninterest income		3,517		3,550
Salaries and employee benefits expense		6,570		7,856
Net occupancy and equipment expense		3,267		3,079
Amortization of intangible assets		125		154
Professional fees and outside services		439		365
FDIC insurance and assessments		260		74
Donations		339		338
Other expenses		1,629		1,785
Total noninterest expense		12,629		13,651
Income before income taxes		12,156		5,960
Income tax expense		2,678		679
Net income		9,478		5,281
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available-for-sale		(7,750)		7,629
Reclassification adjustment for net gain on sales included in net income				(267)
Change in derivative fair value		242		1,036
Other comprehensive income (loss)		(7,508)		8,398
Income tax expense (benefit)		(1,577)		1,765
Other comprehensive income (loss), net of income taxes		(5,931)		6,633
Comprehensive income	$	3,547	$	11,914
Per share data:
Net income:
Basic	$	1.31	$	0.72
Diluted	$	1.31	$	0.71
Average common shares outstanding:
Basic		7,210,952		7,379,438
Diluted		7,246,016		7,405,703
Dividends declared		0.37		0.36

See notes to unaudited consolidated financial statements

4

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except per share data)

							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings		Income (Loss)		Total
Balance, January 1, 2021	$	14,431	$	129,274	$	171,023	$	2,149	$	316,877
Net income						9,478				9,478
Other comprehensive loss, net of income taxes								(5,931)		(5,931)
Dividends declared: $0.37 per share						(2,665)				(2,665)
Stock based compensation				89						89
Share retirement: 13,101 shares		(26)		(491)						(517)
Common stock grants awarded, net of unearned compensation of $182: 9,192 shares		18		(18)
Balance, March 31, 2021	$	14,423	$	128,854	$	177,836	$	(3,782)	$	317,331
							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings		Income (Loss)		Total
Balance, January 1, 2020	$	14,777	$	135,251	$	152,187	$	(3,205)	$	299,010
Net income						5,281				5,281
Other comprehensive income, net of income taxes								6,633		6,633
Dividends declared: $0.36 per share						(2,662)				(2,662)
Stock based compensation				5						5
Share retirement: 53,746 shares		(107)		(2,097)						(2,204)
Balance, March 31, 2020	$	14,670	$	133,159	$	154,806	$	3,428	$	306,063

See notes to unaudited consolidated financial statements

5

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)

For the Three Months Ended March 31,	2021		2020
Cash flows from operating activities:
Net income	$	9,478	$	5,281
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		680		735
Amortization of right-of-use lease asset		109		104
Amortization of deferred loan costs, net		626		39
Amortization of intangibles		125		154
Amortization of low income housing partnerships		120		120
(Credit) provision for loan losses		(500)		3,500
Net unrealized (gain) loss on equity investment securities		(21)		123
Net (gain) loss on sale of other real estate owned		10		(4)
Loans originated for sale		(4,869)		(2,297)
Proceeds from sale of loans originated for sale		5,382		3,023
Net gain on sale of loans originated for sale		(134)		(10)
Net amortization of investment securities		260		281
Net gain on sale of investment securities available-for-sale				(267)
Increase in cash surrender value of life insurance		(219)		(187)
Deferred income tax expense		620		619
Stock based compensation		89		5
Net change in:
Accrued interest receivable		49		(302)
Other assets		(918)		(10,038)
Accrued interest payable		384		59
Other liabilities		383		10,014
Net cash provided by operating activities		11,654		10,952
Cash flows from investing activities:
Proceeds from sales of investment securities available-for-sale				26,502
Proceeds from repayments of investment securities:
Available-for-sale		12,876		17,522
Held-to-maturity		58		135
Purchases of investment securities:
Available-for-sale		(58,726)		(9,080)
Net purchase of restricted equity securities		(64)		(482)
Net increase in lending activities		(2,296)		(86,062)
Purchases of premises and equipment		(521)		(627)
Proceeds from sale of other real estate owned		549		157
Net cash used in investing activities		(48,124)		(51,935)
Cash flows from financing activities:
Net increase in deposits		113,303		38,506
Repayment of long-term debt		(505)		(483)
Net increase in short-term borrowings		1,980		12,000
Retirement of common stock		(517)		(2,204)
Cash dividends paid		(2,665)		(2,662)
Net cash provided by financing activities		111,596		45,157
Net increase in cash and cash equivalents		75,126		4,174
Cash and cash equivalents at beginning of period		228,192		31,153
Cash and cash equivalents at end of period	$	303,318	$	35,327

6

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)

For the Three Months Ended March 31,	2021		2020
Supplemental disclosures:
Cash paid during the period for:
Interest	$	2,325	$	4,222
Income taxes
Noncash items:
Transfers of loans to other real estate	$	57	$	626
Initial recognition of right-of-use assets				899
Initial recognition of lease liability				899

See notes to unaudited consolidated financial statements

7

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

1. Summary of significant accounting policies:

Nature of operations:

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned subsidiary, Peoples Security Bank and Trust Company (“Peoples Bank”), collectively, the “Company” or “Peoples”. The Company services its retail and commercial customers through twenty-six full-service community banking offices located within Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna and Wyoming Counties of Pennsylvania and Broome County of New York.

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three months ended and as of March 31, 2021, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

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 loan losses, fair value of financial instruments, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the valuation of deferred tax assets, determination of other-than-temporary impairment losses on securities, and impairment of goodwill. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2020.

Significant events: COVID-19

Operationally, as COVID-19 related events unfold, our continued priority is the health and safety of our customers and employees. We recently worked with local government and health professionals and have had opportunities to offer our eligible employees and their family members appointments to receive the COVID-19 vaccine.  We continue to follow the recommendations of our state governments as to conducting business and have maintained safety protocols. Currently all our offices have returned to pre-pandemic operating hours with limited lobby access.

We participated in the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), Paycheck Protection Program (“PPP”), a $350 billion specialized low-interest loan program funded by the U.S. Treasury Department and administered by the Small Business Administration (“SBA”).  During 2020, we approved 1,450 PPP loans totaling $217.5 million. Substantially all of the loans were made to existing customers, funded under the two year PPP loan program, and the loan proceeds initially were deposited with our institution.  PPP loan forgiveness commenced during the fourth quarter of 2020 and we continue to process loan forgiveness applications.  At March 31, 2021, we have 468 loans totaling $100.8 million remaining compared to 1,304 loans totaling $189.7 million at December 31, 2020. We expect the majority of the remaining $100.8 million to be forgiven during 2021. During the first quarter of 2021, we funded an additional 885 loans totaling $100.0 million under the SBA’s second PPP loan program.   The application process for the second PPP loan program ends May 31, 2021. 

8

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

From a credit risk perspective, we took actions to identify and assess our COVID-19 related credit exposures based on asset class and borrower type. From the onset of the crisis, we worked to proactively monitor our loan portfolio by contacting many of our borrowers to evaluate the impact of the pandemic on them, their businesses and the underlying collateral for our loans. The Company implemented a customer payment deferral program to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19 related challenges.  At the start of the pandemic, the Company granted payment deferral requests for up to six months to a total of 481 commercial loans with outstanding loan balances of $306.9 million and to 505 consumer loans with outstanding balances of $23.3 million. Outstanding loan balances remaining in deferral at March 31, 2021 totaled $1.3 million, a decrease of $4.8 million from the $6.1 million at December 31, 2020. As a percentage of total loan balances, excluding PPP loans, loans in deferral represented less than 0.1% of loans outstanding at March 31, 2021 compared to 0.3% of loans outstanding at December 31, 2020. At March 31, 2021, commercial loan balances remaining in deferral total $1.0 million while consumer loans total $0.3 million. Loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act. Pursuant to the CARES Act, loan deferrals are not included in our nonperforming loans disclosed in our financial statement footnotes. Loans in deferral status will continue to accrue interest during the deferral period unless otherwise classified as nonperforming.

Recent accounting standards:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by the Company as of the required effective dates. The following should be read in conjunction with "Note 1 Summary of significant accounting policies" of the Notes to the Consolidated Financial Statements included in the Company’s 2020 Form 10-K. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU will have a significant impact on the Company’s calculation and accounting for its allowance for loan losses as well as credit losses related to investment securities available-for-sale. A summary of significant provisions of this ASU is as follows:

● The ASU requires that a financial asset (or a group of financial assets) measured at amortized cost basis be presented, net of a valuation allowance for credit losses, at an amount expected to be collected on the financial asset(s), and that the income statement include the measurement of credit losses for newly recognized financial assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU require measurement of expected credit losses based on relevant information including past events, historical experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. The provisions of this ASU differ from current GAAP in that current GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring.

● The amendments in the ASU retain many of the disclosure requirements related to credit quality in current GAAP, updated to reflect the change from an incurred loss methodology to an expected credit loss methodology. In addition, the ASU requires that disclosure of credit quality indicators in relation to the amortized cost of financing receivables, a current requirement, be further disaggregated by year of origination.

● This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down, and limits the amount of the allowance for credit losses to the amount by which the fair value is below amortized cost. For purchased investment securities available-for-sale with a more-than-insignifcant amount of credit deterioration since origination, the ASU requires an allowance be determined in a manner similar to other investment securities available-for-sale; however, the initial allowance would be added to the purchase price, with only subsequent changes in the allowance recorded in credit loss expense, and interest income recognized at the effective rate excluding the discount embedded in the purchase price related to estimated credit losses at acquisition.

● In November 2019, the FASB voted to defer the adoption date for smaller reporting companies from 2020 to 2023. At the relevant time, the Company qualified as a smaller reporting company and therefore guidance is effective for the Company in 2023. The Company will record the effect of implementing this ASU through a

9

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which Topic 326 is effective.

We are evaluating the impact of the ASU on our consolidated financial statements. In addition to our allowance for loan losses, we will also record an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional expedients and exceptions for a limited time period to ease the potential burden in accounting for reference rate reform on financial reporting. The amendments in ASU 2020-04 are elective for entities with contracts, including derivative contracts, that reference LIBOR or some other reference rate that are expected to be discontinued. For the Company's cash flow hedges, ASU 2020-04 allows: (i) an entity to change the reference rate without having to designate the hedging relationship; (ii) for cash flow hedges in which the designated hedged risk is LIBOR, allows an entity to assert that it remains probable that the hedged forecasted transaction will occur; and (iii) allows an entity to change the designated method used to assess hedge effectiveness and simplifies or temporarily suspends the assessment of hedge effectiveness for hedging relationships. ASU 2020-04 must be applied prospectively and was effective immediately upon issuance and remains effective through December 31, 2022.

The Company adopted the amendments in ASU 2020-04 as of the March 12, 2020 issuance date, on a prospective basis. The adoption did not have an immediate direct impact to the consolidated financial statements. As contracts are modified through December 2022, we will assess the impact based on this guidance. The Company does not expect there will be a material impact to the consolidated financial statements.

2. Other comprehensive income (loss):

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

The components of accumulated other comprehensive income (loss) included in stockholders’ equity at March 31, 2021 and December 31, 2020 are as follows:

		March 31, 2021		December 31, 2020
Net unrealized gain on investment securities available-for-sale	$	1,946	$	9,696
Income tax		409		2,036
Net of income taxes		1,537		7,660
Benefit plan adjustments		(7,977)		(7,977)
Income tax benefit		(1,675)		(1,675)
Net of income taxes		(6,302)		(6,302)
Derivative adjustments		1,244		1,002
Income tax		262		211
Net of income taxes		982		791
Accumulated other comprehensive income (loss)	$	(3,782)	$	2,149

3. Earnings per share:

Basic earnings per share represent 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.

10

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The following table presents the calculation of both basic and diluted earnings per share of common stock for the three months ended March 31, 2021 and 2020:

	2021				2020
For the Three Months Ended March 31	Basic		Diluted		Basic		Diluted
Net income	$	9,478	$	9,478	$	5,281	$	5,281
Average common shares outstanding		7,210,952		7,246,016		7,379,438		7,405,703
Earnings per share	$	1.31	$	1.31	$	0.72	$	0.71

4. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at March 31, 2021 and December 31, 2020 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
March 31, 2021	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	18,481	$	344			$	18,825
U.S. government-sponsored enterprises		56,620		963				57,583
State and municipals:
Taxable		56,931		944	$	1,251		56,624
Tax-exempt		70,113		2,426		779		71,760
Residential mortgage-backed securities:
U.S. government agencies		3,061		125				3,186
U.S. government-sponsored enterprises		112,501		1,363		2,855		111,009
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,600		677				13,277
Corporate debt securities		1,500		2		13		1,489
Total	$	331,807	$	6,844	$	4,898	$	333,753
Held-to-maturity:
Tax-exempt state and municipals	$	6,848	$	214			$	7,062
Residential mortgage-backed securities:
U.S. government agencies		18						18
U.S. government-sponsored enterprises		300		9				309
Total	$	7,166	$	223	$		$	7,389

11

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2020	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	18,478	$	427			$	18,905
U.S. government-sponsored enterprises		63,834		1,354	$			65,188
State and municipals:
Taxable		53,297		2,099		30		55,366
Tax-exempt		53,977		3,054		37		56,994
Residential mortgage-backed securities:
U.S. government agencies		3,553		154				3,707
U.S. government-sponsored enterprises		79,457		1,930		136		81,251
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,619		881				13,500
Corporate debt securities		1,000						1,000
Total	$	286,215	$	9,899	$	203	$	295,911
Held-to-maturity:
Tax-exempt state and municipals	$	6,849	$	275	$		$	7,124
Residential mortgage-backed securities:
U.S. government agencies		21						21
U.S. government-sponsored enterprises		355		13				368
Total	$	7,225	$	288	$		$	7,513

Equity Securities

At March 31, 2021, our equity security portfolio consisted of stock of one financial institution. At March 31, 2021 and December 31, 2020, we had $159 and $138 respectively, in equity securities recorded at fair value. At March 31, 2021, the fair value of our equity portfolio exceeded the cost basis by $5. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2021 (in thousands):

For the Three Months Ended March 31,		2021		2020
Net gain (loss) recognized during the period on equity securities	$	21	$	(123)
Less: Net gain (loss) recognized during the period on equity securities sold during the period
Unrealized gain (loss) recognized during the reporting period on equity securities still held at the reporting date	$	21	$	(123)

Restricted Investment In Stock

Restricted investment in stock includes Federal Home Loan Bank (“FHLB”) stock with a carrying cost of $5,419 and $5,355 at March 31, 2021 and December 31, 2020, respectively, Atlantic Community Bankers Bank (“ACBB”) stock with a carrying cost of $42, and VISA Class B stock with a carrying cost of $0 at March 31, 2021 and December 31, 2020, which are included in other assets in the consolidated balance sheets. FHLB and ACBB stock was issued as a requirement to facilitate participation in borrowing and other banking services. The investment in FHLB stock may fluctuate, as it is based on the member bank’s use of FHLB’s services.

The Company owns 44,982 shares of Visa Class B stock, which was necessary to participate in Visa services in support of the Company’s credit card, debit card, and related payment programs (permissible activities under banking regulations) as a member institution. Following the resolution of Visa’s litigation, shares of Visa’s Class B stock will be converted to Visa Class A shares using a conversion factor (1.6228 as of March 31, 2021), which is periodically adjusted to reflect VISA’s ongoing litigation costs. There is a very limited market for this stock, as only current owners of Class

12

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

B shares are permitted to transact in Class B stock. Due to the lack of orderly trades and public information of such trades, Visa Class B stock has no readily determinable fair value.

These restricted investments are carried at cost and evaluated for other-than-temporary impairment (“OTTI”) periodically. As of March 31, 2021, there was no OTTI associated with these investments.

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, 2021, is summarized as follows:

	Fair
March 31, 2021	Value
Within one year	$	39,394
After one but within five years		41,919
After five but within ten years		25,997
After ten years		95,819
		203,129
Mortgage-backed and other amortizing securities		130,624
Total	$	333,753

 The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at March 31, 2021, is summarized as follows:

	Amortized		Fair
March 31, 2021	Cost		Value
Within one year	$	175	$	177
After five but within ten years		523		546
After ten years		6,150		6,339
		6,848		7,062
Mortgage-backed securities		318		327
Total	$	7,166	$	7,389

Securities with a carrying value of $174,711 and $165,982 at March 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law.

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, 2021 and December 31, 2020, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. government agencies and sponsored enterprises, that exceeded 10.0 percent of stockholders’ equity.

13

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The fair value and gross unrealized losses of investment securities with unrealized losses for which an OTTI has not been recognized at March 31, 2021 and December 31, 2020, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
March 31, 2021	Value		Losses		Value		Losses		Value		Losses
State and municipals:
Taxable	$	28,025	$	1,251					$	28,025	$	1,251
Tax-exempt		30,795		779						30,795		779
Residential mortgage-backed securities:
U.S. government-sponsored enterprises		82,687		2,854	$	243	$	1		82,930		2,855
Corporate debt securities		987		13						987		13
Total	$	142,494	$	4,897	$	243	$	1	$	142,737	$	4,898

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2020	Value		Losses		Value		Losses		Value		Losses
State and municipals:
Taxable	$	9,246	$	30					$	9,246	$	30
Tax-exempt		6,786		37						6,786		37
Residential mortgage-backed securities:
U.S. government-sponsored enterprises		11,553		135	$	284	$	1		11,837		136
Total	$	27,585	$	202	$	284	$	1	$	27,869	$	203

Management, from a credit risk perspective, has taken action to identify and assess its COVID-19 related credit exposures based on asset class. No specific COVID-19 related credit impairment was identified within our investment securities portfolio, including our municipal securities, during the first quarter of 2021. The Company had fifteen mortgage-backed securities, forty-four tax-exempt municipals, twenty-eight taxable municipals and two corporate bonds that were in unrealized loss positions at March 31, 2021. Of these securities, two mortgage-backed securittes were in a continuous unrealized loss position for twelve months or more. Management does not consider the unrealized losses on the debt securities, as a result of changes in interest rates, to be OTTI based on historical evidence that indicates the cost of these securities is recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest. Moreover, because there has been no known material change in the credit quality of the issuers or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, and management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider the unrealized losses to be OTTI at March 31, 2021. There was no OTTI recognized for the three months ended March 31, 2021 and 2020.

5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at March 31, 2021 and December 31, 2020 are summarized as follows. The Company had net deferred loan origination fees of $2,684 and

14

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

$2,058 at March 31, 2021 and December 31, 2020, respectively. The increase is due in part to net fees from $100.0 million of PPP loans originated during the first three months of 2021.

		March 31, 2021		December 31, 2020
Commercial	$	677,090	$	679,286
Real estate:
Commercial		1,150,567		1,137,990
Residential		273,226		277,414
Consumer		78,651		83,292
Total	$	2,179,534	$	2,177,982

The PPP loans are included in the commercial loan classification and had an outstanding balance at March 31, 2021 of $200,774 comprised of $99,984 originated during 2021 as part of round two and $100,790 remaining from loans originated during 2020 under round one of the program. The PPP loans are risk rated ‘Pass’ and do not carry an allowance for loan losses due to a 100% SBA guarantee. The outstanding balance is considered current at March 31, 2021.

The changes in the allowance for loan losses account by major classification of loan for the three months ended March 31, 2021 and 2020 are summarized as follows:

			Real estate
March 31, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2021	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Charge-offs		(15)		(96)		(22)		(62)		(195)
Recoveries		61		58		1		14		134
Provisions (credits)		(565)		182		(114)		(3)		(500)
Ending balance	$	8,215	$	14,703	$	2,994	$	871	$	26,783
			Real estate
March 31, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2020	$	6,888	$	11,496	$	3,226	$	1,067	$	22,677
Charge-offs		(650)				(54)		(94)		(798)
Recoveries		267				10		30		307
Provisions		1,464		1,511		442		83		3,500
Ending balance	$	7,969	$	13,007	$	3,624	$	1,086	$	25,686

The Company’s allowance for loan losses decreased $0.6 million or 2.1% during the first three months of 2021, due primarily to a $0.5 million release from allowance for loan losses in the current period resulting from improved credit quality and a slight decrease in non-PPP loan balances. The allowance for loan losses equaled $26.8 million or 1.23% of loans, net at March 31, 2021 compared to $27.3 million or 1.26% of loans, net, at December 31, 2020. Excluding PPP loans that do not carry an allowance for loan losses due to a 100% government guarantee, the ratio equaled 1.35% at March 31, 2021. Loans charged-off, net of recoveries, for the three months ended March 31, 2021, equaled less than $0.1 million or 0.01% of average loans, compared to $0.5 million or 0.10% of average loans for the comparable period last year. The decrease to charge-offs in the current period resulted from improved credit quality; the year ago period included a $0.6 million fully charged-off commercial credit.

15

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The allocation of the allowance for loan losses and the related loans by major classifications of loans at March 31, 2021 and December 31, 2020 is summarized as follows:

			Real estate
March 31, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	8,215	$	14,703	$	2,994	$	871	$	26,783
Ending balance: individually evaluated for impairment		697		108		64				869
Ending balance: collectively evaluated for impairment	$	7,518	$	14,595	$	2,930	$	871	$	25,914
Loans receivable:
Ending balance	$	677,090	$	1,150,567	$	273,226	$	78,651	$	2,179,534
Ending balance: individually evaluated for impairment		2,651		3,990		1,543		94		8,278
Ending balance: collectively evaluated for impairment	$	674,439	$	1,146,577	$	271,683	$	78,557	$	2,171,256

			Real estate
December 31, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Ending balance: individually evaluated for impairment		947		180		75				1,202
Ending balance: collectively evaluated for impairment	$	7,787	$	14,379	$	3,054	$	922	$	26,142
Loans receivable:
Ending balance	$	679,286	$	1,137,990	$	277,414	$	83,292	$	2,177,982
Ending balance: individually evaluated for impairment		4,297		3,952		1,546		111		9,906
Ending balance: collectively evaluated for impairment	$	674,989	$	1,134,038	$	275,868	$	83,181	$	2,168,076

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

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

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

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

16

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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

The following tables present the 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, 2021 and December 31, 2020:

			Special
March 31, 2021	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	660,558	$	13,728	$	2,804	$	$	677,090
Real estate:
Commercial		1,123,315		17,615		9,637			1,150,567
Residential		269,856		619		2,751			273,226
Consumer		78,556				95			78,651
Total	$	2,132,285	$	31,962	$	15,287	$	$	2,179,534

			Special
December 31, 2020	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	660,559	$	14,305	$	4,422	$	$	679,286
Real estate:
Commercial		1,107,699		17,517		12,774			1,137,990
Residential		274,327		144		2,943			277,414
Consumer		83,215				77			83,292
Total	$	2,125,800	$	31,966	$	20,216	$	$	2,177,982

The decrease to substandard commercial loans resulted primarily from a $1.5 million relationship that was paid off during the period ended March 31, 2021. The decrease in substandard commercial real estate loans resulted from a refinance of a credit related to the hospitality industry that is secured by a seventy-five percent SBA guarantee.

Information concerning nonaccrual loans by major loan classification at March 31, 2021 and December 31, 2020 is summarized as follows:

		March 31, 2021		December 31, 2020
Commercial	$	2,198	$	3,822
Real estate:
Commercial		3,311		3,262
Residential		825		922
Consumer		94		111
Total	$	6,428	$	8,117

17

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The decrease to non-accrual loans since year end was due to the $1.5 million payoff of a specific commercial relationship.

The major classifications of loans by past due status are summarized as follows:

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
March 31, 2021	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	150			$	2,198	$	2,348	$	674,742	$	677,090
Real estate:
Commercial		343	$	57		3,311		3,711		1,146,856		1,150,567
Residential		1,444				996		2,440		270,786		273,226	$	171
Consumer		151		37		94		282		78,369		78,651
Total	$	2,088	$	94	$	6,599	$	8,781	$	2,170,753	$	2,179,534	$	171

Improved credit quality resulted in lower levels of past due loans from year end. The addition of one residential mortgage resulted in the increase to loans greater than 90 days and accruing.

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2020	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	73			$	3,822	$	3,895	$	675,391	$	679,286
Real estate:
Commercial		344	$	134		3,262		3,740		1,134,250		1,137,990
Residential		2,072		480		993		3,545		273,869		277,414	$	71
Consumer		374		63		111		548		82,744		83,292
Total	$	2,863	$	677	$	8,188	$	11,728	$	2,166,254	$	2,177,982	$	71

18

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The following tables summarize information concerning impaired loans as of and for the three months ended March 31, 2021 and March 31, 2020, and as of and for the year ended December 31, 2020 by major loan classification:

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2021	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	673	$	1,108			$	1,462	$	4
Real estate:
Commercial		3,280		4,051				2,826		6
Residential		1,121		1,241				1,104		6
Consumer		94		105				103
Total		5,168		6,505				5,495		16
With an allowance recorded:
Commercial		1,978		2,041		697		2,012		5
Real estate:
Commercial		710		796		108		1,145		4
Residential		422		457		64		441		4
Consumer
Total		3,110		3,294		869		3,598		13
Total impaired loans
Commercial		2,651		3,149		697		3,474		9
Real estate:
Commercial		3,990		4,847		108		3,971		10
Residential		1,543		1,698		64		1,545		10
Consumer		94		105				103
Total	$	8,278	$	9,799	$	869	$	9,093	$	29

19

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2020	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	2,251	$	3,421			$	2,915	$	30
Real estate:
Commercial		2,372		2,964				2,148		28
Residential		1,086		1,263				1,223		21
Consumer		111		121				167
Total		5,820		7,769				6,453		79
With an allowance recorded:
Commercial		2,046		2,094		947		2,038		17
Real estate:
Commercial		1,580		1,710		180		1,687		36
Residential		460		482		75		624		13
Consumer
Total		4,086		4,286		1,202		4,349		66
Total impaired loans
Commercial		4,297		5,515		947		4,953		47
Real estate:
Commercial		3,952		4,674		180		3,835		64
Residential		1,546		1,745		75		1,847		34
Consumer		111		121				167
Total	$	9,906	$	12,055	$	1,202	$	10,802	$	145

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2020	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	3,706	$	4,249			$	3,672	$	16
Real estate:
Commercial		2,263		2,574				2,091		5
Residential		1,129		1,369				1,424		5
Consumer		201		219				231
Total		7,299		8,411				7,418		26
With an allowance recorded:
Commercial		1,956		1,974	$	764		1,488		6
Real estate:
Commercial		1,263		1,924		270		1,197
Residential		706		735		192		571		4
Consumer
Total		3,925		4,633		1,226		3,256		10
Total impaired loans
Commercial		5,662		6,223		764		5,160		22
Real estate:
Commercial		3,526		4,498		270		3,288		5
Residential		1,835		2,104		192		1,995		9
Consumer		201		219				231
Total	$	11,224	$	13,044	$	1,226	$	10,674	$	36

20

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

 Loan Modifications/Troubled Debt Restructurings/COVID-19

Included in the commercial loan and commercial and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $2,740 at March 31 2021, $2,818 at December 31, 2020 and $2,140 at March 31, 2020.

Troubled debt restructured loans are loans with original terms, interest rate, or both, that have been modified as a result of a deterioration in the borrower’s financial condition and a concession has been granted that the Company would not otherwise consider. Unless on nonaccrual, interest income on these loans is recognized when earned, using the interest method. The Company offers a variety of modifications to borrowers that would be considered concessions. The modification categories offered generally fall within the following categories:

● Rate Modification - A modification in which the interest rate is changed to a below market rate.

● Term Modification - A modification in which the maturity date, timing of payments or frequency of payments is changed.

● Payment Modification - A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

● Combination Modification - Any other type of modification, including the use of multiple categories above.

There were no loans modified as troubled debt restructurings during the three months ended March 31, 2021 and 2020.

During the three months ended March 31, 2021, there were no payment defaults on troubled debt restructurings. During the three months ended March 31, 2020, there was one payment default on a residential real estate loan in the amount of $52.

The Company received a significant number of requests to modify loan terms and/or defer principal and/or interest payments, and agreed to many such deferrals during 2020. The federal banking regulators issued guidance and encouraged banks to work prudently with, and provide short-term payment accommodations to borrowers affected by COVID-19. Section 4013 of the CARES Act includes a provision for the Company to opt out of applying the troubled debt restructuring (“TDR”)  guidance for certain loan modifications and specified that such modifications made on loans that were current as of December 31, 2019 do not need to be classified as TDRs. Peoples applied this guidance. Similarly, FASB confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.

Beginning in March 2020, the Company began receiving COVID-19 related requests for temporary modifications to the repayment structure for borrower loans. As of March 31, 2021, six commercial loans and fifteen consumer loans not classified as TDRs remain on deferral with principal balances aggregating $1.3 million, representing less than 0.1% of loans outstanding.

21

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

6. Other assets:

The components of other assets at March 31, 2021, and December 31, 2020 are summarized as follows:

		March 31, 2021		December 31, 2020
Other real estate owned	$	362	$	864
Investment in low income housing partnership		6,212		6,332
Mortgage servicing rights		833		838
Restricted equity securities (FHLB and other)		5,461		5,397
Net deferred tax asset		4,724		3,768
Interest rate floor		1,455		1,678
Interest rate swaps		10,239		13,693
Other assets		6,860		6,345
Total	$	36,146	$	38,915

7. Fair value estimates:

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

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

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

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

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

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

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

22

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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.

During the periods ended March 31, 2021 and December 31, 2020 there were no transfers in or out of Level 3.

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

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

Loans held for sale: The fair values of loans held for sale are based upon current delivery prices in the secondary mortgage market.

Interest rate swaps and options:  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.

Assets and liabilities measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
March 31, 2021	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	18,825	$	18,825			$
U.S. government-sponsored enterprises		57,583			$	57,583
State and municipals:
Taxable		56,624				56,624
Tax-exempt		71,760				71,760
Mortgage-backed securities:
U.S. government agencies		3,186				3,186
U.S. government-sponsored enterprises		124,286				124,286
Corporate debt securities		1,489				1,489
Common equity securities		159		159
Total investment securities	$	333,912	$	18,984	$	314,928	$
Loan held for sale	$	458			$	458
Interest rate floor-other assets	$	1,455			$	1,455
Interest rate swap-other assets	$	9,980			$	9,980
Interest rate swap-other liabilities	$	(9,496)			$	(9,496)

23

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2020	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	18,905	$	18,905			$
U.S. government-sponsored enterprises		65,188			$	65,188
State and municipals:
Taxable		55,366				55,366
Tax-exempt		56,994				56,994
Mortgage-backed securities:
U.S. government agencies		3,707				3,707
U.S. government-sponsored enterprises		94,751				94,751
Corporate debt securities		1,000				1,000
Common equity securities		138		138
Total investment securities	$	296,049	$	19,043	$	277,006	$
Loan held for sale	$	837			$	837
Interest rate floor-other assets	$	1,678			$	1,678
Interest rate swap-other assets	$	13,693			$	13,693
Interest rate swap-other liabilities	$	(14,099)			$	(14,099)

Assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2021 and December 31, 2020 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
March 31, 2021	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	2,241			$	2,241
Other real estate owned	$	131			$	131

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2020	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	2,884			$	2,884
Other real estate owned	$	527			$	527

Fair values of impaired loans are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

24

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
March 31, 2021	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	2,241	Appraisal of collateral	Appraisal adjustments	17.9% to 97.0%  (24.8)%
				Liquidation expenses	3.0% to 6.0% (5.5)%
Other real estate owned	$	131	Appraisal of collateral	Appraisal adjustments	20.0% to 58.1%  (39.5)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2020	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	2,884	Appraisal of collateral	Appraisal adjustments	9.0% to 97.0%  (28.2)%
				Liquidation expenses	3.0% to 6.0% (5.5)%
Other real estate owned	$	527	Appraisal of collateral	Appraisal adjustments	3.1% to 58.1%  (29.9)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

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

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

25

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The carrying and fair values of the Company’s financial instruments at March 31, 2021 and December 31, 2020 and their placement within the fair value hierarchy are as follows:

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
March 31, 2021	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	303,318	$	303,318	$	303,318
Investment securities:
Available-for-sale		333,753		333,753		18,825	$	314,928
Common equity securities		159		159		159
Held-to-maturity		7,166		7,389				7,389
Loans held for sale		458		458				458
Net loans		2,152,751		2,133,875					$	2,133,875
Accrued interest receivable		8,206		8,206				8,206
Mortgage servicing rights		833		1,261				1,261
Restricted equity securities (FHLB and other)		5,461		5,461				5,461
Interest rate floor		1,455		1,455				1,455
Interest rate swaps		9,980		9,980				9,980
Total	$	2,823,540	$	2,805,315
Financial liabilities:
Deposits	$	2,550,416	$	2,552,977			$	2,552,977
Long-term debt		14,264		14,481				14,481
Subordinated debentures		33,000		32,574				32,574
Accrued interest payable		1,120		1,120				1,120
Interest rate swaps		9,496		9,496				9,496
Total	$	2,608,296	$	2,610,648

26

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2020	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	228,192	$	228,192	$	228,192
Investment securities:
Available-for-sale		295,911		295,911		18,905	$	277,006
Common equity securities		138		138		138
Held-to-maturity		7,225		7,513				7,513
Loans held for sale		837		837				837
Net loans		2,150,638		2,145,752					$	2,145,752
Accrued interest receivable		8,255		8,255				8,255
Mortgage servicing rights		838		1,269				1,269
Restricted equity securities (FHLB and other)		5,397		5,397				5,397
Interest rate floor		1,678		1,678				1,678
Interest rate swaps		13,693		13,693				13,693
Total	$	2,712,802	$	2,708,635
Financial liabilities:
Deposits	$	2,437,113	$	2,441,014			$	2,441,014
Long-term debt		14,769		15,073				15,073
Subordinated debentures		33,000		33,096				33,096
Accrued interest payable		736		736				736
Interest rate swaps		14,099		14,099				14,099
Total	$	2,499,717	$	2,504,018

8. Employee benefit plans:

The Company provides an Employee Stock Ownership Plan (“ESOP”) and a Retirement Profit Sharing Plan. The Company also maintains Supplemental Executive Retirement Plans (“SERPs”) and an Employees’ Pension Plan, which is currently frozen.

For the three months ended March 31, salaries and employee benefits expense includes approximately $306 in 2021 and 2020 relating to the employee benefit plans.

	Pension Benefits
Three Months Ended March 31,	2021		2020
Components of net periodic pension benefit:
Interest cost	$	105	$	54
Expected return on plan assets		(322)		(123)
Amortization of unrecognized net gain		76		22
Net periodic benefit	$	(141)	$	(47)

In May 2017, the Company’s stockholders approved the 2017 equity incentive plan (“2017 Plan”). The 2017 Plan allows for eligible participants to be granted equity awards. Under the 2017 Plan the Compensation Committee of the Board of Directors has the authority to, among other things:

● Select the persons to be granted awards under the 2017 Plan.

27

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

● Determine the type, size and term of awards.

● Determine whether such performance objectives and conditions have been met.

● Accelerate the vesting or excercisability of an award.

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

As of March 31, 2021, there were 37,151 shares of the Company’s common stock available for grant as awards pursuant to the 2017 Plan. If any outstanding awards under the 2017 Plan are forfeited by the holder or canceled by the Company, the underlying shares would be available for regrant to others.

The 2017 Plan authorizes grants of stock options, stock appreciation rights, cash awards, performance awards, restricted stock and restricted stock units.

For the three months ended March 31, 2021 and 2020, the Company granted awards of restricted stock and restricted stock units under the 2017 Plan, with an aggregate of 19,818 shares and 16,269 shares underlying such awards, respectively.

The non-performance restricted stock grants made in 2021, 2020 and 2019 vest equally over three years. The performance-based restricted stock units vest over three fiscal years and include conditions based on the Company’s three year cumulative diluted earnings per share and three-year average return on equity or tangible equity that determines the number of restricted stock units that may vest.

The Company expenses the fair value of all-share based compensation over the requisite service period commencing at grant date. The fair value of restricted stock is expensed on a straight-line basis. Compensation is recognized over the vesting period and adjusted based on the performance criterea. 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 net compensation costs of $89 for the three months ended March 31, 2021 for awards granted under the 2017 Plan. The Company recognized compensation expense of $5 for the three months ended March 31, 2020 for awards granted under the 2017 Plan. As of March 31, 2021, the Company had $1,494 of unrecognized compensation expense associated with restricted stock awards. The remaining cost is expected to be recognized over a weighted average vesting period of under 2.2 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.  

28

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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. During 2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate assets and issuances of debt. During the first quarter of 2021, the Company terminated a $50 million cash flow hedge. The termination of the cash flow hedge included a $25 early termination fee which was charged to other expenses on the statement of income and comprehensive income.

The Company executed an interest rate swap to reduce its exposure to variability in the interest rate associated with floating-rate borrowings. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income 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 2021, the Company estimates that an additional $404 will be reclassified as an increase to interest income. 

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 interest rate swaps 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 swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of March 31, 2021, the Company had 83 interest rate swaps with an aggregate notional amount of $408,138 related to this program.

29

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 Sheets as of March 31, 2021 and December 31, 2020.

			Asset Derivatives			Asset Derivatives			Liability Derivatives			Liability Derivatives
			As of March 31, 2021			As of December 31, 2020 (1)			As of March 31, 2021			As of December 31, 2020 (2)
		Notional	Balance Sheet			Balance Sheet			Balance Sheet			Balance Sheet
		Amount	Location	Fair Value		Location	Fair Value		Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments
Interest Rate Floor	$	25,000	Other Assets	$	1,455	Other Assets	$	1,678
Cash Flow Swap	$	50,000							Other Liabilities	$		Other Liabilities	$	485
Total derivatives designated as hedging instruments				$	1,455		$	1,678		$			$	485
Derivatives not designated as hedging instruments
Interest Rate Swaps (3)	$	408,138	Other Assets	$	9,980	Other Assets	$	13,693	Other Liabilities	$	9,496	Other Liabilities	$	13,614
Total derivatives not designated as hedging instruments				$	9,980		$	13,693		$	9,496		$	13,614

(1) Assets amount does not include accrued interest receivable of $258.

(2) Liabilities amount does not include accrued interest payable of $258.

(3) Notional amount of interest rate swaps at March 31, 2020 $225,376.

Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of fair value and cash flow hedge accounting on accumulated other comprehensive income (loss) as of March 31, 2021 and March 31, 2020.

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain (Loss)

Gain (Loss)

Gain (Loss)

Gain (Loss)

Loss

Recognized from

Gain (Loss)

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

March 31, 2021

Income

March 31, 2021

Derivatives in Cash Flow Hedging Relationships

Cash Flow Swap

$

401

$

401

Interest Expense

$

(48)

$

(23)

(25)

Interest Rate Floor (*)

$

(76)

$

(85)

$

9

Interest Income

$

133

$

149

$

(16)

Total

$

325

$

316

$

9

$

85

$

126

$

(41)

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain

Loss

Gain

Gain

Gain

Recognized from

Loss

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

March 31, 2020

Income

March 31, 2020

Derivatives in Cash Flow Hedging Relationships

Interest Rate Floor (*)

$

(1,072)

$

(1,104)

$

36

Interest Income

$

36

$

52

$

(16)

* Amounts disclosed are gross and not net of taxes.

30

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Effect of Fair Value and Cash Flow Hedge Accounting 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, 2021 and March 31, 2020.

		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		2021		2021		2020		2020
		Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	134	$	(23)	$	36	$
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	134	$	(23)	$	36	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	$	150			$	52	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$	(16)			$	(16)	$

Effect of Derivative Instruments on the Consolidated Statements of Income and Comprehensive Income

The tables below present 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, 2021 and 2020.

		Amount of Gain		Amount of Loss
		Recognized in		Recognized in
	Location of Gain or (Loss)	Income		Income
	Recognized in Income on	Three Months Ended		Three Months Ended
Derivatives Not Designated as Hedging Instruments	Derivative	March 31, 2021		March 31, 2020
Interest Rate Swaps	Interest rate swap revenue	$	405	$	(131)
Fee Income	Interest rate swap revenue	$	392	$	601

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, 2021 and December 31, 2020. The net amounts of derivative assets or liabilities can be

31

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Balance Sheets.

Offsetting of Derivative Assets
as of March 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	11,542	$	$	11,542	$		$	11,542
Offsetting of Derivative Liabilities
as of March 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	9,603	$	$	9,603	$		$	9,603
Offsetting of Derivative Assets
as of December 31, 2020
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	15,371	$	$	15,371	$		$	15,371
Offsetting of Derivative Liabilities
as of December 31, 2020
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	14,099	$	$	14,099	$		$	14,099

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.

As of March 31, 2021, 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 $484. As of December 31, 2020, 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 $79. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $5,850 against its obligations under these agreements as of March 31, 2021, compared to having posted collateral of $15,360 with counterparties at December 31, 2020. 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.

32

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

10. Deposits

The major components of interest-bearing and noninterest-bearing deposits at March 31, 2021 and December 31, 2020 are summarized as follows:

At the period end	March 31, 2021		December 31, 2020
Interest-bearing deposits:
Money market accounts	$	529,772	$	496,634
Now accounts		584,696		567,087
Savings accounts		459,117		431,224
Time deposits less than $250		219,687		221,446
Time deposits $250 or more		95,882		98,247
Total interest-bearing deposits		1,889,154		1,814,638
Noninterest-bearing deposits		661,262		622,475
Total deposits	$	2,550,416	$	2,437,113

The growth in deposits occurred in non-maturity deposits as demand for liquid accounts elevated due to low interest rates and economic uncertainty. Strong organic growth of core deposits from new and existing relationships, inflows of public fund deposits, proceeds of PPP loans retained on deposit by our commercial borrowers, and federal government stimulus payments contributed to the increase. Time deposits $250 thousand or more decreased due to the maturity of a few large public fund certificates of deposit.

11. Borrowings

Short-term borrowings consists of FHLB advances representing overnight borrowings or with stated original terms of less than twelve months and other borrowings related to collateral held from derivative counter parties. The table below outlines short-term borrowings at March 31, 2021 and December 31, 2020:

		At and for the three months ended March 31, 2021
									Weighted
					Maximum		Weighted		Average
	Ending		Average		Month-End		Average		Rate at
	Balance		Balance		Balance		Rate		March 31,2021
Other borrowings	$	1,980	$	469	$	1,980	0.07	%	0.06	%
FHLB advances		50,000		50,000		50,000	0.57		0.38
Total short-term borrowings	$	51,980	$	50,469	$	51,980	0.57	%	0.37	%

	At and for the year ended December 31, 2020
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
	Balance		Balance		Balance		the Year		of the Year
FHLB advances	$	50,000	$	83,716	$	179,199	1.01	%	0.40	%

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. At March 31, 2021, the maximum borrowing capacity was $819,972 of which $64,264 was outstanding in borrowings and $230,650 was used to issue standby letters of credit to collateralize public fund deposits. At December 31, 2020, the maximum borrowing capacity was $807,042 of which $64,769 was outstanding in borrowings and $218,350 was used to issue standby letters of credit to collateralize public fund deposits. Short-term borrowings at the FHLB totaling $50,000 were paid off during the second quarter of 2021 with excess cash.

33

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

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.

Long-term debt consisting of advances from the FHLB at March 31, 2021 and December 31, 2020 are as follows:

	Interest Rate
Due	Fixed		March 31, 2021		December 31, 2020
June 2021	1.99	$	10,000	$	10,000
March 2023	4.69		4,264		4,769
		$	14,264	$	14,769

Maturities of long-term debt, by contractual maturity, for the remainder of 2021 and subsequent years are as follows:

2021	$	11,553
2022		2,156
2023		555
	$	14,264

The advances from the FHLB totaling $14,264 are not convertible.

12. Subordinated debt

On June 1, 2020, the Company sold $33,000 aggregate principal amount of Subordinated Notes due 2030 (the “2020 Notes”) to accredited investors. The 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.

The 2020 Notes bear interest at a rate of 5.375% per year for the first five years and then float based on a benchmark rate (as defined), provided that the interest rate applicable to the outstanding principal balance during the period the 2020 Notes are floating will at no time be less the 4.75%.  Interest is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 1, June 1, September 1, and December 1. The 2020 Notes will mature on June 1, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after June 1, 2025 and prior to June 1, 2030. Additionally, if all or any portion of the 2020 Notes cease to be deemed Tier 2 Capital, the Company may redeem, in whole and not in part, at any time upon giving not less than ten days’ notice, an amount equal to one hundred percent (100%) of the principal amount outstanding plus accrued but unpaid interest to but excluding the date fixed for redemption.

Holders of the 2020 Notes may not accelerate the maturity of the 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar proceeding by or against the Company or the Bank.

13. Income taxes

The effective tax rate of the Company was 22.0% for the three months ended March 31, 2021 compared to 11.4% for the three months ended March 31, 2020. The three months ended March 31, 2021 includes a $621 deferred tax adjustment related to prior periods and the Company’s frozen pension plan. Excluding this adjustment, the effective tax rate would be 16.9%, an increase from the year ago period's 11.4% due to a lower proportion of tax exempt income recognized in the first quarter of 2021 when compared to the same period in 2020. Before tax investment tax credits amounted to $270 compared to before tax investment tax credits and other credits of $273 for the same period last year.

34

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, 2020.

Cautionary Note Regarding Forward-Looking Statements:

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

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Important factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to: the COVID-19 crisis and the governmental responses to the crisis; risks associated with business combinations; changes in interest rates; economic conditions, particularly in our market area; legislative and regulatory changes and the ability to comply with the significant laws and regulations governing the banking and financial services business; monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of Treasury and the Federal Reserve System; credit risk associated with lending activities and changes in the quality and composition of our loan and investment portfolios; demand for loan and other products; deposit flows; competition; changes in the values of real estate and other collateral securing the loan portfolio, particularly in our market area; changes in relevant accounting principles and guidelines; inability of third party service providers to perform; and our ability to prevent, detect and respond to cyberattacks. Additional factors that may affect our results are discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, in Part II, Item 1A of this report and in reports we file with the Securities and Exchange Commission from time to time.

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

Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are incorporated by reference into the MD&A. Certain prior period amounts may have been reclassified to conform with the current year’s presentation. Any reclassifications did not have any effect on our operating results or financial position.

Critical Accounting Policies:

Disclosure of our significant accounting policies is included in Note 1 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2020. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions.

Operating Environment:

On March 11, 2020, the World Health Organization declared a coronavirus, identified as COVID-19, a global pandemic. In the United States, the rapid spread of the COVID-19 virus invoked various federal, state and local authorities to make emergency declarations and issue executive orders to limit the spread of the disease. Measures included restrictions on travel, limitations on public gatherings, implementation of social distancing protocols, school closings, orders to shelter in place and mandates to close all non-essential businesses to the public. Concerns about the spread of the disease and its anticipated negative impact on economic activity severely disrupted domestic financial markets prompting the Federal Reserve System’s FOMC to aggressively cut the target federal funds rate to a range of 0% to 0.25%, including a 50 basis

35

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

point reduction in the target federal funds rate on March 3, 2020 and an additional 100 basis point reduction on March 15, 2020. In addition, the Federal Reserve rolled out various market support programs to ease the stress on financial markets.

During the first quarter of 2021, many of the more restrictive government orders began to ease on a national level and more specifically in the Company's market area, allowing businesses to reopen at varying capacity levels, which has improved commercial and consumer activity but activity has not returned to pre-pandemic levels. While the risk of a resurgence in infections and possible reimplementation of restrictions remains, the  outlook continues to improve as vaccine distribution accelerates and is now available to all adults.

From a lending perspective, organic loan growth, with the exception of Paycheck Protection Program (“PPP”) loans, was soft as we began 2021, however, loan activity improved at the end of the quarter.  We participated in the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), PPP, a $350 billion specialized low-interest loan program funded by the U.S. Treasury Department and administered by the Small Business Administration (“SBA”).  During 2020, we had approved 1,450 PPP loans totaling $217.5 million. Substantially all of the loans were made to existing customers, funded under the two year PPP loan program, and the loan proceeds initially were deposited with our institution.  PPP loan forgiveness commenced during the fourth quarter of 2020 and we continue to process loan forgiveness applications.  At March 31, 2021, we have 468 loans totaling $100.8 million remaining compared to 1,304 loans totaling $189.7 million at December 31, 2020. We expect the majority of the remaining $100.8 million to be forgiven during 2021. During the first quarter of 2021, we funded an additional 885 loans totaling $100.0 million under the SBA’s second PPP loan program.   The application process for the second PPP loan program ends May 31, 2021. 

From a credit risk perspective, we took actions to identify and assess our COVID-19 related credit exposures based on asset class and borrower type. From the onset of the crisis, we worked to proactively monitor our loan portfolio by contacting many of our borrowers to evaluate the impact of the pandemic on them, their businesses and the underlying collateral for our loans. The Company implemented a customer payment deferral program to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19 related challenges.  At the start of the pandemic, the Company granted payment deferral requests for up to six months to a total of 481 commercial loans with outstanding loan balances of $306.9 million and to 505 consumer loans with outstanding balances of $23.3 million. Outstanding loan balances remaining in deferral at March 31, 2021 totaled $1.3 million, a decrease of $4.8 million from the $6.1 million at December 31, 2020. As a percentage of total loan balances, excluding PPP loans, loans in deferral represented less than 0.1% of loans outstanding at March 31, 2021 compared to 0.3% of loans outstanding at December 31, 2020. At March 31, 2021, commercial loan balances remaining in deferral total $1.0 million while consumer loans total $0.3 million. Loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act. Pursuant to the CARES Act, loan deferrals are not included in our nonperforming loans disclosed in our financial statement footnotes. Loans in deferral status will continue to accrue interest during the deferral period unless otherwise classified as nonperforming.

Overall inflation lags below the FOMC’s long-term desired 2% level for items other than food and energy. The consumer price index (“CPI”) registered 1.6% for the 12 months ended March 31, 2021. CPI also registered 1.6% for the 12 months ended December 31, 2020 but down from 1.7% for the 12 months ended September 30, 2020. The all items index increased 2.6% for the 12 months ending March 31, 2021, up from the reading for the 12 months ending December 31, 2020 and September 30, 2020 which both were 1.4%. As the U.S. economy continues to rebound from the initial slowdown in the second quarter of 2020 that was brought on by the nation wide shutdown, gross domestic product (“GDP”), the value of all goods and services produced in the nation, came in with an initial first quarter 2021 reading of a 6.4% annualized rate, slightly off from the consensus forecast of 6.7%, for the quarter. Driving the rebound, consumption gained 10.7%, aided by two stimulus programs. Meanwhile, residential investment continues to be an engine of growth, up a solid 10.8%. After contracting 10.1% through the first two quarters of 2020, the U.S. economy is now back to within 0.9% of its prepandemic peak.

Goodwill:

The Company has goodwill with a net carrying value of $63.4 million at March 31, 2021 and December 31, 2020. The Company's policy is to test goodwill for impairment annually on December 31 or on an interim basis if an event triggering impairment may have occurred. If a reporting unit’s carrying amount exceeds its fair value, an entity will

36

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

record an impairment charge based on that difference. At March 31, 2021, we evaluated whether any events occurred or circumstances changed that would more likely than not reduce the Company's fair value below its carrying value. We noted no such matters. There is no assurance that changes in events or circumstances in the future will not result in impairment.

Review of Financial Position:

Total assets increased $111,667, or 15.7% annualized, to $2,995,469 at March 31, 2021, from $2,883,802 at December 31, 2020. Total loans increased slightly to $2,179,534 at March 31, 2021, compared to $2,177,982 at December 31, 2020, an increase of $1,552. Excluding $11,075 of PPP net loan growth during the first quarter of 2021, total loans decreased $9,523, or 1.8% annualized, since December 31, 2020.  Investments increased $37,804 or 12.5% due to the purchase of higher yielding investment securities with a portion of our lower earning excess cash position. Strong growth of deposits resulted in an increase to our overnight federal funds sold position of $81,100 since December 31, 2020.  Deposits increased by $113,303 or 18.9% annualized, the result of demand for liquid accounts due to low interest rates and economic uncertainty, strong organic growth of core deposits from new and existing relationships, inflows of public fund deposits, and federal government stimulus payments. Interest-bearing deposits increased $74,516 while noninterest-bearing deposits increased $38,787. Total stockholders’ equity increased $454 or 0.1%, from $316,877 at year-end 2020 to $317,331 at March 31, 2021 due to net income, partially offset by a decrease to accumulated other comprehensive income (“AOCI”) resulting from a decrease to the unrealized gain on investment securities and dividends paid to shareholders. For the three months ended March 31, 2021, total assets averaged $2,914,045, an increase of $430,335 from $2,483,710 for the same period of 2020.

Investment Portfolio:

The majority of the investment portfolio is classified as available-for-sale, which allows for greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when market opportunities occur. Investment securities available-for-sale totaled $333,753 at March 31, 2021, an increase of $37,842, or 12.8% from $295,911 at December 31, 2020. The increase was due to the purchase of taxable and tax-exempt municipal bonds and mortgage-backed securities as we deployed a portion of excess cash into higher earning assets. A decrease in the market value of the available-for-sale portfolio of $7,750 since December 31, 2020, due to higher market rates and principal received from mortgage-backed securities and maturing bonds partially offset the increases. Investment securities held-to-maturity totaled $7,166 at March 31, 2021, a decrease of $59 or 0.8% from $7,225 at December 31, 2020 due to payments received on mortgage backed securities.

For the three months ended March 31, 2021, the investment portfolio averaged $332,415, an increase of $16,190 or 5.1% compared to $316,225 for the same period last year. Average tax-exempt municipal bonds have increased $23,131 or 47.2% to $72,177 for the three months ended March 31, 2020 from $49,046 during the comparable period of 2020. The increase in tax-exempt municipal bonds is due to the aforementioned purchases during the last twelve months. The tax-equivalent yield on the investment portfolio decreased 33 basis points to 2.15% for the three months ended March 31, 2021, from 2.48% for the comparable period of 2020. The decrease in yield is due to lower reinvestment rates for cash flow from matured and called bonds.

Securities available-for-sale are carried at fair value, with unrealized gains or losses net of deferred income taxes reported in the AOCI component of stockholders’ equity. We reported net unrealized gains, included as a separate component of stockholders’ equity of $1,538, net of deferred income taxes of $408 at March 31, 2021, and net unrealized gains of $7,660, net of deferred income taxes of $2,036, at December 31, 2020.

Management, from a credit risk perspective, has taken action to identify and assess its COVID-19 related credit exposures based on asset class. No specific COVID-19 related credit impairment was identified within our investment securities portfolio, including our municipal securities, during the first three months of 2021

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.

37

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Loan Portfolio:

Total loans increased to $2,179,534 at March 31, 2021 from $2,177,982 at December 31, 2020, an increase of $1,552. The slight loan growth is due to a net increase in PPP loans resulting from our participation in the second round of the SBA administered PPP, and to a lesser extent in commercial real estate loans. At March 31, 2021, we have 468 loans totaling $100,790 remaining from PPP loans originated during 2020 compared to 1,304 loans totaling $189,699 at December 31, 2020. We expect the majority of the remaining $100,790 to be forgiven during 2021. During the first quarter of 2021, we funded an additional 885 loans totaling $99,984 under the SBA's second PPP loan program. Excluding the PPP loans, total loans have decreased $9,523 or 0.4% primarily from reductions in non-PPP commercial loans, residential real estate and consumer loans, primarily dealer indirect auto loans. Commercial real estate loans increased $12,577 or 4.5% annualized, to $1,150,567 at March 31, 2021 compared to $1,137,990 at December 31, 2020 due to increased activity in all our markets. Commercial and industrial loans, excluding PPP, decreased $13,271 to $476,316 at March 31, 2021 compared to $489,587 at December 31, 2020 as loan growth was soft at the start of 2021. We will continue to actively pursue commercial and industrial loans, although this is temporarily more challenging due to the current economic conditions, as this segment of our loan portfolio provides an attractive yield commensurate with an appropriate level of credit risk and creates opportunities for in-market deposit, treasury management, and wealth management relationships which generate additional fee income.

Consumer loans decreased $4,641, or 22.6% on an annualized basis, to $78,651 at March 31, 2021 compared to $83,292 at December 31, 2020. The decrease in consumer loans was primarily due to payoffs outpacing dealer indirect auto loan origination volumes. Lower origination volumes have resulted from changes to the structure of the Bank’s loan pricing which were implemented during 2018. 

Residential real estate loans decreased $4,188, or 6.1% on an annualized basis, to $273,226 at March 31, 2021 compared to $277,414 at December 31, 2020. Lower mortgage rates resulting from the FOMC’s action to cut the federal funds rate has triggered significant refinance activity. The majority of the refinancing are being sold into the secondary market which has led to increased mortgage banking revenue. 

Loan activity beyond the PPP began to improve at the end of the quarter as the economic outlook improved, certain government restrictions began to ease and vaccine distribution accelerated and is now available to all adults.

For the three months ended March 31, 2021, total loans excluding PPP loans, averaged $1,983,947, an increase of $18,232 or 0.9% compared to $1,965,715 for the same period of 2020. The PPP loans averaged $195,525 for the three months ended March 31, 2021 and yielded 5.12%. The tax-equivalent yield on the entire loan portfolio was 4.09% for the three months ended March 31, 2021, a 46 basis point decrease from the comparable period last year. The decrease in yield is primarily due to decreases in market rates. The FOMC took aggressive steps in March 2020 to combat the COVID-19 pandemic by cutting the federal funds rate 100 basis points to a target range of 0.00% to 0.25% during an emergency meeting which followed an emergency 50 basis point cut on March 3, 2020. The lower market rates negatively impacted our floating and adjustable rate loans and yields on new loan originations.

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

Unused commitments at March 31, 2021, totaled $508,314, consisting of $478,617 in unfunded commitments of existing loan facilities and $29,697 in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and therefore, do not represent a significant liquidity risk to us. In comparison, unused commitments at December 31, 2020 totaled $426,486, consisting of $392,058 in unfunded commitments of existing loans and $34,428 in standby letters of credit.

38

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Asset Quality:

National, Pennsylvania, New York and market area unemployment rates at March 31, 2021 and 2020, are summarized as follows:

	2021		2020
United States	6.2	%	3.8	%
New York (statewide)	9.2		4.2
Pennsylvania (statewide)	7.7		5.2
Broome County	7.4		5.6
Bucks County	6.4		4.5
Lackawanna County	8.5		5.8
Lebanon County	6.7		4.6
Lehigh County	8.1		5.1
Luzerne County	10.1		6.8
Monroe County	9.1		6.4
Montgomery County	6.0		4.0
Northampton County	7.1		5.2
Schuylkill County	8.3		6.2
Susquehanna County	6.9		6.1
Wayne County	8.7		7.0
Wyoming County	8.2	%	6.4	%

39

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

The employment situation deteriorated in New York and Pennsylvania and in all of the thirteen counties representing our market areas in Pennsylvania and New York from one year ago when comparing March 31, 2021 to March 31, 2020. The United States economy added 916,000 total nonfarm payrolls for the month of March 2021, handily beating economists' expectations. This marked the best pace of job recovery since August 2020. However, even after the stronger report, there remain 8.4 million fewer employed since February 2020. Projections for our local market unemployment are not readily available, however the most current economic statistics as of March 31, 2021 show continuing jobless claims of over 3.8 million. While this is a significant improvement from the 17 million jobless claims at the height of the pandemic, it remains elevated as does the unemployment rate at 6.0% per the latest report from the Bureau of Labor Statistics at March 31, 2021. As the pandemic continues to remain a focus of the economic recovery, elevated unemployment rates could have an adverse effect on our credit quality and may result in increased credit losses within the loan portfolio in future periods.

Distribution of nonperforming assets

		March 31, 2021			December 31, 2020
Nonaccrual loans:
Commercial	$	1,740		$	3,359
Real estate:
Commercial		2,718			2,642
Residential		781			869
Consumer		94			111
Total nonaccrual loans		5,333			6,981
Troubled debt restructured loans:
Commercial		894			920
Real estate:
Commercial		1,272			1,310
Residential		574			588
Total troubled debt restructured loans		2,740			2,818
Accruing loans past due 90 days or more:
Real estate:
Residential		172			71
Total accruing loans past due 90 days or more		172			71
Total nonperforming loans		8,245			9,870
Foreclosed assets		131			632
Total nonperforming assets	$	8,376		$	10,502
Nonperforming loans as a percentage of loans, net		0.38	%		0.45	%
Nonperforming assets as a percentage of total assets		0.28	%		0.36	%

We experienced improved asset quality during the first three months of 2021 as evidenced by a decrease of $2,126 in nonperforming assets. Nonperforming assets totaled $8,376 or 0.28% of total assets at March 31, 2021, a decrease from $10,502 or 0.36% of total assets at December 31, 2020. A decrease in each category from year-end was experienced.

Loans on nonaccrual status decreased $1,648 to $5,333 at March 31, 2021 from $6,981 at December 31, 2020. The decrease to nonaccrual loans since year-end is primarily due to a $1,511 payoff of one commercial credit. Restructured loans decreased $78 to $2,740 at March 31, 2021 from $2,818 at December 31, 2020 due to payments received. Foreclosed assets decreased $501 due to the sale of two properties with larger balances. Other real estate owned comprised four properties at March 31, 2021 and five properties at December 31, 2020, respectively.

Generally, maintaining a high loan to deposit ratio is our primary goal in order to drive profitability. However, this objective is superseded by our goal of strong asset quality to ensure that asset quality remains strong. We continued our

40

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

efforts to maintain sound underwriting standards for both commercial and consumer credit. Most commercial lending is done primarily with locally owned small businesses.

We maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to specifically identified loans, as well as probable incurred loan losses inherent in the remainder of the loan portfolio as of the balance sheet date. The allowance for loan losses is based on past events and current economic conditions. We employ the Federal Financial Institutions Examination Council Interagency Policy Statement, as amended December 13, 2006, and GAAP in assessing the adequacy of the allowance account. Under GAAP, the adequacy of the allowance account is determined based on the provisions of FASB Accounting Standards Codification (“ASC”) 310, “Receivables,” for loans specifically identified to be individually evaluated for impairment and the requirements of FASB ASC 450, “Contingencies,” for large groups of smaller-balance homogeneous loans to be collectively evaluated for impairment.

We follow our systematic methodology in accordance with procedural discipline by applying it in the same manner regardless of whether the allowance is being determined at a high point or a low point in the economic cycle. Each quarter, credit administration identifies those loans to be individually evaluated for impairment and those loans collectively evaluated for impairment utilizing a standard criteria. We consistently use loss experience from the latest twelve quarters in determining the historical loss factor for each pool collectively evaluated for impairment. Qualitative factors are evaluated in the same manner each quarter and are adjusted within a relevant range of values based on current conditions. For additional disclosure related to the allowance for loan losses refer to the note entitled, “Loans, net and Allowance for Loan Losses,” in the Notes to Consolidated Financial Statements to this Quarterly Report.

The allowance for loan losses decreased $561 or 2.1% in 2021, due to a $500 release from the allowance for loan losses in the current period resulting from improved credit quality and a slight decrease in non-PPP loan balances. The allowance for loan losses at March 31, 2021 continued to reflect the provisions added during 2020 from our adjustment of qualitative factors in our allowance for loan losses methodology, due to economic decline and expectation of increased credit losses from COVID-19's adverse impact on economic and business operating conditions. The allowance for loan losses equaled $26,783 or 1.23% of loans, net at March 31, 2021 compared to $27,344 or 1.26% of loans, net, at December 31, 2020. Excluding PPP loans which do not carry an allowance for losses due to a 100% government guarantee, the ratio equaled 1.35% at March 31, 2021. Loans charged-off, net of recoveries, for the three months ended March 31, 2021, equaled $61 or 0.01% of average loans, compared to $491 or 0.10% of average loans for the comparable period last year which included the charge-off of one specific commercial credit totaling $553, offset by a recovery of $200 on an unrelated commercial credit.

Deposits:

We attract the majority of our deposits from within our market area that stretches from Montgomery County in southeastern Pennsylvania to Broome County in the Southern Tier of New York State to Lebanon County in Central Pennsylvania through the offering of various deposit instruments including demand deposit accounts, NOW accounts, money market deposit accounts, savings accounts, and time deposits, including certificates of deposit and IRA’s. For the three months ended March 31, 2021, total deposits increased $113,303 or 4.6% to $2,550,416 from $2,437,113 at December 31, 2020.  The growth of deposits is the result of elevated demand for liquid accounts due to low interest rates and economic uncertainty, strong organic growth of core deposits from new and existing relationships, inflows of public fund deposits, and proceeds from federal government stimulus payments.  Interest-bearing deposits increased $74,516 while noninterest-bearing deposits increased $38,787.  Interest-bearing transaction accounts, including NOW and money market accounts increased by $50,747, or 4.8%, to $1,114,468 at March 31, 2021, from $1,063,721 at December 31, 2020, savings accounts increased $27,893 to $459,117 as of March 31, 2021 from $431,224 at December 31, 2020.  Time deposits less than $250 decreased $1,759, or 0.8%, to $219,687 at March 31, 2021, from $221,446 at December 31, 2020 as depositors shifted to more liquid accounts.  Time deposits $250 or more decreased $2,365, or 2.4% to $95,882 at March 31, 2021 from $98,247 at year end 2020 due to the redemption of a few large accounts.

For the three months ended March 31, interest-bearing deposits averaged $1,833,661 in 2021 compared to $1,524,265 in 2020, an increase of $309,396, or 20.3%. The cost of interest-bearing deposits was 0.46% in 2021 compared to 0.92% for the same period last year. For the first three months, the overall cost of interest-bearing liabilities including the cost of borrowed funds, was 0.57% in 2021 and 1.01% in 2020. The lower costs are due primarily to a decrease in short-term

41

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

market rates, the result of the FOMC’s aggressive action to cut the federal funds rate during March 2020 to fight a recession by cutting the federal funds rate 150 basis points in response to the COVID-19 global pandemic and economic slowdown. We expect our cost of interest-bearing liabilities to continue to move lower as market rates are expected to remain at historical lows for the foreseeable future based on the recent statement by the FOMC.  

Borrowings:

The Bank utilizes borrowings as a secondary source of liquidity for its asset/liability management. Advances are available from the Federal Home Loan Bank of Pittsburgh (“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, or the recently created Paycheck Protection Program Liquidity Facility (“PPPLF”) using PPP loans as collateral.

Overall, total borrowings at March 31, 2021, totaled $66,244 compared to $64,769 at December 31, 2020, an increase of $1,475. Short-term borrowings outstanding at March 31, 2021 was $51,980 compared to $50,000 at December 31, 2020 an increase of $1,980. Short-term borrowings totaling $50,000 were paid off during April 2021 with our excess cash position.  Long-term debt was $14,264 at March 31, 2021 compared to $14,769 at year end 2020.  There were no borrowings outstanding under the PPPLF at March 31, 2021.

Market Risk Sensitivity:

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

Due to economic uncertainty and the decreases to short-term market rates and the expectation of historically low rates for the foreseeable future, it has become challenging to manage IRR. Due to these factors, IRR and effectively managing it are very important to both bank management and regulators. Bank regulations require us to develop and maintain an IRR management program, overseen by our board of directors and senior management, that involves a comprehensive risk management process in order to effectively identify, measure, monitor and control risk. Should bank regulatory agencies identify a material weakness in our risk management process or high exposure relative to our capital, bank regulatory agencies may take action to remedy these shortcomings. Moreover, the level of IRR exposure and the quality of our risk management process is a determining factor when evaluating capital adequacy.

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

42

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

rates rise and adversely if interest rates fall during the period. A negative gap tends to indicate that earnings will be affected inversely to interest rate changes.

Our cumulative one-year RSA/RSL ratio equaled 1.85% at March 31, 2021, an increase from 1.39% at December 31, 2020. The increase is due in part to a higher overnight federal funds sold balance of $81,100. Given the action by the FOMC to lower the targeted federal funds rate 150 basis points during March 2020 to combat economic slowdown and recessionary fears, the focus of ALCO has been to create a balanced static gap position. With regard to RSA, we predominantly offer medium-term, fixed-rate loans as well as adjustable rate loans. With respect to RSL, we are offering short term certificates of deposit and keeping our borrowings short-term in an attempt to decrease duration. The current position at March 31, 2021, indicates that the amount of RSA repricing within one year would exceed that of RSL, thereby causing net interest income to decrease as market rates decrease. However, these forward-looking statements are qualified in the aforementioned section entitled “Cautionary Note Regarding Forward-Looking Statements” in this Management’s Discussion and Analysis.

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

As the static gap report fails to address the dynamic changes in the balance sheet composition or prevailing interest rates, we utilize a simulation model to enhance our asset/liability management. This model is used to create pro forma net interest income scenarios under various interest rate shocks. Model results at March 31, 2021, produced results similar to those indicated by the one-year static gap position. In addition, parallel and instantaneous shifts in interest rates under various interest rate shocks resulted in changes in net interest income that were well within ALCO policy limits during the first year of simulation. We will continue to monitor our IRR throughout 2021 and endeavor to employ deposit and loan pricing strategies and direct the reinvestment of loan and investment repayments in order to manage our IRR position.

Financial institutions are affected differently by inflation than commercial and industrial companies that have significant investments in fixed assets and inventories. Most of our assets are monetary in nature and change correspondingly with variations in the inflation rate. It is difficult to precisely measure the impact inflation has on us, however we believe that our exposure to inflation can be mitigated through asset/liability management.

Liquidity:

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

● Funding new and existing loan commitments;

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

● Repayment of borrowings as they mature;

● Payment of lease obligations; and

● Payment of operating expenses.

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

43

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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

Our ALCO generally meets quarterly, and most recently met in February, to review our capital adequacy and liquidity contingency funding plan due to the high degree of uncertainty around the magnitude and duration of the economic impact of the COVID-19 pandemic.  Management believes the Company’s liquidity position is strong. At March 31, 2021, the Company’s cash and due from banks balances were $303.3 million and we maintained $154.5 million of availability at the Federal Reserve Bank’s discount window. We may also utilize the Federal Reserve’s PPPLF which provides us, as an eligible depository institution, an available liquidity facility on a non-recourse basis, taking only PPP loans as collateral.  Our potential maximum borrowing capacity under the PPPLF at March 31, is $200.8 million; there were no advances outstanding under this facility at March 31. The Company also maintains an available-for-sale investment securities portfolio, comprised primarily of highly liquid U.S. Treasury and U.S. agency securities, highly-rated municipal securities and U.S. agency-backed mortgage backed securities. This portfolio serves as a ready source of liquidity and capital. At March 31, 2021, the Company’s available-for-sale investment securities portfolio totaled $333.8 million, $165.9 million of which were unencumbered. Net unrealized gains on the portfolio were $1.9 million. The Bank’s unused borrowing capacity at the Federal Home Loan Bank of Pittsburgh at March 31, 2021 was $524.8 million.

We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans maturing after March 31, 2021. Our noncore funds at March 31, 2021, were comprised of time deposits in denominations of $100 or more and other borrowings. These funds are not considered to be a strong source of liquidity because they are very interest rate sensitive and are considered to be highly volatile. At March 31, 2021, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was negative 2.1%, while our net short-term noncore funding dependence ratio, noncore funds maturing within one-year, less short-term investments to long-term assets equaled negative 5.7% due to our short-term investments including $264.1 million of federal funds sold, exceeding our noncore funds. Comparatively, our overall noncore dependence ratio at year-end 2020 was 2.8% and our net short-term noncore funding dependence ratio was negative 1.3%, indicating that our reliance on noncore funds has decreased both in the short-term and overall due to our strong non-maturity deposit growth.

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 $75,126 during the three months ended March 31, 2021. Cash and cash equivalents increased $4,174 for the same period last year. For the three months ended March 31, 2021, net cash inflows of $11,654 from operating activities and $111,596 from financing activities were partially offset by net cash outflows of $48,124 from investing activities. For the same period of 2020, net cash inflows of $10,952 from operating activities and $45,157 from financing activities were partially offset by net cash outflows of $51,935 from investing activities.

Operating activities provided net cash of $11,654 for the three months ended March 31, 2021, and $10,952 for the corresponding three months of 2020. Net income, adjusted for the effects of gains and losses along with noncash transactions such as depreciation and the provision for loan losses, is the primary source of funds from operations.

Investing activities primarily include transactions related to our lending activities and investment portfolio. Investing activities used net cash of $48,124 for the three months ended March 31, 2021, compared to using net cash of $51,935 for the same period of 2020. In 2021, the purchase of investment securities was the primary factor causing the net cash outflow from investing activities, while an increase in lending activities was the primary factor during the 2020 comparable period.

Financing activities provided net cash of $111,596 for the three months ended March 31, 2021, and provided net cash of $45,157 for the corresponding three months of 2020. Deposit gathering is our predominant financing activity. Deposits provided cash of $113,303 for the three months ended March 31, 2021. Comparatively, deposits provided $38,506 for the same period of 2020. We continue to seek low-cost deposits from new markets and customers as well as existing customers, including municipalities and school districts. In the event that loan growth should exceed the growth in

44

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

deposits, short-term and long-term borrowings provide additional funding. Short term borrowings increased $1,980 in the three months ended March 31, 2021 compared to a increase of $12,000 for the comparable period in 2020. Long term borrowings were paid down and used $505 three months ended March 31 2021. Comparatively, long term borrowings were paid down and used $483 of funding for the comparable period in 2020.

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. The current sources of funds will enable us to meet all cash obligations as they come due.

Capital:

Stockholders’ equity totaled $317,331 or $44.00 per share at March 31, 2021, compared to $316,877 or $43.92 per share at December 31, 2020. Net income of $9,478 for the three months ended March 31, 2021 was the primary factor leading to the improved capital position. Stockholders’ equity was reduced during the three month period ended March 31, 2021 by cash dividends declared of $2,665, a decrease to AOCI of $5,931 primarily due to a decrease to the unrealized gain on investment securities from higher market rates and the repurchase of 13,101 common shares totaling $517.

Dividends declared equaled $0.37 per share through the three months ended March 31, 2021 and $0.36 per share for the same period of 2020. The dividend payout ratio was 28.2% for the three months ended March 31, 2021 and 50.0% for the same period of 2020. The Company has paid cash dividends since its formation as a bank holding company in 1986. It is the present intention of the Board of Directors to continue this dividend payment policy. The Board declared on April 30, 2021 a second quarter dividend of $0.37 per share payable June 15, 2021. Further dividends, however, must necessarily depend upon earnings, financial condition, appropriate legal restrictions and other factors relevant, including the adverse impact of COVID-19,  at the time the Board of Directors considers payment of dividends.

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

The adequacy of capital is reviewed on an ongoing basis with reference to the size, composition and quality of resources and regulatory guidelines. We seek to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings. At March 31, 2021, the Bank’s Tier 1 capital to total average assets was 9.95% as compared to 10.08% at December 31, 2020. The Bank’s Tier 1 capital to risk weighted asset ratio was 13.64% and the total capital to risk weighted asset ratio was 14.89% at March 31, 2021. These ratios were 13.73% and 14.98% at December 31, 2020. The Bank’s common equity Tier 1 to risk weighted asset ratio was 13.64% at March 31, 2021 compared to 13.73% at December 31, 2020. The slight decrease in the Bank’s capital ratios was due to the upstream of a $6.8 million dividend to the Company for general corporate purposes. The Bank met all capital adequacy requirements and was deemed to be well-capitalized under regulatory standards at March 31, 2021.

Review of Financial Performance:

Peoples reported net income of $9,478, or $1.31 per diluted share for the three months ended March 31, 2021, an increase of 79.5% when compared to $5,281, or $0.71 per diluted share for the comparable period of 2020. The increase in earnings for the three months ended March 31, 2021 is the product of an increase in pre-provision net interest income of $1,207, due primarily to lower funding costs of $1,572, a decrease to the provision for loan losses of $4,000 from improved credit quality and a release of $500 from the allowance for loan losses, which reflects an adjustment of qualitative factors in our allowance for loan losses methodology due to the onset of COVID-19 and its uncertain economic impact, and lower noninterest expenses of $1,022. Partially offsetting the increase was a higher provision for income taxes of $1,999 resulting in part to a $621 deferred tax adjustment from prior periods. Return on average assets

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

(“ROA”) measures our net income in relation to total assets. Our ROA was 1.32% for the first quarter of 2021 compared to 0.86% for the same period of 2020. Return on average equity (“ROE”) indicates how effectively we can generate net income on the capital invested by stockholders. Our ROE was 12.00% for the first quarter of 2021 compared to 7.05% for the comparable period in 2020.

Non-GAAP Financial Measures:

The following are non-GAAP financial measures which provide useful insight to the reader of the consolidated financial statements but should be supplemental to GAAP used to prepare Peoples’ financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, Peoples’ non-GAAP measures may not be comparable to non-GAAP measures of other companies. The tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% for 2021 and 2020.

The following table reconciles the non-GAAP financial measures of FTE net interest income for the three months ended March 31, 2021 and 2020:

Three months ended March 31	2021		2020
Interest income (GAAP)	$	23,477	$	23,842
Adjustment to FTE		335		353
Interest income adjusted to FTE (non-GAAP)		23,812		24,195
Interest expense		2,709		4,281
Net interest income adjusted to FTE (non-GAAP)	$	21,103	$	19,914

The efficiency ratio is noninterest expenses, less amortization of intangible assets, as a percentage of FTE net interest income plus noninterest income less gains on equity securities and gains on sale of assets. The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP for the three months ended March 31, 2021 and 2020:

Three months ended March 31	2021			2020
Efficiency ratio (non-GAAP):
Noninterest expense (GAAP)	$	12,629		$	13,651
Less: amortization of intangible assets expense		125			154
Noninterest expense adjusted for amortization of assets expense (non-GAAP)		12,504			13,497
Net interest income (GAAP)		20,768			19,561
Plus: taxable equivalent adjustment		335			353
Noninterest income (GAAP)		3,517			3,550
Less: net gains (losses) on equity securities		21			(123)
Less: net gains on sale of assets					267
Net interest income (FTE) plus noninterest income (non-GAAP)	$	24,599		$	23,320
Efficiency ratio (non-GAAP)		50.8	%		57.9	%

Net Interest Income:

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

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

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

● Changes in general market rates; and

● The level of nonperforming assets.

Changes in net interest income are measured by the net interest spread and net interest margin. Net interest spread, the difference between the average yield earned on earning assets and the average rate incurred on interest-bearing liabilities, illustrates the effects changing interest rates have on profitability. Net interest margin, net interest income as a percentage of earning assets, is a more comprehensive ratio, as it reflects not only the spread, but also the change in the composition of interest-earning assets and interest-bearing liabilities. Tax-exempt loans and investments carry pre-tax yields lower than their taxable counterparts. Therefore, in order to make the analysis of net interest income more comparable, tax-exempt income and yields are reported herein on a tax-equivalent basis using the prevailing federal statutory tax rate of 21.0% in 2021 and 2020.

For the three months ended March 31, tax-equivalent net interest income increased $1,189 to $21,103 in 2021 from $19,914 in 2020. The net interest spread decreased to 2.98% for the three months ended March 31, 2021 from 3.24% for the three months ended March 31, 2020 as the earning asset yield decreased 70 basis points while the average rate paid on interest bearing liabilities decreased 44 basis points. The tax-equivalent net interest margin decreased to 3.15% for the first quarter of 2021 from 3.50% for the comparable period of 2020.

For the three months ended March 31, tax-equivalent interest income, a non-GAAP measure, on earning assets decreased $383, to $23,812 in 2021 as compared to $24,195 in 2020. The overall yield on earning assets, on a fully tax-equivalent basis, decreased 70 basis points for the three months ended March 31, 2021 to 3.55% as compared to 4.25% for the three months ended March 31, 2020. The decrease in yield on earning assets resulted from a 46 basis point decrease in loan yields, 4.09% for the first quarter of 2021 compared to 4.55% for the same period last year. Loan yields decreased due to lower rates on new loan originations during 2021, coupled with adjustable and variable rate loans repricing into a lower rate environment as the FOMC cut the federal funds rate 150 basis points during March 2020 to combat the economic slowdown resulting from the COVID-19 pandemic. PPP loan interest income and net fees totaled $2,469 and the yield was 5.12% during the current quarter. Excluding the PPP loans, the loan yield was 3.99%. The overall yield earned on investments decreased 33 basis points in the first quarter of 2021 to 2.15% from 2.48% for the first quarter of 2020 as investment cashflow from high yielding matured and pre-refunded municipal bonds are deployed into lower yielding bonds and federal funds sold.  Average investment balances were $16,190 higher when comparing the current and year ago quarter. We expect asset yields to continue to move downward as asset cash flow reprices lower due to the FOMC’s policy to hold rates at historically low levels.  

Total interest expense decreased $1,572 to $2,709 for the three months ended March 31, 2021 from $4,281 for the three months ended March 31, 2020. The total cost of funds decreased 44 basis points for the three months ended March 31, 2021 to 0.57% as compared to 1.01% in the year ago period. The decrease in costs was due to lower rates on interest bearing deposits partially offset by higher average balances and additional interest expense of $443 from the issuance of subordinated debt. The average rate paid on deposits declined as we decreased deposit rates in response to the aforementioned FOMC decision to decrease the target federal funds rate. We expect our cost of funds to continue to decline as time deposits mature and reinvest into lower rates and we continue to lower all our interest-bearing deposit rates to mitigate compression to our net interest margin.

47

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Net interest income changes due to rate and volume

	2021 vs 2020
	Increase (decrease)
	attributable to
	Total		Rate		Volume
Interest income:
Loans:
Taxable	$	(17)	$	(9,371)	$	9,354
Tax-exempt		(204)		(108)		(96)
Investments:
Taxable		(305)		(264)		(41)
Tax-exempt		116		(239)		355
Interest-bearing deposits		(22)		(84)		62
Federal funds sold		49				49
Total interest income		(383)		(10,066)		9,683
Interest expense:
Money market accounts		(456)		(2,206)		1,750
NOW accounts		(104)		(1,279)		1,175
Savings accounts		(25)		(132)		107
Time deposits less than $100		(250)		(97)		(153)
Time deposits $100 or more		(576)		(431)		(145)
Short-term borrowings		(502)		(252)		(250)
Long-term debt		(102)		159		(261)
Subordinated debt		443				443
Total interest expense		(1,572)		(4,238)		2,666
Net interest income - non-GAAP	$	1,189	$	(5,828)	$	7,017

Tax-equivalent net interest income, a non-GAAP measure, was $21,103 in the three months ended March 31, 2021 and $19,914 in the comparable period last year. There was a positive volume variance that was partially offset by a negative rate variance. The growth in average earning assets exceeded that of interest-bearing liabilities, and resulted in additional tax-equivalent net interest income, a non-GAAP measure, of $7,017. A rate variance resulted in a decrease in net interest income of $5,828.

Average earning assets increased $426,664 to $2,716,867 for the three months ended March 31, 2021 from $2,290,203 for the three months ended March 31, 2020 and accounted for a $9,683 increase in interest income. Average loans increased $213,757, which caused interest income to increase $9,258. Specifically, average PPP loans totaled $195,525 and generated $2,469 of interest and net fees. Average taxable investments decreased $6,941 comparing 2021 and 2020, which resulted in decreased interest income of $41 while average tax-exempt investments increased $23,131, which resulted in an increase to interest income of $355.

Average interest-bearing liabilities rose $232,777 to $1,931,640 for the three months ended March 31, 2021 from $1,698,863 for the three months ended March 31, 2020 resulting in a net increase in interest expense of $2,666. Large denomination time deposits averaged $35,685 less in the current period and caused interest expense to decrease $145. A decrease of $45,407 in average time deposits less than $100 thousand decreased interest expense by $153. In addition, interest-bearing transaction accounts, including money market, NOW and savings accounts grew $390,488, which in aggregate caused a $3,032 increase in interest expense. Short-term borrowings averaged $91,651 lower and decreased interest expense $250 while long-term debt averaged $17,968 lower and decreased interest expense by $261comparing the first three months of 2021 and 2020. The issuance of $33,000 of subordinated debt during the second quarter of 2020 increased interest expense by $443 in the current quarter.

An unfavorable rate variance occurred, as the tax-equivalent yield on earning assets decreased 70 basis points while there was a 44 basis point decrease in the cost of funds. As a result, tax-equivalent net interest income decreased $5,828 comparing the three months ended March 31, 2021 and 2020. The tax-equivalent yield on earning assets was 3.55% in

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

the 2021 period compared to 4.25% in 2020 resulting in a decrease in interest income of $10,066. The yield on the taxable investment portfolio decreased 39 basis points to 1.97% during the three months ended March 31, 2021 from 2.36% in the year ago period, resulting in a decrease of $264. The tax-equivalent yield on the loan portfolio decreased 46 basis points to 4.09% in 2021 from 4.55% in 2020 and resulted in a decrease to interest income of $9,479.

A favorable rate variance was experienced in the cost of funds. We experienced decreases in the rates paid on most of the major categories of interest-bearing liabilities. We did, however, add subordinated debt at a fixed rate of 5.375% during the second quarter of 2020 which adversely impacted our cost of funds. The cost of money market accounts decreased 67 basis points comparing the three months ended March 31, 2021 and 2020. The decrease resulted in a decrease in interest expense of $2,206. The cost of savings accounts decreased 4 basis points and resulted in a $132 reduction of interest expense.With regard to time deposits, the average rate paid for time deposits less than $100 thousand decreased 25 basis points while time deposits $100 thousand or more decreased 88 basis points, which together resulted in a $528 decrease in interest expense. The average rate paid on short-term borrowings decreased 105 basis points in the 2021 period when compared to the year ago period, causing a $252 decrease in interest expense. Interest expense increased $159 from a 34 basis point increase in the average rate paid on long-term debt.

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Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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

	Three months ended
	March 31, 2021						March 31, 2020
	Average		Interest Income/		Yield/		Average		Interest Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Earning assets:
Loans:
Taxable	$	2,054,120	$	20,900	4.13	%	$	1,830,455	$	20,917	4.60	%
Tax-exempt		125,352		1,101	3.56			135,260		1,305	3.88
Total loans		2,179,472		22,001	4.09			1,965,715		22,222	4.55
Investments:
Taxable		260,238		1,266	1.97			267,179		1,571	2.36
Tax-exempt		72,177		494	2.78			49,046		378	3.10
Total investments		332,415		1,760	2.15			316,225		1,949	2.48
Interest-bearing deposits		13,260		2	0.06			8,263		24	1.17
Federal funds sold		191,720		49	0.10
Total earning assets		2,716,867		23,812	3.55	%		2,290,203		24,195	4.25	%
Less: allowance for loan losses		27,692						23,144
Other assets		224,870						216,651
Total assets	$	2,914,045	$	23,812			$	2,483,710	$	24,195
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Money market accounts	$	504,302	$	566	0.46	%	$	363,701	$	1,022	1.13	%
NOW accounts		571,344		599	0.43			391,110		703	0.72
Savings accounts		445,367		97	0.09			375,714		122	0.13
Time deposits less than $100		127,560		389	1.24			172,967		639	1.49
Time deposits $100 or more		185,088		441	0.97			220,773		1,017	1.85
Short-term borrowings		50,470		71	0.57			142,121		573	1.62
Long-term debt		14,509		103	2.88			32,477		205	2.54
Subordinated debt		33,000		443	5.38
Total interest-bearing liabilities		1,931,640		2,709	0.57			1,698,863		4,281	1.01
Noninterest-bearing deposits		634,806						462,508
Other liabilities		27,371						21,096
Stockholders’ equity		320,228						301,243
Total liabilities and stockholders’ equity	$	2,914,045		2,709			$	2,483,710		4,281
Net interest income/spread			$	21,103	2.98	%			$	19,914	3.24	%
Net interest margin					3.15	%					3.50	%
Tax-equivalent adjustments:
Loans			$	231					$	274
Investments				104						79
Total adjustments			$	335					$	353

50

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Provision for Loan Losses:

We evaluate the adequacy of the allowance for loan losses account on a quarterly basis utilizing our systematic analysis in accordance with procedural discipline. We take into consideration certain factors such as composition of the loan portfolio, volumes of nonperforming loans, volumes of net charge-offs, prevailing economic conditions and other relevant factors when determining the adequacy of the allowance for loan losses account. We generally make monthly provisions to the allowance for loan losses account in order to maintain the allowance at the appropriate level indicated by our evaluations. Based on our most current evaluation, we believe that the allowance is adequate to absorb any known and inherent losses in the portfolio as of March 31, 2021.

For the three months ended March 31, 2021, the provision for loan losses was a credit of $500, due to improved credit quality and a slight decrease in non-PPP loan balances, and was $4,000 less than the provision for loan losses in the year ago period, which reflected an adjustment of qualitative factors in our allowance for loan losses methodology due to the onset of the coronavirus pandemic and its uncertain economic impact.

Noninterest Income:

Noninterest income for the three months ended March 31, 2021 totaled $3,517, a slight decrease of $33 or 0.9% from $3,550 in 2020.  Mortgage banking revenue was $175 higher in the current period due to increased refinance activity from low market rates which resulted in a higher volume of loans sold into the secondary market.  Revenue from commercial loan interest rate swap transactions was $327 higher in the current period due to a higher credit valuation adjustment.  Service charges, fees, commissions and other are lower in the current period by $421 due to lower service charges on consumer and commercial deposit accounts and an $335 accrual adjustment to a bank owned life insurance benefit.  Lower merchant services revenue of $21 and lower wealth management revenue of $29 resulted from lower transactional volume in the first quarter caused by the pandemic. The year ago period included a net gain of $267 from a sale of a pool of municipal securities, offset by an unrealized loss related to our equity portfolio. 

The adverse impact of COVID-19 may result in a decrease to our noninterest income.  Service charges on deposits may continue to decline due to waived overdraft fees, lower transaction volumes and higher customer savings rates.  The restrictions put in place related to seating capacities by state governmental authorities could cause a decrease to our merchant services revenue and debit card interchange income.  Also, our wealth management revenue may decline due to financial market turmoil and lower transaction volumes.

Noninterest Expenses:

In general, noninterest expense is categorized into three main groups: employee-related expenses, occupancy and equipment expenses and other expenses. Employee-related expenses are costs associated with providing salaries, including payroll taxes and benefits, to our employees. Occupancy and equipment expenses, the costs related to the maintenance of facilities and equipment, include depreciation, general maintenance and repairs, real estate taxes, rental expense offset by any rental income, and utility costs. Other expenses include general operating expenses such as advertising, contractual services, insurance, including FDIC assessment, 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.

For the first quarter, noninterest expense decreased $1,022 or 7.5% to $12,629 in 2021 from $13,651 in 2020. Personnel costs decreased 16.4%, net occupancy and equipment costs increased 6.1%, and all other expense categories which include, professional fees and outside services, FDIC insurance and assessments, donations and other miscellaneous expenses increased 2.8% comparing the three months ended March 31, 2021 and 2020.

Salaries and employee benefits expense, which comprise the majority of noninterest expense, totaled $6,570 for the first quarter of 2021, a decrease of $1,286 or 16.4% when compared to the first quarter of 2020. The decrease in the current three month period is primarily due to deferred loan costs on PPP loans originated which are recorded as a contra-salary

51

Peoples Financial Services Corp.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

expense. Deferred costs were $1,229 higher in the current period. Lower benefit expenses offset the higher salaries from annual merit increases.

We experienced a $188 or 6.1% increase in net occupancy and equipment expense comparing the first quarter of 2021 at $3,267 and 2020 at $3,079. Investment in our digital banking platform as well as costs associated with maintenance and upkeep to our buildings and grounds due to a particularly severe winter season were the driving factors to the increase. In general, as we expand our presence into new markets, maintenance expenses related to both equipment and facilities and technology costs associated with the implementation and maintenance of new infrastructure within those markets increases. 

For the first quarter, all other expense categories decreased $76 or 0.5% to $2,792 from $2,716 comparing 2021 to 2020. FDIC assessments increased $186, or 251.4% when comparing the three months ended March 31, 2021 to the same period in 2020 due to a FDIC small bank assessment credit recognized in the year ago period. Amortization expense related to intangible assets declined $29; professional and consulting fees increased $82 or 22.5% and all other expenses including travel, entertainment and meals decreased $118 or 6.6% due in part to the COVID-19 environment and event cancellations.

We recognize total noninterest expenses could increase as we incur additional costs related to office and branch cleaning, computer and technology capabilities and other items needed to address the effects of COVID-19. Additionally, legal and professional expenses may increase related to our loan portfolio and possible losses incurred due to economic hardships resulting from the pandemic.

Income Taxes:

We recorded income tax expense of $2,678 or 22.0% of pre-tax income, and $679 or 11.4% of pre-tax income for the three months ended March 31, 2021 and 2020, respectively. The three months ended March 31, 2021 includes a $621 deferred tax adjustment related to prior periods and the Company’s frozen pension plan. Excluding this adjustment, the effective tax rate would be 16.9%, an increase from the year ago period’s 11.4% due to a lower proportion of tax exempt income recognized in the first quarter of 2021 when compared to the same period in 2020. The three months ended March 31, 2021 includes the benefit of before tax investment tax credits totaling $270 compared to before tax investment tax credits and other credits of $273 for the same period last year.

52

Peoples Financial Services Corp.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

A bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities.

Interest rate risk is the risk of loss to future earnings due to changes in interest rates. ALCO is responsible for establishing policy guidelines on liquidity and acceptable exposure to interest rate risk.  Generally quarterly, the ALCO reports on the status of liquidity and interest rate risk matters to the Company’s board of directors. The objective of the ALCO is to manage assets and funding sources to produce results that are consistent with the Company’s liquidity, capital adequacy, growth, risk and profitability goals and are within policy limits.

The Company utilizes the pricing and structure of loans and deposits, the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, and off-balance sheet interest rate contracts to manage interest rate risk. The off-balance sheet interest rate contracts may include interest rate swaps, caps and floors.  These interest rate contracts involve, to varying degrees, credit risk and interest rate risk.  Credit risk is the possibility that a loss may occur if a counterparty to a transaction fails to perform according to terms of the contract.  The notional amount of the interest rate contracts is the amount upon which interest and other payments are based.  The notional amount is not exchanged, and therefore, should not be taken as a measure of credit risk.  See Note 9 to the Unaudited Consolidated Financial Statements for additional information.

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

The ALCO reviews simulation results to determine whether the Company’s exposure to a decline in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure.  As of March 31, 2021 and December 31, 2020, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Company. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where both interest rates and the composition of the Company’s balance sheet remain stable for a 24-month and 60-month period.  In addition to measuring the change in net interest income as compared to an unchanged interest rate scenario, the ALCO also measures the trend of both net interest income and net interest margin over a 24-month and 60-month horizon to ensure the stability and adequacy of this source of earnings in different interest rate scenarios.

Model results at March 31, 2021  indicated a higher starting level of net interest income (“NII”) compared to the December 31, 2020 model as the balance sheet growth offset the 6 basis points of compression to the balance sheet spread. As the simulation progresses, reductions to assumed asset replacement rates erodes the benefit to NII. Our

53

Peoples Financial Services Corp.

interest rate profile depicts a relatively well matched position in the near term. As the simulation progresses, a benefit to rising rates emerges while a flat and falling rate presents challenges to the annual run rate of NII. This position at March 31, 2021 was similar to the position indicated by simulation as of December 31, 2020. 

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

The projected impacts of instantaneous changes in interest rates on our net interest income and economic value of equity at March 31, 2021, based on our simulation model, as compared to our ALCO policy limits are summarized as follows:

	March 31, 2021
	% Change in
Changes in Interest Rates (basis points)	Net Interest Income		Economic Value of Equity
	Metric	Policy	Metric	Policy
+400	15.1	(20.0)	17.2	(40.0)
+300	11.0	(20.0)	13.6	(30.0)
+200	7.0	(10.0)	9.5	(20.0)
+100	3.3	(10.0)	6.0	(10.0)
Static
-100	(1.5)	(10.0)	(21.6)	(10.0)

Our simulation model creates pro forma net interest income scenarios under various interest rate shocks. Given instantaneous and parallel shifts in general market rates of plus 100 basis points, our projected net interest income for the 12 months ending March 31, 2021, would increase 3.3% from model results using current interest rates. Additional disclosures about market risk are included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, and in Part I, Item 2 of this quarterly report, in each case under the heading “Market Risk Sensitivity,” and are incorporated into this Item 3 by reference.

With rates having fallen materially in 2020 to historical lows, the down 100 basis point scenario would result in market rates reaching floored values which can produce a distorted view of interest rate risk metrics.

In response to the economic disruption and uncertainty brought on by the COVID-19 pandemic, the FOMC lowered the federal funds target rate a total of 150 basis points in two emergency actions during March 2020 with an expectation that the Committee will maintain a low interest rate environment for the foreseeable future. Given the Company's current asset/liability position, the significantly lower market interest rates may have a negative impact on our earning asset yields and variable-rate loans indexed to prime and LIBOR.

The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Funding Rate ("SOFR") replace USD-LIBOR. ARRC has proposed that the transition to SOFR from USD-LIBOR will take place by the end of 2021. The Company has contracts that are indexed to USD-LIBOR. Industry organizations are currently working on the transition plan. The Company is currently monitoring this activity and evaluating the risks involved.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

At March 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that the disclosure controls and procedures, at March 31, 2021, were effective to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed,

54

Peoples Financial Services Corp.

summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosure.

(b) Changes in internal control.

There were no changes made in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The nature of the Company’s business generates a certain amount of litigation involving matters arising out of the ordinary course of business. In the opinion of management, there were no legal proceedings that had or might have a material effect on the consolidated results of operations, liquidity, or the financial position of the Company during the three-months ended March 31, 2021 and through the date of this quarterly report on Form 10-Q.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Form 10-K) describes market, credit, and business operations risk factors that could affect our business, results of operations or financial condition including, among other things, outbreaks of highly infectious or contagious diseases. There have been no material changes from the risk factors as previously disclosed in our 2020 Form 10-K.

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

On January 29, 2021, our board of directors authorized a common stock repurchase plan whereby we are authorized to repurchase up to 343,400 shares of our outstanding common stock through open market purchases.

The following purchases were made by or on behalf of the Company or any “affiliated purchaser,” as defined in the Exchange Act Rule 10b-18(a)(3), of the Company’s common stock during each of the months for the quarter ended March 31, 2021.

				Total Number of	Maximum Number
				Shares Purchased	of Shares that may
				as Part of Publicly	yet be Purchased
	Total Number of		Average Price	Announced	Under the
Month Ending	Shares Purchased		Paid Per Share	Programs	Programs
January 31, 2021	2,500	$	36.90	198,528	353,422
February 28, 2021	9,601	$	39.86	208,129	343,821
March 31, 2021	1,000	$	41.92	209,129	342,821

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

55

Peoples Financial Services Corp.

Item 5. Other Information.

None.

Item 6. Exhibits.

Item Number	Description	Page
10.1	Change in Control Severance Agreement, dated as of January 5, 2021, by and between Peoples Security Bank and Trust Company and John R. Anderson, III (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the Commission on January 8, 2021)
31.1	CEO Certification Pursuant to Rule 13a-14 (a) /15d-14 (a).	58
31.2	CFO Certification Pursuant to Rule 13a-14 (a) /15d-14 (a). (a).	59
32	CEO and CFO Certifications Pursuant to Section 1350.	60
101	The following materials from Peoples Financial Services Corp. Quarterly Report on Form 10-Q for the period ended March 31, 2021, formatted in inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

56

Peoples Financial Services Corp.

SIGNATURES

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

	Peoples Financial Services Corp.
	(Registrant)
Date: May 7, 2021	/s/ Craig W. Best
	Craig W. Best
	Chief Executive Officer
	(Principal Executive Officer)
Date: May 7, 2021	/s/ John R. Anderson, III
	John R. Anderson, III
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

57

EX-31.1

Peoples Financial Services Corp.

Exhibit 31.1

CERTIFICATION

I, Craig W. Best, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2021, of Peoples Financial Services Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13A-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in the quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Craig W. Best

Chief Executive Officer

(Principal Executive Officer)

Date: May 7, 2021

58

EX-31.2

Peoples Financial Services Corp.

Exhibit 31.2

CERTIFICATION

I, John R. Anderson, III, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2021, of Peoples Financial Services Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13A-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in the quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ John R. Anderson, III

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: May 7, 2021

59

EX-32

Peoples Financial Services Corp.

Exhibit 32

SECTION 1350 CERTIFICATIONS

In connection with the Quarterly Report on Form 10-Q of Peoples Financial Services Corp. (the “Company”) for the period ended March 31, 2021, as filed with the Securities and Exchange Commission (the “Report”), I, Craig W. Best, Chief Executive Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. To my knowledge, the information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

/s/ Craig W. Best

Chief Executive Officer

(Principal Executive Officer)

Date: May 7, 2021

/s/ John R. Anderson, III

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: May 7, 2021

A signed copy of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

60

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2021	Apr. 30, 2021
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Mar. 31, 2021
Entity File Number	001-36388
Entity Registrant Name	PEOPLES FINANCIAL SERVICES CORP.
Entity Incorporation, State or Country Code	PA
Entity Tax Identification Number	23-2391852
Entity Address, Address Line One	150 North Washington Avenue
Entity Address, City or Town	Scranton
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	18503
City Area Code	570
Local Phone Number	346-7741
Title of 12(b) Security	Common stock, $2.00 par value
Trading Symbol	PFIS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		7,203,641
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Entity Central Index Key	0001056943
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Cash and due from banks:
Cash and due from banks	$ 30,786	$ 29,287
Interest-bearing deposits in other banks	8,432	15,905
Federal funds sold	264,100	183,000
Total cash and due from banks	303,318	228,192
Investment securities:
Available-for-sale	333,753	295,911
Equity investments carried at fair value	159	138
Held-to-maturity: Fair value March 31, 2021, $7,389; December 31, 2020, $7,513	7,166	7,225
Total investment securities	341,078	303,274
Loans	2,179,534	2,177,982
Less: allowance for loan losses	26,783	27,344
Net loans	2,152,751	2,150,638
Loans held for sale	458	837
Premises and equipment, net	46,777	47,045
Accrued interest receivable	8,206	8,255
Goodwill	63,370	63,370
Intangible assets, net	835	960
Bank owned life insurance	42,530	42,316
Other assets	36,146	38,915
Total assets	2,995,469	2,883,802
Deposits:
Noninterest-bearing	661,262	622,475
Interest-bearing	1,889,154	1,814,638
Total deposits	2,550,416	2,437,113
Short-term borrowings	51,980	50,000
Long-term debt	14,264	14,769
Subordinated debentures	33,000	33,000
Accrued interest payable	1,120	736
Other liabilities	27,358	31,307
Total liabilities	2,678,138	2,566,925
Stockholders' equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,211,293 shares at March 31, 2021 and 7,215,202 shares at December 31, 2020	14,423	14,431
Capital surplus	128,854	129,274
Retained earnings	177,836	171,023
Accumulated other comprehensive income (loss)	(3,782)	2,149
Total stockholders' equity	317,331	316,877
Total liabilities and stockholders' equity	$ 2,995,469	$ 2,883,802

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Statement of Financial Position
Held-to-maturity, Fair value	$ 7,389	$ 7,513
Common stock, par value	$ 2.00	$ 2.00
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	7,211,293	7,215,202
Common stock, shares outstanding	7,211,293	7,215,202

XML

Consolidated Statements of Income and Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Interest and fees on loans:
Taxable	$ 20,900	$ 20,917
Tax-exempt	870	1,031
Interest and dividends on investment securities:
Taxable	1,243	1,548
Tax-exempt	390	299
Dividends	23	23
Interest on interest-bearing deposits in other banks	2	24
Interest on federal funds sold	49
Total interest income	23,477	23,842
Interest expense:
Interest on deposits	2,092	3,503
Interest on short-term borrowings	71	573
Interest on long-term debt	103	205
Interest on subordinated debt	443
Total interest expense	2,709	4,281
Net interest income	20,768	19,561
(Credit) provision for loan losses	(500)	3,500
Net interest income after (credit) provision for loan losses	21,268	16,061
Noninterest income:
Mortgage banking income	312	137
Increase in cash surrender value of life insurance	219	187
Interest rate swap revenue	797	470
Net gain (loss) on equity investment securities	21	(123)
Net gain on sale of investment securities available-for-sale		267
Total noninterest income	3,517	3,550
Noninterest expense:
Salaries and employee benefits expense	6,570	7,856
Net occupancy and equipment expense	3,267	3,079
Amortization of intangible assets	125	154
Professional fees and outside services	439	365
FDIC insurance and assessments	260	74
Donations	339	338
Other expenses	1,629	1,785
Total noninterest expense	12,629	13,651
Income before income taxes	12,156	5,960
Income tax expense	2,678	679
Net income	9,478	5,281
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available-for-sale	(7,750)	7,629
Reclassification adjustment for net gain on sales included in net income		(267)
Change in derivative fair value	242	1,036
Other comprehensive income (loss)	(7,508)	8,398
Income tax expense (benefit)	(1,577)	1,765
Other comprehensive income (loss), net of income taxes	(5,931)	6,633
Comprehensive income	$ 3,547	$ 11,914
Net income:
Basic	$ 1.31	$ 0.72
Diluted	$ 1.31	$ 0.71
Average common shares outstanding:
Basic	7,210,952	7,379,438
Diluted	7,246,016	7,405,703
Dividends declared	$ 0.37	$ 0.36
Service charges, fees and commissions
Noninterest income:
Revenue from contracts with customers	$ 1,184	$ 1,605
Merchant services income
Noninterest income:
Revenue from contracts with customers	93	114
Commission and fees on fiduciary activities
Noninterest income:
Revenue from contracts with customers	533	506
Wealth management income
Noninterest income:
Revenue from contracts with customers	$ 358	$ 387

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Capital Surplus	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Balance at Dec. 31, 2019	$ 14,777	$ 135,251	$ 152,187	$ (3,205)	$ 299,010
Net income			5,281		5,281
Other comprehensive (loss) income, net of income taxes				6,633	6,633
Dividends declared			(2,662)		(2,662)
Stock based compensation		5			5
Share retirement	(107)	(2,097)			(2,204)
Balance at Mar. 31, 2020	14,670	133,159	154,806	3,428	306,063
Balance at Dec. 31, 2020	14,431	129,274	171,023	2,149	316,877
Net income			9,478		9,478
Other comprehensive (loss) income, net of income taxes				(5,931)	(5,931)
Dividends declared			(2,665)		(2,665)
Stock based compensation		89			89
Share retirement	(26)	(491)			(517)
Common stock grants awarded, net of unearned compensation	18	(18)
Balance at Mar. 31, 2021	$ 14,423	$ 128,854	$ 177,836	$ (3,782)	$ 317,331

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Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Statement of Stockholders' Equity
Dividends declared (in dollars per share)	$ 0.37	$ 0.36
Share retired, shares	13,101	53,746
Common stock grants awarded, net of unearned compensation	$ 182
Common stock grants awarded, net of unearned compensation (in shares)	9,192

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Cash flows from operating activities:
Net income	$ 9,478	$ 5,281
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment	680	735
Amortization of right-of-use lease asset	109	104
Amortization of deferred loan costs, net	626	39
Amortization of intangibles	125	154
Amortization of low income housing partnerships	120	120
(Credit) provision for loan losses	(500)	3,500
Net unrealized (gain) loss on equity investment securities	(21)	123
Net (gain) loss on sale of other real estate owned	10	(4)
Loans originated for sale	(4,869)	(2,297)
Proceeds from sale of loans originated for sale	5,382	3,023
Net gain on sale of loans originated for sale	(134)	(10)
Net amortization of investment securities	260	281
Net gain on sale of investment securities available-for-sale		(267)
Increase in cash surrender value of life insurance	(219)	(187)
Deferred income tax expense	620	619
Stock based compensation	89	5
Net change in:
Accrued interest receivable	49	(302)
Other assets	(918)	(10,038)
Accrued interest payable	384	59
Other liabilities	383	10,014
Net cash provided by operating activities	11,654	10,952
Cash flows from investing activities:
Proceeds from sales of investment securities available-for-sale		26,502
Proceeds from repayments of investment securities:
Available-for-sale	12,876	17,522
Held-to-maturity	58	135
Purchases of investment securities:
Available-for-sale	(58,726)	(9,080)
Net purchase of restricted equity securities	(64)	(482)
Net increase in lending activities	(2,296)	(86,062)
Purchases of premises and equipment	(521)	(627)
Proceeds from sale of other real estate owned	549	157
Net cash used in investing activities	(48,124)	(51,935)
Cash flows from financing activities:
Net increase in deposits	113,303	38,506
Repayment of long-term debt	(505)	(483)
Net increase in short-term borrowings	1,980	12,000
Retirement of common stock	(517)	(2,204)
Cash dividends paid	(2,665)	(2,662)
Net cash provided by financing activities	111,596	45,157
Net increase in cash and cash equivalents	75,126	4,174
Cash and cash equivalents at beginning of period	228,192	31,153
Cash and cash equivalents at end of period	303,318	35,327
Cash paid during the period for:
Interest	2,325	4,222
Noncash items:
Transfers of loans to other real estate	$ 57	626
Initial recognition of right-of-use assets		899
Initial recognition of lease liability		$ 899

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Summary of significant accounting policies

3 Months Ended

Mar. 31, 2021

Summary of significant accounting policies

Summary of significant accounting policies

1. Summary of significant accounting policies:

Nature of operations:

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned subsidiary, Peoples Security Bank and Trust Company (“Peoples Bank”), collectively, the “Company” or “Peoples”. The Company services its retail and commercial customers through twenty-six full-service community banking offices located within Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna and Wyoming Counties of Pennsylvania and Broome County of New York.

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three months ended and as of March 31, 2021, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

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 loan losses, fair value of financial instruments, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the valuation of deferred tax assets, determination of other-than-temporary impairment losses on securities, and impairment of goodwill. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2020.

Significant events: COVID-19

Operationally, as COVID-19 related events unfold, our continued priority is the health and safety of our customers and employees. We recently worked with local government and health professionals and have had opportunities to offer our eligible employees and their family members appointments to receive the COVID-19 vaccine.  We continue to follow the recommendations of our state governments as to conducting business and have maintained safety protocols. Currently all our offices have returned to pre-pandemic operating hours with limited lobby access.

We participated in the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), Paycheck Protection Program (“PPP”), a $350 billion specialized low-interest loan program funded by the U.S. Treasury Department and administered by the Small Business Administration (“SBA”).  During 2020, we approved 1,450 PPP loans totaling $217.5 million. Substantially all of the loans were made to existing customers, funded under the two year PPP loan program, and the loan proceeds initially were deposited with our institution.  PPP loan forgiveness commenced during the fourth quarter of 2020 and we continue to process loan forgiveness applications.  At March 31, 2021, we have 468 loans totaling $100.8 million remaining compared to 1,304 loans totaling $189.7 million at December 31, 2020. We expect the majority of the remaining $100.8 million to be forgiven during 2021. During the first quarter of 2021, we funded an additional 885 loans totaling $100.0 million under the SBA’s second PPP loan program.   The application process for the second PPP loan program ends May 31, 2021. 

From a credit risk perspective, we took actions to identify and assess our COVID-19 related credit exposures based on asset class and borrower type. From the onset of the crisis, we worked to proactively monitor our loan portfolio by contacting many of our borrowers to evaluate the impact of the pandemic on them, their businesses and the underlying collateral for our loans. The Company implemented a customer payment deferral program to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19 related challenges.  At the start of the pandemic, the Company granted payment deferral requests for up to six months to a total of 481 commercial loans with outstanding loan balances of $306.9 million and to 505 consumer loans with outstanding balances of $23.3 million. Outstanding loan balances remaining in deferral at March 31, 2021 totaled $1.3 million, a decrease of $4.8 million from the $6.1 million at December 31, 2020. As a percentage of total loan balances, excluding PPP loans, loans in deferral represented less than 0.1% of loans outstanding at March 31, 2021 compared to 0.3% of loans outstanding at December 31, 2020. At March 31, 2021, commercial loan balances remaining in deferral total $1.0 million while consumer loans total $0.3 million. Loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act. Pursuant to the CARES Act, loan deferrals are not included in our nonperforming loans disclosed in our financial statement footnotes. Loans in deferral status will continue to accrue interest during the deferral period unless otherwise classified as nonperforming.

Recent accounting standards:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by the Company as of the required effective dates. The following should be read in conjunction with "Note 1 Summary of significant accounting policies" of the Notes to the Consolidated Financial Statements included in the Company’s 2020 Form 10-K. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU will have a significant impact on the Company’s calculation and accounting for its allowance for loan losses as well as credit losses related to investment securities available-for-sale. A summary of significant provisions of this ASU is as follows:

● The ASU requires that a financial asset (or a group of financial assets) measured at amortized cost basis be presented, net of a valuation allowance for credit losses, at an amount expected to be collected on the financial asset(s), and that the income statement include the measurement of credit losses for newly recognized financial assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU require measurement of expected credit losses based on relevant information including past events, historical experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. The provisions of this ASU differ from current GAAP in that current GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring.

● The amendments in the ASU retain many of the disclosure requirements related to credit quality in current GAAP, updated to reflect the change from an incurred loss methodology to an expected credit loss methodology. In addition, the ASU requires that disclosure of credit quality indicators in relation to the amortized cost of financing receivables, a current requirement, be further disaggregated by year of origination.

● This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down, and limits the amount of the allowance for credit losses to the amount by which the fair value is below amortized cost. For purchased investment securities available-for-sale with a more-than-insignifcant amount of credit deterioration since origination, the ASU requires an allowance be determined in a manner similar to other investment securities available-for-sale; however, the initial allowance would be added to the purchase price, with only subsequent changes in the allowance recorded in credit loss expense, and interest income recognized at the effective rate excluding the discount embedded in the purchase price related to estimated credit losses at acquisition.

● In November 2019, the FASB voted to defer the adoption date for smaller reporting companies from 2020 to 2023. At the relevant time, the Company qualified as a smaller reporting company and therefore guidance is effective for the Company in 2023. The Company will record the effect of implementing this ASU through a

cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which Topic 326 is effective.

We are evaluating the impact of the ASU on our consolidated financial statements. In addition to our allowance for loan losses, we will also record an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional expedients and exceptions for a limited time period to ease the potential burden in accounting for reference rate reform on financial reporting. The amendments in ASU 2020-04 are elective for entities with contracts, including derivative contracts, that reference LIBOR or some other reference rate that are expected to be discontinued. For the Company's cash flow hedges, ASU 2020-04 allows: (i) an entity to change the reference rate without having to designate the hedging relationship; (ii) for cash flow hedges in which the designated hedged risk is LIBOR, allows an entity to assert that it remains probable that the hedged forecasted transaction will occur; and (iii) allows an entity to change the designated method used to assess hedge effectiveness and simplifies or temporarily suspends the assessment of hedge effectiveness for hedging relationships. ASU 2020-04 must be applied prospectively and was effective immediately upon issuance and remains effective through December 31, 2022.

The Company adopted the amendments in ASU 2020-04 as of the March 12, 2020 issuance date, on a prospective basis. The adoption did not have an immediate direct impact to the consolidated financial statements. As contracts are modified through December 2022, we will assess the impact based on this guidance. The Company does not expect there will be a material impact to the consolidated financial statements.

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Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2021

Other comprehensive income (loss)

Other comprehensive income (loss)

2. Other comprehensive income (loss):

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

The components of accumulated other comprehensive income (loss) included in stockholders’ equity at March 31, 2021 and December 31, 2020 are as follows:

		March 31, 2021		December 31, 2020
Net unrealized gain on investment securities available-for-sale	$	1,946	$	9,696
Income tax		409		2,036
Net of income taxes		1,537		7,660
Benefit plan adjustments		(7,977)		(7,977)
Income tax benefit		(1,675)		(1,675)
Net of income taxes		(6,302)		(6,302)
Derivative adjustments		1,244		1,002
Income tax		262		211
Net of income taxes		982		791
Accumulated other comprehensive income (loss)	$	(3,782)	$	2,149

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Earnings per share

3 Months Ended

Mar. 31, 2021

Earnings per share

Earnings per share

3. Earnings per share:

Basic earnings per share represent 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.

The following table presents the calculation of both basic and diluted earnings per share of common stock for the three months ended March 31, 2021 and 2020:

	2021				2020
For the Three Months Ended March 31	Basic		Diluted		Basic		Diluted
Net income	$	9,478	$	9,478	$	5,281	$	5,281
Average common shares outstanding		7,210,952		7,246,016		7,379,438		7,405,703
Earnings per share	$	1.31	$	1.31	$	0.72	$	0.71

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Investment securities

3 Months Ended

Mar. 31, 2021

Investment securities

Investment securities

4. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at March 31, 2021 and December 31, 2020 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
March 31, 2021	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	18,481	$	344			$	18,825
U.S. government-sponsored enterprises		56,620		963				57,583
State and municipals:
Taxable		56,931		944	$	1,251		56,624
Tax-exempt		70,113		2,426		779		71,760
Residential mortgage-backed securities:
U.S. government agencies		3,061		125				3,186
U.S. government-sponsored enterprises		112,501		1,363		2,855		111,009
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,600		677				13,277
Corporate debt securities		1,500		2		13		1,489
Total	$	331,807	$	6,844	$	4,898	$	333,753
Held-to-maturity:
Tax-exempt state and municipals	$	6,848	$	214			$	7,062
Residential mortgage-backed securities:
U.S. government agencies		18						18
U.S. government-sponsored enterprises		300		9				309
Total	$	7,166	$	223	$		$	7,389

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2020	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	18,478	$	427			$	18,905
U.S. government-sponsored enterprises		63,834		1,354	$			65,188
State and municipals:
Taxable		53,297		2,099		30		55,366
Tax-exempt		53,977		3,054		37		56,994
Residential mortgage-backed securities:
U.S. government agencies		3,553		154				3,707
U.S. government-sponsored enterprises		79,457		1,930		136		81,251
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,619		881				13,500
Corporate debt securities		1,000						1,000
Total	$	286,215	$	9,899	$	203	$	295,911
Held-to-maturity:
Tax-exempt state and municipals	$	6,849	$	275	$		$	7,124
Residential mortgage-backed securities:
U.S. government agencies		21						21
U.S. government-sponsored enterprises		355		13				368
Total	$	7,225	$	288	$		$	7,513

Equity Securities

At March 31, 2021, our equity security portfolio consisted of stock of one financial institution. At March 31, 2021 and December 31, 2020, we had $159 and $138 respectively, in equity securities recorded at fair value. At March 31, 2021, the fair value of our equity portfolio exceeded the cost basis by $5. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2021 (in thousands):

For the Three Months Ended March 31,		2021		2020
Net gain (loss) recognized during the period on equity securities	$	21	$	(123)
Less: Net gain (loss) recognized during the period on equity securities sold during the period
Unrealized gain (loss) recognized during the reporting period on equity securities still held at the reporting date	$	21	$	(123)

Restricted Investment In Stock

Restricted investment in stock includes Federal Home Loan Bank (“FHLB”) stock with a carrying cost of $5,419 and $5,355 at March 31, 2021 and December 31, 2020, respectively, Atlantic Community Bankers Bank (“ACBB”) stock with a carrying cost of $42, and VISA Class B stock with a carrying cost of $0 at March 31, 2021 and December 31, 2020, which are included in other assets in the consolidated balance sheets. FHLB and ACBB stock was issued as a requirement to facilitate participation in borrowing and other banking services. The investment in FHLB stock may fluctuate, as it is based on the member bank’s use of FHLB’s services.

The Company owns 44,982 shares of Visa Class B stock, which was necessary to participate in Visa services in support of the Company’s credit card, debit card, and related payment programs (permissible activities under banking regulations) as a member institution. Following the resolution of Visa’s litigation, shares of Visa’s Class B stock will be converted to Visa Class A shares using a conversion factor (1.6228 as of March 31, 2021), which is periodically adjusted to reflect VISA’s ongoing litigation costs. There is a very limited market for this stock, as only current owners of Class

B shares are permitted to transact in Class B stock. Due to the lack of orderly trades and public information of such trades, Visa Class B stock has no readily determinable fair value.

These restricted investments are carried at cost and evaluated for other-than-temporary impairment (“OTTI”) periodically. As of March 31, 2021, there was no OTTI associated with these investments.

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, 2021, is summarized as follows:

	Fair
March 31, 2021	Value
Within one year	$	39,394
After one but within five years		41,919
After five but within ten years		25,997
After ten years		95,819
		203,129
Mortgage-backed and other amortizing securities		130,624
Total	$	333,753

 The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at March 31, 2021, is summarized as follows:

	Amortized		Fair
March 31, 2021	Cost		Value
Within one year	$	175	$	177
After five but within ten years		523		546
After ten years		6,150		6,339
		6,848		7,062
Mortgage-backed securities		318		327
Total	$	7,166	$	7,389

Securities with a carrying value of $174,711 and $165,982 at March 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law.

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, 2021 and December 31, 2020, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. government agencies and sponsored enterprises, that exceeded 10.0 percent of stockholders’ equity.

The fair value and gross unrealized losses of investment securities with unrealized losses for which an OTTI has not been recognized at March 31, 2021 and December 31, 2020, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
March 31, 2021	Value		Losses		Value		Losses		Value		Losses
State and municipals:
Taxable	$	28,025	$	1,251					$	28,025	$	1,251
Tax-exempt		30,795		779						30,795		779
Residential mortgage-backed securities:
U.S. government-sponsored enterprises		82,687		2,854	$	243	$	1		82,930		2,855
Corporate debt securities		987		13						987		13
Total	$	142,494	$	4,897	$	243	$	1	$	142,737	$	4,898

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2020	Value		Losses		Value		Losses		Value		Losses
State and municipals:
Taxable	$	9,246	$	30					$	9,246	$	30
Tax-exempt		6,786		37						6,786		37
Residential mortgage-backed securities:
U.S. government-sponsored enterprises		11,553		135	$	284	$	1		11,837		136
Total	$	27,585	$	202	$	284	$	1	$	27,869	$	203

Management, from a credit risk perspective, has taken action to identify and assess its COVID-19 related credit exposures based on asset class. No specific COVID-19 related credit impairment was identified within our investment securities portfolio, including our municipal securities, during the first quarter of 2021. The Company had fifteen mortgage-backed securities, forty-four tax-exempt municipals, twenty-eight taxable municipals and two corporate bonds that were in unrealized loss positions at March 31, 2021. Of these securities, two mortgage-backed securittes were in a continuous unrealized loss position for twelve months or more. Management does not consider the unrealized losses on the debt securities, as a result of changes in interest rates, to be OTTI based on historical evidence that indicates the cost of these securities is recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest. Moreover, because there has been no known material change in the credit quality of the issuers or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, and management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider the unrealized losses to be OTTI at March 31, 2021. There was no OTTI recognized for the three months ended March 31, 2021 and 2020.

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Loans, net and allowance for loan losses

3 Months Ended

Mar. 31, 2021

Loans, net and allowance for loan losses

Loans, net and allowance for loan losses

5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at March 31, 2021 and December 31, 2020 are summarized as follows. The Company had net deferred loan origination fees of $2,684 and

$2,058 at March 31, 2021 and December 31, 2020, respectively. The increase is due in part to net fees from $100.0 million of PPP loans originated during the first three months of 2021.

		March 31, 2021		December 31, 2020
Commercial	$	677,090	$	679,286
Real estate:
Commercial		1,150,567		1,137,990
Residential		273,226		277,414
Consumer		78,651		83,292
Total	$	2,179,534	$	2,177,982

The PPP loans are included in the commercial loan classification and had an outstanding balance at March 31, 2021 of $200,774 comprised of $99,984 originated during 2021 as part of round two and $100,790 remaining from loans originated during 2020 under round one of the program. The PPP loans are risk rated ‘Pass’ and do not carry an allowance for loan losses due to a 100% SBA guarantee. The outstanding balance is considered current at March 31, 2021.

The changes in the allowance for loan losses account by major classification of loan for the three months ended March 31, 2021 and 2020 are summarized as follows:

			Real estate
March 31, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2021	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Charge-offs		(15)		(96)		(22)		(62)		(195)
Recoveries		61		58		1		14		134
Provisions (credits)		(565)		182		(114)		(3)		(500)
Ending balance	$	8,215	$	14,703	$	2,994	$	871	$	26,783
			Real estate
March 31, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2020	$	6,888	$	11,496	$	3,226	$	1,067	$	22,677
Charge-offs		(650)				(54)		(94)		(798)
Recoveries		267				10		30		307
Provisions		1,464		1,511		442		83		3,500
Ending balance	$	7,969	$	13,007	$	3,624	$	1,086	$	25,686

The Company’s allowance for loan losses decreased $0.6 million or 2.1% during the first three months of 2021, due primarily to a $0.5 million release from allowance for loan losses in the current period resulting from improved credit quality and a slight decrease in non-PPP loan balances. The allowance for loan losses equaled $26.8 million or 1.23% of loans, net at March 31, 2021 compared to $27.3 million or 1.26% of loans, net, at December 31, 2020. Excluding PPP loans that do not carry an allowance for loan losses due to a 100% government guarantee, the ratio equaled 1.35% at March 31, 2021. Loans charged-off, net of recoveries, for the three months ended March 31, 2021, equaled less than $0.1 million or 0.01% of average loans, compared to $0.5 million or 0.10% of average loans for the comparable period last year. The decrease to charge-offs in the current period resulted from improved credit quality; the year ago period included a $0.6 million fully charged-off commercial credit.

The allocation of the allowance for loan losses and the related loans by major classifications of loans at March 31, 2021 and December 31, 2020 is summarized as follows:

			Real estate
March 31, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	8,215	$	14,703	$	2,994	$	871	$	26,783
Ending balance: individually evaluated for impairment		697		108		64				869
Ending balance: collectively evaluated for impairment	$	7,518	$	14,595	$	2,930	$	871	$	25,914
Loans receivable:
Ending balance	$	677,090	$	1,150,567	$	273,226	$	78,651	$	2,179,534
Ending balance: individually evaluated for impairment		2,651		3,990		1,543		94		8,278
Ending balance: collectively evaluated for impairment	$	674,439	$	1,146,577	$	271,683	$	78,557	$	2,171,256

			Real estate
December 31, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Ending balance: individually evaluated for impairment		947		180		75				1,202
Ending balance: collectively evaluated for impairment	$	7,787	$	14,379	$	3,054	$	922	$	26,142
Loans receivable:
Ending balance	$	679,286	$	1,137,990	$	277,414	$	83,292	$	2,177,982
Ending balance: individually evaluated for impairment		4,297		3,952		1,546		111		9,906
Ending balance: collectively evaluated for impairment	$	674,989	$	1,134,038	$	275,868	$	83,181	$	2,168,076

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

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

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

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

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 affected in the future.

The following tables present the 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, 2021 and December 31, 2020:

			Special
March 31, 2021	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	660,558	$	13,728	$	2,804	$	$	677,090
Real estate:
Commercial		1,123,315		17,615		9,637			1,150,567
Residential		269,856		619		2,751			273,226
Consumer		78,556				95			78,651
Total	$	2,132,285	$	31,962	$	15,287	$	$	2,179,534

			Special
December 31, 2020	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	660,559	$	14,305	$	4,422	$	$	679,286
Real estate:
Commercial		1,107,699		17,517		12,774			1,137,990
Residential		274,327		144		2,943			277,414
Consumer		83,215				77			83,292
Total	$	2,125,800	$	31,966	$	20,216	$	$	2,177,982

The decrease to substandard commercial loans resulted primarily from a $1.5 million relationship that was paid off during the period ended March 31, 2021. The decrease in substandard commercial real estate loans resulted from a refinance of a credit related to the hospitality industry that is secured by a seventy-five percent SBA guarantee.

Information concerning nonaccrual loans by major loan classification at March 31, 2021 and December 31, 2020 is summarized as follows:

		March 31, 2021		December 31, 2020
Commercial	$	2,198	$	3,822
Real estate:
Commercial		3,311		3,262
Residential		825		922
Consumer		94		111
Total	$	6,428	$	8,117

The decrease to non-accrual loans since year end was due to the $1.5 million payoff of a specific commercial relationship.

The major classifications of loans by past due status are summarized as follows:

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
March 31, 2021	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	150			$	2,198	$	2,348	$	674,742	$	677,090
Real estate:
Commercial		343	$	57		3,311		3,711		1,146,856		1,150,567
Residential		1,444				996		2,440		270,786		273,226	$	171
Consumer		151		37		94		282		78,369		78,651
Total	$	2,088	$	94	$	6,599	$	8,781	$	2,170,753	$	2,179,534	$	171

Improved credit quality resulted in lower levels of past due loans from year end. The addition of one residential mortgage resulted in the increase to loans greater than 90 days and accruing.

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2020	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	73			$	3,822	$	3,895	$	675,391	$	679,286
Real estate:
Commercial		344	$	134		3,262		3,740		1,134,250		1,137,990
Residential		2,072		480		993		3,545		273,869		277,414	$	71
Consumer		374		63		111		548		82,744		83,292
Total	$	2,863	$	677	$	8,188	$	11,728	$	2,166,254	$	2,177,982	$	71

The following tables summarize information concerning impaired loans as of and for the three months ended March 31, 2021 and March 31, 2020, and as of and for the year ended December 31, 2020 by major loan classification:

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2021	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	673	$	1,108			$	1,462	$	4
Real estate:
Commercial		3,280		4,051				2,826		6
Residential		1,121		1,241				1,104		6
Consumer		94		105				103
Total		5,168		6,505				5,495		16
With an allowance recorded:
Commercial		1,978		2,041		697		2,012		5
Real estate:
Commercial		710		796		108		1,145		4
Residential		422		457		64		441		4
Consumer
Total		3,110		3,294		869		3,598		13
Total impaired loans
Commercial		2,651		3,149		697		3,474		9
Real estate:
Commercial		3,990		4,847		108		3,971		10
Residential		1,543		1,698		64		1,545		10
Consumer		94		105				103
Total	$	8,278	$	9,799	$	869	$	9,093	$	29

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2020	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	2,251	$	3,421			$	2,915	$	30
Real estate:
Commercial		2,372		2,964				2,148		28
Residential		1,086		1,263				1,223		21
Consumer		111		121				167
Total		5,820		7,769				6,453		79
With an allowance recorded:
Commercial		2,046		2,094		947		2,038		17
Real estate:
Commercial		1,580		1,710		180		1,687		36
Residential		460		482		75		624		13
Consumer
Total		4,086		4,286		1,202		4,349		66
Total impaired loans
Commercial		4,297		5,515		947		4,953		47
Real estate:
Commercial		3,952		4,674		180		3,835		64
Residential		1,546		1,745		75		1,847		34
Consumer		111		121				167
Total	$	9,906	$	12,055	$	1,202	$	10,802	$	145

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2020	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	3,706	$	4,249			$	3,672	$	16
Real estate:
Commercial		2,263		2,574				2,091		5
Residential		1,129		1,369				1,424		5
Consumer		201		219				231
Total		7,299		8,411				7,418		26
With an allowance recorded:
Commercial		1,956		1,974	$	764		1,488		6
Real estate:
Commercial		1,263		1,924		270		1,197
Residential		706		735		192		571		4
Consumer
Total		3,925		4,633		1,226		3,256		10
Total impaired loans
Commercial		5,662		6,223		764		5,160		22
Real estate:
Commercial		3,526		4,498		270		3,288		5
Residential		1,835		2,104		192		1,995		9
Consumer		201		219				231
Total	$	11,224	$	13,044	$	1,226	$	10,674	$	36

 Loan Modifications/Troubled Debt Restructurings/COVID-19

Included in the commercial loan and commercial and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $2,740 at March 31 2021, $2,818 at December 31, 2020 and $2,140 at March 31, 2020.

Troubled debt restructured loans are loans with original terms, interest rate, or both, that have been modified as a result of a deterioration in the borrower’s financial condition and a concession has been granted that the Company would not otherwise consider. Unless on nonaccrual, interest income on these loans is recognized when earned, using the interest method. The Company offers a variety of modifications to borrowers that would be considered concessions. The modification categories offered generally fall within the following categories:

● Rate Modification - A modification in which the interest rate is changed to a below market rate.

● Term Modification - A modification in which the maturity date, timing of payments or frequency of payments is changed.

● Payment Modification - A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

● Combination Modification - Any other type of modification, including the use of multiple categories above.

There were no loans modified as troubled debt restructurings during the three months ended March 31, 2021 and 2020.

During the three months ended March 31, 2021, there were no payment defaults on troubled debt restructurings. During the three months ended March 31, 2020, there was one payment default on a residential real estate loan in the amount of $52.

The Company received a significant number of requests to modify loan terms and/or defer principal and/or interest payments, and agreed to many such deferrals during 2020. The federal banking regulators issued guidance and encouraged banks to work prudently with, and provide short-term payment accommodations to borrowers affected by COVID-19. Section 4013 of the CARES Act includes a provision for the Company to opt out of applying the troubled debt restructuring (“TDR”)  guidance for certain loan modifications and specified that such modifications made on loans that were current as of December 31, 2019 do not need to be classified as TDRs. Peoples applied this guidance. Similarly, FASB confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.

Beginning in March 2020, the Company began receiving COVID-19 related requests for temporary modifications to the repayment structure for borrower loans. As of March 31, 2021, six commercial loans and fifteen consumer loans not classified as TDRs remain on deferral with principal balances aggregating $1.3 million, representing less than 0.1% of loans outstanding.

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Other assets

3 Months Ended

Mar. 31, 2021

Other assets

Other assets

6. Other assets:

The components of other assets at March 31, 2021, and December 31, 2020 are summarized as follows:

		March 31, 2021		December 31, 2020
Other real estate owned	$	362	$	864
Investment in low income housing partnership		6,212		6,332
Mortgage servicing rights		833		838
Restricted equity securities (FHLB and other)		5,461		5,397
Net deferred tax asset		4,724		3,768
Interest rate floor		1,455		1,678
Interest rate swaps		10,239		13,693
Other assets		6,860		6,345
Total	$	36,146	$	38,915

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Fair value estimates

3 Months Ended

Mar. 31, 2021

Fair value estimates

Fair value estimates

7. Fair value estimates:

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

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

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

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

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

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

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

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

During the periods ended March 31, 2021 and December 31, 2020 there were no transfers in or out of Level 3.

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

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

Loans held for sale: The fair values of loans held for sale are based upon current delivery prices in the secondary mortgage market.

Interest rate swaps and options:  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.

Assets and liabilities measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
March 31, 2021	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	18,825	$	18,825			$
U.S. government-sponsored enterprises		57,583			$	57,583
State and municipals:
Taxable		56,624				56,624
Tax-exempt		71,760				71,760
Mortgage-backed securities:
U.S. government agencies		3,186				3,186
U.S. government-sponsored enterprises		124,286				124,286
Corporate debt securities		1,489				1,489
Common equity securities		159		159
Total investment securities	$	333,912	$	18,984	$	314,928	$
Loan held for sale	$	458			$	458
Interest rate floor-other assets	$	1,455			$	1,455
Interest rate swap-other assets	$	9,980			$	9,980
Interest rate swap-other liabilities	$	(9,496)			$	(9,496)

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2020	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	18,905	$	18,905			$
U.S. government-sponsored enterprises		65,188			$	65,188
State and municipals:
Taxable		55,366				55,366
Tax-exempt		56,994				56,994
Mortgage-backed securities:
U.S. government agencies		3,707				3,707
U.S. government-sponsored enterprises		94,751				94,751
Corporate debt securities		1,000				1,000
Common equity securities		138		138
Total investment securities	$	296,049	$	19,043	$	277,006	$
Loan held for sale	$	837			$	837
Interest rate floor-other assets	$	1,678			$	1,678
Interest rate swap-other assets	$	13,693			$	13,693
Interest rate swap-other liabilities	$	(14,099)			$	(14,099)

Assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2021 and December 31, 2020 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
March 31, 2021	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	2,241			$	2,241
Other real estate owned	$	131			$	131

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2020	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	2,884			$	2,884
Other real estate owned	$	527			$	527

Fair values of impaired loans are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

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

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
March 31, 2021	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	2,241	Appraisal of collateral	Appraisal adjustments	17.9% to 97.0%  (24.8)%
				Liquidation expenses	3.0% to 6.0% (5.5)%
Other real estate owned	$	131	Appraisal of collateral	Appraisal adjustments	20.0% to 58.1%  (39.5)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2020	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	2,884	Appraisal of collateral	Appraisal adjustments	9.0% to 97.0%  (28.2)%
				Liquidation expenses	3.0% to 6.0% (5.5)%
Other real estate owned	$	527	Appraisal of collateral	Appraisal adjustments	3.1% to 58.1%  (29.9)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

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

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

The carrying and fair values of the Company’s financial instruments at March 31, 2021 and December 31, 2020 and their placement within the fair value hierarchy are as follows:

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
March 31, 2021	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	303,318	$	303,318	$	303,318
Investment securities:
Available-for-sale		333,753		333,753		18,825	$	314,928
Common equity securities		159		159		159
Held-to-maturity		7,166		7,389				7,389
Loans held for sale		458		458				458
Net loans		2,152,751		2,133,875					$	2,133,875
Accrued interest receivable		8,206		8,206				8,206
Mortgage servicing rights		833		1,261				1,261
Restricted equity securities (FHLB and other)		5,461		5,461				5,461
Interest rate floor		1,455		1,455				1,455
Interest rate swaps		9,980		9,980				9,980
Total	$	2,823,540	$	2,805,315
Financial liabilities:
Deposits	$	2,550,416	$	2,552,977			$	2,552,977
Long-term debt		14,264		14,481				14,481
Subordinated debentures		33,000		32,574				32,574
Accrued interest payable		1,120		1,120				1,120
Interest rate swaps		9,496		9,496				9,496
Total	$	2,608,296	$	2,610,648

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2020	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	228,192	$	228,192	$	228,192
Investment securities:
Available-for-sale		295,911		295,911		18,905	$	277,006
Common equity securities		138		138		138
Held-to-maturity		7,225		7,513				7,513
Loans held for sale		837		837				837
Net loans		2,150,638		2,145,752					$	2,145,752
Accrued interest receivable		8,255		8,255				8,255
Mortgage servicing rights		838		1,269				1,269
Restricted equity securities (FHLB and other)		5,397		5,397				5,397
Interest rate floor		1,678		1,678				1,678
Interest rate swaps		13,693		13,693				13,693
Total	$	2,712,802	$	2,708,635
Financial liabilities:
Deposits	$	2,437,113	$	2,441,014			$	2,441,014
Long-term debt		14,769		15,073				15,073
Subordinated debentures		33,000		33,096				33,096
Accrued interest payable		736		736				736
Interest rate swaps		14,099		14,099				14,099
Total	$	2,499,717	$	2,504,018

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Employee benefit plans

3 Months Ended

Mar. 31, 2021

Employee benefit plans

Employee benefit plans

8. Employee benefit plans:

The Company provides an Employee Stock Ownership Plan (“ESOP”) and a Retirement Profit Sharing Plan. The Company also maintains Supplemental Executive Retirement Plans (“SERPs”) and an Employees’ Pension Plan, which is currently frozen.

For the three months ended March 31, salaries and employee benefits expense includes approximately $306 in 2021 and 2020 relating to the employee benefit plans.

	Pension Benefits
Three Months Ended March 31,	2021		2020
Components of net periodic pension benefit:
Interest cost	$	105	$	54
Expected return on plan assets		(322)		(123)
Amortization of unrecognized net gain		76		22
Net periodic benefit	$	(141)	$	(47)

In May 2017, the Company’s stockholders approved the 2017 equity incentive plan (“2017 Plan”). The 2017 Plan allows for eligible participants to be granted equity awards. Under the 2017 Plan the Compensation Committee of the Board of Directors has the authority to, among other things:

● Select the persons to be granted awards under the 2017 Plan.

● Determine the type, size and term of awards.

● Determine whether such performance objectives and conditions have been met.

● Accelerate the vesting or excercisability of an award.

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

As of March 31, 2021, there were 37,151 shares of the Company’s common stock available for grant as awards pursuant to the 2017 Plan. If any outstanding awards under the 2017 Plan are forfeited by the holder or canceled by the Company, the underlying shares would be available for regrant to others.

The 2017 Plan authorizes grants of stock options, stock appreciation rights, cash awards, performance awards, restricted stock and restricted stock units.

For the three months ended March 31, 2021 and 2020, the Company granted awards of restricted stock and restricted stock units under the 2017 Plan, with an aggregate of 19,818 shares and 16,269 shares underlying such awards, respectively.

The non-performance restricted stock grants made in 2021, 2020 and 2019 vest equally over three years. The performance-based restricted stock units vest over three fiscal years and include conditions based on the Company’s three year cumulative diluted earnings per share and three-year average return on equity or tangible equity that determines the number of restricted stock units that may vest.

The Company expenses the fair value of all-share based compensation over the requisite service period commencing at grant date. The fair value of restricted stock is expensed on a straight-line basis. Compensation is recognized over the vesting period and adjusted based on the performance criterea. 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 net compensation costs of $89 for the three months ended March 31, 2021 for awards granted under the 2017 Plan. The Company recognized compensation expense of $5 for the three months ended March 31, 2020 for awards granted under the 2017 Plan. As of March 31, 2021, the Company had $1,494 of unrecognized compensation expense associated with restricted stock awards. The remaining cost is expected to be recognized over a weighted average vesting period of under 2.2 years.

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Derivatives and hedging activities

3 Months Ended

Mar. 31, 2021

Derivatives and hedging activities

Derivatives and hedging activities

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.  

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. During 2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate assets and issuances of debt. During the first quarter of 2021, the Company terminated a $50 million cash flow hedge. The termination of the cash flow hedge included a $25 early termination fee which was charged to other expenses on the statement of income and comprehensive income.

The Company executed an interest rate swap to reduce its exposure to variability in the interest rate associated with floating-rate borrowings. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income 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 2021, the Company estimates that an additional $404 will be reclassified as an increase to interest income. 

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 interest rate swaps 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 swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of March 31, 2021, the Company had 83 interest rate swaps with an aggregate notional amount of $408,138 related to this program.

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 Sheets as of March 31, 2021 and December 31, 2020.

			Asset Derivatives			Asset Derivatives			Liability Derivatives			Liability Derivatives
			As of March 31, 2021			As of December 31, 2020 (1)			As of March 31, 2021			As of December 31, 2020 (2)
		Notional	Balance Sheet			Balance Sheet			Balance Sheet			Balance Sheet
		Amount	Location	Fair Value		Location	Fair Value		Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments
Interest Rate Floor	$	25,000	Other Assets	$	1,455	Other Assets	$	1,678
Cash Flow Swap	$	50,000							Other Liabilities	$		Other Liabilities	$	485
Total derivatives designated as hedging instruments				$	1,455		$	1,678		$			$	485
Derivatives not designated as hedging instruments
Interest Rate Swaps (3)	$	408,138	Other Assets	$	9,980	Other Assets	$	13,693	Other Liabilities	$	9,496	Other Liabilities	$	13,614
Total derivatives not designated as hedging instruments				$	9,980		$	13,693		$	9,496		$	13,614

(1) Assets amount does not include accrued interest receivable of $258.

(2) Liabilities amount does not include accrued interest payable of $258.

(3) Notional amount of interest rate swaps at March 31, 2020 $225,376.

Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of fair value and cash flow hedge accounting on accumulated other comprehensive income (loss) as of March 31, 2021 and March 31, 2020.

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain (Loss)

Gain (Loss)

Gain (Loss)

Gain (Loss)

Loss

Recognized from

Gain (Loss)

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

March 31, 2021

Income

March 31, 2021

Derivatives in Cash Flow Hedging Relationships

Cash Flow Swap

$

401

$

401

Interest Expense

$

(48)

$

(23)

(25)

Interest Rate Floor (*)

$

(76)

$

(85)

$

9

Interest Income

$

133

$

149

$

(16)

Total

$

325

$

316

$

9

$

85

$

126

$

(41)

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain

Loss

Gain

Gain

Gain

Recognized from

Loss

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

March 31, 2020

Income

March 31, 2020

Derivatives in Cash Flow Hedging Relationships

Interest Rate Floor (*)

$

(1,072)

$

(1,104)

$

36

Interest Income

$

36

$

52

$

(16)

* Amounts disclosed are gross and not net of taxes.

Effect of Fair Value and Cash Flow Hedge Accounting 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, 2021 and March 31, 2020.

		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		2021		2021		2020		2020
		Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	134	$	(23)	$	36	$
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	134	$	(23)	$	36	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	$	150			$	52	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$	(16)			$	(16)	$

Effect of Derivative Instruments on the Consolidated Statements of Income and Comprehensive Income

The tables below present 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, 2021 and 2020.

		Amount of Gain		Amount of Loss
		Recognized in		Recognized in
	Location of Gain or (Loss)	Income		Income
	Recognized in Income on	Three Months Ended		Three Months Ended
Derivatives Not Designated as Hedging Instruments	Derivative	March 31, 2021		March 31, 2020
Interest Rate Swaps	Interest rate swap revenue	$	405	$	(131)
Fee Income	Interest rate swap revenue	$	392	$	601

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, 2021 and December 31, 2020. The net amounts of derivative assets or liabilities can be

reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Balance Sheets.

Offsetting of Derivative Assets
as of March 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	11,542	$	$	11,542	$		$	11,542
Offsetting of Derivative Liabilities
as of March 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	9,603	$	$	9,603	$		$	9,603
Offsetting of Derivative Assets
as of December 31, 2020
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	15,371	$	$	15,371	$		$	15,371
Offsetting of Derivative Liabilities
as of December 31, 2020
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	14,099	$	$	14,099	$		$	14,099

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.

As of March 31, 2021, 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 $484. As of December 31, 2020, 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 $79. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $5,850 against its obligations under these agreements as of March 31, 2021, compared to having posted collateral of $15,360 with counterparties at December 31, 2020. 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.

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Deposits

3 Months Ended

Mar. 31, 2021

Deposits.

Deposits

10. Deposits

The major components of interest-bearing and noninterest-bearing deposits at March 31, 2021 and December 31, 2020 are summarized as follows:

At the period end	March 31, 2021		December 31, 2020
Interest-bearing deposits:
Money market accounts	$	529,772	$	496,634
Now accounts		584,696		567,087
Savings accounts		459,117		431,224
Time deposits less than $250		219,687		221,446
Time deposits $250 or more		95,882		98,247
Total interest-bearing deposits		1,889,154		1,814,638
Noninterest-bearing deposits		661,262		622,475
Total deposits	$	2,550,416	$	2,437,113

The growth in deposits occurred in non-maturity deposits as demand for liquid accounts elevated due to low interest rates and economic uncertainty. Strong organic growth of core deposits from new and existing relationships, inflows of public fund deposits, proceeds of PPP loans retained on deposit by our commercial borrowers, and federal government stimulus payments contributed to the increase. Time deposits $250 thousand or more decreased due to the maturity of a few large public fund certificates of deposit.

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Borrowings

3 Months Ended

Mar. 31, 2021

Borrowings

Borrowings

11. Borrowings

Short-term borrowings consists of FHLB advances representing overnight borrowings or with stated original terms of less than twelve months and other borrowings related to collateral held from derivative counter parties. The table below outlines short-term borrowings at March 31, 2021 and December 31, 2020:

		At and for the three months ended March 31, 2021
									Weighted
					Maximum		Weighted		Average
	Ending		Average		Month-End		Average		Rate at
	Balance		Balance		Balance		Rate		March 31,2021
Other borrowings	$	1,980	$	469	$	1,980	0.07	%	0.06	%
FHLB advances		50,000		50,000		50,000	0.57		0.38
Total short-term borrowings	$	51,980	$	50,469	$	51,980	0.57	%	0.37	%

	At and for the year ended December 31, 2020
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
	Balance		Balance		Balance		the Year		of the Year
FHLB advances	$	50,000	$	83,716	$	179,199	1.01	%	0.40	%

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. At March 31, 2021, the maximum borrowing capacity was $819,972 of which $64,264 was outstanding in borrowings and $230,650 was used to issue standby letters of credit to collateralize public fund deposits. At December 31, 2020, the maximum borrowing capacity was $807,042 of which $64,769 was outstanding in borrowings and $218,350 was used to issue standby letters of credit to collateralize public fund deposits. Short-term borrowings at the FHLB totaling $50,000 were paid off during the second quarter of 2021 with excess cash.

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.

Long-term debt consisting of advances from the FHLB at March 31, 2021 and December 31, 2020 are as follows:

	Interest Rate
Due	Fixed		March 31, 2021		December 31, 2020
June 2021	1.99	$	10,000	$	10,000
March 2023	4.69		4,264		4,769
		$	14,264	$	14,769

Maturities of long-term debt, by contractual maturity, for the remainder of 2021 and subsequent years are as follows:

2021	$	11,553
2022		2,156
2023		555
	$	14,264

The advances from the FHLB totaling $14,264 are not convertible.

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Subordinated debt

3 Months Ended

Mar. 31, 2021

Subordinated debt

Subordinated debt

12. Subordinated debt

On June 1, 2020, the Company sold $33,000 aggregate principal amount of Subordinated Notes due 2030 (the “2020 Notes”) to accredited investors. The 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.

The 2020 Notes bear interest at a rate of 5.375% per year for the first five years and then float based on a benchmark rate (as defined), provided that the interest rate applicable to the outstanding principal balance during the period the 2020 Notes are floating will at no time be less the 4.75%.  Interest is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 1, June 1, September 1, and December 1. The 2020 Notes will mature on June 1, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after June 1, 2025 and prior to June 1, 2030. Additionally, if all or any portion of the 2020 Notes cease to be deemed Tier 2 Capital, the Company may redeem, in whole and not in part, at any time upon giving not less than ten days’ notice, an amount equal to one hundred percent (100%) of the principal amount outstanding plus accrued but unpaid interest to but excluding the date fixed for redemption.

Holders of the 2020 Notes may not accelerate the maturity of the 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar proceeding by or against the Company or the Bank.

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Income taxes

3 Months Ended

Mar. 31, 2021

Income taxes

Income taxes

13. Income taxes

The effective tax rate of the Company was 22.0% for the three months ended March 31, 2021 compared to 11.4% for the three months ended March 31, 2020. The three months ended March 31, 2021 includes a $621 deferred tax adjustment related to prior periods and the Company’s frozen pension plan. Excluding this adjustment, the effective tax rate would be 16.9%, an increase from the year ago period's 11.4% due to a lower proportion of tax exempt income recognized in the first quarter of 2021 when compared to the same period in 2020. Before tax investment tax credits amounted to $270 compared to before tax investment tax credits and other credits of $273 for the same period last year.

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Summary of significant accounting policies (Policies)

3 Months Ended

Mar. 31, 2021

Summary of significant accounting policies

Nature of operations

Nature of operations:

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned subsidiary, Peoples Security Bank and Trust Company (“Peoples Bank”), collectively, the “Company” or “Peoples”. The Company services its retail and commercial customers through twenty-six full-service community banking offices located within Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna and Wyoming Counties of Pennsylvania and Broome County of New York.

Basis of presentation

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three months ended and as of March 31, 2021, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

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 loan losses, fair value of financial instruments, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the valuation of deferred tax assets, determination of other-than-temporary impairment losses on securities, and impairment of goodwill. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2020.

Significant events COVID-19

Significant events: COVID-19

Operationally, as COVID-19 related events unfold, our continued priority is the health and safety of our customers and employees. We recently worked with local government and health professionals and have had opportunities to offer our eligible employees and their family members appointments to receive the COVID-19 vaccine.  We continue to follow the recommendations of our state governments as to conducting business and have maintained safety protocols. Currently all our offices have returned to pre-pandemic operating hours with limited lobby access.

We participated in the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), Paycheck Protection Program (“PPP”), a $350 billion specialized low-interest loan program funded by the U.S. Treasury Department and administered by the Small Business Administration (“SBA”).  During 2020, we approved 1,450 PPP loans totaling $217.5 million. Substantially all of the loans were made to existing customers, funded under the two year PPP loan program, and the loan proceeds initially were deposited with our institution.  PPP loan forgiveness commenced during the fourth quarter of 2020 and we continue to process loan forgiveness applications.  At March 31, 2021, we have 468 loans totaling $100.8 million remaining compared to 1,304 loans totaling $189.7 million at December 31, 2020. We expect the majority of the remaining $100.8 million to be forgiven during 2021. During the first quarter of 2021, we funded an additional 885 loans totaling $100.0 million under the SBA’s second PPP loan program.   The application process for the second PPP loan program ends May 31, 2021. 

From a credit risk perspective, we took actions to identify and assess our COVID-19 related credit exposures based on asset class and borrower type. From the onset of the crisis, we worked to proactively monitor our loan portfolio by contacting many of our borrowers to evaluate the impact of the pandemic on them, their businesses and the underlying collateral for our loans. The Company implemented a customer payment deferral program to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19 related challenges.  At the start of the pandemic, the Company granted payment deferral requests for up to six months to a total of 481 commercial loans with outstanding loan balances of $306.9 million and to 505 consumer loans with outstanding balances of $23.3 million. Outstanding loan balances remaining in deferral at March 31, 2021 totaled $1.3 million, a decrease of $4.8 million from the $6.1 million at December 31, 2020. As a percentage of total loan balances, excluding PPP loans, loans in deferral represented less than 0.1% of loans outstanding at March 31, 2021 compared to 0.3% of loans outstanding at December 31, 2020. At March 31, 2021, commercial loan balances remaining in deferral total $1.0 million while consumer loans total $0.3 million. Loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act. Pursuant to the CARES Act, loan deferrals are not included in our nonperforming loans disclosed in our financial statement footnotes. Loans in deferral status will continue to accrue interest during the deferral period unless otherwise classified as nonperforming.

Recent accounting standards

Recent accounting standards:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by the Company as of the required effective dates. The following should be read in conjunction with "Note 1 Summary of significant accounting policies" of the Notes to the Consolidated Financial Statements included in the Company’s 2020 Form 10-K. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU will have a significant impact on the Company’s calculation and accounting for its allowance for loan losses as well as credit losses related to investment securities available-for-sale. A summary of significant provisions of this ASU is as follows:

● The ASU requires that a financial asset (or a group of financial assets) measured at amortized cost basis be presented, net of a valuation allowance for credit losses, at an amount expected to be collected on the financial asset(s), and that the income statement include the measurement of credit losses for newly recognized financial assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU require measurement of expected credit losses based on relevant information including past events, historical experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. The provisions of this ASU differ from current GAAP in that current GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring.

● The amendments in the ASU retain many of the disclosure requirements related to credit quality in current GAAP, updated to reflect the change from an incurred loss methodology to an expected credit loss methodology. In addition, the ASU requires that disclosure of credit quality indicators in relation to the amortized cost of financing receivables, a current requirement, be further disaggregated by year of origination.

● This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down, and limits the amount of the allowance for credit losses to the amount by which the fair value is below amortized cost. For purchased investment securities available-for-sale with a more-than-insignifcant amount of credit deterioration since origination, the ASU requires an allowance be determined in a manner similar to other investment securities available-for-sale; however, the initial allowance would be added to the purchase price, with only subsequent changes in the allowance recorded in credit loss expense, and interest income recognized at the effective rate excluding the discount embedded in the purchase price related to estimated credit losses at acquisition.

● In November 2019, the FASB voted to defer the adoption date for smaller reporting companies from 2020 to 2023. At the relevant time, the Company qualified as a smaller reporting company and therefore guidance is effective for the Company in 2023. The Company will record the effect of implementing this ASU through a

cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which Topic 326 is effective.

We are evaluating the impact of the ASU on our consolidated financial statements. In addition to our allowance for loan losses, we will also record an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional expedients and exceptions for a limited time period to ease the potential burden in accounting for reference rate reform on financial reporting. The amendments in ASU 2020-04 are elective for entities with contracts, including derivative contracts, that reference LIBOR or some other reference rate that are expected to be discontinued. For the Company's cash flow hedges, ASU 2020-04 allows: (i) an entity to change the reference rate without having to designate the hedging relationship; (ii) for cash flow hedges in which the designated hedged risk is LIBOR, allows an entity to assert that it remains probable that the hedged forecasted transaction will occur; and (iii) allows an entity to change the designated method used to assess hedge effectiveness and simplifies or temporarily suspends the assessment of hedge effectiveness for hedging relationships. ASU 2020-04 must be applied prospectively and was effective immediately upon issuance and remains effective through December 31, 2022.

The Company adopted the amendments in ASU 2020-04 as of the March 12, 2020 issuance date, on a prospective basis. The adoption did not have an immediate direct impact to the consolidated financial statements. As contracts are modified through December 2022, we will assess the impact based on this guidance. The Company does not expect there will be a material impact to the consolidated financial statements.

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Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2021

Other comprehensive income (loss)

Schedule of components of accumulated other comprehensive loss

		March 31, 2021		December 31, 2020
Net unrealized gain on investment securities available-for-sale	$	1,946	$	9,696
Income tax		409		2,036
Net of income taxes		1,537		7,660
Benefit plan adjustments		(7,977)		(7,977)
Income tax benefit		(1,675)		(1,675)
Net of income taxes		(6,302)		(6,302)
Derivative adjustments		1,244		1,002
Income tax		262		211
Net of income taxes		982		791
Accumulated other comprehensive income (loss)	$	(3,782)	$	2,149

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Earnings per share (Tables)

3 Months Ended

Mar. 31, 2021

Earnings per share

Schedule of earnings per share

	2021				2020
For the Three Months Ended March 31	Basic		Diluted		Basic		Diluted
Net income	$	9,478	$	9,478	$	5,281	$	5,281
Average common shares outstanding		7,210,952		7,246,016		7,379,438		7,405,703
Earnings per share	$	1.31	$	1.31	$	0.72	$	0.71

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Investment securities (Tables)

3 Months Ended

Mar. 31, 2021

Investment Securities

Schedule of amortized cost and fair value of investment securities aggregated by investment category

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
March 31, 2021	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	18,481	$	344			$	18,825
U.S. government-sponsored enterprises		56,620		963				57,583
State and municipals:
Taxable		56,931		944	$	1,251		56,624
Tax-exempt		70,113		2,426		779		71,760
Residential mortgage-backed securities:
U.S. government agencies		3,061		125				3,186
U.S. government-sponsored enterprises		112,501		1,363		2,855		111,009
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,600		677				13,277
Corporate debt securities		1,500		2		13		1,489
Total	$	331,807	$	6,844	$	4,898	$	333,753
Held-to-maturity:
Tax-exempt state and municipals	$	6,848	$	214			$	7,062
Residential mortgage-backed securities:
U.S. government agencies		18						18
U.S. government-sponsored enterprises		300		9				309
Total	$	7,166	$	223	$		$	7,389

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2020	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	18,478	$	427			$	18,905
U.S. government-sponsored enterprises		63,834		1,354	$			65,188
State and municipals:
Taxable		53,297		2,099		30		55,366
Tax-exempt		53,977		3,054		37		56,994
Residential mortgage-backed securities:
U.S. government agencies		3,553		154				3,707
U.S. government-sponsored enterprises		79,457		1,930		136		81,251
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,619		881				13,500
Corporate debt securities		1,000						1,000
Total	$	286,215	$	9,899	$	203	$	295,911
Held-to-maturity:
Tax-exempt state and municipals	$	6,849	$	275	$		$	7,124
Residential mortgage-backed securities:
U.S. government agencies		21						21
U.S. government-sponsored enterprises		355		13				368
Total	$	7,225	$	288	$		$	7,513

Schedule of fair value and unrealized losses of investment securities in continuous unrealized loss position

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
March 31, 2021	Value		Losses		Value		Losses		Value		Losses
State and municipals:
Taxable	$	28,025	$	1,251					$	28,025	$	1,251
Tax-exempt		30,795		779						30,795		779
Residential mortgage-backed securities:
U.S. government-sponsored enterprises		82,687		2,854	$	243	$	1		82,930		2,855
Corporate debt securities		987		13						987		13
Total	$	142,494	$	4,897	$	243	$	1	$	142,737	$	4,898

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2020	Value		Losses		Value		Losses		Value		Losses
State and municipals:
Taxable	$	9,246	$	30					$	9,246	$	30
Tax-exempt		6,786		37						6,786		37
Residential mortgage-backed securities:
U.S. government-sponsored enterprises		11,553		135	$	284	$	1		11,837		136
Total	$	27,585	$	202	$	284	$	1	$	27,869	$	203

Summary of unrealized and realized gains and losses

For the Three Months Ended March 31,		2021		2020
Net gain (loss) recognized during the period on equity securities	$	21	$	(123)
Less: Net gain (loss) recognized during the period on equity securities sold during the period
Unrealized gain (loss) recognized during the reporting period on equity securities still held at the reporting date	$	21	$	(123)

Available-for-Sale Securities.

Investment Securities

Schedule of maturity distribution of fair value

	Fair
March 31, 2021	Value
Within one year	$	39,394
After one but within five years		41,919
After five but within ten years		25,997
After ten years		95,819
		203,129
Mortgage-backed and other amortizing securities		130,624
Total	$	333,753

Held-to-maturity Securities.

Investment Securities

Schedule of maturity distribution of fair value

	Amortized		Fair
March 31, 2021	Cost		Value
Within one year	$	175	$	177
After five but within ten years		523		546
After ten years		6,150		6,339
		6,848		7,062
Mortgage-backed securities		318		327
Total	$	7,166	$	7,389

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Loans, net and allowance for loan losses (Tables)

3 Months Ended

Mar. 31, 2021

Loans, net and allowance for loan losses

Schedule of major classifications of loans outstanding

		March 31, 2021		December 31, 2020
Commercial	$	677,090	$	679,286
Real estate:
Commercial		1,150,567		1,137,990
Residential		273,226		277,414
Consumer		78,651		83,292
Total	$	2,179,534	$	2,177,982

Schedule of changes in allowance for loan losses account by major classification of loans

			Real estate
March 31, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2021	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Charge-offs		(15)		(96)		(22)		(62)		(195)
Recoveries		61		58		1		14		134
Provisions (credits)		(565)		182		(114)		(3)		(500)
Ending balance	$	8,215	$	14,703	$	2,994	$	871	$	26,783
			Real estate
March 31, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2020	$	6,888	$	11,496	$	3,226	$	1,067	$	22,677
Charge-offs		(650)				(54)		(94)		(798)
Recoveries		267				10		30		307
Provisions		1,464		1,511		442		83		3,500
Ending balance	$	7,969	$	13,007	$	3,624	$	1,086	$	25,686

			Real estate
March 31, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	8,215	$	14,703	$	2,994	$	871	$	26,783
Ending balance: individually evaluated for impairment		697		108		64				869
Ending balance: collectively evaluated for impairment	$	7,518	$	14,595	$	2,930	$	871	$	25,914
Loans receivable:
Ending balance	$	677,090	$	1,150,567	$	273,226	$	78,651	$	2,179,534
Ending balance: individually evaluated for impairment		2,651		3,990		1,543		94		8,278
Ending balance: collectively evaluated for impairment	$	674,439	$	1,146,577	$	271,683	$	78,557	$	2,171,256

			Real estate
December 31, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Ending balance: individually evaluated for impairment		947		180		75				1,202
Ending balance: collectively evaluated for impairment	$	7,787	$	14,379	$	3,054	$	922	$	26,142
Loans receivable:
Ending balance	$	679,286	$	1,137,990	$	277,414	$	83,292	$	2,177,982
Ending balance: individually evaluated for impairment		4,297		3,952		1,546		111		9,906
Ending balance: collectively evaluated for impairment	$	674,989	$	1,134,038	$	275,868	$	83,181	$	2,168,076

Schedule of major classification of loans portfolio summarized by credit quality

			Special
March 31, 2021	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	660,558	$	13,728	$	2,804	$	$	677,090
Real estate:
Commercial		1,123,315		17,615		9,637			1,150,567
Residential		269,856		619		2,751			273,226
Consumer		78,556				95			78,651
Total	$	2,132,285	$	31,962	$	15,287	$	$	2,179,534

			Special
December 31, 2020	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	660,559	$	14,305	$	4,422	$	$	679,286
Real estate:
Commercial		1,107,699		17,517		12,774			1,137,990
Residential		274,327		144		2,943			277,414
Consumer		83,215				77			83,292
Total	$	2,125,800	$	31,966	$	20,216	$	$	2,177,982

Schedule of information concerning nonaccrual loans by major loan classification

		March 31, 2021		December 31, 2020
Commercial	$	2,198	$	3,822
Real estate:
Commercial		3,311		3,262
Residential		825		922
Consumer		94		111
Total	$	6,428	$	8,117

Schedule of major classifications of loans by past due status

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
March 31, 2021	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	150			$	2,198	$	2,348	$	674,742	$	677,090
Real estate:
Commercial		343	$	57		3,311		3,711		1,146,856		1,150,567
Residential		1,444				996		2,440		270,786		273,226	$	171
Consumer		151		37		94		282		78,369		78,651
Total	$	2,088	$	94	$	6,599	$	8,781	$	2,170,753	$	2,179,534	$	171

Improved credit quality resulted in lower levels of past due loans from year end. The addition of one residential mortgage resulted in the increase to loans greater than 90 days and accruing.

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2020	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	73			$	3,822	$	3,895	$	675,391	$	679,286
Real estate:
Commercial		344	$	134		3,262		3,740		1,134,250		1,137,990
Residential		2,072		480		993		3,545		273,869		277,414	$	71
Consumer		374		63		111		548		82,744		83,292
Total	$	2,863	$	677	$	8,188	$	11,728	$	2,166,254	$	2,177,982	$	71

Summarized information concerning impaired loans

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2021	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	673	$	1,108			$	1,462	$	4
Real estate:
Commercial		3,280		4,051				2,826		6
Residential		1,121		1,241				1,104		6
Consumer		94		105				103
Total		5,168		6,505				5,495		16
With an allowance recorded:
Commercial		1,978		2,041		697		2,012		5
Real estate:
Commercial		710		796		108		1,145		4
Residential		422		457		64		441		4
Consumer
Total		3,110		3,294		869		3,598		13
Total impaired loans
Commercial		2,651		3,149		697		3,474		9
Real estate:
Commercial		3,990		4,847		108		3,971		10
Residential		1,543		1,698		64		1,545		10
Consumer		94		105				103
Total	$	8,278	$	9,799	$	869	$	9,093	$	29

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2020	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	2,251	$	3,421			$	2,915	$	30
Real estate:
Commercial		2,372		2,964				2,148		28
Residential		1,086		1,263				1,223		21
Consumer		111		121				167
Total		5,820		7,769				6,453		79
With an allowance recorded:
Commercial		2,046		2,094		947		2,038		17
Real estate:
Commercial		1,580		1,710		180		1,687		36
Residential		460		482		75		624		13
Consumer
Total		4,086		4,286		1,202		4,349		66
Total impaired loans
Commercial		4,297		5,515		947		4,953		47
Real estate:
Commercial		3,952		4,674		180		3,835		64
Residential		1,546		1,745		75		1,847		34
Consumer		111		121				167
Total	$	9,906	$	12,055	$	1,202	$	10,802	$	145

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2020	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	3,706	$	4,249			$	3,672	$	16
Real estate:
Commercial		2,263		2,574				2,091		5
Residential		1,129		1,369				1,424		5
Consumer		201		219				231
Total		7,299		8,411				7,418		26
With an allowance recorded:
Commercial		1,956		1,974	$	764		1,488		6
Real estate:
Commercial		1,263		1,924		270		1,197
Residential		706		735		192		571		4
Consumer
Total		3,925		4,633		1,226		3,256		10
Total impaired loans
Commercial		5,662		6,223		764		5,160		22
Real estate:
Commercial		3,526		4,498		270		3,288		5
Residential		1,835		2,104		192		1,995		9
Consumer		201		219				231
Total	$	11,224	$	13,044	$	1,226	$	10,674	$	36

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Other assets (Tables)

3 Months Ended

Mar. 31, 2021

Other assets

Schedule of components of other assets

		March 31, 2021		December 31, 2020
Other real estate owned	$	362	$	864
Investment in low income housing partnership		6,212		6,332
Mortgage servicing rights		833		838
Restricted equity securities (FHLB and other)		5,461		5,397
Net deferred tax asset		4,724		3,768
Interest rate floor		1,455		1,678
Interest rate swaps		10,239		13,693
Other assets		6,860		6,345
Total	$	36,146	$	38,915

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Fair value estimates (Tables)

3 Months Ended

Mar. 31, 2021

Fair value estimates

Schedule of assets and liabilities measured at fair value on a recurring basis

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
March 31, 2021	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	18,825	$	18,825			$
U.S. government-sponsored enterprises		57,583			$	57,583
State and municipals:
Taxable		56,624				56,624
Tax-exempt		71,760				71,760
Mortgage-backed securities:
U.S. government agencies		3,186				3,186
U.S. government-sponsored enterprises		124,286				124,286
Corporate debt securities		1,489				1,489
Common equity securities		159		159
Total investment securities	$	333,912	$	18,984	$	314,928	$
Loan held for sale	$	458			$	458
Interest rate floor-other assets	$	1,455			$	1,455
Interest rate swap-other assets	$	9,980			$	9,980
Interest rate swap-other liabilities	$	(9,496)			$	(9,496)

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2020	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	18,905	$	18,905			$
U.S. government-sponsored enterprises		65,188			$	65,188
State and municipals:
Taxable		55,366				55,366
Tax-exempt		56,994				56,994
Mortgage-backed securities:
U.S. government agencies		3,707				3,707
U.S. government-sponsored enterprises		94,751				94,751
Corporate debt securities		1,000				1,000
Common equity securities		138		138
Total investment securities	$	296,049	$	19,043	$	277,006	$
Loan held for sale	$	837			$	837
Interest rate floor-other assets	$	1,678			$	1,678
Interest rate swap-other assets	$	13,693			$	13,693
Interest rate swap-other liabilities	$	(14,099)			$	(14,099)

Schedule of assets and liabilities measured at fair value on a nonrecurring basis

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
March 31, 2021	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	2,241			$	2,241
Other real estate owned	$	131			$	131

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2020	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	2,884			$	2,884
Other real estate owned	$	527			$	527

Schedule of additional quantitative information about assets measured at fair value on a nonrecurring basis

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
March 31, 2021	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	2,241	Appraisal of collateral	Appraisal adjustments	17.9% to 97.0%  (24.8)%
				Liquidation expenses	3.0% to 6.0% (5.5)%
Other real estate owned	$	131	Appraisal of collateral	Appraisal adjustments	20.0% to 58.1%  (39.5)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2020	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	2,884	Appraisal of collateral	Appraisal adjustments	9.0% to 97.0%  (28.2)%
				Liquidation expenses	3.0% to 6.0% (5.5)%
Other real estate owned	$	527	Appraisal of collateral	Appraisal adjustments	3.1% to 58.1%  (29.9)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

Schedule of carrying and fair values of financial instruments

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
March 31, 2021	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	303,318	$	303,318	$	303,318
Investment securities:
Available-for-sale		333,753		333,753		18,825	$	314,928
Common equity securities		159		159		159
Held-to-maturity		7,166		7,389				7,389
Loans held for sale		458		458				458
Net loans		2,152,751		2,133,875					$	2,133,875
Accrued interest receivable		8,206		8,206				8,206
Mortgage servicing rights		833		1,261				1,261
Restricted equity securities (FHLB and other)		5,461		5,461				5,461
Interest rate floor		1,455		1,455				1,455
Interest rate swaps		9,980		9,980				9,980
Total	$	2,823,540	$	2,805,315
Financial liabilities:
Deposits	$	2,550,416	$	2,552,977			$	2,552,977
Long-term debt		14,264		14,481				14,481
Subordinated debentures		33,000		32,574				32,574
Accrued interest payable		1,120		1,120				1,120
Interest rate swaps		9,496		9,496				9,496
Total	$	2,608,296	$	2,610,648

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2020	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and due from banks	$	228,192	$	228,192	$	228,192
Investment securities:
Available-for-sale		295,911		295,911		18,905	$	277,006
Common equity securities		138		138		138
Held-to-maturity		7,225		7,513				7,513
Loans held for sale		837		837				837
Net loans		2,150,638		2,145,752					$	2,145,752
Accrued interest receivable		8,255		8,255				8,255
Mortgage servicing rights		838		1,269				1,269
Restricted equity securities (FHLB and other)		5,397		5,397				5,397
Interest rate floor		1,678		1,678				1,678
Interest rate swaps		13,693		13,693				13,693
Total	$	2,712,802	$	2,708,635
Financial liabilities:
Deposits	$	2,437,113	$	2,441,014			$	2,441,014
Long-term debt		14,769		15,073				15,073
Subordinated debentures		33,000		33,096				33,096
Accrued interest payable		736		736				736
Interest rate swaps		14,099		14,099				14,099
Total	$	2,499,717	$	2,504,018

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Employee benefit plans (Tables)

3 Months Ended

Mar. 31, 2021

Employee benefit plans

Schedule of components of net periodic benefit cost

	Pension Benefits
Three Months Ended March 31,	2021		2020
Components of net periodic pension benefit:
Interest cost	$	105	$	54
Expected return on plan assets		(322)		(123)
Amortization of unrecognized net gain		76		22
Net periodic benefit	$	(141)	$	(47)

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Derivatives and hedging activities (Tables)

3 Months Ended

Mar. 31, 2021

Derivatives and hedging activities

Schedule of fair value of derivative financial instruments and balance sheet classification

			Asset Derivatives			Asset Derivatives			Liability Derivatives			Liability Derivatives
			As of March 31, 2021			As of December 31, 2020 (1)			As of March 31, 2021			As of December 31, 2020 (2)
		Notional	Balance Sheet			Balance Sheet			Balance Sheet			Balance Sheet
		Amount	Location	Fair Value		Location	Fair Value		Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments
Interest Rate Floor	$	25,000	Other Assets	$	1,455	Other Assets	$	1,678
Cash Flow Swap	$	50,000							Other Liabilities	$		Other Liabilities	$	485
Total derivatives designated as hedging instruments				$	1,455		$	1,678		$			$	485
Derivatives not designated as hedging instruments
Interest Rate Swaps (3)	$	408,138	Other Assets	$	9,980	Other Assets	$	13,693	Other Liabilities	$	9,496	Other Liabilities	$	13,614
Total derivatives not designated as hedging instruments				$	9,980		$	13,693		$	9,496		$	13,614

(1) Assets amount does not include accrued interest receivable of $258.

(2) Liabilities amount does not include accrued interest payable of $258.

(3) Notional amount of interest rate swaps at March 31, 2020 $225,376.

Schedule of effect of fair value and cash flow hedge accounting on accumulated other comprehensive income

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain (Loss)

Gain (Loss)

Gain (Loss)

Gain (Loss)

Loss

Recognized from

Gain (Loss)

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

March 31, 2021

Income

March 31, 2021

Derivatives in Cash Flow Hedging Relationships

Cash Flow Swap

$

401

$

401

Interest Expense

$

(48)

$

(23)

(25)

Interest Rate Floor (*)

$

(76)

$

(85)

$

9

Interest Income

$

133

$

149

$

(16)

Total

$

325

$

316

$

9

$

85

$

126

$

(41)

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain

Loss

Gain

Gain

Gain

Recognized from

Loss

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

March 31, 2020

Income

March 31, 2020

Derivatives in Cash Flow Hedging Relationships

Interest Rate Floor (*)

$

(1,072)

$

(1,104)

$

36

Interest Income

$

36

$

52

$

(16)

* Amounts disclosed are gross and not net of taxes.

Schedule of effect of derivative financial instruments on Income Statement

		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		2021		2021		2020		2020
		Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	134	$	(23)	$	36	$
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	134	$	(23)	$	36	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	$	150			$	52	$
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$	(16)			$	(16)	$

Schedule of gain (loss) on derivative instruments not designated as hedging instruments

		Amount of Gain		Amount of Loss
		Recognized in		Recognized in
	Location of Gain or (Loss)	Income		Income
	Recognized in Income on	Three Months Ended		Three Months Ended
Derivatives Not Designated as Hedging Instruments	Derivative	March 31, 2021		March 31, 2020
Interest Rate Swaps	Interest rate swap revenue	$	405	$	(131)
Fee Income	Interest rate swap revenue	$	392	$	601

Schedule of offsetting derivatives

Offsetting of Derivative Assets
as of March 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	11,542	$	$	11,542	$		$	11,542
Offsetting of Derivative Liabilities
as of March 31, 2021
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	9,603	$	$	9,603	$		$	9,603
Offsetting of Derivative Assets
as of December 31, 2020
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	15,371	$	$	15,371	$		$	15,371
Offsetting of Derivative Liabilities
as of December 31, 2020
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	14,099	$	$	14,099	$		$	14,099

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Deposits (Tables)

3 Months Ended

Mar. 31, 2021

Deposits.

Summary of major components of interest-bearing and noninterest-bearing deposits

At the period end	March 31, 2021		December 31, 2020
Interest-bearing deposits:
Money market accounts	$	529,772	$	496,634
Now accounts		584,696		567,087
Savings accounts		459,117		431,224
Time deposits less than $250		219,687		221,446
Time deposits $250 or more		95,882		98,247
Total interest-bearing deposits		1,889,154		1,814,638
Noninterest-bearing deposits		661,262		622,475
Total deposits	$	2,550,416	$	2,437,113

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Borrowings (Tables)

3 Months Ended

Mar. 31, 2021

Borrowings

Summary of short-term borrowings

		At and for the three months ended March 31, 2021
									Weighted
					Maximum		Weighted		Average
	Ending		Average		Month-End		Average		Rate at
	Balance		Balance		Balance		Rate		March 31,2021
Other borrowings	$	1,980	$	469	$	1,980	0.07	%	0.06	%
FHLB advances		50,000		50,000		50,000	0.57		0.38
Total short-term borrowings	$	51,980	$	50,469	$	51,980	0.57	%	0.37	%

	At and for the year ended December 31, 2020
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
	Balance		Balance		Balance		the Year		of the Year
FHLB advances	$	50,000	$	83,716	$	179,199	1.01	%	0.40	%

Schedule of long-term debt consisting of advances

	Interest Rate
Due	Fixed		March 31, 2021		December 31, 2020
June 2021	1.99	$	10,000	$	10,000
March 2023	4.69		4,264		4,769
		$	14,264	$	14,769

Schedule of maturities of long-term debt

2021	$	11,553
2022		2,156
2023		555
	$	14,264

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Summary of significant accounting policies - Nature of operations and Basis of presentation (Details)	3 Months Ended
	Mar. 31, 2021 Office
Summary of significant accounting policies
Number of full-service community banking offices	26

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Summary of significant accounting policies - Recent accounting standards (Details) $ in Millions		3 Months Ended
	May 06, 2020 USD ($) customer	Mar. 31, 2021 USD ($) customer loan	Dec. 31, 2020 USD ($) loan	Mar. 31, 2020 USD ($)
Maximum loan receivable deferred period	6 months
Number of business loans with payment deferrals granted | customer		6
Loan receivable balances where payment deferrals were granted		$ (4.8)	$ 6.1
Outstanding loan balance in deferral		$ 1.3
SBA PPP
Number of loan forgiveness pending | loan		468	1,304
Amount of loan forgiveness pending		$ 100.8	$ 189.7
Maximum
Percentage of total loan portfolio		0.10%
PPP
Percentage of total loan portfolio			0.30%
PPP | SBA PPP
Number of loan applications | loan			1,450
Amount of loans approved			$ 217.5
PPP | Maximum
Percentage of total loan portfolio		0.10%
PPP Two | SBA PPP
Number of loan applications | loan		885
Amount of loans approved		$ 100.0
Commercial loans
Number of business loans with payment deferrals granted | customer	481	6
Loan receivable balances where payment deferrals were granted	$ 306.9
Outstanding loan balance in deferral				$ 1.0
Consumer Loan
Number of business loans with payment deferrals granted | customer	505	15
Loan receivable balances where payment deferrals were granted	$ 23.3
Outstanding loan balance in deferral				$ 0.3

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Other Comprehensive Income (Loss) - Components of Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Other comprehensive income (loss)
Net unrealized gain on investment securities available-for-sale	$ 1,946	$ 9,696
Income tax	409	2,036
Net of income taxes	1,537	7,660
Benefit plan adjustments	(7,977)	(7,977)
Income tax benefit	1,675	1,675
Net of income taxes	(6,302)	(6,302)
Derivative adjustments	1,244	1,002
Income tax	262	211
Net of income taxes	982	791
Accumulated other comprehensive income (loss)	$ (3,782)	$ 2,149

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Earnings per share - Schedule of Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Earnings per share
Net income, Basic	$ 9,478	$ 5,281
Average common shares outstanding - basic	7,210,952	7,379,438
Net income - basic	$ 1.31	$ 0.72
Net income, Diluted	$ 9,478	$ 5,281
Average common shares outstanding - diluted	7,246,016	7,405,703
Net income - diluted	$ 1.31	$ 0.71

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Investment securities - Amortized Cost and Fair Value of Investment Securities Aggregated by Investment Category (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Investment Securities
Available-for-sale, Amortized Cost	$ 331,807	$ 286,215
Available-for-sale, Gross Unrealized Gains	6,844	9,899
Available-for-sale, Gross Unrealized Losses	4,898	203
Available-for-sale, Fair Value	333,753	295,911
Held-to-maturity, Amortized Cost	7,166	7,225
Held-to-maturity, Gross Unrealized Gains	223	288
Held-to-maturity, Fair value	7,389	7,513
U.S. Treasuries
Investment Securities
Available-for-sale, Amortized Cost	18,481	18,478
Available-for-sale, Gross Unrealized Gains	344	427
Available-for-sale, Fair Value	18,825	18,905
U.S. government-sponsored enterprises state and municipals
Investment Securities
Available-for-sale, Amortized Cost	56,620	63,834
Available-for-sale, Gross Unrealized Gains	963	1,354
Available-for-sale, Fair Value	57,583	65,188
Mortgage-backed Securities, U.S. government agencies
Investment Securities
Available-for-sale, Amortized Cost	3,061	3,553
Available-for-sale, Gross Unrealized Gains	125	154
Available-for-sale, Fair Value	3,186	3,707
Held-to-maturity, Amortized Cost	18	21
Held-to-maturity, Fair value	18	21
Mortgage-backed Securities, U.S. government-sponsored enterprises
Investment Securities
Available-for-sale, Amortized Cost	112,501	79,457
Available-for-sale, Gross Unrealized Gains	1,363	1,930
Available-for-sale, Gross Unrealized Losses	2,855	136
Available-for-sale, Fair Value	111,009	81,251
Held-to-maturity, Amortized Cost	300	355
Held-to-maturity, Gross Unrealized Gains	9	13
Held-to-maturity, Fair value	309	368
Commercial mortgage-backed Securities, U.S. government-sponsored enterprises
Investment Securities
Available-for-sale, Amortized Cost	12,600	12,619
Available-for-sale, Gross Unrealized Gains	677	881
Available-for-sale, Fair Value	13,277	13,500
Corporate debt securities
Investment Securities
Available-for-sale, Amortized Cost	1,500	1,000
Available-for-sale, Gross Unrealized Gains	2
Available-for-sale, Gross Unrealized Losses	13
Available-for-sale, Fair Value	1,489	1,000
State and Municipals, Taxable
Investment Securities
Available-for-sale, Amortized Cost	56,931	53,297
Available-for-sale, Gross Unrealized Gains	944	2,099
Available-for-sale, Gross Unrealized Losses	1,251	30
Available-for-sale, Fair Value	56,624	55,366
State and Municipals, Tax-exempt
Investment Securities
Available-for-sale, Amortized Cost	70,113	53,977
Available-for-sale, Gross Unrealized Gains	2,426	3,054
Available-for-sale, Gross Unrealized Losses	779	37
Available-for-sale, Fair Value	71,760	56,994
Held-to-maturity, Amortized Cost	6,848	6,849
Held-to-maturity, Gross Unrealized Gains	214	275
Held-to-maturity, Fair value	$ 7,062	$ 7,124

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Investment securities - Equity Securities Portfolio (Details) $ in Thousands	Mar. 31, 2021 USD ($) security	Dec. 31, 2020 USD ($)
Schedule of Trading Securities and Other Trading Assets [Line Items]
Number of equity securities portfolio consisting of stock of other financial institutions | security	1
Equity investments carried at fair value	$ 159	$ 138
Fair value of equity portfolio in excess of cost basis	5
Common equity securities.
Schedule of Trading Securities and Other Trading Assets [Line Items]
Equity investments carried at fair value	$ 159	$ 138

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Investment securities - Unrealized and realized gains and losses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Investment securities
Net gain (loss) recognized during the period on equity securities	$ 21	$ (123)
Unrealized gain (loss) recognized during the reporting period on equity securities still held at the reporting date	$ 21	$ (123)

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Investment securities - Maturity Distribution of Debt Securities Classified as Available-for-Sale (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Investment securities
Within one year	$ 39,394
After one but within five years	41,919
After five but within ten years	25,997
After ten years	95,819
Available for sale securities	203,129
Mortgage-backed and other amortizing securities	130,624
Total	$ 333,753	$ 295,911

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Investment securities - Summary of Amortized Cost and Fair Value of Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Amortized Cost of Held-to-maturity Securities
Amortized Cost, Within one year, Held to Maturity	$ 175
Amortized Cost, After five but within ten years, Held to maturity	523
Amortized Cost, After ten years, Held to maturity	6,150
Amortized Cost, Held to maturity	6,848
Amortized Cost, Mortgage-backed securities, Held to maturity	318
Held-to-maturity, Amortized Cost	7,166	$ 7,225
Fair Value of Held-to-maturity Securities
Fair Value, Within one year, Held to Maturity	177
Fair Value, After five but within ten years, Held to maturity	546
Fair Value, After ten years, Held to maturity	6,339
Fair Value, Held to maturity	7,062
Fair Value, Mortgage-backed securities, Held to maturity	327
Held to maturity, Fair Value	$ 7,389	$ 7,513

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Investment securities - Pledged Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Available-for-sale and Held-to-maturity securities
Carrying value of securities pledged	us-gaap:AssetPledgedAsCollateralMember	us-gaap:AssetPledgedAsCollateralMember
Collateral Pledged
Available-for-sale and Held-to-maturity securities
Carrying value of securities pledged	$ 174,711	$ 165,982

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Investment securities - Fair Value and Unrealized Losses of Investment Securities in Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value	$ 142,494	$ 27,585
12 Months or More, Fair Value	243	284
Less Than 12 Months, Unrealized Losses	4,897	202
12 Months or More, Unrealized Losses	1	1
Total, Fair Value	142,737	27,869
Total, Unrealized Losses	4,898	203
State and Municipals, Taxable
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value	28,025	9,246
Less Than 12 Months, Unrealized Losses	1,251	30
Total, Fair Value	28,025	9,246
Total, Unrealized Losses	1,251	30
State and Municipals, Tax-exempt
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value	30,795	6,786
Less Than 12 Months, Unrealized Losses	779	37
Total, Fair Value	30,795	6,786
Total, Unrealized Losses	779	37
Commercial mortgage-backed Securities, U.S. government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value	82,687
12 Months or More, Fair Value	243
Less Than 12 Months, Unrealized Losses	2,854
12 Months or More, Unrealized Losses	1
Total, Fair Value	82,930
Total, Unrealized Losses	2,855
Mortgage-backed Securities, U.S. government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value		11,553
12 Months or More, Fair Value		284
Less Than 12 Months, Unrealized Losses		135
12 Months or More, Unrealized Losses		1
Total, Fair Value		11,837
Total, Unrealized Losses		$ 136
Corporate debt securities
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value	987
Less Than 12 Months, Unrealized Losses	13
Total, Fair Value	987
Total, Unrealized Losses	$ 13

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Investment securities - Additional Information (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2021 USD ($) security shares	Mar. 31, 2020 USD ($)	Dec. 31, 2020 USD ($)
Other-than-temporary impairments recognized	$ 0
Common Stock, Value, Issued	$ 14,423		$ 14,431
Visa Class A stock
Conversion ratio of common stock	1.6228
Visa Class B stock
Shares held | shares	44,982
Common Stock, Value, Issued	$ 0		0
Federal Home Loan Bank of Pittsburgh (FHLB)
Common Stock, Value, Issued	5,419		5,355
Atlantic Community Bankers Bank (ACBB)
Common Stock, Value, Issued	42		$ 42
U.S. government-sponsored enterprises state and municipals
Other-than-temporary impairments recognized	$ 0	$ 0
Maximum percentage of stockholders' equity exceeded for securities of any individual issuer	10.00%		10.00%
Mortgage-backed Securities, U.S. government-sponsored enterprises
Number of securities in continuous unrealized loss position | security	15
Number of securities in continuous unrealized loss positions 12 months or longer | security	2
State and Municipals, Taxable
Number of securities in continuous unrealized loss position | security	28
State and Municipals, Taxable | Corporate Bonds
Number of securities in continuous unrealized loss position | security	2
State and Municipals, Tax-exempt
Number of securities in continuous unrealized loss position | security	44

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Loans, net and allowance for loan losses - Net Deferred Loan Costs (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Net deferred loan costs	$ 2,684	$ 2,058
Loans	2,179,534	2,177,982
Commercial
Loans	677,090	679,286
Real estate Commercial
Loans	1,150,567	1,137,990
Real estate Residential
Loans	273,226	277,414
Consumer
Loans	78,651	$ 83,292
Initial PPP
Loans	100,000
PPP
Loans	200,774
PPP Two
Loans	99,984
PPP One
Loans	$ 100,790

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Loans, net and allowance for loan losses - Major Classifications of Loans Outstanding (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Accounts, Notes, Loans and Financing Receivable
Loans	$ 2,179,534	$ 2,177,982
Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	677,090	679,286
Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	1,150,567	1,137,990
Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans	273,226	277,414
Consumer
Accounts, Notes, Loans and Financing Receivable
Loans	$ 78,651	$ 83,292

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Loans, net and allowance for loan losses - Changes in Allowance for Loan Losses Account by Major Classification of Loans (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Allowance for loan losses:
Beginning Balance	$ 27,344	$ 22,677	$ 22,677
Charge-offs	(195)	(798)
Recoveries	134	307
Provisions (credits)	(500)	3,500
Ending balance	26,783	25,686	$ 27,344
Allowance for credit losses increase (decrease)	$ 600
Allowance for credit losses increase (decrease) percentage	2.10%
Increase (decrease) in allowance for credit loss on financing receivable from improved credit quality	$ 500
Percentage of allowance for loan losses	1.23%		1.26%
Percentage of PPP loans to total loans	1.35%
Allowance for Loan and Lease Losses Write-offs, Net	$ 100	$ 500
Percentage of allowance for loan losses, charge offs net of recoveries to average loans	0.01%	0.10%
Commercial
Allowance for loan losses:
Beginning Balance	$ 8,734	$ 6,888	$ 6,888
Charge-offs	(15)	(650)
Recoveries	61	267
Provisions (credits)	(565)	1,464
Ending balance	8,215	7,969	8,734
Allowance for Loan and Lease Losses Write-offs, Net	600
Real estate Commercial
Allowance for loan losses:
Beginning Balance	14,559	11,496	11,496
Charge-offs	(96)
Recoveries	58
Provisions (credits)	182	1,511
Ending balance	14,703	13,007	14,559
Real estate Residential
Allowance for loan losses:
Beginning Balance	3,129	3,226	3,226
Charge-offs	(22)	(54)
Recoveries	1	10
Provisions (credits)	(114)	442
Ending balance	2,994	3,624	3,129
Consumer
Allowance for loan losses:
Beginning Balance	922	1,067	1,067
Charge-offs	(62)	(94)
Recoveries	14	30
Provisions (credits)	(3)	83
Ending balance	$ 871	$ 1,086	$ 922

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Loans, net and allowance for loan losses - Allocation of Allowance for Loan Losses and Related Loans by Major Classification of Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020	Mar. 31, 2020	Dec. 31, 2019
Allowance for loan losses:
Ending balance	$ 26,783	$ 27,344	$ 25,686	$ 22,677
Ending balance: individually evaluated for impairment	869	1,202
Ending balance: collectively evaluated for impairment	25,914	26,142
Loans receivable:
Ending balance	2,179,534	2,177,982
Ending balance: individually evaluated for impairment	8,278	9,906
Ending balance: collectively evaluated for impairment	2,171,256	2,168,076
Commercial
Allowance for loan losses:
Ending balance	8,215	8,734	7,969	6,888
Ending balance: individually evaluated for impairment	697	947
Ending balance: collectively evaluated for impairment	7,518	7,787
Loans receivable:
Ending balance	677,090	679,286
Ending balance: individually evaluated for impairment	2,651	4,297
Ending balance: collectively evaluated for impairment	674,439	674,989
Real estate Commercial
Allowance for loan losses:
Ending balance	14,703	14,559	13,007	11,496
Ending balance: individually evaluated for impairment	108	180
Ending balance: collectively evaluated for impairment	14,595	14,379
Loans receivable:
Ending balance	1,150,567	1,137,990
Ending balance: individually evaluated for impairment	3,990	3,952
Ending balance: collectively evaluated for impairment	1,146,577	1,134,038
Real estate Residential
Allowance for loan losses:
Ending balance	2,994	3,129	3,624	3,226
Ending balance: individually evaluated for impairment	64	75
Ending balance: collectively evaluated for impairment	2,930	3,054
Loans receivable:
Ending balance	273,226	277,414
Ending balance: individually evaluated for impairment	1,543	1,546
Ending balance: collectively evaluated for impairment	271,683	275,868
Consumer
Allowance for loan losses:
Ending balance	871	922	$ 1,086	$ 1,067
Ending balance: collectively evaluated for impairment	871	922
Loans receivable:
Ending balance	78,651	83,292
Ending balance: individually evaluated for impairment	94	111
Ending balance: collectively evaluated for impairment	$ 78,557	$ 83,181

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Loans, net and allowance for loan losses - Major Classification of Loans Portfolio Summarized by Credit Quality (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($) loan	Dec. 31, 2020 USD ($)
Accounts, Notes, Loans and Financing Receivable
Loans	$ 2,179,534	$ 2,177,982
Decrease in charge offs due to a partial write down of a non-accrual commercial relationship	1,500
Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	677,090	679,286
Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	1,150,567	1,137,990
Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans	$ 273,226	277,414
Number of loans added to loans greater than 90 days and accruing | loan	1
Consumer
Accounts, Notes, Loans and Financing Receivable
Loans	$ 78,651	83,292
Pass
Accounts, Notes, Loans and Financing Receivable
Loans	2,132,285	2,125,800
Pass | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	660,558	660,559
Pass | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	1,123,315	1,107,699
Pass | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans	269,856	274,327
Pass | Consumer
Accounts, Notes, Loans and Financing Receivable
Loans	78,556	83,215
Special Mention
Accounts, Notes, Loans and Financing Receivable
Loans	31,962	31,966
Special Mention | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	13,728	14,305
Special Mention | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	17,615	17,517
Special Mention | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans	619	144
Substandard
Accounts, Notes, Loans and Financing Receivable
Loans	15,287	20,216
Substandard | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	2,804	4,422
Increase (decrease) in loans and leases receivable	1,500
Substandard | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans	9,637	12,774
Substandard | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans	2,751	2,943
Substandard | Consumer
Accounts, Notes, Loans and Financing Receivable
Loans	$ 95	$ 77

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Loans, net and allowance for loan losses - Information Concerning Nonaccrual Loans by Major Loan Classification (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	$ 6,428	$ 8,117
Commercial
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	2,198	3,822
Real estate Commercial
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	3,311	3,262
Real estate Residential
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	825	922
Consumer
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	$ 94	$ 111

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Loans, net and allowance for loan losses - Major Classification of Loans by Past Due Status (Details) - USD ($) $ in Thousands	May 06, 2020	Mar. 31, 2021	Dec. 31, 2020
Financing Receivable, Recorded Investment, Past Due
Total Past Due		$ 8,781	$ 11,728
Current		2,170,753	2,166,254
Total Loans		2,179,534	2,177,982
Loans > 90 Days and Accruing		171	71
Maximum loan receivable deferred period	6 months
30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due		2,088	2,863
60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due		94	677
Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due		6,599	8,188
Commercial
Financing Receivable, Recorded Investment, Past Due
Total Past Due		2,348	3,895
Current		674,742	675,391
Total Loans		677,090	679,286
Commercial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due		150	73
Commercial | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due		2,198	3,822
Real estate Commercial
Financing Receivable, Recorded Investment, Past Due
Total Past Due		3,711	3,740
Current		1,146,856	1,134,250
Total Loans		1,150,567	1,137,990
Real estate Commercial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due		343	344
Real estate Commercial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due		57	134
Real estate Commercial | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due		3,311	3,262
Real estate Residential
Financing Receivable, Recorded Investment, Past Due
Total Past Due		2,440	3,545
Current		270,786	273,869
Total Loans		273,226	277,414
Loans > 90 Days and Accruing		171	71
Real estate Residential | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due		1,444	2,072
Real estate Residential | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due			480
Real estate Residential | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due		996	993
Consumer
Financing Receivable, Recorded Investment, Past Due
Total Past Due		282	548
Current		78,369	82,744
Total Loans		78,651	83,292
Consumer | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due		151	374
Consumer | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due		37	63
Consumer | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due		94	$ 111
PPP
Financing Receivable, Recorded Investment, Past Due
Total Loans		$ 200,774

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Loans, net and allowance for loan losses - Summarized Information in Concerning to Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	$ 5,168	$ 7,299	$ 5,820
Unpaid Principal Balance, With no related allowance, Total	6,505	8,411	7,769
Average Recorded Investment, With no related allowance, Total	5,495	7,418	6,453
Interest Income Recognized, With no related allowance, Total	16	26	79
Recorded Investment, With an allowance recorded, Total	3,110	3,925	4,086
Unpaid Principal Balance, With an allowance recorded, Total	3,294	4,633	4,286
Related Allowance, With an allowance recorded, Total	869	1,226	1,202
Average Recorded Investment, With an allowance recorded, Total	3,598	3,256	4,349
Interest Income Recognized, With an allowance recorded, Total	13	10	66
Recorded Investment, Total	8,278	11,224	9,906
Unpaid Principal Balance, Total	9,799	13,044	12,055
Related Allowance, With an allowance recorded, Total	869	1,226	1,202
Average Recorded Investment, Total	9,093	10,674	10,802
Interest Income Recognized, Total	29	36	145
Commercial
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	673	3,706	2,251
Unpaid Principal Balance, With no related allowance, Total	1,108	4,249	3,421
Average Recorded Investment, With no related allowance, Total	1,462	3,672	2,915
Interest Income Recognized, With no related allowance, Total	4	16	30
Recorded Investment, With an allowance recorded, Total	1,978	1,956	2,046
Unpaid Principal Balance, With an allowance recorded, Total	2,041	1,974	2,094
Related Allowance, With an allowance recorded, Total	697	764	947
Average Recorded Investment, With an allowance recorded, Total	2,012	1,488	2,038
Interest Income Recognized, With an allowance recorded, Total	5	6	17
Recorded Investment, Total	2,651	5,662	4,297
Unpaid Principal Balance, Total	3,149	6,223	5,515
Related Allowance, With an allowance recorded, Total	697	764	947
Average Recorded Investment, Total	3,474	5,160	4,953
Interest Income Recognized, Total	9	22	47
Real estate Commercial
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	3,280	2,263	2,372
Unpaid Principal Balance, With no related allowance, Total	4,051	2,574	2,964
Average Recorded Investment, With no related allowance, Total	2,826	2,091	2,148
Interest Income Recognized, With no related allowance, Total	6	5	28
Recorded Investment, With an allowance recorded, Total	710	1,263	1,580
Unpaid Principal Balance, With an allowance recorded, Total	796	1,924	1,710
Related Allowance, With an allowance recorded, Total	108	270	180
Average Recorded Investment, With an allowance recorded, Total	1,145	1,197	1,687
Interest Income Recognized, With an allowance recorded, Total	4		36
Recorded Investment, Total	3,990	3,526	3,952
Unpaid Principal Balance, Total	4,847	4,498	4,674
Related Allowance, With an allowance recorded, Total	108	270	180
Average Recorded Investment, Total	3,971	3,288	3,835
Interest Income Recognized, Total	10	5	64
Real estate Residential
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	1,121	1,129	1,086
Unpaid Principal Balance, With no related allowance, Total	1,241	1,369	1,263
Average Recorded Investment, With no related allowance, Total	1,104	1,424	1,223
Interest Income Recognized, With no related allowance, Total	6	5	21
Recorded Investment, With an allowance recorded, Total	422	706	460
Unpaid Principal Balance, With an allowance recorded, Total	457	735	482
Related Allowance, With an allowance recorded, Total	64	192	75
Average Recorded Investment, With an allowance recorded, Total	441	571	624
Interest Income Recognized, With an allowance recorded, Total	4	4	13
Recorded Investment, Total	1,543	1,835	1,546
Unpaid Principal Balance, Total	1,698	2,104	1,745
Related Allowance, With an allowance recorded, Total	64	192	75
Average Recorded Investment, Total	1,545	1,995	1,847
Interest Income Recognized, Total	10	9	34
Consumer
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	94	201	111
Unpaid Principal Balance, With no related allowance, Total	105	219	121
Average Recorded Investment, With no related allowance, Total	103	231	167
Recorded Investment, Total	94	201	111
Unpaid Principal Balance, Total	105	219	121
Average Recorded Investment, Total	$ 103	$ 231	$ 167

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Loans, net and allowance for loan losses - Loans Modified Resulting in Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($) loan customer	Mar. 31, 2020 USD ($) contract loan	Dec. 31, 2020 USD ($)
Number of loans modified | loan	0	0
Number of defaults on loans restructured	$ 0
Number of business loans with payment deferrals granted | customer	6
Loan receivable balances where payment deferrals were granted	$ (4,800)		$ 6,100
Outstanding loan balance in deferral	1,300
Loans receivable, related parties, considered as nonaccrual, past due or restructured or potential credit risk	$ 2,740	$ 2,140	$ 2,818
Maximum
Percentage of total loan portfolio	0.10%
Real estate Residential
Number of defaults on loans restructured | contract		1
Recorded Investment		$ 52

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Other assets - Components of Other Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Other real estate owned	$ 362	$ 864
Investment in low income housing partnership	6,212	6,332
Mortgage servicing rights	833	838
Restricted equity securities (FHLB and other)	5,461	5,397
Net deferred tax asset	4,724	3,768
Interest rate floor and swaps	11,542	15,371
Other assets	6,860	6,345
Total	36,146	38,915
Interest Rate Floor
Interest rate floor and swaps	1,455	1,678
Interest Rate Swaps
Interest rate floor and swaps	$ 10,239	$ 13,693

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Fair value estimates - Transfers Between Levels (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Fair value estimates
Fair value of assets transfers from level 1 to level 2	$ 0	$ 0
Fair value of assets transfers from level 2 to level 1	0	0
Fair value of liabilities transfers from level 1 to level 2	0	0
Fair value of liabilities transfers from level 2 to level 1	0	0
Fair value of assets transfers into level 3	0	0
Fair value of assets transfers out of level 3	0	0
Fair value of liabilities transfers into level 3	0	0
Fair value of liabilities transfers out of level 3	$ 0	$ 0

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Fair value estimates - Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - Recurring Basis - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	$ 333,912	$ 296,049
U.S. Treasuries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	18,825	18,905
U.S. government-sponsored enterprises state and municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	57,583	65,188
State and Municipals, Taxable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	56,624	55,366
State and Municipals, Tax-exempt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	71,760	56,994
Corporate debt securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	1,489	1,000
Mortgage-backed Securities, U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	3,186	3,707
Mortgage-backed Securities, U.S. government-sponsored enterprises
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	124,286	94,751
Common equity securities.
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	159	138
Loan held for sale
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	458	837
Interest rate floor - other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	1,455	1,678
Interest rate swap-other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	9,980	13,693
Interest rate swap-other liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Liabilities measured at fair value	(9,496)	(14,099)
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	18,984	19,043
Level 1 | U.S. Treasuries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	18,825	18,905
Level 1 | Common equity securities.
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	159	138
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	314,928	277,006
Level 2 | U.S. government-sponsored enterprises state and municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	57,583	65,188
Level 2 | State and Municipals, Taxable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	56,624	55,366
Level 2 | State and Municipals, Tax-exempt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	71,760	56,994
Level 2 | Corporate debt securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	1,489	1,000
Level 2 | Mortgage-backed Securities, U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	3,186	3,707
Level 2 | Mortgage-backed Securities, U.S. government-sponsored enterprises
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	124,286	94,751
Level 2 | Loan held for sale
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	458	837
Level 2 | Interest rate floor - other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	1,455	1,678
Level 2 | Interest rate swap-other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	9,980	13,693
Level 2 | Interest rate swap-other liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Liabilities measured at fair value	$ (9,496)	$ (14,099)

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Fair value estimates - Schedule of Assets and Liabilities Measured at Fair Value on Nonrecurring Basis (Details) - Nonrecurring Basis - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	$ 2,241	$ 2,884
Other real estate owned	131	527
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	2,241	2,884
Other real estate owned	$ 131	$ 527

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Fair value estimates - Additional Quantitative Information about Assets Measured at Fair Value on Nonrecurring Basis (Details) - Nonrecurring Basis - Level 3 - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Impaired loans
Fair Value Inputs, Assets, Quantitative Information
Assets, Fair Value Estimate	$ 2,241	$ 2,884
Range and weighted average of appraisal adjustments	24.80%	28.20%
Range and weighted average of liquidation expenses	5.50%	5.50%
Impaired loans | Minimum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	17.90%	9.00%
Range and weighted average of liquidation expenses	3.00%	3.00%
Impaired loans | Maximum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	97.00%	97.00%
Range and weighted average of liquidation expenses	6.00%	6.00%
Other real estate owned
Fair Value Inputs, Assets, Quantitative Information
Assets, Fair Value Estimate	$ 131	$ 527
Range and weighted average of appraisal adjustments	39.50%	29.90%
Range and weighted average of liquidation expenses	5.00%	5.00%
Other real estate owned | Minimum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	20.00%	3.10%
Range and weighted average of liquidation expenses	3.00%	3.00%
Other real estate owned | Maximum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	58.10%	58.10%
Range and weighted average of liquidation expenses	6.00%	6.00%

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Fair value estimates - Carrying and Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Investment securities:
Available-for-sale	$ 333,753	$ 295,911
Common equity securities	159	138
Held-to-maturity	7,389	7,513
Loans held for sale	458	837
Mortgage servicing rights	833	838
Financial liabilities:
Subordinated debentures	33,000	33,000
Carrying Value
Financial assets:
Cash and due from banks	303,318	228,192
Investment securities:
Available-for-sale	333,753	295,911
Common equity securities	159	138
Held-to-maturity	7,166	7,225
Loans held for sale	458	837
Net loans	2,152,751	2,150,638
Accrued interest receivable	8,206	8,255
Mortgage servicing rights	833	838
Restricted equity securities (FHLB and other)	5,461	5,397
Interest rate floor	1,455	1,678
Interest rate swaps	9,980	13,693
Total assets	2,823,540	2,712,802
Financial liabilities:
Deposits	2,550,416	2,437,113
Long-term debt	14,264	14,769
Subordinated debentures	33,000	33,000
Accrued interest payable	1,120	736
Interest rate swap	9,496	14,099
Total liabilities	2,608,296	2,499,717
Fair Value
Financial assets:
Cash and due from banks	303,318	228,192
Investment securities:
Available-for-sale	333,753	295,911
Common equity securities	159	138
Held-to-maturity	7,389	7,513
Loans held for sale	458	837
Net loans	2,133,875	2,145,752
Accrued interest receivable	8,206	8,255
Mortgage servicing rights	1,261	1,269
Restricted equity securities (FHLB and other)	5,461	5,397
Interest rate floor	1,455	1,678
Interest rate swaps	9,980	13,693
Total assets	2,805,315	2,708,635
Financial liabilities:
Deposits	2,552,977	2,441,014
Long-term debt	14,481	15,073
Subordinated debentures	32,574	33,096
Accrued interest payable	1,120	736
Interest rate swap	9,496	14,099
Total liabilities	2,610,648	2,504,018
Level 1
Financial assets:
Cash and due from banks	303,318	228,192
Investment securities:
Available-for-sale	18,825	18,905
Common equity securities	159	138
Level 2
Investment securities:
Available-for-sale	314,928	277,006
Held-to-maturity	7,389	7,513
Loans held for sale	458	837
Accrued interest receivable	8,206	8,255
Mortgage servicing rights	1,261	1,269
Restricted equity securities (FHLB and other)	5,461	5,397
Interest rate floor	1,455	1,678
Interest rate swaps	9,980	13,693
Financial liabilities:
Deposits	2,552,977	2,441,014
Long-term debt	14,481	15,073
Subordinated debentures	32,574	33,096
Accrued interest payable	1,120	736
Interest rate swap	9,496	14,099
Level 3
Investment securities:
Net loans	$ 2,133,875	$ 2,145,752

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Employee benefit plans - Components of Net Periodic Benefit Cost (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Components of net periodic pension cost:
Salaries and employee benefits expense	$ 6,570	$ 7,856
Pension Benefits
Components of net periodic pension cost:
Salaries and employee benefits expense	306
Interest cost	105	54
Expected return on plan assets	(322)	(123)
Amortization of unrecognized net gain	76	22
Net periodic benefit	$ (141)	$ (47)

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Employee benefit plans - Additional Information (Details) - 2017 Plan - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Share-based Compensation Arrangement by Share-based Payment Award
Common stock available for grant as awards	37,151
Salaries and employee benefits expense	$ 89	$ 5
Non-Performance-based restricted stock
Share-based Compensation Arrangement by Share-based Payment Award
Shares or units vesting period	3 years
Performance-based restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award
Shares or units vesting period	3 years
Cumulative diluted earnings per share period used for conditions for vesting of performance-based restricted stock units	3 years
Average return on equity period used for conditions for vesting of performance-based restricted stock units	3 years
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award
Granted shares	19,818
Unrecognized compensation expense	$ 1,494
Weighted average vesting period	2 years 2 months 12 days
Restricted stock units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award
Granted shares		16,269

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Derivatives and hedging activities - Fair Values of Derivative Instruments on the Balance Sheet (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2021 USD ($) security	Mar. 31, 2020 USD ($)	Dec. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)
Derivatives, Fair Value
Asset Derivatives	$ 11,542			$ 15,371
Liability Derivatives	9,603			14,099
Interest Receivable	8,206			8,255
Interest Payable	1,120			736
Net Amounts of Assets presented in the Balance Sheet	9,603			14,099
Interest income
Derivatives, Fair Value
Amount of gain or (loss) reclassified as a increase to interest income (expense)	150	$ 52
Interest Rate Floor
Derivatives, Fair Value
Asset Derivatives	1,455			1,678
Interest Rate Swaps
Derivatives, Fair Value
Asset Derivatives	10,239			13,693
Credit-risk contract
Derivatives, Fair Value
Posted collateral	5,850			15,360
Net Amounts of Assets presented in the Balance Sheet	484			79
Derivatives designated as hedging instruments
Derivatives, Fair Value
Asset Derivatives	1,455			1,678
Liability Derivatives				485
Derivatives designated as hedging instruments | Interest Rate Floor
Derivatives, Fair Value
Notional amount	25,000
Derivatives designated as hedging instruments | Interest Rate Floor | Other Assets.
Derivatives, Fair Value
Asset Derivatives	1,455			1,678
Derivatives not designated as hedging instruments
Derivatives, Fair Value
Asset Derivatives	9,980			13,693
Liability Derivatives	$ 9,496			13,614
Derivatives not designated as hedging instruments | Interest Rate Swaps
Derivatives, Fair Value
Number of instruments held | security	83
Notional amount	$ 408,138	$ 225,376
Interest Receivable				258
Interest Payable				258
Derivatives not designated as hedging instruments | Interest Rate Swaps | Other Assets.
Derivatives, Fair Value
Asset Derivatives	9,980			13,693
Derivatives not designated as hedging instruments | Interest Rate Swaps | Other Liabilities.
Derivatives, Fair Value
Liability Derivatives	9,496			13,614
Cash Flow Hedge
Derivatives, Fair Value
Derivatives terminated	50
Cash Flow Hedge | Interest expense
Derivatives, Fair Value
Termination fees	25
Cash Flow Hedge | Derivatives designated as hedging instruments
Derivatives, Fair Value
Notional amount	$ 50,000
Cash Flow Hedge | Derivatives designated as hedging instruments | Other Liabilities.
Derivatives, Fair Value
Liability Derivatives				$ 485
Forecast | Cash Flow Hedge | Interest income
Derivatives, Fair Value
Amount of gain or (loss) reclassified as a increase to interest income (expense)			$ 404

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Derivatives and hedging activities - Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in OCI Included Component	$ 1,244		$ 1,002
Interest expense
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income	(23)
Interest income
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income	134	$ 36
Cash Flow Hedge
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in OCI on Derivative	325
Amount of Gain (Loss) Recognized in OCI Included Component	316
Amount of Loss Recognized in OCI Excluded Component	9
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income	85
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Included Component	126
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Excluded Component	(41)
Cash Flow Hedge | Interest expense
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in OCI on Derivative	401
Amount of Gain (Loss) Recognized in OCI Included Component	401
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income	(48)
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Included Component	(23)
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Excluded Component	(25)
Cash Flow Hedge | Interest Rate Floor | Interest income
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in OCI on Derivative	(76)	(1,072)
Amount of Gain (Loss) Recognized in OCI Included Component	(85)	(1,104)
Amount of Loss Recognized in OCI Excluded Component	9	36
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income	133	36
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Included Component	149	52
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Excluded Component	$ (16)	$ (16)

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Derivatives and hedging activities - Effect of Fair Value and Cash Flow Hedge Accounting on the Income Statement (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Derivative Instruments, Gain (Loss)
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$ 242	$ 1,036
Interest income
Derivative Instruments, Gain (Loss)
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	134	36
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	134	36
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	150	52
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	(16)	$ (16)
Interest expense
Derivative Instruments, Gain (Loss)
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	(23)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$ (23)

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Derivatives and hedging activities - Effect of Other Derivative Instruments on the Income Statement (Details) - Derivatives not designated as hedging instruments - Interest Rate Swap Revenue - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Interest Rate Swaps
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Recognized in Income	$ 405	$ (131)
Fee Income
Derivative Instruments, Gain (Loss)
Amount of Gain (Loss) Recognized in Income	$ 392	$ 601

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Derivatives and hedging activities - Offsetting Derivatives (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Offsetting of Derivative Assets
Gross Amounts of Recognized Assets	$ 11,542	$ 15,371
Net Amounts of Assets presented in the Balance Sheet	11,542	15,371
Net Amount	11,542	15,371
Offsetting of Derivative Liabilities
Gross Amounts of Recognized Liabilities	9,603	14,099
Net Amounts of Assets presented in the Balance Sheet	9,603	14,099
Net Amount	$ 9,603	$ 14,099

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Deposits - Components of Interest-bearing and Noninterest-bearing Deposits (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Deposits.
Money market accounts	$ 529,772	$ 496,634
Now accounts	584,696	567,087
Savings accounts	459,117	431,224
Time deposits less than $250	219,687	221,446
Time deposits $250 or more	95,882	98,247
Total interest-bearing deposits	1,889,154	1,814,638
Noninterest-bearing deposits	661,262	622,475
Total deposits	$ 2,550,416	$ 2,437,113

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Borrowings (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Short-term Debt
Ending Balance	$ 51,980	$ 50,000
Average Balance	50,469
Maximum Month-End Balance	$ 51,980
Weighted Average Rate for the Year	0.57%
Weighted Average Rate at End of Year	0.37%
Other borrowings
Short-term Debt
Ending Balance	$ 1,980
Average Balance	469
Maximum Month-End Balance	$ 1,980
Weighted Average Rate for the Year	0.07%
Weighted Average Rate at End of Year	0.06%
FHLB advances
Short-term Debt
Ending Balance	$ 50,000	50,000
Average Balance	50,000	83,716
Maximum Month-End Balance	$ 50,000	$ 179,199
Weighted Average Rate for the Year	0.57%	1.01%
Weighted Average Rate at End of Year	0.38%	0.40%

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Borrowings - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Dec. 31, 2020
Short-term Debt
Short-term borrowings paid	$ 50,000
Peoples Bank
Short-term Debt
Maximum borrowing capacity		$ 819,972	$ 807,042
Outstanding amount in borrowings		64,264	64,769
Amount of credit facility used to issue standby letters of credit to collateralize public fund deposits		$ 230,650	$ 218,350

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Borrowings - Long-term debt advances (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Debt Instrument
Long-term debt	$ 14,264	$ 14,769
Long-term 1.99% fixed rate debt due June 2021
Debt Instrument
Long-term debt	$ 10,000	10,000
Fixed interest rate (as a percent)	1.99%
Long-term 4.69% fixed rate debt due March 2023
Debt Instrument
Long-term debt	$ 4,264	$ 4,769
Fixed interest rate (as a percent)	4.69%

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Borrowings - Maturities of long-term debt (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Borrowings
2021	$ 11,553
2022	2,156
2023	555
Total long-term debt	$ 14,264	$ 14,769

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Borrowings - Fixed and adjustable rate information (Details) $ in Thousands	Mar. 31, 2021 USD ($)
Borrowings
FHLB long-term advances	$ 14,264

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Subordinated debt (Details) - 2020 Notes $ in Thousands	Jun. 01, 2020 USD ($)
Debt Instrument [Line Items]
Aggregate principal amount	$ 33,000
Rate of interest for first five years	5.375%
Duration interest rate in effect	5 years
Percentage of debt redeemed	100.00%
Minimum
Debt Instrument [Line Items]
Floated interest rate	4.75%
Number of days notice to redeem debt	10 days

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Income taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income taxes
Federal statutory rate	22.00%	11.40%
Investment and other tax credits	$ 270	$ 273
Deferred tax adjustment	$ 621
Effective tax rate	16.90%	11.40%