KBRA Affirms Ratings For Peoples Financial Services Corp.

KBRA affirms the senior unsecured debt rating of BBB, a subordinated debt rating of BBB-, and a short-term debt rating of K3 to Peoples Financial Services Corp. (NASDAQ: PFIS)("Peoples" or “the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 to its subsidiary, Peoples Security Bank and Trust Company. The Outlook for all long-term ratings is Stable.

The ratings reflect PFIS’ improved earnings profile, driven by margin expansion through 2025, supported by a favorable funding mix and low credit costs. NIM expanded meaningfully to 3.56% (+65 bps) in 2025, benefiting from higher earning asset yields due to ongoing loan repricing and balance sheet remixing toward higher-yielding assets, further supported by purchase accounting accretion (32 bps in 2025) and easing funding pressures as deposit costs declined following rate cuts. PFIS’ historically strong core deposit base continues to underpin a relatively low cost of funds (2.05% in 4Q25), helping offset below-peer average loan yields. Additionally, prudent expense management and minimal credit costs have supported solid earnings capacity. Looking ahead, earnings are expected to benefit from continued loan repricing and single-digit loan growth supporting further NIM expansion, partially offset by the gradual runoff of accretion income.

Peoples continues to demonstrate strong asset quality metrics, supported by conservative underwriting standards and management's deep understanding of its local markets. Credit performance has consistently outperformed peers, with low loss content across multiple stress periods (5-year NCO average of 0.05% and a peak of 0.43% during the GFC). More recently, asset quality improved through 2025 as management works through problem loans acquired in the FNCB merger. Loss absorption capacity remains adequate, with the loan loss reserve at 0.96% of loans, covering NPAs by approximately 3x, further supported by solid earnings generation and capital levels. The company has historically managed capital in line with peers, though levels declined following the FNCB merger. Management has since prioritized rebuilding capital, with CET1 improving to 11.0% in 2025. Capital levels are expected to continue trending toward pre-acquisition levels through 2026, supported by improved earnings, controlled loan growth, and the absence of share repurchases. PFIS benefits from a strong, relationship-driven funding profile centered on core deposits, which comprise approximately 93% of total funding, with minimal reliance on wholesale sources. The company also maintains a balanced liquidity position, with a loan-to-deposit ratio in the high-80% to low-90% range, providing flexibility in managing funding needs.

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