UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

Form 10-Q

(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2012 or

(  ) Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the transition period from

0-23863

 (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)
82 Franklin Avenue, Hallstead, PA	18822
(Address of principal executive offices)	(Zip code)
(570) 879-2175
(Registrant’s telephone number, including area code)

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 X No____
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.  Yes X No ____
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act.
Large accelerated filer  __	Accelerated filer  X	Non-accelerated filer __	Smaller reporting company __
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.  Yes ____ No X
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: 3,118,356 at July 31, 2012.

Page 1 of 50

Exhibit index on page

1

PEOPLES FINANCIAL SERVICES CORP.

FORM 10-Q

For the Quarter Ended June 30, 2012

Contents		Page No.
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets at	3
	June 30, 2012 and December 31, 2011
	Consolidated Statements of Income and Comprehensive Income	4
	for the Three and Six Months Ended June 30, 2012 and 2011
	Consolidated Statements of Changes in Stockholders’ Equity	5
	for the Six Months Ended June 30, 2012 and 2011
	Consolidated Statements of Cash Flows	6
	for the Six Months Ended June 30, 2012 and 2011
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of	26
	Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
	Signatures	45

2

PEOPLES FINANCIAL SERVICES CORP.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands, except per share data)

	June 30,  2012		December 31, 2011
Assets:
Cash and due from banks	$	8,084	$	9,488
Interest-bearing deposits in other banks		1,175		1,071
Federal funds sold		13,130
Investment securities available-for-sale		128,596		139,899
Loans held for sale		2,242		569
Loans, net		457,054		445,103
Less:  allowance for loan losses		5,916		5,349
Net loans		451,138		439,754
Premises and equipment, net		8,716		7,916
Accrued interest receivable		2,903		3,448
Other assets		22,730		19,259
Total assets	$	638,714	$	621,404
Liabilities:
Deposits:
Noninterest-bearing	$	96,692	$	92,985
Interest-bearing		441,419		401,298
Total deposits		538,111		494,283
Short-term borrowings		13,233		43,791
Long-term debt		18,533		18,927
Accrued interest payable		248		284
Other liabilities		4,713		4,506
Total liabilities		574,838		561,791
Stockholders’ equity:
Common stock, par value $2.00; authorized 12,500,000 shares; issued 3,341,251 shares		6,683		6,683
Capital surplus		3,155		3,141
Retained earnings		54,738		51,342
Accumulated other comprehensive income		4,559		3,645
Less:  Treasury stock, at cost, held:  June 30, 2012, 222,895 shares; December 31, 2011, 222,395 shares		5,259		5,198
Total stockholders’ equity		63,876		59,613
Total liabilities and stockholders’ equity	$	638,714	$	621,404

See Notes to Consolidated Financial Statements

3

PEOPLES FINANCIAL SERVICES CORP.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

	Three Months Ended						Six Months Ended
June 30	2012			2011			2012			2011
Interest income:
Interest and fees on loans:
Taxable	$	5,682		$	5,413		$	11,197		$	10,549
Tax-exempt		393			346			812			703
Interest and dividends on investment securities available-for-sale:
Taxable		603			633			1,239			1,299
Tax-exempt		328			411			687			886
Dividends		8			8			15			17
Interest on interest-bearing deposits in other banks		1			3			5			5
Interest on federal funds sold					11						13
Total interest income		7,015			6,825			13,955			13,472
Interest expense:
Interest on deposits		1,071			1,132			2,119			2,176
Interest on short-term borrowings		49			76			111			162
Interest on long-term debt		170			263			343			520
Total interest expense		1,290			1,471			2,573			2,858
Net interest income		5,725			5,354			11,382			10,614
Provision for loan losses		390			804			1,035			1,225
Net interest income after provision for loan losses		5,335			4,550			10,347			9,389
Noninterest income:
Service charges, fees, commissions and other		797			711			1,540			1,420
Wealth management income		138			236			281			375
Mortgage banking income		302			98			376			146
Net gain on sale of investment securities available-for-sale		99			2			383			12
Other-than-temporary impairment of investment equity securities											(84	)
Net gain (loss) on sale of other real estate owned		1			1,583			(7	)		1,583
Total noninterest income		1,337			2,630			2,573			3,452
Noninterest expense:
Salaries and employee benefits expense		1,749			1,628			3,479			3,074
Net occupancy and equipment expense		753			699			1,543			1,375
Other expenses		1,396			1,743			2,190			3,016
Total noninterest expense		3,898			4,070			7,212			7,465
Income before income taxes		2,774			3,110			5,708			5,376
Provision for income taxes		490			751			1,004			1,218
Net income		2,284			2,359			4,704			4,158
Other comprehensive income:
Unrealized gain on investment securities available-for-sale		1,791			3,183			1,768			4,283
Reclassification adjustment for gain on sales included in net income		(99	)		(2	)		(383	)		(12	)
Reclassification adjustment for other-than-temporary impairment											84
Income tax expense  related to other comprehensive income		575			1,082			471			1,481
Other comprehensive income, net of income taxes		1,117			2,099			914			2,874
Comprehensive income	$	3,401		$	4,458		$	5,618		$	7,032
Per share data:
Net income:
Basic	$	0.73		$	0.75		$	1.51		$	1.32
Diluted	$	0.73		$	0.75		$	1.51		$	1.32
Average common shares outstanding:
Basic		3,118,429			3,146,611			3,118,269			3,144,386
Diluted		3,118,690			3,147,904			3,118,880			3,146,366
Dividends declared	$	0.21		$	0.20		$	0.42		$	0.40

See Notes to Consolidated Financial Statements

4

PEOPLES FINANCIAL SERVICES CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except per share data)

	Common  Stock		Capital Surplus		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance, January 1, 2012	$	6,683	$	3,141	$	51,342		$	3,645		$	(5,198	)	$	59,613
Net income						4,704									4,704
Other comprehensive income, net of income taxes									914						914
Dividends declared:  $0.42 per share						(1,308	)								(1,308	)
Reissuance under option plan: 4,500 shares				14								82			96
Repurchase and held: 5,000 shares												(143	)		(143	)
Balance, June 30, 2012	$	6,683	$	3,155	$	54,738		$	4,559		$	(5,259	)	$	63,876
Balance, January 1, 2011	$	6,683	$	3,118	$	46,048		$	(834	)	$	(4,499	)	$	50,516
Net income						4,158									4,158
Other comprehensive income, net of income taxes									2,874						2,874
Dividends declared:  $0.40 per share						(1,268	)								(1,268	)
Reissuance under option plan:  5,500 shares												(149	)		(149	)
Repurchase and held:  7,425 shares				23								135			158
Balance, June 30, 2011	$	6,683	$	3,141	$	48,938		$	2,040		$	(4,513	)	$	56,289

See Notes to Consolidated Financial Statements

5

PEOPLES FINANCIAL SERVICES CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)

For the Six Months Ended June 30	2012			2011
Cash flows from operating activities:
Net income	$	4,704		$	4,158
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		407			424
Amortization of intangibles		97			183
Provision for loan losses		1,035			1,225
(Gain) loss on sale of other real estate owned		7			(1,583	)
Net amortization of investment securities available-for-sale		948			188
Amortization of deferred loan costs		131			108
Gain on sale of investment securities available-for-sale		(383	)		(12	)
Other-than-temporary impairment of investment equity securities					84
Net income from investment in life insurance		(187	)		(185	)
Net change in:
Loans held for sale		(1,673	)		(62	)
Accrued interest receivable		545			(269	)
Other assets		(1,912	)		1,818
Accrued interest payable		(36	)		(4	)
Other liabilities		207			(1,765	)
Net cash provided by operating activities		3,890			4,308
Cash flows from investing activities:
Proceeds from sales of investment securities available-for-sale		4,833			15,259
Proceeds from repayments on investment securities available-for-sale		7,290			767
Purchases of investment securities available-for-sale					(4,255	)
Net increase in loans		(13,913	)		(33,163	)
Purchases of premises and equipment		(1,207	)		(357	)
Purchases of investment in life insurance		(450	)		(2,000	)
Investment in other real estate owned		(196	)
Proceeds from sale of other real estate owned		62			1,970
Net cash used in investing activities		(3,581	)		(21,779	)
Cash flows from financing activities:
Net increase in deposits		43,828			31,835
Repayment of long-term debt		(394	)		(5,474	)
Net decrease in short-term borrowings		(30,558	)		(2,372	)
Repurchase of common shares		(143	)		(149	)
Reissuance of common shares		96			158
Cash dividends paid		(1,308	)		(1,268	)
Net cash provided by financing activities		11,521			22,730
Net  increase in cash and cash equivalents		11,830			5,259
Cash and cash equivalents at beginning of year		10,559			17,841
Cash and cash equivalents at end of period	$	22,389		$	23,100
Supplemental disclosures:
Cash paid during the period for:
Interest	$	2,609		$	2,862
Income taxes	$	850		$	1,250
Noncash items:
Transfers from loans to other real estate owned	$	1,363

See Notes to Consolidated Financial Statements

6

PEOPLES FINANCIAL SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

1.  Basis of presentation:

The accompanying unaudited consolidated financial statements of  Peoples Financial Services Corp, and subsidiaries (collectively, 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 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 with the current year’s presentation. These reclassifications did not have any effect on the operating results or financial position of the Company. The operating results and financial position of the Company for the three and six months ended and as of June 30, 2012, are not necessarily indicative of the results of operations and financial position that may be expected in the future.

The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reported periods. 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, 2011.

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of June 30, 2012, for items that should potentially be recognized or disclosed in these consolidated financial statements.  The evaluation was conducted through the date these consolidated financial statements were issued.

2.  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.  Potential common shares that may be issued by the Company relate solely to outstanding stock options, and are determined using the treasury stock method.

Stock options for 6,200 and 9,113 shares of common stock were not considered in computing diluted earnings per share for the three and six months ended June 30, 2012 and 2011, respectively, because they were antidilutive.

7

PEOPLES FINANCIAL SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

3.  Investment securities available-for-sale:

The amortized cost and fair value of investment securities available-for-sale aggregated by investment category at June 30, 2012 and December 31, 2011 are summarized as follows:

June 30, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government-sponsored enterprises	$	29,524	$	3,491			$	33,015
State and municipals:
Taxable		16,623		1,859				18,482
Tax-exempt		33,551		1,955	$	9		35,497
Corporate debt securities		4,040		45		594		3,491
Mortgage-backed securities:
U.S. Government agencies		15,288		189		30		15,447
U.S. Government-sponsored enterprises		22,175		135		116		22,194
Equity securities:
Preferred
Common		487		22		39		470
Total	$	121,688	$	7,696	$	788	$	128,596
December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government-sponsored enterprises	$	29,671	$	3,105			$	32,776
State and municipals:
Taxable		18,120		1,608				19,728
Tax-exempt		38,217		1,693	$	224		39,686
Corporate debt securities		4,462		330		942		3,850
Mortgage-backed securities:
U.S. Government agencies		16,827		185		100		16,912
U.S. Government-sponsored enterprises		26,396		66		199		26,263
Equity securities:
Preferred		54		63				117
Common		629		22		84		567
Total	$	134,376	$	7,072	$	1,549	$	139,899

8

PEOPLES FINANCIAL SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

3.  Investment securities available-for-sale (continued)

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available-for-sale at June 30, 2012, is summarized as follows:

June 30, 2012	Fair Value
Within one year	$	250
After one but within five years		14,855
After five but within ten years		35,483
After ten years		39,897
		90,485
Mortgage-backed securities		37,641
Total	$	128,126

Securities with a carrying value of $89,099 and $105,135 at June 30, 2012 and December 31, 2011, respectively, were pledged to secure public deposits and repurchase agreements as required or permitted by law.

At June 30, 2012 and December 31, 2011, there were no securities of any individual issuer, except for U.S. Government agencies and sponsored enterprises, which exceeded 10.0 percent of stockholders’ equity.

The fair value and gross unrealized losses of investment securities available-for-sale with unrealized losses for which an other-than-temporary impairment (“OTTI”) has not been recognized at June 30, 2012 and December 31, 2011, 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
June 30, 2012	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government-sponsored enterprises
State and municipals:
Taxable
Tax-Exempt	$	1,176	$	6	$	300	$	3	$	1,476	$	9
Corporate debt securities						2,417		594		2,417		594
Mortgage-backed securities:
U.S. Government agencies		3,538		13		2,801		17		6,339		30
U.S. Government-sponsored enterprises		9,294		89		2,651		27		11,945		116
Equity securities:
Preferred
Common						98		39		98		39
Total	$	14,008	$	108	$	8,267	$	680	$	22,275	$	788

9

PEOPLES FINANCIAL SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

3.  Investment securities available-for-sale (continued)

	Less Than 12 Months				12 Months or More				Total
December 31, 2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government-sponsored enterprises
State and municipals:
Taxable
Tax-Exempt	$	1,142	$	39	$	2,859	$	185	$	4,001	$	224
Corporate debt securities		970		61		2,130		881		3,100		942
Mortgage-backed securities:
U.S. Government agencies		10,785		100						10,785		100
U.S. Government-sponsored enterprises		21,825		199						21,825		199
Equity securities:
Preferred
Common						195		84		195		84
Total	$	34,722	$	399	$	5,184	$	1,150	$	39,906	$	1,549

The Company had 20 investment securities, consisting of three tax-exempt state and municipal obligations, two corporate debt securities, 13 mortgage-backed securities and two common equity securities that were in unrealized loss positions at June 30, 2012.  Of these securities, one state and municipal obligation, two corporate debt securities, four mortgage-backed securities and two common equity securities were in continuous unrealized loss positions for 12 months or more.  The unrealized losses on the common equity securities were a direct reflection of reductions in stock values in the financial industry sector, as a whole, and was not a result of credit or other issues that would cause the Company to recognize an OTTI charge.  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 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 June 30, 2012.

In comparison, the Company had 31 investment securities, consisting of six tax-exempt state and municipal obligations, three corporate debt securities, 18 mortgage-backed securities and four common equity securities, which were in unrealized loss positions at December 31, 2011.  Of these securities, four state and municipal obligations, two corporate debt securities and each of the common equity securities were in continuous unrealized loss positions for 12 months or more.

10

PEOPLES FINANCIAL SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

4.  Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at June 30, 2012 and December 31, 2011 are summarized as follows. Net deferred loan costs were $585 at June 30, 2012, and $563 at December 31, 2011.

	June 30, 2012		December 31, 2011
Commercial	$	167,724	$	160,828
Real estate:
Commercial		154,442		145,554
Residential		115,033		118,125
Consumer		19,855		20,596
Total	$	457,054	$	445,103

11

PEOPLES FINANCIAL SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

4.  Loans, net and allowance for loan losses (continued)

The changes in the allowance for loan losses account by major classification of loan for the three and six months ended June 30, 2012 and 2011 are summarized as follows:

				Real estate
June 30, 2012	Commercial			Commercial			Residential			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance April 1, 2012	$	2,186		$	1,802		$	776		$	198		$	627		$	5,589
Charge-offs		(5	)								(79	)					(84	)
Recoveries		1									20						21
Provisions		(65	)		168			43			58			186			390
Ending balance	$	2,117		$	1,970		$	819		$	197		$	813		$	5,916
				Real estate
June 30, 2012	Commercial			Commercial			Residential			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance January 1, 2012	$	2,047		$	1,515		$	761		$	198		$	828		$	5,349
Charge-offs		(207	)		(100	)		(21	)		(177	)					(505	)
Recoveries		1									36						37
Provisions		276			555			79			140			(15	)		1,035
Ending balance	$	2,117		$	1,970		$	819		$	197		$	813		$	5,916
				Real estate
June 30, 2011	Commercial			Commercial			Residential			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance, April 1, 2011	$	1,695		$	1,468		$	732		$	284		$	177		$	4,356
Charge-offs											(23	)					(23	)
Recoveries					1			1			14						16
Provisions		410			116			1			14			263			804
Ending balance	$	2,105		$	1,585		$	734		$	289		$	440		$	5,153
				Real estate
June 30, 2011	Commercial			Commercial			Residential			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance, January 1, 2011	$	1,696		$	1,384		$	726		$	243		$	51		$	4,100
Charge-offs		(58	)		(56	)		(8	)		(77	)					(199	)
Recoveries					2			1			24						27
Provisions		467			255			15			99			389			1,225
Ending balance	$	2,105		$	1,585		$	734		$	289		$	440		$	5,153

12

PEOPLES FINANCIAL SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

4.  Loans, net and allowance for loan losses (continued)

The allocation of the allowance for loan losses and the related loans by major classifications of loans at June 30, 2012 and December 31, 2011 is summarized as follows:

			Real estate
June 30, 2012	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	2,117	$	1,970	$	819	$	197	$	813	$	5,916
Ending balance: individually evaluated for impairment	$	485	$	122	$	118	$	1			$	726
Ending balance: collectively evaluated for impairment	$	1,632	$	1,848	$	701	$	196	$	813	$	5,190
Loans receivable:
Ending balance	$	167,724	$	154,442	$	115,033	$	19,855			$	457,054
Ending balance: individually evaluated for impairment	$	6,650	$	4,799	$	1,418	$	1			$	12,868
Ending balance: collectively evaluated for impairment	$	161,074	$	149,643	$	113,615	$	19,854			$	444,186
			Real estate
December 31, 2011	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	2,047	$	1,515	$	761	$	198	$	828	$	5,349
Ending balance: individually evaluated for impairment	$	698	$	40	$	71	$	1			$	810
Ending balance: collectively evaluated for impairment	$	1,349	$	1,475	$	690	$	197	$	828	$	4,539
Loans receivable:
Ending balance	$	160,828	$	145,554	$	118,125	$	20,596			$	445,103
Ending balance: individually evaluated for impairment	$	8,433	$	7,832	$	1,226	$	1			$	17,492
Ending balance: collectively evaluated for impairment	$	152,395	$	137,722	$	116,899	$	20,595			$	427,611

13

PEOPLES FINANCIAL SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

4.  Loans, net and allowance for loan losses (continued)

The following tables present the major classifications of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at June 30, 2012 and December 31, 2011:

June 30, 2012	Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	155,333	$	5,743	$	2,505	$	4,143	$	167,724
Real estate:
Commercial		142,570		8,727		2,886		259		154,442
Residential		113,912						1,121		115,033
Consumer		19,841		14						19,855
Total	$	431,656	$	14,484	$	5,391	$	5,523	$	457,054

December 31, 2011	Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	145,145	$	7,262	$	2,550	$	5,871	$	160,828
Real estate:
Commercial		136,166		3,223		4,995		1,170		145,554
Residential		117,236						889		118,125
Consumer		20,587		9						20,596
Total	$	419,134	$	10,494	$	7,545	$	7,930	$	445,103

Information concerning nonaccrual loans by major loan category at June 30, 2012 and December 31, 2011, is as follows:

	June 30, 2012		December 31, 2011
Commercial	$	4,143	$	5,871
Real estate:
Commercial		259		1,170
Residential		1,121		889
Consumer
Total	$	5,523	$	7,930

14

PEOPLES FINANCIAL SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

4.  Loans, net and allowance for loan losses (continued)

The major categories of the loan portfolio by past due status at June 30, 2012 and December 31, 2011, are summarized as follows:

June 30, 2012	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
Commercial	$	1,143	$	100	$	2	$	1,245	$	166,479	$	167,724	$	2
Real estate:
Commercial		1,228		318		22		1,568		152,874		154,442		22
Residential		1,269		397		297		1,950		113,083		115,033		297
Consumer		174		126		416		470		19,385		19,855		416
Total	$	3,814	$	941	$	737	$	5,233	$	451,821	$	457,054	$	737
December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
Commercial	$	408	$	324	$	12	$	744	$	160,084	$	160,828	$	12
Real estate:
Commercial		2,177						2,177		143,377		145,554
Residential		976		217		362		1,555		116,570		118,125		337
Consumer		335		98		311		744		19,852		20,596		311
Total	$	3,896	$	639	$	685	$	5,220	$	439,883	$	445,103	$	660

15

PEOPLES FINANCIAL SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

4.  Loans, net and allowance for loan losses (continued)

The following tables summarize information in regards to impaired loans for the three and six months ended June 30, 2012 and 2011, and for the year ended December 31, 2011, by loan portfolio class:

							This Quarter				Year to Date
June 30, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	3,965	$	3,965				4,220	$	16	$	4,382	$	32
Real estate:
Commercial		980		980				1,006		58		1,005		78
Residential		706		706				803				782
Consumer
Total		5,651		5,651				6,029		74		6,169		110
With an allowance recorded:
Commercial		2,685		2,685	$	485		2,776		41		3,425		45
Real estate:
Commercial		3,819		3,819		122		3,741		7		3,739		64
Residential		712		712		118		763				575
Consumer		1		1		1		1				1
Total		7,217		7,217		726		7,281		48		7,740		109
Commercial		6,650		6,650		485		6,996		57		7,807		77
Real estate:
Commercial		4,799		4,799		122		4,747		65		4,744		142
Residential		1,418		1,418		118		1,566				1,357
Consumer		1		1		1		1				1
Total	$	12,868	$	12,868	$	726	$	13,310	$	122	$	13,909	$	219

16

PEOPLES FINANCIAL SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

4.  Loans, net and allowance for loan losses (continued)

						For the Year Ended
December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance	Average Recorded Investment		Interest  Income Recognized
With no related allowance:
Commercial	$	4,316	$	4,316		$	5,759	$	198
Real estate: