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 June 30, 2016

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)

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 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  ☒    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	☒
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  ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: 7,394,143 at July 29, 2016.

PEOPLES FINANCIAL SERVICES CORP.

FORM 10-Q

For the Quarter Ended June 30, 2016

Contents		Page No.
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets at June 30, 2016 and December 31, 2015	3
	Consolidated Statements of Income and Comprehensive Income for the Three and Six Months ended June 30, 2016 and 2015	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Six months ended June 30, 2016 and 2015	5
	Consolidated Statements of Cash Flows for the Six months ended June 30, 2016 and 2015	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
	Signatures	40

2

Peoples Financial Services Corp.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands, except share and per share data)

	June 30, 2016		December 31, 2015
Assets:
Cash and due from banks	$	29,805	$	28,218
Interest-bearing deposits in other banks		272		4,699
Investment securities:
Available-for-sale		251,382		284,935
Held-to-maturity: Fair value June 30, 2016, $12,065; December 31, 2015, $12,606		11,262		12,109
Total investment securities		262,644		297,044
Loans, net		1,464,808		1,340,865
Less: allowance for loan losses		14,799		12,975
Net loans		1,450,009		1,327,890
Premises and equipment, net		29,510		28,157
Accrued interest receivable		5,952		5,796
Goodwill		63,370		63,370
Intangible assets		4,795		5,397
Other assets		65,253		58,487
Total assets	$	1,911,610	$	1,819,058
Liabilities:
Deposits:
Noninterest-bearing	$	323,785	$	320,978
Interest-bearing		1,173,078		1,134,832
Total deposits		1,496,863		1,455,810
Short-term borrowings		86,300		38,325
Long-term debt		59,232		60,354
Accrued interest payable		453		560
Other liabilities		14,437		15,241
Total liabilities		1,657,285		1,570,290
Stockholders’ equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,394,143 shares at June 30, 2016 and 7,410,606 shares at December 31, 2015		14,788		14,821
Capital surplus		134,835		135,371
Retained earnings		105,852		100,701
Accumulated other comprehensive loss		(1,150)		(2,125)
Total stockholders’ equity		254,325		248,768
Total liabilities and stockholders’ equity	$	1,911,610	$	1,819,058

See notes to unaudited consolidated financial statements

3

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except share and per share data)

	Three Months Ended				Six Months Ended
June 30,	2016		2015		2016		2015
Interest income:
Interest and fees on loans:
Taxable	$	14,760	$	13,391	$	29,106	$	26,731
Tax-exempt		780		570		1,531		1,129
Interest and dividends on investment securities:
Taxable		617		816		1,304		1,716
Tax-exempt		875		835		1,750		1,640
Dividends		11		6		21		15
Interest on interest-bearing deposits in other banks		15		15		32		26
Interest on federal funds sold				5				9
Total interest income		17,058		15,638		33,744		31,266
Interest expense:
Interest on deposits		1,322		1,192		2,605		2,460
Interest on short-term borrowings		89		4		166		12
Interest on long-term debt		354		252		714		511
Total interest expense		1,765		1,448		3,485		2,983
Net interest income		15,293		14,190		30,259		28,283
Provision for loan losses		1,200		750		2,400		1,500
Net interest income after provision for loan losses		14,093		13,440		27,859		26,783
Noninterest income:
Service charges, fees and commissions		1,527		1,542		2,971		3,154
Merchant services income		1,038		963		1,952		1,753
Commission and fees on fiduciary activities		474		487		956		946
Wealth management income		296		198		708		403
Mortgage banking income		195		248		399		470
Life insurance investment income		202		188		395		377
Net gain on sale of investment securities available-for-sale		381				623		832
Total noninterest income		4,113		3,626		8,004		7,935
Noninterest expense:
Salaries and employee benefits expense		5,904		5,613		11,236		10,846
Net occupancy and equipment expense		2,245		2,149		4,682		4,617
Merchant services expense		748		650		1,380		1,183
Amortization of intangible assets		297		295		602		600
Other expenses		2,919		2,804		5,831		5,359
Total noninterest expense		12,113		11,511		23,731		22,605
Income before income taxes		6,093		5,555		12,132		12,113
Income tax expense		1,238		1,124		2,395		2,638
Net income		4,855		4,431		9,737		9,475
Other comprehensive income (loss):
Unrealized gain on investment securities available-for-sale		1,128		(1,459)		2,123		(692)
Reclassification adjustment for net gain on sales included in net income		(381)				(623)		(832)
Other comprehensive income (loss)		747		(1,459)		1,500		(1,524)
Income tax related to other comprehensive income (loss)		261		(510)		525		(533)
Other comprehensive income (loss), net of income taxes		486		(949)		975		(991)
Comprehensive income	$	5,341	$	3,482	$	10,712	$	8,484
Per share data:
Net income:
Basic	$	0.66	$	0.59	$	1.32	$	1.26
Diluted	$	0.66	$	0.59	$	1.32	$	1.26
Average common shares outstanding:
Basic		7,395,127		7,546,198		7,399,318		7,547,272
Diluted		7,395,127		7,546,198		7,399,318		7,547,272
Dividends declared	$	0.31	$	0.31	$	0.62	$	0.62

See notes to unaudited consolidated financial statements

4

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except share and per share data)

							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings		Loss		Total
Balance, January 1, 2016	$	14,821	$	135,371	$	100,701	$	(2,125)	$	248,768
Stock based compensation				35						35
Net income						9,737				9,737
Other comprehensive income, net of income taxes								975		975
Dividends declared: $0.62 per share						(4,586)				(4,586)
Shares retired: 16,463 shares		(33)		(571)						(604)
Balance, June 30, 2016		14,788		134,835		105,852		(1,150)		254,325
Balance, January 1, 2015		15,097		140,214		92,297		(829)		246,779
Stock based compensation				35						35
Net income						9,475				9,475
Other comprehensive loss, net of income taxes								(991)		(991)
Dividends declared: $0.62 per share						(4,679)				(4,679)
Shares retired: 5,633 shares		(11)		(204)						(215)
Balance, June 30, 2015	$	15,086	$	140,045	$	97,093	$	(1,820)	$	250,404

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 Six Months Ended June 30,	2016		2015
Cash flows from operating activities:
Net income	$	9,737	$	9,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		788		784
Amortization of deferred loan costs		362		284
Amortization of intangibles		602		600
Amortization of loss on investment tax credits		244		334
Provision for loan losses		2,400		1,500
Net gain on sale of other real estate owned		(9)		(110)
Loans originated for sale		(10,709)		(14,079)
Proceeds from sale of loans originated for sale		11,108		15,155
Net gain on sale of loans originated for sale		(399)		(469)
Net amortization of investment securities		1,997		2,054
Net gain on sale of investment securities		(623)		(832)
Life insurance investment income		(395)		(377)
Deferred income tax expense (benefit)				119
Stock based compensation		35		35
Net change in:
Accrued interest receivable		(156)		73
Other assets		(1,654)		(3,569)
Accrued interest payable		(107)		(131)
Other liabilities		(804)		(1,478)
Net cash provided by operating activities		12,417		9,368
Cash flows from investing activities:
Proceeds from sales of investment securities available-for-sale		27,408		50,981
Proceeds from repayments of investment securities:
Available-for-sale		23,013		28,253
Held-to-maturity		830		1,016
Purchases of investment securities:
Available-for-sale		(16,725)		(61,162)
Net (purchase) redemption of restricted equity securities		(1,475)		330
Net increase in lending activities		(125,528)		(22,571)
Investment in low income housing investment tax credits		(2,050)
Purchases of premises and equipment		(2,141)		(1,903)
Purchase of investment in life insurance		(1,500)
Proceeds from sale of other real estate owned		195		463
Net cash used in investing activities		(97,973)		(4,593)
Cash flows from financing activities:
Net increase (decrease) in deposits		41,053		(791)
Repayment of long-term debt		(1,122)		(1,477)
Net increase (decrease) in short-term borrowings		47,975		6,303
Retirement of common stock		(604)
Cash dividends paid		(4,586)		(4,679)
Net cash provided by (used in) financing activities		82,716		(644)
Net increase (decrease) in cash and cash equivalents		(2,840)		4,131
Cash and cash equivalents at beginning of year		32,917		31,426
Cash and cash equivalents at end of year	$	30,077	$	35,557

6

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)

(Dollars in thousands, except per share data)

For the Six Months Ended June 30,	2016		2015
Supplemental disclosures:
Cash paid during the period for:
Interest	$	3,592	$	3,114
Income taxes		1,800		1,800
Noncash items:
Transfers of loans to other real estate	$	761	$	247

See notes to unaudited consolidated financial statements

7

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and 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”), including its subsidiary, Peoples Advisors, LLC (collectively, the “Company” or “Peoples”). The Company services its retail and commercial customers through twenty-four full-service community banking offices located within the Bucks, Lackawanna, Lehigh, Luzerne, Monroe, Montgomery, Susquehanna, Wayne 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 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 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, 2016, are not necessarily indicative of the results of 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, impairment of goodwill and fair value of assets acquired and liabilities assumed in business combinations. 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 year ended December 31, 2015.

Recent accounting standards:

In May 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-11, “Revenue Recognition and Derivatives and Hedging.”ASU 2016-11 codifies the SEC’s rescission of certain SEC Staff Observer comments that were codified in Topic 605 and Topic 932.  In addition, the ASU codifies SEC’s rescission of SEC Staff Announcement, “Determining the Nature of a Host Contract Related to a Hybrid Instrument Issued in the Form of a Share under Topic 815,” which was previously codified in paragraph 815-10-S99-3.The effective date and transition requirements for ASU 2016-11 are the same as the effective date and transition requirements of Topic 606 and management is currently assessing the impact, if any, on its financial condition or results of operations.

In May 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-12, “Revenue from Contracts with Customers.” The amendments do not alter the core principle of the new revenue standard, but make certain targeted changes.

The effective date and transition requirements for ASU 2016-12 are the same as the effective date and transition requirements of Topic 606 and management is currently assessing the impact, if any, on its financial condition or results of operations.

8

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses and Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described aboveFurther, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basisThe Update has tiered effective dates with early adoption permitted for all entities as of the fiscal year beginning after December 15, 2018. The Company is still evaluating the impact on its financial condition or results of operations.

2. Other comprehensive income (loss):

The components of other comprehensive loss and their related tax effects are reported in the Consolidated Statements of Income and Comprehensive Income. The accumulated other comprehensive loss included in the Consolidated Balance Sheets relates to net unrealized gains and losses on investment securities available-for-sale and benefit plan adjustments.

The components of accumulated other comprehensive loss included in stockholders’ equity at June 30, 2016 and December 31, 2015 is as follows:

		June 30, 2016		December 31, 2015
Net unrealized gain on investment securities available-for-sale	$	6,093	$	4,593
Income tax		2,132		1,607
Net of income taxes		3,961		2,986
Benefit plan adjustments		(7,863)		(7,863)
Income tax		(2,752)		(2,752)
Net of income taxes		(5,111)		(5,111)
Accumulated other comprehensive loss	$	(1,150)	$	(2,125)

Other comprehensive income (loss) and related tax effects for the three and six months ended June 30, 2016 and 2015 is as follows:

Three Months Ended June 30,	2016		2015
Unrealized gain (loss) on investment securities available-for-sale	$	1,128	$	(1,459)
Net gain on the sale of investment securities available-for-sale(1)		(381)
Other comprehensive income (loss) gain before taxes		747		(1,459)
Income tax		261		(510)
Other comprehensive income (loss)	$	486	$	(949)

Six Months Ended June 30,	2016		2015
Unrealized gain (loss) on investment securities available-for-sale	$	2,123	$	(692)
Net gain on the sale of investment securities available-for-sale(1)		(623)		(832)
Other comprehensive income (loss) gain before taxes		1,500		(1,524)
Income tax		525		(533)
Other comprehensive income (loss)	$	975	$	(991)

9

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

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

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.

There were no shares considered anti-dilutive for the three and six month periods ended June 30, 2016 and 2015.

	2016				2015
For the Three Months Ended June 30,	Basic		Diluted		Basic		Diluted
Net Income	$	4,855	$	4,855	$	4,431	$	4,431
Average common shares outstanding		7,395,127		7,395,127		7,546,198		7,546,198
Earnings per share	$	0.66	$	0.66	$	0.59	$	0.59
	2016				2015
For the Six Months Ended June 30	Basic		Diluted		Basic		Diluted
Net Income	$	9,737	$	9,737	$	9,475	$	9,475
Average common shares outstanding		7,399,318		7,399,318		7,547,272		7,547,272
Earnings per share	$	1.32	$	1.32	$	1.26	$	1.26

4. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at June 30, 2016 and December 31, 2015 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2016	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Government-sponsored enterprises	$	58,307	$	438			$	58,745
State and municipals:
Taxable		14,767		1,182				15,949
Tax-exempt		119,021		4,136	$	2		123,155
Mortgage-backed securities:
U.S. Government agencies		25,878		189		13		26,054
U.S. Government-sponsored enterprises		27,316		241		78		27,479
Total	$	245,289	$	6,186	$	93	$	251,382
Held-to-maturity:
Tax-exempt state and municipals	$	6,864	$	488	$		$	7,352
Mortgage-backed securities:
U.S. Government agencies		76		2				78
U.S. Government-sponsored enterprises		4,322		313				4,635
Total	$	11,262	$	803	$		$	12,065

10

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2015	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	10,030			$	31	$	9,999
U.S. Government-sponsored enterprises		68,831	$	291		62		69,060
State and municipals:
Taxable		15,842		735		32		16,545
Tax-exempt		121,099		3,915		90		124,924
Mortgage-backed securities:
U.S. Government agencies		31,612		73		117		31,568
U.S. Government-sponsored enterprises		32,928		119		208		32,839
Total	$	280,342	$	5,133	$	540	$	284,935
Held-to-maturity:
Tax-exempt state and municipals	$	6,865	$	186	$	16	$	7,035
Mortgage-backed securities:
U.S. Government agencies		84		1				85
U.S. Government-sponsored enterprises		5,160		326				5,486
Total		12,109	$	513	$	16	$	12,606

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, 2016, is summarized as follows:

	Fair
June 30, 2016	Value
Within one year	$	28,145
After one but within five years		78,332
After five but within ten years		59,725
After ten years		31,647
		197,849
Mortgage-backed securities		53,533
Total	$	251,382

The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at June 30, 2016, is summarized as follows:

	Amortized		Fair
June 30, 2016	Cost		Value
Within one year
After one but within five years
After five but within ten years
After ten years	$	6,864	$	7,352
		6,864		7,352
Mortgage-backed securities		4,398		4,713
Total	$	11,262	$	12,065

Securities with a carrying value of $154,673 and $180,478 at June 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and repurchase agreements as required or permitted by law.

11

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-case basis. At June 30, 2016 and December 31, 2015, 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 other-than-temporary impairment (“OTTI”) has not been recognized at June 30, 2016 and December 31, 2015, 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
June 30, 2016	Value		Losses		Value		Losses		Value		Losses
U.S. Government-sponsored enterprises
State and municipals:
Taxable
Tax-exempt	$	2,749	$	1	$	633	$	1	$	3,382	$	2
Mortgage-backed securities:
U.S. Government agencies						1,844		13		1,844		13
U.S. Government-sponsored enterprises		1,341		1		2,658		77		3,999		78
Total	$	4,090	$	2	$	5,135	$	91	$	9,225	$	93

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2015	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities	$	9,999	$	31					$	9,999	$	31
U.S. Government-sponsored enterprises		34,159		62						34,159		62
State and municipals:
Taxable					$	532	$	32		532		32
Tax-exempt		21,341		87		1,952		19		23,293		106
Mortgage-backed securities:
U.S. Government agencies		15,114		56		5,477		61		20,591		117
U.S. Government-sponsored enterprises		17,647		104		6,030		104		23,677		208
Total	$	98,260	$	340	$	13,991	$	216	$	112,251	$	556

The Company had 24 investment securities, consisting of 11 tax-exempt state and municipal obligations, and 13 mortgage-backed securities that were in unrealized loss positions at June 30, 2016. Of these securities, one tax-exempt state and municipal obligation and five mortgage-backed securities 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 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, 2016. There was no OTTI recognized for the three or six months ended June 30, 2016 and 2015.

The Company had 88 investment securities, consisting of 38 tax-exempt state and municipal obligations, one taxable state and municipal obligation, one U.S. Treasury security, 12 U.S. Government-sponsored enterprise securities and 36 mortgage-backed securities that were in unrealized loss positions at December 31, 2015. Of these securities, seven mortgage-backed securities, four tax-exempt state and municipal securities, and one taxable state and municipal obligation were in a continuous unrealized loss position for twelve months or more.

12

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at June 30, 2016 and December 31, 2015 are summarized as follows. Net deferred loan costs were $668 and $690 at June 30, 2016 and December 31, 2015.

		June 30, 2016		December 31, 2015
Commercial	$	394,283	$	365,767
Real estate:
Commercial		647,058		567,277
Residential		299,037		306,218
Consumer		124,430		101,603
Total	$	1,464,808	$	1,340,865

The changes in the allowance for loan losses account by major classification of loan for the three and six months ended June 30, 2016 and 2015 are summarized as follows:

			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance April 1, 2016	$	3,322	$	4,616	$	4,359	$	1,646	$	215	$	14,158
Charge-offs		(393)		(48)		(126)		(65)				(632)
Recoveries		34		14		10		15				73
Provisions		300		495		222		83		100		1,200
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799
			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance January 1, 2016	$	3,042	$	4,245	$	4,082	$	1,583	$	23	$	12,975
Charge-offs		(396)		(103)		(126)		(130)				(755)
Recoveries		36		30		35		78				179
Provisions		581		905		474		148		292		2,400
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799

13

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

			Real estate
June 30, 2015	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance April 1, 2015	$	2,420	$	3,087	$	3,909	`	1,387	`	10,803
Charge-offs		(3)		(30)		(35)		(106)		(174)
Recoveries		3		5		3		38		49
Provisions		15		128		150		457		750
Ending balance	$	2,435	$	3,190	$	4,027	$	1,776	$	11,428
			Real estate
June 30, 2015	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2015	$	2,321	$	3,037	$	3,690	$	1,290	$	10,338
Charge-offs		(40)		(79)		(234)		(186)		(539)
Recoveries		64		6		8		51		129
Provisions		90		226		563		621		1,500
Ending balance	$	2,435	$	3,190	$	4,027	$	1,776	$	11,428

The allocation of the allowance for loan losses and the related loans by major classifications of loans at June 30, 2016 and December 31, 2015 is summarized as follows:

			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799
Ending balance: individually evaluated for impairment		615		405		723		71				1,814
Ending balance: collectively evaluated for impairment		2,648		4,672		3,742		1,608		315		12,985
Ending balance: loans acquired with deteriorated credit quality	$		$		$		$		$		$	—
Loans receivable:
Ending balance	$	394,283	$	647,058	$	299,037	$	124,430	$		$	1,464,808
Ending balance: individually evaluated for impairment		870		5,073		3,177		228				9,348
Ending balance: collectively evaluated for impairment		392,372		640,642		295,817		124,202				1,453,033
Ending balance: loans acquired with deteriorated credit quality	$	1,041	$	1,343	$	43	$		$		$	2,427

14

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

			Real estate
December 31, 2015	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	3,042	$	4,245	$	4,082	$	1,583	$	23	$	12,975
Ending balance: individually evaluated for impairment		759		126		1,138		117				2,140
Ending balance: collectively evaluated for impairment		2,283		4,012		2,944		1,466		23		10,728
Ending balance: loans acquired with deteriorated credit quality	$		$	107	$		$		$		$	107
Loans receivable:
Ending balance	$	365,767	$	567,277	$	306,218	$	101,603	$		$	1,340,865
Ending balance: individually evaluated for impairment		1,196		4,006		4,917		148				10,267
Ending balance: collectively evaluated for impairment		363,620		561,903		301,252		101,455				1,328,230
Ending balance: loans acquired with deteriorated credit quality	$	951	$	1,368	$	49	$		$		$	2,368

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.

15

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

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 June 30, 2016 and December 31, 2015:

			Special
June 30, 2016	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	386,532	$	4,960	$	2,791	$	$	394,283
Real estate:
Commercial		610,356		20,454		16,248			647,058
Residential		292,293		598		6,146			299,037
Consumer		124,218				212			124,430
Total	$	1,413,399	$	26,012	$	25,397	$	$	1,464,808

			Special
December 31, 2015	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	357,894	$	3,566	$	4,307	$	$	365,767
Real estate:
Commercial		538,130		10,150		18,997			567,277
Residential		296,587		983		8,648			306,218
Consumer		101,486				117			101,603
Total	$	1,294,097	$	14,699	$	32,069	$	$	1,340,865

Information concerning nonaccrual loans by major loan classification at June 30, 2016 and December 31, 2015 is summarized as follows:

		June 30, 2016		December 31, 2015
Commercial	$	1,262	$	1,632
Real estate:
Commercial		4,929		3,859
Residential		2,826		4,732
Consumer		228		148
Total	$	9,245	$	10,371

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
June 30, 2016	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	724	$	234	$	1,262	$	2,220	$	392,063	$	394,283
Real estate:
Commercial		2,172		617		4,929		7,718		639,340		647,058
Residential		1,673		289		4,545		6,507		292,530		299,037	$	1,719
Consumer		955		269		580		1,804		122,626		124,430		352
Total	$	5,524	$	1,409	$	11,316	$	18,249	$	1,446,559	$	1,464,808	$	2,071

16

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2015	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	126	$		$	1,632	$	1,758	$	364,009	$	365,767
Real estate:
Commercial		1,364		165		3,859		5,388		561,889		567,277
Residential		3,891		1,067		5,257		10,215		296,003		306,218	$	525
Consumer		705		353		386		1,444		100,159		101,603		238
Total	$	6,086	$	1,585	$	11,134	$	18,805	$	1,322,060	$	1,340,865	$	763

The following tables summarize information concerning impaired loans as of and for the three and six months ended June 30, 2016 and June 30, 2015, and as of and for the year ended, December 31, 2015 by major loan classification:

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2016	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,296	$	2,378			$	1,235	$	14	$	1,249	$	30
Real estate:
Commercial		5,517		6,181				4,340		30		3,643		61
Residential		1,941		2,124				2,079		3		2,355		11
Consumer		157		157				123				92
Total		8,911		10,840		—		7,777		47		7,339		102
With an allowance recorded:
Commercial		615		615	$	615		878				923
Real estate:
Commercial		899		899		405		1,964				2,400
Residential		1,279		1,279		723		1,136		2		1,295		4
Consumer		71		71		71		80				92
Total		2,864		2,864		1,814		4,058		2		4,710		4
Commercial		1,911		2,993		615		2,113		14		2,172		30
Real estate:
Commercial		6,416		7,080		405		6,304		30		6,043		61
Residential		3,220		3,403		723		3,215		5		3,650		15
Consumer		228		228		71		203		—		184		—
Total	$	11,775	$	13,704	$	1,814	$	11,835	$	49	$	12,049	$	106

17

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2015	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,352	$	2,720			$	1,848	$	87
Real estate:
Commercial		2,731		3,408				2,394		95
Residential		3,048		3,231				2,664		4
Consumer		31		31				17
Total		7,162		9,390				6,923		186
With an allowance recorded:
Commercial		795		795	$	759		1,680		40
Real estate:
Commercial		2,643		2,643		233		4,155		86
Residential		1,918		1,918		1,138		1,776		30
Consumer		117		117		117		126
Total		5,473		5,473		2,247		7,737		156
Commercial		2,147		3,515		759		3,528		127
Real estate:
Commercial		5,374		6,051		233		6,549		181
Residential		4,966		5,149		1,138		4,440		34
Consumer		148		148		117		143
Total	$	12,635	$	14,863	$	2,247	$	14,660	$	342

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2015	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,658	$	3,184			$	1,989	$	17	$	2,168		37
Real estate:
Commercial		2,140		2,852				2,169		28		2,366		47
Residential		2,734		2,917				2,503		1		2,488		2
Consumer								6				26
Total		6,532		8,953				6,667		46		7,048		86
With an allowance recorded:
Commercial		1,312		1,312	$	1,209		1,469	$	13		1,533	$	27
Real estate:
Commercial		5,316		5,316		1,445		4,628		48		4,182		65
Residential		1,706		1,706		796		1,673		7		1,593		17
Consumer		137		137		137		114				91
Total		8,471		8,471		3,587		7,884		68		7,399		109
Commercial		2,970		4,496		1,209		3,458		30		3,701		64
Real estate:
Commercial		7,456		8,168		1,445		6,797		76		6,548		112
Residential		4,440		4,623		796		4,176		8		4,081		19
Consumer		137		137		137		120				117
Total	$	15,003	$	17,424	$	3,587	$	14,551	$	114	$	14,447	$	195

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 $2,701 at June 30, 2016, $2,861 at December 31, 2015 and $3,046 at June 30, 2015.

18

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

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.

· Interest Only Modification - A modification in which the loan is converted to interest only payments for a period of time.

· 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 for the three months ended June 30, 2016.  For the six months ended June 30, 2016, one loan was modified as a troubled debt restructuring in the amount of $75.  There were four loans modified as troubled debt restructurings for the three months ended June 30, 2015, in the amount of $170.  For the six months ended June 30, 2015, there were eight loans modified as troubled debt restructurings in the amount of $554.During the three months ended June 30, 2016, there were no payment payment defaults on loans restructured within the last twelve months.  During the six months ended June 30, 2016, there were two payment defaults on restructured residential real estate loans totaling $208.  During the three and six months ended June 30, 2015; there were no payment defaults on loans restructured within the last twelve months.

6. Other assets:

The components of other assets at June 30, 2016, and December 31, 2015 are summarized as follows:

		June 30, 2016		December 31, 2015
Other real estate owned	$	1,353	$	957
Investment in residential housing program		8,550		6,744
Mortgage servicing rights		489		465
Bank owned life insurance		32,677		30,782
Restricted equity securities		6,878		5,403
Other assets		15,306		14,136
Total	$	65,253	$	58,487

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

19

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

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.

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

Cash and cash equivalents: The carrying values of cash and cash equivalents as reported on the balance sheet approximate fair value.

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.

Net loans: For adjustable-rate loans that re-price frequently and with no significant credit risk, fair values are based on carrying values. The fair values of other non-impaired loans are estimated using discounted cash flow analysis, using interest rates currently offered in the market for loans with similar terms to borrowers of similar credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis determined by the loan review function or underlying collateral values, where applicable.

Mortgage servicing rights: To determine the fair value, the Company estimates the present value of future cash flows incorporating assumptions such as cost of servicing, discount rates, prepayment speeds and default rates.

20

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

Accrued interest receivable: The carrying value of accrued interest receivable as reported on the balance sheet approximates fair value.

Restricted equity securities: The carrying values of restricted equity securities approximate fair value, due to the lack of marketability for these securities.

Deposits: The fair values of noninterest-bearing deposits and savings, NOW and money market accounts are the amounts payable on demand at the reporting date. The fair value estimates do not include the benefit that results from such low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. The carrying values of adjustable-rate, fixed-term time deposits approximate their fair values at the reporting date. For fixed-rate time deposits, the present value of future cash flows is used to estimate fair values. The discount rates used are the current rates offered for time deposits with similar maturities.

Short-term borrowings: The carrying values of short-term borrowings approximate fair value.

Long-term debt: The fair value of fixed-rate long-term debt is based on the present value of future cash flows. The discount rate used is the current rate offered for long-term debt with the same maturity.

Accrued interest payable: The carrying value of accrued interest payable as reported on the balance sheet approximates fair value.

Off-balance sheet financial instruments:

The majority of commitments to extend credit, unused portions of lines of credit and standby letters of credit carry current market interest rates if converted to loans. Because such commitments are generally unassignable of either the Company or the borrower, they only have value to the Company and the borrower. None of the commitments are subject to undue credit risk. The estimated fair values of off-balance sheet financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of off-balance sheet financial instruments was not material at June 30, 2016 and December 31, 2015.

Assets and liabilities measured at fair value on a recurring basis at June 30, 2016 and December 31, 2015 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant		Significant
			Active Markets for	Other Observable		Unobservable
			Identical Assets	Inputs		Inputs
June 30, 2016	Amount		(Level 1)	(Level 2)		(Level 3)
U.S. Government-sponsored enterprises	$	58,745	$	$	58,745	$
State and Municipals:
Taxable		15,949			15,949
Tax-exempt		123,155			123,155
Mortgage-backed securities:
U.S. Government agencies		26,054			26,054
U.S. Government-sponsored enterprises		27,479			27,479
Total	$	251,382	$	$	251,382	$

21

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2015	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	9,999	$	9,999			$
U.S. Government-sponsored enterprises		69,060			$	69,060
State and Municipals:
Taxable		16,545				16,545
Tax-exempt		124,924				124,924
Mortgage-backed securities:
U.S. Government agencies		31,568				31,568
U.S. Government-sponsored enterprises		32,839				32,839
Total	$	284,935	$	9,999	$	274,936	$

Assets and liabilities measured at fair value on a nonrecurring basis at June 30, 2016 and December 31, 2015 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
June 30, 2016	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	5,801			$	5,801
Other real estate owned	$	1,256			$	1,256

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2015	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	4,944			$	4,944
Other real estate owned	$	878			$	878

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
June 30, 2016	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	5,801	Appraisal of collateral	Appraisal adjustments	13.5% to 94.0%  (62.4)%
				Liquidation expenses	3.0% to 6.0% (5.3)%
Other real estate owned	$	1,256	Appraisal of collateral	Appraisal adjustments	20.0% to 54.1%  (35.9)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2015	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	4,944	Appraisal of collateral	Appraisal adjustments	3.3% to 97.0%  (61.7)%
				Liquidation expenses	3.0% to 6.0% (5.4)%
Other real estate owned	$	878	Appraisal of collateral	Appraisal adjustments	20.0% to 77.3%  (30.3)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

22

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

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 June 30, 2016 and December 31, 2015 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
June 30, 2016	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	30,077	$	30,077	$	30,077
Investment securities:
Available-for-sale		251,382		251,382			$	251,382
Held-to-maturity		11,262		12,065				12,065
Loans held for sale
Net loans		1,450,009		1,465,095					$	1,465,095
Accrued interest receivable		5,952		5,952				5,952
Mortgage servicing rights		489		1,543				1,543
Restricted equity securities		6,878		6,878				6,878
Total	$	1,756,049	$	1,772,992
Financial liabilities:
Deposits	$	1,496,863	$	1,499,201				1,499,201
Short-term borrowings		86,300		86,282				86,282
Long-term debt		59,232		61,334				61,334
Accrued interest payable		453		453			$	453
Total	$	1,642,848	$	1,647,270

23

Peoples Financial Services Corp.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and 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, 2015	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	32,917	$	32,917	$	32,917
Investment securities:
Available-for-sale		284,935		284,935	$	9,999	$	274,936
Held-to-maturity		12,109		12,606				12,606
Loans held for sale
Net loans		1,327,890		1,330,900					$	1,330,900
Accrued interest receivable		5,796		5,796				5,796
Mortgage servicing rights		465		1,543				1,543
Restricted equity securities		5,403		5,403				5,403
Total	$	1,669,515	$	1,674,100
Financial liabilities:
Deposits	$	1,455,810	$	1,455,979				1,455,979
Short-term borrowings		38,325		38,325				38,325
Long-term debt		60,354		61,412				61,412
Accrued interest payable		560		560			$	560
Total	$	1,555,049	$	1,556,276

8. Employee benefit plans:

The Company provides an Employee Stock Ownership Plan (“ESOP”) and a Retirement Profit Sharing Plan. The Company also maintains a Supplemental Executive Retirement Plan (“SERP”), an Employees’ Pension Plan, which is currently frozen, and a Postretirement Plan Life Insurance plan which was curtailed in 2013.

For the three and six months ended June 30, salaries and employee benefits expense includes approximately $329 and $603 in 2016 and $173 and $452 in 2015 relating to the employee benefit plans.

Components of net periodic benefit cost are as follows:

	Pension Benefits
Three Months Ended June 30,	2016		2015
Components of net periodic pension cost:
Service cost	$	166	$	174
Interest cost		(223)		(233)
Amortization of unrecognized net gain		52		50
Net periodic other benefit cost	$	(5)	$	(9)
	Pension Benefits
Six Months Ended June 30,	2016		2015
Components of net periodic pension cost:
Service cost	$	333	$	348
Interest cost		(447)		(466)
Amortization of unrecognized net gain		104		100
Net periodic other benefit cost	$	(10)	$	(18)

24

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and 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, 2015.

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 direct and indirect 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: 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; our ability to achieve the intended benefits of, or other risks associated with, business combinations; 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, 2015, 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 disclaims 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 the operating results or financial position of the Company.

Critical Accounting Policies:

Disclosure of our significant accounting policies are included in Note 1 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2015. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the most critical accounting policies upon which our financial condition and results of operation depend, and which involve the most complex subjective decisions or assessments, are included in Note 1 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and all amendments thereto, as filed with the Securities and Exchange Commission.

25

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and per share data)

Operating Environment:

The Federal Open Market Committee (“FOMC”) has held rates steady during the first half of 2016 citing global conditions, soft business investment, and weak exports as areas of concern. The FOMC noted improvement in labor markets for the month of June and further noted that near-term economic risks have diminished. However, the first estimate of gross domestic product (“GDP”), the value of all goods and services produced in the Nation, came in at an annualized rate of 1.2% for the second quarter of 2016, compared to the consensus forecast of 2.6%, indicating continued sluggishness in our economy. Additionally, first quarter GDP was revised down to 0.8% compared to 1.1% as initially reported. The consumer price index (“CPI”), excluding food and energy, increased slightly for the 12 months ended June 30, 2016 at 2.3% from 2.2% for the 12 months ended March 31, 2016.

Review of Financial Position:

Total assets increased $92,552, or 10.3% annualized, to $1,911,610 at June 30, 2016, from $1,819,058 at December 31, 2015. Loans, net increased to $1,464,808 at June 30, 2016, compared to $1,340,865 at December 31, 2015, an increase of $123,943 or 18.6% annualized. The increase in loans, net during 2016 has been funded through a decrease of investment securities available-for-sale and increases in deposits and short-term borrowings. Investment securities decreased $34,400 or 11.6% in 2016. Interest-bearing deposits increased $38,246; noninterest-bearing deposits increased $2,807. Total stockholders’ equity increased $5,557 or at an annual rate of 4.5%, from $248,768 at year-end 2015 to $254,325 at June 30, 2016. Compared to March 31, 2016, total assets increased $49,240 or 2.6% while loans, net increased $55,117 or 3.9% and deposits increased $21,404 or 1.5%. For the six months ended June 30, 2016, total assets averaged $1,876,831, an increase of $157,981 from $1,718,850 for the same period of 2015.

Investment Portfolio:

The majority of the investment portfolio is held 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 $251,382 at June 30, 2016, a decrease of $33,553, or 11.8% from $284,935 at December 31, 2015. The decrease primarily resulted from the sale of U.S. Treasury securities and U.S. Government sponsored agency securities in response to changes in the slope of the yield curve as well as maturing and called bonds and payments from mortgage backed holdings.  The proceeds were utilized to fund loan demand.  Investment securities held-to-maturity totaled $11,262 at June 30, 2016, a decrease of $847 or 7.0% from $12,109 at December 31, 2015 due to payments received from mortgage backed holdings.

For the six months ended June 30, 2016, the investment portfolio averaged $278,980, a decrease of $31,501 or 10.1% compared to $310,481 for the same period last year. The tax-equivalent yield on the investment portfolio increased 14 basis points to 2.90% for the six months ended June 30, 2016, from 2.76% for the comparable period of 2015. The yield increase is the result of selling lower yielding U.S. Treasury and agency securities. The tax-equivalent yield on the investment portfolio increased 4 basis points to 2.90% in the second quarter of 2016 compared to 2.86% in the first quarter of 2016.

Securities available-for-sale are carried at fair value, with unrealized gains or losses net of deferred income taxes reported in the accumulated other comprehensive income (loss) component of stockholders’ equity. We reported net unrealized gains, included as a separate component of stockholders’ equity of $3,961, net of deferred income taxes of $2,132, at June 30, 2016, and $2,986, net of deferred income taxes of $1,607, at December 31, 2015.

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

Loan Portfolio:

Loan growth was strong for the six months ended June 30, 2016. Loans, net increased to $1,464,808 at June 30, 2016 from $1,340,865 at December 31, 2015, an increase of $123,943 or 18.6% annualized. The growth reflected increases in commercial loans, commercial real estate loans and consumer loans, partially offset by a decrease in residential real estate loans. Commercial loans increased $28,516, or 15.7% annualized, to $394,283 at June 30, 2016 compared to

26

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and per share data)

$365,767 at December 31, 2015. Commercial real estate loans increased $79,781 or 28.3% annualized, to $647,058 at June 30, 2016 compared to $567,277 at December 31, 2015. Consumer loans increased $22,827, or 45.2% on an annualized basis, to $124,430 at June 30, 2016 compared to $101,603 at December 31, 2015. The primary contributor to the growth in consumer loans was our indirect loan portfolio which increased $25,044, due to increased consumer demand for automobiles and additional dealerships in the program in 2016.

Residential real estate loans decreased $7,181, or 4.7% on an annualized basis, to $299,037 at June 30, 2016 compared to $306,218 at December 31, 2015. The majority of residential real estate loans originated were sold into the secondary market in lieu of being retained in our loan portfolio to mitigate interest rate risk in the current low rate environment.

For the six months ended June 30, 2016, loans, net averaged $1,408,950, an increase of $178,327 or 14.5% compared to $1,230,623 for the same period of 2015. The tax-equivalent yield on the loan portfolio was 4.49% for the six months ended June 30, 2016, a 17 basis point decrease from the comparable period last year. Loan accretion income in the first six months of 2016 and 2015, which we recognized as a result of the 2013 Penseco merger, was $372 and $347 resulting in a 5 basis point increase in tax-equivalent yield on the loan portfolio in both periods. The tax-equivalent yield on the loan portfolio decreased to 4.47% for the second quarter of 2016 as compared to 4.52% for the first quarter of 2016 and fourth quarter of 2015.

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 June 30, 2016, totaled $397,200, consisting of $371,455 in unfunded commitments of existing loan facilities and $25,745 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, 2015 totaled $329,822, consisting of $309,805 in unfunded commitments of existing loans and $20,017 in standby letters of credit.

Asset Quality:

National, Pennsylvania, New York and market area unemployment rates at June 30, 2016 and 2015, are summarized as follows:

	June 30, 2016		June 30, 2015
United States	4.9	%	5.5	%
New York (statewide)	4.9		5.7
Pennsylvania (statewide)	5.4		5.5
Broome County	5.6		6.6
Bucks County	4.5		4.9
Lackawanna County	5.7		6.2
Lehigh County	5.3		5.7
Luzerne County	6.4		6.9
Monroe County	6.2		6.8
Montgomery County	4.0		4.3
Susquehanna County	6.1		6.0
Wayne County	6.3		6.5
Wyoming County	6.7	%	6.4	%

The employment conditions improved for the Nation, Pennsylvania, and New York and in all but two of the ten counties representing our market areas in Pennsylvania and New York from one year ago. Unemployment rates remained elevated relative to historical levels within many of our market areas.

27

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and per share data)

Nonperforming assets increased in the first half of 2016 by $738 or 5.9% to $13,202 at June 30, 2016, from $12,464 at December 31, 2015. We experienced a decrease in nonaccrual and restructured loans and foreclosed assets, which was more than offset by an increase in accruing loans past due 90 days or more. As a percentage of loans, net and foreclosed assets, nonperforming assets equaled 0.90% at June 30, 2016 compared to 0.93% at December 31, 2015.

Loans on nonaccrual status decreased $1,126 to $9,245 at June 30, 2016 from $10,371 at December 31, 2015. The majority of the decrease from year end was due to a decrease of $1,906 in residential real estate loans. The reduction in residential non-accrual loans was due to loans transferred to other real estate owned, loans returned to accral status and loans charged-off.  Nonaccrual commercial loans decreased $370, while nonaccrual commercial real estate loans increased $1,070, and nonaccrual consumer loans increased $80. Other real estate owned increased $396 to $1,353 at June 30, 2016 from $957 at December 31, 2015, as loans were transferred from non-accrual status.

Generally, maintaining a high loan to deposit ratio is our primary goal in order to maximize profitability. However, this objective is superseded by our attempts to assure that asset quality remains strong. We continued our 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 Financial Accounting Standards Board (“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, loan review identifies those loans to be individually evaluated for impairment and those loans collectively evaluated for impairment utilizing a standard criteria. Internal loan review grades are assigned quarterly to loans identified to be individually evaluated. A loan’s grade may differ from period to period based on current conditions and events, however, we consistently utilize the same grading system each quarter. 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 increased $1,824 to $14,799 at June 30, 2016, from $12,975 at the end of 2015. For the six months ended June 30, 2016, net charge-offs were $576 or 0.08% of average loans outstanding, a $166 increase compared to $410 or 0.07% of average loans outstanding in the same period of 2015.

Deposits:

We attract the majority of our deposits from within our ten county market area that stretches from Lehigh County in Pennsylvania to Broome County in the Southern Tier of New York State 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 six months ended June 30, 2016, total deposits increased to $1,496,863 from $1,455,810 at December 31, 2015. Interest-bearing deposits increased $38,246 and noninterest-bearing deposits increased $2,807. Interest-bearing transaction accounts, including NOW and money market accounts, increased $27,862, or 11.8% annualized, to $504,124 at June 30, 2016, from $476,262 at December 31, 2015. Time deposits less than $100 decreased $1,424, or 1.6% annualized, to $182,470 at June 30, 2016, from $183,894 at December 31, 2015. Increases in savings accounts of $3,051 and time deposits $100 or more of $8,757 were recorded in the six months ended June 30, 2016.

28

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and per share data)

For the six months ended June 30, 2016 interest-bearing deposits averaged $1,166,966 in 2016 compared to $1,116,900 in 2015. The cost of interest-bearing deposits was 0.45% in 2016 compared to 0.44% for the same period last year. For the first six months, the overall cost of interest-bearing liabilities including the cost of borrowed funds, was 0.55% in 2016 compared to 0.52% in 2015. The cost of interest-bearing liabilities increased 1 basis point when comparing the first and second quarters of 2016.

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.

Total short-term borrowings at June 30, 2016, totaled $86,300 compared to $38,325 at December 31, 2015, an increase of $47,975. Long-term debt was $59,232 at June 30, 2016, compared to $60,354 at year end 2015. The increase in short-term borrowing was a function of continued strong loan demand whereas the decline in long-term debt was a product of monthly contractual amortized payments made during the six months ended June 30, 2016.

Market Risk Sensitivity:

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

As a result of economic uncertainty and a prolonged era of historically low market rates, 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 the 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 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 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.

29

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and per share data)

Our cumulative one-year RSA/RSL ratio equaled 1.73% at June 30, 2016. Given the length of time that market rates have been at historical lows and the potential for rates to increase in the future, the focus of ALCO has been to create a positive 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 offer longer term promotional certificates of deposit in an attempt to increase duration. The current position at June 30, 2016, indicates that the amount of RSA repricing within one year would exceed that of RSL, thereby causing net interest income to increase as market rates increase. However, these forward-looking statements are qualified in the aforementioned section entitled “Forward-Looking Discussion” 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 June 30, 2016, 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. We will continue to monitor our IRR throughout 2016 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.

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. We believe liquidity is adequate to meet both present and future financial obligations and commitments on a timely basis.

We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans

30

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and per share data)

maturing after June 30, 2016. Our noncore funds at June 30, 2016, 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 June 30, 2016, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 14.9%, while our net short-term noncore funding dependence ratio, noncore funds maturing within one-year, less short-term investments to long-term assets equaled 8.4%. Comparatively, our overall noncore dependence ratio at year-end 2015 was 11.3% and our net short-term noncore funding dependence ratio was 4.1%, indicating that our reliance on noncore funds has increased.

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, decreased $2,840 during the six months ended June 30, 2016. Cash and cash equivalents increased $4,131 for the same period last year. For the six months ended June 30, 2016, net cash inflows of $12,417 from operating activities and $82,716 from financing activities were more than offset by net cash outflows of $97,973 from investing activities. For the same period of 2015, net cash inflows of $9,368 from operating activities were partially offset by net cash outflows of $4,593 from investing activities and $644 from financing activities.

Operating activities provided net cash of $12,417 for the six months ended June 30, 2016, and $9,368 for the corresponding six months of 2015. 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 $97,973 for the six months ended June 30, 2016, compared to using $4,593 for the same period of 2015. In 2016, an increase in lending activities was the primary factor causing the net cash outflow from investing activities. Investment portfolio activities was the predominant factor causing the net cash inflow from investing activities in 2015.

Financing activities provided net cash of $82,716 for the six months ended June 30, 2016, and used net cash of $644 for the corresponding six months of 2015. Deposit gathering is our predominant financing activity. Deposits increased for the six months ended June 30, 2016 and decreased during the six months ended June 30, 2015. The net increase in deposits totaled $41,053 in the six months ended June 30, 2016. Comparatively, deposit runoff used net cash of $791 for the same period of 2015. We continued to attract deposits from new markets and customers as well as existing customers, including municipalities and school districts, and deposits gathered in relation to natural gas activity within existing markets in Susquehanna and Wyoming Counties of Pennsylvania.  Another source of financing is our short term borrowings which increased $47,975 in the six months ended June 30, 2016 compared to a net increase of $6,303 in the first six months of 2015.

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 $254,325 or $34.40 per share at June 30, 2016, compared to $248,768 or $32.57 per share at December 31, 2015. Net income of $9,737 for the six months ended June 30, 2016 was the primary factor leading to the improved capital position. Stockholders’ equity was also affected by cash dividends declared of $4,586, shares retired of $604, stock based compensation of $35, and other comprehensive income resulting from market value fluctuations in the investment portfolio of $975.

Dividends declared equaled $0.62 per share for the first six months of 2016 and 2015. The dividend payout ratio was 47.0% for the six months ended June 30, 2016 and 49.2% for the same period of 2015. The merger agreement pursuant to which we merged with Penseco in 2013 contemplates that, unless 80 percent of our board of directors determines otherwise, we will pay a quarterly cash dividend in an amount no less than $0.31 per share through 2018, provided that

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Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and per share data)

sufficient funds are legally available, and that we remain “well-capitalized” in accordance with applicable regulatory guidelines. It is the intention of our board of directors to continue to pay cash dividends in the future. However, these decisions are affected by operating results, financial and economic decisions, capital and growth objectives, appropriate dividend restrictions and other relevant factors.

In July 2013, the Board of Governors of the FRB approved the Basel III interim final rule (“Basel III”) which is intended to strengthen the quality and increase the required level of regulatory capital for a more stable and resilient banking system. The changes include: (i) a new regulatory capital measure, Common Equity Tier 1 (“CET1”), which is limited to capital elements of the highest quality; (ii) a new definition and increase of tier 1 capital which is now comprised of CET1 and Additional Tier 1; (iii) changes in calculation of some risk-weighted assets and off-balance sheet exposure; and (iv) a capital conservation buffer that will limit capital distributions, stock redemptions, and certain discretionary bonus payments if the institution does not maintain capital in excess of the minimum capital requirements. These new capital rules took effect for our Bank on January 1, 2015 and reporting began with the quarter ended June 30, 2015. Under the final capital rules that became effective on January 1, 2015, there was a requirement for a CET1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over three years beginning in 2016.

The adequacy of capital is reviewed on an ongoing basis with reference to the size, composition and quality of resources and regulatory guidelines. We seek to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings. At June 30, 2016, the Bank’s Tier 1 capital to total average assets was 10.10% as compared to 10.48% at December 31, 2015. The Bank’s Tier 1 capital to risk weighted asset ratio was 12.24% and the total capital to risk weighted asset ratio was 13.23% at June 30, 2016. These ratios were 13.11% and 14.05% at December 31, 2015. The Bank’s common equity Tier 1 to risk weighted asset ratio was 12.24% at June 30, 2016 compared to 13.11% at December 31, 2015. The Bank was deemed to be well-capitalized under regulatory standards at June 30, 2016. Additionally, as of June 30, 2016, the Bank would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis as if all such requirements were currently in effect.

Review of Financial Performance:

Net income for the second quarter of 2016 equaled $4,855 or $0.66 per share compared to $4,431 or $0.59 per share for the second quarter of 2015. Return on average assets (“ROA”) measures our net income in relation to total assets. Our ROA was 1.03% for both the second quarter of 2016 and 2015. Return on average equity (“ROE”) indicates how effectively we can generate net income on the capital invested by stockholders. Our ROE was 7.72% for the second quarter of 2016 compared to 7.14% for the second quarter of 2015. Net income for the first half of 2016 equaled $9,737 or $1.32 per share compared to $9,475 or $1.26 per share for the first six months of 2015. Our ROA was 1.04% through the first six months of 2016 compared to 1.11% for the same period of 2015. Our ROE was 7.70% for the first half of 2016 compared to 7.71% for the comparable period in 2015. Gains on sale of investment securities were $623 for the six months ended June 30, 2016 and $832 for the same period in 2015.

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 comprise interest-bearing liabilities. Net interest income is impacted by:

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

· Changes in general market rates; and

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Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and per share data)

· 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 35.0% in 2016 and 2015.

For the three months ended June 30, tax-equivalent net interest income increased $1,237 to $16,184 in 2016 from $14,947 in 2015. The net interest spread decreased to 3.68% for the three months ended June 30, 2016 from 3.72% for the three months ended June 30, 2015. The tax-equivalent net interest margin decreased to 3.81% for the second quarter of 2016 from 3.84% for the comparable period of 2015. The tax-equivalent net interest margin for the first quarter of 2016 was also 3.81%. Loan accretion in the second quarter of 2016 related to loans acquired in the 2013 Penseco merger was $157, resulting in an increase in the tax-equivalent net interest margin of 4 basis points. Comparatively, loan accretion recognized on these loans in the second quarter of 2015 was $122 resulting in an increase in the tax-equivalent net interest margin of 3 basis points. Without such interest income, the tax equivalent net interest margin for the three months ended March 31 would have been 3.77% in 2016 and 3.81% in 2015.

For the three months ended June 30, tax-equivalent interest income on earning assets increased $1,554, to $17,949 in 2016 as compared to $16,395 in 2015. The overall yield on earning assets, on a fully tax-equivalent basis, increased 1 basis point for the three months ended June 30, 2016 to 4.23% as compared to 4.22% for the three months ended June 30, 2015. The increase in the yield on earning assets resulted from the sale of lower yielding investment securities available-for-sale in the second quarter of 2016. The overall yield earned on investments increased 21 basis points for the second quarter of 2016 to 2.95% from 2.74% for the second quarter of 2015. Average investments decreased to $270,843 for the quarter ended June 30, 2016 compared to $307,916 for the same period in 2015.

Total interest expense increased $317, to $1,765 for the three months ended June 30, 2016 from $1,448 for the three months ended June 30, 2015. An unfavorable volume variance caused the increase. An increase in the average volume of interest bearing liabilities of $163,900 coupled with the increased cost of funds comparing the three months ended June 30, 2016 and 2015 caused the increase.

For the six months ended June 30, tax-equivalent net interest income increased $2,252 to $32,026 in 2016 from $29,774 in 2015. The net interest spread decreased to 3.68% for the six months ended June 30, 2015 from 3.73% for the six months ended June 30, 2015. The tax-equivalent net interest margin for the six months ended June 30 was 3.81% in 2016 compared to 3.86% in 2015. Loan interest income in the six months ended June 30, 2016 related to loans acquired in the fourth quarter of 2013 was $372, resulting in an increase in the tax-equivalent net interest margin of 4 basis points. Comparatively, loan interest income on these loans recognized in the first six months of 2015 was $347, again resulting in an increase in the tax-equivalent net interest margin of 4 basis points. Without such interest income, the tax equivalent net interest margin for the six months ended June 30 would have been 3.77% in 2016 and 3.82% in 2015.

For the six months ended June 30, 2016, tax-equivalent interest income increased $2,753, to $35,510 as compared to $32,757 for the six months ended June 30, 2015. A volume variance in interest income of $6,246 attributable to an increase in the average balance of earning assets was partially offset by a $3,493 unfavorable rate variance due to a reduction in the yield on earning assets. Specifically, the increase was primarily due to a $178,327 increase in average loans for the first six months of 2016 from the same period in 2015. The overall yield on earning assets, on a fully tax-equivalent basis, decreased for the six months ended June 30, 2016 to 4.22% as compared to 4.25% for the six months ended June 30, 2015. This was a result of the continuation of the low interest rate environment along with increased market competition.

Total interest expense increased $502 to $3,485 for the six months ended June 30, 2016 from $2,983 for the six months ended June 30, 2015. A volume variance caused interest expenses to increase $810. The average volume of interest

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Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and per share data)

bearing liabilities increased to $1,284,821 for the six months ended June 30, 2016, as compared to $1,156,541 for the six months ended June 30, 2015. Offsetting the volume variance, a rate variance of $309 resulted in the increased interest expense through six months in 2016. The cost of funds increased to 0.55% for the six months ended June 30, 2016 as compared to 0.52% for the same period in 2015.

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 35%.

	Six months ended
	June 2016						June 2015
	Average		Interest Income/		Yield/		Average		Interest Income/		Yield/
	Balance		Interest		Rate		Balance		Interest		Rate
Assets:
Earning assets:
Loans:
Taxable	$	1,301,887	$	29,106	4.50	%	$	1,159,462	$	26,731	4.65	%
Tax-exempt		107,063		2,355	4.42			71,161		1,737	4.92
Investments:
Taxable		151,861		1,338	1.77			212,617		1,731	1.64
Tax-exempt		127,119		2,692	4.26			97,864		2,523	5.20
Interest-bearing deposits		2,517		19	1.52			6,672		26	0.79
Federal funds sold								7,190		9	0.25
Total earning assets		1,690,447		35,510	4.22	%		1,554,966		32,757	4.25	%
Less: allowance for loan losses		13,983						10,746
Other assets		200,367						174,630
Total assets	$	1,876,831		35,510			$	1,718,850		32,757
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Money market accounts	$	210,935		380	0.36	%	$	197,354		340	0.35	%
NOW accounts		292,795		544	0.37			260,267		468	0.36
Savings accounts		390,453		348	0.18			401,521		443	0.22
Time deposits less than $100		164,678		874	1.07			169,378		892	1.06
Time deposits $100 or more		108,105		459	0.85			88,380		317	0.72
Short-term borrowings		58,073		166	0.57			7,286		12	0.33
Long-term debt		59,782		714	2.40			32,355		511	3.18
Total interest-bearing liabilities		1,284,821		3,485	0.55			1,156,541		2,983	0.52
Noninterest-bearing deposits		320,923						299,518
Other liabilities		15,455						14,848
Stockholders’ equity		255,632						247,943
Total liabilities and stockholders’ equity	$	1,876,831		3,485			$	1,718,850		2,983
Net interest income/spread			$	32,025	3.68	%			$	29,774	3.73	%
Net interest margin					3.81	%					3.86	%
Tax-equivalent adjustments:
Loans			$	824					$	608
Investments				942						883
Total adjustments			$	1,766					$	1,491

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Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and 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 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 June 30, 2016.

For the three and six months ended June 30, 2016, the provision for loan losses totaled $1,200 and $2,400, compared to $750 and $1,500 for the same periods in 2015. The increase in the provision for the quarter and year-to-date periods ended June 30, 2016 were primarily a result of greater loan growth as compared to the corresponding periods of the prior year.

Noninterest Income:

Noninterest income for the second quarter increased $487 or 13.4% to $4,113 in 2016 from $3,626 in 2015. For the six months ended June 30, 2016, noninterest income totaled $8,004, an increase of $69 or 0.9% from $7,935 for the comparable period of 2015. Service charges, fees and commissions decreased $183, or 5.8% to $2,971 through six months in 2016 from $3,154 for the same period in 2015. Merchant services income increased $199 to $1,952 for the six months ended June 30, 2016 from $1,753 for the same period last year as a result of an increase in the number of merchant accounts serviced. Income generated from commissions and fees on fiduciary activities increased $10 to $956 for the six months ended June 30, 2016 in comparison to $946 for the same period in 2015 due to additional executor fees generated in 2016. Income generated from our wealth management division increased $305 to $708 through the first six months of 2016 in comparison to $403 over that same period in 2015 due to the addition of retirement plan servicing to the wealth management platform in 2016. Mortgage banking income decreased $71 to $399 for the first six months of 2016 compared to $470 for the comparable period in 2015 as the volume of loans originated for sale declined. Life insurance investment income increased $18 to $395 for the six months ended June 30, 2016 from $377 for the same period in 2015. We purchased an additional $1,500 of bank owned life insurance in February 2016 thus generating additional income. Gains from the sale of investment securities available-for-sale decreased to $623 for the six months ended June 30, 2016 compared to $832 for the same period in 2015.

For the three months ended June 30, noninterest income increased to $4,113 in 2016 from $3,626 in 2015. Increases in income from merchant services, wealth management and life insurance income were partially offset by declines in service charges, fees and commissions, commissions and fees on fiduciary activities, and mortgage banking income. Net gains on sale of investment securities available-for-sale were $381 for the quarter ended June 30, 2016. There were no gains on sale of investment securities available-for-sale during the corresponding quarter of 2015.

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 second quarter, noninterest expense increased $602 or 5.2% to $12,113 in 2016 from $11,511 in 2015. For the six months ended June 30, noninterest expense increased $1,126 or 5.0% to $23,731 in 2016 from $22,605 in 2015.

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Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except share and per share data)

Personnel costs increased 3.6%, net occupancy and equipment costs increased 1.4%, merchant services expense increased 16.7% and other expenses increased by 8.8% comparing year-to-date 2016 and 2015.

Salaries and employee benefits expense, which comprise the majority of noninterest expense, totaled $5,904 for the second quarter of 2016, an increase of $291 or 5.2% when compared to the second quarter of 2015. Salaries and employee benefits expense totaled $11,236 for the first six months of 2016, an increase of $390 or 3.6% when compared to the same period of 2015. Costs related to our build out of our expansion plan and wealth management group, as well as severance costs contributed to the increase. Additional resources have been put in place in support of our expansion into the Lehigh Valley market.  The increase in the wealth management group was due to our acquisition of a retirement planning services group in the second half of 2015. Severances totaled $412 during the six moths ended June 30, 2016.

We experienced a $96 or 4.5% increase in net occupancy and equipment expense comparing the second quarters of 2016 at $2,245 and 2015 at $2,149. We experienced a $65 or 1.4% increase in net occupancy and equipment expense comparing $4,682 for the first six months of 2016 and $4,617 for the same period in 2015. Unusually mild winter conditions led to a decrease in heating costs as well as a decrease in costs associated with snow removal during the first quarter of 2016 when compared to the first three months of 2015. Expenditures for occupancy and equipment related projects picked up during the second quarter of 2016 when compared to the second quarter of 2015.

Merchant services expense increased $98 or 15.1% to $748 for the three months ended June 30, 2016 from $650 for the same period in 2015. Merchant services expense increased $197 or 16.7% to $1,380 for the three months ended June 30, 2016 from $1,183 for the same period in 2015. The increase due to higher volumes correlates directly to the increase in merchant services income for the six months ended June 30, 2016.

For the second quarter, other expenses increased $115 or 4.1% to $2,919 from $2,804 comparing 2016 to 2015. For the six months ended June 30, other expenses increased $472 or 8.8% to $5,831 from $5,359 comparing 2016 to 2015. Higher contributions to the earned income tax credit (EITC) program of $408, in the current period, along with higher recruiting costs, coupled with gains on other real estate owned in the prior period were the primary reason for the increase.

Income Taxes:

We recorded income tax expense of $1,238 or 20.3% of pre-tax income, and $1,124 or 20.2% of pre-tax income for the three months ended June 30, 2016 and 2015. We recorded income tax expense of $2,395 or 19.7% of pre-tax income, and $2,638 or 21.8% of pre-tax income for the six months ended June 30, 2016 and 2015. The three months ended June 30, 2016 includes before tax investment tax credits of $619 compared to $567 for that same period last year. Additionally, a higher proportion of tax-exempt interest income to before tax income was recognized during the first half of 2016 compared to the same period in 2015.

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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 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.

The projected impacts of instantaneous changes in interest rates on our net interest income and economic value of equity at June 30, 2016, based on our simulation model, as compared to our ALCO policy limits are summarized as follows:

	June 30, 2016
	% Change in
Changes in Interest Rates (basis points)	Net Interest Income		Economic Value of Equity
	Metric	Policy	Metric	Policy
+400	3.2	(20.0)	10.4	(45.0)
+300	2.8	(20.0)	9.4	(35.0)
+200	2.0	(10.0)	7.4	(25.0)
+100	1.2	(10.0)	5.0	(15.0)
Static
(100)	(3.0)	(10.0)	(15.1)	(15.0)

Our simulation model creates pro forma net interest income scenarios under various interest rate shocks. Given instantaneous and parallel shifts in general market rates of plus 100 basis points, our projected net interest income for the 12 months ending June 30, 2016, would increase slightly at 1.2 percent 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, 2015, under the heading “Market Risk Sensitivity,” and are incorporated into this Item 3 by reference. There were no material changes in our market risk from December 31, 2015.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

At June 30, 2016, the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer (“PEO”) and principal financial officer (“PFO”) 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 PEO and PFO concluded that the disclosure controls and procedures, at June 30, 2016, were effective to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable

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Peoples Financial Services Corp.

assurance that information required to be disclosed in such reports is accumulated and communicated to the PEO and PFO 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 period ended June 30, 2016 and through the date of this quarterly report on Form 10-Q and no such legal proceedings known to be contemplated by governmental authorities.

Item 1A. Risk Factors.  

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

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

On February 2, 2016, we announced a stock repurchase program providing for the purchase of up to 225,000 shares of our outstanding common stock.  The timing, price and volume of repurchases under both programs were, and under the 2016 program will be, based on market conditions, relevant securities laws and other factors.

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 June 30, 2016.

				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
April 30, 2016	2,894	$	36.37	2,894	216,798
May 31, 2016	2,261	$	35.82	2,261	214,537
June 30, 2016					214,537

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.  

None.

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Item 6. Exhibits.  

10.1	Supplemental Executive Retirement Plan Agreement, effective February 1, 2016, by and among Peoples Security Bank and Trust Company, Peoples Financial Serices Corp. and Michael L. Jake.
31.1	Principal Executive Officer certification pursuant to Rule 13a-14(a)/15d-14(a).
31.2	Principal Financial Officer certification pursuant to Rule 13a-14(a)/15d-14(a).
32	Principal Executive Officer and Principal Financial Officer certifications pursuant to Section 1350.
101+	Interactive Data File

+ As provided in Rule 406T of Regulation S-T, this information is filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

39

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: August 5, 2016	/s/ Craig W. Best
	Craig W. Best
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: August 5, 2016	/s/ John R. Anderson, III
	John R. Anderson, III
	Interim Principal Financial and Accounting Officer
	(Principal Financial Officer and Principal Accounting Officer)

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Peoples Financial Services Corp.

EXHIBIT INDEX

Item Number	Description	Page
10.1	Supplemental Executive Retirement Plan Agreement, effective February 1, 2016, by and among Peoples Security Bank and Trust Company, Peoples Financial Services Corp. and Michael L. Jake.
31.1	Principal Executive Officer Certification Pursuant to Rule 13a-14 (a) /15d-14 (a).	43
31.2	Principal Financial Officer Certification Pursuant to Rule 13a-14 (a) /15d-14 (a).	44
32	Principal Executive Officer and Principal Financial Officer Certifications Pursuant to Section 1350.	45
101	The following materials from Peoples Financial Services Corp. Quarterly Report on Form 10-Q for the period ended June 30, 2016, formatted in 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 unaudited Consolidated Financial Statements.

41

EX-10.1

Exhibit 10.1

Peoples Security Bank and Trust Company

Supplemental Executive Retirement Plan Agreement

Peoples Security Bank and Trust Company

Supplemental Executive Retirement Plan Agreement

This Supplemental Executive Retirement Plan Agreement (this “Agreement”) is adopted effective February 1, 2016, by and among Peoples Security Bank and Trust Company, a Pennsylvania state chartered bank and trust company (the “Bank”), Peoples Financial Services Corp., a Pennsylvania corporation (the “Corporation”), and Michael L. Jake (the “Executive”).

WHEREAS, the purpose of this Agreement is to provide specified benefits to the Executive, a member of a select group of management or highly compensated employees who contribute materially to the continued growth, development and future business success of the Bank; and

WHEREAS, the Executive is currently employed by the Bank, and is qualified by education and experience to serve as the Bank’s Executive Vice President and Chief Risk Officer.

NOW THEREFORE, the parties hereto, intending to be legally bound, agree as follows.

Article 1

Definitions

Whenever used in this Agreement, the following words and phrases shall have the meanings specified:

1.1 “Beneficiary” means each designated person or entity, or the estate of the deceased Executive, entitled to any benefits upon the death of the Executive pursuant to Article 4.

1.2 “Beneficiary Designation Form” means the form established from time to time by the Plan Administrator that the Executive completes, signs and returns to the Plan Administrator to designate one or more Beneficiaries.

1.3 “Board” means the Board of Directors of the Corporation as from time to time constituted.

1.4 “Cause” means (i) conviction of, or the entry of a plea of guilty or no contest to a felony or any other crime of moral turpitude that causes the Corporation, the Bank or any of their subsidiaries or affiliates public disgrace or disrepute, or adversely affects their operations, financial performance, or relationship with its customers; (ii) fraud, embezzlement or other misappropriation of funds; (iii) illegal use of controlled drugs; (iv) refusal to perform the lawful and reasonable directives of the Chief Executive Officer of the Bank or the Board; (v) any government regulatory agency instructs the Corporation or Bank to terminate the employment of the Executive or relieve him of his duties; (vi) the Executive’s willful violation of any law, rule or regulation governing banks or bank officers; or (vii) the Executive’s unlawful discrimination, including harassment against employees, customers, business associates, contractors, or visitors of the Bank or the Corporation or any of their affiliates and subsidiaries.

1.5 “Change in Control” means a change in the ownership or effective control applicable to the Corporation or the Bank as described in Section 409(a)(2)(A)(v) of the Code (or any successor provision thereto) and the regulations thereunder.

1.6 “Code” means the Internal Revenue Code of 1986, as amended, and all regulations and guidance thereunder, including such regulations and guidance as may be promulgated after the Effective Date.

1.7 “Disability” means a condition entitling Executive to benefits under the long term disability plan, policy or arrangement maintained for employees of the Bank.

1.8 “Effective Date” means 2/1/2016.

Peoples Security Bank and Trust Company

Supplemental Executive Retirement Plan Agreement

1.9 “Normal Retirement Age” means age sixty-seven (67).

1.10 “Normal Retirement Date” means the later of Normal Retirement Age or Separation from Service.

1.11 “Plan Administrator” means the Board or such committee or person as the Board shall appoint.

1.12 “Plan Year” means each twelve (12) month period commencing on January 1 and ending on December 31 of each year.

1.13 “Separation from Service” means termination of the Executive’s employmentwith the Bank (and the Corporation, if applicable) constituting a “separation from service” within its meaning under Treasury Regulations Section 1.409A-1(h).

1.14 “Schedule A” means the schedule attached to this Agreement and made a part hereof.  Schedule A shall be updated upon a change in any of the benefit amounts under Article 2 or 3.

1.15 “Specified Employee” means a “specified employee” as defined in Treasury Regulations Section 1.409A-1(i).

1.16 “Termination for Cause” means a Separation from Service in connection with a termination of Executive’s employment by the Bank for Cause.

1.17 “Termination without Cause” means a Separation from Service as a result of a termination of Executive’s employment by the Bank without Cause.

Article 2

Distributions During Lifetime

2.1Normal Retirement Benefit.  Upon Separation from Service on or after attaining Normal Retirement Age, the Bank shall distribute to the Executive the benefit described in this Section 2.1 in lieu of any other benefit under this Article.

2.1.1Amount of Benefit.  The annual benefit under this Section 2.1 is Forty Thousand Dollars ($40,000).

2.1.2Distribution of Benefit.  The Bank shall distribute the annual benefit to the Executive in twelve (12) equal monthly installments commencing on the first day of the month following Normal Retirement Date.  The annual benefit shall be distributed to the Executive for ten (10) years.

2.2Disability Benefit.  If the Executive experiences a Disability which results in a Separation from Service prior to Normal Retirement Age, the Bank shall distribute to the Executive the benefit described in this Section 2.2 in lieu of any other benefit under this Article.

2.3.1Amount of Benefit.  The benefit under this Section 2.2 is the Disability Benefit set forth on Schedule A for the Plan Year ended immediately prior to the date in which Separation from Service due to Disability occurs. Additionally, the annual benefit amount shall be increased by a pro-rated amount relative to the Executive’s service during the partial Plan Year in which Separation from Service takes place.  This amount will be added to the Annual Benefit amount at the end of the preceding Plan Year on Schedule A.

2.3.2Distribution of Benefit.  The Bank shall distribute the annual benefit to the Executive in twelve (12) equal monthly installments commencing on the first day of the month following Separation from Service.  The annual benefit shall be distributed to the Executive for ten (10) years.

2.3Change in Control Benefit.  If a Change in Control occurs prior to Normal Retirement Age followed by Separation from Service within twenty-four (24) months following the Change in Control, the Bank shall

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Peoples Security Bank and Trust Company

Supplemental Executive Retirement Plan Agreement

distribute to the Executive the benefit described in this Section 2.3 in lieu of any other benefit under this Article.

2.4.1Amount of Benefit.  The annual benefit under this Section 2.3 is the Change in Control benefit set forth on Schedule A for the Plan Year ended immediately prior to the date Separation from Service occurs. Additionally, the annual benefit amount shall be increased by a pro-rated amount relative to the Executive’s service during the partial Plan Year in which Separation from Service takes place.  This amount will be added to the Annual Benefit amount at the end of the preceding Plan Year on Schedule A.

2.4.2Distribution of Benefit. The Bank shall distribute the annual benefit to the Executive in twelve (12) equal monthly installments commencing on the first day of the month following Separation from Service.  The annual benefit shall be distributed to the Executive for ten (10) years.

2.4Termination without Cause Prior to Normal Retirement Age. If the Executive experiences a Termination without Cause during or before the Plan Year in which the Executive attains Normal Retirement Age, the Bank shall distribute to the Executive the benefit described in this Section 2.4 in lieu of any other benefit under this Article.

2.4.1Amount of Benefit. The benefit under this Section 2.4 is the Termination without Cause Benefit set forth on Schedule A for the Plan Year ended immediately prior to the date in which the Termination without Cause prior to Normal Retirement Age occurs. Additionally, the annual benefit amount shall be increased by a pro-rated amount relative to the Executive’s service during the partial Plan Year in which such Separation from Service takes place. This amount will be added to the Annual Benefit amount at the end of the preceding Plan Year on Schedule A.

2.4.2Distribution of Benefit.  The Bank shall distribute the annual benefit to the Executive in twelve (12) equal monthly installments commencing on the first day of the month following the Termination without Cause.  The annual benefit shall be distributed to the Executive for ten (10) years.

2.5Restriction on Commencement of Distributions. Notwithstanding any provision of this Agreement to the contrary, if the Executive is considered a Specified Employee, the provisions of this Section 2.5 shall govern all distributions hereunder. If benefit distributions which would otherwise be made to the Executive due to Separation from Service are limited because the Executive is a Specified Employee, then such distributions shall not be made during the first six (6) months following Separation from Service. Rather, any distribution which would otherwise be paid to the Executive during such period shall be accumulated and paid to the Executive in a lump sum on the first day of the seventh month following Separation from Service. All subsequent distributions shall be paid in the manner specified.

2.6Distributions Upon Taxation of Amounts Deferred. If, pursuant to Code Section 409A, the Federal Insurance Contributions Act or other state, local or foreign tax, the Executive becomes subject to tax on the amounts deferred hereunder, then the Bank may make a limited distribution to the Executive in a manner that conforms to the requirements of Code Section 409A.  Any such distribution will decrease the Executive’s benefits distributable under this Agreement.

2.7Change in Form or Timing of Distributions.  For distribution of benefits under this Article 2, the Executive and the Bank may, subject to the terms of Section 8.1, amend this

Agreement to delay the timing or change the form of distributions.  Any such amendment shall be subject to approval by the Bank in its sole and absolute discretion and:

(a) may not accelerate the time or schedule of any distribution, except as provided in Code Section 409A;

(b) except for benefits distributable under Section 2.2, must delay the commencement of distributions for a minimum of five (5) years from the date the distribution was originally

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Peoples Security Bank and Trust Company

Supplemental Executive Retirement Plan Agreement

scheduled to be made; and

(c) must take effect not less than twelve (12) months after the amendment is made.

Article 3

Distribution at Death

3.1Death During Active Service.  If the Executive dies prior to Separation from Service, the Bank shall distribute to the Beneficiary the benefit described in this Section 3.1.  This benefit shall be distributed in lieu of any benefit under Article 2.

3.1.1Amount of Benefit.  The benefit under this Section 3.1 is the Normal Retirement Benefit as described in Section 2.1.1.

3.1.2Distribution of Benefit.  The Bank shall distribute the annual benefit to the Beneficiary in twelve (12) equal monthly installments commencing within sixty (60) days following the Executive’s death. The annual benefit shall be distributed to the Beneficiary for ten (10) years. The Beneficiary shall be required to provide to the Bank the Executive’s death certificate.

3.2Death During Distribution of a Benefit.  If the Executive dies after any benefit distributions have commenced under this Agreement but before receiving all such distributions, the Bank shall distribute the remaining benefits to the Beneficiary at the same time and in the same amounts they would have paid to the Executive had the Executive survived.  The Beneficiary shall be required to provide to the Bank the Executive’s death certificate.

Article 4

Beneficiaries

4.1In General.  The Executive shall have the right, at any time, to designate a Beneficiary to receive any benefit distributions under this Agreement upon the death of the Executive.  The Beneficiary designated under this Agreement may be the same as or different from the beneficiary designated under any other plan of the Bank in which the Executive participates.

4.2Designation.  The Executive shall designate a Beneficiary by completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator or its designated agent.  If the Executive names someone other than the Executive’s spouse as a Beneficiary, the Plan Administrator may, in its sole discretion, determine that spousal consent is required to be provided in a form designated by the Plan Administrator, executed by the Executive’s spouse and returned to the Plan Administrator.  The Executive's beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved.  The Executive shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Plan Administrator’s rules and procedures.  Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled.  The Plan Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator prior to the Executive’s death.

4.3Acknowledgment.  No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Plan Administrator or its designated agent.

4.4No Beneficiary Designation.  If the Executive dies without a valid beneficiary designation, or if all designated Beneficiaries predecease the Executive, then the Executive’s spouse shall be the designated Beneficiary.  If the Executive has no surviving spouse, any benefit shall be paid to the Executive's estate.

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Peoples Security Bank and Trust Company

Supplemental Executive Retirement Plan Agreement

4.5Facility of Distribution. If the Plan Administrator determines in its discretion that a benefit is to be distributed to a minor, to a person declared incompetent or to a person incapable of handling the disposition of that person’s property, the Plan Administrator may direct distribution of such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Plan Administrator may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Any distribution of a benefit shall be a distribution for the account of the Executive and the Beneficiary, as the case may be, and shall completely discharge any liability under this Agreement for such distribution amount.

Article 5

General Limitations

5.1Termination for Cause; Other Events. Notwithstanding any provision of this Agreement to the contrary, the Bank shall not distribute any benefit under this Agreement if (i) the Executive’s employment with the Bank is terminated by the Bank due to a Termination for Cause or (ii) the Executive has a Separation from Service other than one explicitly described under Sections 2.1 through 2.4 or Article 3.

5.2Suicide or Misstatement.  No benefit shall be distributed if the Executive commits suicide within two (2) years after the Effective Date, or if an insurance company which issued a life insurance policy covering the Executive and owned by the Bank denies coverage (i) for material misstatements of fact made by the Executive on an application for such life insurance, or (ii) for any other reason.

5.3Removal.Notwithstanding any provision of this Agreement to the contrary, the Bank shall not distribute any benefit under this Agreement if the Executive is subject to a final removal or prohibition order issued by an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act.

3.4 Regulatory Restrictions. Notwithstanding anything herein to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, shall be subject upon compliance with 12 U.S.C. 1828 and FDIC Regulation 12 CFR Part 359, Golden Parachute Indemnification Payments and any other regulations or guidance promulgated thereunder.

3.5 Section 280G.  If any payment or benefit due under this Agreement, together with all other payments and benefits that the Executive receives or is entitled to receive from the Bank, the Corporation or any of their subsidiaries, affiliates or related entities, would (if paid or provided) constitute a “parachute payment” (within the meaning under Section 280G(b)(2) of the Code) or an excise tax under Section 4999 of the Code, the amounts otherwise payable under this Agreement will be limited to the minimum extent necessary to ensure that no portion thereof will fail to be tax-deductible to the Corporation and Bank by reason of Section 280G of the Code or subject to an excise tax under Section 4999 of the Code.

3.6 Competition after Separation from Service.  Any unpaid benefits shall be forfeited if the Executive breaches any restrictive covenants (including, without limitation, any non-competition or non-solicitation restrictions) applicable to Executive.

Article 6

Administration of Agreement

6.1Plan Administrator Duties.  The Plan Administrator shall administer this Agreement according to its express terms and shall also have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Agreement and (ii) decide or resolve any and all questions, including interpretations of this Agreement, as may arise in connection with this Agreement to the extent the exercise of such discretion and authority does not conflict with Code Section 409A.

6.2Agents.  In the administration of this Agreement, the Plan Administrator may employ agents and delegate to them such administrative duties as the Plan Administrator sees fit, including acting through a duly appointed

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Peoples Security Bank and Trust Company

Supplemental Executive Retirement Plan Agreement

representative, and may from time to time consult with counsel who may be counsel to the Bank.

6.3Binding Effect of Decisions.  Any decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration, interpretation or application of this Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in this Agreement.

6.4Indemnity of Plan Administrator.  The Bank shall indemnify and hold harmless the Plan Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Plan Administrator.

6.5Bank Information.  To enable the Plan Administrator to perform its functions, the Bank shall supply full and timely information to the Plan Administrator on all matters relating to the date and circumstances of the Executive’s death, Disability or Separation from Service, and such other pertinent information as the Plan Administrator may reasonably require.

Article 7

Claims And Review Procedures

7.1Claims Procedure.  An Executive or Beneficiary (“claimant”) who has not received benefits under this Agreement that he or she believes should be distributed shall make a claim for such benefits as follows:

7.1.1Initiation – Written Claim.  The claimant initiates a claim by submitting to the Plan Administrator a written claim for the benefits.  If such a claim relates to the contents of a notice received by the claimant, the claim must be made within sixty (60) days after such notice was received by the claimant.  All other claims must be made within one hundred eighty (180) days of the date on which the event that caused the claim to arise occurred.  The claim must state with particularity the determination desired by the claimant.

7.1.2Timing of Plan Administrator Response.  The Plan Administrator shall respond to such claimant within thirty (30) days after receiving the claim.  If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional thirty (30) days by notifying the claimant in writing, prior to the end of the initial thirty (30) day period, which an additional period is required.  The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.

7.1.3Notice of Decision.  If the Plan Administrator denies part or all of the claim, the Plan Administrator shall notify the claimant in writing of such denial.  The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant.  The notification shall set forth:

(a)The specific reasons for the denial;

(b)A reference to the specific provisions of this Agreement on which the denial is based;

(c)A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed;

(d)An explanation of this Agreement’s review procedures and the time limits applicable to such procedures; and

(e)A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

7.2Review Procedure.  If the Plan Administrator denies part or the entire claim, the claimant shall have the opportunity for a full and fair review by the Plan Administrator of the denial as follows:

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Peoples Security Bank and Trust Company

Supplemental Executive Retirement Plan Agreement

7.2.1Initiation – Written Request.  To initiate the review, the claimant, within sixty (60) days after receiving the Plan Administrator’s notice of denial, must file with the Plan Administrator a written request for review.

7.2.2Additional Submissions – Information Access.  The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim.  The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

7.2.3Considerations on Review.  In considering the review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

7.2.4Timing of Plan Administrator Response.  The Plan Administrator shall respond in writing to such claimant within thirty (30) days after receiving the request for review.  If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional thirty (30) days by notifying the claimant in writing, prior to the end of the initial thirty (30) day period, which an additional period is required.  The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.

7.2.5Notice of Decision.  The Plan Administrator shall notify the claimant in writing of its decision on review.  The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant.  The notification shall set forth:

(a)The specific reasons for the denial;

(b)A reference to the specific provisions of this Agreement on which the denial is based;

(c)A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits; and

(d)A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

7.3Arbitration of Claims.  All claims or controversies arising out of or in connection with this Agreement shall, subject to the initial review provided for in the foregoing provisions of this Article, be resolved through arbitration.  Except as otherwise mutually agreed to by the parties, any arbitration shall be administered under and by the American Arbitration Association (“AAA”), in accordance with the AAA procedures then in effect.  The arbitration shall be held in the AAA office nearest to where the Executive is or was last employed by the Bank or at a mutually agreeable location.

Article 8

Amendments and Termination

3.1 Amendments.  This Agreement may be amended only by a written agreement signed by the Bank and the Executive.  However, the Bank may unilaterally amend this Agreement to conform with written directives to the Bank from its auditors or banking regulators or to comply with legislative changes or tax law, including without limitation Code Section 409A.

8.2Plan Termination Generally.  This Agreement may be terminated only by a written agreement signed by the Bank and the Executive.  The benefit shall be the Accrual Balance (as described in Exhibit A) as of the date this Agreement is terminated.  Except as provided in Section 8.3, the termination of this Agreement shall not cause a distribution of benefits under this Agreement.  Rather, upon such termination benefit distributions will be made at the earliest distribution event permitted under Article 2 or Article 3.

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Peoples Security Bank and Trust Company

Supplemental Executive Retirement Plan Agreement

8.3Plan Terminations Under Code Section 409A.  Notwithstanding anything to the contrary in Section 8.2, the Bank may terminate this Agreement pursuant to and in accordance with Treasury Regulation Section 1.409A-3(j)(4)(ix) (or any successor provision) and, upon such termination, the Bank may distribute the Accrual Balance (as described in Exhibit A), determined as of the date of the termination of this Agreement, to the Executive in a lump sum.

Article 9

Miscellaneous

9.1Binding Effect.  This Agreement shall bind the Executive and the Bank and their beneficiaries, survivors, executors, administrators and transferees.

9.2No Guarantee of Employment.  This Agreement is not a contract for employment.  It does not give the Executive the right to remain as an employee of the Bank nor interfere with the Bank's right to discharge the Executive.  It does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time.

9.3Non-Transferability.  Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

9.4Tax Withholding and Reporting.  The Bank shall withhold any taxes that are required to be withheld, including but not limited to taxes owed under Code Section 409A from the benefits provided under this Agreement.  The Executive acknowledges that the Bank’s sole liability regarding taxes is to forward any amounts withheld to the appropriate taxing authorities.  The Bank shall satisfy all applicable reporting requirements, including those under Code Section 409A.

9.5Applicable Law.  This Agreement and all rights hereunder shall be governed by the laws of the Commonwealth of Pennsylvania, except to the extent preempted by the laws of the United States of America.

9.6Unfunded Arrangement.  This Agreement shall be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time (“ERISA”).”  The Executive and the Beneficiary are general unsecured creditors of the Bank for the distribution of benefits under this Agreement.  The benefits represent the mere promise by the Bank to distribute such benefits.  The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors.  Any insurance on the Executive's life or other informal funding asset is a general asset of the Bank to which the Executive and Beneficiary have no preferred or secured claim.

9.7Entire Agreement.This Agreement constitutes the entire agreement between the Bank and the Executive as to the subject matter hereof.  No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.

9.8Interpretation.  Wherever the fulfillment of the intent and purpose of this Agreement requires and the context will permit, the use of the masculine gender includes the feminine and use of the singular includes the plural.

9.9Alternative Action.  In the event it shall become impossible for the Bank or the Plan Administrator to perform any act required by this Agreement due to regulatory or other constraints, the Bank or Plan Administrator may perform such alternative act as most nearly carries out the intent and purpose of this Agreement and is in the best interests of the Bank, provided that such alternative act does not violate Code Section 409A.

9.10Headings.  Article and section headings are for convenient reference only and shall not control or affect the meaning or construction of any provision herein.

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Peoples Security Bank and Trust Company

Supplemental Executive Retirement Plan Agreement

9.11Validity.  If any provision of this Agreement shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Agreement shall be construed and enforced as if such illegal or invalid provision had never been included herein.

9.12Notice.  Any notice or filing required or permitted to be given to the Bank or Plan Administrator under this Agreement shall be sufficient if in writing and hand-delivered or sent by registered or certified mail to the address below:

Peoples Financial Services Corp.

150 North Washington Ave

Scranton, PA 18504

Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

Any notice or filing required or permitted to be given to the Executive under this Agreement shall be sufficient if in writing and hand-delivered or sent by mail to the last known address of the Executive.

9.13Compliance with Section 409A.  This Agreement shall be interpreted and administered consistent with Code Section 409A.

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Peoples Security Bank and Trust Company

Supplemental Executive Retirement Plan Agreement

IN WITNESS WHEREOF, the Executive and a duly authorized representative of the Bank have signed this Agreement.

EXECUTIVE	PEOPLES SECURITY BANK AND TRUST COMPANY
/s/ Michael L. Jake	By: /s/Linda A. Gardner
Michael L. Jake	Name:Linda A. Gardner
	Title: VP/HR Manager
	PEOPLES FINANCIAL SERVICES CORP
	By: /s/Craig W. Best
	Name:Craig W. Best
	Title: President & CEO

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Supplemental Executive Retirement Plan
Schedule A

Michael Jake

Birth Date: XX/XX/1952 Plan Anniversary Date: 12/31/2016 Normal Retirement: 08/10/2019, Age 67 Normal Retirement Payment: Monthly for 10 Years					Termination Without Cause Prior to Normal Retirement Age			Disability	Change in Control	Death
					Amount Payable Monthly for 10 Years at Separation from Service			Amount Payable Monthly for 10 Years Upon Separation	Amount Payable Monthly for 10 Years Upon Separation	Amount Payable Monthly for 10 Years Upon Separation
Value As Of	Age	Discount Rate Pre/Post	Benefit Level	Based On	Vesting	Accrued Benefit Liability	Annual Benefit1	Annual Benefit1	Annual Benefit1, 2	Annual Benefit1, 2
Feb 2016	63	4.00%/4.00%	40,000	0	100.00%	0	0	0	40,000	40,000
Dec 2016	64	4.00%/4.00%	40,000	80,058	100.00%	80,058	9,694	9,694	40,000	40,000
Dec 2017	65	4.00%/4.00%	40,000	170,802	100.00%	170,802	20,682	20,682	40,000	40,000
Dec 2018	66	4.00%/4.00%	40,000	265,243	100.00%	265,243	32,118	32,118	40,000	40,000
Aug 2019	67	4.00%/4.00%	40,000	330,331	100.00%	330,331	40,000	40,000	40,000	40,000

The first line represents the initial plan values as of the plan implementation date of February 01, 2016.

1The annual benefit amount will be distributed in 12 equal monthly payments for a total of 120 monthly payments.

2 Note that accounting rules may require an additional accrual at the time this benefit is triggered.

IF THERE IS A CONFLICT BETWEEN THIS SCHEDULE A AND THE AGREEMENT, THE TERMS AND PROVISIONS OF THE AGREEMENT SHALL PREVAIL. IF A TRIGGERING EVENT OCCURS, REFER TO THE AGREEMENT TO DETERMINE THE ACTUAL BENEFIT AMOUNT BASED ON THE DATE OF THE EVENT.

/s/ Michael L. Jake	By: /s/Linda A. Gardner
Michael L. Jake	Title: VP/HR Manager
Date:  2/3/2016	Date:  2/3/2016

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 June 30, 2016, 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

President and Chief Executive Officer

(Principal Executive Officer)

Date: August 5, 2016

43

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 June 30, 2016, 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

Interim Principal Financial and Accounting Officer

(Interim Principal Financial Officer and Principal Accounting Officer)

Date: August 5, 2016

44

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 June 30, 2016, as filed with the Securities and Exchange Commission (the “Report”), I, Craig W. Best, President and 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

President and Chief Executive Officer

(Principal Executive Officer)

Date: August 5, 2016

/s/ John R. Anderson, III

Interim Principal Financial and Accounting Officer

(Interim Principal Financial Officer and Principal Accounting Officer)

Date: August 5, 2016

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.

45

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Jul. 29, 2016
Document And Entity Information
Entity Registrant Name	PEOPLES FINANCIAL SERVICES CORP.
Trading Symbol	pfis
Entity Central Index Key	0001056943
Document Type	10-Q
Document Period End Date	Jun. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		7,394,143
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Assets:
Cash and due from banks	$ 29,805	$ 28,218
Interest-bearing deposits in other banks	272	4,699
Investment securities:
Available-for-sale	251,382	284,935
Held-to-maturity: Fair value June 30, 2016, $12,065; December 31, 2015, $12,606	11,262	12,109
Total investment securities	262,644	297,044
Loans, net	1,464,808	1,340,865
Less: allowance for loan losses	14,799	12,975
Net loans	1,450,009	1,327,890
Premises and equipment, net	29,510	28,157
Accrued interest receivable	5,952	5,796
Goodwill	63,370	63,370
Intangible assets	4,795	5,397
Other assets	65,253	58,487
Total assets	1,911,610	1,819,058
Deposits:
Noninterest-bearing	323,785	320,978
Interest-bearing	1,173,078	1,134,832
Total deposits	1,496,863	1,455,810
Short-term borrowings	86,300	38,325
Long-term debt	59,232	60,354
Accrued interest payable	453	560
Other liabilities	14,437	15,241
Total liabilities	1,657,285	1,570,290
Stockholders' equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,394,143 shares at June 30, 2016 and 7,410,606 shares at December 31, 2015	14,788	14,821
Capital surplus	134,835	135,371
Retained earnings	105,852	100,701
Accumulated other comprehensive loss	(1,150)	(2,125)
Total stockholders' equity	254,325	248,768
Total liabilities and stockholders' equity	$ 1,911,610	$ 1,819,058

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Held-to-maturity, Fair Value	$ 12,065	$ 12,606
Common stock, par value	$ 2.00	$ 2.00
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	7,394,143	7,410,606
Common stock, shares outstanding		7,410,606

XML

Consolidated Statements of Income and Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Interest and fees on loans:
Taxable	$ 14,760	$ 13,391	$ 29,106	$ 26,731
Tax-exempt	780	570	1,531	1,129
Interest and dividends on investment securities:
Taxable	617	816	1,304	1,716
Tax-exempt	875	835	1,750	1,640
Dividends	11	6	21	15
Interest on interest-bearing deposits in other banks	15	15	32	26
Interest on federal funds sold		5		9
Total interest income	17,058	15,638	33,744	31,266
Interest expense:
Interest on deposits	1,322	1,192	2,605	2,460
Interest on short-term borrowings	89	4	166	12
Interest on long-term debt	354	252	714	511
Total interest expense	1,765	1,448	3,485	2,983
Net interest income	15,293	14,190	30,259	28,283
Provision for loan losses	1,200	750	2,400	1,500
Net interest income after provision for loan losses	14,093	13,440	27,859	26,783
Noninterest income:
Service charges, fees and commissions	1,527	1,542	2,971	3,154
Merchant services income	1,038	963	1,952	1,753
Commission and fees on fiduciary activities	474	487	956	946
Wealth management income	296	198	708	403
Mortgage banking income	195	248	399	470
Life insurance investment income	202	188	395	377
Net gain on sale of investment securities available-for-sale	381		623	832
Total noninterest income	4,113	3,626	8,004	7,935
Noninterest expense:
Salaries and employee benefits expense	5,904	5,613	11,236	10,846
Net occupancy and equipment expense	2,245	2,149	4,682	4,617
Merchant services expense	748	650	1,380	1,183
Amortization of intangible assets	297	295	602	600
Other expenses	2,919	2,804	5,831	5,359
Total noninterest expense	12,113	11,511	23,731	22,605
Income before income taxes	6,093	5,555	12,132	12,113
Income tax expense	1,238	1,124	2,395	2,638
Net income	4,855	4,431	9,737	9,475
Other comprehensive income (loss):
Unrealized gain on investment securities available-for-sale	1,128	(1,459)	2,123	(692)
Reclassification adjustment for net gain on sales included in net income	(381)		(623)	(832)
Other comprehensive income (loss)	747	(1,459)	1,500	(1,524)
Income tax related to other comprehensive income (loss)	261	(510)	525	(533)
Other comprehensive income (loss), net of income taxes	486	(949)	975	(991)
Comprehensive income	$ 5,341	$ 3,482	$ 10,712	$ 8,484
Net income:
Basic	$ 0.66	$ 0.59	$ 1.32	$ 1.26
Diluted	$ 0.66	$ 0.59	$ 1.32	$ 1.26
Average common shares outstanding:
Basic	7,395,127	7,546,198	7,399,318	7,547,272
Diluted	7,395,127	7,546,198	7,399,318	7,547,272
Dividends declared	$ 0.31	$ 0.31	$ 0.62	$ 0.62

XML

Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Capital Surplus	Retained Earnings	Accumulated Other Comprehensive Loss	Total
Balance at Dec. 31, 2014	$ 15,097	$ 140,214	$ 92,297	$ (829)	$ 246,779
Stock based compensation		35			35
Net income			9,475		9,475
Other comprehensive income (loss), net of income taxes				(991)	(991)
Dividends declared			(4,679)		(4,679)
Shares retired	(11)	(204)			(215)
Balance at Jun. 30, 2015	15,086	140,045	97,093	(1,820)	250,404
Balance at Dec. 31, 2015	14,821	135,371	100,701	(2,125)	248,768
Stock based compensation		35			35
Net income			9,737		9,737
Other comprehensive income (loss), net of income taxes				975	975
Dividends declared			(4,586)		(4,586)
Shares retired	(33)	(571)			(604)
Balance at Jun. 30, 2016	$ 14,788	$ 134,835	$ 105,852	$ (1,150)	$ 254,325

XML

Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - $ / shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Statement of Stockholders' Equity
Dividends declared (in dollars per share)	$ 0.62	$ 0.62
Share retired, shares	16,463	5,633

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities:
Net income	$ 9,737	$ 9,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment	788	784
Amortization of deferred loan costs	362	284
Amortization of intangibles	602	600
Amortization of loss on investment tax credits	244	334
Provision for loan losses	2,400	1,500
Net gain on sale of other real estate owned	(9)	(110)
Loans originated for sale	(10,709)	(14,079)
Proceeds from sale of loans originated for sale	11,108	15,155
Net gain on sale of loans originated for sale	(399)	(469)
Net amortization of investment securities	1,997	2,054
Net gain on sale of investment securities	(623)	(832)
Life insurance investment income	(395)	(377)
Deferred income tax expense (benefit)		119
Stock based compensation	35	35
Net change in:
Accrued interest receivable	(156)	73
Other assets	(1,654)	(3,569)
Accrued interest payable	(107)	(131)
Other liabilities	(804)	(1,478)
Net cash provided by operating activities	12,417	9,368
Cash flows from investing activities:
Proceeds from sales of investment securities available-for-sale	27,408	50,981
Proceeds from repayments of investment securities:
Available-for-sale	23,013	28,253
Held-to-maturity	830	1,016
Purchases of investment securities:
Available-for-sale	(16,725)	(61,162)
Net (purchase) redemption of restricted equity securities	(1,475)	330
Net increase in lending activities	(125,528)	(22,571)
Investment in low income housing tax credits	(2,050)
Purchases of premises and equipment	(2,141)	(1,903)
Purchases of investment in life insurance	(1,500)
Proceeds from sale of other real estate owned	195	463
Net cash used in investing activities	(97,973)	(4,593)
Cash flows from financing activities:
Net increase (decrease) in deposits	41,053	(791)
Repayment of long-term debt	(1,122)	(1,477)
Net increase (decrease) in short-term borrowings	47,975	6,303
Retirement of common stock	(604)
Cash dividends paid	(4,586)	(4,679)
Net cash provided by (used in) financing activities	82,716	(644)
Net increase (decrease) in cash and cash equivalents	(2,840)	4,131
Cash and cash equivalents at beginning of year	32,917	31,426
Cash and cash equivalents at end of year	30,077	35,557
Cash paid during the period for:
Interest	3,592	3,114
Income taxes	1,800	1,800
Noncash items:
Transfers of loans to other real estate	$ 761	$ 247

XML

Summary of significant accounting policies

6 Months Ended

Jun. 30, 2016

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”), including its subsidiary, Peoples Advisors, LLC (collectively, the “Company” or “Peoples”). The Company services its retail and commercial customers through twenty-four full-service community banking offices located within the Bucks, Lackawanna, Lehigh, Luzerne, Monroe, Montgomery, Susquehanna, Wayne 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 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 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, 2016, are not necessarily indicative of the results of 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, impairment of goodwill and fair value of assets acquired and liabilities assumed in business combinations. 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 year ended December 31, 2015.

Recent accounting standards:

In May 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-11, “Revenue Recognition and Derivatives and Hedging.”ASU 2016-11 codifies the SEC’s rescission of certain SEC Staff Observer comments that were codified in Topic 605 and Topic 932.  In addition, the ASU codifies SEC’s rescission of SEC Staff Announcement, “Determining the Nature of a Host Contract Related to a Hybrid Instrument Issued in the Form of a Share under Topic 815,” which was previously codified in paragraph 815-10-S99-3.The effective date and transition requirements for ASU 2016-11 are the same as the effective date and transition requirements of Topic 606 and management is currently assessing the impact, if any, on its financial condition or results of operations.

In May 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-12, “Revenue from Contracts with Customers.” The amendments do not alter the core principle of the new revenue standard, but make certain targeted changes.

The effective date and transition requirements for ASU 2016-12 are the same as the effective date and transition requirements of Topic 606 and management is currently assessing the impact, if any, on its financial condition or results of operations.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses and Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described aboveFurther, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basisThe Update has tiered effective dates with early adoption permitted for all entities as of the fiscal year beginning after December 15, 2018. The Company is still evaluating the impact on its financial condition or results of operations.

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Other comprehensive income (loss)

6 Months Ended

Jun. 30, 2016

Other comprehensive income (loss)

Other comprehensive income (loss)

2. Other comprehensive income (loss):

The components of other comprehensive loss and their related tax effects are reported in the Consolidated Statements of Income and Comprehensive Income. The accumulated other comprehensive loss included in the Consolidated Balance Sheets relates to net unrealized gains and losses on investment securities available-for-sale and benefit plan adjustments.

The components of accumulated other comprehensive loss included in stockholders’ equity at June 30, 2016 and December 31, 2015 is as follows:

		June 30, 2016		December 31, 2015
Net unrealized gain on investment securities available-for-sale	$	6,093	$	4,593
Income tax		2,132		1,607
Net of income taxes		3,961		2,986
Benefit plan adjustments		(7,863)		(7,863)
Income tax		(2,752)		(2,752)
Net of income taxes		(5,111)		(5,111)
Accumulated other comprehensive loss	$	(1,150)	$	(2,125)

Other comprehensive income (loss) and related tax effects for the three and six months ended June 30, 2016 and 2015 is as follows:

Three Months Ended June 30,	2016		2015
Unrealized gain (loss) on investment securities available-for-sale	$	1,128	$	(1,459)
Net gain on the sale of investment securities available-for-sale(1)		(381)
Other comprehensive income (loss) gain before taxes		747		(1,459)
Income tax		261		(510)
Other comprehensive income (loss)	$	486	$	(949)

Six Months Ended June 30,	2016		2015
Unrealized gain (loss) on investment securities available-for-sale	$	2,123	$	(692)
Net gain on the sale of investment securities available-for-sale(1)		(623)		(832)
Other comprehensive income (loss) gain before taxes		1,500		(1,524)
Income tax		525		(533)
Other comprehensive income (loss)	$	975	$	(991)

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

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Earnings per share

6 Months Ended

Jun. 30, 2016

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.

There were no shares considered anti-dilutive for the three and six month periods ended June 30, 2016 and 2015.

	2016				2015
For the Three Months Ended June 30,	Basic		Diluted		Basic		Diluted
Net Income	$	4,855	$	4,855	$	4,431	$	4,431
Average common shares outstanding		7,395,127		7,395,127		7,546,198		7,546,198
Earnings per share	$	0.66	$	0.66	$	0.59	$	0.59
	2016				2015
For the Six Months Ended June 30	Basic		Diluted		Basic		Diluted
Net Income	$	9,737	$	9,737	$	9,475	$	9,475
Average common shares outstanding		7,399,318		7,399,318		7,547,272		7,547,272
Earnings per share	$	1.32	$	1.32	$	1.26	$	1.26

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Investment securities

6 Months Ended

Jun. 30, 2016

Investment securities

Investment securities

4. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at June 30, 2016 and December 31, 2015 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2016	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Government-sponsored enterprises	$	58,307	$	438			$	58,745
State and municipals:
Taxable		14,767		1,182				15,949
Tax-exempt		119,021		4,136	$	2		123,155
Mortgage-backed securities:
U.S. Government agencies		25,878		189		13		26,054
U.S. Government-sponsored enterprises		27,316		241		78		27,479
Total	$	245,289	$	6,186	$	93	$	251,382
Held-to-maturity:
Tax-exempt state and municipals	$	6,864	$	488	$		$	7,352
Mortgage-backed securities:
U.S. Government agencies		76		2				78
U.S. Government-sponsored enterprises		4,322		313				4,635
Total	$	11,262	$	803	$		$	12,065

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2015	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	10,030			$	31	$	9,999
U.S. Government-sponsored enterprises		68,831	$	291		62		69,060
State and municipals:
Taxable		15,842		735		32		16,545
Tax-exempt		121,099		3,915		90		124,924
Mortgage-backed securities:
U.S. Government agencies		31,612		73		117		31,568
U.S. Government-sponsored enterprises		32,928		119		208		32,839
Total	$	280,342	$	5,133	$	540	$	284,935
Held-to-maturity:
Tax-exempt state and municipals	$	6,865	$	186	$	16	$	7,035
Mortgage-backed securities:
U.S. Government agencies		84		1				85
U.S. Government-sponsored enterprises		5,160		326				5,486
Total		12,109	$	513	$	16	$	12,606

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, 2016, is summarized as follows:

	Fair
June 30, 2016	Value
Within one year	$	28,145
After one but within five years		78,332
After five but within ten years		59,725
After ten years		31,647
		197,849
Mortgage-backed securities		53,533
Total	$	251,382

The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at June 30, 2016, is summarized as follows:

	Amortized		Fair
June 30, 2016	Cost		Value
Within one year
After one but within five years
After five but within ten years
After ten years	$	6,864	$	7,352
		6,864		7,352
Mortgage-backed securities		4,398		4,713
Total	$	11,262	$	12,065

Securities with a carrying value of $154,673 and $180,478 at June 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and repurchase agreements 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 June 30, 2016 and December 31, 2015, 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 other-than-temporary impairment (“OTTI”) has not been recognized at June 30, 2016 and December 31, 2015, 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
June 30, 2016	Value		Losses		Value		Losses		Value		Losses
U.S. Government-sponsored enterprises
State and municipals:
Taxable
Tax-exempt	$	2,749	$	1	$	633	$	1	$	3,382	$	2
Mortgage-backed securities:
U.S. Government agencies						1,844		13		1,844		13
U.S. Government-sponsored enterprises		1,341		1		2,658		77		3,999		78
Total	$	4,090	$	2	$	5,135	$	91	$	9,225	$	93

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2015	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities	$	9,999	$	31					$	9,999	$	31
U.S. Government-sponsored enterprises		34,159		62						34,159		62
State and municipals:
Taxable					$	532	$	32		532		32
Tax-exempt		21,341		87		1,952		19		23,293		106
Mortgage-backed securities:
U.S. Government agencies		15,114		56		5,477		61		20,591		117
U.S. Government-sponsored enterprises		17,647		104		6,030		104		23,677		208
Total	$	98,260	$	340	$	13,991	$	216	$	112,251	$	556

The Company had 24 investment securities, consisting of 11 tax-exempt state and municipal obligations, and 13 mortgage-backed securities that were in unrealized loss positions at June 30, 2016. Of these securities, one tax-exempt state and municipal obligation and five mortgage-backed securities 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 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, 2016. There was no OTTI recognized for the three or six months ended June 30, 2016 and 2015.

The Company had 88 investment securities, consisting of 38 tax-exempt state and municipal obligations, one taxable state and municipal obligation, one U.S. Treasury security, 12 U.S. Government-sponsored enterprise securities and 36 mortgage-backed securities that were in unrealized loss positions at December 31, 2015. Of these securities, seven mortgage-backed securities,  four tax-exempt state and municipal securities, and one taxable state and municipal obligation were in a continuous unrealized loss position for twelve months or more.

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Loans, net and allowance for loan losses

6 Months Ended

Jun. 30, 2016

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 June 30, 2016 and December 31, 2015 are summarized as follows. Net deferred loan costs were $668 and $690 at June 30, 2016 and December 31, 2015.

		June 30, 2016		December 31, 2015
Commercial	$	394,283	$	365,767
Real estate:
Commercial		647,058		567,277
Residential		299,037		306,218
Consumer		124,430		101,603
Total	$	1,464,808	$	1,340,865

The changes in the allowance for loan losses account by major classification of loan for the three and six months ended June 30, 2016 and 2015 are summarized as follows:

			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance April 1, 2016	$	3,322	$	4,616	$	4,359	$	1,646	$	215	$	14,158
Charge-offs		(393)		(48)		(126)		(65)				(632)
Recoveries		34		14		10		15				73
Provisions		300		495		222		83		100		1,200
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799
			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance January 1, 2016	$	3,042	$	4,245	$	4,082	$	1,583	$	23	$	12,975
Charge-offs		(396)		(103)		(126)		(130)				(755)
Recoveries		36		30		35		78				179
Provisions		581		905		474		148		292		2,400
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799

			Real estate
June 30, 2015	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance April 1, 2015	$	2,420	$	3,087	$	3,909	`	1,387	`	10,803
Charge-offs		(3)		(30)		(35)		(106)		(174)
Recoveries		3		5		3		38		49
Provisions		15		128		150		457		750
Ending balance	$	2,435	$	3,190	$	4,027	$	1,776	$	11,428
			Real estate
June 30, 2015	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2015	$	2,321	$	3,037	$	3,690	$	1,290	$	10,338
Charge-offs		(40)		(79)		(234)		(186)		(539)
Recoveries		64		6		8		51		129
Provisions		90		226		563		621		1,500
Ending balance	$	2,435	$	3,190	$	4,027	$	1,776	$	11,428

The allocation of the allowance for loan losses and the related loans by major classifications of loans at June 30, 2016 and December 31, 2015 is summarized as follows:

			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799
Ending balance: individually evaluated for impairment		615		405		723		71				1,814
Ending balance: collectively evaluated for impairment		2,648		4,672		3,742		1,608		315		12,985
Ending balance: loans acquired with deteriorated credit quality	$		$		$		$		$		$	—
Loans receivable:
Ending balance	$	394,283	$	647,058	$	299,037	$	124,430	$		$	1,464,808
Ending balance: individually evaluated for impairment		870		5,073		3,177		228				9,348
Ending balance: collectively evaluated for impairment		392,372		640,642		295,817		124,202				1,453,033
Ending balance: loans acquired with deteriorated credit quality	$	1,041	$	1,343	$	43	$		$		$	2,427

			Real estate
December 31, 2015	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	3,042	$	4,245	$	4,082	$	1,583	$	23	$	12,975
Ending balance: individually evaluated for impairment		759		126		1,138		117				2,140
Ending balance: collectively evaluated for impairment		2,283		4,012		2,944		1,466		23		10,728
Ending balance: loans acquired with deteriorated credit quality	$		$	107	$		$		$		$	107
Loans receivable:
Ending balance	$	365,767	$	567,277	$	306,218	$	101,603	$		$	1,340,865
Ending balance: individually evaluated for impairment		1,196		4,006		4,917		148				10,267
Ending balance: collectively evaluated for impairment		363,620		561,903		301,252		101,455				1,328,230
Ending balance: loans acquired with deteriorated credit quality	$	951	$	1,368	$	49	$		$		$	2,368

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 June 30, 2016 and December 31, 2015:

			Special
June 30, 2016	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	386,532	$	4,960	$	2,791	$	$	394,283
Real estate:
Commercial		610,356		20,454		16,248			647,058
Residential		292,293		598		6,146			299,037
Consumer		124,218				212			124,430
Total	$	1,413,399	$	26,012	$	25,397	$	$	1,464,808

			Special
December 31, 2015	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	357,894	$	3,566	$	4,307	$	$	365,767
Real estate:
Commercial		538,130		10,150		18,997			567,277
Residential		296,587		983		8,648			306,218
Consumer		101,486				117			101,603
Total	$	1,294,097	$	14,699	$	32,069	$	$	1,340,865

Information concerning nonaccrual loans by major loan classification at June 30, 2016 and December 31, 2015 is summarized as follows:

		June 30, 2016		December 31, 2015
Commercial	$	1,262	$	1,632
Real estate:
Commercial		4,929		3,859
Residential		2,826		4,732
Consumer		228		148
Total	$	9,245	$	10,371

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
June 30, 2016	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	724	$	234	$	1,262	$	2,220	$	392,063	$	394,283
Real estate:
Commercial		2,172		617		4,929		7,718		639,340		647,058
Residential		1,673		289		4,545		6,507		292,530		299,037	$	1,719
Consumer		955		269		580		1,804		122,626		124,430		352
Total	$	5,524	$	1,409	$	11,316	$	18,249	$	1,446,559	$	1,464,808	$	2,071

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2015	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	126	$		$	1,632	$	1,758	$	364,009	$	365,767
Real estate:
Commercial		1,364		165		3,859		5,388		561,889		567,277
Residential		3,891		1,067		5,257		10,215		296,003		306,218	$	525
Consumer		705		353		386		1,444		100,159		101,603		238
Total	$	6,086	$	1,585	$	11,134	$	18,805	$	1,322,060	$	1,340,865	$	763

The following tables summarize information concerning impaired loans as of and for the three and six months ended June 30, 2016 and June 30, 2015, and as of and for the year ended, December 31, 2015 by major loan classification:

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2016	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,296	$	2,378			$	1,235	$	14	$	1,249	$	30
Real estate:
Commercial		5,517		6,181				4,340		30		3,643		61
Residential		1,941		2,124				2,079		3		2,355		11
Consumer		157		157				123				92
Total		8,911		10,840		—		7,777		47		7,339		102
With an allowance recorded:
Commercial		615		615	$	615		878				923
Real estate:
Commercial		899		899		405		1,964				2,400
Residential		1,279		1,279		723		1,136		2		1,295		4
Consumer		71		71		71		80				92
Total		2,864		2,864		1,814		4,058		2		4,710		4
Commercial		1,911		2,993		615		2,113		14		2,172		30
Real estate:
Commercial		6,416		7,080		405		6,304		30		6,043		61
Residential		3,220		3,403		723		3,215		5		3,650		15
Consumer		228		228		71		203		—		184		—
Total	$	11,775	$	13,704	$	1,814	$	11,835	$	49	$	12,049	$	106

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2015	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,352	$	2,720			$	1,848	$	87
Real estate:
Commercial		2,731		3,408				2,394		95
Residential		3,048		3,231				2,664		4
Consumer		31		31				17
Total		7,162		9,390				6,923		186
With an allowance recorded:
Commercial		795		795	$	759		1,680		40
Real estate:
Commercial		2,643		2,643		233		4,155		86
Residential		1,918		1,918		1,138		1,776		30
Consumer		117		117		117		126
Total		5,473		5,473		2,247		7,737		156
Commercial		2,147		3,515		759		3,528		127
Real estate:
Commercial		5,374		6,051		233		6,549		181
Residential		4,966		5,149		1,138		4,440		34
Consumer		148		148		117		143
Total	$	12,635	$	14,863	$	2,247	$	14,660	$	342

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2015	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,658	$	3,184			$	1,989	$	17	$	2,168		37
Real estate:
Commercial		2,140		2,852				2,169		28		2,366		47
Residential		2,734		2,917				2,503		1		2,488		2
Consumer								6				26
Total		6,532		8,953				6,667		46		7,048		86
With an allowance recorded:
Commercial		1,312		1,312	$	1,209		1,469	$	13		1,533	$	27
Real estate:
Commercial		5,316		5,316		1,445		4,628		48		4,182		65
Residential		1,706		1,706		796		1,673		7		1,593		17
Consumer		137		137		137		114				91
Total		8,471		8,471		3,587		7,884		68		7,399		109
Commercial		2,970		4,496		1,209		3,458		30		3,701		64
Real estate:
Commercial		7,456		8,168		1,445		6,797		76		6,548		112
Residential		4,440		4,623		796		4,176		8		4,081		19
Consumer		137		137		137		120				117
Total	$	15,003	$	17,424	$	3,587	$	14,551	$	114	$	14,447	$	195

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 $2,701 at June 30, 2016, $2,861 at December 31, 2015 and $3,046 at June 30, 2015.

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.

· Interest Only Modification - A modification in which the loan is converted to interest only payments for a period of time.

· 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 for the three months ended June 30, 2016.  For the six months ended June 30, 2016, one loan was modified as a troubled debt restructuring in the amount of $75.  There were four loans modified as troubled debt restructurings for the three months ended June 30, 2015, in the amount of $170.  For the six months ended June 30, 2015, there were eight loans modified as troubled debt restructurings in the amount of $554.During the three months ended June 30, 2016, there were no payment payment defaults on loans restructured within the last twelve months.  During the six months ended June 30, 2016, there were two payment defaults on restructured residential real estate loans totaling $208.  During the three and six months ended June 30, 2015; there were no payment defaults on loans restructured within the last twelve months.

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Other assets

6 Months Ended

Jun. 30, 2016

Other assets.

Other assets

6. Other assets:

The components of other assets at June 30, 2016, and December 31, 2015 are summarized as follows:

		June 30, 2016		December 31, 2015
Other real estate owned	$	1,353	$	957
Investment in residential housing program		8,550		6,744
Mortgage servicing rights		489		465
Bank owned life insurance		32,677		30,782
Restricted equity securities		6,878		5,403
Other assets		15,306		14,136
Total	$	65,253	$	58,487

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Fair value estimates

6 Months Ended

Jun. 30, 2016

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.

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

Cash and cash equivalents: The carrying values of cash and cash equivalents as reported on the balance sheet approximate fair value.

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.

Net loans: For adjustable-rate loans that re-price frequently and with no significant credit risk, fair values are based on carrying values. The fair values of other non-impaired loans are estimated using discounted cash flow analysis, using interest rates currently offered in the market for loans with similar terms to borrowers of similar credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis determined by the loan review function or underlying collateral values, where applicable.

Mortgage servicing rights: To determine the fair value, the Company estimates the present value of future cash flows incorporating assumptions such as cost of servicing, discount rates, prepayment speeds and default rates.

Accrued interest receivable: The carrying value of accrued interest receivable as reported on the balance sheet approximates fair value.

Restricted equity securities: The carrying values of restricted equity securities approximate fair value, due to the lack of marketability for these securities.

Deposits: The fair values of noninterest-bearing deposits and savings, NOW and money market accounts are the amounts payable on demand at the reporting date. The fair value estimates do not include the benefit that results from such low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. The carrying values of adjustable-rate, fixed-term time deposits approximate their fair values at the reporting date. For fixed-rate time deposits, the present value of future cash flows is used to estimate fair values. The discount rates used are the current rates offered for time deposits with similar maturities.

Short-term borrowings: The carrying values of short-term borrowings approximate fair value.

Long-term debt: The fair value of fixed-rate long-term debt is based on the present value of future cash flows. The discount rate used is the current rate offered for long-term debt with the same maturity.

Accrued interest payable: The carrying value of accrued interest payable as reported on the balance sheet approximates fair value.

Off-balance sheet financial instruments:

The majority of commitments to extend credit, unused portions of lines of credit and standby letters of credit carry current market interest rates if converted to loans. Because such commitments are generally unassignable of either the Company or the borrower, they only have value to the Company and the borrower. None of the commitments are subject to undue credit risk. The estimated fair values of off-balance sheet financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of off-balance sheet financial instruments was not material at June 30, 2016 and December 31, 2015.

Assets and liabilities measured at fair value on a recurring basis at June 30, 2016 and December 31, 2015 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant		Significant
			Active Markets for	Other Observable		Unobservable
			Identical Assets	Inputs		Inputs
June 30, 2016	Amount		(Level 1)	(Level 2)		(Level 3)
U.S. Government-sponsored enterprises	$	58,745	$	$	58,745	$
State and Municipals:
Taxable		15,949			15,949
Tax-exempt		123,155			123,155
Mortgage-backed securities:
U.S. Government agencies		26,054			26,054
U.S. Government-sponsored enterprises		27,479			27,479
Total	$	251,382	$	$	251,382	$

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2015	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	9,999	$	9,999			$
U.S. Government-sponsored enterprises		69,060			$	69,060
State and Municipals:
Taxable		16,545				16,545
Tax-exempt		124,924				124,924
Mortgage-backed securities:
U.S. Government agencies		31,568				31,568
U.S. Government-sponsored enterprises		32,839				32,839
Total	$	284,935	$	9,999	$	274,936	$

Assets and liabilities measured at fair value on a nonrecurring basis at June 30, 2016 and December 31, 2015 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
June 30, 2016	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	5,801			$	5,801
Other real estate owned	$	1,256			$	1,256

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2015	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	4,944			$	4,944
Other real estate owned	$	878			$	878

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
June 30, 2016	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	5,801	Appraisal of collateral	Appraisal adjustments	13.5% to 94.0%(62.4)%
				Liquidation expenses	3.0% to 6.0%(5.3)%
Other real estate owned	$	1,256	Appraisal of collateral	Appraisal adjustments	20.0% to 54.1%(35.9)%
				Liquidation expenses	3.0% to 6.0%(5.0)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2015	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	4,944	Appraisal of collateral	Appraisal adjustments	3.3% to 97.0%(61.7)%
				Liquidation expenses	3.0% to 6.0%(5.4)%
Other real estate owned	$	878	Appraisal of collateral	Appraisal adjustments	20.0% to 77.3%(30.3)%
				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 June 30, 2016 and December 31, 2015 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
June 30, 2016	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	30,077	$	30,077	$	30,077
Investment securities:
Available-for-sale		251,382		251,382			$	251,382
Held-to-maturity		11,262		12,065				12,065
Loans held for sale
Net loans		1,450,009		1,465,095					$	1,465,095
Accrued interest receivable		5,952		5,952				5,952
Mortgage servicing rights		489		1,543				1,543
Restricted equity securities		6,878		6,878				6,878
Total	$	1,756,049	$	1,772,992
Financial liabilities:
Deposits	$	1,496,863	$	1,499,201				1,499,201
Short-term borrowings		86,300		86,282				86,282
Long-term debt		59,232		61,334				61,334
Accrued interest payable		453		453			$	453
Total	$	1,642,848	$	1,647,270

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2015	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	32,917	$	32,917	$	32,917
Investment securities:
Available-for-sale		284,935		284,935	$	9,999	$	274,936
Held-to-maturity		12,109		12,606				12,606
Loans held for sale
Net loans		1,327,890		1,330,900					$	1,330,900
Accrued interest receivable		5,796		5,796				5,796
Mortgage servicing rights		465		1,543				1,543
Restricted equity securities		5,403		5,403				5,403
Total	$	1,669,515	$	1,674,100
Financial liabilities:
Deposits	$	1,455,810	$	1,455,979				1,455,979
Short-term borrowings		38,325		38,325				38,325
Long-term debt		60,354		61,412				61,412
Accrued interest payable		560		560			$	560
Total	$	1,555,049	$	1,556,276

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Employee benefit plans

6 Months Ended

Jun. 30, 2016

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 a Supplemental Executive Retirement Plan (“SERP”), an Employees’ Pension Plan, which is currently frozen, and a Postretirement Plan Life Insurance plan which was curtailed in 2013.

For the three and six months ended June 30, salaries and employee benefits expense includes approximately $329 and $603 in 2016 and $173 and $452 in 2015 relating to the employee benefit plans.

Components of net periodic benefit cost are as follows:

	Pension Benefits
Three Months Ended June 30,	2016		2015
Components of net periodic pension cost:
Service cost	$	166	$	174
Interest cost		(223)		(233)
Amortization of unrecognized net gain		52		50
Net periodic other benefit cost	$	(5)	$	(9)
	Pension Benefits
Six Months Ended June 30,	2016		2015
Components of net periodic pension cost:
Service cost	$	333	$	348
Interest cost		(447)		(466)
Amortization of unrecognized net gain		104		100
Net periodic other benefit cost	$	(10)	$	(18)

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Other comprehensive income (loss) (Tables)

6 Months Ended

Jun. 30, 2016

Other comprehensive income (loss)

Components of Accumulated Other Comprehensive Loss

		June 30, 2016		December 31, 2015
Net unrealized gain on investment securities available-for-sale	$	6,093	$	4,593
Income tax		2,132		1,607
Net of income taxes		3,961		2,986
Benefit plan adjustments		(7,863)		(7,863)
Income tax		(2,752)		(2,752)
Net of income taxes		(5,111)		(5,111)
Accumulated other comprehensive loss	$	(1,150)	$	(2,125)

Other Comprehensive Income (Loss) and Related Tax Effects

Three Months Ended June 30,	2016		2015
Unrealized gain (loss) on investment securities available-for-sale	$	1,128	$	(1,459)
Net gain on the sale of investment securities available-for-sale(1)		(381)
Other comprehensive income (loss) gain before taxes		747		(1,459)
Income tax		261		(510)
Other comprehensive income (loss)	$	486	$	(949)

Six Months Ended June 30,	2016		2015
Unrealized gain (loss) on investment securities available-for-sale	$	2,123	$	(692)
Net gain on the sale of investment securities available-for-sale(1)		(623)		(832)
Other comprehensive income (loss) gain before taxes		1,500		(1,524)
Income tax		525		(533)
Other comprehensive income (loss)	$	975	$	(991)

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

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Earnings per share (Tables)

6 Months Ended

Jun. 30, 2016

Earnings per share

Schedule of Earnings Per Share

	2016				2015
For the Three Months Ended June 30,	Basic		Diluted		Basic		Diluted
Net Income	$	4,855	$	4,855	$	4,431	$	4,431
Average common shares outstanding		7,395,127		7,395,127		7,546,198		7,546,198
Earnings per share	$	0.66	$	0.66	$	0.59	$	0.59
	2016				2015
For the Six Months Ended June 30	Basic		Diluted		Basic		Diluted
Net Income	$	9,737	$	9,737	$	9,475	$	9,475
Average common shares outstanding		7,399,318		7,399,318		7,547,272		7,547,272
Earnings per share	$	1.32	$	1.32	$	1.26	$	1.26

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Investment securities (Tables)

6 Months Ended

Jun. 30, 2016

Amortized Cost and Fair Value of Investment Securities Aggregated by Investment Category

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2016	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Government-sponsored enterprises	$	58,307	$	438			$	58,745
State and municipals:
Taxable		14,767		1,182				15,949
Tax-exempt		119,021		4,136	$	2		123,155
Mortgage-backed securities:
U.S. Government agencies		25,878		189		13		26,054
U.S. Government-sponsored enterprises		27,316		241		78		27,479
Total	$	245,289	$	6,186	$	93	$	251,382
Held-to-maturity:
Tax-exempt state and municipals	$	6,864	$	488	$		$	7,352
Mortgage-backed securities:
U.S. Government agencies		76		2				78
U.S. Government-sponsored enterprises		4,322		313				4,635
Total	$	11,262	$	803	$		$	12,065

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2015	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	10,030			$	31	$	9,999
U.S. Government-sponsored enterprises		68,831	$	291		62		69,060
State and municipals:
Taxable		15,842		735		32		16,545
Tax-exempt		121,099		3,915		90		124,924
Mortgage-backed securities:
U.S. Government agencies		31,612		73		117		31,568
U.S. Government-sponsored enterprises		32,928		119		208		32,839
Total	$	280,342	$	5,133	$	540	$	284,935
Held-to-maturity:
Tax-exempt state and municipals	$	6,865	$	186	$	16	$	7,035
Mortgage-backed securities:
U.S. Government agencies		84		1				85
U.S. Government-sponsored enterprises		5,160		326				5,486
Total		12,109	$	513	$	16	$	12,606

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
June 30, 2016	Value		Losses		Value		Losses		Value		Losses
U.S. Government-sponsored enterprises
State and municipals:
Taxable
Tax-exempt	$	2,749	$	1	$	633	$	1	$	3,382	$	2
Mortgage-backed securities:
U.S. Government agencies						1,844		13		1,844		13
U.S. Government-sponsored enterprises		1,341		1		2,658		77		3,999		78
Total	$	4,090	$	2	$	5,135	$	91	$	9,225	$	93

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2015	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities	$	9,999	$	31					$	9,999	$	31
U.S. Government-sponsored enterprises		34,159		62						34,159		62
State and municipals:
Taxable					$	532	$	32		532		32
Tax-exempt		21,341		87		1,952		19		23,293		106
Mortgage-backed securities:
U.S. Government agencies		15,114		56		5,477		61		20,591		117
U.S. Government-sponsored enterprises		17,647		104		6,030		104		23,677		208
Total	$	98,260	$	340	$	13,991	$	216	$	112,251	$	556

Available-for-Sale Securities

Maturity Distribution of Debt Securities

	Fair
June 30, 2016	Value
Within one year	$	28,145
After one but within five years		78,332
After five but within ten years		59,725
After ten years		31,647
		197,849
Mortgage-backed securities		53,533
Total	$	251,382

Held-to-maturity Securities

Maturity Distribution of Debt Securities

	Amortized		Fair
June 30, 2016	Cost		Value
Within one year
After one but within five years
After five but within ten years
After ten years	$	6,864	$	7,352
		6,864		7,352
Mortgage-backed securities		4,398		4,713
Total	$	11,262	$	12,065

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Loans, net and allowance for loan losses (Tables)

6 Months Ended

Jun. 30, 2016

Loans, net and allowance for loan losses

Major Classifications of Loans Outstanding

		June 30, 2016		December 31, 2015
Commercial	$	394,283	$	365,767
Real estate:
Commercial		647,058		567,277
Residential		299,037		306,218
Consumer		124,430		101,603
Total	$	1,464,808	$	1,340,865

Changes in Allowance for Loan Losses Account and Related Loans by Major Classification of Loans

The changes in the allowance for loan losses account by major classification of loan for the three and six months ended June 30, 2016 and 2015 are summarized as follows:

			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance April 1, 2016	$	3,322	$	4,616	$	4,359	$	1,646	$	215	$	14,158
Charge-offs		(393)		(48)		(126)		(65)				(632)
Recoveries		34		14		10		15				73
Provisions		300		495		222		83		100		1,200
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799
			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance January 1, 2016	$	3,042	$	4,245	$	4,082	$	1,583	$	23	$	12,975
Charge-offs		(396)		(103)		(126)		(130)				(755)
Recoveries		36		30		35		78				179
Provisions		581		905		474		148		292		2,400
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799

			Real estate
June 30, 2015	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance April 1, 2015	$	2,420	$	3,087	$	3,909	`	1,387	`	10,803
Charge-offs		(3)		(30)		(35)		(106)		(174)
Recoveries		3		5		3		38		49
Provisions		15		128		150		457		750
Ending balance	$	2,435	$	3,190	$	4,027	$	1,776	$	11,428
			Real estate
June 30, 2015	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2015	$	2,321	$	3,037	$	3,690	$	1,290	$	10,338
Charge-offs		(40)		(79)		(234)		(186)		(539)
Recoveries		64		6		8		51		129
Provisions		90		226		563		621		1,500
Ending balance	$	2,435	$	3,190	$	4,027	$	1,776	$	11,428

The allocation of the allowance for loan losses and the related loans by major classifications of loans at June 30, 2016 and December 31, 2015 is summarized as follows:

			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799
Ending balance: individually evaluated for impairment		615		405		723		71				1,814
Ending balance: collectively evaluated for impairment		2,648		4,672		3,742		1,608		315		12,985
Ending balance: loans acquired with deteriorated credit quality	$		$		$		$		$		$	—
Loans receivable:
Ending balance	$	394,283	$	647,058	$	299,037	$	124,430	$		$	1,464,808
Ending balance: individually evaluated for impairment		870		5,073		3,177		228				9,348
Ending balance: collectively evaluated for impairment		392,372		640,642		295,817		124,202				1,453,033
Ending balance: loans acquired with deteriorated credit quality	$	1,041	$	1,343	$	43	$		$		$	2,427

			Real estate
December 31, 2015	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	3,042	$	4,245	$	4,082	$	1,583	$	23	$	12,975
Ending balance: individually evaluated for impairment		759		126		1,138		117				2,140
Ending balance: collectively evaluated for impairment		2,283		4,012		2,944		1,466		23		10,728
Ending balance: loans acquired with deteriorated credit quality	$		$	107	$		$		$		$	107
Loans receivable:
Ending balance	$	365,767	$	567,277	$	306,218	$	101,603	$		$	1,340,865
Ending balance: individually evaluated for impairment		1,196		4,006		4,917		148				10,267
Ending balance: collectively evaluated for impairment		363,620		561,903		301,252		101,455				1,328,230
Ending balance: loans acquired with deteriorated credit quality	$	951	$	1,368	$	49	$		$		$	2,368

Major Classification of Loans Portfolio Summarized by Credit Quality

			Special
June 30, 2016	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	386,532	$	4,960	$	2,791	$	$	394,283
Real estate:
Commercial		610,356		20,454		16,248			647,058
Residential		292,293		598		6,146			299,037
Consumer		124,218				212			124,430
Total	$	1,413,399	$	26,012	$	25,397	$	$	1,464,808

			Special
December 31, 2015	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	357,894	$	3,566	$	4,307	$	$	365,767
Real estate:
Commercial		538,130		10,150		18,997			567,277
Residential		296,587		983		8,648			306,218
Consumer		101,486				117			101,603
Total	$	1,294,097	$	14,699	$	32,069	$	$	1,340,865

Information Concerning Nonaccrual Loans by Major Loan Classification

		June 30, 2016		December 31, 2015
Commercial	$	1,262	$	1,632
Real estate:
Commercial		4,929		3,859
Residential		2,826		4,732
Consumer		228		148
Total	$	9,245	$	10,371

Major Classifications of Loans by Past Due Status

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
June 30, 2016	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	724	$	234	$	1,262	$	2,220	$	392,063	$	394,283
Real estate:
Commercial		2,172		617		4,929		7,718		639,340		647,058
Residential		1,673		289		4,545		6,507		292,530		299,037	$	1,719
Consumer		955		269		580		1,804		122,626		124,430		352
Total	$	5,524	$	1,409	$	11,316	$	18,249	$	1,446,559	$	1,464,808	$	2,071

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2015	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	126	$		$	1,632	$	1,758	$	364,009	$	365,767
Real estate:
Commercial		1,364		165		3,859		5,388		561,889		567,277
Residential		3,891		1,067		5,257		10,215		296,003		306,218	$	525
Consumer		705		353		386		1,444		100,159		101,603		238
Total	$	6,086	$	1,585	$	11,134	$	18,805	$	1,322,060	$	1,340,865	$	763

Summarize Information in Concerning to Impaired Loans

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2016	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,296	$	2,378			$	1,235	$	14	$	1,249	$	30
Real estate:
Commercial		5,517		6,181				4,340		30		3,643		61
Residential		1,941		2,124				2,079		3		2,355		11
Consumer		157		157				123				92
Total		8,911		10,840		—		7,777		47		7,339		102
With an allowance recorded:
Commercial		615		615	$	615		878				923
Real estate:
Commercial		899		899		405		1,964				2,400
Residential		1,279		1,279		723		1,136		2		1,295		4
Consumer		71		71		71		80				92
Total		2,864		2,864		1,814		4,058		2		4,710		4
Commercial		1,911		2,993		615		2,113		14		2,172		30
Real estate:
Commercial		6,416		7,080		405		6,304		30		6,043		61
Residential		3,220		3,403		723		3,215		5		3,650		15
Consumer		228		228		71		203		—		184		—
Total	$	11,775	$	13,704	$	1,814	$	11,835	$	49	$	12,049	$	106

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2015	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,352	$	2,720			$	1,848	$	87
Real estate:
Commercial		2,731		3,408				2,394		95
Residential		3,048		3,231				2,664		4
Consumer		31		31				17
Total		7,162		9,390				6,923		186
With an allowance recorded:
Commercial		795		795	$	759		1,680		40
Real estate:
Commercial		2,643		2,643		233		4,155		86
Residential		1,918		1,918		1,138		1,776		30
Consumer		117		117		117		126
Total		5,473		5,473		2,247		7,737		156
Commercial		2,147		3,515		759		3,528		127
Real estate:
Commercial		5,374		6,051		233		6,549		181
Residential		4,966		5,149		1,138		4,440		34
Consumer		148		148		117		143
Total	$	12,635	$	14,863	$	2,247	$	14,660	$	342

							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2015	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,658	$	3,184			$	1,989	$	17	$	2,168		37
Real estate:
Commercial		2,140		2,852				2,169		28		2,366		47
Residential		2,734		2,917				2,503		1		2,488		2
Consumer								6				26
Total		6,532		8,953				6,667		46		7,048		86
With an allowance recorded:
Commercial		1,312		1,312	$	1,209		1,469	$	13		1,533	$	27
Real estate:
Commercial		5,316		5,316		1,445		4,628		48		4,182		65
Residential		1,706		1,706		796		1,673		7		1,593		17
Consumer		137		137		137		114				91
Total		8,471		8,471		3,587		7,884		68		7,399		109
Commercial		2,970		4,496		1,209		3,458		30		3,701		64
Real estate:
Commercial		7,456		8,168		1,445		6,797		76		6,548		112
Residential		4,440		4,623		796		4,176		8		4,081		19
Consumer		137		137		137		120				117
Total	$	15,003	$	17,424	$	3,587	$	14,551	$	114	$	14,447	$	195

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Other assets (Tables)

6 Months Ended

Jun. 30, 2016

Other assets.

Components of Other Assets

		June 30, 2016		December 31, 2015
Other real estate owned	$	1,353	$	957
Investment in residential housing program		8,550		6,744
Mortgage servicing rights		489		465
Bank owned life insurance		32,677		30,782
Restricted equity securities		6,878		5,403
Other assets		15,306		14,136
Total	$	65,253	$	58,487

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Fair value estimates (Tables)

6 Months Ended

Jun. 30, 2016

Fair value estimates

Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis

	Fair Value Measurement Using
			Quoted Prices in	Significant		Significant
			Active Markets for	Other Observable		Unobservable
			Identical Assets	Inputs		Inputs
June 30, 2016	Amount		(Level 1)	(Level 2)		(Level 3)
U.S. Government-sponsored enterprises	$	58,745	$	$	58,745	$
State and Municipals:
Taxable		15,949			15,949
Tax-exempt		123,155			123,155
Mortgage-backed securities:
U.S. Government agencies		26,054			26,054
U.S. Government-sponsored enterprises		27,479			27,479
Total	$	251,382	$	$	251,382	$

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2015	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	9,999	$	9,999			$
U.S. Government-sponsored enterprises		69,060			$	69,060
State and Municipals:
Taxable		16,545				16,545
Tax-exempt		124,924				124,924
Mortgage-backed securities:
U.S. Government agencies		31,568				31,568
U.S. Government-sponsored enterprises		32,839				32,839
Total	$	284,935	$	9,999	$	274,936	$

Schedule of Assets and Liabilities Measured at Fair Value on Nonrecurring Basis

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
June 30, 2016	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	5,801			$	5,801
Other real estate owned	$	1,256			$	1,256

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2015	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	4,944			$	4,944
Other real estate owned	$	878			$	878

Additional Quantitative Information about Assets Measured at Fair Value on Nonrecurring Basis

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
June 30, 2016	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	5,801	Appraisal of collateral	Appraisal adjustments	13.5% to 94.0%(62.4)%
				Liquidation expenses	3.0% to 6.0%(5.3)%
Other real estate owned	$	1,256	Appraisal of collateral	Appraisal adjustments	20.0% to 54.1%(35.9)%
				Liquidation expenses	3.0% to 6.0%(5.0)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2015	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	4,944	Appraisal of collateral	Appraisal adjustments	3.3% to 97.0%(61.7)%
				Liquidation expenses	3.0% to 6.0%(5.4)%
Other real estate owned	$	878	Appraisal of collateral	Appraisal adjustments	20.0% to 77.3%(30.3)%
				Liquidation expenses	3.0% to 6.0%(5.0)%

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
June 30, 2016	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	30,077	$	30,077	$	30,077
Investment securities:
Available-for-sale		251,382		251,382			$	251,382
Held-to-maturity		11,262		12,065				12,065
Loans held for sale
Net loans		1,450,009		1,465,095					$	1,465,095
Accrued interest receivable		5,952		5,952				5,952
Mortgage servicing rights		489		1,543				1,543
Restricted equity securities		6,878		6,878				6,878
Total	$	1,756,049	$	1,772,992
Financial liabilities:
Deposits	$	1,496,863	$	1,499,201				1,499,201
Short-term borrowings		86,300		86,282				86,282
Long-term debt		59,232		61,334				61,334
Accrued interest payable		453		453			$	453
Total	$	1,642,848	$	1,647,270

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2015	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	32,917	$	32,917	$	32,917
Investment securities:
Available-for-sale		284,935		284,935	$	9,999	$	274,936
Held-to-maturity		12,109		12,606				12,606
Loans held for sale
Net loans		1,327,890		1,330,900					$	1,330,900
Accrued interest receivable		5,796		5,796				5,796
Mortgage servicing rights		465		1,543				1,543
Restricted equity securities		5,403		5,403				5,403
Total	$	1,669,515	$	1,674,100
Financial liabilities:
Deposits	$	1,455,810	$	1,455,979				1,455,979
Short-term borrowings		38,325		38,325				38,325
Long-term debt		60,354		61,412				61,412
Accrued interest payable		560		560			$	560
Total	$	1,555,049	$	1,556,276

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Employee benefit plans (Tables)

6 Months Ended

Jun. 30, 2016

Employee benefit plans

Components of Net Periodic Benefit Cost

	Pension Benefits
Three Months Ended June 30,	2016		2015
Components of net periodic pension cost:
Service cost	$	166	$	174
Interest cost		(223)		(233)
Amortization of unrecognized net gain		52		50
Net periodic other benefit cost	$	(5)	$	(9)
	Pension Benefits
Six Months Ended June 30,	2016		2015
Components of net periodic pension cost:
Service cost	$	333	$	348
Interest cost		(447)		(466)
Amortization of unrecognized net gain		104		100
Net periodic other benefit cost	$	(10)	$	(18)

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Summary of significant accounting policies - Additional Information (Details)	6 Months Ended
	Jun. 30, 2016 Office
Summary of significant accounting policies
Number of full-service community banking offices	24

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Other comprehensive income (loss) - Components of Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Other comprehensive income (loss)
Net unrealized gain on investment securities available-for-sale	$ 6,093	$ 4,593
Income tax expense (benefit)	2,132	1,607
Net of income taxes	3,961	2,986
Benefit plan adjustments	(7,863)	(7,863)
Income tax expense (benefit)	(2,752)	(2,752)
Net of income taxes	(5,111)	(5,111)
Accumulated other comprehensive loss	$ (1,150)	$ (2,125)

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Other comprehensive income (loss) - Other Comprehensive Income (Loss) and Related Tax Effects (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Other comprehensive income (loss)
Unrealized gain (loss) on investment securities available-for-sale	$ 1,128	$ (1,459)	$ 2,123	$ (692)
Net gain on the sale of investment securities available-for-sale(1)	(381)		(623)	(832)
Other comprehensive income (loss) gain before taxes	747	(1,459)	1,500	(1,524)
Income tax	261	(510)	525	(533)
Other comprehensive income (loss)	$ 486	$ (949)	$ 975	$ (991)

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Earnings per share - Shares Considered Anti-dilutive (Details) - shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Earnings per share
Anti-dilutive shares	0	0

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Earnings per share - Schedule of Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Earnings per share
Net Income (Numerator), Basic	$ 4,855	$ 4,431	$ 9,737	$ 9,475
Average common shares outstanding (Denominator), Basic	7,395,127	7,546,198	7,399,318	7,547,272
Earnings per share, Basic	$ 0.66	$ 0.59	$ 1.32	$ 1.26
Net Income (Numerator), Diluted	$ 4,855	$ 4,431	$ 9,737	$ 9,475
Average common shares outstanding (Denominator), Diluted	7,395,127	7,546,198	7,399,318	7,547,272
Earnings per share, Diluted	$ 0.66	$ 0.59	$ 1.32	$ 1.26

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Investment securities - Amortized Cost and Fair Value of Investment Securities Aggregated by Investment Category (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Available-for-sale and Held-to-maturity securities
Available-for-sale, Amortized Cost	$ 245,289	$ 280,342
Available-for-sale, Gross Unrealized Gains	6,186	5,133
Available-for-sale, Gross Unrealized Losses	93	540
Available-for-sale, Fair Value	251,382	284,935
Held-to-maturity, Amortized Cost	11,262	12,109
Held-to-maturity, Gross Unrealized Gains	803	513
Held-to-maturity, Gross Unrealized Losses		16
Held-to-maturity, Fair Value	12,065	12,606
Mortgage-backed Securities, U.S. Government agencies
Available-for-sale and Held-to-maturity securities
Available-for-sale, Amortized Cost	25,878	31,612
Available-for-sale, Gross Unrealized Gains	189	73
Available-for-sale, Gross Unrealized Losses	13	117
Available-for-sale, Fair Value	26,054	31,568
Held-to-maturity, Amortized Cost	76	84
Held-to-maturity, Gross Unrealized Gains	2	1
Held-to-maturity, Fair Value	78	85
Mortgage-backed Securities, U.S. Government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Available-for-sale, Amortized Cost	27,316	32,928
Available-for-sale, Gross Unrealized Gains	241	119
Available-for-sale, Gross Unrealized Losses	78	208
Available-for-sale, Fair Value	27,479	32,839
Held-to-maturity, Amortized Cost	4,322	5,160
Held-to-maturity, Gross Unrealized Gains	313	326
Held-to-maturity, Fair Value	4,635	5,486
U.S. Government-sponsored enterprises state and municipals
Available-for-sale and Held-to-maturity securities
Available-for-sale, Amortized Cost	58,307	68,831
Available-for-sale, Gross Unrealized Gains	438	291
Available-for-sale, Gross Unrealized Losses		62
Available-for-sale, Fair Value	58,745	69,060
U.S. Treasury securities
Available-for-sale and Held-to-maturity securities
Available-for-sale, Amortized Cost		10,030
Available-for-sale, Gross Unrealized Losses		31
Available-for-sale, Fair Value		9,999
State and Municipals, Taxable
Available-for-sale and Held-to-maturity securities
Available-for-sale, Amortized Cost	14,767	15,842
Available-for-sale, Gross Unrealized Gains	1,182	735
Available-for-sale, Gross Unrealized Losses		32
Available-for-sale, Fair Value	15,949	16,545
State and Municipals, Tax-exempt
Available-for-sale and Held-to-maturity securities
Available-for-sale, Amortized Cost	119,021	121,099
Available-for-sale, Gross Unrealized Gains	4,136	3,915
Available-for-sale, Gross Unrealized Losses	2	90
Available-for-sale, Fair Value	123,155	124,924
Held-to-maturity, Amortized Cost	6,864	6,865
Held-to-maturity, Gross Unrealized Gains	488	186
Held-to-maturity, Gross Unrealized Losses		16
Held-to-maturity, Fair Value	$ 7,352	$ 7,035

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Investment securities - Maturity Distribution of Debt Securities Classified as Available-for-Sale (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Investment securities
Within one year	$ 28,145
After one but within five years	78,332
After five but within ten years	59,725
After ten years	31,647
Available for sale securities	197,849
Mortgage-backed securities	53,533
Total	$ 251,382	$ 284,935

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Investment securities - Summary of Amortized Cost and Fair Value of Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Investment securities
Amortized Cost, After ten years, Held to maturity	$ 6,864
Amortized Cost, Held to maturity	6,864
Amortized Cost, Mortgage-backed securities, Held to maturity	4,398
Held-to-maturity, Amortized Cost	11,262	$ 12,109
Fair Value, After ten years, Held to maturity	7,352
Fair Value, Held to maturity	7,352
Fair Value, Mortgage-backed securities, Held to maturity	4,713
Held to maturity, Fair Value	$ 12,065	$ 12,606

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Investment securities - Additional Information (Details) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2016 USD ($) security	Jun. 30, 2015 USD ($)	Dec. 31, 2015 USD ($) security
Available-for-sale and Held-to-maturity securities
Carrying value of securities pledged | $	$ 154,673		$ 180,478
Number of investment securities held	24		88
State and Municipals, Tax-exempt
Available-for-sale and Held-to-maturity securities
Number of investment securities held	11		38
Number of securities in continuous unrealized loss positions 12 months or longer			4
State and Municipals, Taxable
Available-for-sale and Held-to-maturity securities
Number of investment securities held			1
Number of securities in continuous unrealized loss positions 12 months or longer	1		1
Credit Concentration Risk | Total Stockholders' Equity | US Government Agency and Sponsored Enterprises | Minimum
Available-for-sale and Held-to-maturity securities
Maximum percentage of stockholders' equity exceeded for securities of any individual issuer	10.00%		10.00%
U.S. Government-sponsored enterprises state and municipals
Available-for-sale and Held-to-maturity securities
Number of investment securities held			12
Number of securities in continuous unrealized loss positions 12 months or longer			7
Other-than-temporary impairments recognized | $	$ 0	$ 0
Mortgage-backed Securities, U.S. Government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Number of investment securities held	13		36
Number of securities in continuous unrealized loss positions 12 months or longer	5

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Investment securities - Fair Value and Unrealized Losses of Investment Securities in Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value	$ 4,090	$ 98,260
Less Than 12 Months, Unrealized Losses	2	340
12 Months or More, Fair Value	5,135	13,991
12 Months or More, Unrealized Losses	91	216
Total, Fair Value	9,225	112,251
Total, Unrealized Losses	93	556
State and Municipals, Taxable
Available-for-sale and Held-to-maturity securities
12 Months or More, Fair Value		532
12 Months or More, Unrealized Losses		32
Total, Fair Value		532
Total, Unrealized Losses		32
State and Municipals, Tax-exempt
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value	2,749	21,341
Less Than 12 Months, Unrealized Losses	1	87
12 Months or More, Fair Value	633	1,952
12 Months or More, Unrealized Losses	1	19
Total, Fair Value	3,382	23,293
Total, Unrealized Losses	2	106
U.S. Treasury securities
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value		9,999
Less Than 12 Months, Unrealized Losses		31
Total, Fair Value		9,999
Total, Unrealized Losses		31
U.S. Government-sponsored enterprises state and municipals
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value		34,159
Less Than 12 Months, Unrealized Losses		62
Total, Fair Value		34,159
Total, Unrealized Losses		62
Mortgage-backed Securities, U.S. Government agencies
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value		15,114
Less Than 12 Months, Unrealized Losses		56
12 Months or More, Fair Value	1,844	5,477
12 Months or More, Unrealized Losses	13	61
Total, Fair Value	1,844	20,591
Total, Unrealized Losses	13	117
Mortgage-backed Securities, U.S. Government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value	1,341	17,647
Less Than 12 Months, Unrealized Losses	1	104
12 Months or More, Fair Value	2,658	6,030
12 Months or More, Unrealized Losses	77	104
Total, Fair Value	3,999	23,677
Total, Unrealized Losses	$ 78	$ 208

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Loans, net and allowance for loan losses - Additional Information (Details) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016 USD ($) loan	Jun. 30, 2015 USD ($) loan	Jun. 30, 2016 USD ($) loan	Jun. 30, 2015 USD ($) loan	Dec. 31, 2015 USD ($)
Net deferred loan costs	$ 668		$ 668		$ 690
Loans receivable, related parties, considered as nonaccrual, past due or restructured or potential credit risk			2,701	$ 3,046	2,861
Number of defaults on loans restructured		$ 0		0
Loans modified as troubled debt restructuring		170	75	554
Total impaired loans	$ 11,775	$ 15,003	$ 11,775	$ 15,003	12,635
Number of loans modified as troubled debt restructuring | loan	0	4	1	8
Real estate Residential
Number of defaults on loans restructured			$ 0
Loans modified as troubled debt restructuring			208
Total impaired loans	$ 3,220	$ 4,440	$ 3,220	$ 4,440	$ 4,966

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Loans, net and allowance for loan losses - Major Classifications of Loans Outstanding (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable
Loans, net	$ 1,464,808	$ 1,340,865
Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	394,283	365,767
Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	647,058	567,277
Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans, net	299,037	306,218
Consumer
Accounts, Notes, Loans and Financing Receivable
Loans, net	$ 124,430	$ 101,603

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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		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Dec. 31, 2015
Allowance for loan losses:
Beginning Balance	$ 14,158	$ 10,803	$ 12,975	$ 10,338
Charge-offs	(632)	(174)	(755)	(539)
Recoveries	73	49	179	129
Provisions	1,200	750	2,400	1,500
Ending balance	14,799	11,428	14,799	11,428
Beginning Balance	14,158	10,803	12,975	10,338
Ending balance: individually evaluated for impairment					$ 1,814	$ 2,140
Charge-offs	(632)	(174)	(755)	(539)
Ending balance: collectively evaluated for impairment					12,985	10,728
Recoveries	73	49	179	129
Ending balance: loans acquired with deteriorated credit quality	14,158	10,803	12,975	10,338	14,799	12,975
Provisions	1,200	750	2,400	1,500
Loans receivable:
Total Loans					1,464,808	1,340,865
Ending balance: individually evaluated for impairment					9,348	10,267
Ending balance: collectively evaluated for impairment					1,453,033	1,328,230
Total Loans					1,464,808	1,340,865
Ending balance	14,799	11,428	14,799	11,428
Ending balance: individually evaluated for impairment					9,348	10,267
Ending balance: collectively evaluated for impairment					1,453,033	1,328,230
Loans Acquired with Deteriorated Credit Quality
Allowance for loan losses:
Beginning Balance			107
Beginning Balance			107
Ending balance: loans acquired with deteriorated credit quality			107			107
Loans receivable:
Ending balance					2,427	2,368
Ending balance					2,427	2,368
Commercial
Allowance for loan losses:
Beginning Balance	3,322	2,420	3,042	2,321
Charge-offs	(393)	(3)	(396)	(40)
Recoveries	34	3	36	64
Provisions	300	15	581	90
Ending balance	3,263	2,435	3,263	2,435
Beginning Balance	3,322	2,420	3,042	2,321
Ending balance: individually evaluated for impairment					615	759
Charge-offs	(393)	(3)	(396)	(40)
Ending balance: collectively evaluated for impairment					2,648	2,283
Recoveries	34	3	36	64
Ending balance: loans acquired with deteriorated credit quality	3,322	2,420	3,042	2,321	3,263	3,042
Provisions	300	15	581	90
Loans receivable:
Total Loans					394,283	365,767
Ending balance: individually evaluated for impairment					870	1,196
Ending balance: collectively evaluated for impairment					392,372	363,620
Total Loans					394,283	365,767
Ending balance	3,263	2,435	3,263	2,435
Ending balance: individually evaluated for impairment					870	1,196
Ending balance: collectively evaluated for impairment					392,372	363,620
Commercial | Loans Acquired with Deteriorated Credit Quality
Loans receivable:
Ending balance					1,041	951
Ending balance					1,041	951
Real estate Commercial
Allowance for loan losses:
Beginning Balance	4,616	3,087	4,245	3,037
Charge-offs	(48)	(30)	(103)	(79)
Recoveries	14	5	30	6
Provisions	495	128	905	226
Ending balance	5,077	3,190	5,077	3,190
Beginning Balance	4,616	3,087	4,245	3,037
Ending balance: individually evaluated for impairment					405	126
Charge-offs	(48)	(30)	(103)	(79)
Ending balance: collectively evaluated for impairment					4,672	4,012
Recoveries	14	5	30	6
Ending balance: loans acquired with deteriorated credit quality	4,616	3,087	4,245	3,037	5,077	4,245
Provisions	495	128	905	226
Loans receivable:
Total Loans					647,058	567,277
Ending balance: individually evaluated for impairment					5,073	4,006
Ending balance: collectively evaluated for impairment					640,642	561,903
Total Loans					647,058	567,277
Ending balance	5,077	3,190	5,077	3,190
Ending balance: individually evaluated for impairment					5,073	4,006
Ending balance: collectively evaluated for impairment					640,642	561,903
Real estate Commercial | Loans Acquired with Deteriorated Credit Quality
Allowance for loan losses:
Beginning Balance			107
Beginning Balance			107
Ending balance: loans acquired with deteriorated credit quality			107			107
Loans receivable:
Ending balance					1,343	1,368
Ending balance					1,343	1,368
Real estate Residential
Allowance for loan losses:
Beginning Balance	4,359	3,909	4,082	3,690
Charge-offs	(126)	(35)	(126)	(234)
Recoveries	10	3	35	8
Provisions	222	150	474	563
Ending balance	4,465	4,027	4,465	4,027
Beginning Balance	4,359	3,909	4,082	3,690
Ending balance: individually evaluated for impairment					723	1,138
Charge-offs	(126)	(35)	(126)	(234)
Ending balance: collectively evaluated for impairment					3,742	2,944
Recoveries	10	3	35	8
Ending balance: loans acquired with deteriorated credit quality	4,359	3,909	4,082	3,690	4,465	4,082
Provisions	222	150	474	563
Loans receivable:
Total Loans					299,037	306,218
Ending balance: individually evaluated for impairment					3,177	4,917
Ending balance: collectively evaluated for impairment					295,817	301,252
Total Loans					299,037	306,218
Ending balance	4,465	4,027	4,465	4,027
Ending balance: individually evaluated for impairment					3,177	4,917
Ending balance: collectively evaluated for impairment					295,817	301,252
Real estate Residential | Loans Acquired with Deteriorated Credit Quality
Loans receivable:
Ending balance					43	49
Ending balance					43	49
Consumer
Allowance for loan losses:
Beginning Balance	1,646	1,387	1,583	1,290
Charge-offs	(65)	(106)	(130)	(186)
Recoveries	15	38	78	51
Provisions	83	457	148	621
Ending balance	1,679	1,776	1,679	1,776
Beginning Balance	1,646	1,387	1,583	1,290
Ending balance: individually evaluated for impairment					71	117
Charge-offs	(65)	(106)	(130)	(186)
Ending balance: collectively evaluated for impairment					1,608	1,466
Recoveries	15	38	78	51
Ending balance: loans acquired with deteriorated credit quality	1,646	1,387	1,583	1,290	1,679	1,583
Provisions	83	457	148	621
Loans receivable:
Total Loans					124,430	101,603
Ending balance: individually evaluated for impairment					228	148
Ending balance: collectively evaluated for impairment					124,202	101,455
Total Loans					124,430	101,603
Ending balance	1,679	$ 1,776	1,679	$ 1,776
Ending balance: individually evaluated for impairment					228	148
Ending balance: collectively evaluated for impairment					124,202	101,455
Unallocated
Allowance for loan losses:
Beginning Balance	215		23
Provisions	100		292
Ending balance	315		315
Beginning Balance	215		23
Ending balance: collectively evaluated for impairment					315	23
Ending balance: loans acquired with deteriorated credit quality	215		23		$ 315	$ 23
Provisions	100		292
Loans receivable:
Ending balance	$ 315		$ 315

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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	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014
Allowance for loan losses:
Ending balance	$ 14,799	$ 14,158	$ 12,975	$ 11,428	$ 10,803	$ 10,338
Ending balance: individually evaluated for impairment	1,814		2,140
Ending balance: collectively evaluated for impairment	12,985		10,728
Loans receivable:
Ending balance	1,464,808		1,340,865
Ending balance: individually evaluated for impairment	9,348		10,267
Ending balance: collectively evaluated for impairment	1,453,033		1,328,230
Loans Acquired with Deteriorated Credit Quality
Allowance for loan losses:
Ending balance			107
Loans receivable:
Ending balance	2,427		2,368
Commercial
Allowance for loan losses:
Ending balance	3,263	3,322	3,042	2,435	2,420	2,321
Ending balance: individually evaluated for impairment	615		759
Ending balance: collectively evaluated for impairment	2,648		2,283
Loans receivable:
Ending balance	394,283		365,767
Ending balance: individually evaluated for impairment	870		1,196
Ending balance: collectively evaluated for impairment	392,372		363,620
Commercial | Loans Acquired with Deteriorated Credit Quality
Loans receivable:
Ending balance	1,041		951
Real estate Commercial
Allowance for loan losses:
Ending balance	5,077	4,616	4,245	3,190	3,087	3,037
Ending balance: individually evaluated for impairment	405		126
Ending balance: collectively evaluated for impairment	4,672		4,012
Loans receivable:
Ending balance	647,058		567,277
Ending balance: individually evaluated for impairment	5,073		4,006
Ending balance: collectively evaluated for impairment	640,642		561,903
Real estate Commercial | Loans Acquired with Deteriorated Credit Quality
Allowance for loan losses:
Ending balance			107
Loans receivable:
Ending balance	1,343		1,368
Real estate Residential
Loans receivable:
Ending balance	299,037		306,218
Consumer
Allowance for loan losses:
Ending balance	1,679	1,646	1,583	$ 1,776	$ 1,387	$ 1,290
Ending balance: individually evaluated for impairment	71		117
Ending balance: collectively evaluated for impairment	1,608		1,466
Loans receivable:
Ending balance	124,430		101,603
Ending balance: individually evaluated for impairment	228		148
Ending balance: collectively evaluated for impairment	124,202		101,455
Unallocated
Allowance for loan losses:
Ending balance	315	$ 215	23
Ending balance: collectively evaluated for impairment	$ 315		$ 23

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Loans, net and allowance for loan losses - Major Classification of Loans Portfolio Summarized by Credit Quality (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable
Loans, net	$ 1,464,808	$ 1,340,865
Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	394,283	365,767
Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	647,058	567,277
Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans, net	299,037	306,218
Consumer
Accounts, Notes, Loans and Financing Receivable
Loans, net	124,430	101,603
Pass
Accounts, Notes, Loans and Financing Receivable
Loans, net	1,413,399	1,294,097
Pass | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	386,532	357,894
Pass | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	610,356	538,130
Pass | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans, net	292,293	296,587
Pass | Consumer
Accounts, Notes, Loans and Financing Receivable
Loans, net	124,218	101,486
Special Mention
Accounts, Notes, Loans and Financing Receivable
Loans, net	26,012	14,699
Special Mention | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	4,960	3,566
Special Mention | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	20,454	10,150
Special Mention | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans, net	598	983
Substandard
Accounts, Notes, Loans and Financing Receivable
Loans, net	25,397	32,069
Substandard | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	2,791	4,307
Substandard | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	16,248	18,997
Substandard | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans, net	6,146	8,648
Substandard | Consumer
Accounts, Notes, Loans and Financing Receivable
Loans, net	$ 212	$ 117

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Loans, net and allowance for loan losses - Information Concerning Nonaccrual Loans by Major Loan Classification (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	$ 9,245	$ 10,371
Commercial
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	1,262	1,632
Real estate Commercial
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	4,929	3,859
Real estate Residential
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	2,826	4,732
Consumer
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	$ 228	$ 148

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Loans, net and allowance for loan losses - Major Classification of Loans by Past Due Status (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due
Total Past Due	$ 18,249	$ 18,805
Current	1,446,559	1,322,060
Total Loans	1,464,808	1,340,865
Loans > 90 Days and Accruing	2,071	763
30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	5,524	6,086
60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	1,409	1,585
Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due	11,316	11,134
Commercial
Financing Receivable, Recorded Investment, Past Due
Total Past Due	2,220	1,758
Current	392,063	364,009
Total Loans	394,283	365,767
Commercial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	724	126
Commercial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	234
Commercial | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due	1,262	1,632
Real estate Commercial
Financing Receivable, Recorded Investment, Past Due
Total Past Due	7,718	5,388
Current	639,340	561,889
Total Loans	647,058	567,277
Real estate Commercial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	2,172	1,364
Real estate Commercial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	617	165
Real estate Commercial | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due	4,929	3,859
Real estate Residential
Financing Receivable, Recorded Investment, Past Due
Total Past Due	6,507	10,215
Current	292,530	296,003
Total Loans	299,037	306,218
Loans > 90 Days and Accruing	1,719	525
Real estate Residential | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	1,673	3,891
Real estate Residential | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	289	1,067
Real estate Residential | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due	4,545	5,257
Consumer
Financing Receivable, Recorded Investment, Past Due
Total Past Due	1,804	1,444
Current	122,626	100,159
Total Loans	124,430	101,603
Loans > 90 Days and Accruing	352	238
Consumer | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	955	705
Consumer | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	269	353
Consumer | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due	$ 580	$ 386

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Loans, net and allowance for loan losses - Summarize Information in Concerning to Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	$ 8,911	$ 6,532	$ 8,911	$ 6,532	$ 7,162
Unpaid Principal Balance, With no related allowance, Total	10,840	8,953	10,840	8,953	9,390
Average Recorded Investment, With no related allowance, Total	7,777	6,667	7,339	7,048	6,923
Interest Income Recognized, With no related allowance, Total	47	46	102	86	186
Recorded Investment, With an allowance recorded, Total	2,864	8,471	2,864	8,471	5,473
Unpaid Principal Balance, With an allowance recorded, Total	2,864	8,471	2,864	8,471	5,473
Related Allowance, With an allowance recorded, Total	1,814	3,587	1,814	3,587	2,247
Average Recorded Investment, With an allowance recorded, Total	4,058	7,884	4,710	7,399	7,737
Interest Income Recognized, With an allowance recorded, Total	2	68	4	109	156
Recorded Investment, Total	11,775	15,003	11,775	15,003	12,635
Unpaid Principal Balance, Total	13,704	17,424	13,704	17,424	14,863
Related Allowance, With an allowance recorded, Total	1,814	3,587	1,814	3,587	2,247
Average Recorded Investment, Total	11,835	14,551	12,049	14,447	14,660
Interest Income Recognized, Total	49	114	106	195	342
Commercial
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	1,296	1,658	1,296	1,658	1,352
Unpaid Principal Balance, With no related allowance, Total	2,378	3,184	2,378	3,184	2,720
Average Recorded Investment, With no related allowance, Total	1,235	1,989	1,249	2,168	1,848
Interest Income Recognized, With no related allowance, Total	14	17	30	37	87
Recorded Investment, With an allowance recorded, Total	615	1,312	615	1,312	795
Unpaid Principal Balance, With an allowance recorded, Total	615	1,312	615	1,312	795
Related Allowance, With an allowance recorded, Total	615	1,209	615	1,209	759
Average Recorded Investment, With an allowance recorded, Total	878	1,469	923	1,533	1,680
Interest Income Recognized, With an allowance recorded, Total		13		27	40
Recorded Investment, Total	1,911	2,970	1,911	2,970	2,147
Unpaid Principal Balance, Total	2,993	4,496	2,993	4,496	3,515
Related Allowance, With an allowance recorded, Total	615	1,209	615	1,209	759
Average Recorded Investment, Total	2,113	3,458	2,172	3,701	3,528
Interest Income Recognized, Total	14	30	30	64	127
Real estate Commercial
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	5,517	2,140	5,517	2,140	2,731
Unpaid Principal Balance, With no related allowance, Total	6,181	2,852	6,181	2,852	3,408
Average Recorded Investment, With no related allowance, Total	4,340	2,169	3,643	2,366	2,394
Interest Income Recognized, With no related allowance, Total	30	28	61	47	95
Recorded Investment, With an allowance recorded, Total	899	5,316	899	5,316	2,643
Unpaid Principal Balance, With an allowance recorded, Total	899	5,316	899	5,316	2,643
Related Allowance, With an allowance recorded, Total	405	1,445	405	1,445	233
Average Recorded Investment, With an allowance recorded, Total	1,964	4,628	2,400	4,182	4,155
Interest Income Recognized, With an allowance recorded, Total		48		65	86
Recorded Investment, Total	6,416	7,456	6,416	7,456	5,374
Unpaid Principal Balance, Total	7,080	8,168	7,080	8,168	6,051
Related Allowance, With an allowance recorded, Total	405	1,445	405	1,445	233
Average Recorded Investment, Total	6,304	6,797	6,043	6,548	6,549
Interest Income Recognized, Total	30	76	61	112	181
Real estate Residential
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	1,941	2,734	1,941	2,734	3,048
Unpaid Principal Balance, With no related allowance, Total	2,124	2,917	2,124	2,917	3,231
Average Recorded Investment, With no related allowance, Total	2,079	2,503	2,355	2,488	2,664
Interest Income Recognized, With no related allowance, Total	3	1	11	2	4
Recorded Investment, With an allowance recorded, Total	1,279	1,706	1,279	1,706	1,918
Unpaid Principal Balance, With an allowance recorded, Total	1,279	1,706	1,279	1,706	1,918
Related Allowance, With an allowance recorded, Total	723	796	723	796	1,138
Average Recorded Investment, With an allowance recorded, Total	1,136	1,673	1,295	1,593	1,776
Interest Income Recognized, With an allowance recorded, Total	2	7	4	17	30
Recorded Investment, Total	3,220	4,440	3,220	4,440	4,966
Unpaid Principal Balance, Total	3,403	4,623	3,403	4,623	5,149
Related Allowance, With an allowance recorded, Total	723	796	723	796	1,138
Average Recorded Investment, Total	3,215	4,176	3,650	4,081	4,440
Interest Income Recognized, Total	5	8	15	19	34
Consumer
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	157		157		31
Unpaid Principal Balance, With no related allowance, Total	157		157		31
Average Recorded Investment, With no related allowance, Total	123	6	92	26	17
Recorded Investment, With an allowance recorded, Total	71	137	71	137	117
Unpaid Principal Balance, With an allowance recorded, Total	71	137	71	137	117
Related Allowance, With an allowance recorded, Total	71	137	71	137	117
Average Recorded Investment, With an allowance recorded, Total	80	114	92	91	126
Recorded Investment, Total	228	137	228	137	148
Unpaid Principal Balance, Total	228	137	228	137	148
Related Allowance, With an allowance recorded, Total	71	137	71	137	117
Average Recorded Investment, Total	$ 203	$ 120	$ 184	$ 117	$ 143

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Other assets - Components of Other Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Other assets.
Other real estate owned	$ 1,353	$ 957
Investment in residential housing program	8,550	6,744
Mortgage servicing rights	489	465
Bank owned life insurance	32,677	30,782
Restricted equity securities	6,878	5,403
Other assets	15,306	14,136
Total	$ 65,253	$ 58,487

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Fair value estimates - Additional Information (Details) $ in Thousands	Jun. 30, 2016 USD ($)
Fair value estimates
Commitments subject to undue credit risk	$ 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	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	$ 251,382	$ 284,935
U.S. Treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value		9,999
U.S. Government-sponsored enterprises state and municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	58,745	69,060
State and Municipals, Taxable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	15,949	16,545
State and Municipals, Tax-exempt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	123,155	124,924
Mortgage-backed Securities, U.S. Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	26,054	31,568
Mortgage-backed Securities, U.S. Government-sponsored enterprises
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	27,479	32,839
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value		9,999
Level 1 | U.S. Treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value		9,999
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	251,382	274,936
Level 2 | U.S. Government-sponsored enterprises state and municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	58,745	69,060
Level 2 | State and Municipals, Taxable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	15,949	16,545
Level 2 | State and Municipals, Tax-exempt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	123,155	124,924
Level 2 | Mortgage-backed Securities, U.S. Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	26,054	31,568
Level 2 | Mortgage-backed Securities, U.S. Government-sponsored enterprises
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets measured at fair value	$ 27,479	$ 32,839

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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	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	$ 5,801	$ 4,944
Other real estate owned	1,256	878
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	5,801	4,944
Other real estate owned	$ 1,256	$ 878

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Fair value estimates - Additional Quantitative Information about Assets Measured at Fair Value on Nonrecurring Basis (Details) - Level 3 - Nonrecurring Basis - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Other Real Estate Owned
Fair Value Inputs, Assets, Quantitative Information
Assets, Fair Value Estimate	$ 1,256	$ 878
Range and weighted average of appraisal adjustments	35.90%	30.30%
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%	20.00%
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	54.10%	77.30%
Range and weighted average of liquidation expenses	6.00%	6.00%
Impaired Loans
Fair Value Inputs, Assets, Quantitative Information
Assets, Fair Value Estimate	$ 5,801	$ 4,944
Range and weighted average of appraisal adjustments	62.40%	61.70%
Range and weighted average of liquidation expenses	5.30%	5.40%
Impaired Loans | Minimum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	13.50%	3.30%
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	94.00%	97.00%
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	Jun. 30, 2016	Dec. 31, 2015
Investment securities:
Available-for-sale, Fair Value	$ 251,382	$ 284,935
Held-to-maturity, Fair Value	12,065	12,606
Mortgage servicing rights	489	465
Level 1
Financial assets:
Cash and cash equivalents	30,077	32,917
Investment securities:
Available-for-sale, Fair Value		9,999
Level 2
Investment securities:
Available-for-sale, Fair Value	251,382	274,936
Held-to-maturity, Fair Value	12,065	12,606
Accrued interest receivable	5,952	5,796
Mortgage servicing rights	1,543	1,543
Restricted equity securities	6,878	5,403
Financial liabilities:
Deposits	1,499,201	1,455,979
Short-term borrowings	86,282	38,325
Long-term debt	61,334	61,412
Accrued interest payable	453	560
Level 3
Investment securities:
Net loans	1,465,095	1,330,900
Carrying Value
Financial assets:
Cash and cash equivalents	30,077	32,917
Investment securities:
Available-for-sale, Fair Value	251,382	284,935
Held-to-maturity, Fair Value	11,262	12,109
Net loans	1,450,009	1,327,890
Accrued interest receivable	5,952	5,796
Mortgage servicing rights	489	465
Restricted equity securities	6,878	5,403
Assets, Fair Value Disclosure	1,756,049	1,669,515
Financial liabilities:
Deposits	1,496,863	1,455,810
Short-term borrowings	86,300	38,325
Long-term debt	59,232	60,354
Accrued interest payable	453	560
Liabilities, total	1,642,848	1,555,049
Fair Value
Financial assets:
Cash and cash equivalents	30,077	32,917
Investment securities:
Available-for-sale, Fair Value	251,382	284,935
Held-to-maturity, Fair Value	12,065	12,606
Net loans	1,465,095	1,330,900
Accrued interest receivable	5,952	5,796
Mortgage servicing rights	1,543	1,543
Restricted equity securities	6,878	5,403
Assets, Fair Value Disclosure	1,772,992	1,674,100
Financial liabilities:
Deposits	1,499,201	1,455,979
Short-term borrowings	86,282	38,325
Long-term debt	61,334	61,412
Accrued interest payable	453	560
Liabilities, total	$ 1,647,270	$ 1,556,276

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Employee benefit plans - Salaries and Employee Benefits Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Employee Benefit Plans
Defined Benefit Plan Disclosure
Salaries and employee benefits expense	$ 329	$ 173	$ 603	$ 452

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Employee benefit plans - Net Periodic Pension Cost (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Employee benefit plans
Service cost	$ 166	$ 174	$ 333	$ 348
Interest cost	(223)	(233)	(447)	(466)
Amortization of unrecognized net loss	52	50	104	100
Net periodic pension cost	$ (5)	$ (9)	$ (10)	$ (18)