Peoples Financial Services Corp.

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Craig W. Best 
President & CEO

William E. Aubrey II
Chairman of the Board

DEAR SHAREHOLDERS,

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Building for the Future 
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Shareholder Letter

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Wealth Management Expansion
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P E O P L E S F I N A N C I A L S E R V I C E S C O R P.

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Information Technology 
Enhancements
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(cid:349)(cid:373)(cid:393)(cid:396)(cid:381)(cid:448)(cid:286)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:395)(cid:437)(cid:258)(cid:367)(cid:349)(cid:410)(cid:455)(cid:3)(cid:381)(cid:296)(cid:3)(cid:272)(cid:437)(cid:400)(cid:410)(cid:381)(cid:373)(cid:286)(cid:396)(cid:3)(cid:400)(cid:286)(cid:396)(cid:448)(cid:349)(cid:272)(cid:286)(cid:3)(cid:258)(cid:396)(cid:286)(cid:3)(cid:381)(cid:271)(cid:400)(cid:286)(cid:396)(cid:448)(cid:286)(cid:282)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)
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(cid:381)(cid:296)(cid:3)(cid:410)(cid:286)(cid:272)(cid:346)(cid:374)(cid:381)(cid:367)(cid:381)(cid:336)(cid:455)(cid:856)(cid:3)

Mortgage and Consumer 
Lending Enhancement
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Financial Results
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2

P E O P L E S F I N A N C I A L S E R V I C E S C O R P.

Shareholder Letter

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(cid:271)(cid:437)(cid:400)(cid:349)(cid:374)(cid:286)(cid:400)(cid:400)(cid:3)(cid:367)(cid:349)(cid:374)(cid:286)(cid:856)
(cid:3)
(cid:116)(cid:286)(cid:3) (cid:400)(cid:410)(cid:396)(cid:381)(cid:374)(cid:336)(cid:367)(cid:455)(cid:3) (cid:286)(cid:374)(cid:272)(cid:381)(cid:437)(cid:396)(cid:258)(cid:336)(cid:286)(cid:3) (cid:455)(cid:381)(cid:437)(cid:3) (cid:410)(cid:381)(cid:3) (cid:396)(cid:286)(cid:258)(cid:282)(cid:3) (cid:410)(cid:346)(cid:286)(cid:3) (cid:302)(cid:374)(cid:258)(cid:374)(cid:272)(cid:349)(cid:258)(cid:367)(cid:3)
(cid:400)(cid:286)(cid:272)(cid:415)(cid:381)(cid:374)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:349)(cid:400)(cid:3)(cid:4)(cid:374)(cid:374)(cid:437)(cid:258)(cid:367)(cid:3)(cid:90)(cid:286)(cid:393)(cid:381)(cid:396)(cid:410)(cid:3)(cid:296)(cid:381)(cid:396)(cid:3)(cid:258)(cid:3)(cid:373)(cid:381)(cid:396)(cid:286)(cid:3)(cid:282)(cid:286)(cid:410)(cid:258)(cid:349)(cid:367)(cid:286)(cid:282)(cid:3)(cid:258)(cid:374)(cid:258)(cid:367)(cid:455)(cid:400)(cid:349)(cid:400)(cid:3)
(cid:381)(cid:296)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:396)(cid:286)(cid:400)(cid:437)(cid:367)(cid:410)(cid:400)(cid:856)
(cid:75)(cid:374)(cid:3)(cid:271)(cid:286)(cid:346)(cid:258)(cid:367)(cid:296)(cid:3)(cid:381)(cid:296)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:24)(cid:349)(cid:396)(cid:286)(cid:272)(cid:410)(cid:381)(cid:396)(cid:400)(cid:853)(cid:3)(cid:75)(cid:312)(cid:272)(cid:286)(cid:396)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:28)(cid:373)(cid:393)(cid:367)(cid:381)(cid:455)(cid:286)(cid:286)(cid:400)(cid:853)(cid:3)
(cid:3)
(cid:400)(cid:349)(cid:374)(cid:272)(cid:286)(cid:396)(cid:286)(cid:3) (cid:258)(cid:393)(cid:393)(cid:396)(cid:286)(cid:272)(cid:349)(cid:258)(cid:415)(cid:381)(cid:374)(cid:3) (cid:349)(cid:400)(cid:3) (cid:286)(cid:454)(cid:393)(cid:396)(cid:286)(cid:400)(cid:400)(cid:286)(cid:282)(cid:3) (cid:410)(cid:381)(cid:3) (cid:381)(cid:437)(cid:396)(cid:3) (cid:400)(cid:410)(cid:381)(cid:272)(cid:364)(cid:346)(cid:381)(cid:367)(cid:282)(cid:882)
(cid:286)(cid:396)(cid:400)(cid:3) (cid:258)(cid:374)(cid:282)(cid:3) (cid:272)(cid:437)(cid:400)(cid:410)(cid:381)(cid:373)(cid:286)(cid:396)(cid:400)(cid:3) (cid:296)(cid:381)(cid:396)(cid:3) (cid:410)(cid:346)(cid:286)(cid:349)(cid:396)(cid:3) (cid:272)(cid:381)(cid:374)(cid:415)(cid:374)(cid:437)(cid:286)(cid:282)(cid:3) (cid:400)(cid:437)(cid:393)(cid:393)(cid:381)(cid:396)(cid:410)(cid:856)(cid:3) (cid:100)(cid:346)(cid:286)(cid:3)
(cid:393)(cid:396)(cid:381)(cid:336)(cid:396)(cid:286)(cid:400)(cid:400)(cid:3) (cid:381)(cid:437)(cid:410)(cid:367)(cid:349)(cid:374)(cid:286)(cid:282)(cid:3) (cid:346)(cid:286)(cid:396)(cid:286)(cid:349)(cid:374)(cid:3) (cid:349)(cid:400)(cid:3) (cid:410)(cid:346)(cid:286)(cid:3) (cid:396)(cid:286)(cid:400)(cid:437)(cid:367)(cid:410)(cid:3) (cid:381)(cid:296)(cid:3) (cid:410)(cid:346)(cid:286)(cid:3) (cid:282)(cid:286)(cid:282)(cid:349)(cid:272)(cid:258)(cid:410)(cid:286)(cid:282)(cid:3)
(cid:258)(cid:374)(cid:282)(cid:3)(cid:286)(cid:299)(cid:286)(cid:272)(cid:415)(cid:448)(cid:286)(cid:3)(cid:286)(cid:299)(cid:381)(cid:396)(cid:410)(cid:3)(cid:381)(cid:374)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:393)(cid:258)(cid:396)(cid:410)(cid:3)(cid:381)(cid:296)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:17)(cid:381)(cid:258)(cid:396)(cid:282)(cid:3)(cid:381)(cid:296)(cid:3)(cid:24)(cid:349)(cid:396)(cid:286)(cid:272)(cid:410)(cid:381)(cid:396)(cid:400)(cid:853)(cid:3)
(cid:75)(cid:312)(cid:272)(cid:286)(cid:396)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:28)(cid:373)(cid:393)(cid:367)(cid:381)(cid:455)(cid:286)(cid:286)(cid:400)(cid:856)(cid:3)(cid:116)(cid:286)(cid:3)(cid:286)(cid:454)(cid:410)(cid:286)(cid:374)(cid:282)(cid:3)(cid:410)(cid:381)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:400)(cid:410)(cid:381)(cid:272)(cid:364)(cid:346)(cid:381)(cid:367)(cid:282)(cid:286)(cid:396)(cid:400)(cid:853)(cid:3)
(cid:272)(cid:437)(cid:400)(cid:410)(cid:381)(cid:373)(cid:286)(cid:396)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:286)(cid:373)(cid:393)(cid:367)(cid:381)(cid:455)(cid:286)(cid:286)(cid:400)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:336)(cid:396)(cid:258)(cid:415)(cid:410)(cid:437)(cid:282)(cid:286)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:17)(cid:381)(cid:258)(cid:396)(cid:282)(cid:3)(cid:381)(cid:296)(cid:3)
(cid:24)(cid:349)(cid:396)(cid:286)(cid:272)(cid:410)(cid:381)(cid:396)(cid:400)(cid:3)(cid:296)(cid:381)(cid:396)(cid:3)(cid:455)(cid:381)(cid:437)(cid:396)(cid:3)(cid:400)(cid:437)(cid:393)(cid:393)(cid:381)(cid:396)(cid:410)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:272)(cid:381)(cid:374)(cid:302)(cid:282)(cid:286)(cid:374)(cid:272)(cid:286)(cid:856)

(cid:94)(cid:349)(cid:374)(cid:272)(cid:286)(cid:396)(cid:286)(cid:367)(cid:455)(cid:3)(cid:455)(cid:381)(cid:437)(cid:396)(cid:400)(cid:853)

(cid:18)(cid:396)(cid:258)(cid:349)(cid:336)(cid:3)(cid:116)(cid:856)(cid:3)(cid:17)(cid:286)(cid:400)(cid:410)(cid:3)
(cid:87)(cid:396)(cid:286)(cid:400)(cid:349)(cid:282)(cid:286)(cid:374)(cid:410)(cid:3)(cid:920)(cid:3)(cid:18)(cid:28)(cid:75)(cid:3)(cid:3)

(cid:116)(cid:349)(cid:367)(cid:367)(cid:349)(cid:258)(cid:373)(cid:3)(cid:28)(cid:856)(cid:3)(cid:4)(cid:437)(cid:271)(cid:396)(cid:286)(cid:455)(cid:3)(cid:47)(cid:47)(cid:3)
(cid:18)(cid:346)(cid:258)(cid:349)(cid:396)(cid:373)(cid:258)(cid:374)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:17)(cid:381)(cid:258)(cid:396)(cid:282)

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Board of Directors & Executive Officers

(cid:100)(cid:346)(cid:286)(cid:3)(cid:17)(cid:381)(cid:258)(cid:396)(cid:282)(cid:3)(cid:381)(cid:296)(cid:3)(cid:87)(cid:286)(cid:381)(cid:393)(cid:367)(cid:286)(cid:400)(cid:3)(cid:38)(cid:349)(cid:374)(cid:258)(cid:374)(cid:272)(cid:349)(cid:258)(cid:367)(cid:3)(cid:94)(cid:286)(cid:396)(cid:448)(cid:349)(cid:272)(cid:286)(cid:400)(cid:3)(cid:18)(cid:381)(cid:396)(cid:393)(cid:856)(cid:3)(cid:349)(cid:400)(cid:3)(cid:258)(cid:3)(cid:282)(cid:349)(cid:400)(cid:415)(cid:374)(cid:336)(cid:437)(cid:349)(cid:400)(cid:346)(cid:286)(cid:282)(cid:3)(cid:336)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:381)(cid:296)(cid:3)(cid:272)(cid:381)(cid:373)(cid:373)(cid:437)(cid:374)(cid:349)(cid:410)(cid:455)(cid:3)(cid:367)(cid:286)(cid:258)(cid:282)(cid:286)(cid:396)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)
(cid:393)(cid:396)(cid:381)(cid:296)(cid:286)(cid:400)(cid:400)(cid:349)(cid:381)(cid:374)(cid:258)(cid:367)(cid:400)(cid:856)(cid:3)(cid:100)(cid:346)(cid:286)(cid:349)(cid:396)(cid:3)(cid:272)(cid:381)(cid:373)(cid:271)(cid:349)(cid:374)(cid:286)(cid:282)(cid:3)(cid:258)(cid:271)(cid:437)(cid:374)(cid:282)(cid:258)(cid:374)(cid:272)(cid:286)(cid:3)(cid:381)(cid:296)(cid:3)(cid:271)(cid:437)(cid:400)(cid:349)(cid:374)(cid:286)(cid:400)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:393)(cid:396)(cid:381)(cid:296)(cid:286)(cid:400)(cid:400)(cid:349)(cid:381)(cid:374)(cid:258)(cid:367)(cid:3)(cid:286)(cid:454)(cid:393)(cid:286)(cid:396)(cid:415)(cid:400)(cid:286)(cid:3)(cid:346)(cid:286)(cid:367)(cid:393)(cid:400)(cid:3)(cid:437)(cid:400)(cid:3)(cid:410)(cid:381)(cid:3)(cid:296)(cid:437)(cid:367)(cid:302)(cid:367)(cid:367)(cid:3)
(cid:381)(cid:437)(cid:396)(cid:3)(cid:272)(cid:381)(cid:373)(cid:393)(cid:258)(cid:374)(cid:455)(cid:859)(cid:400)(cid:3)(cid:272)(cid:381)(cid:396)(cid:286)(cid:3)(cid:448)(cid:258)(cid:367)(cid:437)(cid:286)(cid:400)(cid:3)(cid:410)(cid:346)(cid:258)(cid:410)(cid:3)(cid:258)(cid:396)(cid:286)(cid:3)(cid:349)(cid:374)(cid:410)(cid:286)(cid:336)(cid:396)(cid:258)(cid:367)(cid:3)(cid:410)(cid:381)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:400)(cid:437)(cid:272)(cid:272)(cid:286)(cid:400)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:336)(cid:396)(cid:381)(cid:449)(cid:410)(cid:346)(cid:856)(cid:3)

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Ronald G. Kukuchka
President | Ace Robbins, Inc. 

Craig W. Best
President & CEO
Peoples Financial Services Corp.
Peoples Security Bank 
and Trust Company

James B. Nicholas
President 
D.G. Nicholas Co.

Richard S. Lochen, Jr.
Certified Public Accountant
Partner | Lochen & Chase PC

Robert W. Naismith, Ph.D.
Chairman | JuJaMa, Inc. 

William E. Aubrey II
Chairman 
President & CEO
Gertrude Hawk Chocolates
Chief Executive Officer 
Drew’s Organics

James G. Keisling
Treasurer 
Northeast Architectural 
Products, Inc. 

Joseph T. Wright, Jr., Esq
Attorney at Law | Partner
Wright & Reihner PC

Steven L. Weinberger
President 
G. Weinberger Company

photo by:  K Hart Photography & Design LLC

Emily S. Perry
Retired Insurance 
Account Executive
Community Volunteer

George H. Stover, Jr.
Real Estate Appraiser

Joseph G. Cesare, M.D.
Retired Orthopedic Surgeon
Former President 
Scranton Orthopedic Specialists

Earle A. Wootton
Chairman & CEO 
Director Community Foundation
of the Endless Mountains, Inc.
President & CEO
Mountain Resource Partners, Inc.

Thomas P. Tulaney 
Senior Executive 
Vice President
Chief Operating Officer

S Craig W. Best
R
President & CEO
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John R. Anderson III 
Executive Vice President 
Chief Financial Officer

Joseph M. Ferretti 
Executive Vice President 
Senior Lending Officer 

Debra E. Dissinger 
Executive Vice President 
Chief Operations Officer 

Michael L. Jake 
Executive Vice President 
Chief Risk Officer 

Lynn M. Peters Thiel 
Executive Vice President 
Chief Retail Officer 

Neal D. Koplin 
Executive Vice President 
Lehigh Valley Region 
President

Timothy H. Kirtley 
Executive Vice President 
Chief Credit Officer

 
 
 
 
Financial Highlights

PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)

Year Ended December 31

2017

2016

2015

2014

2013

Condensed statements of financial performance:

Interest income

Interest expense

     Net interest income

Provision for loan losses 

     Net interest income after the provision for loan losses

Noninterest income

Noninterest expense

     Income before income taxes

Provision for income tax expense

     Net income 

Condensed statements of financial position:

Investments securities

Net loans

Other assets

     Total Assets

Deposits

Short-term borrowings

Long-term debt

Other liabilities

Stockholders' equity

$74,242

$68,984

$63,041

$63,956

$37,370

8,698

65,544

4,800

60,744

17,186

51,293

26,637

8,180

7,251

61,733

5,000

56,733

15,888

48,030

24,591

5,008

6,037

57,004

3,700

53,304

15,719

46,779

22,244

4,521

6,642

57,314

3,524

53,790

15,251

45,933

23,108

5,459

$18,457

$19,583

$17,723

$17,649

4,169

33,201

2,361

30,840

11,762

36,396

6,206

485

$5,721

$281,822

$269,927

$297,044

$354,251

$317,010

1,674,105

1,517,004

1,327,890

1,199,556

1,167,966

213,104

212,511

194,124

187,862

203,245

$2,169,031

$1,999,442

$1,819,058

$1,741,669

$1,688,221

$1,719,018

$1,588,757

$1,455,810

$1,425,558

$1,379,507

123,675

49,734

11,628

264,976

82,700

58,134

13,233

38,325

60,354

15,801

19,557

33,140

16,635

22,052

36,743

11,127

256,618

248,768

246,779

238,792

     Total liabilities and stockholders' equity

$2,169,031

$1,999,442

$1,819,058

$1,741,669

$1,668,221

Per share data:

Net income

Cash dividends declared

Stockholders' equity

Cash dividends as a percentage of net income

Average common shares outstanding

Selected ratios (based on average balances):

Net income as a percentage of total assets

Net income as a percentage of stockholders' equity

Stockholders' equity as a percentage of total assets

Tier I capital as a percentage of adjusted total assets

Net interest income as a percentage of earning assets

$2.50

1.26

$35.82

50.40%

$2.65

1.24

$34.71

46.79%

$2.36

1.24

$33.57

52.54%

$2.34

1.24

$32.69

53.03%

$1.21

1.23

$31.62

96.33%

7,395,837

7,396,716

7,516,451

7,548,825

4,733,059

0.90%

7.02

12.77

9.94

3.69

1.02%

7.64

13.36

10.16

3.77

1.02%

7.13

14.26

10.80

3.81

1.03%

7.29

14.12

10.76

3.86

0.58%

4.01

14.43

10.12

3.91

Loans, net, as a percentage of deposits

96.50%

95.81%

87.55%

84.13%

87.72%

Selected ratios (based on period end balances):

Tier I capital as a percentage of risk-weighted assets

11.85%

12.49%

13.52%

14.75%

13.62%

Total capital as a percentage of risk-weighted assets

Allowance for loan losses as a percentage of loans, net

Nonperforming loans as a percentage of loans, net

12.95

1.12

0.67%

13.51

1.04

0.90%

14.47

0.97

0.86%

15.61

0.85

0.85%

14.29

0.74

1.60%

Note:  Average balances were calculated using average daily balances.  Average balances for loans include nonaccrual loans.
Tax-equivalent adjustments were calculated using  the prevailing statutory rate of 35.0 percent.

Emrick Office | 2151 Emrick Blvd | Bethlehem

photo by:  Michelle Scaturro

EXPANSION IN THE 
LEHIGH VALLEY MARKET

(cid:24)(cid:437)(cid:396)(cid:349)(cid:374)(cid:336)(cid:3) (cid:1006)(cid:1004)(cid:1005)(cid:1011)(cid:853)
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Tilghman Office | 3920 W TilghmanSt | Allentown

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WOMEN IN PHILANTHROPY LOAN PROGRAM

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(cid:296)(cid:381)(cid:396)(cid:3)

6

P E O P L E S F I N A N C I A L S E R V I C E S C O R P.

Office Locations

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LEHIGH 
COUNTY | PA

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LUZERNE 
COUNTY | PA

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(cid:60)(cid:349)(cid:374)(cid:336)(cid:400)(cid:410)(cid:381)(cid:374)(cid:3)
(cid:1008)(cid:1007)(cid:1009)(cid:3)(cid:116)(cid:455)(cid:381)(cid:373)(cid:349)(cid:374)(cid:336)(cid:3)(cid:4)(cid:448)(cid:286)(cid:3)
(cid:60)(cid:349)(cid:374)(cid:336)(cid:400)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1011)(cid:1004)(cid:1008)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1006)(cid:1012)(cid:1012)(cid:882)(cid:1004)(cid:1005)(cid:1006)(cid:1012)

MONROE 
COUNTY | PA

(cid:68)(cid:381)(cid:437)(cid:374)(cid:410)(cid:3)(cid:87)(cid:381)(cid:272)(cid:381)(cid:374)(cid:381)(cid:3)
(cid:1005)(cid:1007)(cid:1006)(cid:1006)(cid:3)(cid:87)(cid:381)(cid:272)(cid:381)(cid:374)(cid:381)(cid:3)(cid:17)(cid:367)(cid:448)(cid:282)
(cid:68)(cid:381)(cid:437)(cid:374)(cid:410)(cid:3)(cid:87)(cid:381)(cid:272)(cid:381)(cid:374)(cid:381)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1007)(cid:1008)(cid:1008)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1012)(cid:1007)(cid:1013)(cid:882)(cid:1012)(cid:1011)(cid:1007)(cid:1006)

MONTGOMERY 
COUNTY | PA

(cid:60)(cid:349)(cid:374)(cid:336)(cid:3)(cid:381)(cid:296)(cid:3)(cid:87)(cid:396)(cid:437)(cid:400)(cid:400)(cid:349)(cid:258)
(cid:1010)(cid:1005)(cid:1004)(cid:3)(cid:38)(cid:396)(cid:286)(cid:286)(cid:282)(cid:381)(cid:373)(cid:3)
(cid:17)(cid:437)(cid:400)(cid:349)(cid:374)(cid:286)(cid:400)(cid:400)(cid:3)(cid:18)(cid:286)(cid:374)(cid:410)(cid:286)(cid:396)(cid:3)(cid:24)(cid:396)(cid:3)
(cid:94)(cid:437)(cid:349)(cid:410)(cid:286)(cid:3)(cid:1005)(cid:1004)(cid:1009)(cid:3)(cid:3)
(cid:60)(cid:349)(cid:374)(cid:336)(cid:3)(cid:381)(cid:296)(cid:3)(cid:87)(cid:396)(cid:437)(cid:400)(cid:400)(cid:349)(cid:258)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1013)(cid:1008)(cid:1004)(cid:1010)(cid:3)
(cid:894)(cid:1010)(cid:1005)(cid:1004)(cid:895)(cid:3)(cid:1006)(cid:1004)(cid:1009)(cid:882)(cid:1005)(cid:1012)(cid:1012)(cid:1004)

BROOME 
COUNTY | NY

(cid:17)(cid:349)(cid:374)(cid:336)(cid:346)(cid:258)(cid:373)(cid:410)(cid:381)(cid:374)
(cid:116)(cid:286)(cid:400)(cid:410)(cid:3)(cid:94)(cid:349)(cid:282)(cid:286)
(cid:1006)(cid:1011)(cid:1007)(cid:3)(cid:68)(cid:258)(cid:349)(cid:374)(cid:3)(cid:94)(cid:410)
(cid:17)(cid:349)(cid:374)(cid:336)(cid:346)(cid:258)(cid:373)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:69)(cid:122)(cid:3)
(cid:1005)(cid:1007)(cid:1013)(cid:1004)(cid:1009)(cid:3)
(cid:894)(cid:1010)(cid:1004)(cid:1011)(cid:895)(cid:3)(cid:1011)(cid:1006)(cid:1013)(cid:882)(cid:1007)(cid:1012)(cid:1007)(cid:1006)

(cid:18)(cid:381)(cid:374)(cid:364)(cid:367)(cid:349)(cid:374)
(cid:1005)(cid:1004)(cid:1006)(cid:1010)(cid:3)(cid:18)(cid:381)(cid:374)(cid:364)(cid:367)(cid:349)(cid:374)(cid:3)(cid:90)(cid:282)(cid:3)
(cid:18)(cid:381)(cid:374)(cid:364)(cid:367)(cid:349)(cid:374)(cid:853)(cid:3)(cid:69)(cid:122)(cid:3)
(cid:1005)(cid:1007)(cid:1011)(cid:1008)(cid:1012)
(cid:894)(cid:1010)(cid:1004)(cid:1011)(cid:895)(cid:3)(cid:1011)(cid:1006)(cid:1006)(cid:882)(cid:1006)(cid:1005)(cid:1005)(cid:1008)
LACKAWANNA 
COUNTY | PA

(cid:4)(cid:271)(cid:349)(cid:374)(cid:336)(cid:410)(cid:381)(cid:374)
(cid:1005)(cid:1005)(cid:1004)(cid:1004)(cid:3)(cid:69)(cid:381)(cid:396)(cid:410)(cid:346)(cid:286)(cid:396)(cid:374)(cid:3)(cid:17)(cid:367)(cid:448)(cid:282)
(cid:94)(cid:3)(cid:4)(cid:271)(cid:349)(cid:374)(cid:336)(cid:410)(cid:381)(cid:374)(cid:3)(cid:100)(cid:449)(cid:393)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1008)(cid:1005)(cid:1005)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1009)(cid:1012)(cid:1011)(cid:882)(cid:1008)(cid:1012)(cid:1013)(cid:1012)

(cid:18)(cid:286)(cid:374)(cid:410)(cid:396)(cid:258)(cid:367)(cid:3)(cid:18)(cid:349)(cid:410)(cid:455)(cid:3)(cid:94)(cid:272)(cid:396)(cid:258)(cid:374)(cid:410)(cid:381)(cid:374)
(cid:1005)(cid:1009)(cid:1004)(cid:3)(cid:69)(cid:3)(cid:116)(cid:258)(cid:400)(cid:346)(cid:349)(cid:374)(cid:336)(cid:410)(cid:381)(cid:374)(cid:3)(cid:4)(cid:448)(cid:286)
(cid:94)(cid:272)(cid:396)(cid:258)(cid:374)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1009)(cid:1004)(cid:1007)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1013)(cid:1009)(cid:1009)(cid:882)(cid:1005)(cid:1011)(cid:1004)(cid:1004)

(cid:28)(cid:258)(cid:400)(cid:410)(cid:3)(cid:94)(cid:272)(cid:396)(cid:258)(cid:374)(cid:410)(cid:381)(cid:374)
(cid:1013)(cid:1010)(cid:1012)(cid:3)(cid:87)(cid:396)(cid:286)(cid:400)(cid:272)(cid:381)(cid:410)(cid:410)(cid:3)(cid:4)(cid:448)(cid:286)
(cid:94)(cid:272)(cid:396)(cid:258)(cid:374)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1009)(cid:1005)(cid:1004)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1007)(cid:1008)(cid:1006)(cid:882)(cid:1013)(cid:1005)(cid:1004)(cid:1005)

(cid:39)(cid:367)(cid:286)(cid:374)(cid:271)(cid:437)(cid:396)(cid:374)
(cid:1008)(cid:1013)(cid:1008)(cid:3)(cid:69)(cid:3)(cid:39)(cid:396)(cid:258)(cid:448)(cid:286)(cid:367)(cid:3)(cid:87)(cid:381)(cid:374)(cid:282)(cid:3)(cid:90)(cid:282)
(cid:18)(cid:367)(cid:258)(cid:396)(cid:364)(cid:400)(cid:3)(cid:94)(cid:437)(cid:373)(cid:373)(cid:349)(cid:410)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1008)(cid:1005)(cid:1005)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1009)(cid:1012)(cid:1009)(cid:882)(cid:1009)(cid:1005)(cid:1007)(cid:1004)

(cid:39)(cid:396)(cid:286)(cid:286)(cid:374)(cid:3)(cid:90)(cid:349)(cid:282)(cid:336)(cid:286)
(cid:1005)(cid:1013)(cid:1004)(cid:1005)(cid:3)(cid:94)(cid:258)(cid:374)(cid:282)(cid:286)(cid:396)(cid:400)(cid:381)(cid:374)(cid:3)(cid:4)(cid:448)(cid:286)
(cid:94)(cid:272)(cid:396)(cid:258)(cid:374)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1009)(cid:1004)(cid:1013)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1007)(cid:1008)(cid:1010)(cid:882)(cid:1008)(cid:1010)(cid:1013)(cid:1009)

(cid:68)(cid:349)(cid:374)(cid:381)(cid:381)(cid:364)(cid:258)
(cid:1008)(cid:1006)(cid:1004)(cid:3)(cid:24)(cid:258)(cid:448)(cid:349)(cid:400)(cid:3)(cid:94)(cid:410)
(cid:94)(cid:272)(cid:396)(cid:258)(cid:374)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1009)(cid:1004)(cid:1009)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1013)(cid:1009)(cid:1009)(cid:882)(cid:1005)(cid:1012)(cid:1012)(cid:1007)

(cid:68)(cid:381)(cid:400)(cid:272)(cid:381)(cid:449)
(cid:1005)(cid:1008)(cid:1005)(cid:3)(cid:69)(cid:3)(cid:68)(cid:258)(cid:349)(cid:374)(cid:3)(cid:94)(cid:410)
(cid:68)(cid:381)(cid:400)(cid:272)(cid:381)(cid:449)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1008)(cid:1008)(cid:1008)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1012)(cid:1008)(cid:1006)(cid:882)(cid:1011)(cid:1010)(cid:1006)(cid:1010)

(cid:75)(cid:367)(cid:282)(cid:3)(cid:38)(cid:381)(cid:396)(cid:336)(cid:286)
(cid:1006)(cid:1005)(cid:1010)(cid:3)(cid:94)(cid:3)(cid:68)(cid:258)(cid:349)(cid:374)(cid:3)(cid:94)(cid:410)
(cid:75)(cid:367)(cid:282)(cid:3)(cid:38)(cid:381)(cid:396)(cid:336)(cid:286)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1009)(cid:1005)(cid:1012)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1008)(cid:1009)(cid:1005)(cid:882)(cid:1011)(cid:1006)(cid:1004)(cid:1004)

NORTHAMPTON 
COUNTY | PA

(cid:28)(cid:373)(cid:396)(cid:349)(cid:272)(cid:364)(cid:3)(cid:17)(cid:367)(cid:448)(cid:282)(cid:3)
(cid:1006)(cid:1005)(cid:1009)(cid:1005)(cid:3)(cid:28)(cid:373)(cid:396)(cid:349)(cid:272)(cid:364)(cid:3)(cid:17)(cid:367)(cid:448)(cid:282)(cid:3)
(cid:17)(cid:286)(cid:410)(cid:346)(cid:367)(cid:286)(cid:346)(cid:286)(cid:373)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1004)(cid:1006)(cid:1004)(cid:3)
(cid:894)(cid:1010)(cid:1005)(cid:1004)(cid:895)(cid:3)(cid:1007)(cid:1005)(cid:1011)(cid:882)(cid:1008)(cid:1010)(cid:1013)(cid:1004)

SUSQUEHANNA 
COUNTY | PA

(cid:44)(cid:258)(cid:367)(cid:367)(cid:400)(cid:410)(cid:286)(cid:258)(cid:282)
(cid:1006)(cid:1009)(cid:1005)(cid:1004)(cid:1013)(cid:3)(cid:94)(cid:410)(cid:258)(cid:410)(cid:286)(cid:3)(cid:90)(cid:410)(cid:3)(cid:1005)(cid:1005)(cid:3)
(cid:44)(cid:258)(cid:367)(cid:367)(cid:400)(cid:410)(cid:286)(cid:258)(cid:282)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1012)(cid:1006)(cid:1006)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1012)(cid:1011)(cid:1013)(cid:882)(cid:1006)(cid:1005)(cid:1013)(cid:1009)

(cid:44)(cid:381)(cid:393)(cid:3)(cid:17)(cid:381)(cid:410)(cid:410)(cid:381)(cid:373)
(cid:1005)(cid:1006)(cid:1010)(cid:3)(cid:68)(cid:258)(cid:349)(cid:374)(cid:3)(cid:94)(cid:410)(cid:3)
(cid:44)(cid:381)(cid:393)(cid:3)(cid:17)(cid:381)(cid:410)(cid:410)(cid:381)(cid:373)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1012)(cid:1006)(cid:1008)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1006)(cid:1012)(cid:1013)(cid:882)(cid:1008)(cid:1005)(cid:1006)(cid:1008)

(cid:68)(cid:381)(cid:374)(cid:410)(cid:396)(cid:381)(cid:400)(cid:286)
(cid:1010)(cid:1013)(cid:1009)(cid:3)(cid:39)(cid:396)(cid:381)(cid:449)(cid:3)(cid:4)(cid:448)(cid:286)
(cid:68)(cid:381)(cid:374)(cid:410)(cid:396)(cid:381)(cid:400)(cid:286)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1012)(cid:1004)(cid:1005)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1006)(cid:1011)(cid:1012)(cid:882)(cid:1008)(cid:1005)(cid:1004)(cid:1004)

(cid:94)(cid:437)(cid:400)(cid:395)(cid:437)(cid:286)(cid:346)(cid:258)(cid:374)(cid:374)(cid:258)
(cid:1006)(cid:1005)(cid:1009)(cid:3)(cid:28)(cid:396)(cid:349)(cid:286)(cid:3)(cid:17)(cid:367)(cid:448)(cid:282)
(cid:94)(cid:437)(cid:400)(cid:395)(cid:437)(cid:286)(cid:346)(cid:258)(cid:374)(cid:374)(cid:258)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1012)(cid:1008)(cid:1011)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1012)(cid:1009)(cid:1007)(cid:882)(cid:1008)(cid:1013)(cid:1004)(cid:1005)

WAYNE 
COUNTY | PA

(cid:39)(cid:381)(cid:437)(cid:367)(cid:282)(cid:400)(cid:271)(cid:381)(cid:396)(cid:381)(cid:3)
(cid:1009)(cid:1007)(cid:1008)(cid:3)(cid:68)(cid:258)(cid:349)(cid:374)(cid:3)(cid:94)(cid:410)
(cid:39)(cid:381)(cid:437)(cid:367)(cid:282)(cid:400)(cid:271)(cid:381)(cid:396)(cid:381)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1008)(cid:1006)(cid:1008)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1012)(cid:1008)(cid:1006)(cid:882)(cid:1010)(cid:1008)(cid:1011)(cid:1007)

WYOMING 
COUNTY | PA

(cid:68)(cid:286)(cid:400)(cid:346)(cid:381)(cid:393)(cid:393)(cid:286)(cid:374)
(cid:1012)(cid:1005)(cid:1011)(cid:1012)(cid:3)(cid:94)(cid:410)(cid:258)(cid:410)(cid:286)(cid:3)(cid:90)(cid:410)(cid:3)(cid:1010)
(cid:68)(cid:286)(cid:400)(cid:346)(cid:381)(cid:393)(cid:393)(cid:286)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1010)(cid:1007)(cid:1004)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1012)(cid:1007)(cid:1007)(cid:882)(cid:1009)(cid:1005)(cid:1011)(cid:1005)

(cid:69)(cid:349)(cid:272)(cid:346)(cid:381)(cid:367)(cid:400)(cid:381)(cid:374)(cid:3)
(cid:1008)(cid:1006)(cid:884)(cid:1008)(cid:1012)(cid:3)(cid:94)(cid:410)(cid:258)(cid:410)(cid:286)(cid:3)(cid:94)(cid:410)
(cid:69)(cid:349)(cid:272)(cid:346)(cid:381)(cid:367)(cid:400)(cid:381)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1008)(cid:1008)(cid:1010)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1013)(cid:1008)(cid:1006)(cid:882)(cid:1006)(cid:1006)(cid:1010)(cid:1009)

(cid:100)(cid:437)(cid:374)(cid:364)(cid:346)(cid:258)(cid:374)(cid:374)(cid:381)(cid:272)(cid:364)
(cid:1012)(cid:1007)(cid:3)(cid:28)(cid:3)(cid:100)(cid:349)(cid:381)(cid:336)(cid:258)(cid:3)(cid:94)(cid:410)
(cid:100)(cid:437)(cid:374)(cid:364)(cid:346)(cid:258)(cid:374)(cid:374)(cid:381)(cid:272)(cid:364)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)
(cid:1005)(cid:1012)(cid:1010)(cid:1009)(cid:1011)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1012)(cid:1007)(cid:1010)(cid:882)(cid:1006)(cid:1005)(cid:1007)(cid:1009)

Off-site ATMs 

GEISINGER COMMONWEALTH 
SCHOOL OF MEDICINE
(cid:1009)(cid:1006)(cid:1009)(cid:3)(cid:87)(cid:349)(cid:374)(cid:286)(cid:3)(cid:94)(cid:410)(cid:396)(cid:286)(cid:286)(cid:410)
(cid:94)(cid:272)(cid:396)(cid:258)(cid:374)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)

LACKAWANNA COLLEGE
(cid:1009)(cid:1004)(cid:1005)(cid:3)(cid:115)(cid:349)(cid:374)(cid:286)(cid:3)(cid:94)(cid:410)(cid:396)(cid:286)(cid:286)(cid:410)
(cid:94)(cid:272)(cid:396)(cid:258)(cid:374)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)

MEADOW AVENUE
(cid:68)(cid:286)(cid:258)(cid:282)(cid:381)(cid:449)(cid:3)(cid:4)(cid:448)(cid:286)(cid:374)(cid:437)(cid:286)(cid:3)
(cid:920)(cid:3)(cid:44)(cid:286)(cid:373)(cid:367)(cid:381)(cid:272)(cid:364)(cid:3)(cid:94)(cid:410)(cid:396)(cid:286)(cid:286)(cid:410)
(cid:94)(cid:272)(cid:396)(cid:258)(cid:374)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)

RADISSON LACKAWANNA 
STATION HOTEL 
(cid:1011)(cid:1004)(cid:1004)(cid:3)(cid:62)(cid:258)(cid:272)(cid:364)(cid:258)(cid:449)(cid:258)(cid:374)(cid:374)(cid:258)(cid:3)(cid:4)(cid:448)(cid:286)(cid:374)(cid:437)(cid:286)
(cid:94)(cid:272)(cid:396)(cid:258)(cid:374)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)

SAINT MARY’S VILLA 
NURSING HOME
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Corporate Information

PEOPLES SECURITY BANK 
AND TRUST COMPANY 
CORPORATE HEADQUARTERS 
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INVESTOR RELATIONS OFFICER
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STOCK INFORMATION
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STOCK TRANSFER 
AND REGISTRAR AGENT 

AMERICAN STOCK TRANSFER 
& TRUST COMPANY, LLC
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FORM 10-K ANNUAL REPORT
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(cid:349)(cid:400)(cid:3)(cid:349)(cid:374)(cid:272)(cid:367)(cid:437)(cid:282)(cid:286)(cid:282)(cid:3)(cid:346)(cid:286)(cid:396)(cid:286)(cid:349)(cid:374)(cid:856)(cid:3)Copies of 
the company’s Annual Report 
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Commission on Form 10-K, 
quarterly reports on Form 
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Marie L. Luciani
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Scranton, PA 18503

ANNUAL MEETING
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DIVIDEND CALENDAR
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DIVIDEND REINVESTMENT PLAN
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DIRECT DEPOSIT OF DIVIDENDS
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(cid:18)(cid:381)(cid:396)(cid:393)(cid:381)(cid:396)(cid:258)(cid:410)(cid:286)(cid:3)(cid:44)(cid:286)(cid:258)(cid:282)(cid:395)(cid:437)(cid:258)(cid:396)(cid:410)(cid:286)(cid:396)(cid:400)(cid:3)(cid:258)(cid:282)(cid:282)(cid:396)(cid:286)(cid:400)(cid:400)(cid:856)

INDEPENDENT AUDITORS
(cid:17)(cid:258)(cid:364)(cid:286)(cid:396)(cid:3)(cid:100)(cid:349)(cid:367)(cid:367)(cid:455)(cid:3)(cid:115)(cid:349)(cid:396)(cid:272)(cid:346)(cid:381)(cid:449)(cid:3)(cid:60)(cid:396)(cid:258)(cid:437)(cid:400)(cid:286)(cid:853)(cid:3)(cid:62)(cid:62)(cid:87)
(cid:1011)(cid:1009)(cid:1007)(cid:1009)(cid:3)(cid:116)(cid:349)(cid:374)(cid:282)(cid:400)(cid:381)(cid:396)(cid:3)(cid:24)(cid:396)(cid:349)(cid:448)(cid:286)(cid:853)(cid:3)(cid:94)(cid:437)(cid:349)(cid:410)(cid:286)(cid:3)(cid:1007)(cid:1004)(cid:1004)
(cid:4)(cid:367)(cid:367)(cid:286)(cid:374)(cid:410)(cid:381)(cid:449)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)(cid:3)(cid:1005)(cid:1012)(cid:1005)(cid:1013)(cid:1009)(cid:882)(cid:1005)(cid:1004)(cid:1005)(cid:1008)
(cid:894)(cid:1010)(cid:1005)(cid:1004)(cid:895)(cid:3)(cid:1007)(cid:1007)(cid:1010)(cid:882)(cid:1012)(cid:1005)(cid:1012)(cid:1004)

GENERAL COUNSEL
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(cid:58)(cid:286)(cid:396)(cid:396)(cid:455)(cid:3)(cid:116)(cid:286)(cid:349)(cid:374)(cid:271)(cid:286)(cid:396)(cid:336)(cid:286)(cid:396)(cid:3)(cid:87)(cid:856)(cid:18)(cid:856)
(cid:1007)(cid:1008)(cid:1009)(cid:3)(cid:116)(cid:455)(cid:381)(cid:373)(cid:349)(cid:374)(cid:336)(cid:3)(cid:4)(cid:448)(cid:286)(cid:374)(cid:437)(cid:286)
(cid:94)(cid:437)(cid:349)(cid:410)(cid:286)(cid:3)(cid:1006)(cid:1004)(cid:1004)
(cid:94)(cid:272)(cid:396)(cid:258)(cid:374)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)(cid:3)(cid:1005)(cid:1012)(cid:1009)(cid:1004)(cid:1007)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1013)(cid:1010)(cid:1007)(cid:882)(cid:1012)(cid:1012)(cid:1012)(cid:1004)

SEC COUNSEL
(cid:87)(cid:286)(cid:393)(cid:393)(cid:286)(cid:396)(cid:3)(cid:44)(cid:258)(cid:373)(cid:349)(cid:367)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:62)(cid:62)(cid:87)
(cid:1007)(cid:1004)(cid:1004)(cid:1004)(cid:3)(cid:100)(cid:449)(cid:381)(cid:3)(cid:62)(cid:381)(cid:336)(cid:258)(cid:374)(cid:3)(cid:94)(cid:395)(cid:437)(cid:258)(cid:396)(cid:286)
(cid:28)(cid:349)(cid:336)(cid:346)(cid:410)(cid:286)(cid:286)(cid:374)(cid:410)(cid:346)(cid:3)(cid:920)(cid:3)(cid:4)(cid:396)(cid:272)(cid:346)(cid:3)(cid:94)(cid:410)(cid:396)(cid:286)(cid:286)(cid:410)(cid:400)
(cid:87)(cid:346)(cid:349)(cid:367)(cid:258)(cid:282)(cid:286)(cid:367)(cid:393)(cid:346)(cid:349)(cid:258)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)(cid:1005)(cid:1013)(cid:1005)(cid:1004)(cid:1007)
(cid:894)(cid:1006)(cid:1005)(cid:1009)(cid:895)(cid:3)(cid:1013)(cid:1012)(cid:1005)(cid:882)(cid:1008)(cid:1004)(cid:1004)(cid:1004)

TRUST COUNSEL
(cid:58)(cid:258)(cid:373)(cid:286)(cid:400)(cid:3)(cid:116)(cid:856)(cid:3)(cid:90)(cid:286)(cid:349)(cid:282)(cid:853)(cid:3)(cid:28)(cid:400)(cid:395)(cid:856)
(cid:75)(cid:367)(cid:349)(cid:448)(cid:286)(cid:396)(cid:853)(cid:3)(cid:87)(cid:396)(cid:349)(cid:272)(cid:286)(cid:3)(cid:920)(cid:3)(cid:90)(cid:346)(cid:381)(cid:282)(cid:286)(cid:400)
(cid:1005)(cid:1006)(cid:1005)(cid:1006)(cid:3)(cid:94)(cid:381)(cid:437)(cid:410)(cid:346)(cid:3)(cid:4)(cid:271)(cid:349)(cid:374)(cid:336)(cid:410)(cid:381)(cid:374)(cid:3)(cid:90)(cid:381)(cid:258)(cid:282)
(cid:18)(cid:367)(cid:258)(cid:396)(cid:364)(cid:400)(cid:3)(cid:94)(cid:437)(cid:373)(cid:373)(cid:349)(cid:410)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)(cid:1005)(cid:1012)(cid:1008)(cid:1005)(cid:1005)
(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1009)(cid:1012)(cid:1009)(cid:882)(cid:1005)(cid:1006)(cid:1004)(cid:1004)

MARKET MAKERS
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(cid:1008)(cid:3)(cid:100)(cid:381)(cid:449)(cid:286)(cid:396)(cid:3)(cid:17)(cid:396)(cid:349)(cid:282)(cid:336)(cid:286)
(cid:1006)(cid:1004)(cid:1004)(cid:3)(cid:17)(cid:258)(cid:396)(cid:396)(cid:3)(cid:44)(cid:258)(cid:396)(cid:271)(cid:381)(cid:396)(cid:3)(cid:24)(cid:396)(cid:349)(cid:448)(cid:286)(cid:3)
(cid:94)(cid:437)(cid:349)(cid:410)(cid:286)(cid:3)(cid:1007)(cid:1004)(cid:1004)(cid:3)
(cid:116)(cid:286)(cid:400)(cid:410)(cid:3)(cid:18)(cid:381)(cid:374)(cid:400)(cid:346)(cid:381)(cid:346)(cid:381)(cid:272)(cid:364)(cid:286)(cid:374)(cid:853)(cid:3)(cid:87)(cid:4)(cid:3)(cid:1005)(cid:1013)(cid:1008)(cid:1006)(cid:1012)
(cid:894)(cid:1010)(cid:1005)(cid:1004)(cid:895)(cid:3)(cid:1012)(cid:1010)(cid:1006)(cid:882)(cid:1009)(cid:1007)(cid:1010)(cid:1012)

(cid:39)(cid:396)(cid:349)(cid:312)(cid:374)(cid:3)(cid:38)(cid:349)(cid:374)(cid:258)(cid:374)(cid:272)(cid:349)(cid:258)(cid:367)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:853)(cid:3)(cid:62)(cid:62)(cid:18)
(cid:1008)(cid:1008)(cid:1004)(cid:3)(cid:68)(cid:381)(cid:374)(cid:415)(cid:272)(cid:286)(cid:367)(cid:367)(cid:381)(cid:3)(cid:4)(cid:448)(cid:286)(cid:374)(cid:437)(cid:286)(cid:3)
(cid:94)(cid:437)(cid:349)(cid:410)(cid:286)(cid:3)(cid:1005)(cid:1012)(cid:1006)(cid:1008)
(cid:69)(cid:381)(cid:396)(cid:296)(cid:381)(cid:367)(cid:364)(cid:853)(cid:3)(cid:115)(cid:4)(cid:3)(cid:1006)(cid:1007)(cid:1009)(cid:1005)(cid:1004)
(cid:894)(cid:1011)(cid:1009)(cid:1011)(cid:895)(cid:3)(cid:1013)(cid:1009)(cid:1009)(cid:882)(cid:1012)(cid:1008)(cid:1008)(cid:1008)

(cid:60)(cid:286)(cid:286)(cid:296)(cid:286)(cid:3)(cid:17)(cid:396)(cid:437)(cid:455)(cid:286)(cid:425)(cid:286)(cid:3)(cid:920)(cid:3)(cid:116)(cid:381)(cid:381)(cid:282)(cid:400)(cid:3)(cid:894)(cid:60)(cid:17)(cid:116)(cid:895)
(cid:100)(cid:346)(cid:286)(cid:3)(cid:28)(cid:395)(cid:437)(cid:349)(cid:410)(cid:258)(cid:271)(cid:367)(cid:286)(cid:3)(cid:17)(cid:437)(cid:349)(cid:367)(cid:282)(cid:349)(cid:374)(cid:336)(cid:3)
(cid:1011)(cid:1012)(cid:1011)(cid:3)(cid:1011)(cid:410)(cid:346)(cid:3)(cid:4)(cid:448)(cid:286)(cid:374)(cid:437)(cid:286)(cid:3)
(cid:69)(cid:286)(cid:449)(cid:3)(cid:122)(cid:381)(cid:396)(cid:364)(cid:853)(cid:3)(cid:69)(cid:122)(cid:3)(cid:1005)(cid:1004)(cid:1004)(cid:1005)(cid:1013)
(cid:894)(cid:1006)(cid:1005)(cid:1006)(cid:895)(cid:3)(cid:1012)(cid:1012)(cid:1011)(cid:882)(cid:1012)(cid:1013)(cid:1013)(cid:1010)(cid:3)

(cid:94)(cid:258)(cid:374)(cid:282)(cid:367)(cid:286)(cid:396)(cid:3)(cid:75)(cid:859)(cid:69)(cid:286)(cid:349)(cid:367)(cid:367)(cid:3)(cid:1085)(cid:3)(cid:87)(cid:258)(cid:396)(cid:410)(cid:374)(cid:286)(cid:396)(cid:400)(cid:853)(cid:3)(cid:62)(cid:856)(cid:87)(cid:856)(cid:3)
(cid:1005)(cid:1006)(cid:1009)(cid:1005)(cid:3)(cid:4)(cid:448)(cid:286)(cid:374)(cid:437)(cid:286)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:4)(cid:373)(cid:286)(cid:396)(cid:349)(cid:272)(cid:258)(cid:400)(cid:3)
(cid:1010)(cid:410)(cid:346)(cid:3)(cid:38)(cid:367)(cid:381)(cid:381)(cid:396)(cid:3)
(cid:69)(cid:286)(cid:449)(cid:3)(cid:122)(cid:381)(cid:396)(cid:364)(cid:853)(cid:3)(cid:69)(cid:122)(cid:3)(cid:1005)(cid:1004)(cid:1004)(cid:1006)(cid:1004)(cid:3)
(cid:894)(cid:1012)(cid:1004)(cid:1004)(cid:895)(cid:3)(cid:1010)(cid:1007)(cid:1009)(cid:882)(cid:1010)(cid:1012)(cid:1009)(cid:1005)(cid:3)

PRODUCTS AND SERVICES
(cid:24)(cid:286)(cid:410)(cid:258)(cid:349)(cid:367)(cid:286)(cid:282)(cid:3)(cid:349)(cid:374)(cid:296)(cid:381)(cid:396)(cid:373)(cid:258)(cid:415)(cid:381)(cid:374)(cid:3)(cid:381)(cid:374)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)
(cid:393)(cid:396)(cid:381)(cid:282)(cid:437)(cid:272)(cid:410)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:400)(cid:286)(cid:396)(cid:448)(cid:349)(cid:272)(cid:286)(cid:400)(cid:3)(cid:381)(cid:299)(cid:286)(cid:396)(cid:286)(cid:282)(cid:3)
(cid:271)(cid:455)(cid:3)(cid:87)(cid:286)(cid:381)(cid:393)(cid:367)(cid:286)(cid:400)(cid:3)(cid:94)(cid:286)(cid:272)(cid:437)(cid:396)(cid:349)(cid:410)(cid:455)(cid:3)(cid:17)(cid:258)(cid:374)(cid:364)(cid:3)(cid:920)(cid:3)(cid:100)(cid:396)(cid:437)(cid:400)(cid:410)(cid:3)
(cid:272)(cid:258)(cid:374)(cid:3)(cid:271)(cid:286)(cid:3)(cid:381)(cid:271)(cid:410)(cid:258)(cid:349)(cid:374)(cid:286)(cid:282)(cid:3)(cid:271)(cid:455)(cid:3)(cid:448)(cid:349)(cid:400)(cid:349)(cid:415)(cid:374)(cid:336)(cid:3)
(cid:393)(cid:400)(cid:271)(cid:410)(cid:856)(cid:272)(cid:381)(cid:373)(cid:3)(cid:381)(cid:396)(cid:3)(cid:271)(cid:455)(cid:3)(cid:272)(cid:258)(cid:367)(cid:367)(cid:349)(cid:374)(cid:336)(cid:3)
(cid:894)(cid:1012)(cid:1012)(cid:1012)(cid:895)(cid:3)(cid:1012)(cid:1010)(cid:1012)(cid:882)(cid:1007)(cid:1012)(cid:1009)(cid:1012)(cid:3)
(cid:381)(cid:396)(cid:3)(cid:894)(cid:1009)(cid:1011)(cid:1004)(cid:895)(cid:3)(cid:1007)(cid:1008)(cid:1010)(cid:882)(cid:1011)(cid:1011)(cid:1008)(cid:1005)(cid:856)

8

P E O P L E S F I N A N C I A L S E R V I C E S C O R P.

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-K

(Mark One) 
⌧ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the fiscal year ended December 31, 2017 

(cid:2)TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the transition period from 

to 

Commission file number: 001-36388

Peoples Financial Services Corp. 

(Exact name of registrant as specified in its charter) 

Pennsylvania
State or other jurisdiction of
incorporation or organization

23-2391852
(I.R.S. Employer
Identification No.)

150 North Washington Avenue, 
Scranton, PA 18503
(Address of principal executive offices) (Zip Code) 

(570) 346-7741
Registrant’s telephone number, including area code 

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

Title of each class

Common stock, $2.00 par value

Name of each exchange on which registered

The Nasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act: 
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2) No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:2) No ⌧

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 (cid:2)

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such 
shorter period that the registrant was required to submit and post such files). Yes ⌧ No (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, 
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of 
this Form 10-K or any amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer
Non-accelerated filer
Emerging growth company (cid:2)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  (cid:2)

(cid:2)
(cid:2) (Do not check if a smaller reporting company)

Accelerated filer
Smaller reporting company

⌧
(cid:2)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:2) No ⌧
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 2017 was approximately 
$323,434,208 (based on the closing sales price of the registrant’s common stock on that date). 
The number of shares of the registrant’s common stock outstanding as of February 28, 2018 was 7,396,505. 

Portions of the registrant’s definitive proxy statement to be filed in connection with solicitation of proxies for its 2018 annual meeting of 
shareholders, within 120 days of the end of registrant’s fiscal year, is incorporated by reference into Part III of this Annual Report on Form 10-K.

DOCUMENTS INCORPORATED BY REFERENCE 

Peoples Financial Services Corp. 
Form 10K 
For the Year Ended December 31, 2017 
TABLE OF CONTENTS 

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

PART I

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of 
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Controls and Procedures
Item 9A.
Other Information
Item 9B.

PART III

Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

PART IV

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder 
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services

Item 15.
Item 16.

Exhibits, Financial Statement Schedules
Form 10-K Summary

SIGNATURES

-i-

Page
Number

1
15
24
24
25
25

25
28
29
65
66
121
121
123

123
123

123
123
123

123
123

127

Cautionary Note Regarding Forward-Looking Statements. 

This Annual Report on Form 10-K 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. 

The ability of Peoples Financial Services Corp. to predict results or the actual effect of future plans or strategies is 
inherently uncertain. Important factors that could cause actual results of Peoples Financial Services Corp. to differ 
materially from those in the forward-looking statements include, but are not limited to: changes in interest rates; 
economic conditions, particularly in the Peoples Financial Services Corp. 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 the Peoples Financial Services Corp. market 
area; the 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 the ability to 
prevent, detect and respond to cyberattacks. Additional factors that may affect our results are discussed in Item 1A to this 
Annual Report on Form 10-K titled “Risk Factors”. 

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, Peoples Financial Services Corp. 
does 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. 

-ii-

Part I 

Item 1.

Business. 

General 

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. On 
November 30, 2013, Penseco Financial Services Corporation, a financial holding company incorporated under the laws 
of Pennsylvania, referred to as “Penseco,” merged with and into Peoples Financial Services Corp., with Peoples 
Financial Services Corp. being the surviving corporation, pursuant to an Agreement and Plan of Merger dated June 28, 
2013. Such transaction is sometimes referred to in this annual report as the “Penseco merger” and such agreement as the 
“Penseco merger agreement.” In connection with the Penseco merger, on December 1, 2013, Penseco’s former banking 
subsidiary, Penn Security Bank and Trust Company, merged with and into Peoples Neighborhood Bank, and the 
resulting institution adopted the name, “Peoples Security Bank and Trust Company.” 

Unless the context indicates otherwise, all references in this annual report to the “Peoples,” “Company,” “we,” “us” and 
“our” refer to Peoples Financial Services Corp., its subsidiaries and its and their respective predecessors. Peoples 
Security Bank and Trust Company is sometimes referred to as “Peoples Bank.” 

Peoples Bank is a state-chartered bank and trust company under the jurisdiction of the Pennsylvania Department of 
Banking and Securities and the Federal Deposit Insurance Corporation, or “FDIC.” Peoples Bank’s twenty-seven 
community banking offices, all similar with respect to economic characteristics, share a majority of the following 
aggregation criteria: products and services; operating processes; customer bases; delivery systems; and regulatory 
oversight. Accordingly, they are aggregated into a single operating segment. 

Market Areas 

Our principal market area consists of Bucks, Lackawanna, Lehigh, Luzerne, Monroe, Montgomery, Northampton, 
Susquehanna, Wayne and Wyoming Counties in Pennsylvania and Broome County in New York. In addition, parts of 
Bradford County in Pennsylvania that borders Susquehanna and Wyoming Counties are also considered part of the 
market area. 

Specifically, our market area is situated between: 

•(cid:1) Binghamton, Broome County, New York, located to the north; and 

•(cid:1) King of Prussia, Montgomery County, Pennsylvania, to the south. 

Susquehanna County could best be described as a bedroom county with a high percentage of its residents commuting to 
work in Broome County, New York, or Lackawanna County, Pennsylvania. The southern part of Susquehanna County 
tends to gravitate south for both employment and shopping, while the northern part of the county goes north to Broome 
County, New York. The western part of Susquehanna County gravitates south and west to and through Wyoming 
County. Approximately half of our offices are located in and around Scranton, the largest city in Lackawanna County 
with most of the remaining offices located in counties that would be considered sparsely populated, as they are made up 
of many small towns and villages. Peoples entered into the Lehigh County market during the fourth quarter of 2014 with 
the opening of a community banking office. This market has a greater population than the other counties served, with 
Bethlehem being the second largest city within Lehigh County. During 2017, the company has added two additional 
branch offices, one in Allentown, Lehigh County and one in Bethlehem, Northampton County to continue our strategic 
expansion initiative.

In 2015, the Company entered the King of Prussia market, which includes parts of Bucks and Montgomery counties of 
Pennsylvania, with the establishment of a loan production office and a team of experienced lenders.  During the fourth 
quarter of 2016, a retail branch office was established, replacing the loan production office, and staffed by personal 
bankers and our experienced lenders.  Montgomery and Bucks counties are two of the wealthiest counties in 
Pennsylvania. Significant types of employment industries include pharmaceuticals, health care, electronics, computer 

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services, insurance, industrial machinery, retailing, schools and meat processing.  Unemployment rates at December 
2017 were 3.4% in Montgomery County and 3.7% in Bucks County, lower than Pennsylvania’s state unemployment rate 
of 4.7% and the federal unemployment rate of 4.1%, according to the Bureau of Labor Statistics.

The Marcellus Shale formation located in the heart of our northern market area has provided economic benefits to the 
communities served and as a result to us. Natural gas producers have invested billions of dollars in Pennsylvania in lease 
and land acquisition, new well drilling, infrastructure development and community partnerships. The growth of our 
deposits, and to a lesser extent, loan portfolio, has been influenced by natural gas drilling activities. 

Products and Services 

Our primary products are loans to small- and medium-sized businesses. Other lending products include one-to-four 
family residential mortgages and consumer loans. We fund our loans, primarily, by offering open time deposits to 
commercial enterprises and individuals. Other deposit products include certificates of deposits and various demand 
deposit accounts. 

Lending Activities 

We provide a full range of retail and commercial lending products designed to meet the borrowing needs of consumers 
and small- and medium-sized businesses in our market areas. A significant amount of our loans are to customers located 
within our market area. We have no foreign loans or highly leveraged transaction loans, as defined by the Federal 
Reserve Board. Although we participate in loans originated by other banks, we have originated the majority of loans in 
our portfolio. 

Our retail lending products include the following types of loans, among others: residential real estate; automobiles; 
manufactured housing; personal; student; home equity; and credit card. Our commercial lending products include the 
following types of loans, among others: commercial real estate; working capital; equipment and other commercial needs; 
construction; Small Business Administration; and agricultural and mineral rights. The terms offered on a loan vary 
depending primarily on the type of loan and credit-worthiness of the borrower. 

Payment risk is a function of the economic climate in which our lending activities are conducted. Economic downturns 
in the economy generally or in a particular sector could cause cash flow problems for customers and make loan payments 
more difficult. We attempt to minimize this risk by not being exposed to loan concentrations of a single customer or a 
group of customers, the loss of any one or more of whom would have a materially adverse effect on its financial 
condition. One element of interest rate risk arises from our fixed rate loans in an environment of changing interest rates. 
We attempt to mitigate this risk by making adjustable rate commercial loans and by limiting repricing terms to five years 
or less for customers requiring fixed rate loans. Our lending activity also exposes us to risks that any collateral we take as
security is not adequate. We attempt to manage collateral risk by avoiding loan concentrations to particular borrowers, 
by perfecting liens on collateral and by obtaining appraisals on property prior to extending loans. We attempt to mitigate 
our exposure to these and other types of risks by stratifying authorization requirements by loan size and complexity. 

We generate interest income from our loan and securities portfolios. Other income is generated primarily from merchant 
transaction fees, trust fees and service charges on deposit accounts. Our primary costs are interest paid on deposits and 
borrowings and general operating expenses. We provide a variety of commercial and retail banking services to business, 
non-profits, governmental, municipal agencies and professional customers, as well as retail customers, on a personalized 
basis. Our primary lending products are real estate, commercial and consumer loans. We also offer ATM access, credit 
cards, active investment accounts, trust department services and other various lending, depository and related financial 
services. Our primary deposit products are savings and demand deposit accounts and certificates of deposit. 

We are not dependent upon a single customer, or a few customers, the loss of one or more of which would have a 
material adverse effect on our operations. In the ordinary course of our business, our operations and earnings are not 
materially affected by seasonal changes or by compliance with Federal, state or local environmental laws or regulations. 

We offer a variety of loans including commercial, residential and consumer loans as described above. The consumer 
portfolio includes automobile loans, educational loans and lines of credit. 

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We intend to continue to evaluate commercial real estate, commercial business and governmental lending opportunities, 
including small business lending. We continue to proactively monitor and manage existing credit relationships. 

We have not engaged in sub-prime residential mortgage lending, which is defined as mortgage loans advanced to 
borrowers who do not qualify for market interest rates because of problems with their credit history. We focus our 
lending efforts within our market area. 

One-to-Four Family Residential Loans. We offer two types of residential mortgage loans: fixed-rate loans, with terms of 
up to 30 years, and adjustable-rate loans, with interest rates and payments that adjust annually after an initial fixed period 
of one, three or five years. Interest rates and payments on our adjustable-rate loans generally are adjusted to a rate equal 
to a percentage above the appropriate U.S. Treasury Security Index. Our adjustable-rate single-family residential real 
estate loans generally have caps on increases or floors on decreases in the interest rate at any adjustment date, and a 
maximum adjustment limit over the life of the loan. Although we offer adjustable-rate loans with initial rates below the 
fully indexed rate, loans tied to the one-year constant maturity treasury are underwritten using methods approved by the 
Federal Home Loan Mortgage Corporation, which require borrowers to be qualified at a rate equal to 200 basis points 
above the discounted loan rate under certain conditions. 

Borrower demand for adjustable-rate loans compared to fixed-rate loans is a function of the level of interest rates, the 
expectations of changes in the level of interest rates, and the difference between the interest rates and loan fees offered 
for fixed-rate mortgage loans as compared to the interest rates and loan fees for adjustable-rate loans, among other 
factors. The loan fees, interest rates and other provisions of mortgage loans are determined by us on the basis of our own 
pricing criteria and competitive market conditions. 

Most of our residential loans are underwritten to standards established by the secondary market. We also offer VA and 
FHA loans via a third party lending source. 

While one-to-four family residential real estate loans are normally originated with up to 30-year terms, such loans 
typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full either 
upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a 
function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates
and the interest rates payable on outstanding loans. We do not offer loans with negative amortization or interest only 
loans.

We offer home equity loans and lines of credit, typically with a maximum combined loan-to-value ratio of 80%. Home 
equity loans generally have fixed-rates of interest and are originated with terms of up to 15 years. Home equity lines of 
credit generally have variable rates and are indexed to the prime rate. Home equity lines of credit generally have draw 
periods with 20 year repayment periods. 

We generally do not make high loan-to-value loans (defined as loans with a loan-to-value ratio in excess of 80%)
without private mortgage insurance. The maximum loan-to-value ratio we generally permit is 95% with private mortgage 
insurance. We require all properties securing mortgage loans to be appraised by a board-approved independent appraiser. 
We generally require title insurance on all first mortgage loans. Borrowers must obtain hazard insurance, and flood 
insurance is required for loans on properties located in a flood zone. 

Commercial Real Estate Loans. We offer commercial real estate loans secured by real estate primarily with adjustable 
rates. We originate a variety of commercial real estate loans generally for terms up to 25 years and payments based on an 
amortization schedule of up to 25 years. These loans are typically based on either the Federal Home Loan Bank 
borrowing rate or our own pricing criteria and adjust every three to five years. Commercial real estate loans also are 
originated for the acquisition and development of land, including development for residential use. Conditions of 
acquisition and development loans originated generally limit the number of model homes and homes built on 
speculation, and draws are scheduled against executed agreements of sale. Commercial real estate loans for the 
acquisition and development of land are typically based upon the prime rate. Commercial real estate loans for developed 
real estate and for real estate acquisition and development are originated generally with loan-to-value ratios up to 75%, 
while loans for the acquisition of land are originated with a maximum loan to value ratio of 65%. 

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Commercial Loans. We offer commercial business loans to professionals, sole proprietorships and small businesses in 
our market area. We offer installment loans for capital improvements, equipment acquisition and long-term working
capital. These loans are typically priced at short term fixed rates or variable rates based on the prime rate. These loans 
are secured by business assets other than real estate, such as business equipment and inventory, and, generally, are 
backed by personal guarantees of the owner or owners of the business. We originate lines of credit to finance the 
working capital needs of businesses to be repaid by seasonal cash flows or to provide a period of time during which the 
business can borrow funds for planned equipment purchases. 

When making commercial business loans, we consider the consolidated financial statements of the borrower and any 
guarantors, the borrower’s payment history of both corporate and personal debt, the debt service capabilities of the 
borrower, the projected cash flows of the business and guarantor, the viability of the industry in which the customer 
operates and the value of the collateral. 

Consumer Loans. We offer a variety of consumer loans, including lines of credit, automobile loans and loans secured by 
savings accounts and certificates of deposit. We also offer unsecured loans. 

We offer loans secured by new and used automobiles, primarily indirectly through dealerships. These loans have fixed 
interest rates and generally have terms up to six years. We offer automobile loans with loan-to-value ratios of up to 
100% of the purchase price of the vehicle depending upon the credit history of the borrower and other factors. 

We offer consumer loans secured by savings accounts and certificates of deposit held by us based upon the deposit rates 
plus a margin with terms up to five years. We offer such loans up to 100% of the principal balance of the certificate of 
deposit or balance in the savings account. We also offer unsecured loans and lines of credit with terms up to five years. 
Our unsecured loans and lines of credit bear a substantially higher interest rate than our secured loans and lines of credit.

The procedures for underwriting consumer loans include an assessment of the applicant’s payment history on other debts 
and ability to meet existing obligations and payments on the proposed loan. Although the applicant’s creditworthiness is 
a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the 
proposed loan amount. 

We have adhered and continue to adhere to credit policies, both prior to and during the recent economic downturn, which 
management believes are sound. Our loan policies require verification of information provided by loan applicants as well 
as an assessment of their ability to repay for all loans. At no time have we made loans similar to those commonly 
referred to as “no doc” or “stated income” loans. 

While the vast majority of the loans in our loan portfolio are secured by collateral, we have made and will continue to 
make loans on an unsecured basis. Unsecured commercial loans are only granted to those borrowers exhibiting 
historically strong cash flow and capacity with seasoned management. Unsecured consumer loans are made for relatively 
short terms and to borrowers with strong credit histories. 

We consider requests to modify, restructure or otherwise change the terms of loans on an individual basis as 
circumstances and/or reasons for such changes may vary. All such changes in terms must be authorized by the 
appropriate approval body. Also, our credit policy prohibits the modification of loans or the extension of additional 
credit to borrowers who are not current on their payments. Exceptions are approved only where our position in the credit 
relationship is expected to be enhanced by such action. 

Adjustable-Rate Loans. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase 
in interest rates as compared to fixed-rate mortgages, an increased monthly mortgage payment required of adjustable-rate 
loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The 
marketability of collateral also may be adversely affected in a high interest rate environment. In addition, although 
adjustable-rate mortgage loans make our asset base more responsive to changes in interest rates, the extent of this interest 
sensitivity is limited by the annual and lifetime interest rate adjustment limits on residential mortgage loans. We attempt 
to negotiate floors on most adjustable rate commercial loans. The commercial adjustable rate loans generally provide a 
fixed rate re-negotiation at the end of the initial fixed rate period. If we and the borrower are unable to agree on a new 
fixed rate then the rate converts to a floating rate obligation. In addition, some commercial loans adjust to a 

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predetermined index plus a spread at the end of the initial fixed rate period, for a like period of time. To a lesser degree, 
we have entered into transactions with collars generally for periods of five years or less. 

Commercial Real Estate Loans. Loans secured by commercial real estate generally have larger balances and involve a 
greater degree of risk than one-to-four family residential mortgage loans. Of primary concern in commercial real estate 
lending is the borrower’s and any guarantor’s creditworthiness and the feasibility and cash flow potential of the financed 
project. Additional considerations include: location, market and geographic concentrations, loan to value, strength of 
guarantors and quality of tenants. Payments on loans secured by income properties often depend on successful operation 
and management of the properties. As a result, repayment of such loans may be subject to a greater extent than 
residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on 
income properties, we require borrowers and loan guarantors, if any, to provide annual consolidated financial statements 
on commercial real estate loans and rent rolls where applicable. In reaching a decision on whether to make a commercial 
real estate loan, we consider and review a cash flow analysis of the borrower and guarantor, when applicable, and 
considers the net operating income of the property, the borrower’s expertise, credit history and profitability and the value 
of the underlying property. We have generally required that the properties securing these real estate loans have debt 
service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.2 times. An environmental 
report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have 
been impacted by adjoining properties that handled hazardous materials. 

Commercial Business Loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s 
ability to make repayment from his or her employment or other income, and which are secured by real property, the 
value of which tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made 
on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the 
availability of funds for the repayment of commercial business loans may depend substantially on the success of the 
business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and
may fluctuate in value. 

Consumer Loans. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of 
consumer loans that are unsecured or secured by assets that depreciate rapidly, such as motor vehicles. In the latter case, 
repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the 
outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the 
borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to 
be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the 
application of various federal and state laws, including federal and state insolvency laws, may limit the amount that can 
be recovered on such loans. 

Loan Originations. Loan originations come from a number of sources. The primary sources of loan originations are 
existing customers, walk-in traffic, advertising and referrals from customers. We also purchase participations in loans 
from local financial institutions to supplement our lending portfolio. Loan participations are subject to the same credit 
analysis and loan approvals as the loans we originate. We are permitted to review all of the documentation relating to 
any loan in which we participate. However, in a purchased participation loan, we do not service the loan and are subject 
to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and 
instituting foreclosure proceedings. 

Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory, underwriting 
standards and loan origination procedures established by our board of directors and management. The board of directors 
has granted loan approval authority to certain officers or groups of officers up to prescribed limits, based on the officer’s
experience. 

Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrower’s related entities 
generally is limited, by regulation, to 15% of the capital accounts of Peoples Bank. Capital accounts include the 
aggregate of capital, surplus, undivided profits, capital securities and reserve for loan losses. At December 31, 2017, our 
regulatory limit on loans to one borrower was $32.8 million. 

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Deposit Activities 

Our primary source of funds is the cash flow provided by our financing activities, mainly deposit gathering. Other 
sources of funds are provided by investing activities, including principal and interest payments on loans and investment 
securities, and operating activities, primarily net income. We offer a variety of deposit accounts with a range of interest 
rates and terms, including, among others: money market accounts; NOW accounts; savings accounts; certificates of 
deposit; individual retirement accounts, and demand deposit accounts. These deposits are primarily obtained from areas 
surrounding our branch offices. We rely primarily on marketing, product innovation, technology, service and long-
standing relationships with customers to attract and retain these deposits. Other deposit related services include: remote 
deposit capture; automatic clearing house transactions; cash management services; automated teller machines; point of 
sale transactions; safe deposit boxes; night depository services; direct deposit, and official check services. 

Trust, Wealth Management and Brokerage Services 

Through our trust department, we offer a broad range of fiduciary and investment services. Our trust and investment 
services include: 

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

investment management 

IRA trustee services 

estate administration 

living trusts 

trustee under will 

guardianships 

life insurance trusts 

custodial services / IRA custodial services 

corporate trusts, and 

pension and profit sharing plans. 

We provide a comprehensive array of wealth management products and services to individuals, small businesses and 
nonprofit entities. These products and services include the following, among others: investment portfolio management; 
estate planning; annuities; business succession planning; insurances; education funding strategies, and tax planning. 

We have a third party marketing agreement with a broker-dealer that allows us to offer a full range of securities, 
brokerage services and annuity sales to our customers. Our investor services division is located in our headquarters 
building and the services are offered throughout the branch system. Through this relationship, our clients have access to 
a wide array of financial and wealth management strategies, including services such as professional money management, 
retirement and education planning, and investment products including stocks, bonds, mutual funds, annuities and 
insurance products. 

Merchant Services 

We offer credit card processing and a variety of other products and services to our merchant customers, including: 

•(cid:1)

small business checking accounts 

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•(cid:1) merchant money market account 

•(cid:1)

•(cid:1)

•(cid:1)

online banking 

telephone banking 

business credit cards 

•(cid:1) merchant line of credit 

•(cid:1)

financial checkup. 

Competition 

We compete primarily with commercial banks, thrift institutions and credit unions, many of which are substantially 
larger in terms of assets and available resources. Certain of these institutions have significantly higher lending limits than
we do, and may provide various services for their customers that we presently do not. In addition, we experience 
competition for deposits from mutual funds and security brokers, while consumer discount, mortgage and insurance 
companies compete for various types of loans. Credit unions, finance companies and mortgage companies enjoy certain 
competitive advantages over us, as they are not subject to the same regulatory restrictions and taxations as commercial 
banks. Principal methods of competing for bank products, permitted nonbanking services and financial activities include 
price, nature of product, quality of service and convenience of location. 

In our market area, we expect continued competition from these financial institutions in the foreseeable future. With the 
continued acceptance of internet banking by our customers and consumers generally, competition for deposits has 
increased from institutions operating outside of our market area as well as from insurance companies.

We believe that our most significant competitive advantage originates from our business philosophy which includes 
offering direct access to senior management and other officers and providing friendly, informed and courteous service, 
local and timely decision making, flexible and reasonable operating procedures and consistently applied credit policies. 
In addition, our success has been, and will continue to be, a result of our emphasis on community involvement and 
customer relationships. With consolidation continuing in the financial industry, and particularly in our market area,  
community banks like us are gaining opportunities and market share as larger institutions reduce their emphasis on or 
exit the markets. 

Seasonality 

Generally, our operations are not seasonal in nature. Our business activities, however, have been somewhat influenced 
by the recent increase in activities related to natural gas drilling in our market area. 

Supervision and Regulation 

We are extensively regulated under federal and state laws. Generally, these laws and regulations are intended to protect 
consumers, not shareholders. The following is a summary description of certain provisions of law that affect the 
regulation of bank holding companies and banks. This discussion is qualified in its entirety by reference to applicable 
laws and regulations. Changes in law and regulation may have a material effect on our business and prospects.

Peoples is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended, and is 
subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System, referred to 
as the “Federal Reserve Board” or the “FRB.” We are required to file annual and quarterly reports with the FRB and to 
provide the FRB with such additional information as the FRB may require. The FRB also conducts examinations of 
Peoples.

With certain limited exceptions, we are required to obtain prior approval from the FRB before acquiring direct or indirect 
ownership or control of more than 5% of any voting securities or substantially all of the assets of a bank or bank holding 

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company, or before merging or consolidating with another bank holding company. Additionally, with certain exceptions, 
any person or entity proposing to acquire control through direct or indirect ownership of 25% or more of our voting 
securities is required to give 60 days’ written notice of the acquisition to the FRB, which may prohibit the transaction, 
and to publish notice to the public.

Peoples Bank is regulated by the Pennsylvania Department of Banking and Securities (the “Department of Banking”) 
and the FDIC. The Department of Banking may prohibit an institution over which it has supervisory authority from 
engaging in activities or investments that the agency believes constitute unsafe or unsound banking practices. Federal 
banking regulators have extensive enforcement authority over the institutions they regulate to prohibit or correct 
activities that violate law, regulation or a regulatory agreement or which are deemed to constitute unsafe or unsound 
practices.

Enforcement actions may include:

•(cid:1)

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•(cid:1)

•(cid:1)

•(cid:1)

the appointment of a conservator or receiver;

the issuance of a cease and desist order;

the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, 
officers, employees and institution affiliated parties;

the issuance of directives to increase capital;

the issuance of formal and informal agreements and orders;

the removal of or restrictions on directors, officers, employees and institution-affiliated parties; and

the enforcement of any such mechanisms through restraining orders or any other court actions.

We are subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders or any
related interests of such persons which generally require that such credit extensions be made on substantially the same 
terms as are available to third persons dealing with us, and not involving more than the normal risk of repayment. Other 
laws tie the maximum amount that may be loaned to any one customer and its related interests to our capital levels.  
Other laws restrict or prohibit transactions between Peoples Bank and its affiliates.

Limitations on Dividends and Other Payments

Our ability to pay dividends is largely dependent upon the receipt of dividends from Peoples Bank. Both federal and state 
laws impose restrictions on our ability and the ability of Peoples Bank to pay dividends. Under such restrictions, Peoples 
Bank may only declare and pay dividends out of accumulated net earnings, including accumulated net earnings acquired 
as a result of a merger within seven years. Further, Peoples Bank may not declare or pay any dividends unless Peoples 
Bank’s surplus would not be reduced by the payment of the dividend below 100% of our capital stock. Pennsylvania law 
requires that each year Peoples Bank set aside as surplus, a sum equal to not less than 10 percent of its net earnings if 
surplus does not equal at least 100 percent of our capital stock. In addition to these specific restrictions, bank regulatory 
agencies, in general, also have the ability to prohibit proposed dividends by a financial institution that would otherwise 
be permitted under applicable regulations if the regulatory body determines that such distribution would constitute an 
unsafe or unsound practice.

Permitted Non-Banking Activities

Generally, a bank holding company may not engage in any activities other than banking, managing, or controlling its 
bank and other authorized subsidiaries, and providing service to those subsidiaries. With prior approval of the FRB, we 
may acquire more than 5% of the assets or outstanding shares of a company engaging in non-bank activities determined 
by the FRB to be closely related to the business of banking or of managing or controlling banks. The FRB provides 
expedited procedures for expansion into approved categories of non-bank activities.

Subsidiary banks of a bank holding company are subject to certain quantitative and qualitative restrictions on extensions 
of credit to the bank holding company or its subsidiaries, and on the use of their securities as collateral for loans to any 
borrower. These regulations and restrictions may limit our ability to obtain funds from Peoples Bank for our cash needs, 
including funds for the payment of dividends, interest and operating expenses. Further, subject to certain exceptions, a 
bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection 
with any extension of credit, lease or sale of property or furnishing of services.

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A bank holding company is required to act as a source of financial strength to its subsidiary banks and to make capital 
injections into a troubled subsidiary bank, and the FRB may charge the bank holding company with engaging in unsafe 
and unsound practices for failure to commit resources to a subsidiary bank when required. A required capital injection 
may be called for at a time when the holding company does not have the resources to provide it. In addition, depository 
institutions insured by the FDIC can be held liable for any losses incurred by, or reasonably anticipated to be incurred by, 
the FDIC in connection with the default of or assistance provided to, a commonly controlled FDIC-insured depository 
institution. Accordingly, in the event that any insured subsidiary of a bank holding company causes a loss to the FDIC, 
other insured subsidiaries of a bank holding company could be required to compensate the FDIC by reimbursing it for 
the estimated amount of such loss. Such cross guarantee liabilities generally are superior in priority to the obligation of 
the depository institutions to its shareholders due solely to their status as shareholders and obligations to other affiliates.

Pennsylvania Law

As a Pennsylvania incorporated bank holding company, Peoples is subject to various restrictions on its activities as set 
forth in Pennsylvania law. This is in addition to those restrictions set forth in federal law. Under Pennsylvania law, a 
bank holding company that desires to acquire a bank or bank holding company that has its principal place of business in 
Pennsylvania must obtain permission from the Department of Banking.

Financial Institution Reform, Recovery, and Enforcement Act (“FIRREA”)

FIRREA was enacted into law in order to address the financial condition of the Federal Savings and Loan Insurance 
Corporation, to restructure the regulation of the thrift industry, and to enhance the supervisory and enforcement powers 
of the federal bank and thrift regulatory agencies. As the primary federal regulator of Peoples Bank, the FDIC, in 
conjunction with the Department of Banking, is responsible for its supervision. When dealing with capital requirements, 
those regulatory bodies have the flexibility to impose supervisory agreements on institutions that fail to comply with 
regulatory requirements. The imposition of a capital plan, termination of deposit insurance, and removal or temporary 
suspension of an officer, director or other institution-affiliated person may cause enforcement actions.

There are three levels of civil penalties under FIRREA, with the amount of the penalty varying based on the action 
penalized.

Criminal penalties can be $1.1 million per violation and may be up to $5.5 million for continuing violations or for the
actual amount of gain or loss. These penalties may be combined with prison sentences of up to five years.  These 
penalties are subject to adjustment in accordance with inflation adjustment procedures prescribed under applicable law.

Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”)

FDICIA provides for, among other things:

•(cid:1)

•(cid:1)

•(cid:1)

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•(cid:1)

publicly available annual financial condition and management reports for financial institutions, including audits 
by independent accountants;

the establishment of uniform accounting standards by federal banking agencies;

the establishment of a “prompt corrective action” system of regulatory supervision and intervention, based on 
capitalization levels, with more scrutiny and restrictions placed on depository institutions with lower levels of 
capital;

additional grounds for the appointment of a conservator or receiver; and

restrictions or prohibitions on accepting brokered deposits, except for institutions which significantly exceed 
minimum capital requirements.

A central feature of FDICIA is the requirement that the federal banking agencies take “prompt corrective action” with 
respect to depository institutions that do not meet minimum capital requirements. Pursuant to FDICIA, the federal bank 
regulatory authorities have adopted regulations setting forth a five-tiered system for measuring the capital adequacy of 
the depository institutions that they supervise. Under these regulations, a depository institution is classified in one of the
following capital categories:

•(cid:1)

•(cid:1)

•(cid:1)

“well capitalized”;

“adequately capitalized”;

“under capitalized”;

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•(cid:1)

•(cid:1)

“significantly undercapitalized”; and

“critically undercapitalized”.

Peoples Bank was “well capitalized” based on its actual capital position at December 31, 2017. However, an institution 
may be deemed by the regulators to be in a capitalization category that is lower than is indicated by its actual capital 
position if, among other things, it receives an unsatisfactory examination rating with respect to asset quality, 
management, earnings or liquidity.

Beginning January 1, 2015, all insured depository institutions were required to incorporate the revised regulatory capital 
requirements (see Supervision and Regulatory – Risk-Based Capital Requirements) into the prompt corrective action 
framework.

FDICIA generally prohibits a depository institution from making any capital distributions including payment of a cash 
dividend or paying any management fees to its holding company, if the depository institution would thereafter be 
undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit 
capital restoration plans. If a depository fails to submit an acceptable plan, it is treated as if it is “significantly 
undercapitalized”. Significantly undercapitalized depository institutions may be subject to a number of other 
requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, 
requirements to reduce total assets and stop accepting deposits from correspondent banks. Critically undercapitalized 
institutions are subject to the appointment of a receiver or conservator; generally within 90 days of the date such 
institution is determined to be critically undercapitalized.

FDICIA provides the federal banking agencies with significantly expanded powers to take enforcement action against 
institutions that fail to comply with capital or other standards. Such actions may include the termination of deposit 
insurance by the FDIC or the appointment of a receiver or conservator for the institution. FDICIA also limits the 
circumstances under which the FDIC is permitted to provide financial assistance to an insured institution before 
appointment of a conservator or receiver.

Under FDICIA, each federal banking agency is required to prescribe, by regulation, non-capital safety and soundness 
standards for institutions under its authority. The federal banking agencies, including the FDIC, have adopted standards 
covering:

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

internal controls;

information systems and internal audit systems;

loan documentation;

credit underwriting;

interest rate exposure;

asset growth; and

compensation fees and benefits.

Any institution that fails to meet these standards may be required to develop an acceptable plan, specifying the steps that 
the institutions will take to meet the standards. Failure to submit or implement such a plan may subject the institution to 
regulatory sanctions. Peoples believes that it meets substantially all the standards that have been adopted. FDICIA also 
imposed new capital standards on insured depository institutions. Before establishing new branch offices, Peoples Bank 
must meet certain minimum capital stock and surplus requirements and must obtain State approval.

Risk-Based Capital Requirements

The federal banking regulators have adopted certain risk-based capital guidelines to assist in assessing capital adequacy 
of a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions, such 
as letters of credit, and recourse agreements, which are recorded as off-balance sheet items. Under these guidelines, 
nominal dollar amounts of assets and credit-equivalent amounts of off-balance sheet items are multiplied by one of 
several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain US Treasury 
securities, to 100% for assets with relatively high credit risk, such as business loans.

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A banking organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk adjusted 
assets. The regulators measure risk-adjusted assets, which include off-balance-sheet items, against both total qualifying 
capital, Common Equity Tier 1 capital, and Tier 1 capital.

•(cid:1)

•(cid:1)

•(cid:1)

“Common Equity Tier 1 Capital” includes common equity and minority interest in equity accounts of 
consolidated subsidiaries, less goodwill and other intangibles, subject to certain exceptions, and retained 
earnings.

“Tier 1”, or core capital, includes common equity, non-cumulative preferred stock and minority interest in 
equity accounts of consolidated subsidiaries, less goodwill and other intangibles, subject to certain exceptions.

“Tier 2”, or supplementary capital, includes, among other things, limited life preferred stock, hybrid capital 
instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for loan and 
lease losses, subject to certain limitations and less restricted deductions. The inclusion of elements of Tier 2 
capital is subject to certain other requirements and limitations of the federal banking agencies.

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and 
changes required by the Dodd-Frank Act. The phase-in period for community banking organizations began January 1, 
2015, while larger institutions (generally those with assets of $250 billion or more) began compliance on January 1, 
2014. The final rules call for the following capital requirements:

•(cid:1) A minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5%.

•(cid:1) A minimum ratio of tier 1 capital to risk-weighted assets of 6%.

•(cid:1) A minimum ratio of total capital to risk-weighted assets of 8%. 

•(cid:1) A minimum leverage ratio of 4%.

In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets 
applicable to all banking organizations. If a banking organization fails to hold capital above the minimum capital ratios 
and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary 
bonus payments. The phase-in period for the capital conservation and countercyclical capital buffers for all banking 
organizations began on January 1, 2016. Full phase-in occurs on January 1, 2019.

Under the proposed rules, accumulated other comprehensive income (AOCI) would have been included in a banking 
organization’s common equity tier 1 capital. The final rules allow community banks to make a one-time election not to 
include these additional components of AOCI in regulatory capital and instead use the existing treatment under the 
general risk-based capital rules that excludes most AOCI components from regulatory capital. The opt-out election was 
required to be made in the first call report or FR Y-9 series report that is filed after the financial institution becomes 
subject to the final rule.  On January 30, 2015, Peoples Board of Directors adopted a resolution to “opt-out” of the 
inclusion of the components of AOCI in regulatory capital.

The final rules permanently grandfather non-qualifying capital instruments (such as trust preferred securities and 
cumulative perpetual preferred stock) issued before May 19, 2010 for inclusion in the tier 1 capital of banking 
organizations with total consolidated assets less than $15 billion as of December 31, 2009 and banking organizations that 
were mutual holding companies as of May 19, 2010.

Consistent with the Dodd-Frank Act, the new rules replace the ratings-based approach to securitization exposures, which 
is based on external credit ratings, with the simplified supervisory formula approach in order to determine the 
appropriate risk weights for these exposures. Alternatively, banking organizations may use the existing gross-up
approach to assign securitization exposures to a risk weight category or choose to assign such exposures a 1,250 percent 
risk weight.

Under the new rules, mortgage servicing assets (MSAs) and certain deferred tax assets (DTAs) are subject to stricter 
limitations than those applicable under the current general risk-based capital rule. The new rules also increase the risk 
weights for past-due loans, certain commercial real estate loans, and some equity exposures, and makes selected other 
changes in risk weights and credit conversion factors.

Failure to meet applicable capital guidelines could subject a banking organization to a variety of enforcement actions 
including:

•(cid:1)

limitations on its ability to pay dividends;

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•(cid:1)

the issuance by the applicable regulatory authority of a capital directive to increase capital, and in the case of 
depository institutions, the termination of deposit insurance by the FDIC, as well as to the measures described 
under FDICIA as applicable to undercapitalized institutions.

In addition, future changes in regulations or practices could further reduce the amount of capital recognized for purposes 
of capital adequacy. Such a change could affect the ability of Peoples Bank to grow and could restrict the amount of 
profits, if any, available for the payment of dividends to Peoples.

At December 31, 2017, Peoples met its capital requirements with a ratio of common equity tier 1 capital to risk-weighted 
assets of 11.53%; its ratio of tier 1 capital to risk-weighted assets of 11.53%; its ratio of total capital to risk-weighted 
assets of 12.63%; and its leverage ratio of 9.68%.

Interest Rate Risk

Regulatory agencies include, in their evaluations of a bank’s capital adequacy, an assessment of the bank’s interest rate 
risk exposure. The standards for measuring the adequacy and effectiveness of a banking organization’s interest rate risk 
management includes a measurement of board of directors and senior management oversight, and a determination of 
whether a banking organization’s procedures for comprehensive risk management are appropriate to the circumstances of 
the specific banking organization. We utilize interest rate risk models to measure and monitor interest rate risk. In 
addition, we employ an independent consultant to provide a quarterly assessment of our interest rate risk. Finally, 
regulatory agencies, as part of the scope of their periodic examinations, evaluate our interest rate risk.

Community Reinvestment Act (“CRA”)

The Community Reinvestment Act of 1977 is designed to create a system for bank regulatory agencies to evaluate a 
depository institution’s record in meeting the credit needs of its community. The CRA regulations were completely 
revised as of July 1, 1995, to establish performance-based standards for use in examining for compliance. Peoples Bank 
had its last CRA compliance examination in 2016 and received a “satisfactory” rating.

USA Patriot Act of 2001

The Patriot Act contains anti-money laundering and financial transparency laws and imposes various regulations, 
including standards for verifying client identification at account opening, and rules to promote cooperation among 
financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or 
money laundering.

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. Dodd-Frank is intended 
to effect a fundamental restructuring of federal banking regulation. Among other things, Dodd-Frank created the 
Financial Stability Oversight Council to identify systemic risks in the financial system and gives federal regulators 
authority to take control of and liquidate financial firms. Dodd-Frank additionally created an independent federal 
regulator to administer federal consumer protection laws. Dodd-Frank has and is expected to continue to have a 
significant impact on our business operations as its provisions take effect. It is expected that, as various implementing 
rules and regulations continue to be released, they will increase our operating and compliance costs and could increase 
our interest expense. Among the provisions that affect us or are likely to affect us are the following:

Holding Company Capital Requirements.  Dodd-Frank requires the FRB to apply consolidated capital requirements to 
bank holding companies that are no less stringent than those currently applied to depository institutions. Under these 
standards, trust preferred securities will be excluded from Tier 1 capital unless such securities were issued prior to 
May 19, 2010, by a bank holding company with less than $15 billion in assets. Dodd-Frank additionally requires that 
bank regulators issue countercyclical capital requirements so that the required amount of capital increases in times of 
economic expansion, consistent with safety and soundness.

Deposit Insurance.  Dodd-Frank permanently increases the maximum deposit insurance amount for banks, savings 
institutions and credit unions to $250,000 per depositor. Dodd-Frank also broadens the base for FDIC insurance 
assessments. Further, Dodd-Frank eliminated the federal statutory prohibition against the payment of interest on business 
checking accounts. Assessments for institutions such as Peoples Bank (assets of less than $10 billion), as of July 1, 2017, 
are based on initial assessment rates that are adjusted by combining supervisory ratings with financial ratios to determine 
a total assessment rate.  For most institutions, assessment rates are based on weighted-average supervisory ratings of 
banking operation components and seven financial ratios.  The financial ratios are: the leverage ratio; net income before 
taxes/total assets; nonperforming loans and leases/gross assets; other real estate owned/gross assets; brokered 

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deposits/total assets; a Loan Mix Index; and one-year asset growth rate.  Net income before taxes is for the trailing 12 
months and is adjusted for mergers that occurred during the measurement period.  The one-year asset growth rate is 
adjusted for mergers and for acquisitions of failed banks. In addition, an institution's assessment rate may be lowered if 
the institution holds long-term unsecured debt and raised if it holds long-term unsecured debt that is issued by another 
depository institution.

Corporate Governance.  Dodd-Frank requires publicly-traded companies to give stockholders a non-binding vote on 
executive compensation at least every three years, a non-binding vote regarding the frequency of the vote on executive 
compensation at least every six years, and a non-binding vote on “golden parachute” payments in connection with 
approvals of mergers and acquisitions unless previously voted on by stockholders. Additionally, Dodd-Frank directs the 
federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository 
institutions and their holding companies with assets of $1.0 billion or more, regardless of whether the company is 
publicly traded. Dodd-Frank also gives the SEC authority to prohibit broker discretionary voting on elections of directors 
and executive compensation matters.

Prohibition Against Charter Conversions of Troubled Institutions.  Dodd-Frank prohibits a depository institution from 
converting from a state to a federal charter, or vice versa, while it is the subject of a cease and desist order or other 
formal enforcement action or a memorandum of understanding with respect to a significant supervisory matter unless the 
appropriate federal banking agency gives notice of the conversion to the federal or state authority that issued the
enforcement action and that agency does not object within 30 days. The notice must include a plan to address the 
significant supervisory matter. The converting institution must also file a copy of the conversion application with its 
current federal regulator, which must notify the resulting federal regulator of any ongoing supervisory or investigative 
proceedings that are likely to result in an enforcement action and provide access to all supervisory and investigative 
information relating thereto.

Interstate Branching.  Dodd-Frank authorizes national and state banks to establish branches in other states to the same 
extent as a bank chartered by that state would be permitted. Previously, banks could only establish branches in other 
states if the host state expressly permitted out-of-state banks to establish branches in that state. Accordingly, banks are 
able to enter new markets more freely.

Limits on Interstate Acquisitions and Mergers.  Dodd-Frank precludes a bank holding company from engaging in an 
interstate acquisition–the acquisition of a bank outside its home state–unless the bank holding company is both well 
capitalized and well managed. Furthermore, a bank may not engage in an interstate merger with another bank 
headquartered in another state unless the surviving institution will be well capitalized and well managed. The previous 
standard in both cases was adequately capitalized and adequately managed.

Limits on Interchange Fees.  Dodd-Frank amended the Electronic Fund Transfer Act to, among other things, give the 
Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by 
payment card issuers having assets of $10 billion or more and to enforce a statutory requirement that such fees be 
reasonable and proportional to the actual cost of a transaction to the issuer. The Federal Reserve issued its final rule, 
Regulation II, effective October 1, 2011. Consistent with Dodd-Frank, issuers with less than $10 billion in assets, like us, 
are exempt from debit card interchange fee standards.

Consumer Financial Protection Bureau.  Dodd-Frank created the Consumer Financial Protection Bureau (CFPB), which 
is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection 
laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair 
Credit Reporting Act, Fair Debt Collection Act, Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act, 
and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository 
institutions with $10 billion or more in assets. Smaller institutions are subject to rules promulgated by the CFPB, but 
continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB has 
authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. 
Dodd-Frank authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages 
including a determination of the borrower’s ability to repay. In addition, Dodd-Frank allows borrowers to raise certain 
defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB.  Dodd-Frank 
permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal 
level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal 
laws and regulations.

Ability to Repay and Qualified Mortgage Rule.  Pursuant to the Dodd Frank Act, the Consumer Financial Protection 
Bureau issued a final rule on January 10, 2013, which became effective January 10, 2014, amending Regulation Z as 

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implemented by the Truth in Lending Act, requiring mortgage lenders to make a reasonable and good faith determination 
based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to 
repay the loan according to its terms. Mortgage lenders are required to determine consumers’ ability to repay in one of 
two ways. The first alternative requires the mortgage lender to consider the following eight underwriting factors when 
making the credit decision:

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

•(cid:1)

current or reasonably expected income or assets;

current employment status;

the monthly payment on the covered transaction;

the monthly payment on any simultaneous loan;

the monthly payment for mortgage-related obligations;

current debt obligations, alimony, and child support;

the monthly debt-to-income ratio or residual income; and

credit history.

Alternatively, the mortgage lender can originate “qualified mortgages,” which are entitled to a presumption that the 
creditor making the loan satisfied the ability-to-repay requirements. In general, a “qualified mortgage” is a mortgage loan 
without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be 
a qualified mortgage, the points and fees paid by a consumer cannot exceed 3% of the total loan amount. Loans which 
meet these criteria will be considered qualified mortgages, and as a result generally protect lenders from fines or 
litigation in the event of foreclosure. Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a 
rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “higher-
priced” (e.g. prime loans) are given a safe harbor of compliance. The final rule, as issued, is not expected to have a 
material impact on our lending activities or our results of operations or financial condition.

TILA/RESPA Integrated Disclosures (TRID)

On October 3, 2015, the CFPB implemented a final rule combining the mortgage disclosures consumers previously 
received under TILA and RESPA.  For more than 30 years, the TILA and RESPA mortgage disclosures had been 
administered separately by, respectively, the Federal Reserve Board and the U.S. Department of Housing and Urban 
Development.  The final rule requires lenders to provide applicants with the new Loan Estimate and Closing Disclosure 
and generally applies to most closed-end consumer mortgage loans for which the creditor or mortgage broker receives an 
application on or after October 3, 2015.

Future Legislation

Proposed legislation is introduced in almost every legislative session that would dramatically affect the regulation of the 
banking industry. We cannot predict if any such legislation will be adopted nor if adopted how it would affect our 
business. Past history has demonstrated that new legislation or change to existing laws or regulations usually results in 
greater compliance burden and therefore generally increases the cost of doing business.

Employees 

As of December 31, 2017, we had 388 full-time-equivalent employees. We are not parties to any collective bargaining 
agreements and we consider our employee relations to be good. 

Availability of Securities Filings 

We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC under the Exchange 
Act. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 
Station Place, 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the 
Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that 
contains reports, proxy and information statements, and other information regarding issuers, including us, that file 
electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.

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In addition, we maintain an Internet website at www.psbt.com. We make available free of charge through the “Investor 
Relations” link on our Internet website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports 
on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act 
as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Item 1A.

Risk Factors. 

In addition to the other information set forth in this report, one should carefully consider the factors discussed below, 
which could materially affect our business, financial condition or future results. The risks described below are not the 
only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be 
insignificant also may materially adversely affect our business, financial condition and/or operating results. 

Risks Relating to Peoples and Its Business 

We are subject to credit risk in connection with our lending activities, and our financial condition and results of 
operations may be negatively impacted by economic conditions and other factors that adversely affect our borrowers. 

Lending money is a significant part of the banking business and interest income on our loan portfolio is the principal 
component of our revenue. Our financial condition and results of operations are affected by the ability of our borrowers 
to repay their loans, and in a timely manner. Borrowers, however, do not always repay their loans. The risk of non-
payment is assessed through our underwriting and loan review procedures based on several factors including credit risks 
of a particular borrower, changes in economic conditions, the duration of the loan and in the case of a collateralized loan, 
uncertainties as to the future value of the collateral and other factors. Despite our efforts, we do and will experience loan
and lease losses, and our financial condition and results of operations will be adversely affected. Our loans which were 
between 30 and 89 days delinquent on December 31, 2017 totaled $6.4 million.  Our non-performing assets were 
approximately $11.6 million on December 31, 2017, including $1.0 million of loans acquired as part of the merger net of 
the remaining credit adjustment of $0.9 million. Our allowance for loan and lease losses was approximately $19.0 
million on December 31, 2017. 

Our emphasis on the Eastern Pennsylvania and the Southern Tier of New York market area exposes us to a risk of 
loss associated with the region. 

At December 31, 2017, $287.9 million or 17.0%, of our loan portfolio consisted of residential mortgage loans and 
$786.2 million or 46.4%, of our loan portfolio consisted of commercial real estate loans. A majority of these loans are 
made to borrowers or secured by properties located in Eastern Pennsylvania and Broome County, New York. As a result 
of this concentration, a sustained downturn in the regional economy could significantly increase non-performing loans, 
which would hurt our net income. Future declines in real estate values in the region could also cause some of our 
mortgage and commercial real estate loans to be inadequately collateralized, which would expose us to a greater risk of 
loss if we seek to recover on defaulted loans by selling the real estate collateral. 

We make commercial and industrial, construction, and commercial real estate loans, which present greater risks than 
other types of loans. 

As of December 31, 2017, approximately 74.6% of our loan portfolio consisted of commercial and industrial, 
construction, and commercial real estate loans. These types of loans are generally viewed as having more risk of default 
than residential real estate loans or consumer loans. These types of loans are also typically larger than residential real 
estate loans and consumer loans. Because our loan portfolio contains a significant number of commercial and industrial, 
construction, and commercial real estate loans some of which have large balances, the deterioration of one or a few of
these loans could cause a significant increase in non-performing loans. An increase in non-performing loans could result 
in a net loss of earnings from these loans, an increase in the provision for loan losses, and an increase in loan charge-offs, 
all of which could have a material adverse effect on our financial condition and results of operations. 

The commercial real estate market is cyclical and poses risks of loss to us because of the concentration of commercial 
real estate loans in our loan portfolio, and the lack of diversity in risk associated with such a concentration. Banking 
regulators have been giving and continue to give commercial real estate lending greater scrutiny, and banks with larger 
commercial real estate loan portfolios are expected by their regulators to implement improved underwriting, internal 

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controls, risk management policies and portfolio stress-testing practices to manage risks associated with commercial real 
estate lending. Additional losses or regulatory requirements related to our commercial real estate loan concentration 
could materially adversely affect our business, financial condition and results of operations. 

Our allowance for loan and lease losses may not be adequate to absorb actual loan and lease losses, and we may be 
required to make further provisions for loan and lease losses and charge off additional loans in the future, which 
could materially and adversely affect our business. 

We attempt to maintain an allowance for loan and lease losses, established through a provision for loan and lease losses 
accounted for as an expense, which is adequate to absorb losses inherent in our loan portfolio. If our allowance for loan 
and lease losses is inadequate, it may have a material adverse effect on our financial condition and results of operations. 

The determination of the allowance for loan and lease losses involves a high degree of subjectivity and judgment and 
requires us to make significant estimates of current credit risks and future trends, all of which may undergo material 
changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification 
of additional problem loans and other factors, both within and outside of our control, may require us to increase our 
allowance for loan and lease losses. Increases in non-performing loans have a significant impact on our allowance for 
loan and lease losses. Our allowance for loan and lease losses may not be adequate to absorb actual loan and lease losses. 
If conditions in our regional real estate markets decline, we could experience increased delinquencies and credit losses, 
particularly with respect to real estate construction and land acquisition and development loans and one-to-four family 
residential mortgage loans. Moreover, if the current economic growth slows, the negative impact to our market areas 
could result in higher delinquencies and credit losses. As a result, we will continue to make provisions for loan and lease 
losses and to charge off additional loans in the future, which could materially adversely affect our financial conditions 
and results of operations. 

In addition to our internal processes for determining loss allowances, bank regulatory agencies periodically review our 
allowance for loan and lease losses and may require us to increase the provision for loan and lease losses, to recognize 
further loan charge-offs, or to take other actions, based on judgments that differ from those of our management. If loan 
charge-offs in future periods exceed the allowance for loan and lease losses, we will need to increase our allowance for 
loan lease losses. Furthermore, growth in our loan portfolio would generally lead to an increase in the provision for loan 
and lease losses. Provisions for loan and lease losses will result in a decrease in net income and capital, and may have a 
material adverse effect on our financial condition, and results of operations and cash flows. 

Changes in interest rates could adversely impact our financial condition and results of operations. 

Our ability to generate net income substantially depends upon our net interest income, which is the difference between 
the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense 
paid on interest-bearing liabilities, such as deposits and borrowings. Certain assets and liabilities react differently to 
changes in market interest rates. Further, interest rates on some types of assets and liabilities may fluctuate prior to 
changes in broader market interest rates, while rates on other types of assets may lag behind. Additionally, some assets 
such as adjustable-rate mortgages have features, and rate caps, which restrict changes in their interest rates. 

Factors such as inflation, recession, unemployment, money supply, global disorder, terrorist activity, instability in 
domestic and foreign financial markets, and other factors beyond our control, may affect interest rates. Changes in 
market interest rates will also affect the level of voluntary prepayments on loans and the receipt of payments on 
mortgage-backed securities, resulting in the receipt of proceeds that may have to be reinvested at a lower rate than the 
loan or mortgage-backed security being prepaid. Although we pursue an asset-liability management strategy designed to 
manage our risk from changes in market interest rates, changes in interest rates can still have a material adverse effect on 
our profitability. 

Changes in interest rates could affect our investment values and impact comprehensive income and stockholders’ 
equity. 

At December 31, 2017, we had approximately $272.5 million of securities available-for-sale. These securities are carried 
at fair value on our consolidated balance sheets. Unrealized gains or losses on these securities, that is, the difference 
between the fair value and the amortized cost of these securities, are reflected in stockholders’ equity, net of deferred 

-16-

taxes. As of December 31, 2017, our available-for-sale securities had an unrealized loss, net of taxes, of $1.0 million. 
The fair value of our available-for-sale securities is subject to interest rate change, which would not affect recorded 
earnings, but would increase or decrease comprehensive income and stockholders’ equity. 

Our results of operations may be materially and adversely affected by other-than-temporary impairment charges 
relating to our investment portfolio.

Numerous factors, including the lack of liquidity for re-sales of certain investment securities, the absence of reliable 
pricing information for investment securities, adverse changes in the business climate, adverse regulatory actions or 
unanticipated changes in the competitive environment, could have a negative effect on our investment portfolio in future 
periods. Investments are evaluated periodically to determine whether a decline in their value is other than temporary. 
Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the 
decline, to determine whether the loss in value is other than temporary. The term “other than temporary” indicates that 
the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support 
fair values equal to, or greater than, the carrying value of the investment. 

Once a decline in value is determined to be other than temporary, the value of the security is reduced and a 
corresponding charge to earnings is recognized. If an impairment charge is significant enough, it could affect our ability 
to pay dividends, which could materially adversely affect us and our ability to pay dividends to shareholders. Significant 
impairment charges could also negatively impact our regulatory capital ratios and result in us not being classified as 
“well-capitalized” for regulatory purposes. 

The requirement to record certain assets and liabilities at fair value may adversely affect our financial results. 

We report certain assets, including available-for-sale investment securities, at fair value. Generally, for assets that are 
reported at fair value we use quoted market prices or valuation models that utilize market data inputs to estimate fair 
value. Because we record these assets at their estimated fair value, we may incur losses even if the asset in question 
presents minimal credit risk. The level of interest rates can impact the estimated fair value of investment securities. 
Disruptions in the capital markets may require us to recognize other-than-temporary impairments in future periods with 
respect to investment securities in our portfolio. The amount and timing of any impairment recognized will depend on 
the severity and duration of the decline in fair value of our investment securities and our estimation of the anticipated 
recovery period. 

Changes in the value of goodwill and intangible assets could reduce our earnings. 

We account for goodwill and other intangible assets in accordance with GAAP, which, in general, requires that goodwill 
not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level using the two step
approach. Testing for impairment of goodwill and intangible assets is performed annually and involves the identification 
of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and 
subjectivity in the assumptions used. As of December 31, 2017, the market value of our shares exceeded the recorded 
book value, therefore goodwill is considered not impaired and no further testing is required. Changes in the local and 
national economy, the federal and state legislative and regulatory environments for financial institutions, the stock 
market, interest rates and other external factors (such as natural disasters or significant world events) may occur from 
time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial 
institutions and could result in an impairment charge at a future date. 

Our results of operations, financial condition or liquidity may be adversely impacted by issues arising from certain 
industry deficiencies in foreclosure practices, including delays and challenges in the foreclosure process. 

Over the past few years, foreclosure timelines have increased due to, among other reasons, delays associated with the 
significant increase in the number of foreclosure cases as a result of the economic downturn, federal and state legal and 
regulatory actions, including additional consumer protection initiatives related to the foreclosure process and voluntary 
and, in some cases, mandatory programs intended to permit or require lenders to consider loan modifications or other 
alternatives to foreclosure. Further increases in the foreclosure timeline may have an adverse effect on collateral values 
and our ability to minimize our losses. 

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Difficult market conditions have adversely affected our industry. 

We are operating in a challenging economic environment, including generally uncertain national and local conditions. 
Additional concerns from some of the countries in the European Union and elsewhere have also strained the financial 
markets both abroad and domestically. Although there has been some improvement in the overall global macroeconomic 
conditions in 2017, financial institutions continue to be affected by conditions in the real estate market and the 
constrained financial markets. In recent years, declines in the housing market, increases in unemployment and under-
employment have negatively impacted the credit performance of loans and resulted in significant write-downs of asset 
values by financial institutions. Reflecting concern over economic conditions, many lenders and institutional investors 
have reduced or ceased providing funding to borrowers. A worsening of economic conditions may impact our results of 
operations and financial condition. In particular, we may face the following risks in connection with these events: 

•(cid:1) Loan delinquencies could increase further; 

•(cid:1) Problem assets and foreclosures could increase further; 

•(cid:1) Demand for our products and services could decline; 

•(cid:1) Collateral for loans made by us, especially real estate, could decline further in value, in turn reducing a 

customer’s borrowing power, and reducing the value of assets and collateral associated with our loans; and 

•(cid:1)

Investments in mortgage-backed securities could decline in value as a result of performance of the 
underlying loans or the diminution of the value of the underlying real estate collateral pressing the 
government sponsored agencies to honor its guarantees to principal and interest. 

Our operations are concentrated in Eastern Pennsylvania and the Southern Tier of New York. As a result of this 
geographic concentration, our financial results may correlate to the economic conditions in our specific local market.
Deterioration in economic conditions in this market area, particularly in the industries on which this geographic area 
depend, or a general decline in economic conditions may adversely affect the quality of our loan portfolio (including the 
level of non-performing assets, charge offs and provision expense) and demand for our products and services, and, 
accordingly, our results of operations. 

Strong competition within our market area may limit our growth and profitability. 

Competition in the banking and financial services industry is intense. We compete actively with other Pennsylvania and 
southern New York financial institutions, many larger than us, as well as with financial and non-financial institutions 
headquartered elsewhere. Commercial banks, savings banks, savings and loan associations, credit unions, and money 
market funds actively compete for deposits and loans. Such institutions, as well as consumer finance, insurance 
companies and brokerage firms, may be considered competitors with respect to one or more services they render. Many 
of the institutions with which we compete have substantially greater resources and lending limits and may offer certain 
services that we do not or cannot provide. Our profitability depends upon our ability to successfully compete in our 
market area. 

Increased needs for disbursement of funds on loans and deposits can affect our liquidity. 

We manage our liquidity with an objective of maintaining a balance between sources and uses of funds in such a way 
that the cash requirements of customers for loans and deposit withdrawals are met in the most economical manner. If we 
do not properly manage our liquidity, our business, financial condition, results of operations and cash flows may be 
materially and adversely affected. 

Our future pension plan costs and contributions could be unfavorably impacted by the factors that are used in the 
actuarial calculations. 

As part of the Penseco merger, we assumed Penseco’s legacy non-contributory defined benefit pension plan, which was 
frozen by Penseco in 2008. The costs for this legacy pension plan are dependent upon a number of factors, such as the 

-18-

rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding 
levels of the plans, future government regulation and required or voluntary contributions made to the plans. Without 
sustained growth in the pension investments over time to increase the value of our plan assets and depending upon the 
other factors impacting our costs as listed above, we could be required to fund the plan with higher amounts of cash than 
are anticipated by our actuaries. Such increased funding obligations could have a material impact on our liquidity by 
reducing our cash flows. 

Our holding company is dependent for liquidity on payments from Peoples Bank, which payments are subject to 
restrictions. 

We depend on dividends, distributions and other payments from Peoples Bank to fund dividend payments to our 
shareholders, if any, and to fund all payments on obligations of our holding company. Peoples Bank is subject to laws 
that restrict dividend payments or authorize regulatory bodies to block or reduce the flow of funds from Peoples Bank to 
us. Restrictions or regulatory actions of that kind could impede our access to funds that we may need to make payments 
on our obligations or dividend payments, if any. In addition, our right to participate in a distribution of assets upon a 
subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. Holders of our 
common stock are entitled to receive dividends if and when declared from time to time by our board of directors in its 
sole discretion out of funds legally available for that purpose. 

We need to continually attract and retain qualified personnel for our operations. 

Our ability to provide high-quality customer service and to operate efficiently and profitably is dependent on our ability 
to attract and retain qualified individuals for key positions within the organization. We rely heavily on our executive 
officers and employees. The loss of certain executive officers or employees could have an adverse effect on us because, 
as a community bank, the executive officers and employees typically have more responsibility than would be typical at a 
larger financial institution with more employees. In addition, due to our size as a community bank, we have fewer 
management-level and other personnel who are in position to succeed to and assume the responsibilities of certain 
existing executive officers and employees. If we expand geographically or expand to provide non-banking services, 
current management may not have the necessary experience for successful operation in these new areas. There is no 
guarantee that management would be able to meet these new challenges or that we would be able to retain new directors 
or personnel with the appropriate background and expertise. 

Our financial performance may suffer if our information technology is unable to keep pace with growth or industry 
developments. 

Effective and competitive delivery of our products and services is increasingly dependent upon information technology 
resources and processes, both those provided internally as well as those provided through third party vendors. In addition 
to better serving customers, the effective use of technology increases efficiency and enables us to reduce costs. Our 
future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide 
products and services to enhance customer convenience, as well as to create additional efficiencies in our operations. 
Many of our competitors have greater resources to invest in technological improvements. Additionally, as technology in 
the financial services industry changes and evolves, keeping pace becomes increasingly complex and expensive for us. 
There can be no assurance that we will be able to effectively implement new technology-driven products and services, 
which could reduce our ability to compete effectively. 

A failure in or a breach of our information systems or infrastructure, including as a result of cyber-attacks, could 
disrupt our business, damage our reputation, and could have a material adverse effect on our business, financial 
condition and results of operations. 

In the ordinary course of our business activities, including the ongoing maintenance of deposits, loan and other account 
relationships for our customers, receiving instructions and effecting transactions for those customers and other users of 
our products and services, we regularly collect, process, transmit and store significant amounts of confidential 
information regarding our customers, employees and others. In addition to confidential information regarding our 
customers, employees and others, we, and in some cases a third party, compile, process, transmit and store proprietary, 
non-public information concerning our business, operations, plans and strategies. 

-19-

Information security risks have significantly increased in recent years in part because of the proliferation of new 
technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the 
increased sophistication and activities of organized crime, hackers, terrorists and other external parties. We rely on 
digital technologies, computer and email systems, software, and networks to conduct secure processing, transmission and 
storage of confidential information. In addition, to access our products and services, our customers may use personal 
smart phones, tablet PCs and other mobile devices that are beyond our control systems. Our technologies, systems, 
networks and our customers’ devices have been subject to, and are likely to continue to be the target of, cyber-attacks, 
computer viruses, malicious code, phishing attacks or information security breaches that could result in the unauthorized 
use, loss or destruction of our or our customers’ or third parties’ confidential information, or otherwise disrupt our or our
customers’ or other third parties’ business operations. 

In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, 
hackers recently have engaged in attacks against large financial institutions, particularly denial of service attacks, that are 
designed to disrupt key business services, such as customer-facing web sites. We are not able to anticipate or implement 
effective preventive measures against all security breaches of these types, especially because the techniques used change 
frequently and because attacks can originate from a wide variety of sources.

Although we use a variety of physical, procedural and technological safeguards to protect confidential information from 
mishandling, misuse or loss, these safeguards cannot provide assurance that mishandling, misuse or loss of the 
information will not occur, and that if mishandling, misuse or loss of the information did occur, those events will be 
promptly detected and addressed. A failure in or breach of our operational or information security systems, or those of a 
third-party service provider, as a result of cyber-attacks or information security breaches or otherwise could have a 
material adverse effect on our business, damage our reputation, increase our costs and/or cause significant losses. As 
information security risks and cyber threats continue to evolve, we may be required to expend substantial resources to 
further enhance our information security measures and/or to investigate and remediate any information security 
vulnerabilities. 

If information security is breached, despite the controls we and our third-party vendors have instituted, information can 
be lost or misappropriated, resulting in financial loss or costs to us or damages to others. These costs or losses could 
materially exceed the amount of insurance coverage, if any, which would adversely affect our earnings. In addition, our 
reputation could be damaged which could result in loss of customers, greater difficulty in attracting new customers, or an 
adverse effect on the value of our common stock. 

Our disclosure controls and procedures and our internal control over financial reporting may not achieve their 
intended objectives. 

We maintain disclosure controls and procedures designed to ensure that we timely report information as specified in the 
rules and forms of the Securities and Exchange Commission. We also maintain a system of internal control over 
financial reporting. These controls may not achieve their intended objectives. Control processes that involve human 
diligence and compliance, such as our disclosure controls and procedures and internal control over financial reporting, 
are subject to lapses in judgment and breakdowns resulting from human failures. Controls can also be circumvented by 
collusion or improper management override. Because of such limitations, there are risks that material misstatements due 
to error or fraud may not be prevented or detected and that information may not be reported on a timely basis. If our 
controls are not effective, it could have a material adverse effect on our financial condition, results of operations, and 
market for our common stock, and could subject us to regulatory scrutiny. 

We are exposed to environmental liabilities with respect to real estate. 

We currently operate 27 branch offices, and own additional real estate. In addition, a significant portion of our loan 
portfolio is secured by real property. In the course of our business, we may foreclose, accept deeds in lieu of foreclosure, 
or otherwise acquire real estate, and in doing so could become subject to environmental liabilities with respect to these 
properties. We may become responsible to a governmental agency or third parties for property damage, personal injury, 
investigation and clean-up costs incurred by those parties in connection with environmental contamination, or may be 
required to investigate or clean-up hazardous or toxic substances, or chemical releases at a property. The costs associated 
with environmental investigation or remediation activities could be substantial. In addition, as the owner or former owner 
of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting 

-20-

from environmental contamination emanating from the property. Although we have policies and procedures to perform 
an environmental review before acquiring title to any real property, these may not be sufficient to detect all potential 
environmental hazards. If we were to become subject to significant environmental liabilities, it could materially and 
adversely affect us. 

The soundness of other financial services institutions may adversely affect our credit risk. 

We rely on other financial services institutions through trading, clearing, counterparty, and other relationships. We 
maintain limits and monitor concentration levels of our counterparties as specified in our internal policies. Our reliance 
on other financial services institutions exposes us to credit risk in the event of default by these institutions or 
counterparties. These losses could adversely affect our results of operations and financial condition. 

Our operations could be interrupted if certain external vendors on which we rely experience difficulty, terminate their 
services or fail to comply with applicable laws and regulations. 

We depend to a significant extent on relationships with third party service providers. Specifically, we utilize third party 
core banking services and receive credit card and debit card services, branch capture services, Internet banking services 
and services complementary to our banking products from various third party service providers. If these third party 
service providers experience difficulties or terminate their services and we are unable to replace them with other service 
providers, our operations could be interrupted. It may be difficult for us to replace some of our third party vendors, 
particularly vendors providing our core banking, credit card and debit card services, in a timely manner if they were 
unwilling or unable to provide us with these services in the future for any reason. If an interruption were to continue for a
significant period of time, it could have a material adverse effect on our business, financial condition or results of 
operations. Even if we are able to replace them, it may be at higher cost to us, which could have a material adverse effect 
on our business, financial condition or results of operations. In addition, if a third party provider fails to provide the 
services we require, fails to meet contractual requirements, such as compliance with applicable laws and regulations, or 
suffers a cyber-attack or other security breach, our business could suffer economic and reputational harm that could have 
a material adverse effect on our business, financial condition or results of operations.

Our use of third party vendors and our other ongoing third party business relationships are subject to increasing 
regulatory requirements and attention. 

We regularly use third party vendors as part of our business. We also have substantial ongoing business relationships 
with other third parties. These types of third party relationships are subject to increasingly demanding regulatory 
requirements and attention by our bank regulators. Recent regulation requires us to enhance our due diligence, ongoing 
monitoring and control over our third party vendors and other ongoing third party business relationships. We expect that 
our regulators will hold us responsible for deficiencies in our oversight and control of our third party relationships and in
the performance of the parties with which we have these relationships. As a result, if our regulators conclude that we 
have not exercised adequate oversight and control over our third party vendors or other ongoing third party business 
relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, 
including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer 
remediation, any of which could have a material adverse effect on our business, financial condition or results of 
operations.

Risks Related to Our Common Stock

Our ability to pay dividends or repurchase shares is subject to limitations. 

The Penseco merger agreement 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 sufficient funds 
are legally available, and that Peoples and Peoples Bank remain “well-capitalized” in accordance with applicable 
regulatory guidelines. 

Our ability to pay dividends on our stock depends upon our receipt of dividends from Peoples Bank and its subsidiaries. 
As a state-chartered bank, Peoples Bank is subject to regulatory restrictions on the payment and amounts of dividends 
under the Pennsylvania Banking Code. 

-21-

Further, Peoples Bank’s ability to pay dividends is also subject to its profitability, financial condition, capital 
expenditures and other cash flow requirements. There is no assurance that Peoples Bank will be able to pay the dividends 
contemplated by the Penseco merger agreement or other dividends. Our failure to pay dividends could have a material 
adverse effect on the market price of our common stock. 

Proxy contests and shareholder litigation may adversely affect our results of operations.

Proxy contests or shareholder litigation could cause us to use resources, both in expense and in the time and attention of 
our management, which could otherwise be used in operating our business. Accordingly, our results of operations may 
be adversely effected.

Risks Related to Potential Future Transactions 

Future acquisitions by us could dilute existing shareholders’ ownership of Peoples and may cause us to become more 
susceptible to adverse economic events. 

We may issue shares of our common stock in connection with future acquisitions and other investments, which would 
dilute existing shareholders’ ownership interests in Peoples. While there is no assurance that these transactions will 
occur, or that they will occur on terms favorable to us, future business acquisitions could be material to us, and the 
degree of success achieved in acquiring and integrating these businesses could have a material effect on the value of our 
common stock. In addition, these acquisitions could require us to expend substantial cash or other liquid assets or to 
incur debt, which could cause us to become more susceptible to economic downturns and competitive pressures. 

Our governing documents, Pennsylvania law, and current policies of our board of directors contain provisions which 
may reduce the likelihood of a change in control transaction that may otherwise be available and attractive to 
shareholders. 

Our articles of incorporation and bylaws contain certain anti-takeover provisions that may make it more difficult or 
expensive or may discourage a tender offer, change in control or takeover attempt that is opposed by our board of 
directors. In particular, the articles of incorporation and bylaws: classify our board of directors into three groups, so that
shareholders elect only approximately one-third of the board each year; require our shareholders to give us advance 
notice to nominate candidates for election to the board of directors or to make shareholder proposals at a shareholders’ 
meeting; and require the affirmative vote of the holders of at least 75% of our common stock to approve amendments to 
our bylaws or to approve certain business combinations that have not received the support of two-thirds of our board of 
directors. These provisions of our articles of incorporation and bylaws could discourage potential acquisition proposals 
and could delay or prevent a change in control, even though a majority of our shareholders may consider such proposals 
desirable. Such provisions could also make it more difficult for third parties to remove and replace the members of our 
board of directors. Moreover, these provisions could diminish the opportunities for shareholders to participate in certain 
tender offers, including tender offers at prices above the then-current market value of our common stock, and may also 
inhibit increases in the trading price of our common stock that could result from takeover attempts or speculation. 

In addition, anti-takeover provisions in Pennsylvania law could make it more difficult for a third party to acquire control 
of us. These provisions could adversely affect the market price of our common stock and could reduce the amount that 
shareholders might receive if we are sold. For example, Pennsylvania law may restrict a third party’s ability to obtain 
control of Peoples and may prevent shareholders from receiving a premium for their shares of our common stock. 
Pennsylvania law also provides that our shareholders are not entitled by statute to propose amendments to our articles of 
incorporation. 

Our ability to make opportunistic acquisitions is subject to significant risks, including the risk that regulators will not 
provide the requisite approvals. 

We may make opportunistic whole or partial acquisitions of other banks, branches, financial institutions, or related 
businesses from time to time that we expect may further our business strategy. Any possible acquisition will be subject 
to regulatory approval, and there can be no assurance that we will be able to obtain such approval in a timely manner or 
at all. Even if we obtain regulatory approval, these acquisitions could involve numerous risks, including lower than 
expected performance or higher than expected costs, difficulties related to integration, diversion of management’s 

-22-

attention from other business activities, changes in relationships with customers, and the potential loss of key employees. 
In addition, we may not be successful in identifying acquisition candidates, integrating acquired institutions, or 
preventing deposit erosion or loan quality deterioration at acquired institutions. Competition for acquisitions can be 
highly competitive, and we may not be able to acquire other institutions on attractive terms. There can be no assurance 
that we will be successful in completing or will even pursue future acquisitions, or if such transactions are completed, 
that we will be successful in integrating acquired businesses into operations. Our ability to grow may be limited if we 
choose not to pursue or are unable to successfully make acquisitions in the future. 

Risks Related to Government Regulation 

We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by certain state and federal agencies including the 
Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System and the Pennsylvania 
Department of Banking and Securities. Such regulation and supervision govern the activities in which we may engage 
and are intended primarily to ensure the safety and soundness of financial institutions. Regulatory authorities have 
extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on 
operations, the classification of assets and determination of the level of the allowance for loan losses. Any change in 
such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, 
may have a material impact on us and our operations. There also are several federal and state statutes which regulate the 
obligation and liabilities of financial institutions pertaining to environmental issues. In addition to the potential for 
attachment of liability resulting from our own actions, we may be held liable under certain circumstances for the actions 
of our borrowers, or third parties, when such actions result in environmental problems on properties that collateralize 
loans held by us. Further, the liability has the potential to far exceed the original amount of a loan.

We will be subject to more stringent capital and liquidity requirements in the future, which may adversely affect our 
net income and future growth.

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and
changes required by the Dodd-Frank Act. U.S. implementation of Basel III will lead to significantly higher capital 
requirements and more restrictive leverage and liquidity ratios than those currently in place.

Future increases in minimum capital requirements could adversely affect our net income. Furthermore, our failure to 
comply with the minimum capital requirements could result in our regulators taking formal or informal actions against us 
which could restrict our future growth or operations.

The Dodd-Frank Act, among other things, created the Consumer Financial Protection Bureau and has resulted and 
will result in new regulations that are expected to increase our costs of operations.

On July 21, 2010, the Dodd-Frank Act became law. This law continues to have a significant impact on the bank 
regulatory structure and the lending, deposit, investment, trading and operating activities of financial institutions and 
their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new 
implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are 
given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and 
much of the impact of the Dodd-Frank Act may not be known for many years.

The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce 
consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range 
of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, 
deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement 
authority over all banks and savings institutions with more than $10 billion in assets. Banks with $10 billion or less in 
assets, like us, will continue to be examined for compliance with the consumer laws by their primary bank regulators. 
Dodd-Frank permits states to adopt consumer protection laws and standards that are more stringent than those adopted at 
the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state 
and federal laws and regulations.

Increases in FDIC insurance premiums may adversely affect our earnings.

Our deposits are insured by the FDIC up to legal limits and, accordingly, we are subject to FDIC deposit insurance 
assessments. In order to maintain a strong funding position and restore reserve ratios of the deposit insurance fund 

-23-

depleted during the financial crisis, the FDIC has increased assessment rates of insured institutions. Under the Dodd-
Frank Act, the FDIC must undertake several initiatives that will result in higher deposit insurance fees being paid to the 
FDIC. We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. Any 
future increases or required prepayments of FDIC insurance premiums or special assessments may adversely impact our 
earnings.

Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how 
we collect and use personal information and adversely affect our business opportunities.  

We are subject to various privacy, information security and data protection laws, including requirements concerning 
security breach notification, and we could be negatively impacted by these laws. For example, our business is subject to 
the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share nonpublic 
personal information about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures 
to customers about our information collection, sharing and security practices and afford customers the right to “opt out” 
of any information sharing by us with nonaffiliated third parties (with certain exceptions) and (iii) requires we develop, 
implement and maintain a written comprehensive information security program containing safeguards appropriate based 
on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we 
process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states 
have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory 
or law enforcement notification in certain circumstances in the event of a security breach. Moreover, legislators and 
regulators in the United States are increasingly adopting or revising privacy, information security and data protection 
laws that potentially could have a significant impact on our current and planned privacy, data protection and information 
security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, 
and some of our current or planned business activities. This could also increase our costs of compliance and business 
operations and could reduce income from certain business initiatives. This includes increased privacy-related 
enforcement activity at the federal level, by the Federal Trade Commission, as well as at the state level, such as with 
regard to mobile applications.  

Compliance with current or future privacy, data protection and information security laws (including those regarding 
security breach notification) affecting customer or employee data to which we are subject could result in higher 
compliance and technology costs and could restrict our ability to provide certain products and services, which could have 
a material adverse effect on our business, financial conditions or results of operations. Our failure to comply with 
privacy, data protection and information security laws could result in potentially significant regulatory or governmental 
investigations or actions, litigation, fines, sanctions, increased insurance cost and damage to our reputation, which could 
have a material adverse effect on our business, financial condition or results of operations.

Item 1B.

Unresolved Staff Comments. 

None. 

Item 2.

Properties. 

Our corporate headquarters is located at 150 N. Washington Avenue, Scranton, Pennsylvania, which houses our finance 
and planning, trust, commercial lending, marketing, human resources and investor services divisions, as well as our 
executive offices. Our operations division is located at 82 Franklin Avenue, Hallstead, Pennsylvania. 

We operate 27 full-service community banking offices located within the Lackawanna, Lehigh, Luzerne, Monroe, 
Montgomery, Northampton, Susquehanna, Wayne and Wyoming Counties of Pennsylvania and Broome County of New 
York. Seven offices are leased and the balance are owned by Peoples Bank.  

We lease several remote ATM locations throughout our market area. All branches and ATM locations are equipped with 
closed circuit television monitoring. 

-24-

We consider our properties to be suitable and adequate for our current and immediate future purposes. 

Item 3.

Legal Proceedings. 

There are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, as to 
which we are a party or of which any of our property is subject. 

Item 4. Mine Safety Disclosures. 

Not applicable. 

Part II 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of 

Equity Securities. 

As of February 28, 2018, there were approximately 3,530 holders of our common stock, $2.00 par value, including 
individual participants in security position listings. Our common stock trades on The Nasdaq Stock Market under the 
symbol “PFIS.” 

Peoples has paid cash dividends since its incorporation in 1986. Our 2013 Penseco merger agreement states that, unless 
80% 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 sufficient funds are legally available, and that Peoples and Peoples Bank 
remain “well-capitalized” in accordance with applicable regulatory guidelines. The payment of future dividends must 
necessarily depend upon earnings, financial position, appropriate restrictions under applicable laws and other factors 
relevant at the time our board of directors considers any declaration of dividends. For information on dividend 
restrictions on the Company and Peoples Bank, refer to Part I, Item 1 “Supervision and Regulation – Limitations on 
Dividends and Other Payments” to this report and refer to the consolidated financial statements and notes to these 
statements filed at Item 8 to this report and incorporated in their entirety by reference under this Item 5. 

-25-

The high and low closing sale prices and dividends per share of the Company’s common stock for the four quarters of 
2017 and 2016 are summarized in the following table: 

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

2017

High
$ 49.57
45.00
49.00
$ 51.06

Low
$ 39.66
39.32
39.25
$ 44.04

Dividends
Declared
$ 0.31
0.31
0.32
$ 0.32

Low
$ 33.22
35.56
37.93
$ 39.17

2016

High
$ 38.77
40.55
40.76
$ 50.04

Dividends
Declared
$ 0.31
0.31
0.31
$ 0.31

The following table presents information with respect to purchases 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 three months ended December 31, 2017: 

Month Ending
October 31, 2017
November 30, 2017
December 31, 2017

Total Number of Average Price
Shares PurchasedPaid Per Share

$
$
(cid:1)$
(cid:1)

Total Number of Maximum Number
of Shares that may
Shares Purchased
yet be Purchased
as Part of Publicly
Under the
Announced
Programs
Programs

(cid:1)
(cid:1)

(cid:1)

225,000
225,000
225,000

(1)(cid:1) On April 28, 2017, our board of directors reauthorized a common stock repurchase plan whereby we were 

authorized to repurchase up to 225,000 shares of our outstanding common stock through open market purchases.  

-26-

The following graph and table show the cumulative total return on the common stock of the Company over the last five 
years, compared with the cumulative total return of a broad stock market index (the Russell 2000 Index or “Russell 
2000”), and the SNL Bank and Thrift Index. The SNL Bank and Thrift Index replaced the index for The NASDAQ Bank 
Stocks that was used in previous years. The cumulative total return on the stock or the index equals the total increase in 
value since December 31, 2012, assuming reinvestment of all dividends paid into the stock or the index. The graph and 
table were prepared assuming that $100 was invested on December 31, 2012, in the common stock and the securities 
included in the indexes.

Comparison of Five-Year Cumulative Total Returns 
Performance Graph of 
PEOPLES FINANCIAL SERVICES CORP

Index
Peoples Financial Services Corp.
Russell 2000 Index
SNL Bank and Thrift Index

Period Ending

12/31/2012
100.00
100.00
100.00

12/31/2013
128.05
138.82
136.92

12/31/2014
171.95
145.62
152.85

12/31/2015
136.05
139.19
155.94

12/31/2016
179.64
168.85
196.86

12/31/2017
176.89
193.58
231.49

Source:  S& P Global Market Intelligence 
©2017

-27-

Item 6.

Selected Financial Data. 

Consolidated Selected Financial Data 
(Dollars in thousands, except per share data) 

Year Ended December 31
Condensed statements of financial performance:
Interest income
Interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan 
losses
Noninterest income
Noninterest expense

Income before income taxes

Provision for income tax expense

Net income

Condensed statements of financial position:
Investment securities
Net loans
Other assets

Total assets

Deposits
Short-term borrowings
Long-term debt
Other liabilities
Stockholders’ equity

Total liabilities and stockholders’ equity

2017

2016

2015

2014

2013

$

$

74,242
8,698
65,544
4,800

60,744
17,186
51,293
26,637
8,180
18,457

$

$

68,984
7,251
61,733
5,000

56,733
15,888
48,030
24,591
5,008
19,583

$

$

63,041
6,037
57,004
3,700

53,304
15,719
46,779
22,244
4,521
17,723

$

$

63,956
6,642
57,314
3,524

53,790
15,251
45,933
23,108
5,459
17,649

$

$

37,370
4,169
33,201
2,361

30,840
11,762
36,396
6,206
485
5,721

$

281,822
1,674,105
213,104
$ 2,169,031
$ 1,719,018
123,675
49,734
11,628
264,976
$ 2,169,031

$

269,927
1,517,004
212,511
$ 1,999,442
$ 1,588,757
82,700
58,134
13,233
256,618
$ 1,999,442

$

297,044
1,327,890
194,124
$ 1,819,058
$ 1,455,810
38,325
60,354
15,801
248,768
$ 1,819,058

$

354,251
1,199,556
187,862
$ 1,741,669
$ 1,425,558
19,557
33,140
16,635
246,779
$ 1,741,669

$

317,010
1,167,966
203,245
$ 1,688,221
$ 1,379,507
22,052
36,743
11,127
238,792
$ 1,688,221

Per share data:
Net income
Cash dividends declared
Stockholders’ equity
Cash dividends declared as a percentage of net income
Average common shares outstanding

$

$

2.50
1.26
35.82
50.40 %

$

$

2.65
1.24
34.71
46.79 %

$

$

2.36
1.24
33.57
52.54 %

$

$

2.34
1.24
32.69
53.03 %

$

$

1.21
1.23
31.62
96.33 %

7,395,837

7,396,716

7,516,451

7,548,825

4,733,059

Selected ratios (based on average balances):
Net income as a percentage of total assets
Net income as a percentage of stockholders’ equity
Stockholders’ equity as a percentage of total assets
Tier I capital as a percentage of adjusted total assets
Net interest income as a percentage of earning assets
Loans, net, as a percentage of deposits

Selected ratios and data (based on period end 
balances):
Tier I capital as a percentage of risk-weighted assets
Total capital as a percentage of risk-weighted assets
Allowance for loan losses as a percentage of loans, net
Nonperforming loans as a percentage of loans, net

0.90 %
7.02
12.77
9.94
3.69
96.50 %

11.85 %
12.95
1.12
0.67 %

1.02 %
7.64
13.36
10.16
3.77
95.81 %

12.49 %
13.51
1.04
0.90 %

1.02 %
7.13
14.26
10.80
3.81
87.55 %

13.52 %
14.47
0.97
0.86 %

1.03 %
7.29
14.12
10.76
3.86
84.13 %

14.75 %
15.61
0.85
0.85 %

0.58 %
4.01
14.43
10.12
3.91
87.72 %

13.62 %
14.29
0.74
1.60 %

Note: Average balances were calculated using average daily balances. Average balances for loans include nonaccrual 
loans. Tax-equivalent adjustments were calculated using the prevailing statutory tax rate of 35.0% for the years 2017, 
2016, 2015 and 2014 and 34.0% for the year 2013.

-28-

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. 

Management’s Discussion and Analysis 2017 versus 2016 
(Dollars in thousands, except per share data) 

Management’s Discussion and Analysis appearing on the following pages should be read in conjunction with the 
Consolidated Financial Statements and Management’s Discussion and Analysis 2016 versus 2015 contained in this 
Annual Report on Form 10-K. 

Forward-Looking Discussion: 

In addition to the historical information contained in this document, the discussion presented may contain and, from time 
to time, may make, certain statements that constitute forward-looking statements. Words such as “expects,” 
“anticipates,” “believes,” “estimates” and other similar expressions or future or conditional verbs such as “will,” 
“should,” “would” and “could” are intended to identify such forward-looking statements. These statements are not 
historical facts, but instead represent the current expectations, plans or forecasts of Peoples Financial Services Corp. and 
its subsidiaries regarding its future operating results, financial position, asset quality, credit reserves, credit losses, capital 
levels, dividends, liquidity, service charges, cost savings, effective tax rate, impact of changes in fair value of financial 
assets and liabilities, impact of new accounting and regulatory guidance, legal proceedings and other matters relating to 
us and the securities that we may offer from time to time. These statements are not guarantees of future results or 
performance and involve certain risks, uncertainties and assumptions that are difficult to predict, change over time and 
are often beyond our control. Actual outcomes and results may differ materially from those expressed in, or implied by, 
forward-looking statements. 

You should not place undue reliance on any forward-looking statement and should consider the uncertainties and risks 
discussed in the “Risk Factors” in Part I, Item 1A of this Annual Report, among others, and in any of our subsequent 
Securities and Exchange Commission (“SEC”) filings. Forward-looking statements speak only as of the date they are 
made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or 
events that arise after the date the forward-looking statement was made. 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 have been reclassified to conform with the 
current year’s presentation. 

Critical Accounting Policies: 

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the 
United States of America (“GAAP”). The preparation of consolidated financial statements in conformity with GAAP 
requires us to establish critical accounting policies and make accounting estimates and assumptions that affect the 
reported amounts of assets and liabilities at the date of the consolidated financial statements, as well as the reported 
amounts of revenues and expenses during those reporting periods. 

For a discussion of the recent Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards 
Board (“FASB”) refer to Note 1 entitled “Summary of significant accounting policies — Recent accounting standards,” 
in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. 

An accounting estimate requires assumptions about uncertain matters that could have a material effect on the 
consolidated financial statements if a different amount within a range of estimates were used or if estimates changed 
from period to period. Readers of this report should understand that estimates are made considering facts and 
circumstances at a point in time, and changes in those facts and circumstances could produce results that differ from 
when those estimates were made. Significant estimates that are particularly susceptible to material change within the 
near term relate to the determination of allowance for loan losses, determination of other-than-temporary impairment of 
investment securities, fair value of financial instruments, the valuation of real estate acquired in connection with 
foreclosures or satisfaction of loans, the valuation of deferred tax assets, the valuation of acquired assets and liabilities
assumed in business combinations, and the impairment of goodwill. Actual amounts could differ from those estimates. 

-29-

We maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to 
individually evaluated loans, as well as probable incurred losses inherent in the remainder of the loan portfolio as of the 
balance sheet date. The balance in the allowance for loan losses account is based on past events and current economic 
conditions among other things. 

The allowance for loan losses account consists of an allocated element and an unallocated element. The allocated 
element consists of a specific portion for the impairment of loans individually evaluated and a formula portion for loss 
contingencies on those loans collectively evaluated. The unallocated element, if any, is used to cover inherent losses that 
exist as of the evaluation date, but which have not been identified as part of the allocated allowance using our 
impairment evaluation methodology due to limitations in the process. 

We monitor the adequacy of the allocated portion of the allowance quarterly and adjust the allowance as necessary 
through normal operations. This ongoing evaluation reduces potential differences between estimates and actual observed 
losses. The determination of the level of the allowance for loan losses is inherently subjective as it requires estimates that 
are susceptible to significant revision as more information becomes available. Accordingly, management cannot ensure 
that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the 
allowance for loan losses will not be required, resulting in an adverse impact on operating results. 

In determining the requirement to record an other-than-temporary impairment on securities owned by us, four main 
characteristics are considered including: (i) the length of time and the extent to which the fair value has been less than 
amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) whether the market decline was 
affected by macroeconomic conditions and (iv) whether the Company has the intent to sell the debt security or more 
likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an 
other-than-temporary impairment exists involves a high degree of subjectivity and judgment and is based on information 
available to us at a point in time. 

Fair values of financial instruments, in cases where quoted market prices are not available, are based on estimates using 
present value or other valuation techniques which are subject to change. 

Real estate acquired in connection with foreclosures or in satisfaction of loans is adjusted to fair value based upon 
current estimates derived through independent appraisals less cost to sell. However, proceeds realized from sales may 
ultimately be higher or lower than those estimates. 

Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences by applying 
enacted statutory tax rates to differences between the financial statement carrying amounts and the tax bases of existing 
assets and liabilities. The amount of deferred tax assets is reduced, if necessary, to the amount that, based on available 
evidence, will more likely than not be realized. As changes in tax laws or rates are enacted, deferred tax assets and 
liabilities are adjusted through the provision for income taxes. 

The acquired assets and liabilities assumed in business combinations are measured at fair value as of the acquisition date. 
In many cases, determining the fair value of the acquired assets and assumed liabilities requires the Company to estimate 
cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of 
interest, which required the utilization of significant estimates and judgment in accounting for the acquisition. 

Goodwill is evaluated at least annually for impairment or more frequently if conditions indicate potential impairment 
exist. Any impairment losses arising from such testing are reported in the income statement in the current period as a 
separate line item within operations. 

For a further discussion of our critical accounting policies, refer to Note 1 entitled, “Summary of significant accounting 
policies,” in the Notes to Consolidated Financial Statements to this Annual Report. Note 1 lists the significant accounting 
policies used by us in the development and presentation of the consolidated financial statements. This discussion and
analysis, the Notes to Consolidated Financial Statements and other financial statement disclosures identify and address 
key variables and other qualitative and quantitative factors that are necessary for the understanding and evaluation of our 
financial position, results of operations and cash flows. 

-30-

Operating Environment: 

The United States economy continued to show signs of expansion in 2017, as the gross domestic product (“GDP”), the 
value of all goods and services produced in the Nation, came in at an annual rate of 2.5 percent (estimated) in the fourth 
quarter. This comes on the heels of a third quarter reading of 3.2 percent in real GDP. The economy grew at 1.6 percent 
for all of 2016, the worst performance since 2011, after growing at a rate of 2.6 percent in 2015. The Federal Reserve 
Board’s Federal Open Market Committee (“FOMC”) increased the federal funds rate three times in 2017 ending the year 
at a range of 1.25% to 1.50%. In raising the key target range for the federal funds rate, the FOMC noted strong labor 
markets and below target inflation. FOMC officials expect inflation to stabilize around their 2.0 percent objective over 
the “medium term”. The median forecast is for a federal funds rate of 2.125 percent by year-end 2018, implying that 
there will be three additional rate hikes in 2018.

Inflation picked up somewhat in 2017, as the consumer price index (“CPI”) registered 2.1 percent for 2017, just eclipsing 
the FOMC’s benchmark of 2.0 percent. The CPI was 2.1 percent in 2016 as well. Core personal consumption 
expenditure price index, which ignores food and energy, averaged 1.8 percent in 2017. 

On a national level, employment conditions improved in 2017. The civilian labor force increased 1.4 million, while the 
number of people employed increased 1.8 million in 2017. As a result, the annual unemployment rate for the U.S. fell in 
2017 when compared to 2016. All sectors of employment, with the exception of the private sector, reported employment 
gains from the end of 2016. 

National, Pennsylvania, New York and our market area’s non-seasonally-adjusted annual unemployment rates in 2017 
and 2016, are summarized as follows: 

United States
New York (statewide)
Pennsylvania (statewide)
Broome County
Bucks County
Lackawanna County
Lehigh County
Luzerne County
Monroe County
Montgomery County
Northampton County
Susquehanna County
Wayne County
Wyoming County

2017

2016

4.4 %
4.6
4.9
5.5
4.2
5.1
5.1
5.9
5.9
3.8
4.9
4.7
5.1
5.2 %

4.9 %
4.8
5.4
5.4
4.6
5.7
5.4
6.4
6.3
4.2
5.2
5.7
5.9
6.2 %

Employment conditions improved for both the Commonwealth of Pennsylvania and New York State in 2017 as 
evidenced by a decrease in their respective unemployment rates. With respect to the markets we serve, the 
unemployment rate decreased in all but one of the counties in which we have branches or ATM locations. The lowest 
unemployment rate in 2017, for all of the counties we serve, was Montgomery County at 3.8 percent. 

With respect to the banking industry, net income for all Federal Deposit Insurance Corporation (“FDIC”)-insured banks 
in 2017 totaled $164.8 billion, a decrease of $6.0 billion or 3.5 percent from 2016. Approximately 56.2 percent of all 
institutions reported higher net income in 2016, while only 5.4 percent reported net losses, a slight uptick from last 
year’s reported 4.2 percent unprofitable institutions. Loan loss provisions of $51.1 billion in 2017 were $3.0 billion or 
6.2 percent more than banks set aside in 2016. This is the third consecutive year that loan loss provisions have been 
higher than the preceding year. Net interest income increased for the fourth year in a row, by $37.7 billion or 8.2 percent. 
Noninterest income was $1.8 billion or 0.7 percent above the level of 2016. Realized gains on sales of investments were 
$1.7 billion or 43.8 percent less than a year ago. Total noninterest expense increased $19.5 billion or 4.6 percent 
comparing 2017 and 2016. The return on average assets for 2017 was 0.97 percent compared to 1.04 percent in 2016. 

-31-

The United States economy continued to improve in 2017. This could affect future interest rates which may adversely 
impact bank earnings as net interest margins compress from the inability of management to keep funding costs low. 
Continuous expense control, sound balance sheet management and lower loan loss provisions could offset some of the 
negative impact of the reduction in net interest margins. 

Review of Financial Position: 

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full
range of financial services through its wholly-owned subsidiary, Peoples Security Bank and Trust Company (“Peoples 
Bank”), collectively, the “Company” or “Peoples”. On November 30, 2013, Penseco Financial Services Corporation, a 
financial holding company incorporated under the laws of Pennsylvania (“Penseco”), merged with and into Peoples 
Financial Services Corp., with Peoples Financial Services Corp. being the surviving corporation (the “Merger”), pursuant 
to an Agreement and Plan of Merger dated June 28, 2013 (the “Merger Agreement”). In connection with the Merger, on 
December 1, 2013, Penseco’s former banking subsidiary, Penn Security Bank and Trust Company, merged with and into 
Peoples Neighborhood Bank (the “Bank Merger”), and the resulting institution adopted the name, “Peoples Security 
Bank and Trust Company.” The Company services its retail and commercial customers through twenty-seven full-
service community banking offices located within the Lackawanna, Lehigh, Luzerne, Monroe, Montgomery, 
Northampton, Susquehanna, Wayne and Wyoming Counties of Pennsylvania and Broome County of New York. 

Peoples Bank is a state-chartered bank and trust company under the jurisdiction of the Pennsylvania Department of 
Banking and Securities and the Federal Deposit Insurance Corporation. Peoples Bank’s primary product is loans to 
small- and medium-sized businesses. Other lending products include one-to-four family residential mortgages and 
consumer loans. Peoples Bank primarily funds its loans by offering open time deposits to commercial enterprises and 
individuals. Other deposit product offerings include certificates of deposits and various demand deposit accounts. 

The Company faces competition primarily from commercial banks, thrift institutions and credit unions within its 
Pennsylvania and New York market, many of which are substantially larger in terms of assets and capital. In addition, 
mutual funds and security brokers compete for various types of deposits, and consumer, mortgage, leasing and insurance 
companies compete for various types of loans and leases. Principal methods of competing for banking and permitted 
nonbanking services include price, nature of product, quality of service and convenience of location. 

The Company and Peoples Bank are subject to regulations of certain federal and state regulatory agencies and undergo 
periodic examinations by such agencies. 

Total assets, loans and deposits were $2.2 billion, $1.7 billion and $1.7 billion, respectively, at December 31, 2017. Total 
assets, loans and deposits grew 8.5 percent, 10.4 percent and 8.2 percent, respectively, compared to 2016 year-end 
balances. 

The loan portfolio consisted of $1.3 billion of business loans, including commercial and commercial real estate loans, 
and $430.7 million in retail loans, including residential mortgage and consumer loans at December 31, 2017. Total 
investment securities were $281.8 million at December 31, 2017, including $272.5 million of investment securities 
classified as available-for sale and $9.3 million classified as held-to-maturity. Total deposits consisted of $380.7 million 
in noninterest-bearing deposits and $1.3 billion in interest-bearing deposits at December 31, 2017. 

Stockholders’ equity equaled $265.0 million, or $35.82 per share, at December 31, 2017, and $256.6 million, or $34.71 
per share, at December 31, 2016. Our equity to asset ratio was 12.21 percent and 12.83 percent at those respective period 
ends. Dividends declared for the 2017 amounted to $1.26 per share representing 50.4 percent of net income. 

Nonperforming assets equaled $11.6 million or 0.68 percent of loans, net and foreclosed assets at December 31, 2017, 
down from $14.2 million or 0.93 percent at December 31, 2016. The allowance for loan losses equaled $19.0 million or 
1.12 percent of loans, net, at December 31, 2017, compared to $16.0 million or 1.04 percent at year-end 2016. Loans 
charged-off, net of recoveries equaled $1.8 million or 0.11 percent of average loans in 2017, compared to $2.0 million or 
0.14 percent of average loans in 2016. 

-32-

Investment Portfolio: 

Primarily, our investment portfolio provides a source of liquidity needed to meet expected loan demand and generates a 
reasonable return in order to increase our profitability. Additionally, we utilize the investment portfolio to meet pledging 
requirements and reduce income taxes. At December 31, 2017, our portfolio consisted primarily of short-term U.S. 
Treasury and Government agency securities, which provide a source of liquidity and intermediate-term, tax-exempt state 
and municipal obligations, which mitigate our tax burden. 

Our investment portfolio is subject to various risk elements that may negatively impact our liquidity and profitability. 
The greatest risk element affecting our portfolio is market risk or interest rate risk (“IRR”). Understanding IRR, along 
with other inherent risks and their potential effects, is essential in effectively managing the investment portfolio. 

Market risk or IRR relates to the inverse relationship between bond prices and market yields. It is defined as the risk that 
increases in general market interest rates will result in market value depreciation. A marked reduction in the value of the 
investment portfolio could subject us to liquidity strains and reduced earnings if we are unable or unwilling to sell these 
investments at a loss. Moreover, the inability to liquidate these assets could require us to seek alternative funding, which 
may further reduce profitability and expose us to greater risk in the future. In addition, since the majority of our 
investment portfolio is designated as available-for-sale and carried at estimated fair value, with net unrealized gains and 
losses reported as a separate component of stockholders’ equity, market value depreciation could negatively impact our 
capital position. 

During 2017 the FOMC raised the target federal funds rate three times. At their December 2017 meeting, the FOMC 
decided to raise the target range for the federal funds rate to 1.25% to 1.50%. The FOMC expects that, with gradual 
adjustments in monetary policy, economic activity will expand at a moderate pace and labor market conditions will 
remain strong. The Committee expects that economic conditions will evolve in a manner that will warrant  gradual 
increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected 
to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as 
informed by incoming data. Our investment portfolio consists primarily of fixed-rate bonds. As a result, changes in the 
velocity and magnitude of future FOMC actions can significantly influence the fair value of our portfolio. Specifically, 
the parts of the yield curve most closely related to our investments include the 2-year and 10-year U.S. Treasury 
securities. The yield on the 2-year U.S. Treasury note affects the values of our U.S. Treasury and Government agency 
securities, whereas the 10-year U.S. Treasury note influences the value of tax-exempt state and municipal obligations. 
The yield on the 2-year U.S. Treasury ranged from a low of 112 basis points to a high of 192 basis points during 2017 
before ending the year at 1.89 percent. The yield on the 10-year U.S. Treasury ranged from a low of 205 basis points to a 
high of 262 basis points while ending 2017 at 2.40 percent. Since bond prices move inversely to yields, we experienced a 
decline in the aggregate fair value of our investment portfolio when comparing December 31, 2017 to December 31, 
2016 due to higher rates at year end 2017. The net unrealized holding losses included in our available-for-sale 
investment portfolio were $1.2 million at December 31, 2017 compared to a gain of $553 thousand at December 31, 
2016.  We reported net unrealized holding loss, included as a separate component of stockholders’ equity of $977 
thousand, net of income taxes of $260 thousand, at December 31, 2017, and $360 thousand, net of income taxes of $193 
thousand, at December 31, 2016. An increase in interest rates could negatively impact the market value of our 
investments and our capital position. In order to monitor the potential effects a rise in interest rates could have on the 
value of our investments, we perform stress test modeling on the portfolio. Stress tests conducted on our portfolio at 
December 31, 2017, indicated that should general market rates increase by 100, 200 and 300 basis points, we would 
anticipate declines of 3.1 percent, 6.6 percent and 9.3 percent in the market value of our portfolio. 

-33-

The carrying values of the major classifications of investment securities and their respective percentages of total 
investment securities for the past three years are summarized as follows: 

Distribution of investment securities 

December 31,
U.S. Treasury securities
U.S. Government-sponsored enterprises
State and municipals:
Taxable
Tax-exempt

Residential Mortgage-backed securities:
U.S. Government agencies
U.S. Government-sponsored 
enterprises

Commercial Mortgage-backed securities:
U.S. Government-sponsored 
enterprises

Common equity securities
Total

2017

2016

2015

Amount
$ 19,814
93,648

15,047
110,692

14,488

21,892

6,195
46
$ 281,822

Amount

7,438
80,913

%
2.76 %

29.98

Amount
9,999
$ 69,060

%
3.37
23.25 %

15,225
119,462

5.64
44.25

16,545
131,789

5.57
44.36

21,110

25,779

7.82

9.55

31,652

10.66

37,999

12.79

%
7.03 % $

33.23

5.34
39.28

5.14

7.77

2.20
0.01

100.00 % $ 269,927

100.00 % $ 297,044

100.00 %

Investment securities increased $11.9 million, to $281.8 million at December 31, 2017, from $269.9 million at 
December 31, 2016. At December 31, 2017, the investment portfolio consisted of $272.5 million of investment securities 
classified as available-for-sale and $9.3 million classified as held-to-maturity. Strong loan demand during 2017 resulted 
in using a portion of the investment cash flow to fund loans. Excess cash flow from investment repayments was directed 
back into the investment portfolio primarily during the third and fourth quarters of 2017. Security purchases totaled 
$73.5 million in 2017, with purchases consisting of short-term U.S. Treasury securities, intermediate- term U.S. 
government sponsored enterprises securities, longer term tax-exempt securities and mortgage-backed securities. 
Investment purchases in 2016 amounted to $62.0 million. 

Repayments of investment securities totaled $57.0 million in 2017 and $54.7 million in 2016. There were no sales of 
investment securities during 2017.  Proceeds from the sale of investment securities available-for-sale in 2016 totaled 
$27.4 million with net gains recognized on the sale totaling $623.  The 2016 sales consisted of $17.1 million of short-
term U.S. Government-sponsored enterprises securities and $10.3 million of short-term U.S. Treasury securities. We 
continually analyze the investment portfolio with respect to its exposure to various risk elements. 

The composition of our investment portfolio changed during 2017 as a result of the aforementioned transactions. Short-
term bullet U.S. Treasury and U.S. Government-sponsored enterprise securities comprised 40.3 percent of our total 
portfolio at year-end 2017 compared to 32.7 percent at the end of 2016.  Tax-exempt municipal obligations declined as a 
percentage of the total portfolio to 39.3 percent at year-end 2017 from 44.3 percent at the end of 2016. The weighted 
average life of the investment portfolio shortened slightly to 4.2 years at December 31, 2017 from 4.4 years at year end 
2016, while the effective duration of the investment portfolio increased slightly to 3.0 years at December 31, 2017 from
2.9 years at December 31, 2016. 

There were no other-than-temporary impairments (“OTTI”) recognized for the years ended December 31, 2017, 2016 
and 2015. For additional information related to OTTI refer to Note 4 entitled “Investment securities” in the Notes to 
Consolidated Financial Statements to this Annual Report. 

Investment securities averaged $272.4 million and equaled 14.6 percent of average earning assets in 2017, compared to 
$271.3 million and equaled 15.7 percent of average earning assets in 2016. The tax-equivalent yield on the investment 
portfolio decreased five basis points to 2.84 percent in 2017 from 2.89 percent in 2016. 

At December 31, 2017 and 2016, there were no securities of any individual issuer, except for U.S. Government agency 
mortgage-backed securities, that exceeded 10.0 percent of stockholders’ equity. 

-34-

The maturity distribution based on the carrying value and weighted-average, tax-equivalent yield of the investment 
portfolio at December 31, 2017, is summarized as follows. The weighted-average yield, based on amortized cost, has 
been computed for tax-exempt state and municipals on a tax-equivalent basis using the prevailing federal statutory tax 
rate of 35.0 percent. The distributions are based on contractual maturity. Expected maturities may differ from contractual 
maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. 

Maturity distribution of investment securities 

Within one year
Amount

Yield

After one but
within five years

After five but
within ten years
Amount

After ten years
Amount

Total

Amount
$ 19,814

Yield

1.78 %

Yield
—

—

Yield

Amount
$ 19,814

Yield

1.78 %

79,488

1.57

$ 14,160

1.67 %

93,648

1.58

$

888
9,987

3.72 %
5.06

3,016
60,616

3.73
3.29

11,143
11,520

4.25
4.54

$ 28,569

15,047
5.20 % 110,692

4.12
4.07

31

51

0.28

1.17

10,899

1.86

3,558

1.79

14,488

1.84

8,543

1.96

8,483

2.55

4,815

2.55

21,892

2.32

December 31, 2017
U.S. Treasury securities
U.S. Government-sponsored 
enterprises
State and municipals:
Taxable
Tax-exempt

Residential Mortgage-backed 
securities:

U.S. Government agencies
U.S. Government-sponsored 
enterprises

Commercial Mortgage-backed 
securities:

U.S. Government-sponsored 
enterprises

Total

$ 10,957

4.92 % $ 182,376

Loan Portfolio: 

6,195
2.23 % $ 55,059

2.29
2.98 % $ 33,384

6,195
4.81 % $ 281,776

2.29
2.78 %

Economic factors and how they affect loan demand are of extreme importance to us and the overall banking industry, as 
lending is a primary business activity. Loans are the most significant component of earning assets and they generate the 
greatest amount of revenue for us. Similar to the investment portfolio, there are risks inherent in the loan portfolio that 
must be understood and considered in managing the lending function. These risks include IRR, credit concentrations and 
fluctuations in demand. Changes in economic conditions and interest rates affect these risks which influence loan 
demand, the composition of the loan portfolio and profitability of the lending function. 

The composition of the loan portfolio at year-end for the past five years is summarized as follows: 

Distribution of loan portfolio 

December 31,
Commercial
Real estate:

Commercial
Residential

Consumer

Loans, net

Less: 
allowance for 
loan loss

Net loans

2017

2016

2015

2014

2013

Amount

$

476,199

%
28.12 % $

Amount

408,814

%
26.67 % $

Amount

365,767

%
27.28 % $

Amount

319,590

%
26.41 % $

Amount

350,680

%
29.80 %

786,210
287,935
142,721
1,693,065

46.44
17.01
8.43

700,144
289,781
134,226
100.00 % 1,532,965

45.67
18.90
8.76

567,277
306,218
101,603
100.00 % 1,340,865

42.30
22.84
7.58

493,481
322,454
74,369
100.00 % 1,209,894

40.79
26.65
6.15

413,058
322,062
90,817
100.00 % 1,176,617

35.11
27.37
7.72
100.00 %

18,960
$ 1,674,105

15,961
$ 1,517,004

12,975
$ 1,327,890

10,338
$ 1,199,556

8,651
$ 1,167,966

Loans, net increased $160.1 million or 10.4 percent in 2017 to $1.7 billion at December 31, 2017. Business loans, 
including commercial loans and commercial real estate loans, were $1.3 billion or 74.6 percent of loans, net at 
December 31, 2017, and $1.1 billion or 72.3 percent at year-end 2016. Residential mortgages and consumer loans totaled 
$430.7 million or 25.4 percent of loans, net at year-end 2017 and $424.0 million or 27.7 percent at year-end 2016. Loan 
growth remained strong throughout 2017.  Loans, net grew at an annual rate of 10.4 percent in 2017.  The increase in 
loans in 2017 was primarily attributable to the continued growth fostered by our entrance into the Lehigh Valley market 
during the fourth quarter of 2014 by establishing a community banking office with a dedicated team of commercial and 

-35-

retail lenders. Our company has expanded our presence in the greater Lehigh Valley with the addition of two community 
banking offices, complemented with additional lending teams to continue the growth.  Additional growth was attained 
through our entrance into the King of Prussia market initially by establishing a loan production office and then by 
opening a retail branch in the fourth quarter of 2016. The remainder of such growth was generated from improved 
demand for business lending in existing markets. Based on the customer service oriented philosophy of our organization 
along with the commitment of these employees, we expect to be as well received in this new market as we are in our 
existing markets. 

Loans averaged $1.6 billion in 2017, compared to $1.5 billion in 2016. Taxable loans averaged $1.5 billion, while tax-
exempt loans averaged $112.6 million in 2017. Due to improving loan demand, the loan portfolio continues to play a 
prominent role in our earning asset mix. As a percentage of earning assets, average loans equaled 85.4 percent in 2017, 
an increase from 84.2 percent in 2016. 

The tax-equivalent yield on our loan portfolio decreased 4 basis points to 4.39 percent in 2017 from 4.43 percent in 2016 
as repayments of higher yielding loans were replaced with new originations at lower yields.  In 2017, we increased our 
prime lending rate three times in response to the FOMC raising its targeted federal funds rate.  Our prime rate ended the 
year at 4.50%.  The higher prime rate helped mitigate the loan yield compression.  Amortization of the credit marks and 
interest rate fair value marks of the acquired portfolio reduced loan interest income by $81 thousand in 2017.  
Comparatively, loan accretion included in loan interest income in 2016 totaled $649 thousand which increased the tax-
equivalent net interest margin by 4 basis points.  The effect of the increases in the prime rate on stabilizing our loan 
portfolio’s yield can be evidenced by evaluating quarterly loan yields, which ranged from 4.36 percent in the second 
quarter to 4.42 percent in the third quarter.  The yield on the loan portfolio may continue to stabilize as repayments on 
loans are replaced with new originations at current market rates.  However, increased competition will continue to 
prompt more aggressive pricing for fixed rate intermediate term loans, thus mitigating higher yields.

The maturity distribution and sensitivity information of the loan portfolio by major classification at December 31, 2017, 
is summarized as follows: 

Maturity distribution and interest sensitivity of loan portfolio 

December 31, 2017
Maturity schedule:
Commercial
Real estate:

Commercial
Residential

Consumer

Total

Predetermined interest rates
Floating or adjustable interest rates

Total

Within one
year

After one but
within five years

After five
years

Total

$ 152,833

$

163,437

$ 159,929

$

476,199

149,232
65,794
56,981
$ 424,840

$ 164,693
260,147
$ 424,840

$

$

$

401,478
151,681
77,318
793,914

235,500
70,460
8,422
$ 474,311

786,210
287,935
142,721
$ 1,693,065

344,888
449,026
793,914

$ 158,514
315,797
$ 474,311

$

668,095
1,024,970
$ 1,693,065

As previously mentioned, there are numerous risks inherent in the loan portfolio. We manage the portfolio by employing 
sound credit policies and utilizing various modeling techniques in order to limit the effects of such risks. In addition, we 
utilize private mortgage insurance (“PMI”) and guaranteed Small Business Administration and Federal Home Loan Bank 
of Pittsburgh (“FHLB-Pgh”) loan programs to mitigate credit risk in the loan portfolio. 

In an attempt to limit IRR and liquidity strains, we continually examine the maturity distribution and interest rate 
sensitivity of the loan portfolio. For 2017, market interest rates began to increase from historically low levels. Given the 
potential for rates to rise in the future, we continued to place emphasis on originating short term fixed-rate and 
adjustable-rate loans. Fixed-rate loans represented 39.5 percent of the loan portfolio at December 31, 2017, compared to 
floating or adjustable-rate loans at 61.5 percent. Approximately 45.9 percent of the loan portfolio is expected to reprice 
within the next 12 months. 

-36-

Additionally, our secondary market mortgage banking program provides us with an additional source of liquidity and a 
means to limit our exposure to IRR. Through this program, we are able to competitively price conforming one-to-four 
family residential mortgage loans without taking on IRR which would result from retaining these long-term, low fixed-
rate loans on our books. The loans originated are subsequently sold in the secondary market, with the sales price locked 
in at the time of commitment, thereby greatly reducing our exposure to IRR. 

Loan concentrations are considered to exist when the total amount of loans to any one borrower, or a multiple number of 
borrowers engaged in similar business activities or having similar characteristics, exceeds 25.0 percent of capital 
outstanding in any one category. We provide deposit and loan products and other financial services to individual and 
corporate customers in our current market area. There are no significant concentrations of credit risk from any individual 
counterparty or groups of counterparties, except for geographic concentrations. 

Off- Balance Sheet Arrangements:

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, and may 
involve, to varying degrees, elements of credit risk and IRR in excess of the amount recognized in the consolidated 
financial statements. 

Credit risk is the principal risk associated with these instruments. Our involvement and exposure to credit loss in the 
event that the instruments are fully drawn upon and the customer defaults is represented by the contractual amounts of 
these instruments. In order to control credit risk associated with entering into commitments and issuing letters of credit, 
we employ the same credit quality and collateral policies in making commitments that we use in other lending activities. 
We evaluate each customer’s creditworthiness on a case-by-case basis, and if deemed necessary, obtain collateral. The 
amount and nature of the collateral obtained is based on our credit evaluation. 

The contractual amounts of off-balance sheet commitments at year-end for the past three years are summarized as 
follows: 

Distribution of off-balance sheet commitments 

December 31
Commitments to extend credit
Unused portions of lines of credit
Commercial letters of credit

Total

2017
$ 324,984
56,244
23,387
$ 404,615

2016
$ 235,878
57,784
31,051
$ 324,713

2015
$ 257,011
52,794
20,017
$ 329,822

We record a valuation allowance for off-balance sheet credit losses, if deemed necessary, separately as a liability. The 
valuation allowance amounted to $61 and $58 at December 31, 2017 and 2016. We do not anticipate that losses, if any, 
that may occur as a result of funding off-balance sheet commitments, would have a material adverse effect on our 
operating results or financial position. 

Contractual Obligations and Commitments:

In the ordinary course of operations, we enter into various financial obligations, including contractual obligations that 
may require future cash payments. As a financial services provider, we routinely enter into commitments to extend 
credit, including loan commitments, standby and commercial letters of credit. Such commitments are subject to the same 
credit policies and approval process accorded to loans made by the Bank. See Note 5 of the consolidated financial 
statements for additional information.

The following table summarizes our contractual obligations and other commitments to make future payments as of 
December 31, 2017. Payments for deposits and borrowings do not include interest. Payments related to leases are based 
on actual payments specified in the underlying contracts. Commitments to extend credit and standby letters of credit are 

-37-

presented at contractual amounts; however, since many of these commitments are expected to expire unused or only 
partially used based upon our historical experience, the total amounts of these commitments do not necessarily reflect 
future cash requirements. 

December 31, 2017

Over One Year  Over Three Years 

(cid:1)(cid:1)(cid:1)(cid:1)

Total

One Year or 
Less

Through 
Three Years

Through 
Five Years

Over Five Years

$ 282,234
123,675
49,734
3,259
$ 458,902

$ 171,043
123,675
11,828
494
$ 307,040

$ 381,228
23,387
$ 404,615

$ 324,984
23,387
$ 348,371

$

$

$

$

62,480

$

31,065

$

17,646

33,137
954
96,571

4,165

4,165

$

$

$

4,214
845
36,124

2,813

2,813

$

$

$

555
966
19,167

49,266

49,266

(In Thousands)
Contractual Obligations:
Time Deposits
Short-term borrowings
FHLB Advances
Operating Leases

Total

Other committments:
Commitments to extend credit
Standby letters of credit

Total

Asset Quality: 

We are committed to developing and maintaining sound, quality assets through our credit risk management policies and 
procedures. Credit risk is the risk to earnings or capital which arises from a borrower’s failure to meet the terms of their 
loan obligations. We manage credit risk by diversifying the loan portfolio and applying policies and procedures designed 
to foster sound lending practices. These policies include certain standards that assist lenders in making judgments 
regarding the character, capacity, cash flow, capital structure and collateral of the borrower. 

With regard to managing our exposure to credit risk in light of general devaluations in real estate values, we have 
established maximum loan-to-value ratios for commercial mortgage loans not to exceed 80.0 percent of the appraised 
value. With regard to residential mortgages, customers with loan-to-value ratios in excess of 80.0 percent are generally 
required to obtain Private Mortgage Insurance (PMI). PMI is used to protect us from loss in the event loan-to-value ratios 
exceed 80.0 percent and the customer defaults on the loan. Appraisals are performed by an independent appraiser 
engaged by us, not the customer, who is either state certified or state licensed depending upon collateral type and loan 
amount. 

With respect to lending procedures, lenders and our credit underwriters must determine the borrower’s ability to repay 
their loans based on prevailing and expected market conditions prior to requesting approval for the loan. The Board of 
Directors establishes and reviews, at least annually, the lending authority for certain Senior Officers, loan underwriters 
and branch personnel. Credit approvals beyond the scope of these individual authority levels are forwarded to a Loan 
Committee. This Committee, comprised of certain members of senior management, review credits to monitor the quality
of the loan portfolio through careful analysis of credit applications, adherence to credit policies and the examination of 
outstanding loans and delinquencies. These procedures assist in the early detection and timely follow-up of problem 
loans. 

Credit risk is also managed by monthly internal reviews of individual credit relationships in our loan portfolio by credit 
administration and the asset quality committee. These reviews aid us in identifying deteriorating financial conditions of 
borrowers and allows us the opportunity to assist customers in remedying these situations. 

Nonperforming assets consist of nonperforming loans and foreclosed assets. Nonperforming loans include nonaccrual 
loans, troubled debt restructured loans and accruing loans past due 90 days or more. For a discussion of our policy 
regarding nonperforming assets and the recognition of interest income on impaired loans, refer to the notes entitled, 

-38-

“Summary of significant accounting policies — Nonperforming assets,” and “Loans, net and allowance for loan losses” 
in the Notes to Consolidated Financial Statements to this Annual Report which are incorporated in this item by reference. 

Information concerning nonperforming assets for the past five years is summarized as follows. The table includes credits 
classified for regulatory purposes and all material credits that cause us to have serious doubts as to the borrower’s ability
to comply with present loan repayment terms. 

Distribution of nonperforming assets 

December 31
Nonaccrual loans:
Commercial
Real estate:

Commercial
Residential

Consumer

Total nonaccrual loans
Troubled debt restructured loans:
Commercial
Real estate:

Commercial
Residential

Consumer

2017

2016

2015

2014

2013

$

860

$

934

$ 1,632

$ 1,322

$ 2,035

3,454
2,994
177
7,485

7,016
2,961
155
11,066

1,577

1,150

1,680
4,424
148
7,884

1,275
3,047
122
5,766

9,172
3,569
90
14,866

2,487

836
661

141
618

2,325
536

2,457
476

Total troubled debt restructured loans

3,074

1,909

2,861

2,933

2,487

Accruing loans past due 90 days or more:
Commercial
Real estate:

Commercial
Residential

Consumer

Total accruing loans past due 90 days or more
Total nonperforming loans

Foreclosed assets

Total nonperforming assets
Nonperforming loans as a percentage of loans, net
Nonperforming assets as a percentage of loans, net and 
foreclosed assets

548
186
734
11,293
284
$ 11,577

558
286
844
13,819
393
$ 14,212

525
238
763
11,508
957
$ 12,465

6

200
678
571
1,455
18,808
648
$ 19,456

136
1,062
425
1,623
10,322
561
$ 10,883

0.67 %

0.90 %

0.86 %

0.85 %

1.60 %

0.68 %

0.93 %

0.93 %

0.90 %

1.65 %

We experienced improvements in our asset quality as evidenced by a decrease in nonperforming assets of $2.6 million or 
18.5 percent to $11.6 million or 0.68 percent of loans, net of unearned income, and foreclosed assets at December 31, 
2017, from $14.2 million or 0.93 percent of loans, net of unearned income, and foreclosed assets at the end of 2016. The 
decrease resulted from a $3.6 million decrease in nonaccrual loans and a decrease in foreclosed assets of $0.1 million 
offset by an increase of $1.1 million in troubled debt restructured loans.  For a further discussion of assets classified as 
nonperforming assets and potential problem loans, refer to the note entitled, “Loans, net and the allowance for loan 
losses,” in the Notes to Consolidated Financial Statements to this Annual Report. 

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

-39-

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, our credit administration department identifies those loans to be individually evaluated for impairment and those 
to be collectively evaluated for impairment utilizing a standard criteria. We consistently use loss experience from the 
latest twelve quarters in determining the historical loss factor for each pool collectively evaluated for impairment. 
Qualitative factors are evaluated in the same manner each quarter and are adjusted within a relevant range of values 
based on current conditions to assure directional consistency of the allowance for loan loss account. Regulators, in 
reviewing the loan portfolio as part of the scope of a regulatory examination, may require us to increase our allowance 
for loan losses or take other actions that would require increases to our allowance for loan losses. 

For a further discussion of our accounting policies for determining the amount of the allowance and a description of the 
systematic analysis and procedural discipline applied, refer to the note entitled, “Summary of significant accounting 
policies — Allowance for loan losses,” in the Notes to Consolidated Financial Statements to this Annual Report. 

A reconciliation of the allowance for loan losses and an illustration of charge-offs and recoveries by major loan category 
for the past five years are summarized as follows: 

Reconciliation of allowance for loan losses 

December 31

Allowance for loan losses at beginning of period
Loans charged-off:
Commercial
Real estate:

Commercial
Residential

Consumer

Total

Loans recovered:
Commercial
Real estate:

Commercial
Residential

Consumer

Total

Net loans charged-off
Provision for loan losses

Allowance for loan losses at end of period

Ratios:
Net loans charged-off as a percentage of average 
loans outstanding
Allowance for loan losses as a percentage of period 
end loans

2017
$ 15,961

2016
$ 12,975

2015
$ 10,338

2014
$ 8,651

2013
$ 6,950

173

776

246

601

706
533
737
2,149

858
339
495
2,468

325
523
333
1,427

500
804
386
2,291

20

86

77

9

5

15
508
313
841

1

124
44
160
348
1,801
4,800
$ 18,960

122
69
177
454
2,014
5,000
$ 15,961

144
26
117
364
1,063
3,700
$ 12,975

292
38
115
454
1,837
3,524
$ 10,338

20
111
49
181
660
2,361
$ 8,651

0.11 %

0.14 %

0.08 %

0.15 %

0.10 %

1.12 %

1.04 %

0.97 %

0.85 %

0.74 %

The allowance for loan losses increased $3.0 million to $19.0 million at December 31, 2017, from $16.0 million at the 
end of 2016. The increase resulted from a provision for loan losses of $4.8 million less net loans charged-off of $1.8 
million. The allowance for loan losses, as a percentage of loans, net of unearned income, was 1.12 percent at the end of 
2017, compared to 1.04 percent at the end of 2016. For a further discussion of the credit quality adjustment for loans 
acquired in the 2013 Penseco merger, refer to the Notes to the Consolidated Financial Statements to this Annual Report. 

Past due loans not satisfied through repossession, foreclosure or related actions are evaluated individually to determine if 
all or part of the outstanding balance should be charged against the allowance for loan losses account. Any subsequent 
recoveries are credited to the allowance account. Net loans charged-off decreased $231 to $1,801 in 2017 from $2,014 in 
2016. Net charge-offs, as a percentage of average loans outstanding, equaled 0.11 percent in 2017 and 0.14 percent in 
2016. 

-40-

Allocation of the allowance for loan losses 

The allocation of the allowance for loan losses for the past five years is summarized as follows: 

December 31
Allocated 
allowance:
Specific:
Commercial
Real Estate:

Commercial
Residential

Consumer

Total 
specific

Formula:
Commercial
Real Estate:

2017

2016

2015

2014

2013

Amount

%

Amount

%

Amount

%

Amount

%

Amount

%

$

159

0.15 % $

225

0.18 % $

759

0.16 % $ 1,240

0.33 % $ 1,500

0.61 %

263
336
8

766

0.25
0.22
0.01

0.63

1,197
520

0.47
0.23

233
1,138
117

0.40
0.37
0.01

912
769
38

0.53
0.34
0.01

300
224

1.01
0.32
0.01

1,942

0.88

2,247

0.94

2,959

1.21

2,024

1.95

4,893

27.98

3,574

26.49

2,283

27.12

1,081

26.08

508

29.19

Commercial
Residential

Consumer

7,285
4,644
1,372

46.19
16.78
8.42

4,650
4,187
1,608

45.21
18.67
8.75

4,012
2,944
1,466

41.90
22.47
7.57

2,125
2,921
1,252

40.26
26.31
6.14

2,094
2,911
1,114

34.10
27.05
7.71

18,194

99.37

14,019

99.12

10,705

99.06

7,379

98.79

6,627

98.05

18,960

100.00 % 15,961

100.00 % 12,952

100.00 % 10,338

100.00 % 8,651

100.00 %

Total 
formula
Total 
allocated 
allowance

Unallocated 
allowance

Total

$ 18,960

$ 15,961

23
$ 12,975

$ 10,338

$ 8,651

The allocated element of the allowance for loan losses account increased $2,999 to $18,960 at December 31, 2017, 
compared to $15,961 at December 31, 2016.The specific portion of the allowance for loan losses decreased while the 
formula portions of the allowance for loan losses increased from the end of 2016. The specific portion of the allowance 
for impairment of loans individually evaluated under FASB ASC 310 decreased $1,176 to $766 at December 31, 2017, 
from $1,942 at December 31, 2016. However, the formula portion of the allowance for loans collectively evaluated for 
impairment under FASB ASC 450, increased $4,175 to $18,194 at December 31, 2017, from $14,019 at December 31, 
2016. The decrease in the specific portion of the allowance was a result of a decrease in the amount of impaired loans 
designated with a related allowance. The increase in the formula portion was due to a significant increase in volume, as 
the overall loss factor remained relatively unchanged.

There was no unallocated element of the total allowance for loan losses at December 31, 2017.  As is inherent with all 
estimates, the allowance for loan losses methodology is subject to a certain level of imprecision as it provides reasonable, 
but not absolute, assurance that the allowance will be able to absorb probable losses, in their entirety, as of the financial 
statement date.  Factors, among others, including judgments made in identifying those loans considered impaired, 
appraisals of collateral values and measurements of certain qualitative factors, all cause this imprecision and support the 
establishment of the unallocated element.  

The coverage ratio, the allowance for loan losses account, as a percentage of nonperforming loans, is an industry ratio 
used to test the ability of the allowance account to absorb potential losses arising from nonperforming loans. The 
coverage ratio was 167.9 percent at December 31, 2017 and 115.5 percent at December 31, 2016. We believe that our 
allowance was adequate to absorb probable credit losses at December 31, 2017. 

Deposits: 

Our deposit base is the primary source of funds to support our operations. We offer a variety of deposit products to meet 
the needs of our individual and commercial customers. Total deposits grew $130.3 million or 8.2 percent to $1.7 billion 
at the end of 2017. Noninterest-bearing deposits grew $27.0 million or 7.6% while interest-bearing deposits increased 

-41-

$103.3 million or 8.4% in 2017. Noninterest-bearing deposits represented 22.1 percent of total deposits while interest-
bearing deposits accounted for 77.9 percent of total deposits at December 31, 2017. Comparatively, noninterest-bearing 
deposits and interest-bearing deposits represented 22.3 percent and 77.7 percent of total deposits at year end 2016. With 
regard to noninterest-bearing deposits, personal checking accounts increased $9.6 million or 5.4 percent, while 
commercial checking accounts increased $17.4 million or 10.0 percent. The increase in noninterest-bearing deposits is 
essential in attempting to keep our overall cost of funds low given the pressure on our net interest margin from the 
increase in short-term markets during 2017 due to the FOMC increasing the targeted federal funds rate. 

With regard to interest-bearing deposits, interest-bearing transaction accounts, which include money market accounts 
and NOW accounts, and savings accounts, increased $106.7 million in 2017. Commercial interest-bearing transaction 
accounts increased $65.8 million, while personal interest-bearing transaction accounts increased $47.1 million. Savings 
accounts decreased $6.2 million during 2017 due primarily to depositors shifting funds into higher yielding deposit 
accounts.  The strong growth in the commercial account types was due to continuing our strategic initiative to grow our 
public fund deposits and our continued penetration in our expansion markets. Total time deposits decreased $3.4 million 
to $282.3 million at December 31, 2017 from $285.7 million at December 31, 2016. The decrease was primarily due to 
price sensitive depositors being attracted to premium rates being offered by our competitors.   

The average amount of, and the rate paid on, the major classifications of deposits for the past three years are summarized 
as follows: 

Deposit distribution 

Year ended December 31
Interest-bearing:
Money market accounts
NOW accounts
Savings accounts
Time deposits 

Total interest-bearing

Noninterest-bearing
Total deposits

2017

2016

2015

Average
Balance

Average
Rate

Average
Balance

Average
Rate

Average
Balance

Average
Rate

$

262,292
345,383
398,104
282,617
1,288,396
361,386
$ 1,649,782

219,265
0.55 % $
305,156
0.45
391,631
0.13
1.05
273,691
0.50 % 1,189,743
330,295
$ 1,520,038

197,129
0.39 % $
273,792
0.40
396,606
0.18
0.98
262,860
0.46 % 1,130,387
303,647
$ 1,434,034

0.32 %
0.37
0.20
0.96
0.44 %

Total deposits averaged $1.6 billion in 2017 and $1.5 billion in 2016, increasing $129.7 million or 8.5 percent comparing 
2017 to 2016. Average noninterest-bearing deposits increased $31.1 million, while average interest-bearing accounts 
grew $98.6 million. Average interest-bearing transaction deposits, including money market and NOW, and savings 
accounts, increased $89.7 million while average total time deposits increased $8.9 million when comparing 2017 and 
2016. 

Our cost of interest-bearing deposits increased 4 basis points to 0.50 percent in 2017 from 0.46 percent in 2016. 
Specifically, the cost of interest-bearing transaction and savings accounts increased 5 basis points to 0.35 percent while 
the cost of time deposits increased 7 basis points to 1.05 percent comparing 2017 and 2016. The increases to the cost of 
interest-bearing transaction deposits and to the cost of time deposits was due to the introduction of premium rate deposit
specials at our  branch office in Kingston and our new branch offices in the Lehigh Valley in 2017.  Additionally, the 
FOMC actions to increase the targeted federal funds rate three times in 2017, has resulted in higher deposit rates.  

Volatile deposits, time deposits $100 or more, averaged $125.2 million in 2017, an increase of $13.8 million or 
12.4 percent from $111.4 million in 2016. Our average cost of these funds increased 14 basis points to 1.01 percent in 
2017, from 0.87 percent in 2016. This type of funding is susceptible to withdrawal by the depositor as they are 
particularly price sensitive and are therefore not considered to be a strong source of liquidity. 

-42-

Maturities of time deposits $100 or more, which entirely consist of certificates of deposits, for the past three years are 
summarized as follows: 

Maturity distribution of time deposits $100 or more 

December 31
Within three months
After three months but within six months
After six months but within twelve months
After twelve months

Total

2017
$ 26,009
24,569
49,852
56,461
$ 156,891

2016
$ 25,503
25,356
45,385
55,733
$ 151,977

2015
$ 14,851
24,437
37,898
49,669
$ 126,855

We recorded a core deposit intangible related to a value ascribed to demand, interest checking, money market and saving 
accounts as well as a fair value adjustment for time deposits assumed in applying the purchase accounting guidance for 
the 2013 Penseco merger. For a further discussion of the fair value adjustments related to deposits assumed in the 
merger, refer to the Notes to the Consolidated Financial Statements to this Annual Report. 

In addition to deposit gathering, we have in place a secondary source of liquidity to fund operations through exercising 
existing credit arrangements with the FHLB-Pgh. We relied on this type of funding more extensively in 2017 than in 
2016 due to the strong loan growth experienced during the year. For a further discussion of our borrowings and their 
terms, refer to the notes entitled, “Short-term borrowings” and “Long-term debt,” in the Notes to Consolidated Financial 
Statements included in Part II, Item 8 of this Annual Report. 

Market Risk Sensitivity: 

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 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 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. 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. 
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. 

The FOMC has raised rates from historically low levels by increasing the federal funds target rate 25 basis points in 
December 2016, March 2017, June 2017 and December 2017.  The timing and the magnitude of future monetary policy 
actions that will impact the current interest rate environment are uncertain. Given these conditions, IRR and the ability to 
effectively manage it, are extremely critical to both bank management and regulators. The FFIEC through its advisory 
guidance reiterates the importance of effective corporate governance, policies and procedures, risk measuring and 
monitoring systems, stress testing and internal controls related to the IRR exposure of depository institutions. According 
to the advisory, the bank regulators believe that the current financial market and economic conditions present significant 
risk management challenges to all financial institutions. Although the bank regulators recognize that some degree of IRR 
is inherent in banking, they expect institutions to have sound risk management practices in place to measure, monitor and 
control IRR exposure. The advisory states that the adequacy and effectiveness of an institution’s IRR management 
process and the level of IRR exposure are critical factors in the bank regulators’ evaluation of an institution’s sensitivity 
to changes in interest rates and capital adequacy. Material weaknesses in risk management processes or high levels of 
IRR exposure relative to capital will require corrective action. We believe our risk management practices with regard to 
IRR were suitable and adequate given the level of IRR exposure at December 31, 2017. 

The Asset/Liability Committee (“ALCO”), comprised of members of our Board of Directors, senior management and 
other appropriate officers, oversees our IRR management program. Specifically, ALCO analyzes economic data and 

-43-

market interest rate trends, as well as competitive pressures, and utilizes several 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”), rate sensitive liabilities (“RSL”) and overall operating results and financial position.

With respect to evaluating our exposure to IRR on earnings, we utilize a gap analysis model that considers repricing 
frequencies of RSA and RSL. 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 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. 

Our interest rate sensitivity gap position, illustrating RSA and RSL at their related carrying values, is summarized as 
follows. The distributions in the table are based on a combination of maturities, call provisions, repricing frequencies and 
prepayment patterns. Adjustable-rate assets and liabilities are distributed based on the repricing frequency of the 
instrument. Mortgage instruments are distributed in accordance with estimated cash flows, assuming there is no change 
in the current interest rate environment. 

Interest rate sensitivity 

December 31, 2017
Rate-sensitive assets:
Interest-bearing deposits in other banks
Investment securities
Loans, net
Loans held for sale

Total rate-sensitive assets

Rate-sensitive liabilities:
Money market accounts
NOW accounts
Savings accounts
Time deposits less than $100
Time deposits $100 or more
Short-term borrowings
Long-term debt

Total rate-sensitive liabilities

Rate-sensitivity gap:
Period
Cumulative
RSA/RSL ratio:
Period
Cumulative

Due within
three months

Due after
three months
but within
twelve months

Due after
one year
but within
five years

Due after
five years

Total

$

$

$

$

1,152
11,042
493,910

$

23,208
283,379

$ 203,789
711,905

506,104

$

306,587

$ 915,694

$ 43,783
203,871
106
$ 247,760

278,494
165,425

23,379
26,009
123,675
9,787
626,769

$

$

$ 224,309
387,827
48,086
45,459

47,234
74,421

$

6,644
11,002

11,373
133,028

28,198
$ 733,879

376
$ 18,022

$

1,152
281,822
1,693,065
106
$ 1,976,145

$

278,494
389,734
387,827
125,343
156,891
123,675
49,734
$ 1,511,698

$ (120,665) $
$ (120,665) $

173,559
52,894

$ 181,815
$ 234,709

$ 229,738
$ 464,447

0.81
0.81

2.30
1.07

1.25
1.16

13.75
1.31

1.31

At December 31, 2017 and 2016, we had cumulative one-year RSA/RSL ratios of 1.07 and 1.28. As previously 
mentioned, this indicated that if interest rates increase, our earnings would likely be favorably impacted. Given current 
improvement in economic conditions and the recent action of the FOMC to raise short-term rates and their consideration 
to continue to raise short-term rates in the 2018, the focus of ALCO has been to maintain the positive gap position in 
order to safeguard future earnings from the potential risk of rising interest rates. During 2017 ALCO took steps to reduce 
the magnitude of our positive gap position and guard against rates unchanged through the origination of five year fixed 
rate loans and purchase of intermediate-term investment securities.  ALCO will continue to focus efforts on strategies in 
2018 in an attempt to maintain a positive gap position between RSA and RSL. However, these forward-looking 

-44-

statements are qualified in the aforementioned section entitled “Forward-Looking Discussion” in this Management’s 
Discussion and Analysis. 

The change in our cumulative one-year ratio from the previous year-end resulted from a $136.8 million or 22.0 percent 
increase in RSL coupled with a $17.4 million or 2.2 percent increase in RSA maturing or repricing within one year. The 
increase in RSL resulted primarily from a $75.4 million increase in interest-bearing transaction accounts and an increase 
in short-term borrowings of $41.0 million. The majority of the growth in money market and NOW accounts resulted 
from an increase in the deposit balances of local school districts and commercial customers. Due to the somewhat 
cyclical nature associated with these deposits, we classified money market and NOW accounts in the “due within twelve
months” category. 

With respect to the increase in RSA maturing or repricing within a twelve month time horizon, loans, net increased $43.4 
million while investment securities decreased $27.0 million. Short-term interest rates increased faster than  longer-term 
rates during 2017 causing the yield curve to flatten.  In an effort to mitigate IRR in the investment portfolio and provide 
a source of liquidity, we chose to invest in fixed-rate, short-term and intermediate-term U.S. Government-sponsored 
agency securities and, to a lesser extent, longer-term municipal securities. The increase in loans, net of unearned income, 
resulted from an increase in commercial lending, which primarily involves loans with adjustable-rate terms that reprice 
in the near term. 

Static gap analysis, although a credible 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 and variations occur 
daily as we adjust our rate sensitivity throughout the year. Finally, assumptions must be made in constructing such a 
table. For example, the conservative nature of our Asset/Liability Management Policy assigns personal NOW accounts to 
the “Due after three months but within twelve months” repricing interval. In reality, these accounts may reprice less 
frequently and in different magnitudes than changes in general market interest rate levels. 

We utilize a simulation model to address the failure of the static gap model to address the dynamic changes in the 
balance sheet composition or prevailing interest rates and to enhance our asset/liability management. This 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 December 31, 
2017, would increase slightly at 0.6 percent from model results using current interest rates. 

We will continue to monitor our IRR position in 2018 and employ deposit and loan pricing strategies and direct the 
reinvestment of loan and investment payments and prepayments in order to maintain a favorable 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 our asset/liability management program. 

Liquidity: 

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

•(cid:1) Funding new and existing loan commitments; 

•(cid:1) Payment of deposits on demand or at their contractual maturity; 

•(cid:1) Repayment of borrowings as they mature; 

•(cid:1) Payment of lease obligations; and 

-45-

•(cid:1) Payment of operating expenses. 

Our liquidity position is impacted by several factors which include, among others, loan origination volumes, loan and 
investment maturity structure and cash flows, demand for core deposits and certificate of deposit maturity structure and 
retention. We manage these liquidity risks daily, thus enabling us to effectively monitor fluctuations in our position and 
to adapt our position according to market influence and balance sheet trends. We also forecast future liquidity needs and 
develop strategies to ensure adequate liquidity at all times. 

Historically, core deposits have been our 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. As a final source of liquidity, we 
have available borrowing arrangements with various financial intermediaries, including the FHLB-Pgh. At December 31, 
2017, our maximum borrowing capacity with the FHLB-Pgh was $631.8 million of which $173.4 million was 
outstanding in borrowings. We believe our liquidity is adequate to meet both present and future financial obligations and 
commitments on a timely basis. 

We maintain a Contingency Funding Plan to address liquidity in the event of a funding crisis. Examples of some of the 
causes of a liquidity crisis include, among others, natural disasters, war, events causing reputational harm and severe and 
prolonged asset quality problems. The Plan recognizes the need to provide alternative funding sources in times of crisis 
that go beyond our core deposit base. As a result, we have created a funding program that ensures the availability of 
various alternative wholesale funding sources that can be used whenever appropriate. Identified alternative funding 
sources include: 

•(cid:1) FHLB-Pgh liquidity contingency line of credit; 

•(cid:1) Federal Reserve Bank discount window; 

•(cid:1)

Internet certificates of deposit; 

•(cid:1) Brokered deposits; 

•(cid:1)

Institutional Deposit Corporation deposits; 

•(cid:1) Repurchase agreements; and 

•(cid:1) Federal funds purchased. 

We have increased our borrowing capacity at the Federal Reserve by establishing a Borrower-in-Custody of Collateral 
arrangement that enables us to pledge certain loans, not being used as collateral at the FHLB-Pgh, as collateral for 
borrowings at the Federal Reserve.  At December 31, 2017 our borrowing capacity at the Federal Reserve related to this 
program was $205.9 million and there were no amounts outstanding.

Based on our liquidity position at December 31, 2017, we do not anticipate the need to utilize any of these sources in the 
near term. 

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 illustrate our reliance on noncore funds to fund our investments and loans maturing after 
2017. At December 31, 2017, our noncore funds consisted of time deposits in denominations of $100 or more, 
repurchase agreements, short-term borrowings and long-term debt. Large denomination time deposits are particularly not 
considered to be a strong source of liquidity since they are very interest rate sensitive and are considered to be highly 
volatile. At December 31, 2017, our net noncore funding dependence ratio, the difference between noncore funds and 
short-term investments to long-term assets, was 16.1 percent. Our net short-term noncore funding dependence ratio, 
noncore funds maturing within one year, less short-term investments to long-term assets equaled 11.1 percent. 
Comparatively, our ratios equaled 14.4 percent and 6.5 percent at the end of 2016, which indicated an increase in our 
reliance on noncore funds. Moreover, our Basic Liquidity Surplus ratio, defined as liquid assets less short-term 

-46-

potentially volatile liabilities as a percentage of total assets, declined to 3.7 percent at December 31, 2017, from 4.2 
percent at December 31, 2016. We believe that by supplying adequate volumes of short-term investments and 
implementing competitive pricing strategies on deposits, we can ensure adequate liquidity to support future growth. 

The Consolidated Statements of Cash Flows present the change in cash and cash equivalents from operating, investing 
and financing activities. Cash and cash equivalents consist of cash on hand, cash items in the process of collection, 
noninterest-bearing and interest-bearing deposits with other banks and federal funds sold. Cash and cash equivalents 
decreased $2.5 million for the year ended December 31, 2017. For the year ended December 31, 2016, cash and cash 
equivalents increased $7.0 million. During 2017, cash provided by operating and financing activities was partially offset 
by cash used in investing activities. 

Operating activities provided net cash of $28.6 million in 2017 and $28.1 million in 2016. Net income, adjusted for the 
effects of noncash expenses such as depreciation, amortization and accretion of tangible and intangible assets and 
investment securities, and the provision for loan losses, is the primary source of funds from operations. 

Net cash provided by financing activities equaled $153.5 million in 2017. Net cash provided by financing activities was 
$165.3 million in 2016. Deposit gathering, which is our predominant financing activity, increased in both 2017 and 
2016. Deposit gathering provided a net cash inflow in 2017 of $130.3 million and $132.9 million in 2016. Short-term 
borrowings increased $41.0 million in 2017 while a net increase in short-term borrowings of $44.4 million led to the net 
cash provided by financing activities in 2016. Deposit gathering in 2017 was partially offset by $8.4 million repayments 
of long-term debt as well as cash dividends paid of $9.3 million. In 2016, deposit gathering was partially offset by a $2.2 
million repayment of long-term debt and cash dividends paid of $9.2 million.

Our primary investing activities involve transactions related to our investment and loan portfolios. Net cash used in 
investing activities totaled $184.6 million in 2017. Net cash used in investing activities was $186.4 million in 2016. Net 
cash used in lending activities was $163.2 million in 2017, a decrease from $195.4 million in 2016. Activities related to 
our investment portfolio used net cash of $16.4 million in 2017 and provided net cash of $20.1 million in 2016.

We anticipate our liquidity position to be stable in 2018. Based on our expansion in the Lehigh Valley market and 
expansion into King of Prussia, we are expecting loan demand to continue to be strong throughout 2018. We expect to 
fund such demand through deposit gathering, payments and prepayments on loans and investments and advances from 
the FHLB. Additionally, we anticipate a slowdown in deposit receipts from royalties related to the natural gas drilling 
industry. Moreover, if economic conditions were to weaken it may result in increased interest in bank deposits, as 
consumers continue to save rather than spend. However, we cannot predict the economic climate or the savings habits of 
consumers. Should economic conditions continue to improve, deposit gathering may be negatively impacted as 
depositors seek alternative investments in the market. Regardless of economic conditions and stock market fluctuations, 
we believe that through constant monitoring and adherence to our liquidity plan, we will have the means to provide 
adequate cash to fund our normal operations in 2018. 

Capital Adequacy: 

We believe a strong capital position is essential to our continued growth and profitability. We strive to maintain a 
relatively high level of capital to provide our depositors and stockholders with a margin of safety. In addition, a strong 
capital base allows us to take advantage of profitable opportunities, support future growth and provide protection against 
any unforeseen losses. 

Our ALCO continually reviews our capital position. As part of its review, the ALCO considers: (i) the current and 
expected capital requirements, including the maintenance of capital ratios in excess of minimum regulatory guidelines; 
(ii) potential changes in the market value of our securities due to interest rates changes and effect on capital; 
(iii) projected organic and inorganic asset growth; (iv) the anticipated level of net earnings and capital position, taking 
into account the projected asset/liability position and exposure to changes in interest rates; (v) significant deteriorations 
in asset quality; and (vi) the source and timing of additional funds to fulfill future capital requirements. 

Based on the recent regulatory emphasis placed on banks to assure capital adequacy, our Board of Directors annually 
reviews and approves a Capital Plan. Among other specific objectives, this comprehensive plan: (i) attempts to ensure 
that we and Peoples Bank remain well capitalized under the regulatory framework for prompt corrective action; 

-47-

(ii) evaluates our capital adequacy exposure through a comprehensive risk assessment; (iii) incorporates periodic stress 
testing in accordance with the Federal Reserve Board’s Supervisory Capital Assessment Program (“SCAP”); 
(iv) establishes event triggers and action plans to ensure capital adequacy; and (v) identifies realistic and readily 
available alternative sources for augmenting capital if higher capital levels are required. 

Bank regulatory agencies consider capital to be a significant factor in ensuring the safety of a depositor’s accounts. 
These agencies have adopted minimum capital adequacy requirements that include mandatory and discretionary 
supervisory actions for noncompliance. Our and Peoples Bank’s risk-based capital ratios are strong and have consistently 
exceeded the minimum regulatory capital ratios required for adequately capitalized institutions. Our ratio of Tier 1 
capital to risk-weighted assets and off-balance sheet items was 11.9 percent at December 31, 2017, and 12.5 percent at 
December 31, 2016. Our Total capital ratio was 13.0 percent at December 31, 2017 and 13.5 percent at December 31, 
2016. In addition, a new ratio effective January 1, 2015, requires the Company and Peoples Bank maintain a minimum 
common equity Tier 1 capital to risk-weighted assets of 4.5 percent.  Our and Peoples Bank’s common equity Tier I 
capital to risk-weighted assets ratios were 11.9 percent and 11.5 percent at December 31, 2017 and 12.5 percent and 12.1 
percent at December 31, 2016.  Our Leverage ratio, which equaled 9.9 percent at December 31, 2017 and 10.2 percent at 
December 31, 2016, exceeded the minimum of 4.0 percent for capital adequacy purposes. Peoples Bank reported Tier 1 
capital, Total capital and Leverage ratios of 11.5 percent, 12.6 percent and 9.7 percent at December 31, 2017, and 12.1 
percent, 13.2 percent and 9.9 percent at December 31, 2016. Based on the most recent notification from the FDIC, 
Peoples Bank was categorized as well capitalized at December 31, 2017 and 2016. There are no conditions or events 
since this notification that we believe have changed Peoples Bank’s category. For a further discussion of these risk-based 
capital standards and supervisory actions for noncompliance, refer to the note entitled, “Regulatory matters,” in the 
Notes to Consolidated Financial Statements to this Annual Report. 

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and 
changes required by the Dodd-Frank Act. The phase-in period for community banking organizations such as ours began 
January 1, 2015. For a further discussion of the incorporation of the revised regulatory requirements into the prompt 
corrective action framework, refer to the section entitled, “Supervision and Regulatory - Regulatory Capital Changes,” in 
Part I of this Annual Report. 

Stockholders’ equity was $265.0 million or $35.82 per share at December 31, 2017, and $256.6 million or $34.71 per 
share at December 31, 2016. Stockholders’ equity grew $8.4 million in 2017 as net income was partially offset by an 
increase in accumulated other comprehensive loss and dividends. 

We declared dividends of $1.26 per share in 2017 and $1.24 per share in both 2016 and 2015. The dividend payout ratio, 
dividends declared as a percent of net income, equaled 50.4 percent in 2017, 46.8 percent in 2016 and 52.5 percent in 
2015. Our board of directors intends to continue paying cash dividends in the future. The Penseco merger agreement 
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 sufficient funds are legally available, and 
that Peoples and Peoples Bank remain “well-capitalized” in accordance with applicable regulatory guidelines. Our ability 
to declare and pay dividends in the future, however, is based on our operating results, financial and economic conditions, 
capital and growth objectives, appropriate dividend restrictions and other relevant factors. We rely on dividends received 
from our subsidiary, Peoples Bank, for payment of dividends to stockholders. Peoples Bank’s ability to pay dividends is 
subject to federal and state regulations. For a further discussion on our ability to declare and pay dividends in the future 
and dividend restrictions, refer to the note entitled, “Regulatory matters,” in the Notes to Consolidated Financial 
Statements included in Part II, Item 8 of this Annual Report. 

On January 31, 2014, our board of directors adopted a common stock repurchase plan whereby we were authorized to 
repurchase up to 370,000 shares of our outstanding common stock through open market purchases.  This plan was 
reauthorized and effectively continued during 2016, resulting in our repurchase and retirement of 16,463 shares for $604 
thousand during the year.  On April 28, 2017, our board of directors again effectively continued the plan by authorizing 
the repurchase of up to 225,000 shares of our outstanding common stock through open market purchases. There were no 
additional purchases of our outstanding common stock during 2017.

-48-

Review of Financial Performance: 

Net income was $18.5 million or $2.50 per share in 2017 and $19.6 million or $2.65 per share in 2016. The results for 
2017 include a $2.3 million net gain on the sale of our merchant services business and a $2.6 million one time charge to 
the federal income tax provision related to the revaluation of our net deferred tax asset, while the 2016 results include net
gains of $0.6 million on the sale of investment securities. Return on average assets (“ROAA”) and return on average 
equity (“ROAE”) were 0.90 percent and 7.02 percent for the year ended December 31, 2017. ROAA was 1.02 percent 
and ROAE was 7.64 percent for the year ended December 31, 2016. 

Tax-equivalent net interest income was $68.9 million in 2017 and $65.2 million in 2016. Our net interest margin equaled 
3.69 percent in 2017 and 3.77 percent in 2016. Noninterest income totaled $17.2 million in 2017 and $15.9 million in 
2016. Noninterest expense was $51.3 million for the year ended December 31, 2017 compared to $48.0 million for the 
year ended December 31, 2016. Our productivity is measured by the operating efficiency ratio, defined as noninterest 
expense less amortization of intangible assets divided by the total of tax-equivalent net interest income and noninterest 
income. Our operating efficiency ratio was 58.4 percent in 2017. 

Net Interest Income: 

Net interest income is the fundamental source of earnings for commercial banks. Moreover, 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 and borrowings comprise interest-bearing liabilities. Net interest income is impacted by: 

•(cid:1) Variations in the volume, rate and composition of earning assets and interest-bearing liabilities; 

•(cid:1) Changes in general market interest rates; and 

•(cid:1) 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 average 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 
pretax 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 in this analysis on a tax-equivalent basis using the prevailing 
federal statutory tax rate. 

Similar to all banks, we consider the maintenance of an adequate net interest margin to be of primary concern. The 
current economic environment has been very challenging for the banking industry. In addition to market rates and 
competition, nonperforming asset levels are of particular concern for the banking industry and may place additional 
pressure on net interest margins. Nonperforming assets may stabilize or decrease given the improvements in the 
economy, particularly the labor markets. No assurance can be given as to how general market conditions will change or 
how such changes will affect net interest income. Therefore, we believe through prudent deposit and loan pricing 
practices, careful investing, and constant monitoring of nonperforming assets, our net interest margin will remain strong. 

We analyze interest income and interest expense by segregating rate and volume components of earning assets and 
interest-bearing liabilities. The impact changes in the interest rates earned and paid on assets and liabilities, along with 
changes in the volumes of earning assets and interest-bearing liabilities, have on net interest income are summarized as 
follows. The net change or mix component, attributable to the combined impact of rate and volume changes within 
earning assets and interest-bearing liabilities’ categories, has been allocated proportionately to the change due to rate and 
the change due to volume. 

-49-

Net interest income changes due to rate and volume 

Interest income:
Loans:

Taxable
Tax-exempt

Investments:

Taxable
Tax-exempt
Interest-bearing deposits
Federal funds sold

2017 vs 2016
Increase (decrease)
attributable to
Rate

Volume

Total

2016 vs 2015
Increase (decrease)
attributable to
Rate

Volume

Total

$ 5,044
203

$

(651)
(59)

$ 5,695
262

$ 5,898
1,046

$ (1,769)
(370)

$ 7,667
1,416

566
(677)
(44)

304
(127)
(23)

262
(550)
(21)

Total interest income

5,092

(556)

5,648

Interest expense:
Money market accounts
NOW accounts
Savings accounts
Time deposits less than $100
Time deposits $100 or more
Short-term borrowings
Long-term debt

Total interest expense
Net interest income

580
341
(190)
(5)
294
499
(72)
1,447
$ 3,645

390
172
(201)
47
165
437
19
1,029
$ (1,585)

190
169
11
(52)
129
62
(91)
418
$ 5,230

(678)
81

(10)
6,337

215
205
(107)
(127)
290
349
389
1,214
$ 5,123

244
(570)
60
(10)
(2,415)

137
83
(97)
(20)
112
39
(261)
(7)
$ (2,408)

(922)
651
(60)

8,752

78
122
(10)
(107)
178
310
650
1,221
$ 7,531

For the year ended December 31, tax-equivalent net interest income was $68.9 million in 2017 and $65.2 million in 
2016. There was a positive volume variance that was partially offset by a negative rate variance. The growth in average 
earning assets exceeded that of interest-bearing liabilities, and resulted in additional tax-equivalent net interest income of 
$5.2 million. A rate variance resulted in a decrease in net interest income of $1.6 million. 

Average earning assets increased $135.9 million to $1,864.9 million in 2017 from $1,729.0 million in 2016 and 
accounted for a $5,648 increase in interest income. Average loans, net increased $135.6 million, which caused interest 
income to increase $5,957. Average taxable investments increased $14.3 million comparing 2017 and 2016, which 
resulted in increased interest income of $262 while average tax-exempt investments decreased $13.2 million, which 
resulted in a decrease to interest income of $550. 

Average interest-bearing liabilities rose $104.2 million to $1,420.6 million in 2017 from $1,316.4 million in 2016 
resulting in a net increase in interest expense of $418. Large denomination time deposits averaged $13.8 million more in 
2017 and caused interest expense to increase $129.  A decrease of $4.9 million in average time deposits less than $100 
reduced interest expense by $52. In addition, interest-bearing transaction accounts, including money market, NOW and 
savings accounts grew $89.7 million, which in aggregate caused a $370 increase in interest expense. Short-term 
borrowings averaged $9.3 million more and increased interest expense $62 while long-term debt averaged $3.7 million 
less and decreased interest expense by $91 comparing 2017 and 2016. 

An unfavorable rate variance occurred, as the tax-equivalent yield on earning assets decreased three basis points while 
there was a six basis point increase in the cost of funds. As a result, tax-equivalent net interest income decreased $1,585 
comparing 2017 and 2016. The tax-equivalent yield on earning assets was 4.16 percent in 2017 compared to 4.19 percent 
in 2016 resulting in a reduction in interest income of $556. While the tax-equivalent yield on the investment portfolio 
decreased  five  basis  points  to  2.84 percent  in  2017  from  2.89 percent  in  2016,  interest  income increased  $177  due  to 
changes in the mix of investments. The tax-equivalent yield on the loan portfolio decreased four basis points to 4.39 percent 
in 2017 from 4.43 percent in 2016 and resulted in a reduction in interest income of $710. 

Unfavorable rate variances were experienced in earning asset yields as well as the cost of funds. We experienced 
increases in the rates paid on all major categories of interest-bearing liabilities with the exception of savings accounts. 

-50-

Specifically, the cost of money market and NOW accounts increased 16 basis points and 5 basis points comparing 2017 
and 2016. These increases resulted in an increase in interest expense of $562. The cost of savings accounts decreased 
five basis points, which resulted in a decrease of $201 in interest expense. With regard to time deposits, the average rate 
paid for time deposits less than $100 increased three basis points while time deposits $100 or more increased 14 basis 
points, which together resulted in a $212 increase in interest expense. The average rate paid on short-term borrowings 
increased 57 basis points in 2017 when compared to 2016, causing a $437 increase in interest expense. Interest expense 
increased $19 from a four basis point increase in the average rate paid on long-term debt.

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 35.0 percent.

-51-

Summary of net interest income 

Assets:
Earning assets:
Loans:

Taxable
Tax-exempt

Investments:

Taxable
Tax-exempt
Interest-bearing deposits
Federal funds sold

Total earning assets
Less: allowance for loan losses
Other assets

Total assets

Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Money market accounts
NOW accounts
Savings accounts
Time deposits less than $100
Time deposits $100 or more
Short-term borrowings
Long-term debt

Total interest-bearing 
liabilities
Noninterest-bearing deposits
Other liabilities
Stockholders’ equity

Total liabilities and 
stockholders’ equity
Net interest income/spread
Net interest margin

Tax-equivalent adjustments:
Loans
Investments

Total adjustments

2017

2016

Average
Balance

Interest Income/
Expense

Average
Interest
Rate

Average
Balance

Interest Income/
Expense

Average
Interest
Rate

$ 1,479,387
112,594

$

64,946
4,866

4.39 % $ 1,349,797
106,544
4.32

$

59,902
4,663

4.44 %
4.38

161,643
110,788
500

1,864,912
17,673
212,845
$ 2,060,084

$

262,292
345,383
398,104
157,397
125,220
76,846
55,342

1,420,584
361,386
15,064
263,050

$ 2,060,084

3,130
4,612
5

77,559

1,434
1,549
503
1,698
1,265
901
1,348

8,698

1.94
4.16
1.00

147,329
123,942
1,432

4.16 % 1,729,044
14,781
204,222
$ 1,918,485

0.55 % $
0.45
0.13
1.08
1.01
1.17
2.44

219,265
305,156
391,631
162,286
111,405
67,553
59,066

0.61 % 1,316,362
330,295
15,469
256,359

$ 1,918,485

2,564
5,289
49

1.74
4.27
3.42

72,467

4.19 %

854
1,208
693
1,703
971
402
1,420

0.39 %
0.40
0.18
1.05
0.87
0.60
2.40

7,251

0.55 %

$

$

$

68,861

3.55 %
3.69 %

1,703
1,614
3,317

$

$

$

65,216

3.64 %
3.77 %

1,632
1,851
3,483

Note: Average balances were calculated using average daily balances. Interest income on loans includes fees of $1,469 
in 2017, $1,085 in 2016 and $1,177 in 2015. 

-52-

Assets:
Earning assets:
Loans:

Taxable
Tax-exempt

Investments:

Taxable
Tax-exempt
Interest-bearing deposits
Federal funds sold

Total earning assets
Less: allowance for loan losses
Other assets

Total assets

Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Money market accounts
NOW accounts
Savings accounts
Time deposits less than $100
Time deposits $100 or more
Short-term borrowings
Long-term debt

Total interest-bearing liabilities

Noninterest-bearing deposits
Other liabilities
Stockholders’ equity

Total liabilities and stockholders’ equity
Net interest income/spread
Net interest margin

Tax-equivalent adjustments:
Loans
Investments

Total adjustments

Provision for Loan Losses: 

2015

Average
Balance

Interest Income/
Expense

Average
Interest
Rate

54,004
3,617

3,242
5,208
49
10
66,130

639
1,003
800
1,830
681
53
1,031
6,037

4.57 %
4.83

1.61
4.75
0.81
0.26
4.19 %

0.32 %
0.37
0.20
1.06
0.76
0.39
3.06
0.51 %

$ 1,180,610
74,956

$

201,663
109,575
6,049
3,915
1,576,768
11,392
179,173
$ 1,744,549

$

197,129
273,792
396,606
172,830
90,030
13,480
33,644
1,177,511
303,647
14,695
248,696
$ 1,744,549

$

$

$

60,093

3.68 %
3.81 %

1,266
1,823
3,089

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, volume 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 an appropriate level. The 
provision for loan losses equaled $4,800 in 2017 and $5,000 in 2016. A lower provision for loan losses is the product 
of improving asset quality throughout 2017. Consumer loans experienced an increase in the qualitative factors for 
asset quality while commercial loans experienced an increase in the qualitative factor for concentration levels.  Based 
on our most recent evaluation at December 31, 2017, we believe that the allowance was adequate to absorb any 
known or potential losses in our portfolio.

-53-

Noninterest Income: 

Our noninterest income increased $1,298 or 8.2 percent to $17.2 million in 2017 from $15.9 million in 2016. We 
realized a $2.3 million net gain on the sale of our merchant services business in 2017 while the 2016 results include net 
gains of $0.6 million on the sale of investment securities. Revenue received from service charges, fees and commissions 
increased $1,228 or 20.1 percent comparing 2017 and 2016, due in part to fees generated on interest rate swap 
transactions which we began entering into during the third quarter of 2017. Swap transactions resulted in the recognition 
of net fee income of $749 thousand. These interest rate swaps allowed the bank to retain large commercial credit 
relationships. Commissions and fees on fiduciary activities increased $81 or 4.1 percent comparing 2017 and 2016 due to 
an increase in executor fees. Wealth management income increased $113 or 8.7 percent comparing 2017 to 2016 as the 
plan to accelerate growth continued throughout 2017. Offsetting the increase were lower revenues received from 
merchant services of $1,656 due to the sale of our merchant services business in the second quarter of 2017. Mortgage 
banking income decreased $101 or 11.4 percent in 2017 compared to 2016 due to the leveling off of volumes which were 
driven by the increase in market rates. Income from investment in life insurance decreased $22 or 2.8 percent to $769 in 
2017 from $791 in 2016. 

Noninterest Expense: 

In general, our noninterest expense is categorized into three main groups, including employee-related expense, 
occupancy and equipment expense 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 
marketing, other taxes, stationery and supplies, contractual services, insurance, including FDIC assessment and loan 
collection costs. Several of these costs and expenses are variable while the remainder is fixed. We utilize budgets and 
other related strategies in an effort to control the variable expenses. 

The major components of noninterest expense for the past three years are summarized as follows: 

Noninterest expense 

Year ended December 31
Salaries and employee benefits expense:
Salaries and payroll taxes
Employee benefits

Salaries and employee benefits expense

Occupancy and equipment expenses:
Occupancy expense
Equipment expense

Occupancy and equipment expenses

Other expenses:
Merchant transaction expense
FDIC insurance and assessments
Professional fees and outside services
Other taxes
Stationery and supplies
Advertising
Amortization of intangible assets
Donations
Other

Other expenses

Total noninterest expense

2017

2016

2015

$ 22,271
4,399
26,670

$ 18,655
3,779
22,434

$ 18,116
3,417
21,533

5,632
4,343
9,975

5,284
4,138
9,422

5,551
3,553
9,104

1,808
826
2,277
691
749
942
1,034
1,188
5,133
14,648
$ 51,293

2,993
1,101
2,128
767
736
972
1,186
1,006
5,285
16,174
$ 48,030

2,643
997
2,211
973
744
736
1,195
740
5,903
16,142
$ 46,779

Noninterest expense was $51.3 million for the year ended December 31, 2017 compared to $48.0 million for the year 
ended December 31, 2016. 

-54-

Salaries and employee benefits expense constitute the majority of our noninterest expenses accounting for 52.0 percent 
of the total noninterest expense. Salaries and employee benefits expense increased $4,236 or 18.9 percent to $26.7 
million in 2017 from $22.4 million in 2016. Salaries and payroll taxes increased $3,616 or 19.4 percent, while employee 
benefits expense increased $620 or 16.4 percent. Severances paid out in the first half of 2016 along with the addition of 
salaries and benefit costs associated with our further expansion in the Lehigh Valley with the opening of two new 
community banking offices during 2017 and a full year at our King of Prussia branch office provided the majority of the 
increase. 

Occupancy and equipment expense increased $553 or 5.9 percent to $10.0 million in 2017 from $9.4 million in 2016. 
Specifically, building-related costs increased $348 or 6.6 percent while equipment-related costs increased $205 or 5.0 
percent. The increases in occupancy and equipment-related expenses were driven by costs associated with the opening of 
our new community banking offices on Tilghman Street in West Allentown, PA and Emrick Boulevard in Bethlehem, 
PA. 

Other expenses, which consist of merchant transaction expense, FDIC insurance and assessments, professional fees and 
outside services, other taxes, stationary and supplies, advertising, amortization of intangible assets and all other expenses
were $14.6 million in 2017 and $16.2 million in 2016. Merchant transaction expenses decreased $1,185 or 40.0 percent to 
$1,808 due to the sale of our merchant business in the second quarter of 2017. All other expenses, including FDIC insurance 
and assessments, professional fees and outside services, other taxes, stationery and supplies, advertising and amortization 
of intangible assets and other expenses totaled $12,840 in 2017, a decrease of $341 or 2.6 percent, compared to $13,181 
in 2016. 

Income Taxes: 

Our income tax expense was $8.2 million in 2017 and $5.0 million in 2016. On December 22, 2017, President Donald 
Trump signed into law H.R. 1, also known as the Tax Cuts and Jobs Act, which among other things reduced the federal 
corporate income tax rate to 21% effective January 1, 2018. As a result, and in accordance with accounting principles 
generally accepted in the United States of America (“GAAP”), we concluded that deferred tax assets, net had to be 
revalued. Our deferred tax assets, net represents expected corporate tax benefits anticipated to be realized in the future.  
The reduction in the federal corporate income tax rate reduces these anticipated future benefits.  The revaluation of the 
our deferred tax assets, net at December 31, 2017 resulted in a reduction of these net assets and a corresponding increase 
in income tax expense of $2.6 million or $0.35 per share, which was recorded in the fourth quarter of 2017. The 
remainder of the increase resulted from higher before tax income in 2017 compared to 2016. We utilize loans and 
investments of tax-exempt organizations to mitigate our tax burden, as interest revenue from these sources is not taxable 
by the federal government. Without regard to the one-time deferred tax adjustment, our effective tax rate increased 
slightly to 20.9 percent in 2017, compared to 20.4 percent in 2016.

The effective tax rate in 2017 and 2016 was also influenced by the recognition of investment tax credits related to our 
limited partnership investments in elderly and low- to moderate-income residential housing programs which allow us to 
mitigate our tax burden. By utilizing these credits, we reduced our income tax expense by $1.1 million in both 2017 and 
2016. We anticipate investment tax credits from these investments to be $1.1 million in 2018 as well. Over the next 
seven years, we will recognize aggregate tax credits from our investments in these projects of $6.7 million. 

-55-

Management’s Discussion and Analysis 2016 versus 2015
(Dollars in thousands, except per share data) 

Operating Environment: 

The United States economy slowed in 2016, as the gross domestic product (“GDP”), the value of all goods and services 
produced in the Nation, came in at an annual rate of 1.9 percent in the fourth quarter, compared to 3.5 percent in the third 
quarter. The economy grew at 1.6 percent for all of 2016, the worst performance since 2011, after growing at a rate of 
2.6 percent in 2015. Again in 2016, the Federal Reserve Board’s Federal Open Market Committee (“FOMC”) remained 
on hold for the majority of the year, keeping the target federal funds rate at a range of .25% to .50%. At their December 
2016 meeting, the FOMC raised interest rates for the first time in 2016, when they voted to set the new target federal 
funds rate at a range of .50% to .75%, a 25 basis point increase. The FOMC stated at this meeting that they expected 
economic conditions to continue to improve and targeted 3 additional rate hikes in 2017.

Inflation picked up somewhat in 2016, as the consumer price index (“CPI”) registered 2.1 percent for 2016, just eclipsing 
the FOMC’s benchmark of 2.0 percent. The CPI was 0.7 percent in 2015. Moreover, the core personal consumption 
expenditure price index, which ignores food and energy, averaged 2.2 percent in 2016. 

On a national level, employment conditions improved in 2016. The civilian labor force increased 1.7 million, while the 
number of people employed increased 2.1 million in 2016. As a result, the annual unemployment rate for the U.S. fell in 
2016 when compared to 2015. All sectors of employment, with the exception of manufacturing, reported employment 
gains from the end of 2015. 

National, Pennsylvania, New York and our market area’s non-seasonally-adjusted annual unemployment rates in 2016 
and 2015, are summarized as follows: 

United States
New York
Pennsylvania
Broome County
Bucks County
Lackawanna County
Lehigh County
Luzerne County
Monroe County
Montgomery County
Northampton County
Susquehanna County
Wayne County
Wyoming County

2015

2016
4.9 % 5.3 %
4.9
5.4
5.4
4.6
5.7
5.5
6.4
6.3
4.2
5.4
5.5
5.8
6.2 % 5.9 %

5.3
5.1
6.0
4.5
5.6
5.3
6.2
6.4
4.0
—
5.4
5.5

Employment conditions deteriorated for the Commonwealth of Pennsylvania in 2016 as evidenced by an increase in the 
unemployment rate to 5.4 percent in 2016 from 5.1 percent in 2015. Conversely, the unemployment rate for New York 
State dropped to 4.9 percent in 2016, from 5.3 percent in 2015. With respect to the markets we serve, the unemployment 
rate increased in eight of the counties in which we have branches or ATM locations, remained the same in one and 
decreased in one. The lowest unemployment rate in 2016, for all of the counties we serve, was Montgomery County at 
4.2 percent. The slight downturn in employment figures in a majority of our markets could have a negative impact on 
loan performance. 

With respect to the banking industry, net income for all Federal Deposit Insurance Corporation (“FDIC”)-insured banks 
in 2016 totaled $171.7 billion, an increase of $7.8 billion or 4.8 percent from 2015. Approximately 65.2 percent of all 
institutions reported higher net income in 2016, while only 4.2 percent reported net losses. This is the lowest annual 
proportion of unprofitable institutions for the industry since 2004. Loan loss provisions of $47.8 billion in 2016 were 
$10.7 billion or 28.8 percent more than banks set aside in 2015. This is the second consecutive year that loan loss 
provisions have been higher than the preceding year, and the total allocation for 2015 was the largest amount since 2012. 

-56-

Net interest income increased for the third year in a row, by $29.8 billion or 6.9 percent. Noninterest income was $0.8 
billion or 0.3 percent below the level of 2015, as servicing fee income decreased by $0.8 billion or 7.4 percent. Realized 
gains on sales of loans were $1.9 billion or 14.0 percent higher than a year ago. Total noninterest expense decreased $5.1 
billion or 1.2 percent comparing 2016 and 2015. The average return on average assets for 2016 was 1.04 percent, 
unchanged from 2015. 

The United States economy continued to improve in 2016. An improving economy could affect future interest rates 
which may adversely impact bank earnings as net interest margins compress from the inability of management to keep 
fund costs low. Continuous expense control, sound balance sheet management and lower loan loss provisions could 
offset some of the negative impact of the reduction in net interest margins. 

Review of Financial Position: 

Total assets, loans and deposits were $2.0 billion, $1.5 billion and $1.6 billion, respectively, at December 31, 2016. Total 
assets, loans and deposits grew 9.9 percent, 14.3 percent and 9.1 percent, respectively, compared to 2015 year-end 
balances. 

The loan portfolio consisted of $1.1 billion of business loans, including commercial and commercial real estate loans, 
and $424.0 million in retail loans, including residential mortgage and consumer loans at December 31, 2016. Total 
investment securities were $269.9 million at December 31, 2016, including $259.4 million of investment securities 
classified as available-for sale and $10.5 million classified as held-to-maturity. Total deposits consisted of $353.7 
million in noninterest-bearing deposits and $1.2 billion in interest-bearing deposits at December 31, 2016

Stockholders’ equity equaled $256.6 million, or $34.71 per share, at December 31, 2016, and $248.8 million, or $33.57 
per share, at December 31, 2015. Our equity to asset ratio was 12.83 percent and 13.68 percent at those respective period 
ends.  Dividends declared for 2016 amounted to $1.24 per share representing 46.8 percent of net income. 

Nonperforming assets equaled $14.2 million or 0.93 percent of loans, net and foreclosed assets at December 31, 2016, up 
from $12.5 million or 0.93 percent at December 31, 2015. The allowance for loan losses equaled $16.0 million or 1.04 
percent of loans, net, at December 31, 2016, compared to $13.0 million or 0.97 percent at year-end 2015. Loans charged-
off, net of recoveries equaled $2.0 million or 0.14 percent of average loans in 2016, compared to $1.1 million or 0.08 
percent of average loans in 2015. 

Investment Portfolio: 

Primarily, our investment portfolio provides a source of liquidity needed to meet expected loan demand and generates a 
reasonable return in order to increase our profitability. Additionally, we utilize the investment portfolio to meet pledging 
requirements and reduce income taxes. At December 31, 2016, our portfolio consisted primarily of short-term U.S. 
Treasury and Government agency securities, which provide a source of liquidity and intermediate-term, tax-exempt state 
and municipal obligations, which mitigate our tax burden.

Investment securities decreased $27.1 million, to $269.9 million at December 31, 2016, from $297.0 million at 
December 31, 2015. At December 31, 2016, the investment portfolio consisted of $259.4 million of investment securities 
classified as available-for-sale and $10.5 million classified as held-to-maturity. Strong loan demand during the first three 
quarters of 2016 resulted in using a portion of the investment cash flow to fund loans. Excess cash flow from investment 
payments and repayments was directed back into the investment portfolio in the fourth quarter of 2016. Security 
purchases totaled $62.0 million in 2016, with the majority of the purchases consisting of short-term U.S. Treasury 
securities and intermediate- term U.S. government sponsored enterprises securities. Investment purchases in 2015 
amounted to $90.4 million. 

Repayments of investment securities totaled $54.7 million in 2016 and $60.8 million in 2015. We received proceeds of 
$27.4 million from the sale of investment securities in 2016 and $82.0 million in 2015. Net gains recognized on the sale 
of investment securities available-for-sale totaled $623 in 2016 and $1,189 in 2015. The 2016 sales consisted of $17.1 
million of short-term U.S. Government-sponsored enterprises securities and $10.3 million of short-term U.S. Treasury 
securities. We continually analyze the investment portfolio with respect to its exposure to various risk elements. 

-57-

Investment securities averaged $271.3 million and equaled 15.7 percent of average earning assets in 2016, compared to 
$311.2 million and equaled 19.7 percent of average earning assets in 2015. The tax-equivalent yield on the investment 
portfolio increased eighteen basis points to 2.89 percent in 2016 from 2.71 percent in 2015. 

Loan Portfolio: 

Loans, net increased $192.1 million or 14.3 percent in 2016 to $1.5 billion at December 31, 2016. Business loans, 
including commercial loans and commercial real estate loans, were $1.1 billion or 72.3 percent of loans, net at 
December 31, 2016, and $933.0 million or 69.6 percent at year-end 2015. Residential mortgages and consumer loans 
totaled $424.0 million or 27.7 percent of loans, net at year-end 2016 and $407.8 million or 30.4 percent at year-end 2015. 
Loan growth remained strong throughout 2016.  Loans, net grew at an annual rate of 14.3 percent in 2016.  More than 
half of the increase in loans in 2016 was attributable to the continued growth fostered by our entrance into the Lehigh 
Valley market during the fourth quarter of 2014 by establishing a community banking office with a dedicated team of 
commercial and retail lenders. Additional growth was attained through our entrance into the King of Prussia market 
initially by establishing a loan production office and then by opening a retail branch in the fourth quarter of 2016. The 
remainder of such growth was generated from improved demand for business lending in existing markets. Based on the 
customer service oriented philosophy of our organization along with the commitment of these employees, we expect to
be as well received in this new market as we are in our existing markets. 

Loans averaged $1.5 billion in 2016, compared to $1.3 billion in 2015. Taxable loans averaged $1.4 billion, while tax-
exempt loans averaged $107.0 million in 2016. Due to improving loan demand, the loan portfolio continues to play a 
prominent role in our earning asset mix. As a percentage of earning assets, average loans equaled 84.2 percent in 2016, 
an increase from 79.6 percent in 2015. 

Asset Quality: 

We experienced a slight decrease in our asset quality as evidenced by an increase in nonperforming assets of $1.7 million 
or 14.0 percent to $14.2 million or 0.93 percent of loans, net of unearned income, and foreclosed assets at December 31, 
2016, from $12.5 million or 0.93 percent of loans, net of unearned income, and foreclosed assets at the end of 2015. The 
increase resulted from a $3.2 million increase in nonaccrual loans, offset by a $564 decrease in foreclosed assets and by a 
decrease of $952 in troubled debt restructured loans.  For a further discussion of assets classified as nonperforming assets 
and potential problem loans, refer to the note entitled, “Loans, net and the allowance for loan losses,” in the Notes to 
Consolidated Financial Statements to this Annual Report. 

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

The allowance for loan losses increased $3.0 million to $16.0 million at December 31, 2016, from $13.0 million at the 
end of 2015. The increase resulted from a provision for loan losses of $5.0 million exceeding net loans charged-off of 
$2.0 million. The allowance for loan losses, as a percentage of loans, net of unearned income, was 1.04 percent at the 
end of 2016, compared to 0.97 percent at the end of 2015.  

Past due loans not satisfied through repossession, foreclosure or related actions are evaluated individually to determine if 
all or part of the outstanding balance should be charged against the allowance for loan losses account. Any subsequent 
recoveries are credited to the allowance account. Net loans charged-off increased $951 to $2,014 in 2016 from $1,063 in 
2015. Net charge-offs, as a percentage of average loans outstanding, equaled 0.14 percent in 2016 and 0.08 percent in 
2015. 

-58-

The allocated element of the allowance for loan losses account increased $3,009 to $15,961 at December 31, 2016, 
compared to $12,952 at December 31, 2015. The specific portion of the allowance for loan losses decreased while the 
formula portions of the allowance for loan losses increased from the end of 2015. The specific portion of the allowance 
for impairment of loans individually evaluated under FASB ASC 310 decreased $305 to $1,942 at December 31, 2016, 
from $2,247 at December 31, 2015. However, the formula portion of the allowance for loans collectively evaluated for 
impairment under FASB ASC 450, increased $3,314 to $14,019 at December 31, 2016, from $10,705 at December 31, 
2015. The decrease in the specific portion of the allowance was a result of a decrease in the calculated allowance on
loans considered impaired despite an increase in the amount of impaired loans designated with a related allowance. The 
increase in the formula portion was due to higher loan volume and the relatively unchanged overall loss factor. 

There was no unallocated element of the total allowance for loan losses at December 31, 2016.  As is inherent with all 
estimates, the allowance for loan losses methodology is subject to a certain level of imprecision as it provides reasonable, 
but not absolute, assurance that the allowance will be able to absorb probable losses, in their entirety, as of the financial 
statement date.  Factors, among others, including judgments made in identifying those loans considered impaired, 
appraisals of collateral values and measurements of certain qualitative factors, all cause this imprecision and support the 
establishment of the unallocated element.  

The coverage ratio, the allowance for loan losses account, as a percentage of nonperforming loans, is an industry ratio 
used to test the ability of the allowance account to absorb potential losses arising from nonperforming loans. The 
coverage ratio was 115.5 percent at December 31, 2016 and 112.8 percent at December 31, 2015. We believe that our 
allowance was adequate to absorb probable credit losses at December 31, 2016. 

Deposits: 

Our deposit base is the primary source of funds to support our operations. We offer a variety of deposit products to meet 
the needs of our individual and commercial customers. Total deposits grew $132.9 million or 9.1 percent to $1.6 billion 
at the end of 2016. Noninterest-bearing deposits grew $32.7 million or 10.2% while interest-bearing deposits increased 
$100.2 million or 8.8% in 2016. Noninterest-bearing deposits represented 22.3 percent of total deposits while interest-
bearing deposits accounted for 77.7 percent of total deposits at December 31, 2016. Comparatively, noninterest-bearing 
deposits and interest-bearing deposits represented 22.0 percent and 78.0 percent of total deposits at year end 2015. With 
regard to noninterest-bearing deposits, personal checking accounts increased $9.6 million or 5.6 percent, while 
commercial checking accounts increased $23.1 million or 15.3 percent. The increase in noninterest-bearing deposits is 
essential in attempting to keep our overall cost of funds low given the pressure on our net interest margin from the 
continuation of the low interest rate environment. 

With regard to interest-bearing deposits, interest-bearing transaction accounts, which include money market accounts, 
NOW accounts, and savings accounts, increased $86.5 million in 2016. Commercial interest-bearing transaction 
accounts increased $70.4 million, while personal interest-bearing transaction accounts increased $16.1 million. The 
increase in personal accounts was primarily due to increases in NOW and money market accounts of $7.9 million and 
savings accounts of $8.2 million. The strong growth in the commercial account types was due to our strategic initiative 
to grow our public fund deposits. Total time deposits increased $13.7 million to $285.7 million at December 31, 2016 
from $272.0 million at December 31, 2015. The increase was primarily due to a promotional premium rate offered on a 
time deposit with a maturity slightly over one year. 

Total deposits averaged $1.5 billion in 2016 and $1.4 billion in 2015, increasing $86.0 million or 6.0 percent comparing 
2016 to 2015. Average noninterest-bearing deposits increased $26.7 million, while average interest-bearing accounts 
grew $59.3 million. Average interest-bearing transaction deposits, including money market, NOW and savings accounts, 
increased $48.5 million while average total time deposits increased $10.8 million when comparing 2016 and 2015. 

Our cost of interest-bearing deposits increased 2 basis points to 0.46 percent in 2016 from 0.44 percent in 2015. 
Specifically, the cost of interest-bearing transaction accounts increased 2 basis points to 0.30 percent while the cost of 
time deposits increased 2 basis points to 0.98 percent comparing 2016 and 2015. The increases to the cost of interest-
bearing transaction deposits and to the cost of time deposits was due to the introduction of premium rate deposit specials 
at our new branch office in Kingston and our branch office in the Lehigh Valley in 2016.

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Volatile deposits, time deposits $100 or more, averaged $111.0 million in 2016, an increase of $21.0 million or 
23.7 percent from $90.0 million in 2015. Our average cost of these funds increased 11 basis points to 0.87 percent in 
2016, from 0.76 percent in 2015. This type of funding is susceptible to withdrawal by the depositor as they are 
particularly price sensitive and are therefore not considered to be a strong source of liquidity. 

Market Risk Sensitivity: 

With respect to evaluating our exposure to IRR on earnings, we utilize a gap analysis model that considers repricing 
frequencies of RSA and RSL. 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 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. 

At December 31, 2016 and 2015, we had cumulative one-year RSA/RSL ratios of 1.28 and 1.43. As previously 
mentioned, this indicated that if interest rates increase, our earnings would likely be favorably impacted. Given current 
improvement in economic conditions and the recent action of the FOMC to raise short-term rates 25 basis points and 
their consideration to continue to raise short-term rates in the 2017, the focus of ALCO has been to maintain the positive 
gap position in order to safeguard future earnings from the potential risk of rising interest rates. During 2016 ALCO took 
steps to reduce the magnitude of our positive gap position and guard against rates unchanged through the origination of 
five year fixed rate loans and purchase of intermediate-term investment securities.  ALCO will continue to focus efforts 
on strategies in 2017 in an attempt to maintain a positive gap position between RSA and RSL. However, these forward-
looking statements are qualified in the aforementioned section entitled “Forward-Looking Discussion” in this 
Management’s Discussion and Analysis. 

The change in our cumulative one-year ratio from the previous year-end resulted from a $137.0 million or 28.2 percent 
increase in RSL coupled with a $98.4 million or 14.1 percent increase in RSA maturing or repricing within one year. The 
increase in RSL resulted primarily from a $92.6 million increase in interest-bearing transaction accounts and an increase 
in short-term borrowings of $44.4 million. The majority of the growth in money market and NOW accounts resulted 
from an increase in the deposit balances of local school districts and certain commercial customers. Due to the somewhat 
cyclical nature associated with these deposits, we classified money market and NOW accounts in the “due within twelve 
months” category. 

With respect to the increase in RSA maturing or repricing within a twelve month time horizon, loans, net increased 
$102.3 million while investment securities remained relatively constant. Although short-term interest rates began to 
increase during 2016, long-term interest rates fell causing a flattening in the yield curve. In an effort to mitigate IRR in 
the investment portfolio and provide a source of liquidity, we chose to invest in fixed-rate, short-term U.S. Government-
sponsored agency securities. The increase in loans, net of unearned income, resulted from an increase in commercial 
lending, which primarily involves loans with adjustable-rate terms that reprice in the near term. 

Liquidity: 

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 illustrate our reliance on noncore funds to fund our investments and loans maturing after 
2016. At December 31, 2016, our noncore funds consisted of time deposits in denominations of $100 or more, 
repurchase agreements, short-term borrowings and long-term debt. Large denomination time deposits are particularly not 
considered to be a strong source of liquidity since they are very interest rate sensitive and are considered to be highly 
volatile. At December 31, 2016, our net noncore funding dependence ratio, the difference between noncore funds and 
short-term investments to long-term assets, was 14.4 percent. Our net short-term noncore funding dependence ratio, 
noncore funds maturing within one year, less short-term investments to long-term assets equaled 6.5 percent. 
Comparatively, our ratios equaled 11.3 percent and 4.1 percent at the end of 2015, which indicated an increase in our
reliance on noncore funds. Moreover, our Basic Liquidity Surplus ratio, defined as liquid assets less short-term 
potentially volatile liabilities as a percentage of total assets, improved to 4.2 percent at December 31, 2016, from 1.6 

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percent at December 31, 2015. We believe that by supplying adequate volumes of short-term investments and 
implementing competitive pricing strategies on deposits, we can ensure adequate liquidity to support future growth. 

The Consolidated Statements of Cash Flows present the change in cash and cash equivalents from operating, investing 
and financing activities. Cash and cash equivalents consist of cash on hand, cash items in the process of collection, 
noninterest-bearing and interest-bearing deposits with other banks and federal funds sold. Cash and cash equivalents 
increased $7.0 million for the year ended December 31, 2016. For the year ended December 31, 2015, cash and cash 
equivalents increased $1.5 million. During 2016, cash provided by operating and financing activities was partially offset 
by cash used in investing activities. 

Operating activities provided net cash of $28.1 million in 2016 and $29.2 million in 2015. Net income, adjusted for the 
effects of noncash expenses such as depreciation, amortization and accretion of tangible and intangible assets and 
investment securities, and the provision for loan losses, is the primary source of funds from operations.

Net cash provided by financing activities equaled $165.3 million in 2016. Net cash provided by financing activities was 
$61.7 million in 2015. Deposit gathering, which is our predominant financing activity, increased in both 2016 and 2015. 
Deposit gathering provided a net cash inflow in 2016 of $132.9 million and $30.3 million in 2015. Short-term 
borrowings increased $44.4 million in 2016 while proceeds from long-term debt of $30.0 million and a net increase in 
short-term borrowings of $18.8 million lead to the net cash provided by financing activities in 2015. Deposit gathering in 
2016 was partially offset by $2.2 million repayments of long-term debt as well as cash dividends paid of $9.2 million. In 
2015, deposit gathering was partially offset by a $5.2 million decrease for the retirement of common stock, a $2.7
million repayment of long-term debt and cash dividends paid of $9.3 million.

Our primary investing activities involve transactions related to our investment and loan portfolios. Net cash used in 
investing activities totaled $186.4 million in 2016. Net cash used in investing activities was $89.4 million in 2015. Net 
cash used in lending activities was $195.4 million in 2016, an increase from $133.1 million in 2015. Activities related to 
our investment portfolio provided net cash of $20.1 million in 2016 and $52.4 million in 2015.

Capital Adequacy: 

Bank regulatory agencies consider capital to be a significant factor in ensuring the safety of a depositor’s accounts. 
These agencies have adopted minimum capital adequacy requirements that include mandatory and discretionary 
supervisory actions for noncompliance. Our and Peoples Bank’s risk-based capital ratios are strong and have consistently 
exceeded the minimum regulatory capital ratios required for adequately capitalized institutions. Our ratio of Tier 1 
capital to risk-weighted assets and off-balance sheet items was 12.5 percent at December 31, 2016, and 13.5 percent at 
December 31, 2015. Our Total capital ratio was 13.5 percent at December 31, 2016 and 14.5 percent at December 31, 
2015. In addition, a new ratio effective January 1, 2015, requires the Company and Peoples Bank maintain a minimum 
common equity Tier 1 capital to risk-weighted assets of 4.5 percent.  Our and Peoples Bank’s common equity Tier I 
capital to risk-weighted assets ratios were 12.5 percent and 12.1 percent at December 31, 2016 and 13.5 percent and 13.1 
percent at December 31, 2015.  Our Leverage ratio, which equaled 10.2 percent at December 31, 2016 and 10.8 percent 
at December 31, 2015, exceeded the minimum of 4.0 percent for capital adequacy purposes. Peoples Bank reported Tier 
1 capital, Total capital and Leverage ratios of 12.1 percent, 13.2 percent and 9.9 percent at December 31, 2016, and 13.1 
percent, 14.1 percent and 10.5 percent at December 31, 2015. Based on the most recent notification from the FDIC, 
Peoples Bank was categorized as well capitalized at December 31, 2016 and 2015. There are no conditions or events 
since this notification that we believe have changed Peoples Bank’s category. For a further discussion of these risk-based 
capital standards and supervisory actions for noncompliance, refer to the note entitled, “Regulatory matters,” in the 
Notes to Consolidated Financial Statements to this Annual Report. 

Stockholders’ equity was $256.6 million or $34.71 per share at December 31, 2016, and $248.8 million or $33.57 per 
share at December 31, 2015. Stockholders’ equity grew $7.8 million in 2016 as net income was partially offset by an 
increase in accumulated other comprehensive loss, dividends and the retirement of common shares. 

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Review of Financial Performance: 

Net income was $19.6 million or $2.65 per share in 2016 and $17.7 million or $2.36 per share in 2015. The results for 
2016 include net gains on sale of investment securities of $0.6 million compared to $1.2 million during 2015. Return on 
average assets (“ROAA”) and return on average equity (“ROAE”) were 1.02 percent and 7.64 percent for the year ended 
December 31, 2016. ROAA was 1.02 percent and ROAE was 7.13 percent for the year ended December 31, 2015. 

Tax-equivalent net interest income was $65.2 million in 2016 and $60.1 million in 2015. Our net interest margin equaled 
3.77 percent in 2016 and 3.81 percent in 2015. Noninterest income totaled $15.9 million in 2016 and $15.7 million in 
2015. Noninterest expense was $48.0 million for the year ended December 31, 2016 compared to $46.8 million for the 
year ended December 31, 2015. Our productivity is measured by the operating efficiency ratio, defined as noninterest 
expense less amortization of intangible assets divided by the total of tax-equivalent net interest income and noninterest 
income. Our operating efficiency ratio was 57.8 percent in 2016. 

Net Interest Income:

For the year ended December 31, tax-equivalent net interest income was $65.2 million in 2016 and $60.1 million in 
2015. There was a positive volume variance that was partially offset by a negative rate variance. The growth in average 
earning assets exceeded that of interest-bearing liabilities, and resulted in additional tax-equivalent net interest income of 
$7.5 million. A rate variance resulted in a decrease in net interest income of $2.4 million. 

Average earning assets increased $152.3 million to $1,729.0 million in 2016 from $1,576.8 million in 2015 and 
accounted for an $8,752 increase in interest income. Average loans, net increased $200.8 million, which caused interest 
income to increase $9,083. Average taxable investments decreased $54.3 million comparing 2016 and 2015, which 
resulted in decreased interest income of $922 while average tax-exempt investments increased $14.4 million, which 
resulted in an increase to interest income of $651. 

Average interest-bearing liabilities rose $138.9 million to $1,316.4 million in 2016 from $1,177.5 million in 2015 
resulting in a net increase in interest expense of $1,221. Large denomination time deposits averaged $21.4 million more 
in 2016 and caused interest expense to increase $178.  A decrease of $10.5 million in average time deposits less than 
$100 reduced interest expense by $107. In addition, interest-bearing transaction accounts, including money market, 
NOW and savings accounts grew $48.5 million, which in aggregate caused a $190 increase in interest expense. Short-
term borrowings averaged $54.1 million more and increased interest expense $310 and long-term debt averaged $25.4 
million more and increased interest expense by $650 comparing 2016 and 2015. 

An unfavorable rate variance occurred, as there was no change in the tax-equivalent yield on earning assets while there 
was a slight increase in the cost of funds. As a result, tax-equivalent net interest income decreased $7,531 comparing 2016 
and 2015. The tax-equivalent yield on earning assets remained level at 4.19 percent in 2016 resulting in a reduction in 
interest  income  of  $2,415.  While  the  tax-equivalent  yield  on  the  investment  portfolio  increased  18  basis  points  to 
2.89 percent in 2016 from 2.71 percent in 2015, interest income decreased $326 due to changes in the mix of investments. 
The tax-equivalent yield on the loan portfolio decreased 16 basis points to 4.43 percent in 2016 from 4.59 percent in 2015 
and resulted in a reduction in interest income of $2,139. The impact that lower reinvestment rates had on the tax-equivalent 
yield on the loan portfolio was partially mitigated by the recognition of loan fair value accretion resulting in an increase in 
the tax-equivalent net interest margin of 4 basis points in 2016. 

The unfavorable rate variance caused by changes in the earning asset yields was slightly offset by a decrease of $7 in 
interest expense, which primarily resulted from a favorable mix of lower cost funding. We experienced increases in the 
rates paid on all major categories of interest-bearing liabilities with the exception of savings accounts, time deposits of 
less than $100 and long-term debt. Specifically, the cost of money market and NOW accounts increased 7 basis points 
and 3 basis points comparing 2016 and 2015. These increases resulted in an increase in interest expense of $220. The 
cost of savings accounts decreased 2 basis points which resulted in an decrease of $97 in interest expense. With regard to 
time deposits, the average rate paid for time deposits less than $100 decreased 1 basis point while time deposits $100 or 
more increased 11 basis points, which together resulted in a $92 increase in interest expense. The average rate paid on 
short-term borrowings increased 21 basis points in 2016 when compared to 2015, causing a $39 increase in interest 
expense. Interest expense was reduced $261 from a 66 basis point decline in the average rate paid on long-term debt. 

-62-

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, volume 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 an appropriate level. The 
provision for loan losses equaled $5,000 in 2016 and $3,700 in 2015. The primary cause for the increase in the 
provision was an increase in the volume of loans originated. Commercial and consumer loans experienced an increase 
in the qualitative factor related to asset quality, while commercial real estate experienced an increase in the qualitative 
factor related to concentrations.  Partially offsetting these increases were decreases in the qualitative factors for 
residential real estate related to asset quality and loan balances.  Based on our most recent evaluation at December 31, 
2016, we believe that the allowance was adequate to absorb any known or potential losses in our portfolio.

Noninterest Income: 

Our noninterest income increased $169 or 1.1 percent to $15.9 million in 2016 from $15.7 million in 2015. Net gains on 
sale of investment securities were $623 in 2016 compared to $1,189 in 2015 an increase of $566 or 47.6 percent as we 
took advantage of fewer opportunities to sell U.S. Treasury securities at a gain as market yields increased in 2016. Revenue 
received from merchant services increased $344 or 8.9 percent to $4,199 in 2016 from $3,855 in 2015 due to an increase 
in the number of merchants serviced whom transact higher  volumes.  Wealth management income increased $453 or 
53.6 percent comparing 2016 to 2015 as the plan to accelerate growth, which began in 2015, was in effect for the entirety 
of 2016.  Mortgage banking income increased $13 or 1.5 percent in 2016 compared to 2015 due to the leveling off of 
volumes which were again driven by the increase in market rates.  Revenue received from service charges, fees and 
commissions decreased $129 or 2.1 percent comparing 2016 and 2015 due to lower overdraft and deposit fees. 
Commissions and fees on fiduciary activities increased $30 or 1.5 percent comparing 2016 and 2015 due to an increase 
in executor fees. Income from investment in life insurance increased $24 or 3.1 percent to $791 in 2016 from $767 in 
2015 due to additional life insurance contracts purchased in the first quarter of 2016. 

Noninterest Expense: 

Noninterest expense was $48.0 million for the year ended December 31, 2016 compared to $46.8 million for the year 
ended December 31, 2015. 

Salaries and employee benefits expense constitute the majority of our noninterest expenses accounting for 46.7 percent 
of the total noninterest expense. Salaries and employee benefits expense increased $901 or 4.2 percent to $22.4 million 
in 2016 from $21.5 million in 2015. Salaries and payroll taxes increased $539 or 3.0 percent, while employee benefits 
expense increased $362 or 10.6 percent. Severances paid out in the first half of 2016 along with the addition of salaries 
and benefit costs associated with our expansion into Kingston, Lehigh Valley, and King of Prussia provided the majority 
of the increase. 

Occupancy  and  equipment  expense  increased  $318  or  3.5 percent  to  $9.4  million  in  2016  from  $9.1  million  in  2015. 
Specifically, building-related costs decreased $267 or 4.8 percent while equipment-related costs increased $585 or 16.5 
percent. The increase in equipment-related expenses was driven by costs associated with the opening of our community 
banking office in Kingston, Pennsylvania as well as the expansion into King of Prussia. 

Other expenses, which consist of merchant transaction expense, FDIC insurance and assessments, professional fees and 
outside services, other taxes, stationary and supplies, advertising, amortization of intangible assets and all other expenses 
were $16.2 million in 2016 and $16.1 million in 2015. Merchant transaction expenses increased $350 or 13.2 percent to 
$2,993 in 2016 compared to $2,643 in 2015 due to an increase in the volume of transactions processed and the number of 
merchant accounts serviced. This is in direct correlation to the increase in income generated from merchant services. All 
other expenses, including FDIC insurance and assessments, professional fees and outside services, other taxes, stationery 
and supplies, advertising and amortization of intangible assets and other expenses totaled $13,181 in 2016, a decrease of 
$318 or 2.4 percent, compared to $13,499 in 2015. 

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Income Taxes: 

Our income tax expense was $5.0 million in 2016 and $4.5 million in 2015. The increase resulted from higher before tax 
income in 2016 compared to 2015. We utilize loans and investments of tax-exempt organizations to mitigate our tax 
burden, as interest revenue from these sources is not taxable by the federal government. Our effective tax rate increased 
slightly to 20.4 percent in 2016, compared to 20.3 percent in 2015.

The effective tax rate in 2016 and 2015 was also influenced by the recognition of investment tax credits related to our 
limited partnership investments in elderly and low- to moderate-income residential housing programs which allow us to 
mitigate our tax burden. By utilizing these credits, we reduced our income tax expense by $1.1 million in both 2016 and 
2015. We anticipate investment tax credits from these investments of $1.1 million in 2017. Over the next eight years, we 
will recognize aggregate tax credits from our investments in these projects of $7.8 million. 

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Item 7A.   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. 

During 2017, the Federal Reserve Board’s Federal Open Market Committee (“FOMC”) continued to gradually increase 
the target federal funds rate.  The FOMC continues to expect that, with gradual adjustments in the stance of monetary 
policy, economic activity will expand at a moderate pace and labor market conditions will remain strong.  At their 
December 2017 meeting, the FOMC raised interest rates for the third time in 2017 voting to set the new target federal 
funds rate at a range of 1.25% to 1.50%, a 25 basis point increase. The FOMC stated it(cid:1)expects that economic conditions 
will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to 
remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal 
funds rate will depend on the economic outlook as informed by incoming data.

The projected impact of instantaneous changes in interest rates on our net interest income and economic value of equity 
at December 31, 2017, based on our simulation model, is summarized as follows: 

Changes in Interest Rates (basis points)

+400
+300
+200
+100
Static
(100)

December 31, 2017
% Change in

Net Interest Income
Policy
Metric
(20.0)
0.9
(20.0)
0.9
(10.0)
0.8
(10.0)
0.6

Economic Value of Equity

Metric
1.4
1.3
0.8
1.5

Policy

(40.0)
(30.0)
(20.0)
(10.0)

(4.9)

(10.0)

(9.3)

(10.0)

Our simulation model creates pro forma net interest income scenarios under various interest rate shocks. Given 
instantaneous and parallel shifts in general market rates of plus 100 basis points, our projected net interest income for the 
12 months ending December 31, 2017, would increase slightly at 0.6 percent from model results using current interest 
rates. Additional disclosures about market risk are included in Part II, Item 7 of this Annual Report, under the heading 
“Market Risk Sensitivity,” and are incorporated into this Item 7A by reference.

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Item 8. Financial Statements. 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

Stockholders and Board of Directors 
Peoples Financial Services Corp. and Subsidiaries
Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of Peoples Financial Services Corp. and Subsidiaries (the 
"Company") as of December 31, 2017, and the related consolidated statements of income and comprehensive income, 
changes in stockholders’ equity, and cash flows, for the year then ended, and the related notes (collectively referred to as 
the "consolidated financial statements"). We also have audited the Company’s internal control over financial reporting as 
of December 31, 2017, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the 
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2017, and the results of its operations and its cash flows for the year then ended, in 
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the 
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 
2017, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinion

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal 
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, 
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is 
to express an opinion on the Company's consolidated financial statements and an opinion on the Company’s internal 
control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company 
Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the 
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities 
and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and 
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material 
misstatement, whether due to error or fraud and whether effective internal control over financial reporting was 
maintained in all material respects. 

-66-

Our audit of the consolidated financial statements included performing procedures to assess the risks of material 
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that 
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and 
disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used 
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated 
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of 
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such 
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis 
for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies 
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the 
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are 
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting 
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of 
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely 
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the 
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become 
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may 
deteriorate.

/s/ Baker Tilly Virchow Krause, LLP
Wilkes-Barre, Pennsylvania
We have served as the Company’s auditor since 2017.
March 14, 2018

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Board of Directors and Stockholders 
Peoples Financial Services Corp. 
Scranton, Pennsylvania 

We have audited the accompanying consolidated balance sheet of Peoples Financial Services Corp. and subsidiaries as of 
December 31, 2016 and the related consolidated statements of income and comprehensive income, changes in 
stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2016. These 
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express 
an opinion on these consolidated financial statements based on our audits. 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United 
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 
audits provide a reasonable basis for our opinion. 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial 
position of Peoples Financial Services Corp. and subsidiaries as of December 31, 2016, and the results of their operations 
and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting 
principles generally accepted in the United States of America. 

/s/ BDO USA, LLP 
Harrisburg, Pennsylvania 
March 16, 2017

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Peoples Financial Services Corp. 
CONSOLIDATED BALANCE SHEETS 
(Dollars in thousands, except share data) 

December 31
Assets:
Cash and due from banks:

Cash and due from banks
Interest-bearing deposits in other banks
Total cash and due from banks

Investment securities:

Available-for-sale
Held-to-maturity: Fair value December 31, 2017, $9,547; December 
31, 2016, $10,714      

Total investment securities

Loans, net

Less: allowance for loan losses

Net loans
Loans held for sale
Premises and equipment, net
Accrued interest receivable
Goodwill
Intangible assets, net
Other assets

Total assets

Liabilities:
Deposits:

Noninterest-bearing
Interest-bearing

Total deposits

Short-term borrowings
Long-term debt
Accrued interest payable
Other liabilities

Total liabilities

Stockholders’ equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and 
outstanding 7,396,505 shares at December 31, 2017 and 7,394,143 shares 
at December 31, 2016
Capital surplus
Retained earnings
Accumulated other comprehensive loss

Total stockholders’ equity
Total liabilities and stockholders’ equity

See notes to consolidated financial statements.

-69-

2017

2016

$

36,336
1,152
37,488

39,496
445
39,941

272,548

259,410

9,274
281,822
1,693,065
18,960
1,674,105
106
37,557
6,936
63,370
3,178
64,469
2,169,031

380,729
1,338,289
1,719,018
123,675
49,734
497
11,131
1,904,055

14,793
135,043
121,353
(6,213)
264,976
2,169,031

$

$

$

10,517
269,927
1,532,965
15,961
1,517,004

33,260
6,228
63,370
4,211
65,501
1,999,442

353,686
1,235,071
1,588,757
82,700
58,134
462
12,771
1,742,824

14,788
134,871
111,114
(4,155)
256,618
1,999,442

$

$

$

$

Peoples Financial Services Corp. 
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME 
(Dollars in thousands, except per share data) 

Year Ended December 31
Interest income:
Interest and fees on loans:

Taxable
Tax-exempt

Interest and dividends on investment securities:

Taxable
Tax-exempt
Dividends

Interest on interest-bearing deposits in other banks
Interest on federal funds sold

Total interest income

Interest expense:
Interest on deposits
Interest on short-term borrowings
Interest on long-term debt

Total interest expense
Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Noninterest income:
Service charges, fees and commissions
Merchant services income
Commission and fees on fiduciary activities
Wealth management income
Mortgage banking income
Life insurance investment income
Net gain on sale of investment securities available-for-sale
Net gain on sale of merchant services business

Total noninterest income

Noninterest expense:
Salaries and employee benefits expense
Net occupancy and equipment expense
Merchant services expense
Amortization of intangible assets
Professional fees and outside services
Donations
Other expenses

Total noninterest expense

Income before income taxes
Income tax expense

Net income

Other comprehensive loss:
Unrealized loss on investment securities available-for-sale
Reclassification adjustment for net gain on sales included in net income
Change in benefit plan liabilities
Other comprehensive loss
Income tax 

Other comprehensive loss, net of income taxes
Comprehensive income

Per share data:
Net income:
Basic
Diluted

Average common shares outstanding:

Basic
Diluted

Dividends declared

See notes to consolidated financial statements

-70-

2017

2016

2015

$

64,946
3,163

$

59,902
3,031

$

2,949
2,999
52
133

2,515
3,438
48
50

74,242

68,984

54,004
2,351

3,207
3,385
35
49
10
63,041

4,953
53
1,031
6,037
57,004
3,700
53,304

6,245
3,855
1,946
845
872
767
1,189

5,429
402
1,420
7,251
61,733
5,000
56,733

6,116
4,199
1,976
1,298
885
791
623

15,888

15,719

22,434
9,422
2,993
1,186
2,128
1,006
8,861
48,030
24,591
5,008
19,583

(3,417)
(623)
917
(3,123)
(1,093)
(2,030)
17,553

2.65
2.65

7,396,716
7,396,716
1.24

$

$
$

$

21,533
9,104
2,643
1,195
2,211
740
9,353
46,779
22,244
4,521
17,723

(510)
(1,189)
(296)
(1,995)
(699)
(1,296)
16,427

2.36
2.36

7,516,451
7,516,451
1.24

$

$
$

$

6,450
900
1,348
8,698
65,544
4,800
60,744

7,344
2,543
2,057
1,411
784
769

2,278
17,186

26,670
9,975
1,808
1,034
2,277
1,188
8,341
51,293
26,637
8,180
18,457

(1,790)

318
(1,472)
(515)
(957)
17,500

2.50
2.50

7,395,837
7,395,837
1.26

$

$
$

$

Peoples Financial Services Corp. 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY 
(Dollars in thousands, except per share data) 

For the Three Years Ended December 31, 2017
Balance, January 1, 2015
Net income
Other comprehensive loss, net of income taxes
Dividends declared: $1.24 per share
Stock based compensation
Share retirement: 137,752 shares
Balance, December 31, 2015
Net income
Other comprehensive loss, net of income taxes
Dividends declared: $1.24 per share
Stock based compensation
Share retirement: 16,463 shares
Balance, December 31, 2016
Net income
Other comprehensive loss, net of income taxes
Reclassification related to adoption of ASU 
2018-02
Dividends declared: $1.26 per share
Stock based compensation
Common stock grants awarded, net of unearned 
compensation of $32: 2,362 shares
Balance, December 31, 2017

See notes to consolidated financial statements

Common
Stock
$ 15,097

Capital
Surplus
$ 140,214

(276)
14,821

69
(4,912)
135,371

(33)
14,788

71
(571)
134,871

177

5
$ 14,793

(5)
$ 135,043

Accumulated
Other

Comprehensive Treasury

Loss

Stock

$

(829)$

(1,296)

(2,125)

(2,030)

(4,155)

(957)

(1,101)

Retained
Earnings
$ 92,297
17,723

(9,319)

100,701
19,583

(9,170)

111,114
18,457

1,101
(9,319)

Total
$ 246,779
17,723
(1,296)
(9,319)
69
(5,188)
248,768
19,583
(2,030)
(9,170)
71
(604)
256,618
18,457
(957)

(9,319)
177

$ 121,353

$

(6,213)$

$ 264,976

-71-

Peoples Financial Services Corp. 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Dollars in thousands, except per share data) 

Year Ended December 31, 
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:

2017

2016

2015

$

18,457

$

19,583

$

17,723

Depreciation of premises and equipment
Amortization of deferred loan costs
Amortization of intangibles
Amortization of low income housing partnerships
Provision for loan losses
Net (gain) loss on sale of other real estate owned
Net loss on disposal of equipment
Loans originated for sale
Proceeds from sale of loans originated for sale
Net gain on sale of loans originated for sale
Net amortization of investment securities
Net gain on sale of investment securities available-for-sale
Net gain on sale of merchant services business
Life insurance investment income
Deferred income tax expense (benefit)
Stock based compensation
Net change in:

Accrued interest receivable
Other assets
Accrued interest payable
Other liabilities

Net cash provided by operating activities

Cash flows from investing activities:
Proceeds from sales of investment securities available-for-sale
Proceeds from repayments of investment securities:

Available-for-sale
Held-to-maturity

Purchases of investment securities:

Available-for-sale

Net purchase of restricted equity securities
Net increase in lending activities
Investment in low income housing partnerships
Purchases of premises and equipment
Proceeds from the sale of premises and equipment
Purchase of investment in life insurance
Proceeds from the sale of merchant services business
Proceeds from sale of other real estate owned

Net cash used in investing activities

Cash flows from financing activities:
Net increase in deposits
Proceeds from long-term debt
Repayment of long-term debt
Net increase in short-term borrowings
Retirement of common stock
Cash dividends paid

Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

-72-

1,950
907
1,034
470
4,800
(11)

(21,036)
21,149
(219)
2,764

(2,278)
(769)
1,665
177

(708)
2,023
35
(1,817)
28,593

1,661
786
1,186
477
5,000
137

(26,708)
27,593
(885)
3,635
(623)

(791)
(1,442)
71

(432)
1,373
(98)
(2,470)
28,053

1,595
603
1,195
635
3,700
(132)
87
(25,246)
29,604
(872)
4,278
(1,189)

(767)
(841)
69

(216)
(213)
(14)
(820)
29,179

27,408

81,983

55,800
1,222

53,128
1,561

58,318
2,520

(73,471)
(1,511)
(163,236)

(6,247)

2,300
580
(184,563)

(62,022)
(1,648)
(195,408)
(2,045)
(6,764)

(1,500)

(90,402)
(1,716)
(133,146)
(3,050)
(4,420)
14

933
(186,357)

484
(89,415)

130,261

132,947

(8,400)
40,975

(9,319)
153,517
(2,453)
39,941
37,488

(2,220)
44,375
(604)
(9,170)
165,328
7,024
32,917
39,941

$

$

$

30,252
30,000
(2,786)
18,768
(5,188)
(9,319)
61,727
1,491
31,426
32,917

Peoples Financial Services Corp. 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Dollars in thousands, except per share data) 

Year Ended December 31, 
Supplemental disclosures:
Cash paid during the period for:

Interest
Income taxes

Noncash items:

Transfers of loans to other real estate

See notes to consolidated financial statements 

2017

2016

2015

$

$

8,663
5,900

460

$

$

7,349
5,900

757

$

$

6,788
4,200

869

-73-

Peoples Financial Services Corp. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Dollars in thousands, except per share data) 

1. Summary of significant accounting policies: 

Nature of operations: 

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full 
range of financial services through its wholly-owned subsidiary, Peoples Security Bank and Trust Company (“Peoples 
Bank”), collectively, the “Company” or “Peoples”. On November 30, 2013, Penseco Financial Services Corporation, a 
financial holding company incorporated under the laws of Pennsylvania (“Penseco”), merged with and into Peoples 
Financial Services Corp., with Peoples Financial Services Corp. being the surviving corporation (the “Merger”), pursuant 
to an Agreement and Plan of Merger dated June 28, 2013 (the “Merger Agreement”). In connection with the Merger, on 
December 1, 2013, Penseco’s former banking subsidiary, Penn Security Bank and Trust Company, merged with and into 
Peoples Neighborhood Bank (the “Bank Merger”), and the resulting institution adopted the name Peoples Security Bank 
and Trust Company. The Company services its retail and commercial customers through twenty-seven full-service 
community banking offices located within Bucks, Lackawanna, Lehigh, Luzerne, Monroe, Montgomery, Northampton, 
Susquehanna, Wayne and Wyoming Counties of Pennsylvania and Broome County of New York. 

Peoples Bank is a state-chartered bank and trust company under the jurisdiction of the Pennsylvania Department of 
Banking and Securities and the Federal Deposit Insurance Corporation. Peoples Bank’s primary product is loans to 
small- and medium-sized businesses. Other lending products include one-to-four family residential mortgages and 
consumer loans. Peoples Bank primarily funds its loans by offering deposits to commercial enterprises and individuals. 
Deposit product offerings include checking accounts, savings accounts, money market accounts and certificates of 
deposits. 

The Company faces competition primarily from commercial banks, thrift institutions and credit unions within its market, 
many of which are substantially larger in terms of assets and capital. In addition, mutual funds and security brokers 
compete for various types of deposits, and consumer, mortgage, leasing and insurance companies compete for various 
types of loans and leases. Principal methods of competing for banking and permitted nonbanking services include price, 
nature of product, quality of service and convenience of location. 

The Company and Peoples Bank are subject to regulations of certain federal and state regulatory agencies and undergo 
periodic examinations. 

Basis of presentation: 

Under the acquisition method of accounting, in a business combination effected through an exchange of equity interests, 
consideration of the facts and circumstances surrounding a business combination that generally involve the relative 
ownership and control of the entity by each of the parties subsequent to the merger must be made in determining the 
acquirer for financial reporting purposes. Based on a review of these factors, the aforementioned merger between the 
Company and Penseco was accounted for as a reverse acquisition whereby Penseco was treated as the acquirer for 
accounting and reporting purposes. 

The consolidated financial statements of the Company have been prepared in conformity with accounting principles 
generally accepted in The United States of America (“GAAP”), Regulation S-X and reporting practices applied in the 
banking industry. All significant intercompany balances and transactions have been eliminated in consolidation. The 
Company also presents herein condensed parent company only financial information regarding Peoples Financial 
Services Corp. (“Parent Company”). Prior period amounts are reclassified when necessary to conform with the current 
year’s presentation. Such reclassifications had no effect on financial position or results of operations. 

-74-

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 
2017, for items that should potentially be recognized or disclosed in these consolidated financial statements. The 
evaluation was conducted through the date these consolidated financial statements were issued. 

Estimates: 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates 
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and 
liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during 
the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to 
the determination of the allowance for loan losses, fair value of financial instruments, the valuation of real estate 
acquired in connection with foreclosures or in satisfaction of loans, the valuation of deferred tax assets, determination of 
other-than-temporary impairment losses on securities and impairment of goodwill.  Actual results could differ from those 
estimates. 

Investment securities: 

Investments securities are classified and accounted for as either held-to-maturity, available-for-sale, or trading account 
securities based on management’s intent at the time of acquisition. Management is required to reassess the 
appropriateness of such classifications at each reporting date. The Company classifies debt securities as held-to maturity 
when management has the positive intent and ability to hold such securities to maturity. Held-to-maturity securities are 
stated at cost, adjusted for amortization of premium and accretion of discount. Investment securities are designated as 
available-for-sale when they are to be held for indefinite periods of time as management intends to use such securities to 
implement asset/liability strategies or to sell them in response to changes in interest rates, prepayment risk, liquidity 
requirements, or other circumstances identified by management. Available-for-sale securities are reported at fair value, 
with unrealized gains and losses, net of income taxes, excluded from earnings and reported in a separate component of 
stockholders’ equity. All marketable equity securities are accounted for at fair value. Estimated fair values for investment 
securities are based on quoted market prices from a national pricing service. Realized gains and losses are computed 
using the specific identification method and are included in noninterest income. Premiums are amortized and discounts 
are accreted using the interest method over the contractual lives of investment securities. Investment securities that are 
bought and held principally for the purpose of selling them in the near term, in order to generate profits from market 
appreciation, are classified as trading account securities. Trading account securities are carried at market value. Interest 
on trading account securities is included in interest income. Profits or losses on trading account securities are included in 
noninterest income. Transfers of securities between categories are recorded at fair value at the date of the transfer, with 
the accounting treatment of unrealized gains or losses determined by the category into which the security is transferred. 

Management evaluates each investment security to determine if a decline in fair value below its amortized cost is an 
other-than-temporary impairment (“OTTI”) at least quarterly, and more frequently when economic or market concerns 
warrant an evaluation. Factors considered in determining whether an other-than-temporary impairment was incurred 
include: (i) the length of time and the extent to which the fair value has been less than amortized cost; (ii) the financial 
condition and near-term prospects of the issuer; (iii) whether a decline in fair value is attributable to adverse conditions 
specifically related to the security or specific conditions in an industry or geographic area; (iv) the credit-worthiness of 
the issuer of the security; (v) whether dividend or interest payments have been reduced or have not been made; (vi) an 
adverse change in the remaining expected cash flows from the security such that the Company will not recover the 
amortized cost of the security; (vii) whether management intends to sell the security; and (viii) if it is more likely than 
not that management will be required to sell the security before recovery. If a decline is judged to be other-than-
temporary, the individual security is written-down to fair value with the credit related component of the write-down 
included in earnings and the non-credit related component included in other comprehensive income or loss. The 
assessment of whether an other-than-temporary impairment exists involves a high degree of subjectivity and judgment 
and is based on information available to management at a point in time. 

-75-

Loans held for sale: 

Loans held for sale consist of one-to-four family residential mortgages originated and intended for sale in the secondary 
market. The loans are carried in aggregate at the lower of cost or estimated market value, based upon current delivery 
prices in the secondary mortgage market. Net unrealized losses are recognized through a valuation allowance by 
corresponding charges to income. Gains or losses on the sale of these loans are recognized in noninterest income at the 
time of sale using the specific identification method. Loan origination fees, net of certain direct loan origination costs,
are included in net gains or losses upon the sale of the related mortgage loan. All loans are sold without recourse. 

Loans, net: 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated 
at their outstanding unpaid principal balances, net of deferred fees or costs. Interest income is accrued on the principal 
amount outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized over the 
contractual life of the related loan as an adjustment to yield using the effective interest method. Premiums and discounts 
on purchased loans are amortized as adjustments to interest income using the effective interest method. Delinquency fees 
are recognized in income at the time when they are paid by customer. 

Transfers of financial assets, which include loan participation sales, are accounted for as sales, when control over the 
assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (i) the assets have been 
isolated from the Company; (ii) the transferee obtains the right, free of conditions that constrain it from taking advantage 
of that right, to pledge or exchange the transferred assets and (iii) the Company does not maintain effective control over 
the transferred assets through an agreement to repurchase them before their maturity. 

The loan portfolio is segmented into commercial and retail loans. Commercial loans consist of commercial, commercial 
real estate, municipal and other related tax free loans. Retail loans consist of residential real estate and other consumer 
loans. 

The Company makes commercial loans for real estate development and other business purposes required by the customer 
base. The Company’s credit policies establish advance rates against the different forms of collateral that can be pledged 
against various commercial loans. Typically, the majority of loans will be underwritten to a percentage of their 
underlying collateral values such as real estate values, equipment, eligible accounts receivable and inventory. Individual 
loan advance rates may be higher or lower depending upon the financial strength of the borrower and/or term of the loan.  
Generally, assets financed through commercial loans are used for the operations of the business. Repayment for these 
types of loans generally comes from the cash flow of the business or the ongoing conversion of assets. Commercial real 
estate loans include construction, mini-perm, or longer term loans financing commercial properties. Repayment of these 
loans are generally dependent upon either the ongoing business cash flow from an owner occupied property or the 
lease/rental income or sale of a non-owner occupied property. Commercial real estate loans typically require a loan to 
value of not greater than 80% and vary in terms. Commercial and commercial real estate loans generally have higher 
credit risk compared to residential mortgage loans and consumer loans, as they typically involve larger loan balances 
concentrated with single borrowers or groups of borrowers. In addition, the payment expectations on loans secured by 
income-producing properties typically depend on the successful operations of the related business and thus may be 
subject to a greater extent to adverse conditions in the real estate market and in the general economy. 

Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one-to-
four family residential mortgage loans. Of primary concern in commercial real estate lending is the borrower’s and any 
guarantor’s creditworthiness and the feasibility and cash flow potential of the financed project. Additional considerations 
include: location, market and geographic concentration risks, loan to value, strength of guarantors and quality of tenants. 
Payments on loans secured by income properties often depend on successful operation and management of the 
properties. As a result, repayment of such loans may be subject to a higher level of risk than residential real estate loans, 
which could be caused by unfavorable conditions in the real estate market or the economy. To effectively monitor loans 
on income properties, the Company requires borrowers and loan guarantors, if any, to provide annual financial 
statements on commercial real estate loans and rent rolls where applicable. In reaching a decision on whether to make a 

-76-

commercial real estate loan, the Company considers and reviews a cash flow analysis of the borrower and guarantor, 
when applicable.  In addition, the Company evaluates business cash flows, if applicable, net operating income of the 
property, the borrower’s expertise, credit history and the value of the underlying property. The Company has generally 
required that the properties securing these real estate loans have debt service coverage ratios, which is net cash flow 
before debt service to debt service, of at least 1.2 times. An environmental report is obtained when the possibility exists 
that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that 
handled hazardous materials. 

Commercial loans are generally made on the basis of a business entity or individual borrower’s ability to make 
repayment from business cash flows or individual borrowers’ employment and other income.  Commercial business 
loans tend to have a slightly higher risk than commercial real estate loans because collateral usually consists of business 
assets versus real estate.   Further, any collateral securing such loans may depreciate over time and could be difficult to 
appraise and liquidate.   As a result, repayment of commercial business loans may depend substantially on the success of 
the business itself. 

Residential mortgages, including home equity loans, are secured by the borrower’s residential real estate in either a first 
or second lien position. Residential mortgages have varying loan rates depending on the financial condition of the 
borrower, loan to value ratio and term. Residential mortgages may have amortizations up to 30 years. 

Consumer loans include installment loans, car loans, and overdraft lines of credit. These loans are both secured and 
unsecured. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of 
consumer loans that are unsecured. Repossessed collateral for a defaulted consumer loan may not provide an adequate 
source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial 
collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial 
stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or 
personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state 
insolvency laws, may limit the amount that can be recovered on such loans. 

Off-balance sheet financial instruments: 

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of 
commitments to extend credit, unused portions of lines of credit and standby letters of credit. These financial instruments 
are recorded in the consolidated financial statements when they are funded. Fees on commercial letters of credit and on 
unused available lines of credit are recorded as interest and fees on loans and are included in interest income when paid. 
The Company records an allowance for off-balance sheet credit losses, if deemed necessary, separately as a liability.

Nonperforming assets: 

Nonperforming assets consist of nonperforming loans and other real estate owned. Nonperforming loans include 
nonaccrual loans, troubled debt restructured loans and accruing loans past due 90 days or more. Past due status is based 
on contractual terms of the loan. Generally, a loan is classified as nonaccrual when it is determined that the collection of 
all or a portion of interest or principal is doubtful or when a default of interest or principal has existed for 90 days or 
more, unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual, interest 
accruals discontinue and uncollected accrued interest is reversed against income in the current period. Interest collections 
after a loan has been placed on nonaccrual status are credited to a suspense account until either the loan is returned to 
performing status or charged-off. The interest accumulated in the suspense account is credited to income over the 
remaining life of the loan using the effective yield method if the nonaccrual loan is returned to performing status. 
However, if the nonaccrual loan is charged-off, the accumulated interest is applied as a reduction to principal at the time 
the loan is charged-off. A nonaccrual loan is returned to performing status when the loan is current as to principal and 
interest and has performed according to the contractual terms for a minimum of six months. 

-77-

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 can generally fall within the following categories: 

•(cid:1) Rate Modification — A modification in which the interest rate is changed to a below market rate. 

•(cid:1) Term Modification — A modification in which the maturity date, timing of payments or frequency of 

payments is changed. 

•(cid:1)

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

•(cid:1) Payment Modification — A modification in which the dollar amount of the payment is changed, other than 

an interest only modification described above. 

•(cid:1) Combination Modification — Any other type of modification, including the use of multiple categories 

above. 

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: 

•(cid:1) 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. 

•(cid:1) 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. 

•(cid:1) 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. 

•(cid:1) 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. 

•(cid:1) Loss — A loan classified as Loss is considered uncollectible and of such little value that its continuance as 
bankable loans 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 effected in the future. 

Other real estate owned is comprised of properties acquired through foreclosure proceedings or in-substance 
foreclosures. A loan is classified as in-substance foreclosure when the Company has taken possession of the collateral 
regardless of whether formal foreclosure proceedings take place. Other real estate owned is included in other assets and 
recorded at fair value less cost to sell at the time of acquisition, establishing a new cost basis. Any excess of the loan 
balance over the recorded value is charged to the allowance for loan losses. Subsequent declines in the recorded values 

-78-

of the properties prior to their disposal and costs to maintain the assets are included in other expenses. Any gain or loss 
realized upon disposal of other real estate owned is included in noninterest expense. 

Allowance for loan losses: 

The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance 
sheet date. The allowance for loan losses account is maintained through a provision for loan losses charged to earnings. 
Loans, or portions of loans, determined to be confirmed losses are charged against the allowance account and subsequent 
recoveries, if any, are credited to the account. A loss is considered confirmed when information available at the financial 
statement date indicates the loan, or a portion thereof, is uncollectible. Nonaccrual, troubled debt restructured and loans 
deemed impaired at the time of acquisition are reviewed monthly to determine if carrying value reductions are warranted 
or if these classifications should be changed. Consumer loans are considered losses and charged-off when they are 120 
days past due. 

Management evaluates the adequacy of the allowance for loan losses account quarterly. This assessment is based on past 
charge-off experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability 
to repay, the estimated value of underlying collateral, composition of the loan portfolio, current economic conditions and 
other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to 
significant revision as more information becomes available. Regulators, in reviewing the loan portfolio as part of the 
scope of a regulatory examination, may require the Company to increase its allowance for loan losses or take other 
actions that would require the Company to increase its allowance for loan losses. 

The allowance for loan losses is maintained at a level believed to be adequate to absorb probable credit losses related to 
specifically identified loans, as well as probable incurred losses inherent in the remainder of the loan portfolio as of the 
balance sheet date. The allowance for loan losses consists of an allocated element and an unallocated element. The 
allocated element consists of a specific allowance for impaired loans individually evaluated under Financial Accounting 
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310, “Receivables,” and a formula portion for 
loss contingencies on those loans collectively evaluated under FASB ASC 450, “Contingencies.”

A loan is considered impaired when, based on current information and events, it is probable that the Company will be 
unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to 
the contractual terms means that both the contractual interest and principal payments of a loan will be collected as 
scheduled in the loan agreement. Factors considered by management in determining impairment include payment status, 
ability to pay and the probability of collecting scheduled principal and interest payments when due. Loans that 
experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management 
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration 
all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the 
delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. 
The Company recognizes interest income on impaired loans, including the recording of cash receipts, for nonaccrual, 
restructured loans or accruing loans depending on the status of the impaired loan. Loans considered impaired under 
FASB ASC 310 are measured for impairment 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. If 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, is less than the recorded investment in the loan, a specific allowance for the loan will be 
established. 

The formula portion of the allowance for loan losses relates to large pools of smaller-balance homogeneous loans and 
those identified loans considered not individually impaired having similar characteristics as these loan pools. Loss 
contingencies for each of the major loan pools are determined by applying a total loss factor to the current balance 
outstanding for each individual pool. The total loss factor is comprised of a historical loss factor using a loss migration 
method plus qualitative factors, which adjusts the historical loss factor for changes in trends, conditions and other 
relevant factors that may affect repayment of the loans in these pools as of the evaluation date. Loss migration involves 
determining the percentage of each pool that is expected to ultimately result in loss based on historical loss experience. 

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Historical loss factors are based on the ratio of net loans charged-off to loans, net, for each of the major groups of loans 
evaluated and measured for impairment under FASB ASC 450. The historical loss factor for each pool is a weighted 
average of the Company’s historical net charge-off ratio for the most recent rolling twelve quarters. Management adjusts 
these historical loss factors by qualitative factors that represents a number of environmental risks that may cause 
estimated credit losses associated with the current portfolio to differ from historical loss experience. These 
environmental risks include: (i) changes in lending policies and procedures including underwriting standards and
collection, charge-off and recovery practices; (ii) changes in the composition and volume of the portfolio; (iii) changes in 
national, local and industry conditions, including the effects of such changes on the value of underlying collateral for 
collateral-dependent loans; (iv) changes in the volume and severity of classified loans, including past due, nonaccrual, 
troubled debt restructures and other loan modifications; (v) changes in the levels of, and trends in, charge-offs and 
recoveries; (vi) the existence and effect of any concentrations of credit and changes in the level of such concentrations; 
(vii) changes in the experience, ability and depth of lending management and other relevant staff; (viii) changes in the 
quality of the loan review system and the degree of oversight by the board of directors; and (ix) the effect of external 
factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the current 
loan portfolio. Each environmental risk factor is assigned a value to reflect improving, stable or declining conditions 
based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to 
the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for 
loan loss calculation. 

The unallocated element is used to cover inherent losses that exist as of the evaluation date, but which have not been 
identified as part of the allocated allowance using the above impairment evaluation methodology due to limitations in the 
process. One such limitation is the imprecision of accurately estimating the impact current economic conditions will 
have on historical loss rates. Variations in the magnitude of impact may cause estimated credit losses associated with the 
current portfolio to differ from historical loss experience, resulting in an allowance that is higher or lower than the 
anticipated level. Management establishes the unallocated element of the allowance by considering a number of 
environmental risks similar to the ones used for determining the qualitative factors. Management continually monitors 
trends in historical and qualitative factors, including trends in the volume, composition and credit quality of the portfolio. 
The reasonableness of the unallocated element is evaluated through monitoring trends in its level to determine if changes 
from period to period are directionally consistent with changes in the loan portfolio. 

Management believes the level of the allowance for loan losses was adequate to absorb probable credit losses inherent in 
the loan portfolio as of December 31, 2017. 

Premises and equipment, net: 

Land is stated at cost. Premises, equipment and leasehold improvements are stated at cost less accumulated depreciation 
and amortization. The cost of routine maintenance and repairs is expensed as incurred. The cost of major replacements, 
renewals and betterments is capitalized. When assets are retired or otherwise disposed of, the cost and related 
accumulated depreciation and amortization are eliminated and any resulting gain or loss is reflected in noninterest 
income. Depreciation and amortization are computed principally using the straight-line method based on the following 
estimated useful lives of the related assets, or in the case of leasehold improvements, to the expected terms of the leases, 
if shorter: 

Premises and leasehold improvements
Furniture, fixtures and equipment

7 – 40 years
3 – 10 years

Business combinations, goodwill and other intangible assets, net: 

The Company accounts for its acquisitions using the purchase accounting method. Purchase accounting requires the total 
purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain 
intangible assets that must be recognized. Typically, this allocation results in the purchase price exceeding the fair value 
of net assets acquired, which is recorded as goodwill. Core deposit intangibles are a measure of the value of checking, 
money market and savings deposits acquired in business combinations accounted for under the purchase method. Core 

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deposit intangibles and other identified intangibles with finite useful lives are amortized using the sum of the year’s 
digits over their estimated useful lives of up to ten years. 

Loans that the Company acquires in connection with acquisitions are recorded at fair value with no carryover of the 
related allowance for credit losses. Fair value of the loans involves estimating the amount and timing of principal and 
interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. 
The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and 
is recognized into interest income over the remaining life of the loan. The difference between contractually required 
payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable 
discount. The nonaccretable discount includes estimated future credit losses expected to be incurred over the life of the 
loan. Subsequent decreases to the expected cash flows will require the Company to evaluate the need for an additional 
allowance for credit losses. Subsequent improvement in expected cash flows will result in the reversal of a corresponding 
amount of the nonaccretable discount which the Company will then reclassify as accretable discount that will be 
recognized into interest income over the remaining life of the loan. Acquired loans that met the criteria for nonaccrual of 
interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is 
contractually delinquent. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming and 
may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such 
loans would be first applied to the nonaccretable difference portion of the fair value adjustment. 

Goodwill and other intangible assets are tested for impairment annually or when circumstances arise indicating 
impairment may have occurred. In making this assessment that impairment has occurred, management considers a 
number of factors including, but not limited to, operating results, business plans, economic projections, anticipated future 
cash flows, and current market data. There are inherent uncertainties related to these factors and management’s judgment 
in applying them to the analysis of impairment. Changes in economic and operating conditions, as well as other factors, 
could result in impairment in future periods. Any impairment losses arising from such testing would be reported in the 
Consolidated Statements of Income and Comprehensive Income as a separate line item within operations. There were no 
impairment losses recognized as a result of periodic impairment testing in each of the three-years ended December 31, 
2017. 

Mortgage servicing rights: 

Mortgage servicing rights are recognized as a separate asset when acquired through sales of loan originations. The 
Company determines a mortgage servicing right by allocating the total costs incurred between the loan sold and the 
servicing right, based on their relative fair values at the date of the sale. Mortgage servicing rights are included in other 
assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net 
servicing income of the underlying mortgage loans. In addition, mortgage servicing rights are evaluated for impairment 
at each reporting date based on the fair value of those rights. For purposes of measuring impairment, the rights are 
stratified by loan type, term and interest rate. The amount of impairment recognized, through a valuation allowance, is 
the amount by which the mortgage servicing rights for a stratum exceed their fair value. 

Restricted equity securities: 

As a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”), the Company is required to purchase and hold 
stock in the FHLB to satisfy membership and borrowing requirements. This stock is restricted in that it can only be 
redeemed by the FHLB or to another member institution, and all redemptions of FHLB stock must be at par. As a result 
of these restrictions, FHLB stock is unlike other investment securities as there is no trading market for FHLB stock and 
the transfer price is determined by FHLB membership rules and not by market participants. The carrying value of 
restricted stock is included in other assets. 

Bank owned life insurance: 

The Company invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses. 
BOLI involves the purchasing of life insurance by Peoples Bank on certain of its employees. The Company is the owner 

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and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying 
policies and is included in other assets. Income from increases in cash surrender value of the policies is included in 
noninterest income. 

Pension and post-retirement benefit plans: 

The Company sponsors various pension plans covering substantially all employees. The Company also provides post-
retirement benefit plans other than pensions, consisting principally of life insurance benefits, to eligible retirees. The 
liabilities and annual income or expense of the Company’s pension and other post-retirement benefit plans are 
determined using methodologies that involve several actuarial assumptions, the most significant of which are the 
discount rate and the long-term rate of asset return, based on the market-related value of assets. The fair values of plan 
assets are determined based on prevailing market prices or estimated fair value for investments with no available quoted 
prices. 

Statements of Cash Flows: 

The Consolidated Statements of Cash Flows are presented using the indirect method. For purposes of cash flow, cash 
and cash equivalents include cash on hand, cash items in the process of collection, noninterest-bearing and interest-
bearing deposits in other banks and federal funds sold. 

Fair value of financial instruments: 

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. 

•(cid:1) 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. 

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•(cid:1) 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. 

The following methods and assumptions were used by the Company to construct the summary table in Note 12 
containing the 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 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 and quoted market 
prices. 

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 reprice frequently and with no significant credit risk, fair values are based on 
carrying values. The fair values of other nonimpaired 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. 

In conjunction with the Merger, the loans purchased were recorded at their acquisition date fair value. In order to record 
the loans at fair value, management made three different types of fair value adjustments. A market rate adjustment was 
made to adjust for the movement in market interest rates, irrespective of credit adjustments, compared to the stated rates 
of the acquired loans. A credit adjustment was made on pools of homogeneous loans representing the changes in credit 
quality of the underlying borrowers from the loan inception to the acquisition date. The credit adjustment on distressed 
loans represents the portion of the loan balance that has been deemed uncollectible based on the management’s 
expectations of future cash flows for each respective loan. 

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. 

Other Assets:  Other assets include the Company’s investment in Visa Class B stock. The Company’s ownership 
includes shares acquired at no cost related to the Company’s prior ownership in Visa's network while Visa operated as a 
cooperative.  The Company holds 44,982 shares of Visa Class B stock which, following resolution of Visa litigation, will 
be converted to Visa Class A shares (the conversion rate as of December 31, 2017 is 1.6483 shares of Class A stock for 
each share of Class B stock) for a total of 74,142 shares  of Visa Class A stock.   

While only current owners of Class B shares are allowed to purchase other Class B shares, there have been several 
transactions between Class B shareholders. The Company estimates the value of our Class B shares to be $2.2 million as 
of December 31, 2017. 

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 

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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. 

Interest rate swaps: Values of these instruments are obtained through an independent pricing source utilizing 
information which may include market observed quotations for swaps, Libor rates, forward rates and rate volatility. 
Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of 
the counterparty.

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 
December 31, 2017 and December 31, 2016. 

Advertising: 

The Company follows the policy of charging marketing and advertising costs to expense as incurred. Advertising 
expense for the years ended December 31, 2017, 2016 and 2015 was $942, $972 and $736, respectively. 

Income taxes: 

The Company accounts for income taxes in accordance with the income tax accounting guidance set forth in FASB ASC 
Topic 740, “Income Taxes”. ASC Topic 740 sets out a consistent framework to determine the appropriate level of tax 
reserves to maintain for uncertain tax positions. 

Deferred income taxes are provided on the balance sheet method whereby deferred tax assets are recognized for 
deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary 
differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax 
assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some 
portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of 
changes in tax laws and rates on the effective date. A tax position is recognized as a benefit only if it is more likely than 
not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The 
amount recognized is the largest amount of tax benefit that has a likelihood of being realized on examination of more 
than 50 percent. For tax positions not meeting the more likely than not threshold, no tax benefit is recorded. Under the 
more likely than not threshold guidelines, the Company believes no significant uncertain tax positions exist, either 
individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. The Company had 
no material unrecognized tax benefits or accrued interest and penalties for any year in the three-year period ended 
December 31, 2017. 

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On December 22, 2017, President Donald Trump signed into law H.R. 1, also known as the Tax Cuts and Jobs Act, 
which among other things reduced the federal corporate income tax rate to 21% effective January 1, 2018. As a result, 
and in accordance with GAAP, the Company concluded that its net deferred tax assets had to be revalued. The 
Company’s net deferred tax assets represents expected corporate tax benefits anticipated to be realized in the future.  The 
reduction in the federal corporate income tax rate reduces these anticipated future benefits.  The revaluation of the 
Company’s net deferred tax assets at December 31, 2017 resulted in a reduction of these net assets and a corresponding 
increase in income tax expense of $2.6 million or $0.35 per share, which was recorded in the fourth quarter of 2017. 

As applicable, the Company recognizes accrued interest and penalties assessed as a result of a taxing authority 
examination through income tax expense. The Company files consolidated income tax returns in the United States of 
America and various states’ jurisdictions. With limited exception, the Company is no longer subject to federal and state 
income tax examinations by taxing authorities for years before 2014. 

Other comprehensive income (loss): 

The components of other comprehensive income (loss) and their related tax effects are reported in the Consolidated 
Statements of Income and Comprehensive Income. The accumulated other comprehensive loss included in the 
Consolidated Balance Sheets relates to net unrealized gains and losses on investment securities available-for-sale and the 
unfunded benefit plan amounts which include prior service costs and unrealized net losses. 

Earnings per share: 

Basic earnings per share represent income available to common stockholders divided by the weighted-average number of 
common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would 
have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that 
would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to 
outstanding stock options, and are determined using the treasury stock method. 

2017

2016

2015

For the Year Ended December 31
Net Income 
Average common shares 
outstanding 
Earnings per share

Basic

18,457

7,395,837
2.50

$

$

Diluted

18,457

7,395,837
2.50

$

$

Basic

19,583

7,396,716
2.65

$

$

Diluted

19,583

7,396,716
2.65

$

$

Basic

17,723

7,516,451
2.36

$

$

Diluted

17,723

7,516,451
2.36

$

$

Stock-based compensation: 

The Company recognizes all share-based payments to employees in the consolidated statement of operations based on 
their fair values. The fair value of such equity instruments is recognized as an expense in the consolidated financial 
statements as services are performed. The Company has granted stock awards to employees at a price equal to the fair 
value of the shares at the date of grant. The fair value of restricted stock is equivalent to the fair value on the date of 
grant and is amortized over the vesting period. 

Recent accounting standards: 

In  May  2014,  the  FASB  issued  Accounting  Standards  Update  (“ASU”)  No.  2014-09,  “Revenue  from  Contracts  with 
Customers (Topic 606).” The updated standard is a new comprehensive revenue recognition model that requires revenue 
to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the 
consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 
2015-14 which deferred the effective date of ASU 2014-09 by one year. During 2016, the FASB issued ASU Nos. 2016-
10, 2016-12 and 2016-20 that provide additional guidance related to the identification of performance obligations within 
a  contract,  assessing  collectability,  contract  costs,  and  other  technical  corrections  and  improvements.  ASU  2014-09  is 
effective for the Company on January 1, 2018. ASU 2014-09 allows for either full retrospective or modified retrospective 

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adoption. The Company used the modified retrospective method. The Company has completed an evaluation of its revenue-
producing contracts and determined that most of the components of noninterest income fall under the scope of this ASU.  
The Company evaluated the effect of this ASU on those income streams and concluded the accounting treatment would 
be similar to current practice.  As such, no cumulative adjustment is needed.  Disclosures related to these revenue streams 
are expected to be enhanced in 2018. 

In November 2015, the FASB issued ASU 2015-17 which eliminates the guidance in Topic 740, “Income Taxes: 
Balance Sheet Classification of Deferred Taxes.” This requires an entity to separate deferred tax liabilities and assets 
between current and noncurrent in a classified balance sheet. The amendments require that all deferred tax liabilities and 
assets of the same tax jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and 
presented as a single noncurrent amount in a classified balance sheet. Prior GAAP required that in a classified balance 
sheet, deferred tax liabilities and assets be separated into a current and noncurrent amount on the basis of the 
classification of the related asset or liability. If deferred tax liabilities and assets did not relate to a specific asset or
liability, such as a carryforward, they were classified according to the expected reversal date of the temporary difference.

ASU 2015-17 was effective for the Company in 2017. The adoption of ASU 2015-17 did not have a material effect on 
the financial position or the operating results of the Company.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall.” The guidance in this ASU 
among other things, (1) requires equity investments with certain exceptions, to be measured at fair value with changes in 
fair value recognized in net income, (2) simplifies the impairment assessment of equity investments without readily 
determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminates the requirement for 
public businesses entities to disclose the methods and significant assumptions used to estimate the fair value that is 
required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) requires public 
business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure 
purposes, (5) requires an entity to present separately in other comprehensive income the portion of the change in fair 
value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure 
the liability at fair value in accordance with the fair value option for financial instruments, (6) requires separate 
presentation of financial assets and financial liabilities by measurement category and form of financial asset on the 
balance sheet or the accompanying notes to the financial statements and (7) clarifies that an entity should evaluate the 
need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is 
effective for the Company on January 1, 2018. Management has evaluated the effect that this guidance will have and 
concluded that the impact on the consolidated financial statements will not be material upon adoption on January 1, 
2018.

In February 2016, the FASB issued ASU No. 2016-02, “Leases”. From the lessee's perspective, the new standard 
establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance 
sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with 
classification affecting the pattern of expense recognition in the income statement for a lessess. From the lessor's 
perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be 
treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks
and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey 
risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those 
fiscal years. Early application is permitted. A modified retrospective transition approach is required for lessees for capital 
and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the 
financial statements, with certain practical expedients available. A modified retrospective transition approach is required 
for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the 
earliest comparative period presented in the financial statements, with certain practical expedients available. The 
Company’s initial findings conclude that the new pronouncement will not have a significant impact on its consolidated 
financial statements as the current projected minimum lease payments under existing lease contracts subject to the new 
pronouncement are less than one percent of its current assets.

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In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation. This ASU changes several 
aspects of accounting for share-based payment transactions, and includes some changes that apply only to nonpublic 
companies. This ASU includes amendments that currently apply, or may apply in the future, to the Company related to 
the following: (1) accounting for the difference between the deduction for tax purposes and the amount of compensation 
cost recognized for financial reporting purposes; (2) classification of excess tax benefits on the statement of cash flows; 
(3) accounting for forfeitures; (4) accounting for awards partially settled in cash in excess of the employer’s minimum 
statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows 
when an employer withholds shares for tax-withholding purposes. The amendments in this ASU were effective for the 
Company for annual and interim periods beginning in the first quarter 2017. The ASU provides separate transition 
provisions for each of the amendments. Initial adoption of this ASU in 2017 did not have a significant impact on the 
Company.

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

•(cid:1) The  ASU  requires  that  a  financial  asset  (or  a  group  of  financial  assets)  measured  at  amortized  cost  basis  be 
presented, net of a valuation allowance for credit losses, at an amount expected to be collected on the financial 
asset(s), and that the income statement include the measurement of credit losses for newly recognized financial 
assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU 
require  measurement  of  expected  credit  losses  based  on  relevant  information  including  past  events,  historical 
experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. 
The provisions of this ASU differ from current GAAP in that current GAAP generally delays recognition of the 
full amount of credit losses until the loss is probable of occurring.

•(cid:1) The amendments in the ASU retain many of the disclosure requirements related to credit quality in current GAAP, 
updated  to  reflect  the  change  from  an  incurred  loss  methodology  to  an  expected  credit  loss  methodology.  In 
addition, the ASU requires that disclosure of credit quality indicators in relation to the amortized cost of financing 
receivables, a current requirement, be further disaggregated by year of origination.

•(cid:1) This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than 
as a write-down, and limits the amount of the allowance for credit losses to the amount by which the fair value is 
below  amortized  cost.  For  purchased  investment  securities  available-for-sale  with  a  more-than-insignificant 
amount of credit deterioration since origination, the ASU requires an allowance be determined in a manner similar 
to other investment securities available-for-sale; however, the initial allowance would be added to the purchase 
price,  with  only  subsequent  changes  in  the  allowance  recorded  in  credit  loss  expense,  and  interest  income 
recognized at the effective rate excluding the discount embedded in the purchase price related to estimated credit 
losses at acquisition.

•(cid:1) This ASU will be effective for the Company for interim and annual periods beginning in the first quarter of 2020. 
Earlier  adoption  is  permitted  beginning  in  the  first  quarter  of  2019.  The  Company  will  record  the  effect  of 
implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of 
the reporting period in which Topic 326 is effective.

The Company cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact 
of the new standard on our financial condition or results of operations; however, it is anticipated that the allowance will 
increase upon adoption and that the increased allowance level will decrease regulatory capital and ratios.

In  June  2016,  the  FASB  issued  ASU  2016-15,  Statement  of  Cash  Flows  (Topic  230)  –Classification  of  Certain  Cash 
Receipts and Cash Payments. This ASU provides clarification regarding eight specific cash flow issues with the objective 
of reducing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement

-87-

of  cash  flows.  For  the  Company,  the  amendments  in  this  ASU  are  effective  beginning  in  the  first  quarter  2018.  The 
amendments in this ASU should be applied using a retroactive transition method to each period presented. The Company 
anticipates there will be no adjustments to the Consolidated Statements of Cash Flows, as previously reported, as a result 
of the clarifications provided in the Update.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) to simplify the accounting 
for  goodwill  impairment.  This  guidance,  among  other  things,  removes  step  2  of  the  goodwill  impairment  test  thus 
eliminating the need to determine the fair value of individual assets and liabilities of the reporting unit. Upon adoption of
this ASU, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to 
exceed the carrying amount of goodwill. This may result in more or less impairment being recognized than under current 
guidance. This ASU will become effective for the Company’s annual and interim goodwill impairment tests beginning in 
the first quarter of 2020.

In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715). ASU 2017-07
requires the service cost component of net periodic pension and post-retirement benefit cost to be reported separately in 
the  consolidated  statements  of  income  from  the  other  components.  Additionally,  the  amendments  in  the  ASU  require 
presentation of the service cost component in the consolidated statements of income in the same line item as other employee 
compensation costs and presentation of the other components in a different line item from the service cost component. The 
amendments in this ASU are required to be applied retrospectively for the presentation of the service cost component and 
the other components of net periodic pension cost and net periodic post-retirement benefit cost in the income statement 
and prospectively, on or after the effective date, for the capitalization of the service cost component of net periodic pension 
cost  and  net  periodic  post-retirement  benefit  in  assets  with  a  practical  expedient  allowed  for  prior  comparative  period 
presentation permitted. ASU 2017-07 is effective for the Company on January 1, 2018. Management has evaluated the 
effect  that  this  guidance  will  have  and  concluded  that  the  impact  on  the  consolidated  financial  statements  and  related 
disclosures will not be material upon adoption on January 1, 2018.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). 
This Update will shorten the amortization period for certain callable debt securities held at a premium. Under current U.S. 
GAAP,  entities  generally  amortize  the  premium  over  the  contractual  life  of  the  instrument.  This  Update  requires  the 
premium be amortized to the earliest call date. Discounts will continue to be amortized to maturity. The Company expects 
to adopt the amendments in this Update through a cumulative-effect adjustment directly to retained earnings in 2018, and 
does not expect the amount of the adjustment to be significant.

In August 2017, the Financial Accounting Standards Board issued ASU 2017-12, “Derivatives and Hedging: Targeted 
Improvements to Accounting for Hedging Activities”. The purpose of this updated guidance is to better align a company’s 
financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for 
public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an 
interim  period,  permitted.  The  Company  plans  to  adopt  ASU  2017-12  on  January  1,  2019.  ASU  2017-12  requires  a 
modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the 
opening balance of each affected component of equity in the statement of financial position as of the date of adoption. 
While  the  Company  continues  to  assess  all  potential  impacts  of  the  standard,  we  currently  expect  adoption  to  have  an 
immaterial impact  on  our  consolidated  financial  statements,  as  exposure  to  derivatives  contracts  is  only  offered  under 
special circumstances. The Company will continue to assess the financial statement impact as adoption draws closer and/or 
exposure to derivatives contracts grows to a level deemed to be material.

In  February  2018,  FASB  issued  ASU  2018-02,  Income  Statement  – Reporting  Comprehensive  Income  (Topic  220): 
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Loss (AOCL). Because the Tax Change 
and Jobs Act was signed on December 22, 2017, the accounting for the change in tax rates and effect on deferred tax assets 
and liabilities must be reflected in the 2017 financial statements as an adjustment to income tax expense, even though a
portion of the tax effects were initially recognized directly in other comprehensive income. This adjustment would leave 
a stranded balance in AOCI that would not reflect the appropriate tax rate. Under this ASU, entities are allowed, but not 
required, to reclassify from AOCI to retained earnings the stranded tax effects resulting from the new federal corporate 
income tax rate. The ASU is effective for all entities for annual reporting periods beginning after December 15, 2018. 

-88-

Early adoption would be permitted for interim or annual financial statements that have not been issued or made available 
for issuance. Early adoption will allow entities to align the timing of the stranded tax reclassification in their 2017 financial 
statements. The Company early adopted the ASU retrospectively and reclassified $1.1 million from AOCL to retained 
earnings in the consolidated statement of changes in stockholders’ equity.

2. Cash and due from banks: 
The Federal Reserve Act, as amended, imposes reserve requirements on all depository institutions. The Company’s 
required reserve balances were $22,651 and $23,800 at December 31, 2017 and 2016, respectively.

-89-

3. Investment securities: 

The amortized cost and fair value of investment securities aggregated by investment category at December 31, 2017 and 
2016 are summarized as follows: 

December 31, 2017
Available-for-sale:
U.S. Treasury securities
U.S. Government-sponsored enterprises
State and municipals:
Taxable
Tax-exempt

Residential Mortgage-backed securities:
U.S. Government agencies
U.S. Government-sponsored enterprises

Commercial Mortgage-backed securities:

U.S. Government-sponsored enterprises

Common equity securities
Total

Held-to-maturity:
Tax-exempt state and municipals
Residential Mortgage-backed securities:
U.S. Government agencies
U.S. Government-sponsored enterprises

Total

December 31, 2016
Available-for-sale:
U.S. Treasury securities
U.S. Government-sponsored enterprises
State and municipals:
Taxable
Tax-exempt

Residential Mortgage-backed securities:
U.S. Government agencies
U.S. Government-sponsored enterprises

Total

Held-to-maturity:
Tax-exempt state and municipals
Residential Mortgage-backed securities:
U.S. Government agencies
U.S. Government-sponsored enterprises

Total

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

$

20,042
95,358

$

$

$

$

Gross
Unrealized
Gains

$

79

30

488
1,136

2
10

3
1,669

152

138
290

566
2,309

48
48
3,050

72

1
191
264

14,559
103,199

14,517
19,752

6,315
43
$ 273,785

$

$

$

6,859

54
2,361
9,274

Amortized
Cost

7,570
82,314

14,698
110,931

21,041
22,303
$ 258,857

$

$

6,862

68
3,587
10,517

$

$

$

$

228
1,740

$

19,814
93,648

502

85
231

120

2,906

15,047
103,833

14,434
19,531

6,195
46
$ 272,548

13

$

6,998

4
17

Gross
Unrealized
Losses

132
1,480

39
640

47
159
2,497

$

$

54
2,495
9,547

Fair
Value

7,438
80,913

15,225
112,600

21,042
22,192
$ 259,410

67

$

6,867

69
3,778
10,714

67

$

$

$

$

$

$

$

$

The Company had net unrealized losses on available-for-sale securities of $977, net of deferred income taxes of $260 at 
December 31, 2017, and net unrealized gains of $360, net of deferred income taxes of $193, at December 31, 2016. 
There were no investment securities sales in 2017, proceeds from the sale of investment securities available-for-sale 
amounted to $27,408 in 2016 and $81,983 in 2015. There were no realized gains or losses on investment securities in 
2017.  Gross realized gains totaled $623 in 2016 and $1,189 in 2015. There were no gross losses in 2016 or 2015.   

-90-

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available-
for-sale at December 31, 2017, is summarized as follows: 

December 31, 2017
Within one year
After one but within five years
After five but within ten years
After ten years

Mortgage-backed securities

Total

Fair
Value
$ 12,238
168,657
35,278
16,169
232,342
40,160
$ 272,502

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

The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at 
December 31, 2017, is summarized as follows: 

December 31, 2017
Within one year
After one but within five years
After five but within ten years
After ten years

Mortgage-backed securities

Total

Amortized
Cost

Fair
Value

$ 6,859
6,859
2,415
$ 9,274

$ 6,998
6,998
2,549
$ 9,547

Securities with a carrying value of $163,936 and $144,750 at December 31, 2017 and 2016, respectively, were pledged 
to secure public deposits and certain other deposits as required or permitted by law. 

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations 
and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-
case basis. At December 31, 2017 and 2016, 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. 

-91-

The fair value and gross unrealized losses of investment securities with unrealized losses for which an OTTI has not 
been recognized at December 31, 2017 and 2016, aggregated by investment category and length of time that the 
individual securities have been in a continuous unrealized loss position, are summarized as follows: 

December 31, 2017
U.S. Treasury securities
U.S. Government-sponsored enterprises
State and municipals:
Taxable
Tax-exempt

Residential Mortgage-backed securities:
U.S. Government agencies
U.S. Government-sponsored 
enterprises

Commercial Mortgage-backed securities:
U.S. Government-sponsored 
enterprises
Total

Less Than 12 Months

Unrealized
Losses

12 Months or More
Fair
Value

Unrealized
Losses

$

170
445

$

2,464
51,365

$

58
1,295

$

Fair
Value
17,350
39,096

$

Total

Fair
Value
19,814
90,461

Unrealized
Losses

$

228
1,740

54,788

9,484

12,537

454

39

103

3,808

3,968

6,504

61

46

58,596

13,452

132

19,041

515

85

235

6,195
$ 139,450

120
$ 1,331

$ 68,109

$ 1,592

6,195
$ 207,559

120
$ 2,923

December 31, 2016
U.S. Treasury securities
U.S. Government-sponsored enterprises
State and municipals:
Taxable
Tax-exempt

Residential Mortgage-backed securities:
U.S. Government agencies
U.S. Government-sponsored enterprises

Total

Less Than 12 Months

Fair
Value

$

7,438
59,460

Unrealized
Losses

$

132
1,480

12 Months or More
Fair
Value

Unrealized
Losses

1,035
55,166

39
707

$

226

Total

Fair
Value

$

7,438
59,460

Unrealized
Losses

$

132
1,480

1,035
55,392

39
707

5,917
16,412
$ 145,428

27
85
$ 2,470

1,496
2,712
$ 4,434

$

$

20
74
94

7,413
19,124
$ 149,862

47
159
$ 2,564

The Company had 186 investment securities, consisting of 103 tax-exempt state and municipal obligations, seven U.S. 
Treasury securities, one taxable state and municipal obligation, 35 U.S. Government-sponsored enterprise securities and 
40 mortgage-backed securities that were in unrealized loss positions at December 31, 2017. Of these securities, one U.S. 
Treasury security, twenty U.S. Government–sponsored enterprise securities, seventeen mortgage-backed securities and 
seven tax-exempt state and municipal 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 December 31, 2017. 

There was no OTTI recognized for each of the years in the three-year period ended December 31, 2017. 

-92-

4. Loans, net and allowance for loan losses: 

The major classifications of loans outstanding, net of deferred loan origination fees and costs at December 31, 2017 and 
2016 are summarized as follows. Net deferred loan costs included in loan balances were $575 and $579 in 2017 and
2016, respectively. 

Commercial
Real estate:

Commercial
Residential

Consumer

Total

December 31, 2017
476,199

$

December 31, 2016
408,814

$

786,210
287,935
142,721
1,693,065

$

700,144
289,781
134,226
1,532,965

$

Loans outstanding to directors, executive officers, principal stockholders or to their affiliates totaled $15,169 and 
$15,614 at December 31, 2017 and 2016, respectively. Advances and repayments during 2017 totaled $1,133 and $1,578 
respectively. There were no related party loans that were classified as nonaccrual, past due, or restructured at 
December 31, 2017 and 2016. During 2017, the Company made donations of $1.1 million to a community foundation of 
which one of the Company’s directors is Chairman and CEO. The community foundation is a charitable organization 
approved by the Pennsylvania Department of Community and Economic Development under the Educational 
Improvement Tax Credit (EITC) program, which permits the Company to receive tax credits toward Pennsylvania state 
taxes while its donations are used to improve local education. During 2016, the Company made donations of $0.9 million 
to the community foundation.

Deposits from related parties held by Peoples Bank amounted to $10.0 million at December 31, 2017 and $9.3 million at 
December 31, 2016.

At December 31, 2017, the majority of the Company’s loans were at least partially secured by real estate in the eastern 
Pennsylvania and southern tier New York counties that make up the market serviced by Peoples Security Bank & Trust 
Company.  Therefore, a primary concentration of credit risk is directly related to the real estate market in these regions. 
Changes in the general economy, local economy or in the real estate market could affect the ultimate collectability of this 
portion of the loan portfolio. Management does not believe there are any other significant concentrations of credit risk 
that could affect the loan portfolio. 

-93-

The changes in the allowance for loan losses account by major classification of loan for the year ended December 31, 
2017, 2016, and 2015 were as follows: 

December 31, 2017
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provisions
Ending balance

Ending balance: individually 
evaluated for impairment
Ending balance: collectively 
evaluated for impairment
Ending balance: loans acquired 
with deteriorated credit quality

Loans receivable:
Ending balance

Ending balance: individually 
evaluated for impairment
Ending balance: collectively 
evaluated for impairment
Ending balance: loans acquired 
with deteriorated credit quality

Commercial

Commercial

Residential

Consumer

Unallocated

Total

Real estate

$

$

$

3,799
(173)
20
1,406
5,052

159

4,893

$

$

$

5,847
(706)
124
2,283
7,548

$

$

4,707
(533)
44
762
4,980

$

$

1,608
(737)
160
349
1,380

263

336

8

7,285

4,644

1,372

$

$ 476,199

$ 786,210

$ 287,935

$ 142,721

2,121

3,644

3,763

177

473,736

781,921

284,142

142,544

$

342

$

645

$

30

$

$

$

$

$

$

— $

—

$

$

15,961
(2,149)
348
4,800
18,960

766

18,194

—

$ 1,693,065

9,705

1,682,343

$

1,017

December 31, 2016
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provisions
Ending balance

Ending balance: individually 
evaluated for impairment
Ending balance: collectively 
evaluated for impairment
Ending balance: loans acquired 
with deteriorated credit quality

Loans receivable:
Ending balance

Ending balance: individually 
evaluated for impairment
Ending balance: collectively 
evaluated for impairment
Ending balance: loans acquired 
with deteriorated credit quality

Commercial

Commercial

Residential

Consumer

Unallocated

Total

Real estate

$

$

$

3,042
(776)
86
1,447
3,799

225

3,574

$

$

$

4,245
(858)
122
2,338
5,847

$

$

4,082
(339)
69
895
4,707

$

$

1,583
(495)
177
343
1,608

1,197

520

4,650

4,187

1,608

$

$ 408,814

$ 700,144

$ 289,781

$ 134,226

1,724

5,820

3,543

155

406,127

692,987

286,201

134,071

$

963

$

1,337

$

37

$

$

$

$

$

23

$

(23)

$

$

12,975
(2,468)
454
5,000
15,961

1,942

14,019

—

$ 1,532,965

11,242

1,519,386

$

2,337

-94-

December 31, 2015
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provisions
Ending balance

Ending balance: individually 
evaluated for impairment
Ending balance: collectively 
evaluated for impairment
Ending balance: loans 
acquired with deteriorated 
credit quality

Loans receivable:
Ending balance

Ending balance: individually 
evaluated for impairment
Ending balance: collectively 
evaluated for impairment
Ending balance: loans 
acquired with deteriorated 
credit quality

Commercial

Commercial

Residential

Consumer

Unallocated

Total

Real estate

$

$

$

2,321
(246)
77
890
3,042

$

$

3,037
(325)
144
1,389
4,245

$

$

759

126

2,283

4,012

3,690
(523)
26
889
4,082

1,138

2,944

$

107

$

1,290
(333)
117
509
1,583

117

1,466

$

$

$

$ 365,767

$ 567,277

$ 306,218

$ 101,603

1,196

4,006

4,917

148

363,620

561,903

301,252

101,455

$

951

$

1,368

$

49

$

$

$

$

$

$

$

$

23
23

10,338
(1,427)
364
3,700
12,975

2,140

23

10,728

$

107

$ 1,340,865

10,267

1,328,230

$

2,368

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 December 31, 
2017 and 2016: 

December 31, 2017
Commercial
Real estate:

Commercial
Residential

Consumer

Total

December 31, 2016
Commercial
Real estate:

Commercial
Residential

Consumer

Total

Pass
472,185

$

764,320
282,484
142,507
$ 1,661,496

Pass
398,867

$

674,914
282,737
133,983
$ 1,490,501

Special
Mention
$ 1,958

13,015
18

$ 14,991

Special
Mention
$ 6,222

10,392
233

$ 16,847

-95-

Substandard Doubtful
$

2,056

$

8,875
5,433
214
$ 16,578

$

Substandard Doubtful
$

3,725

$

14,838
6,811
243
$ 25,617

$

Total
476,199

$

786,210
287,935
142,721
$ 1,693,065

Total
408,814

$

700,144
289,781
134,226
$ 1,532,965

Information concerning nonaccrual loans by major loan classification at December 31, 2017 and 2016 is summarized as 
follows: 

Commercial
Real estate:

Commercial
Residential

Consumer

Total

December 31, 2017
860

$

December 31, 2016
934

$

3,821
2,994
177
7,852

$

7,016
3,003
155
11,108

$

The major classification of loans by past due status at December 31, 2017 and 2016 are summarized as follows: 

December 31, 2017
Commercial
Real estate:

Commercial
Residential

Consumer

Total

December 31, 2016
Commercial
Real estate:

Commercial
Residential

Consumer

Total

30-59 Days
Past Due
124
$

60-89 Days
Past Due
216
$

1,722
1,134
1,101
$ 4,081

194
1,551
364
$ 2,325

30-59 Days
Past Due
249
$

60-89 Days
Past Due
75
$

4,782
2,100
962
$ 8,093

527
354
259
$ 1,215

Greater
than 90
Days
860

$

3,821
3,543
363
$ 8,587

Greater
than 90
Days
934

$

7,016
3,561
441
$ 11,952

Total Past

Due
1,200

$

5,737
6,228
1,828
$ 14,993

Total Past

Due
1,258

$

12,325
6,015
1,662
$ 21,260

Current
474,999

Total Loans
476,199

$

$

780,473
281,707
140,893
$ 1,678,072

786,210
287,935
142,721
$ 1,693,065

Current
407,556

Total Loans
408,814

$

$

Loans > 90
Days and
Accruing

$

$

549
186
735

Loans > 90
Days and
Accruing

687,819
283,766
132,564
$ 1,511,705

700,144
289,781
134,226
$ 1,532,965

$

$

558
286
844

-96-

The following tables summarize information concerning impaired loans as of and for the years ended December 31, 
2017, 2016 and 2015 by major loan classification: 

December 31, 2017
With no related allowance:
Commercial
Real estate:

Commercial
Residential

Consumer

Total

With an allowance recorded:
Commercial
Real estate:

Commercial
Residential

Consumer

Total

Commercial
Real estate:

Commercial
Residential

Consumer

Total

December 31, 2016
With no related allowance:
Commercial
Real estate:

Commercial
Residential

Consumer

Total

With an allowance recorded:
Commercial
Real estate:

Commercial
Residential

Consumer

Total

Commercial
Real estate:

Commercial
Residential

Consumer

Total

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

For the Year Ended

Average
Recorded
Investment

Interest
Income
Recognized

$

1,279

$ 1,439

$

1,668

$

2,888
2,196
169
6,532

3,190
2,672
181
7,482

1,184

1,218

1,401
1,597
8
4,190
2,463

1,496
1,759
8
4,481
2,657

4,289
3,793
177
$ 10,722

4,686
4,431
189
$ 11,963

$

2,985
2,227
173
7,053

991

2,202
1,335
20
4,548
2,659

5,187
3,562
193
$ 11,601

159

263
336
8
766
159

263
336
8
766

$

179

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

For the Year Ended

Average
Recorded
Investment

Interest
Income
Recognized

$

2,404

$ 3,213

$

1,461

$

2,364
2,205
155
7,128

3,018
2,388
155
8,774

4,300
2,133
147
8,041

283

283

225

859

4,793
1,375

6,451
2,687

4,793
1,376

6,452
3,496

7,157
3,580
155
$ 13,579

7,811
3,764
155
$ 15,226

1,197
520

1,942
225

1,197
520

$ 1,942

2,366
1,185
50
4,460
2,320

6,666
3,318
197
$ 12,501

-97-

43

24
21

88

50

18
23

91
93

42
44

48

71
35

154

2
7

9
48

73
42

$

163

December 31, 2015
With no related allowance:
Commercial
Real estate:

Commercial
Residential

Consumer

Total

With an allowance recorded:
Commercial
Real estate:

Commercial
Residential

Consumer

Total

Commercial
Real estate:

Commercial
Residential

Consumer

Total

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

For the Year Ended

Average
Recorded
Investment

Interest
Income
Recognized

$

1,352

$ 2,720

$

1,848

$

2,731
3,048
31
7,162

3,408
3,231
31
9,390

2,394
2,664
17
6,923

795

795

$

759

1,680

2,643
1,918
117
5,473
2,147

2,643
1,918
117
5,473
3,515

233
1,138
117
2,247
759

4,155
1,776
126
7,737
3,528

5,374
4,966
148
$ 12,635

6,051
5,149
148
$ 14,863

233
1,138
117
$ 2,247

6,549
4,440
143
$ 14,660

87

95
4

186

40

86
30

156
127

181
34

$

342

There were no amounts of interest income recognized using the cash-basis method on impaired loans for the years ended 
December 31, 2017, 2016 and 2015. 

As a part of the Merger, an adjustment was made to reflect the elimination of the allowance for loan losses related to the 
Peoples Neighborhood Bank loan portfolio, as required by purchase accounting standards. As a result, the acquired loan 
portfolio was evaluated based on risk characteristics and other credit and market criteria to determine a credit quality 
adjustment to the fair value of the loans acquired. The acquired loan balance was reduced by the aggregate amount of the 
credit quality adjustment in determining the fair value of the loans. The credit quality adjustment does not account for 
acquired loans deemed to be impaired in accordance with Accounting Standard Codification 310-30-30, previously 
known as Statement of Position (SOP) 03-3, “Accounting for Certain Loans Acquired in a Transfer.” These impaired 
loans are accounted for in the credit adjustment on distressed loans, which represents the portion of the loan balance that 
has been deemed uncollectible based on the management’s expectations of future cash flows for each respective loan. 
Based on management’s evaluation of the acquired loan portfolio, 29 loans were deemed impaired resulting in a credit 
adjustment on distressed loans of $6,892. As of December 31, 2017, there were a total of nine loans remaining with a 
credit adjustment of $1,430. Management performed an evaluation of expected future cash flows, including the 
anticipated cash flow from the sale of collateral, and compared that to the carrying amount of the impaired loans. Based 
on these evaluations, the Company has determined that no additional reserve was required against the acquired impaired 
loans at December 31, 2017. 

-98-

The changes in the accretable yield of acquired loans accounted for under ASC310-30 for the years ended December 31, 
2017, 2016 and 2015, were as follows: 

Year ended December 31
Beginning Balance, January 1
Reclassification from Nonaccretable
Accretion
Charge-offs
Payments
Ending Balance, December 31

2017
185

$

(185)

$

2016

554
(369)

2015
60

$

(60)

$ —

$

185

$ —

Included in the commercial loan, commercial real estate and residential real estate categories are troubled debt 
restructurings that were classified as impaired. Trouble debt restructurings totaled $3,074, $1,909 and $2,861 at 
December 31, 2017, 2016 and 2015, respectively. 

There were six loans modified in 2017, three loans modified in 2016 and nine loans modified in 2015 that resulted in 
troubled debt restructurings. The following tables summarize the loans whose terms have been modified resulting in 
troubled debt restructurings during the year ended December 31, 2017 and 2016. 

December 31, 2017
Commercial 
Commercial real estate
Residential mortgage
Total

December 31, 2016
Commercial 
Commercial real estate
Residential mortgage
Total

Number
of Contracts
2
3
1
6

Number
of Contracts
1

2
3

Pre-Modification
Outstanding Recorded
Investment

$

$

885
721
64
1,670

Pre-Modification
Outstanding Recorded
Investment

$

$

1,500

216
1,716

Post-Modification
Outstanding
Recorded Investment
885
$
721
64
1,670

$

Recorded
Investment
864
$
700
64
1,628

$

Post-Modification
Outstanding
Recorded Investment
1,150
$

Recorded
Investment
1,150
$

$

216
1,366

207
1,357

$

There were no payment defaults within 12 months of its modification on loans considered troubled debt restructurings 
for the year ended December 31, 2017, one payment default for the year ended December 31, 2016 totaling $43 and two 
payment defaults for the year ended December 31, 2015 totaling $166.

The amount of residential loans in the formal process of foreclosure totaled $1,684 at December 31, 2017 and $1,529 at 
December 31, 2016.

5. Off-balance sheet financial instruments: 

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the 
financing needs of its customers. These financial instruments include commitments to extend credit, unused portions of 
lines of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in 
excess of the amount recognized in the consolidated balance sheets. 

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for 
commitments to extend credit, unused portions of lines of credit and standby letters of credit is represented by the 
contractual amounts of those instruments. The Company follows the same credit policies in making commitments and 
conditional obligations as it does for on-balance sheet instruments. The Company records a valuation allowance for off-

-99-

balance sheet credit losses, if deemed necessary, separately as a liability. An allowance of $61 and $58 was recorded as 
of December 31, 2017 and 2016, respectively.

The contractual amounts of off-balance sheet commitments at December 31, 2017 and 2016 are summarized as follows: 

December 31
Commitments to extend credit
Unused portions of lines of credit
Standby letters of credit

2017
$ 324,984
56,244
23,387
$ 404,615

2016
$ 235,878
57,784
31,051
$ 324,713

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition 
established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total 
commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed 
expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s 
credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon 
extension of credit, is based on management’s credit evaluation. Collateral held varies but may include personal or 
commercial real estate, accounts receivable, inventory and equipment. 

Unused portions of lines of credit, including home equity and overdraft protection agreements, are commitments for 
possible future extensions of credit to existing customers. Unused portions of home equity lines are collateralized and 
generally have fixed expiration dates. Overdraft protection agreements are uncollateralized and usually do not carry 
specific maturity dates. Unused portions of lines of credit ultimately may not be drawn upon to the total extent to which 
the Company is committed. 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a 
customer to a third party. Generally, all standby letters of credit expire within twelve months. The credit risk involved in 
issuing standby letters of credit is essentially the same as that involved in extending other loan commitments. The 
Company requires collateral supporting these standby letters of credit as deemed necessary. Collateral supporting 
standby letters of credit amounted to $14,049 at December 31, 2017 and $27,072 at December 31, 2016. The carrying 
value of the liability for the Company’s obligations under guarantees for standby letters of credit was not material at 
December 31, 2017 and 2016.

6. Premises and equipment, net: 

Premises and equipment at December 31, 2017 and 2016 are summarized as follows: 

December 31
Land
Premises and leasehold improvements
Furniture, fixtures and equipment

Less: accumulated depreciation

2017
$ 5,875
42,472
13,249
61,596
24,039
$ 37,557

2016
$ 5,535
38,604
11,247
55,386
22,126
$ 33,260

Depreciation and amortization included to noninterest expense amounted to $1,950, $1,661, and $1,595 in 2017, 2016 
and 2015, respectively. 

-100-

Pursuant to the terms of non-cancelable lease agreements in effect at December 31, 2017, pertaining to banking premises 
and equipment, future minimum annual rent commitments under various operating leases are summarized as follows: 

2018
2019
2020
2021
2022
Thereafter

$

494
476
478
437
408
966
$ 3,259

The leases contain options to extend for periods from one to ten years. The cost of such options is not included in the 
annual rental commitments. Rent expense for the years ended December 31, 2017, 2016 and 2015 amounted to $407, 
$416 and $397, respectively.

7. Intangible assets, net: 

The gross carrying amount of core deposit intangible assets totaled $8,146 at December 31, 2017 and 2016. The gross 
carrying amount of trade name intangible assets totaled $203 at December 31, 2017 and 2016. The gross carrying 
amount of the intangible asset related to the acquisition of an asset management and retirement plan services company 
acquired in 2015 totaled $1,091 at December 31, 2017 and 2016.  The accumulated amortization on core deposit 
intangible assets was $5,810 and $4,958 at December 31, 2017 and 2016, respectively. The accumulated amortization on 
trade name intangible assets was $128 and $102 at December 31, 2017 and 2016, respectively. The accumulated 
amortization on the asset management and retirement plan services intangible asset was $324 and $169 at December 31, 
2017 and 2016, respectively. Amortization expense amounted to $1,034, $1,186 and $1,195 in 2017, 2016 and 2015, 
respectively. 

The estimated amortization expense on intangible assets in years subsequent to December 31, 2017, is as follows: 

2018
2019
2020
2021
2022
Thereafter

$

882
730
606
491
363
106

-101-

8. Other assets: 

The major components of other assets at December 31, 2017 and 2016 are summarized as follows: 

Other real estate owned
Investment in low income housing partnership
Mortgage servicing rights
Bank owned life insurance
Restricted equity securities
Net deferred tax asset
Other assets
Total

December 31, 2017
284
7,842
728
33,836
8,562
3,906
9,311
64,469

$

$

December 31, 2016
393
8,312
698
33,073
7,051
5,571
10,403
65,501

$

$

The Company originates one-to-four family residential mortgage loans for sale in the secondary market with servicing 
rights retained. Mortgage loans serviced for others are not included in the accompanying Consolidated Balance Sheets. 
The unpaid principal balances of mortgage loans serviced for others were $174,017 at December 31, 2017 and $171,034 
at December 31, 2016.

9. Deposits: 

The major components of interest-bearing and noninterest-bearing deposits at December 31, 2017 and 2016 are 
summarized as follows: 

December 31
Interest-bearing deposits:

Money market accounts
Now accounts
Savings accounts
Time deposits less than $250
Time deposits $250 or more

Total interest-bearing deposits

Noninterest-bearing deposits

Total deposits

2017

2016

$

278,494
389,734
387,827
220,812
61,422
1,338,289
380,729
$ 1,719,018

$

224,414
330,914
394,033
233,513
52,197
1,235,071
353,686
$ 1,588,757

The aggregate amounts of maturities for all time deposits at December 31, 2017, are summarized as follows: 

2018
2019
2020
2021
2022
Thereafter

$ 171,043
36,854
25,626
18,952
12,113
17,646
$ 282,234

The aggregate amount of deposits reclassified as loans was $298 at December 31, 2017, and $194 at December 31, 2016. 
Management evaluates transaction accounts that are overdrawn for collectability as part of its evaluation for credit 
losses. 

-102-

10. Short-term borrowings: 

Short-term borrowings consisted of FHLB advances representing overnight or less than 30-day borrowings at 
December 31, 2017 and 2016: 

At and for the year ended December 31, 2017
Weighted
Average
Rate for
the Year

Maximum
Month-End
Balance

Average
Balance

Weighted
Average
Rate at End
of the Year

Ending
Balance

FHLB advances

$

123,675 $

76,846 $

123,675

1.17 %

1.54 %

At and for the year ended December 31, 2016

Ending
Balance

Average
Balance

Maximum
Month-End
Balance

Weighted
Average
Rate for
the Year

Weighted
Average
Rate at End
of the Year

FHLB advances

$

82,700 $

67,553 $

86,300

0.60

0.74 %

Peoples Bank has an agreement with the FHLB which allows for borrowings up to its maximum borrowing capacity 
based on a percentage of qualifying collateral assets. At December 31, 2017, Peoples Bank’s maximum borrowing 
capacity was $631,782 of which $173,409 was outstanding in borrowings. Advances with the FHLB are secured under 
terms of a blanket collateral agreement by a pledge of FHLB stock and certain other qualifying collateral, such as 
investments and mortgage-backed securities and mortgage loans. Interest accrues daily on the FHLB advances based on 
rates of the FHLB discount notes. This rate resets each day. 

-103-

11. Long-term debt: 

Long-term debt consisting of advances from the FHLB at December 31, 2017 and 2016 are as follows: 

Interest Rate

Due
February 2017
September 2017
April 2018
December 2018
December 2019
December 2019
December 2019
June 2020
December 2020
March 2023

Fixed
4.99 %
2.36
3.83
1.27

1.62
1.74
1.84
4.69

Adjustable

2017

2016

3.04 %
2.82

$

77
6,500
156
10,000
3,000
6,300
10,000
5,000
5,000
12,101
$ 49,734 $ 58,134

40
10,000
3,000
6,300
10,000
5,000
5,000
10,394

Maturities of long-term debt, by contractual maturity, in years subsequent to December 31, 2017 are as follows: 

2018
2019
2020
2021
2022
Thereafter

$ 11,828
21,174
11,963
2,058
2,156
555
$ 49,734

None of the advances from the FHLB are convertible. At December 31, 2017, long-term debt consist of $40,434 at fixed 
rates and $9,300 at adjustable rates which reset quarterly based on three-month Libor plus 1.21% to plus 1.57%.

-104-

12. Fair value of financial instruments: 

Assets and liabilities measured at fair value on a recurring basis at December 31, 2017 and 2016 are summarized as 
follows: 

December 31, 2017
U.S. Treasury securities
U.S. Government-sponsored enterprises
State and Municipals:
Taxable
Tax-exempt

Mortgage-backed securities:

U.S. Government agencies
U.S. Government-sponsored enterprises

Common equity securities
Interest rate swap-other assets
Interest rate swap-other liabilities

Total

December 31, 2016
U.S. Treasury securities
U.S. Government-sponsored enterprises
State and Municipals:
Taxable
Tax-exempt

Mortgage-backed securities:

U.S. Government agencies
U.S. Government-sponsored enterprises

Total

Amount
$ 19,814
93,648

15,047
103,833

14,434
25,726
46
655
(733)
$ 272,470

$

Amount

7,438
80,913

15,225
112,600

21,042
22,192
$ 259,410

Fair Value Measurement Using
Significant

Quoted Prices in

Significant

Active Markets for Other Observable Unobservable

Identical Assets
(Level 1)

$

19,814

Inputs
(Level 2)

Inputs
(Level 3)

$

$

93,648

15,047
103,833

14,434
25,726

655
(733)
252,610

$

46

$

19,860

$

Fair Value Measurement Using
Significant

Quoted Prices in

Significant

Active Markets for Other Observable Unobservable

Inputs
(Level 2)

Inputs
(Level 3)

Identical Assets
(Level 1)

$

7,438

$

80,913

15,225
112,600

21,042
22,192
251,972

$

7,438

$

$

$

Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2017 and 2016 are summarized as 
follows: 

December 31, 2017
Impaired loans
Other real estate owned

Fair Value Measurement Using

Quoted Prices in

Significant

Significant

Active Markets for Other Observable Unobservable

Identical Assets
(Level 1)

Inputs
(Level 2)

Amount
$ 3,424
216
$

Inputs
(Level 3)

$
$

3,424
216

-105-

December 31, 2016
Impaired loans
Other real estate owned

Fair Value Measurement Using

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

$
$

3,193
371

Amount
$ 3,193
371
$

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

December 31, 2017
Impaired loans

Other real estate owned

December 31, 2016
Impaired loans

Other real estate owned

Valuation Techniques

Fair Value
Estimate
$ 3,424 Appraisal of collateral Appraisal adjustments
Liquidation expenses
216 Appraisal of collateral Appraisal adjustments
Liquidation expenses

Unobservable Input

$

Range
(Weighted Average)
4.0% to 97.0% (67.2)%
3.0% to 6.0% (4.9)%
25.0% to 41.3% (30.7)%
3.0% to 6.0% (5.0)%

Quantitative Information about Level 3 Fair Value Measurements

Valuation Techniques

Fair Value
Estimate
$ 3,193 Appraisal of collateral Appraisal adjustments
Liquidation expenses
371 Appraisal of collateral Appraisal adjustments
Liquidation expenses

Unobservable Input

$

Range
(Weighted Average)
18.0% to 97.0% (74.5)%
3.0% to 6.0% (5.3)%
25.0% to 54.6% (43.1)%
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. 

-106-

The carrying and fair values of the Company’s financial instruments at December 31, 2017 and 2016 and their placement 
within the fair value hierarchy are as follows: 

December 31, 2017
Financial assets:
Cash and cash equivalents
Investment securities:

Available-for-sale
Held-to-maturity

Loans held for sale
Net loans
Accrued interest receivable
Mortgage servicing rights
Restricted equity securities
Other assets
Interest rate swaps

Total

Financial liabilities:
Deposits
Short-term borrowings
Long-term debt
Accrued interest payable
Interest rate swaps

Total

December 31, 2016
Financial assets:
Cash and cash equivalents
Investment securities:

Available-for-sale
Held-to-maturity

Loans held for sale
Net loans
Accrued interest receivable
Mortgage servicing rights
Restricted equity securities
Total

Financial liabilities:
Deposits
Short-term borrowings
Long-term debt
Accrued interest payable
Total

Fair Value Hierarchy

Quoted
Prices in
Active
Markets for
Identical
Assets
(level 1)

Significant
Other
Observable
Inputs
(level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Value

Fair
Value

$

37,488

$

37,488

$ 37,488

272,548
9,274
106
1,674,105
6,936
728
8,562

655
$ 2,010,402

$ 1,719,018
123,675
49,734
497
733
$ 1,893,657

272,548
9,547
106
1,645,292
6,936
1,638
8,562
2,249
655
$ 1,985,021

$ 1,666,284
123,675
50,147
497
733
$ 1,841,336

19,860

$

252,688
9,547
106

6,936
1,638
8,562

655

$ 1,645,292

2,249

$ 1,666,284
123,675
50,147
497
733

Fair Value Hierarchy

Quoted
Prices in
Active
Markets for
Identical
Assets
(level 1)

Significant
Other
Observable
Inputs
(level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Value

Fair
Value

$

39,941

$

39,941

$ 39,941

259,410
10,517

259,410
10,714

7,438

$

251,972
10,714

1,517,004
6,228
698
7,051
$ 1,840,849

1,507,936
6,228
1,587
7,051
$ 1,832,867

$ 1,588,757
82,700
58,134
462
$ 1,730,053

$ 1,587,701
82,700
58,987
462
$ 1,729,850

-107-

$ 1,507,936

6,228
1,587
7,051

$ 1,587,701
82,700
58,987
462

13. Derivatives and hedging activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The 
Company principally manages its exposures to a wide variety of business and operational risks through management of 
its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, 
primarily by managing the amount, sources, and duration of its assets and liabilities. The Company’s existing interest 
rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage 
interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its 
derivative instruments in order to minimize its net risk exposure resulting from such transactions.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification 
on the Balance Sheet as of December 31, 2017.

Asset Derivatives
As of December 31, 2017

Asset Derivatives
As of December 31, 2016

Liability Derivatives
As of December 31, 2017

Liability Derivatives
As of December 31, 2016

Balance Sheet
Location

Fair Value

Balance Sheet
Location

Fair Value

Balance Sheet
Location

Fair Value

Balance Sheet
Location

Fair Value

Other Assets
(cid:1)

$

$

655 Other Assets

655

$

$

Other Liabilities
(cid:1)

$

$

733 Other Liabilities

$

(cid:1)

733

$

Derivatives not designated as hedging 
instruments
Interest Rate Products

Total derivatives not designated as
hedging instruments 

Non-designated Hedges

None of the Company’s derivatives are designated in qualifying hedging relationships. Derivatives not designated as 
hedges are not speculative and result from a service the Company provides to certain customers, which the Company 
implemented during the third quarter of 2017. The Company executes interest rate swaps with commercial banking 
customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged 
by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net 
risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the 
strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are 
recognized directly in earnings. As of December 31, 2017, the Company had 5 interest rate swaps with an aggregate 
notional amount of $55,928 related to this program.

Effect of Derivative Instruments on the Income Statement

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of 
Income and Comprehensive Income for the years ended December 31, 2017 and 2016.

Derivatives Not Designated as Hedging Instruments

Amount of Gain or
(Loss)(cid:1)Recognized in
Location of Gain or (Loss)
Income on(cid:1)Derivative
Recognized in Income on Twelve Months Ended Twelve Months Ended

Amount of Gain or
(Loss)(cid:1)Recognized in
Income on(cid:1)Derivative

Derivative

December 31, 2017

December 31, 2016

Interest Rate Products

Other non-interest income

Total

$

$

(79)

(79)

$

$

-108-

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company 
defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by 
the lender, then the Company could also be declared in default on its derivative obligations.

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the 
Company fails to maintain its status as a well capitalized institution, then the counterparty could terminate the derivative 
positions and the Company would be required to settle its obligations under the agreements.

The Company has agreements with certain of its derivative counterparties that contain provisions that require the 
Company’s debt to maintain an investment grade credit rating from each of the major credit rating agencies. If the 
Company’s credit rating is reduced below investment grade then a termination event shall be deemed to have occurred 
and the non-affected counterparty shall have the right but not obligation to terminate all affected transactions under the 
agreement.

As of December 31, 2017 the termination value of derivatives in a net liability position, which includes accrued interest 
but excludes any adjustment for nonperformance risk, related to these agreements was $79. The Company has minimum
collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $880 against its 
obligations under these agreements. The Company was in compliance with the terms of the above noted agreements at 
December 31, 2017.

14. Stock plans: 

The 2008 long-term incentive plan (“2008 Plan”) allowed for eligible participants to be granted equity awards. The 2008 
Plan was a legacy plan of Penseco Financial Services Corporation and no awards may be made under the 2008 Plan after 
January 15, 2018. Under the 2008 Plan the Compensation Committee of the Board of Directors has broad authority with 
respect to awards granted under the 2008 Plan, including, without limitation, the authority to: 

•(cid:1) Designate the individuals eligible to receive awards under the 2008 Plan. 

•(cid:1) Determine the size, type and date of grant for individual awards, provided that awards approved by the 

Committee are not effective unless and until ratified by the Board of Directors. 

•(cid:1)

Interpret the 2008 Plan and award agreements issued with respect to individual participants. 

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

•(cid:1) Select the persons to be granted awards under the 2017 Plan.

•(cid:1) Determine the type, size and term of awards.

•(cid:1) Determine whether such performance objectives and conditions have been met.

•(cid:1) Accelerate the vesting or excercisability of an award.

Persons eligible to receive awards under the 2008 Plan and 2017 Plan include directors, officers, employees, consultants 
and other service providers of the Company and its subsidiaries. 

-109-

As of December 31, 2017, there were 120,116 shares of the Company’s common stock available for grant as awards 
pursuant to the 2008 Plan and there were 98,462 shares of the Company’s common stock available for grant as awards 
pursuant to the 2017 Plan. The 2008 Plan expired in January 2018, but will remain in effect in accordance with its terms 
to govern outstanding awards under that plan.  If any outstanding awards under the 2017 Plan are forfeited by the holder 
or canceled by the Company, the underlying shares would be available for regrant to others. 

The 2008 Plan authorizes grants of stock options, stock appreciation rights, dividend equivalents, performance awards, 
restricted stock and restricted stock units. The 2017 Plan authorizes grants of stock options, stock appreciation rights, 
cash awards, performance awards, restricted stock and restricted stock units. In 2017, the Company awarded 2,020 
shares of non-performance-based restricted stock, bringing the total of nonvested restricted stock awards to 14,382 
shares, and 7,071 performance-based restricted stock units under the 2008 Plan. Also in 2017, the Company awarded 342 
shares of non-performance based restricted stock and 1,196 performance based restricted stock units under the 2017 
Plan. A total of 10,542 restricted stock awards granted under the 2008 Plan vested in 2017. In 2016, the Company did 
not make any awards under the 2008 Plan. 

The non-performance restricted stock grants made in 2017 vest equally over three years from the grant date.  Grants of 
restricted stock made in prior periods cliff vest after five years.  The performance-based restricted stock units vest three 
years after the grant date and include conditions based on the Company’s three year cumulative diluted earnings per 
share and three-year average return on equity that determines the number of restricted stock units that may vest.

The activity related to restricted stock for each of the years ended December 31, 2017, 2016 and 2015 was as follows: 

Year Ended December 31
Nonvested, January 1
Granted shares
Vested shares
Forfeited shares
Nonvested, December 31

2017
12,362
2,362
10,542

2016
14,309

2015
14,309

1,947

4,182

12,362

14,309

The Company expenses the fair value of all-share based compensation over the requisite service period commencing at 
grant date.  The fair value of restricted stock is expensed on a straight-line basis. The Company periodically assesses the 
probability of achievement of the performance criteria and adjusts the amount of compensation expense accordingly. 
Compensation is recognized over the vesting period and adjusted for the probability of achievement of the performance 
criteria.  The Company classifies share-based compensation for employees within “salaries and employee benefits 
expense” on the Consolidated Statements of Income and Comprehensive Income.

The Company recognized $156 for awards granted under the 2008 Plan, and $21 for awards granted under the 2017 Plan.  
The Company recognized $71 and $69 of compensation expense for the years ended December 31, 2016, and 2015, 
respectively for awards granted under the 2008 Plan. As of December 31, 2017, the Company had $287 of unrecognized 
compensation expense associated with restricted stock awards. The remaining cost is expected to be recognized over a 
weighted average vesting period of 2 years.

15. Employee benefit plans: 

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

Under the ESOP, amounts voted by the Company’s Board of Directors are paid into the ESOP and each employee is 
credited with a share in proportion to their annual compensation. All contributions to the ESOP are invested in or will be 
invested primarily in Company stock. Distribution of a participant’s ESOP account occurs upon retirement, death or 
termination in accordance with the plan provisions. 

-110-

Under the Retirement Profit Sharing Plan, amounts approved by the Board of Directors have been paid into a fund and 
each employee was credited with a share in proportion to their annual compensation. Upon retirement, death or 
termination, each employee is paid the total amount of their credits in the fund in one of a number of optional ways in 
accordance with the plan provisions. Eligible employees may elect deferrals of up to the maximum amounts permitted by 
law. 

The Company contributed $185, $156 and $144 to the ESOP in 2017, 2016 and 2015. In addition, the Company 
contribution of $923, $786 and $778 to the Retirement Profit Sharing Plan in 2017, 2016 and 2015, was comprised of a 
safe harbor contribution of $509, $446 and $430 and a discretionary match of $414, $340 and $348. 

Peoples Bank established a SERP Plan to replace 401(k) plan benefits lost due to compensation limits imposed on 
qualified plans by Federal tax law. The annual benefit is a maximum of 6% of the executive compensation in excess of 
Federal limits. The total liability associated with this plan was $96 and $76 at December 31, 2017 and 2016, 
respectively. The expense associated with the plan was $20, $13 and $15 for 2017, 2016 and 2015 respectively. 

The Company has SERPs for the benefit of certain officers of the Company. At December 31, 2017 and 2016, other 
liabilities include $1,594 and $1,416 accrued under the Plans. Compensation expense includes approximately $314, 
$254, and $157 relating to these SERPs for the years ended December 31, 2017, 2016 and 2015, respectively. 

Under the Employees’ Pension Plan, currently under curtailment, amounts computed on an actuarial basis were being 
paid by the Company into a trust fund. The plan provided for fixed benefits payable for life upon retirement at the age of 
65, based on length of service and compensation levels as defined in the plan. As of June 22, 2008 no further benefits are 
being accrued in this plan. Plan assets of the trust fund are invested and administered by the Trust Department of Peoples 
Bank. 

Information related to the Employees’ Pension Plan is as follows: 

December 31
Change in benefit obligation:

Benefit obligation, beginning
Interest cost
Change in experience gain
Change in actuarial assumptions loss (gain)
Benefits paid
Benefit obligation, ending

Change in plan assets:

Fair value of plan assets, beginning
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets, ending

Funded status at end of year

Pension Benefits

2017

2016

$

$

16,703
650
(13)
395
(800)
16,935

12,644
1,420

(800)
13,264
(3,671)

$

$

17,380
665
(322)
(256)
(764)
16,703

12,331
1,023
54
(764)
12,644
(4,059)

The Society of Actuaries released new mortality tables in 2017 and 2016 which the Company utilized in its pension plan 
remeasurements at December 31, 2017 and 2016. The change in mortality assumption resulted in an increase to the 
benefit obligation of $395 in 2017 and a decrease of $256 in 2016. 

-111-

Amounts recognized in the consolidated balance sheets are as follows: 

December 31

Liabilities
Amounts recognized in the accumulated other comprehensive loss consist of:
Net actuarial loss (gain)
Deferred taxes

Net amount recognized

Pension Benefits

2017

2016

$

$

3,671

$

4,059

(6,628)
1,392

(6,946)
2,431

(5,236)

$

(4,515)

The accumulated benefit obligation for the defined benefit pension plan was $16,935 and $16,703 at December 31, 2017 
and 2016, respectively. 

Components of net periodic pension income and other amounts recognized in other comprehensive income are as 
follows: 

$

Years Ended December 31,
Net periodic pension income:
Interest cost
Expected return on plan assets
Amortization of unrecognized net loss
Net periodic pension income:
Other changes in plan assets and benefit 
obligations recognized in other comprehensive 
income (loss):
Net loss (gain)
Deferred tax
Total recognized in other comprehensive 
income

Total recognized in net period pension 
cost and other comprehensive income

$

2017

Pension Benefits
2016

2015

$

650
(915)
195
(70)

318
(67)

251

$

665
(893)
209
(19)

917
(321)

596

181

$

577

$

696
(931)
198
(37)

296
(104)

192

155

The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive 
loss into net periodic benefit cost over the next fiscal year is $190. 

Weighted-average assumptions used to determine benefit obligations and related expenses were as follows: 

December 31,
Discount rate:

Obligation
Expense

Expected long-term return on plan assets

Pension Benefits

2017

2016

2015

4.00 %
3.75
7.50 %

4.00 %
4.00
7.50 %

4.00 %
4.00
7.50 %

The expected long-term return on plan assets was determined using average historical returns of the Company’s plan 
assets. 

-112-

The Company’s pension plan weighted-average asset allocations at December 31, 2017 and 2016, by asset category are 
as follows: 

December 31,
Asset Category:
Cash and cash equivalents
Equity securities
Corporate bonds
U.S. Government securities

2017

2016

4.1 %
57.4
27.6
10.9
100.0 %

4.2 %

58.0
26.2
11.6
100.0 %

Fair value measurement of pension plan assets at December 31, 2017 and 2016 is as follows: 

December 31, 2017
Cash
Equity securities:

U.S. large cap
International
Fixed income securities:

U.S. Treasuries
U.S. Government agencies
Corporate bonds
Total

December 31, 2016
Cash
Equity securities:

U.S. large cap
International
Fixed income securities:

U.S. Treasuries
U.S. Government agencies
Corporate bonds
Total

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Observable
Inputs
(Level 3)

Total

$

539

$

7,269
350

198
1,247
3,661
13,264

$

Total

$

529

$

7,046
282

498
977
3,312
12,644

$

$

8,158

$

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

539

7,269
350

$

529

7,046
282

$

$

$

$

$

Significant
Observable
Inputs
(Level 3)

198
1,247
3,661
5,106

498
977
3,312
4,787

$

7,857

$

The Company investment policies and strategies with respect to the pension plan include: (i) the Trust and Investment 
Division’s equity philosophy is Large-Cap Core with a value bias. We invest in individual high-grade common stocks 
that are selected from our approved list; (ii) diversification is maintained by having no more than 20% in any industry 
sector and no individual equity representing more than 10% of the portfolio; and (iii) the fixed income style is 
conservative but also responsive to the various needs of our individual clients. Fixed income securities consist of U.S. 
Government Agencies or corporate bonds rated “A” or better. The Company targets the following allocation percentages: 
(i) cash equivalents 10%; (ii) fixed income 40% ; and (iii) equities 50%. 

There is no Company stock included in equity securities at December 31, 2017 or 2016. The Company has not 
determined the amount of the expected contribution to the Employees’ Pension Plan for 2018. 

-113-

The following benefit payments are expected to be paid in the next five years and in the aggregate for the five years 
thereafter: 

2018
2019
2020
2021
2022
Thereafter

16. Income taxes: 

Pension Benefits
835
$
832
846
847
885
4,869

The current and deferred amounts of the provision for income taxes expense (benefit) for each of the years ended 
December 31, 2017, 2016 and 2015 are summarized as follows: 

Year Ended December 31
Current
Deferred

Total

2017

2016

2015

$

$

6,515
1,665
8,180

$

$

6,450
(1,442)
5,008

$

$

5,362
(841)
4,521

The components of the net deferred tax asset at December 31, 2017 and 2016 are summarized as follows: 

December 31

Deferred tax assets:

Allowance for loan losses
Defined benefit plan
Deferred compensation
Capital loss carry forward
Investment securities available-for-sale
Other

Total

Deferred tax liabilities:

Premises and equipment, net
Merger related accounting
Investment securities available-for-sale
Other

Total

Net deferred tax asset

2017

2016

$

$

3,981
1,392
499

260
370
6,502

815
1,243

538
2,596
3,906

$

$

5,586
2,431
705
211

706
9,639

981
2,165
197
725
4,068
5,571

Management believes that future taxable income will be sufficient to utilize deferred tax assets. Core earnings of the 
Company have remained strong and will continue to support the recognition of the deferred tax asset based on future 
growth projections. 

-114-

A reconciliation between the amount of the effective income tax expense and the income tax expense that would have 
been provided at the federal statutory rate of 35.0 percent for the years ended December 31, 2017, 2016 and 2015 is 
summarized as follows: 

Year Ended December 31

2017

2016

2015

Federal income tax at statutory rate
Effect of federal income tax rate changes (Note 1)
Tax exempt interest
Life insurance investment income
Residential housing program tax credits
Other, net

Total

$

$

9,323
2,623
(2,157)
(269)
(1,095)
(245)
8,180

$

$

8,607

$

(2,264)
(277)
(1,128)
70
5,008

$

7,785

(2,008)
(268)
(1,115)
127
4,521

17. Parent Company financial statements: 

CONDENSED BALANCE SHEETS 

December 31
Assets:
Cash and cash equivalents
Investment securities available-for-sale
Investment in bank subsidiary
Due from subsidiaries
Total assets

Liabilities and Stockholders’ Equity:
Other liabilities
Stockholders’ equity

Total liabilities and stockholders’ equity

2017

2016

$

$

$

$

3,932
46
259,147
1,900
265,025

49
264,976
265,025

$

$

$

$

3,948

250,869
1,903
256,720

102
256,618
256,720

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME 

Year Ended December 31
Income:
Dividends from subsidiaries
Other income

Total income

Expense:
Other expenses

Total expenses

Income before taxes and undistributed income
Income tax benefit
Income before undistributed income of 
subsidiaries
Equity in undistributed net income (loss) of 
subsidiaries

Net income
Comprehensive Income

$

$
$

2017

2016

2015

$

9,319
52
9,371

205
205
9,166
(54)

9,220

9,237
18,457
17,500

$
$

$

9,170
46
9,216

259
259
8,957
(75)

9,032

10,551
19,583
17,553

$
$

9,319
40
9,359

243
243
9,116
(70)

9,186

8,537
17,723
16,427

-115-

CONDENSED STATEMENTS OF CASH FLOWS 

Year Ended December 31
Cash flows from operating activities:

Net income
Adjustments:

2017

2016

2015

$

18,457

$

19,583

$

17,723

Net realized gains on sales of securities
Undistributed net income of 
subsidiaries
(Decrease) increase in other assets
Decrease in other liabilities
Stock based compensation

Net cash provided by operating 
activities

Cash flows from investing activities:

Purchase of available-for-sale securities

Net cash provided by investing 
activities

Cash flows from financing activities:
Redemption of common stock
Reissuance of treasury stock
Cash dividends paid

Net cash used in financing 
activities
Decrease in cash

Cash at beginning of year
Cash at end of year

18. Regulatory matters: 

$

(9,237)
(3)
(53)
177

9,341

(43)

(43)

5
(9,319)

(9,314)
(16)
3,948
3,932

$

(10,551)
577
(77)
71

9,603

(604)

(9,170)

(9,774)
(171)
4,119
3,948

$

(8,537)
5,257
(69)
69

14,443

(5,188)

(9,319)

(14,507)
(64)
4,183
4,119

Dividends are paid by the Parent Company from its assets, which are mainly provided by dividends from Peoples Bank. 
Under the Pennsylvania Business Corporation Law of 1988, as amended, the Company may not pay a dividend if, after 
payment, either the Company could not pay its debts as they become due in the usual course of business, or the 
Company’s total assets would be less than its total liabilities. The determination of total assets and liabilities may be 
based upon: (i) financial statements prepared on the basis of GAAP; (ii) financial statements that are prepared on the 
basis of other accounting practices and principles that are reasonable under the circumstances; or (iii) a fair valuation or 
other method that is reasonable under the circumstances. In addition, the Federal Reserve Board has the power to 
prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The Federal 
Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which 
expresses the Federal Reserve Board’s view that a bank holding company should pay cash dividends only to the extent 
that the company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings 
retention that is consistent with the company’s capital needs, asset quality and overall financial condition. The Federal 
Reserve Board also indicated that it would be inappropriate for a bank holding company experiencing serious financial 
problems to borrow funds to pay dividends. Under the prompt corrective action regulations, the Federal Reserve Board 
may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified 
as “undercapitalized.” 

In addition, under the Pennsylvania Banking Code of 1965, as amended, Peoples Bank may only declare and pay 
dividends out of accumulated net earnings, including accumulated net earnings acquired as a result of a merger within 
seven years. Further, Peoples Bank may not declare or pay any dividend unless Peoples Bank’s surplus would not be 
reduced by the payment of the dividend below 100 percent of our capital stock. Pennsylvania law requires that each year 
Peoples Bank set aside as surplus, a sum equal to not less than 10 percent of its net earnings if surplus does not equal at 
least 100 percent of our capital stock. Under federal law and FDIC regulations, an insured bank may not pay dividends if 

-116-

doing so would make it undercapitalized within the meaning of the prompt corrective action law or if in default of its 
deposit insurance fund assessment. 

Although subject to the aforementioned regulatory restrictions, the Company’s consolidated retained earnings at 
December 31, 2017 and 2016 were not restricted under any borrowing agreement as to payment of dividends or 
reacquisition of common stock. 

The Company has paid cash dividends since its formation as a bank holding company in 1986. It is the present intention 
of the Board of Directors to continue this dividend payment policy, however, further dividends must necessarily depend 
upon earnings, financial condition, appropriate legal restrictions and other factors relevant at the time the Board of 
Directors considers payment of dividends. The Penseco merger agreement contemplates that, unless 80 percent of our 
Board of Directors determines otherwise, the Company will pay a quarterly cash dividend in an amount no less than 
$0.31 per share through 2018, provided that sufficient funds are legally available, and that the Company and Peoples 
Bank remain “well-capitalized” in accordance with applicable regulatory guidelines. 

The amount of funds available for transfer from Peoples Bank to the Company in the form of loans and other extensions 
of credit is also limited. Under Federal regulation, transfers to any one affiliate are limited to 10.0 percent of capital and 
surplus. At December 31, 2017, the maximum amount available for transfer from Peoples Bank to the Company in the 
form of loans amounted to $21,968. At December 31, 2017 and 2016, there were no loans outstanding, nor were any 
advances made during 2017 and 2016. 

The Company and Peoples Bank are subject to certain regulatory capital requirements administered by the federal 
banking agencies, which are defined in Section 38 of the Federal Deposit Insurance Corporation Improvement Act of 
1991 (“FDICIA”). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional 
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Peoples 
Bank’s consolidated financial statements. In the event an institution is deemed to be undercapitalized by such standards, 
FDICIA prescribes an increasing amount of regulatory intervention, including the required institution of a capital 
restoration plan and restrictions on the growth of assets, branches or lines of business. Further restrictions are applied to
the significantly or critically undercapitalized institutions including restrictions on interest payable on accounts, 
dismissal of management and appointment of a receiver. For well capitalized institutions, FDICIA provides authority for 
regulatory intervention when the institution is deemed to be engaging in unsafe and unsound practices or receives a less 
than satisfactory examination report rating. Under capital adequacy guidelines and the regulatory framework for prompt 
corrective action, the Company and Peoples Bank must meet specific capital guidelines that involve quantitative 
measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting 
practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about 
components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding 
companies. 

New risk-based capital rules became effective January 1, 2015 requiring that banks and holding companies maintain a 
"capital conservation buffer" of 250 basis points in excess of the "minimum capital ratio." The minimum capital ratio is 
equal to the prompt corrective action adequately capitalized threshold ratio. The capital conservation buffer will be 
phased in over four years beginning on January 1, 2016, with a maximum buffer of 0.625% of risk weighted assets for 
2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. Failure to maintain the required capital 
conservation buffer will result in limitations on capital distributions and on discretionary bonuses to executive officers.

Peoples Bank met the capital requirement for the “well capitalized” category under the regulatory framework for prompt 
corrective action at December 31, 2017.  To be categorized as well capitalized, Peoples Bank must maintain certain 
minimum Tier I risk-based, total risk-based and Tier I Leverage ratios as set forth in the following tables. The Tier I 
Leverage ratio is defined as Tier I capital to total average assets less intangible assets. Regulators may assign Peoples 
Bank to a lower capitalization category based on factors other than capital. 

-117-

The Company and Peoples Bank’s actual capital ratios at December 31, 2017 and 2016, and the minimum ratios required 
for capital adequacy purposes and to be well capitalized under the prompt corrective action provisions are as follows: 

Actual

Minimum For Capital
Adequacy Purposes

Minimum to be Well
Capitalized under
Prompt Corrective
Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

December 31, 2017
Common equity 
Tier 1 capital to 
risk-weighted 
assets:

Consolidated
Peoples Bank

$

205,222
199,450

11.85 % $
11.53

77,930
77,843

4.50 %
4.50

$

112,440

6.50 %

Tier 1 capital to 
risk-weighted 
assets:

Consolidated
Peoples Bank
Total capital to risk-
weighted assets:

Consolidated
Peoples Bank

Tier 1 capital to 
average assets:

Consolidated
Peoples Bank

December 31, 2016
Common equity 
Tier 1 capital to 
risk-weighted 
assets:

205,222
199,450

224,182
218,410

205,222
199,450

11.85
11.53

12.95
12.63

103,906
103,791

138,542
138,388

6.00
6.00

8.00
8.00

138,388

8.00

172,985

10.00

9.94
9.68 %

82,564
82,406

4.00
4.00 %

103,008

5.00 %

Actual

Amount

Ratio

Minimum For Capital
Adequacy Purposes

Amount

Ratio

Minimum to be Well
Capitalized under
Prompt Corrective
Action Provisions

Amount

Ratio

Consolidated
Peoples Bank

$

194,877
189,128

12.49 % $
12.14

70,205
70,120

4.50 %
4.50

$

101,284

6.50 %

Tier 1 capital to 
risk-weighted 
assets:

Consolidated
Peoples Bank
Total capital to risk-
weighted assets:

Consolidated
Peoples Bank

Tier 1 capital to 
average assets:

Consolidated
Peoples Bank

194,877
189,128

210,838
205,089

194,877
189,128

12.49
12.14

13.51
13.16

93,607
93,493

124,810
124,657

6.00
6.00

8.00
8.00

124,657

8.00

155,822

10.00

10.16

9.88 %

76,760
76,602

4.00
4.00 %

95,753

5.00 %

-118-

19. Contingencies: 

Neither the Company nor any of its property is subject to any material legal proceedings. Management, after consultation 
with legal counsel, does not anticipate that the ultimate liability, if any, arising out of pending and threatened lawsuits 
will have a material effect on the operating results or financial position of the Company. 

20. Comprehensive Loss: 

The components of accumulated other comprehensive loss included in stockholders’ equity at December 31, 2017 and 
2016 are as follows: 

Net unrealized (loss) gain on investment securities available-for-sale
Income tax 

Net of income taxes
Benefit plan adjustments
Income tax 

Net of income taxes

Accumulated other comprehensive loss

December 31, 2017

$

$

(1,237) $
(260)
(977)
(6,628)
(1,392)
(5,236)
(6,213) $

December 31, 2016
553
193
360
(6,946)
(2,431)
(4,515)
(4,155)

Other comprehensive loss and related tax effects for the years ended December 31, 2017, 2016 and 2015 are as follows: 

Year Ended December 31,
Unrealized loss on investment securities available-for-sale
Net gain on the sale of investment securities available-for-sale(1)
Benefit plans:

Amortization of actuarial loss (gain)(2)
Actuarial gain (loss)

Net change in benefit plan liabilities
Other comprehensive loss before taxes
Income tax
Other comprehensive loss

2017
(1,790) $

$

2016
(3,417) $
(623)

2015

(510)
(1,189)

195
123
318
(1,472)
(515)
(957) $

208
709
917
(3,123)
(1,093)
(2,030) $

198
(494)
(296)
(1,995)
(699)
(1,296)

$

(1)(cid:1) Represents amounts reclassified out of accumulated comprehensive loss and included in gains on sale of investment 

securities on the consolidated statements of income. 

(2)(cid:1) Represents amounts reclassified out of accumulated comprehensive loss and included in the computation of net 

periodic pension expense. Refer to Note 15 included in these consolidated financial statements.

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21. Summary of quarterly financial information (unaudited): 

Quarter Ended
Interest income
Interest expense

Net interest income
Provision for loan losses

Net interest income after provision for loan losses

Noninterest income
Noninterest expense

Income before income taxes

Income tax expense
Net income
Per share data:
Net income
Cash dividends declared
Average common shares outstanding

Quarter Ended
Interest income
Interest expense

Net interest income
Provision for loan losses

Net interest income after provision for loan losses

Noninterest income
Noninterest expense

Income before income taxes

Income tax expense
Net income
Per share data:
Net income
Cash dividends declared
Average common shares outstanding

March 31

June 30

Sept. 30

Dec. 31

2017

$

$

$
$

$

$

$
$

17,799
1,956
15,843
1,200
14,643
3,782
12,356
6,069
1,269
4,800

0.65
0.31
7,394,143

March 31

16,686
1,720
14,966
1,200
13,766
3,891
11,618
6,039
1,157
4,882

0.66
0.31
7,403,510

$

$

$
$

$

$

$
$

18,261
2,126
16,135
1,200
14,935
6,379
14,002
7,312
1,653
5,659

0.77
0.31
7,396,163

$

$

$
$

18,831
2,175
16,656
1,200
15,456
3,661
12,480
6,637
1,287
5,350

0.72
0.32
7,396,505

2016

June 30

Sept. 30

17,058
1,765
15,293
1,200
14,093
4,113
12,113
6,093
1,238
4,855

0.66
0.31
7,395,127

$

$

$
$

17,525
1,825
15,700
1,200
14,500
4,025
12,017
6,508
1,390
5,118

0.69
0.31
7,394,143

$

$

$
$

$

$

$
$

19,351
2,441
16,910
1,200
15,710
3,364
12,455
6,619
3,971
2,648

0.36
0.32
7,396,505

Dec. 31

17,715
1,941
15,774
1,400
14,374
3,859
12,282
5,951
1,223
4,728

0.64
0.31
7,394,143

-120-

Item 9.
None.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 

Item 9A. Controls and Procedures. 

Evaluation of Disclosure Controls and Internal Controls 

At December 31, 2017, the end of the period covered by this Annual Report on Form 10-K, the Chief Executive Officer 
(“CEO”) and Interim Principal Financial and Accounting Officer (“IPFAO”) evaluated the effectiveness of the 
Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that 
evaluation, the CEO and IPFAO concluded that the disclosure controls and procedures, at December 31, 2017, 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 assurance that information required to be disclosed in such reports is accumulated 
and communicated to the CEO and IPFAO to allow timely decisions regarding required disclosure. 

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 

We are responsible for the preparation and fair presentation of the accompanying consolidated balance sheets of Peoples 
Financial Services Corp. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, and the related 
consolidated statements of income and comprehensive income, changes in stockholders’ equity and cash flows for each 
of the years in the three-year period ended December 31, 2017, in accordance with accounting principles generally 
accepted in the United States. This responsibility includes: establishing, implementing and maintaining adequate internal 
controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, 
whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates 
that are reasonable under the circumstances. We are also responsible for compliance with the laws and regulations 
relating to safety and soundness that are designated by the Federal Deposit Insurance Corporation, Board of Governors 
of the Federal Reserve System and the Pennsylvania Department of Banking and Securities. 

Our internal controls are designed to provide reasonable assurance that assets are safeguarded and transactions are 
initiated, executed, recorded and reported in accordance with our intentions and authorizations and to comply with 
applicable laws and regulations. The internal control system includes an organizational structure that provides 
appropriate delegation of authority and segregation of duties, established policies and procedures and comprehensive 
internal audit and loan review programs. To enhance the reliability of internal controls, we recruit and train highly 
qualified personnel and maintain sound risk management practices. The internal control system is maintained through a 
monitoring process that includes a program of internal audits. 

Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to assess the effectiveness of our internal control 
over financial reporting at the end of each fiscal year and report, based on that assessment, whether the Company’s 
internal control over financial reporting is effective. Our assessment includes controls over initiating, recording, 
processing and reconciling account balances, classes of transactions and disclosure and related assertions included in the 
financial statements. Our assessment also includes controls related to the initiation and processing of non-routine and 
non-systematic transactions, to the selection and application of appropriate accounting policies and to the prevention, 
identification and detection of fraud. 

There are inherent limitations in any internal control system, including the possibility of human error and the 
circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable 
assurance with respect to financial statement preparation. 

Furthermore, due to changes in conditions, the effectiveness of internal controls may vary over time. Our internal auditor 
reviews, evaluates and makes recommendations on policies and procedures, which serves as an integral, but independent, 
component of our internal control. 

-121-

Our financial reporting and internal controls are under the general oversight of our board of directors, acting through its 
audit committee. The audit committee is composed entirely of independent directors. The independent registered public 
accounting firm and the internal auditor have direct and unrestricted access to the audit committee at all times. The audit 
committee meets periodically with us, the internal auditor and the independent registered public accounting firm to 
determine that each is fulfilling its responsibilities and to support actions to identify, measure and control risks and 
augment internal controls. 

Our management, including our CEO and IPFAO, is responsible for establishing and maintaining adequate internal 
control over financial reporting for the Company. Our management, including our CEO and IPFAO, assessed the 
effectiveness of our internal controls over financial reporting as of December 31, 2017 using the criteria established in 
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway 
Commission. These criteria are in the areas of control environment, risk assessment, control activities, information and 
communication, and monitoring. Our management’s assessment included extensive documenting, evaluating and testing 
the design and operating effectiveness of our internal control over financial reporting. 

Based on its assessment, management believes that our internal control over financial reporting was effective as of 
December 31, 2017. 

Baker Tilly Virchow Krause, LLP, the Company’s independent registered public accounting firm that audited our  
consolidated financial statements as of and for the year ended December 31, 2017 has issued an audit report on the 
Company’s internal control over financial reporting as of December 31, 2017. That report is included in Item 8 of this 
Annual Report on Form 10-K. 

/s/ Craig W. Best

Craig W. Best
President and Chief Executive Officer
(Principal Executive Officer)

/s/ John R. Anderson III

John R. Anderson III
Senior Vice President 
(Interim Principal Financial Officer and
Principal Accounting Officer)

March 14, 2018 

-122-

Changes in Internal Control Over Financial Reporting 
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended 
December 31, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over 
financial reporting.

Item 9B. Other Information. 

None. 

PART III 

Item 10. Directors, Executive Officers and Corporate Governance. 
We incorporate the information required by this Item 10 by reference to the definitive proxy statement for our 2018 
annual meeting of shareholders, to be filed with the Securities and Exchange Commission.

Item 11. Executive Compensation. 
We incorporate the information required by this Item 11 by reference to the definitive proxy statement for our 2018 
annual meeting of shareholders, to be filed with the Securities and Exchange Commission.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 

Item 12.
We incorporate the information required by this Item 12 by reference to the definitive proxy statement for our 2018
annual meeting of shareholders, to be filed with the Securities and Exchange Commission.

Item 13. Certain Relationships and Related Transactions, and Director Independence. 
We incorporate the information required by this Item 13 by reference to the definitive proxy statement for our 2018 
annual meeting of shareholders, to be filed with the Securities and Exchange Commission.

Item 14. Principal Accounting Fees and Services. 
We incorporate the information required by this Item 14 by reference to the definitive proxy statement for our 2018 
annual meeting of shareholders, to be filed with the Securities and Exchange Commission.

PART IV 

Item 15. Exhibits, Financial Statement Schedules. 

All consolidated financial statements and financial statement schedules required to be filed by Form 10-K or by 
Regulation S-X that are applicable to us have been presented in the consolidated financial statements and notes thereto in 
Part II, Item 8, or elsewhere in this annual report, where appropriate. The listing of exhibits is set forth on the Exhibit 
Index beginning on page E-1 and is incorporated in this Item 15 by reference. 

Item 16.     Form 10-K Summary. 

We have elected to omit the optional summary of information included in this Form 10-K.

-123-

EXHIBIT INDEX

Exhibit No.
2.1

2.2

3.1

3.2

4.1

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

Description of Exhibit
Agreement and Plan of Merger between Peoples Financial Services Corp. and Penseco Financial 
Services Corporation dated as of June 28, 2013 (incorporated by reference to Annex A to registrant’s 
prospectus, dated October 10, 2013, filed on October 10, 2013 pursuant to Rule 424(b) under the 
Securities Act in connection with registrant’s registration statement on Form S-4 originally filed 
August 13, 2013, as amended (File No. 333-190587)) Registrant agrees to furnish copies of Schedules 
to the Securities and Exchange Commission upon request.
Amendment No. 1 to Agreement and Plan of Merger between Peoples Financial Services Corp. and 
Penseco Financial Services Corporation dated as of September 17, 2013 (incorporated by reference to 
Annex A to registrant’s prospectus, dated October 10, 2013, filed on October 10, 2013 pursuant to 
Rule 424(b) under the Securities Act in connection with registrant’s registration statement on Form S-4
originally filed August 13, 2013, as amended (File No. 333-190587))
Peoples Financial Services Corp. Articles of Incorporation, as amended (incorporated by reference to 
Exhibit 3.1 to the registrant’s Form 10-K filed with the Commission on March 17, 2014).
Amended and Restated Bylaws of Peoples Financial Services Corp. (incorporated by reference to 
Exhibit 3.1 to the registrant’s Form 8-K filed with the Commission on December 2, 2013)
The Registrant will furnish to the SEC upon request copies of the instruments defining the rights of the 
Federal Home Loan Bank of Pittsburgh with respect to the Registrant’s long-term debt.
Peoples Financial Services Corp. Long-Term Incentive Plan, formerly known as the Penseco Financial 
Services Corporation 2008 Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 of 
registrant’s registration statement on Form S-8 (File No. 333-216321) filed with the SEC on 
February 28, 2017)*
Form of Restricted Stock or Restricted Stock Unit Award Agreement (incorporated by reference to 
Exhibit 10.2 to Penseco’s registration statement on Form S-8 (File No. 333-166886) filed with the SEC 
on May 17, 2010)*
Form of Stock Option and/or Appreciation Right Award Agreement (incorporated by reference to 
Exhibit 10.3 to Penseco’s registration statement on Form S-8 (File No. 333-166886) filed with the SEC 
on May 17, 2010)*
Form of Performance Award Agreement (incorporated by reference to Exhibit 10.4 to Penseco’s 
registration statement on Form S-8 (File No. 333-166886) filed with the SEC on May 17, 2010)*
Peoples Security Bank and Trust Company Employee Stock Ownership Plan, amended and restated as 
of January 1, 2015 (incorporated by reference to Exhibit 10.1 to registrant’s quarterly report on 
Form 10-Q filed with the SEC on May 5, 2017)*
Peoples Neighborhood Bank’s Executive Cash Bonus Plan (incorporated by reference to Exhibit 10.15 
to Amendment No. 1 to registrant’s registration statement on Form S-4 (File No. 333-190587) filed 
with the SEC on September 20, 2013)*
Penn Security Bank & Trust Company Executive Deferred Compensation Plan (incorporated by 
reference to Exhibit 10.6 to the Penseco’s annual report on Form 10-K filed with the SEC on March 
14, 2011)*
Employment Agreement, dated January 3, 2011, among Penseco Financial Services Corporation, Penn 
Security Bank & Trust, and Craig W. Best (incorporated by reference to Exhibit 10.1 of Penseco’s 
current report on Form 8-K filed with the SEC on January 7, 2011)*
First Amendment to Employment Agreement dated December 31, 2015, by and among Peoples 
Financial Services Corp., Peoples Security Bank and Trust Company and Craig W. Best (incorporated 
by reference to Exhibit 10.1 of Penseco’s current report on Form 8-K filed with the SEC on January 6, 
2016)*
Amended and Restated Deferred Compensation Plan #2, dated April 22, 2014, by and between Peoples 
Security Bank and Trust Company and Craig W. Best (incorporated by reference to Exhibit 10.1 to the 
registrant’s Form 8-K filed with the Commission on April 28, 2014)*
First Amendment to Amended and Restated Deferred Compensation Plan #2, dated August 29, 2015, 
by and between Peoples Security Bank and Trust Company and Craig Best (incorporated by reference 
to Exhibit 10.1 to the registrant’s Form 8-K filed with the Commission on September 3, 2015)*

-124-

Exhibit No.
10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

Description of Exhibit
Penn Security Bank & Trust Company Excess Benefit Plan, amended and restated December 31, 2008 
(incorporated by reference to Exhibit 10.9 to the Penseco’s annual report on Form 10-K filed with the 
SEC on March 14, 2011)*
Termination Agreement with Debra E. Dissinger (incorporated by reference to Exhibit 10.4 to the 
registrant’s Form 10-25G filed with the Commission on March 4, 1998)*
Supplemental Executive Retirement Plan with Debra E. Dissinger (incorporated by reference to 
Exhibit 10.6 to the registrant’s Form 10-K filed with the Commission on March 15, 2005)*
Amendment to Supplemental Executive Retirement Plan with Debra E. Dissinger (incorporated by 
reference to Exhibit 10.9 to the registrant’s Form 10-K filed with the Commission on March 15, 
2006)*
Employment Agreement dated as of December 1, 2013, by and among Peoples, Peoples Bank and 
Joseph M. Ferretti (incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 
8-K filed with the SEC on December 2, 2013)*
Supplemental Executive Retirement Plan Agreement, dated April 22, 2014, by and among Peoples 
Security Bank and Trust Company, Peoples Financial Services Corp. and Joseph M. Ferretti 
(incorporated by reference to Exhibit 10.2 to the registrant’s Form 8-K filed with the Commission on 
April 28, 2014)*
Employment Agreement, dated May 30, 2012, among Penseco Financial Services Corporation, Penn 
Security Bank and Trust Company, and Thomas P. Tulaney (incorporated by reference to Exhibit 10.1 
of the Registrant’s quarterly report on Form 10-Q filed with the SEC on August 9, 2012)*
Supplemental Executive Retirement Plan Agreement, dated May 31, 2012, by and among Penn 
Security Bank and Trust Company, Penseco Financial Services Corporation, and Thomas P. Tulaney 
(incorporated by reference to Exhibit 10.2 to the Registrant’s quarterly report on Form 10-Q filed with 
the SEC on August 9, 2012)*
Employment Agreement, dated as of August 27, 2014, by and between Peoples Bank and Neal D. 
Koplin (incorporated by reference to Exhibit 10.32 to the registrant’s Form 10-K filed with the 
Commission on March 16, 2015)*
Supplemental Executive Retirement Plan Agreement, dated April 24, 2017, by and among Peoples 
Security Bank and Trust Company, Peoples Financial Services Corp. and Neal D. Koplin (incorporated 
by reference to Exhibit 10.1 to registrant’s current report on Form 8-K filed with the Commission on 
April 25, 2017.)*
Employment Agreement dated as of February 4, 2015 between Peoples Security Bank and Trust 
Company and Bradley S. Grubb (incorporated by reference to Exhibit 10.1 to the Registrant’s quarterly 
report on Form 10-Q filed with the SEC on May 8, 2015)*
Form of Supplemental Director Retirement Plan Agreement for Non-employee Directors (incorporated 
by reference to Exhibit 10.7 to the registrant’s Form 10-K filed with the Commission on March 15, 
2005) *
Form of Amendment to Supplemental Director Retirement Plan Agreement for Non-employee 
Directors (incorporated by reference to Exhibit 10.10 to the registrant’s Form 10-K filed with the 
Commission on March 15, 2006)*
Life Insurance Plan for all Non-employee Directors (incorporated by reference to Exhibit 10.21 to the 
registrant’s Form 10-K filed with the Commission on March 15, 2012)*
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 
(incorporated by reference to Exhibit 10.1 to the registrant’s quarterly report on Form 10-Q filed with 
the Commission on August 5, 2016)*
Employment Agreement dated as of September 30, 2016 between Peoples Security Bank and Trust 
Company and Timothy H. Kirtley (incorporated by reference to Exhibit 10.1 to the registrant’s 
quarterly report on Form 10-Q filed with the Commission on November 7, 2016)*
First Amendment to Employment Agreement dated as of December 5, 2017, by and between Peoples 
Security Bank and Trust Company and Timothy H. Kirtley*

-125-

Exhibit No.
21.1

23.1
23.2
24.1
31.1
31.2
32.1

101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
*

Description of Exhibit
List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the registrant’s annual report on Form 
10-K filed with the Commission on March 11, 2016)
Consent of Baker Tilly Virchow Krause, LLP
Consent of BDO USA, LLP
Power of Attorney (Included as part of signature page)
Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer of Registrant
Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer of Registrant
Section 1350 Certifications of the Principal Executive Officer and Principal Financial Officer of 
Registrant
XBRL Instance Document
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Definition Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
- Management contract or compensatory plan or arrangement

-126-

SIGNATURES 

Pursuant to the requirements of Section 13 or 15(d) 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.

By:

By:

/s/ Craig W. Best
Craig W. Best
President and Chief Executive Officer
(Principal Executive Officer)

/s/ John R. Anderson III
John R. Anderson III
Senior Vice President
(Interim Principal Financial Officer and
Principal Accounting Officer)

POWER OF ATTORNEY 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and 
appoints each of Craig W. Best and John R. Anderson III as his or her attorney-in-fact, with the full power of 
substitution, for him or her in any and all capacities, to sign any amendments to this report, and to file the same, with 
exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby 
ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by 
virtue hereof. 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following 
persons on behalf of the registrant and in the capacities and on the dates indicated. 

Name

Title

Date

/s/ William E. Aubrey II

William E. Aubrey II

/s/ Craig W. Best

Craig W. Best

/s/ John R. Anderson III

John R. Anderson III

/s/ Joseph G. Cesare

Joseph G. Cesare

Director and Chairman of the Board

March 14, 2018

Director, President and
Chief Executive Officer
(Principal Executive Officer)

Senior Vice President
(Interim Principal Financial Officer
and Principal Accounting Officer)

March 14, 2018

March 14, 2018

Director

March 14, 2018

-127-

Date

March 14, 2018

March 14, 2018

March 14, 2018

March 14, 2018

March 14, 2018

March 14, 2018

March 14, 2018

March 14, 2018

March 14, 2018

March 14, 2018

Name

/s/ James G. Keisling

James G. Keisling

/s/ Ronald G. Kukuchka

Ronald G. Kukuchka

/s/ Richard S. Lochen, Jr.

Richard S. Lochen, Jr.

/s/ Robert Naismith

Robert Naismith

/s/ James B. Nicholas

James B. Nicholas

/s/ Emily Perry

Emily Perry

/s/ George H. Stover, Jr.

George H. Stover, Jr.

/s/ Steven L. Weinberger

Steven L. Weinberger

/s/ Earle A. Wootton

Earle A. Wootton

/s/ Joseph T. Wright, Jr.

Joseph T. Wright, Jr.

Title

Director

Director

Director

Director

Director

Director

Director

Director

Director

Director

-128-