PEOPLES FINANCIAL SERVICES CORP. (Form: 8-K12G3, Received: 12/02/2013 14:21:21)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 27, 2013

PEOPLES FINANCIAL SERVICES CORP.

(Exact name of Peoples as specified in its charter)

Pennsylvania

0-23863

23-2391852

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)


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

(570) 346-7741

(Peoples’ telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of Peoples under any of the following provisions ( see General Instruction A.2. below):

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

CURRENT REPORT ON FORM 8-K

Item 2.01

Completion of Acquisition or Disposition of Assets

The merger of Penseco Financial Services Corporation (“Penseco”) with and into Peoples Financial Services Corp. (“Peoples”) was consummated pursuant to the terms of the Agreement and Plan of Merger between Penseco and Peoples dated as of June 28, 2013, as amended (the “Merger Agreement”), effective at 11:59 p.m. on November 30, 2013 (the “Effective Time”). Additionally, Penseco’s wholly-owned subsidiary, Penn Security Bank and Trust Company (“Penn Security”) merged with and into Peoples’ wholly-owned subsidiary, Peoples Neighborhood Bank, effective at 12:01 a.m. on December 1, 2013. The surviving bank, which operates under the name “Peoples Security Bank and Trust Company,” is a Pennsylvania-chartered bank and is a wholly-owned subsidiary of Peoples.

Pursuant to the terms of the Merger Agreement, Penseco shareholders will receive, for each share of Penseco common stock held, 1.3636 shares of Peoples’ common stock. Cash will be paid to Penseco shareholders in lieu of any fractional shares.

Item 5.02

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

Board of Directors

On November 27, 2013, in connection with the merger, Alan W. Dakey and Richard S. Lochen, Jr. resigned as members of the Boards of Directors of Peoples and of Peoples’ wholly-owned subsidiary, Peoples Neighborhood Bank, effective at the Effective Time. Mr. Dakey was a member of the class of directors with its term expiring in 2015, and Mr. Lochen was a member of the class of directors with its term expiring in 2014. The resignations of Messrs. Dakey and Lochen did not involve any disagreement with Peoples.

In addition, pursuant to the terms and conditions of the Merger Agreement, the Board of Directors appointed the former directors of Penseco and Mr. Lochen to the following classes of directors of Peoples as of the Effective Time:

Class of Directors with Term Expiring 2014

Robert W. Naismith

James G. Keisling

P. Frank Kozik

Class of Directors with Term Expiring 2015

Richard S. Lochen, Jr.

James B. Nicholas

Emily S. Perry

Steven L. Weinberger

Class of Directors with Term Expiring 2016

Joseph G. Cesare

Craig W. Best

The Board has not yet determined on which committees of the Board the new directors will serve.

Officers

Effective at the Effective Time, Peoples’ Board of Directors appointed Craig W. Best, age 53, as President and Chief Executive Officer of Peoples and subsequently President and Chief Executive Officer of Peoples Security Bank and Trust Company. Mr. Best served as Director, President and Chief Executive Officer of Penseco and Penn Security Bank and Trust Company from 2006 to 2013. Prior to that time, Mr. Best served as Chief Operating Officer of First Commonwealth Bank, a financial services institution headquartered in Indiana, Pennsylvania, from July 2000 to December 2005. During his employment with First Commonwealth Bank, Mr. Best was responsible for overseeing the day to day operations of all lines of business and administrative functions for First Commonwealth Bank. Before serving as Chief Operating Officer of First Commonwealth Bank, Mr. Best was President of NBOC, a division of First Commonwealth Bank.

As a result of the appointment of Mr. Best as aforesaid, Alan W. Dakey no longer serves as President and Chief Executive Officer of Peoples. Mr. Dakey has entered into a Consulting Agreement with Peoples, as described below.

Further, Scott A. Seasock will remain Senior Vice President/Chief Financial Officer, and Debra E. Dissinger will remain Executive Vice President/Chief Operations Officer but will no longer be Chief Risk Officer.

As a result of the merger, Joseph M. Ferretti, Executive Vice President and Chief Lending Officer will become Executive Vice President Co-Chief Lending Officer-North.

Compensatory Arrangements

On December 2, 2013, Peoples and Peoples Security Bank and Trust Company entered into a consulting agreement with Alan W. Dakey pursuant to which Mr. Dakey will assist Peoples and Peoples Security Bank and Trust Company with the operations and continued integration of the banks. The agreement is for a term of six months from the Effective Time of the merger and provides for Mr. Dakey to receive $95,000 in compensation for his services. The consulting agreement is subject to certain customary non-compete and non-solicitation restrictions. A copy of Mr. Dakey’s consulting agreement is attached to this current report as Exhibit 10.1.

On December 1, 2013, Peoples and Peoples Security Bank and Trust Company entered into an employment agreement with Joseph M. Ferretti, Senior Vice President and Co-Chief Lending Officer-North. The term of the employment agreement is three years and renews for an additional year on the first anniversary date of the agreement and every anniversary date thereafter. Mr. Ferretti’s title will be Executive Vice President Co- Chief Lending Officer-North. The agreement provides for a base salary of $175,000, an annual bonus, and a signing bonus. If he is terminated without cause as defined in the agreement or he terminates employment for

good reason as defined in the agreement, he will be entitled to receive a cash severance equal to the sum of (A) one twelfth of the executive’s base salary as of the date of termination plus (B) one-twelfth of the executive’s average annual bonus in the three fiscal years ending before the date of termination for a period of twelve months and for a period of 18 months executive will receive payments equal to the monthly premium as defined by COBRA. The agreement provides for a noncompete and nonsolicitation for a 12 month period and in the event of a change of control for 24 months. A copy of Mr. Ferretti’s employment agreement is attached to this current report as Exhibit 10.2.

As a result of the merger and as of the Effective Time, Peoples assumed obligations under certain agreements and arrangements of Penseco, including the following:

•

Employment Agreement by and between Penn Security and Thomas P. Tulaney dated as May 30, 2012. The initial term of the agreement ends on May 29, 2016 and continues for successive one year periods unless terminated or notice of nonrenewal is given. If he is terminated without cause as defined in the agreement or for good reason as defined in the agreement the executive will be entitled to cash severance payments equal to the sum of (A) one-twelfth of his base salary as of the date of termination plus (B) one-twelfth of executive’s average annual bonus payable for performance in the three calendar years ending before the date of termination (or, if executive has not been eligible for a bonus for three calendar years of service, his average annual bonus payable for performance for each calendar year for which he was eligible to receive a bonus) for a period of 12 months from the date of termination and COBRA for 18 months or if COBRA is not available monthly payments in an amount equal to the applicable premium. If executive’s employment is terminated after a change in control as defined in the agreement, he will be entitled to cash severance payments equal to one-twelfth of his base salary as of the date of termination plus (B) one-twelfth of executive’s average annual bonus payable for performance in the three calendar years ending before the date of termination (or, if executive has not been eligible for a bonus for three calendar years of service, his average annual bonus payable for performance for each calendar year for which he was eligible to receive a bonus) for a period of 24 months and COBRA for 24 months or if COBRA is not available monthly payments in an amount equal to the applicable premium. For one year after termination of his employment for any reason, executive will be subject to a noncompetition and nonsolicitation provision outlined in his employment agreement.

•

Employment Agreement by and between Penn Security and Craig W. Best, amended and restated as of January 3, 2011. The term of the agreement expires upon the termination of the executive’s employment. If he is terminated without cause as defined in the agreement or for good reason as defined in the agreement the executive will be entitled to cash severance payments equal to the sum of (A) one-twelfth of his base salary as of the date of termination plus (B) one-twelfth of executive’s average annual bonus payable for performance in the three calendar years ending before the date of termination (or, if executive has not been eligible for a bonus for three calendar years of service, his average annual bonus payable for performance for each calendar year for which he was eligible to receive a bonus) for a period of 24 months from the date of termination; COBRA for 24 months or if COBRA is not available monthly payments in an amount equal to the

applicable premium; and a payment by the company to an outplacement firm of executive’s choice of $30,000. If executive’s employment is terminated after a change in control as defined in the agreement, he will be entitled to cash severance payments equal to one-twelfth of his base salary as of the date of termination plus (B) one-twelfth of executive’s average annual bonus payable for performance in the three calendar years ending before the date of termination (or, if executive has not been eligible for a bonus for three calendar years of service, his average annual bonus payable for performance for each calendar year for which he was eligible to receive a bonus) for a period of 36 months and COBRA for 36 months or if COBRA is not available monthly payments in an amount equal to the applicable premium. For one year after termination of his employment for any reason, executive will be subject to a noncompetition and nonsolicitation provision outlined in his employment agreement.

•

Penseco Financial Services Corporation 2008 Long-Term Incentive Plan. The plan was approved by Penseco shareholders on May 6, 2008 and allows the Compensation Committee to issue stock appreciation rights, stock options, performance-based awards and restricted stock awards to eligible employees.

•

Stock Appreciation Rights Plan Agreement by and between Penseco and Craig W. Best dated as of January 3, 2006. The executive was awarded 10,000 stock appreciation rights with an exercise price of $43.00 which vested over a five year period becoming fully vested on January 3, 2011.

•

Stock Appreciation Rights Plan Agreement by and between Penseco and Craig W. Best dated as of February 29, 2008. The executive was awarded 8,500 stock appreciation rights with an exercise price of $37.50 which vested over a five year period becoming fully vested on February 29, 2013.

•

Penn Security Bank and Trust Company Executive Deferred Compensation Plan dated January 1, 2009. Certain executives are allowed to defer a specified amount of their compensation for which the Bank will match 50% of the deferred amount up to 6% of the executive’s compensation.

•

Penn Security Bank and Trust Company Supplemental Executive Retirement Plan Agreement between Penn Security and Thomas P. Tulaney dated May 31, 2012. Upon a termination of service on or after executive reaches age sixty-five, he shall be entitled to $114,600 per year for twenty years. If the executive’s employment is terminated prior to age 65, he will be entitled to an amount specified in the plan which varies based upon the year in which the termination occurs and whether the termination is as a result of a disability, within 24 months of a change in control or an early termination.

•

Amended and Restated Excess Benefit Plan between Penn Security and Craig W. Best dated December 31, 2008. The bank credits to an account an amount which is equal to the excess, if any, of (i) the amount he would have been entitled to receive under the bank’s Pension Plan for each plan year, if the provisions of the Pension Plan were administered without regard to the limitations required by Section 40l(a)(17) of the Internal Revenue Code over (ii) the amount the he was entitled to receive under the Pension Plan for such plan year.

•

Penn Security Bank and Trust Executive Deferred Compensation Plan #2 effective August 6, 2009 attached as Appendix D to the Employment Agreement by and between Penn Security and Craig W. Best, amended and restated as of January 3, 2011. The plan allows the executive to defer up to 100% of his salary and bonus. The bank will credit

the account with interest as determined in accordance with the plan, will contribute $61,375 in January 2011, and will contribute $60,000 per year ending August 2014. The employer’s contributions vest over a five year period with the executive becoming 100% vested on August 6, 2014.

•

Penn Security Postretirement Life Insurance Plan Each full time employee receives life insurance at no cost in an amount equal to such employee’s base annual salary rounded to the next highest $1,000 and multiplied by two with a maximum benefit of $500,000. Retired full time employees also receive life insurance based upon a fix schedule.

Item 5.03.

Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

Effective at the Effective Time, in accordance with the Merger Agreement, Peoples’ bylaws were amended and restated. In addition to certain non-material technical changes, the amended and restated bylaws amend the previous bylaws by:

•

Amending Article 10, Section 10.2 to clarify that any shareholder nominations must follow the notice procedures set forth in Article 2, Section 2.6(b) of the bylaws;

•

Amending Section 10.3 to require that for 3 years following the effective time of the merger Peoples’ board of directors be comprised of 14 directors with Peoples selecting 6 members and Penseco selecting 8 members from their current boards of directors unless 80% of the board of directors determines otherwise, director nominees shall be selected, or recommended for the board of directors’ selection, by a nominating committee comprised solely of independent directors, and more particularly as follows:

•

a subcommittee comprised solely of continuing Peoples directors will select, or recommend for the board’s selection, the director nominees for each directorship held by an incumbent continuing Peoples director whose term is expiring, and

•

a subcommittee comprised solely of continuing Penseco directors will select, or recommend for the board’s selection, the director nominees for each directorship held by an incumbent continuing Penseco director whose term is expiring.

The directors will be divided as equally as possible among three classes of directors. Each director in a class will serve a three-year term such that only the terms of directors in a single class expire in a given year. Directors who reach the mandatory retirement age of 73 years retire at end of their term. However, those directors who are appointed in connection with the merger are eligible to stand for one additional 3 year term of office regardless of age. These bylaw provisions may only be amended upon the approval of 80% of the directors of the entire board of directors.

Successors to vacant positions will be selected in the manner above for three years after the merger unless 80% of Peoples’ board of directors determines otherwise after the effective time of the merger. After three years, the majority of the remaining board of directors will fill vacant positions.

•

Amending Section 10.4 to require that, for 3 years after the merger, all committees of the board of directors have pro rata representation of directors of Peoples prior to the merger and directors formerly of Penseco. The committees will be comprised accordingly for three years unless 80% of the board of directors of Peoples determines otherwise after the effective time of the merger.

•

Amending Section 10.6 to clarify that each director in a class will serve a three-year term such that only the terms of directors in a single class expire in a given year. Directors who reach the mandatory retirement age of 73 years retire at end of their term. However, those directors who are appointed in connection with the merger are eligible to stand for one additional 3 year term of office regardless of age.

•

Amending Article 23 conforming the indemnification provisions to current Pennsylvania law regarding indemnification.

•

Amending Article 33 such that for three (3) years following the merger, the provisions relating to Article 10, the composition of the board of directors, mandatory retirement of directors, filling of vacancies of the board of directors, and the composition of committees of the board of directors for three years following the merger may only be amended by an affirmative vote of 80% of the board of directors.

The foregoing description is qualified in its entirety by reference to the amended and restated bylaws which are filed herewith as Exhibit 3.1 and incorporated herein by reference.

Item 7.01

Regulation FD Disclosure

On December 2, 2013, Peoples issued a press release regarding the completion of the merger. A copy of the press release is included in this report as Exhibits 99.1 and is furnished herewith.

Item 8.01

Other Events

Peoples’ common stock issued in the merger described above was registered under the Securities Act of 1933, as amended, pursuant to a registration statement on Form S-4 (File No. 333-190587) filed initially with the Securities and Exchange Commission (“SEC”) on August 13, 2013, as amended, and declared effective by the SEC on October 10, 2013 (“Form S-4”).

The common stock is deemed registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to subsection (a) of Rule 12g-3 promulgated under the Exchange Act as a result of Peoples becoming the successor issuer to Penseco in connection with the merger.

The following is a description of Peoples’ capital stock. The authorized capital stock of Peoples consists of twenty-five million (25,000,000) shares of common stock, $2.00 par value, and five hundred thousand (500,000) shares of preferred stock, $5.00 par value.

Description of Peoples’ Common Stock

Dividends

The holders of Peoples’ common stock share ratably in dividends when and if declared by Peoples’ board of directors from legally available funds. Declaration and payment of cash dividends by Peoples depends upon cash dividend payments to it by Peoples Security Bank and Trust Company, which is Peoples’ primary source of revenue and cash flow. Peoples is a legal entity separate and distinct from Peoples Security Bank and Trust Company. Accordingly, the right of Peoples, and consequently the right of creditors and shareholders of Peoples, to participate in any distribution of the assets or earnings of any subsidiary is necessarily subject to the prior claims of creditors of the subsidiary, except to the extent that claims of Peoples in its capacity as a creditor may be recognized.

Pre-Emptive Rights, Redemption

Holders of Peoples common stock do not have pre-emptive rights to acquire any additional shares of Peoples common stock. Peoples common stock is not subject to redemption.

Liquidation Rights

In the event of Peoples’ liquidation, dissolution or winding-up, whether voluntary or involuntary, holders of Peoples common stock will share ratably in any of its assets or funds that are available for distribution to its shareholders after satisfaction, or adequate provision is made for satisfaction, of its liabilities, and after payment of any liquidation preferences of any outstanding shares of Peoples preferred stock.

Description of Peoples’ Preferred Stock

Peoples’ board of directors is authorized to issue shares of Peoples preferred stock, without shareholder approval. Peoples’ board will determine the rights, qualifications, limitations and restrictions of each series of Peoples preferred stock at the time of issuance, including without limitation, rights as to dividends, voting and convertibility into shares of Peoples common stock. Shares of Peoples preferred stock may have dividend, redemption, voting, and liquidation rights that take priority over Peoples common stock, and may be convertible into Peoples common stock.

Anti-Takeover Article and Bylaw Provisions

Peoples’ articles of incorporation and bylaws contain certain provisions that may have the effect of deterring or discouraging an attempt to take control of Peoples. Among other things these provisions:

•

Empower Peoples’ board of directors, without shareholder approval, to issue shares of Peoples preferred stock the terms of which, including voting power, are set by Peoples’ board of directors;

•

Divide Peoples’ board of directors into three classes serving staggered three-year terms;

•

Require that shares with at least 75% or, in certain instances, a majority of total voting power approve the repeal or amendment of certain provisions of Peoples’ articles of incorporation;

•

Eliminate cumulative voting in the election of directors; and

•

Require advance notice of nominations for the election of directors and the presentation of shareholder proposals at meetings of shareholders.

The Pennsylvania Business Corporation Law of 1988, as amended, also contains certain provisions applicable to Peoples that may have the effect of deterring or discouraging an attempt to take control of Peoples. These provisions, among other things:

•

Require that, following any acquisition by any person or group of 20% of a public corporation’s voting power, the remaining shareholders have the right to receive payment for their shares, in cash, from such person or group in an amount equal to the “fair value” of the shares, including an increment representing a proportion of any value payable for control of the corporation (Subchapter 25E of the Pennsylvania Business Corporation Law);

•

Prohibit for five years, subject to certain exceptions, a “business combination” (which includes a merger or consolidation of the corporation or a sale, lease or exchange of assets) with a person or group beneficially owning 20% or more of a public corporation’s voting power (Subchapter 25F of the Pennsylvania Business Corporation Law);

•

Prevent a person or group acquiring different levels of voting power (20%, 33% and 50%) from voting any shares over the applicable threshold, unless “disinterested shareholders” approve such voting rights (Subchapter 25G of the Pennsylvania Business Corporation Law);

•

Require any person or group that publicly announces that it may acquire control of a corporation, or that acquires or publicly discloses an intent to acquire 20% or more of the voting power of a corporation, to disgorge to the corporation any profits that it receives from sales of the corporation’s equity securities purchased over the prior 24 or subsequent 18 months (Subchapter 25H of the Pennsylvania Business Corporation Law);

•

Expand the factors and groups (including shareholders) which a corporation’s board of directors can consider in determining whether an action is in the best interests of the corporation;

•

Provide that a corporation’s board of directors need not consider the interests of any particular group as dominant or controlling;

•

Provide that a corporation’s directors, in order to satisfy the presumption that they have acted in the best interests of the corporation, need not satisfy any greater obligation or higher burden of proof with respect to actions relating to an acquisition or potential acquisition of control;

•

Provide that actions relating to acquisitions of control that are approved by a majority of “disinterested directors” are presumed to satisfy the directors’ standard, unless it is proven by clear and convincing evidence that the directors did not assent to such action in good faith after reasonable investigation; and

•

Provide that the fiduciary duty of a corporation’s directors is solely to the corporation and may be enforced by the corporation or by a shareholder in a derivative action, but not by a shareholder directly.

The Pennsylvania Business Corporation Law also explicitly provides that the fiduciary duty of directors does not require them to:

•

Redeem any rights under, or to modify or render inapplicable, any shareholder rights plan;

•

Render inapplicable, or make determinations under, provisions of the Pennsylvania Business Corporation Law relating to control transactions, business combinations, control-share acquisitions or disgorgement by certain controlling shareholders following attempts to acquire control; or

•

Act as the board of directors, a committee of the board or an individual director, solely because of the effect the action might have on an acquisition or potential acquisition of control of the corporation or the consideration that might be offered or paid to shareholders in such an acquisition.

Item 9.01

Financial Statements and Exhibits

(a) Financial Statements of Business Acquired

The financial statements required by this item will be filed by amendment to this Current Report on Form 8-K not later than 71 calendar days after the date this Current Report on Form 8-K must be filed.

(b) Pro Forma Financial Information

The pro forma financial information required by this item will be filed by amendment to this Current Report on Form 8-K not later than 71 calendar days after the date this Current Report on Form 8-K must be filed.

(d) Exhibits.


Exhibit Number		Description

3.1		Amended and Restated Bylaws of Peoples Financial Services Corp.

10.1		Consulting Agreement with Alan W. Dakey dated as of December 2, 2013

10.2		Employment Agreement with Ferretti dated as of December 1, 2013

99.1		Press release

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Peoples has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned, thereunto duly authorized.


				PEOPLES FINANCIAL SERVICES CORP.

Dated: December 2, 2013				/s/ Craig W. Best
				Craig W. Best
				President & Chief Executive Officer

EXHIBIT INDEX


EXHIBIT NO.

3.1		Amended and Restated Bylaws of Peoples Financial Services Corp.

10.1		Consulting Agreement with Alan W. Dakey dated as of December 2, 2013

10.2		Employment Agreement with Ferretti dated as of December 1, 2013

99.1		Press release

Exhibit 3.1

BYLAWS OF

PEOPLES FINANCIAL SERVICES CORP.

AMENDED AND RESTATED (EFFECTIVE NOVEMBER 30, 2013)

ARTICLE 1

CORPORATION OFFICE

Section 1.1. The Corporation shall have and continuously maintain in Pennsylvania a registered office which may, but need not, be the same as its place of business and at an address to be designated from time to time by the Board of Directors.

Section 1.2. The Corporation may also have offices at such other places as the Board of Directors may from time to time designate or the business of the Corporation may require.

ARTICLE 2

SHAREHOLDERS’ MEETINGS

Section 2.1. All meetings of the shareholders shall be held at such time and place as may be fixed from time to time by the Board of Directors.

Section 2.2. The annual meeting of the shareholders shall be held no later than the thirtieth (30th) day of May in each year, when they shall select a Board of Directors and transact such other business as may properly be brought before the meeting, on such date and at such time as the Board of Directors shall determine.

Section 2.3. Special meetings of the shareholders may be called at any time by the chairman of the Board, the President, a majority of the Board of Directors or of its Executive Committee. At any time, upon written request of any person or persons who have duly called a special meeting, it shall be the duty of the secretary to fix the date of the meeting, to be held not more than sixty (60) days after the receipt of the request and to give due notice thereof. If the secretary shall neglect or refuse to fix the date of the meeting and give notice thereof, the person or persons calling the meeting may do so.

Section 2.4. Written notice of all meetings, other than adjourned meetings of shareholders, stating the place, date and hour, and, in case of special meetings of shareholders, the purpose thereof, shall be served upon, or mailed, postage prepaid, or telegraphed, charges prepaid, at least ten days before such meeting, unless a greater period of notice is required by statute or by these Bylaws, to each shareholder entitled to vote thereat at such address as appears on the transfer books of the Corporation.

Section 2.5. The officer presiding over a shareholders’ meeting shall have any and all powers and authority necessary, in such officer’s sole discretion, to conduct an orderly meeting, preserve order and determine any and all procedural matters. The officer presiding over a shareholders’ meeting may also establish such rules and regulations for the conduct of the

meeting as such officer may deem to be reasonably necessary or desirable for the orderly and expeditious conduct of the meeting, including the ability to impose reasonable limits on the amount of time at the meeting taken up in remarks by any one shareholder or group of shareholders. In addition, until the business to be completed at a meeting of shareholders is completed, the officer presiding over the shareholders’ meeting is expressly authorized to temporarily adjourn and postpone the meeting from time to time subject to any limitations for adjournment specified elsewhere in these bylaws.

Section 2.6.

(a) Except as otherwise provided by law or in these bylaws, or except as permitted by the presiding officer of the meeting in the exercise of such officer’s sole discretion in any specific instance, the business which shall be voted upon or discussed at any annual or special meeting of the shareholders shall (i) have been specified in the written notice of the meeting (or any supplement thereto) given by the Corporation, (ii) be brought before the meeting at the direction of the Board of Directors, or (iii) in the case of an annual meeting of shareholders, have been specified in a written notice given to the Corporation by or on behalf of any shareholder who shall have been a shareholder of record on the record date for such meeting and who shall continue to be entitled to vote thereat (the “Shareholder Notice”), in accordance with all of the requirements set forth below.

(b) Each Shareholder Notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation addressed to the attention of the President or Secretary (i) in the case of an annual meeting that is called for a date that is within thirty (30) days before or after the anniversary date of the immediately preceding annual meeting of shareholders, not less than sixty (60) days nor more than ninety (90) days prior to such anniversary date, provided, that a proposal submitted by a shareholder for inclusion in the Corporation’s proxy statement for an annual meeting which is appropriate for inclusion therein and otherwise complies with Securities Exchange Act of 1934 Rule 14a-8 (including timeliness), or any successor rule, shall be deemed to have also been submitted timely pursuant to these by laws and (ii) in the case of an annual meeting that is called for a date that is not within thirty (30) days before or after the anniversary date of the immediately preceding annual meeting, or in the case of a special meeting, not later than the close of business on the fifth (5th) day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure of the meeting date (which shall include disclosure of the meeting date given to a national securities exchange or the Financial Industry Regulatory Authority) was made. Each such Shareholder Notice must set forth (i) the name and address of the shareholder who intends to bring the business before the meeting (“Proposing Shareholder”); (ii) the name and address of the beneficial owner, if different than the Proposing Shareholder, or any of the shares of the Corporation which are owned of record and beneficially by the Proposing Shareholder and the number which are owned beneficially by any beneficial owner; (iii) any interest (other than an interest solely as a shareholder) which the Proposing Shareholder or a beneficial owner has in the business being proposed by the Proposing Shareholder; (iv) a description of all arrangements and understandings between the Proposing Shareholder and any beneficial owner and any other person or persons (naming such person or persons) pursuant to which the proposal in the Shareholder Notice is being made; (v) a description of the business which the Proposing Shareholder seeks to bring before the meeting, the reason for doing so and, if a specific action is to be proposed, the text of the resolution or

resolutions which the Proposing Shareholder proposes that the Corporation adopt; and (vi) a representation that the Proposing Shareholder is at the time of giving the Shareholder Notice, was or will be on the record date for the meeting, and will be on the meeting date a holder of record of shares of the Corporation entitled to vote at such meeting, and intends to appear in person or by proxy at the meeting to bring the business specified in the Shareholder Notice before the meeting. The presiding officer of the meeting may, in such officer’s sole discretion, refuse to acknowledge any business proposed by a shareholder which the presiding officer determines is not made in compliance with the foregoing procedure.

ARTICLE 3

QUORUM OF SHAREHOLDERS

Section 3.1. The presence, in person or by proxy, of shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast on the particular matter shall constitute a quorum for purposes of considering such matter, and unless otherwise provided by statute the acts of such shareholders at a duly organized meeting shall be the acts of the shareholders. If, however, any meeting of shareholders cannot be organized because of lack of a quorum, those present, in person or by proxy, shall have the power, except as otherwise provided by statute, to adjourn the meeting to such time and place as they may determine, without notice other than an announcement at the meeting, until the requisite number of shareholders for a quorum shall be present, in person or by proxy, except that in the case of any meeting called for the election of directors such meeting may be adjourned only for periods not exceeding fifteen (15) days as the holders, present in person or by proxy, of shares entitled to cast at least a majority of the votes which all shareholders are entitled to cast, shall direct, and those who attend the second of such adjourned meetings, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors. At any adjourned meeting at which a quorum shall be present or so represented, any business may be transacted which might have been transacted at the original meeting if a quorum had been present. The shareholders present, in person or by proxy, at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

ARTICLE 4

VOTING RIGHTS

Section 4.1. Except as may be otherwise provided by statute or by the Articles of Incorporation, at every shareholders’ meeting, every shareholder entitled to vote thereat shall have the right to one vote for every share having voting power standing in his name on the books of the Corporation on the record dated fixed for the meeting. No share shall be voted at any meeting if any installment is due and unpaid thereon.

Section 4.2. When a quorum is present at any meeting, the vote of the holders, present in person or by proxy, of shares entitled to cast at least a majority of the votes which all shareholders are entitled to cast, shall decide any question brought before such meeting except as may be otherwise provided by statute or by the Articles of Incorporation.

Section 4.3. Upon demand made by a shareholder entitled to vote at any election for directors before the voting begins, the election shall be by ballot.

ARTICLE 5

PROXIES

Section 5.1. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the shareholder or his duly authorized attorney-in-fact and filed with the Secretary of the Corporation. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until notice thereof has been given to the Secretary of the Corporation. No unrevoked proxy shall be valid after eleven (11) months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall a proxy, unless coupled with an interest, be voted after three (3) years from the date of its execution. A proxy shall not be revoked by the death or incapacity of the maker, unless before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the Secretary of the Corporation.

ARTICLE 6

RECORD DATE

Section 6.1. The Board of Directors may fix a time, not more than ninety (90) days prior to the date of any meeting of shareholders, or the date fixed for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or go into effect, as a record date for the determination of the shareholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares. In such case, only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to notice of, or to vote at, such meeting or to receive payment of such dividend or to receive such allotment of rights or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any record date fixed as aforesaid. The Board of Directors may close the books of the Corporation against transfers of shares during the whole or any part of such period, and in such case written or printed notice thereof shall be mailed at least ten days before closing thereof to each shareholder of record at the address appearing on the records of the Corporation or supplied by him to the Corporation for the purpose of notice. While the stock transfer books of the Corporation are closed, no transfer of shares shall be made thereon. If no record date is fixed by the Board of Directors for the determination of shareholders entitled to receive notice of, and vote at, a shareholders’ meeting, transferees of shares which are transferred on the books of the Corporation within ten (10) days next preceding the date of such meeting shall not be entitled to notice of or to vote at such meeting.

ARTICLE 7

VOTING LISTS

Section 7.1. The officer or agent having charge of the transfer books for shares of the Corporation shall make, at least five (5) days before each meeting of shareholders, a complete

alphabetical list of the shareholders entitled to vote at the meeting, with their addresses and the number of shares held by each, which list shall be kept on file at the registered office or principal place of business of the Corporation and shall be subject to inspection by any shareholder during the entire meeting. The original transfer books for shares of the Corporation, or a duplicate thereof kept in this Commonwealth, shall be prima facie evidence as to who are the shareholders entitled to exercise the rights of a shareholder.

ARTICLE 8

JUDGES OF ELECTION

Section 8.1. In advance of any meeting of shareholders, the Board of Directors may appoint judges of election, who need not be shareholders, to act at such meeting or any adjournment thereof. If judges of election are not so appointed, the Chairman of any such meeting may, and on the request of any shareholder or his proxy shall, make such appointment at the meeting. The number of judges shall be one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the holders of shares, present in person or by proxy, entitled to cast at least nine (9) votes which all shareholders are entitled to cast shall determine whether one (1) or three (3) judges are to be appointed. No person who is a candidate for office shall act as a judge. The judges of election shall do all such acts as may be proper to conduct the election or vote, and such other duties as may be prescribed by statute, with fairness to all shareholders, and if requested by the Chairman of the meeting or any shareholder or his proxy, shall make a written report of any matter determined by them and execute a certificate of any fact found by them. If there are three (3) judges of election, the decision, act or certificate of a majority shall be the decision, act or certificate of all.

ARTICLE 9

CONSENT OF SHAREHOLDERS IN LIEU OF MEETING

Section 9.1. Any action required to be taken at a meeting of shareholders, or of a class of shareholders, may be taken without a meeting, if a consent or consents in writing setting forth the action so taken shall be signed by all of the shareholders who would be entitled to vote at a meeting for such purpose and shall be filed with the Secretary of the Corporation.

ARTICLE 10

DIRECTORS

Section 10.1. Any shareholder who intends to nominate or to cause to have nominated any candidate for election to the Board of Directors (other than any candidate proposed by the Corporation’s then existing Board of Directors) shall so notify the Secretary of the Corporation in accordance with Section 2.6(b). Such notification, in addition to complying with the requirements of Section 2.6(b), shall contain the following information to the extent known by the notifying shareholder:

(a)

the name and address of each proposed nominee;

(b)

the age of each proposed nominee;

(c)

the principal occupation of each proposed nominee;

(d)

the number of shares of the Corporation owned by each proposed nominee;

(e)

the total number of shares, to the knowledge of the notifying shareholder, which will be voted for each proposed nominee;

(f)

the name and residence address of the notifying shareholder; and

(g)

the number of shares of the Corporation owned by the notifying shareholder.

Any nomination for director not made in accordance with this section shall be disregarded by the chairman of the meeting, and votes cast for each such nominee shall be disregarded by the judges of election. In the event that the same person is nominated by more than one shareholder, if at least one nomination for such person complies with this Section, the nomination shall be honored and all votes cast for such nominee shall be counted.

Section 10.2. The number of directors that shall constitute the whole Board of Directors shall be not less than five (5) nor more than twenty-five (25). The Board of Directors shall be classified into three (3) classes, each class to be as nearly equal in number as possible and each class to be elected for a term of three (3) years. The terms of the respective classes shall expire in successive years. Each class shall be elected in a separate election. At each annual meeting of shareholders thereafter, successors to the class of directors whose term shall then expire shall be elected to hold office for a term of three (3) years, so that the term of office of one class of directors shall expire in each year. Within the foregoing limits, the Board of Directors may from time to time fix the number of directors and their respective classifications. Except as otherwise provided in Section 10.6, no person may serve as a director after the age of 73 years old.

Section 10.3.

(a) At the consummation of the merger (the “Effective Time”) of Penseco Financial Services Corporation (“Penseco”) with and into the Corporation (the “Merger”), the total number of persons serving on the board of directors of the Corporation shall be fourteen (14). Six (6) of the fourteen (14) persons to serve initially on the board of directors of the Corporation at the Effective Time shall be selected by Peoples board of directors and eight (8) of the fourteen (14) persons shall be selected by the Penseco board of directors from among the current directors of Peoples and Penseco, respectively, who, except for executive officers, are independent directors, as provided in the NASDAQ Stock Market Marketplace Rules and who meet the eligibility requirements for a director under the Corporations’s bylaws. The directors from each Peoples and Penseco shall be evenly distributed as close as possible among the three (3) classes, A, B, and C, of the Corporation after the Effective Time with two (2) classes having five (5) directors and one (1) class having four (4) directors each to serve until their successors are duly elected and qualified in accordance with applicable law, the articles of incorporation, and the bylaws of the Corporation.

(b) For three (3) years immediately after the Effective Time, unless the board of directors of the Corporation shall determine otherwise upon the approval of at least 80% of the board of directors of the Corporation, director nominees shall be selected, or recommended for the board of directors’ selection, by a nominating committee comprised solely of independent directors (the “Nominating Committee”), and more particularly as follows. With respect to any directorship held by an incumbent Continuing Peoples Director whose term is expiring at any such meeting, a subcommittee of the Nominations Committee comprised solely of Continuing Peoples Directors shall select, or recommend for the board’s selection, a director nominee who, except for executive officers, is an independent director as provided in the NASDAQ Stock Market Marketplace Rules and who meets the requirements for a director under the Corporation’s bylaws for election or reelection to such directorship. A “Continuing Peoples Director” shall mean any member of the board of directors of the Corporation who was a director of Peoples immediately prior to the Effective Time, or any other member of the board of directors of the Corporation who was nominated in accordance with the preceding sentence. With respect to any directorship held by an incumbent Continuing Penseco Director whose term is expiring at any such meeting, a subcommittee of the Nominations Committee comprised solely of Continuing Penseco Directors shall select, or recommend for the board’s selection, a director nominee who, except for executive officers, is an independent director as provided in the NASDAQ Stock Market Marketplace Rules and who meets the requirements for a director under the Corporation’s bylaws above for election or reelection to such directorship. A “Continuing Penseco Director” shall mean any member of the board of directors of the Surviving Corporation who was a director of Penseco immediately prior to the Effective Time, or any other member of the board of directors of the Corporation who was nominated in accordance with the preceding sentence.

Section 10.4 For three (3) years following the Effective Time, directors formerly of Peoples and Penseco shall have prorata representation on all committees based upon the representative number of directors of each party on the board of directors as of the Effective Time, unless the Board of Directors of the Corporation shall determine otherwise upon the approval of 80% of the directors of the entire Board of Directors.

Section 10.5 The Board of Directors may declare vacant the office of a director if he or she is declared of unsound mind by an order of court or convicted of a felony or for any other proper cause or if, within thirty (30) days after notice of election, he or she does not accept such office either in writing or by attending a meeting of the Board of Directors.

Section 10.6 All Directors, upon reaching the mandatory retirement age of 73 years, shall be permitted to serve as a director for the remainder of their term after which they shall no longer be eligible to serve as a director. Notwithstanding the foregoing, each director appointed to the Corporation’s Board of Directors in connection with the Merger and Section 10.3 hereof shall be eligible to stand for election to one additional three (3) year term, regardless of their age, unless the Board of Directors of the Corporation shall determine otherwise upon the approval of 80% of the directors of the entire Board of Directors.

ARTICLE 11

VACANCIES ON BOARD OF DIRECTORS

Article 11.1. Except as provided in Section 10.3 above, vacancies on the Board of Directors, including vacancies resulting from an increase in the number of directors, shall be filled by a majority of the remaining members of the Board of Directors, though less than a quorum, and each person so appointed shall be a director until the expiration of the term of office of the class of directors to which he was appointed.

ARTICLE 12

POWERS OF BOARD OF DIRECTORS

Section 12.1. The business and affairs of the Corporation shall be managed by its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised and done by the shareholders.

Section 12.2. The Board of Directors shall have the power and authority to appoint an Executive Committee and such other committees as may be deemed necessary by the Board of Directors for the efficient operation of the Corporation. The Executive Committee shall consist of the Chairman of the Board, if any, the Vice Chairman of the Board, if any, the President and not less than one (1) nor more than three (3) other directors (which other directors shall not be employees of the Corporation or any of its subsidiaries). The Executive Committee shall meet at such time as may be fixed by the Board of Directors, or upon call of the Chairman of the Board or the President. A majority of members of the Executive Committee shall constitute a quorum. The Executive Committee shall have and exercise the authority of the Board of Directors in the intervals between the meetings of the Board of Directors as far as may be permitted by law. The Committees of the Board of Directors of the Corporation and their respective responsibilities shall be as set forth on Exhibit A hereto.

ARTICLE 13

MEETINGS OF THE BOARD OF DIRECTORS

Section 13.1. An organization meeting may be held immediately following the annual shareholders’ meeting without the necessity of notice to the directors to constitute a legally convened meeting, or the directors may meet at such time and place as may be fixed by either a notice or waiver of notice or consent signed by all of such directors.

Section 13.2. Regular meetings of the Board of Directors shall be held not less often than semi-annually at a time and place determined by the Board of Directors at the preceding meeting. One or more directors may participate in any meeting of the Board of Directors, or of any committee thereof, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear one another.

Section 13.3. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President on one day’s notice to each director, either personally or by mail, courier service, facsimile transmission, email or other electronic communication, or telephone; special meetings shall be called by the Chairman of the Board or the President in like manner and on like notice upon the written request of three (3) directors.

Section 13.4. At all meetings of the Board of Directors, a majority of the directors shall constitute a quorum for the transaction of business, and the acts of a majority of the directors present at a meeting in person or by conference telephone or similar communications equipment at which a quorum is present in person or by such communications equipment shall be the acts of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation or by these bylaws. If a quorum shall not be present in person or by communications equipment at any meeting of the directors, the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or as permitted herein.

ARTICLE 14

INFORMAL ACTION BY THE BOARD OF DIRECTORS

Section 14.1. If all the directors shall severally or collectively consent in writing, to any action to be taken by the Corporation, such action shall be as valid corporate action as though it had been authorized at a meeting of the Board of Directors.

ARTICLE 15

COMPENSATION OF DIRECTORS

Section 15.1. Directors, as such, may receive a stated salary for their services or a fixed sum and expenses for attendance at regular and special meetings, or any combination of the foregoing as may be determined from time to time by resolution of the Board of Directors, and nothing contained herein shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefore.

ARTICLE 16

OFFICERS

Section 16.1. The officers of the Corporation shall be elected by the Board of Directors at its organization meeting and shall be a President, a Secretary and a Treasurer. At its option, the Board of Directors may elect a Chairman of the Board. The Board of Directors may also elect one or more Vice Presidents and such other officers and appoint such agents as it shall deem necessary, who shall hold their offices for such terms, have such authority and perform such duties as may from time to time be prescribed by the Board of Directors. Any two (2) or more offices may be held by the same person.

Section 16.2. The compensation of all officers of the Corporation shall be fixed by the Board of Directors.

Section 16.3. The Board of Directors may remove any officer or agent elected or appointed, at any time and within the period, if any, for which such person was elected or employed whenever in the Board of Directors’ judgment it is in the best interests of the Corporation, and all persons shall be elected and employed subject to the provisions thereof. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.

ARTICLE 17

THE CHAIRMAN OF THE BOARD

Section 17.1. The Chairman of the Board shall preside at all meetings of shareholders and directors. He shall supervise the carrying out of the policies adopted or approved by the Board of Directors. He shall have general executive powers, as well as the specific powers conferred by these bylaws. He shall also have and may exercise such further powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors.

ARTICLE 18

THE PRESIDENT

Section 18.1. The President shall be the chief executive officer of the Corporation. The President shall (a) have general and active management of the business of the Corporation, (b) see that orders and resolutions of the Board of Directors are put into effect, subject, however, to the right of the Board of Directors to delegate any specific powers, except such as may be by statue exclusively conferred on the president, to any other officer or officers of the Corporation and (c) execute bonds, mortgages and other contracts requiring a seal under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. In the absence or incapacity of the Chairman of the Board, the President shall preside at meetings of the shareholders and directors. If there is no Chairman of the Board, the President shall have and exercise all powers conferred by these bylaws or otherwise on the Chairman of the Board.

ARTICLE 19

THE VICE PRESIDENT

Section 19.1. The Vice President or, if more than one, the Vice Presidents in the order established by the Board of Directors shall, in the absence or incapacity of the President, exercise all powers and perform the duties of the President. The Vice Presidents, respectively, shall also have such other authority and perform such other duties as may be provided in these bylaws or as shall be determined by the Board of Directors or the President. Any Vice President may, in the discretion of the Board of Directors, be designated as “executive,” “senior,” or by departmental or functional classification.

ARTICLE 20

THE SECRETARY

Section 20.1. The Secretary shall attend all meetings of the shareholders and directors and keep accurate records thereof in one or more minute books kept for that purpose and shall perform the duties customarily performed by the secretary of a Corporation and such other duties as may be assigned to the Secretary by the Board of Directors or the President.

ARTICLE 21

THE TREASURER

Section 21.1. The Treasurer shall (a) have the custody of the corporate funds and securities, (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and (c) perform such other duties as may be assigned to him by the Board of Directors or the President. He shall give bond in such sum and with such surety as the Board of Directors may from time to time direct.

ARTICLE 22

ASSISTANT OFFICERS

Section 22.1. Each assistant officer shall assist in the performance of the duties of the officer to whom he is assistant and shall perform such duties in the absence of the officer. He shall perform such additional duties as the Board of Directors, the President or the officer to whom he is assistant may from time to time assign. Such officers may be given such functional titles as the Board of Directors shall from time to time determine.

ARTICLE 23

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 23.1 The Corporation shall indemnify, to the fullest extent permitted by Pennsylvania law and federal law, any director, officer and/or employee, or any former director, officer and/or employee, who was or is a party to, or is threatened to be made a party to, or who is called to be a witness in connection with, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer and /or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

Section 23.2 The Corporation shall indemnify, to the fullest extent permitted by Pennsylvania law and federal law, any director, officer and/or employee, who was or is a party to, or is threatened by to be made a party to, or who is called as a witness in connection with any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer and/or employee or agent of another Corporation, partnership, joint venture, trust or other enterprise against amounts paid in settlement and expenses (including attorney’s fees) actually and reasonably incurred by him in connection with the defense or settlement of, or serving as a witness in, such action or suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation and except that no indemnification shall be made in respect of any such claim, issue or matter as to which such person shall have been adjudged to be liable for misconduct in the performance of his duty to the Corporation.

Section 23.3 Except as may be otherwise ordered by a court, there shall be a presumption that any director, officer and/or employee is entitled to indemnification as provided in Sections 23.1 and 23.2 of this Article unless either a majority of the directors who are not involved in such proceedings (“disinterested directors”) or, if there are less than three (3) disinterested directors, then the holders of one-third of the outstanding shares of the Corporation determine that the person is not entitled to such presumption by certifying such determination in writing to the Secretary of the Corporation. In such event the disinterested director(s) or, in the event of certification by shareholders, the Secretary of the Corporation shall request of independent counsel, who may be the outside general counsel of the Corporation, a written opinion as to whether or not the parties involved are entitled to indemnification under Sections 23.1 and 23.2 of this Article.

Section 23.4 Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided under Section 23.3 of this Article upon receipt of an undertaking by or on behalf of the director, officer and/or employee to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article.

Section 23.5 The indemnification provided by this Article shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity while serving as a director, officer and/or employee and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer and/or employee and shall inure to the benefit of the heirs and personal representatives of such a person.

ARTICLE 24

SHARE CERTIFICATES

Section 24.1. The share certificates of the Corporation shall be numbered and registered in a share register as they are issued, shall bear the name of the registered holder, the number and class of shares represented thereby, the par value of each share or a statement that such shares

are without par value, as the case may be, shall be signed by the President or a Vice President and the Secretary or the Treasurer or any other person properly authorized by the Board of Directors; and shall bear the corporate seal, which seal may be a facsimile engraved or printed. Where the certificate is signed by a transfer agent or a registrar, the signature of any corporate officer on such certificate may be a facsimile, engraved or printed. In case any officer who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer because of death, resignation or otherwise before the certificate is issued, it may be issued by the Corporation with the same effect as if the officer had not ceased to be such at the date of its issue.

Section 24.2 Notwithstanding anything herein to the contrary, any or all classes and series of shares, or any part thereof, may be represented by uncertificated shares to the extent determined by the Board of Directors, except that shares represented by a certificate that is issued and outstanding shall continue to be represented thereby until the certificate is surrendered to the Corporation. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates. The rights and obligations of the holders of shares represented by certificates and the rights and obligations of the holders of uncertificated shares of the same class shall be identical. Notwithstanding anything herein to the contrary, the provisions of Section 24.1 shall not apply to uncertificated shares and, in lieu thereof, the Board of Directors shall adopt alternative procedures for registration of transfers.

ARTICLE 25

TRANSFER OF SHARES

Section 25.1. Upon surrender to the Corporation of a share certificate duly endorsed by the person named in the certificate or by attorney duly appointed in writing and accompanied where necessary by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto and the old certificate cancelled and the transfer recorded upon the share register of the Corporation. No transfer shall be made if it would be inconsistent with the provisions of Article 8 of the Pennsylvania Uniform Commercial Code.

ARTICLE 26

LOST CERTIFICATES

Section 26.1. Where a shareholder of the Corporation alleges the loss, theft or destruction of one or more certificates for shares of the Corporation and requests the issuance of a substitute certificate therefore, the Board of Directors may direct a new certificate of the same tenor and for the same number of shares to be issued to such person upon such person’s making of an affidavit in form satisfactory to the Board of Directors setting forth the facts in connection therewith, provided that prior to the receipt of such request the Corporation shall not have either registered a transfer of such certificate or received notice that such certificate has been acquired by a bona fide purchaser. When authorizing such issue of a new certificate

the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his heirs or legal representatives, as the case may be, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form and with surety or sureties, with fixed or open penalty, as shall be satisfactory to the Board of Directors, as indemnity for any liability or expense which it may incur by reason of the original certificate remaining outstanding.

ARTICLE 27

DIVIDENDS

Section 27.1. The Board of Directors may, from time to time, at any duly convened regular or special meeting or by unanimous consent in writing, declare and pay dividends upon the outstanding shares of capital stock of the Corporation in cash, property or shares of the Corporation, as long as any dividend shall not be in violation of law or the Articles of Incorporation.

Section 27.2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the Board of Directors shall believe to be for the best interests of the Corporation, and the Board of Directors may reduce or abolish any such reserve in the manner in which it was created.

ARTICLE 28

FINANCIAL REPORT TO SHAREHOLDERS

Section 28.1. The President and the Board of Directors shall present at each annual meeting of the shareholders a full and complete statement of the business and affairs of the Corporation for the preceding year.

ARTICLE 29

INSTRUMENTS

Section 29.1. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other persons as the President or the Board of Directors may from time to time designate.

Section 29.2. All agreements, indentures, mortgages, deeds, conveyances, transfers, certificates, declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies and other instruments and documents may be signed, executed, acknowledged, verified, delivered or accepted, including those in connection with the fiduciary powers of the Corporation, on behalf of the Corporation by the President or other persons as may be designated by him.

ARTICLE 30

FISCAL YEAR

Section 30.1. The fiscal year of the Corporation shall be the calendar year.

ARTICLE 31

SEAL

Section 31.1. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Pennsylvania.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed in any manner reproduced.

ARTICLE 32

NOTICES AND WAIVERS THEREOF

Section 32.1. Whenever, under the provisions of applicable law or of the Articles of Incorporation or of these bylaws, written notice is required to be given to any person, it may be given to such person either personally or by sending a copy thereof through the mail by first class or express mail postage prepaid, or courier service, charges prepaid, facsimile transmission, email or other electronic communication, to his address appearing on the books of the Corporation or supplied by him to the Corporation for the purpose of notice. If the notice is sent by mail or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or the courier service for transmission to such person. If notice is sent by facsimile transmission, email or other electronic communication it shall have been deemed to have been given to the person entitled thereto when sent. Such notice shall specify the place, day and hour of the meeting and, in the case of a special meeting of shareholders, the general nature of the business to be transacted.

Section 32.2. Any written notice required to be given to any person may be waived in writing signed by the person entitled to such notice whether before or after the time stated therein. Attendance of any person entitled to notice whether in person or by proxy, at any meeting shall constitute a waiver of notice of such meeting, except where any person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. Where written notice is required of any meeting, the waiver thereof must specify the purpose only if it is for a special meeting of the shareholders.

ARTICLE 33

AMENDMENTS

Section 33.1. These bylaws may be altered, amended or repealed by (a) the affirmative vote of the shareholders entitled to cast at least seventy-five percent (75%) of the votes which all shareholders are then entitled to cast at any regular or special meeting duly convened after notice to the shareholders of that purpose or (b) by the affirmative vote of a majority of the members of the Board of Directors, except Article 10 of these bylaws which for three (3) years following the Effective Time require the affirmative vote of eighty percent (80%) or more of the members of the Board of Directors, at any regular or special meeting thereof duly convened

after notice to the directors of that purpose, subject always to the power of the shareholders to change such action of the Board of Directors by the affirmative vote of the shareholders entitled to cast at least seventy-five percent (75%) of the votes which all shareholders are then entitled to cast.

EXHIBIT A

COMMITTEES OF THE BOARD

(Unless otherwise specifically indicated, Committees are concurrent committees of Peoples Financial Services Corp. and Peoples Neighborhood Bank)

Executive Committee The Executive Committee shall consist of the Board Chairman, if any, the Vice Chairman, if any, and President plus not less than one, but no more than three (3), other directors. The Executive Committee will meet on an as necessary basis and may exercise the authority of the Board to the extent permitted by law during intervals between meetings of the Board. This committee may also be assigned other duties by the Bank’s Board.

Compensation Committee See Compensation Committee Charter.

Audit Compliance Committee See Audit Committee Charter.

Nominating and Governance Committee See Nominating and Governance Committee Charter.

Asset/Liability Committee The primary objectives of the Asset/Liability management process include: optimize earnings and return on assets and equity within acceptable and controllable levels; provide for growth that is sound, profitable and balanced without sacrificing the quality of service; and manage and maintain policy and procedures that are consistent with the short and long term strategic goals of the Board of Directors. To this end, the Asset/Liability Committee is responsible for risk management within the following key areas; interest rate; price; liquidity; investment/credit; and budget. The committee meets monthly and consists of the Board of Directors and key bank officers.

Human Resources and Marketing Committee The Human Resources and Marketing Committee of the Bank is responsible for sound human resources management and training e.g., in employment, compensation, and performance appraisal. This committee is also responsible for evaluation, planning and supervision of the marketing and advertising of the Bank’s products and services, and also oversees community involvement and other public relations activities. The Human Resources and Marketing Committees meet on a quarterly basis with the Human Resources and Marketing managers and other executive officers.

Loan Administration Committee The Loan Administration Committee of the Bank assists the Bank’s Board of Directors in discharging its responsibility for the lending activities of the Bank by reviewing loans, lines of credits, floor plans, customers, financial statements, and by monitoring loan review and compliance. The Loan Administration Committee recommends lending authorizations and is responsible for assuring that the Bank’s loan activities are carried out in accordance with loan policies. This committee is also responsible for insuring the adequacy of the Bank’s loan loss reserve. The Loan Administration Committee meets with the Loan Administration manager and other executive officers on a quarterly basis.

Branch Committee The Branch Committees of the Bank shall consist of the Directors assigned to or representing a particular community office. This committee will meet with the Branch Manager, executive officers of the Bank and association directors of that office on a monthly basis to discuss the progress and/or problems of the particular office they represent. The Committee may make recommendations on unlimited matters concerning that office for consideration at the monthly Director’s Meeting.

Exhibit 10.1

CONSULTING AGREEMENT

THIS AGREEMENT is made as of the 2 ^nd day of December, 2013, between Peoples Financial Services Corp. (“Peoples”), a Pennsylvania corporation, Peoples Security Bank and Trust Company (“Peoples Bank”), a Pennsylvania state-charted bank, and Alan W. Dakey (“Consultant”), an individual residing in Pennsylvania.

WITNESSETH :

WHEREAS , Peoples is the parent bank holding company of Peoples Bank;

WHEREAS, Penseco Financial Services Corporation (“Penseco”) is the parent bank holding company of Penn Security Bank and Trust Company, a Pennsylvania state-chartered bank and trust company (“Penn Security”);

WHEREAS, Peoples and Penseco, entered into an Agreement and Plan of Merger dated June 28, 2013, as amended (“Merger Agreement”), wherein Penseco merged with and into Peoples and Penn Security merged with and into Peoples Neighborhood Bank (“Merger”);

WHEREAS, upon the merger of Penn Security into Peoples Neighborhood Bank, the name of the surviving institution became Peoples Security Bank and Trust Company; and

WHEREAS, Consultant was the President and Chief Executive Officer of Peoples and Peoples Neighborhood Bank;

WHEREAS, Peoples and Peoples Bank desire that Consultant assist in the integration of Penn Security into Peoples Bank;

WHEREAS, Consultant possesses the knowledge and experience necessary to assist in the integration; and

WHEREAS, Consultant desires to serve Peoples and Peoples Bank under the terms and conditions set forth herein;

AGREEMENT :

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

1.	Consultant Relationship . Peoples and Peoples Bank hereby engage Consultant and Consultant hereby agrees to serve Peoples and Peoples Bank, under the terms and conditions set forth in this Agreement. It is the parties mutual intent that Consultant will

act strictly in a professional consulting capacity as an independent contractor for all purposes, including without limitation, federal, state and local withholding, employment and payroll tax purposes, and in all situations shall not be considered an employee of Peoples or Peoples Bank for any purpose. Consultant acknowledges that he will not be eligible to participate in any retirement, welfare, or other employee benefit plan or arrangement maintained by Peoples or Peoples Bank or its affiliates as an independent contractor and agrees that he will not claim any such benefits except as otherwise provided by the employment agreement dated November 30, 2009 between Peoples Financial Services Corp. and Alan W. Dakey, if any.

Duties of Consultant . Consultant shall perform and discharge well and faithfully such duties as necessary in a reasonable and professional manner to the best of his abilities. Consultant agrees to be available at least eight (8) hours per week, or such other amount of time which the parties mutually agree but not to exceed twenty percent (20%) of his average level of services performed during the immediately preceding 36-month period, to assist Peoples and Peoples Bank with the operations and continued integration of Penn Security into Peoples Bank.

Term of Agreement Provided Consultant executes a release agreement in favor of Peoples and Peoples Bank upon the termination of his employment, this Agreement shall commence at the Effective Time (as defined in the Merger Agreement) and end six (6) months later (“Consulting Term”). In the event Peoples or Peoples Bank terminates this Agreement prior to the expiration of the Consulting Term, Consultant shall be entitled to the remainder of the compensation due under Section 4 of this Agreement unless such termination is a result of Consultant’s violation of the unauthorized disclosure provisions of Section 5 of this Agreement, a violation of the covenant not to compete provisions of Section 6 of this Agreement, or a failure to perform the duties provided in Section 2 of this Agreement. This Agreement shall be null and void in the event that the Merger is not consummated as contemplated in the Merger Agreement.

4.	Compensation . Peoples and Peoples Bank shall pay Consultant $95,000 for his services under this Agreement for the six (6) month period, payable in bi-weekly installments.

Unauthorized Disclosure . During the Consulting Term, or at any later time, the Consultant shall not, without the written consent of the President and Chief Executive Officer of Peoples and Peoples Bank or a person authorized thereby, knowingly disclose to any person, other than an employee of Peoples or Peoples Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Consultant of his duties, any material confidential information obtained by him while performing services for Peoples and Peoples Bank with respect to any of Peoples’ and Peoples Bank’s services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure of which could be or will be damaging to Peoples or Peoples Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Consultant or any person with the assistance, consent or direction of the Consultant) or any information of a type not otherwise

considered confidential by persons engaged in the same business or a business similar to that conducted by Peoples and Peoples Bank or any information that must be disclosed as required by law.

6.	Covenant Not to Compete .

(a)

Consultant hereby acknowledges and recognizes the highly competitive nature of the business of Peoples and Peoples Bank and accordingly agrees that, Consultant shall not, except as otherwise permitted in writing by Peoples and Peoples Bank:

(i) during the Consulting Term, be engaged, directly or indirectly, either for his own account or as agent, consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly owned company) or otherwise of any person, firm, corporation or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Peoples or Peoples Bank or any of their subsidiaries or successors are engaged during the Consulting Term, in any county in which, during the Consulting Term, a branch location, office, loan production office, or trust or wealth management office of Peoples, Peoples Bank, or their successors are located (“Non-Competition Area”);

(ii) during the Consulting Term, provide financial or other assistance to any person, firm, corporation, or enterprise engaged in (A) the banking (including bank holding company) or financial services industry, or (B) any other activity in which Peoples, Peoples Bank or any of their subsidiaries or successors are engaged during the Consulting Term, in the Non-Competition Area;

(iii) for a period of three (3) years from the Effective Time, directly or indirectly solicit persons or entities who were customers or referral sources of Peoples, Peoples Bank, Penseco, Penn Security, or their subsidiaries or successors to become a customer or referral source of a person or entity engaged in providing financial services other than Peoples, Peoples Bank or their subsidiaries or successors; or

(iv) for a period of three (3) years from the Effective Time, directly or indirectly solicit employees of Peoples, Peoples Bank, Penseco, Penn Security or their subsidiaries or successors who were employed within three (3) years of the expiration of the Consulting Term to work for anyone other than Peoples, Peoples Bank or their subsidiaries or successor.

(b)

It is expressly understood and agreed that, although Consultant and Peoples and Peoples Bank consider the restrictions contained in Section 6(a) hereof reasonable

for the purpose of preserving for Peoples and Peoples Bank and their subsidiaries their good will and other proprietary rights, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in Section 6(a) hereof is an unreasonable or otherwise unenforceable restriction against Consultant, the provisions of Section 6(a) hereof shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable.

Work Made for Hire. Any work performed by the Consultant under this Agreement should be considered a “Work Made for Hire” as the phrase is defined by the United States Copyright Act of 1976 and shall be owned by and for the express benefit of Peoples, Peoples Bank and their subsidiaries, successors, and affiliates. In the event it should be established that such work does not qualify as a Work Made for Hire, Consultant agrees to and does hereby assign to Peoples, Peoples Bank, and their affiliates and subsidiaries, all of his rights, title, and/or interest in such work product, including, but not limited to, all copyrights, patents, trademarks, and propriety rights.

Return of Company Property and Documents. Consultant agrees that, at the time of termination of this Agreement, regardless of the reason for termination, he will deliver to Peoples, Peoples Bank and their subsidiaries, successors, and affiliates, any and all company property, including, but not limited to, keys, security codes or passes, mobile telephones, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, software programs, equipment, other documents or property, or reproductions of any of the aforementioned items developed or obtained by the Consultant during the course of this Agreement.

Notices . Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Consultant’s residence, in the case of notices to Consultant, and to the principal executive offices of Peoples and Peoples Bank, in the case of notices to Peoples and Peoples Bank or its successor.

10.

Waiver . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Consultant and the Chairman of the Board of Peoples Bank. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

11.	Assignment . This Agreement shall not be assignable by any party, except by Peoples and Peoples Bank to any successor in interest to their respective businesses.

12.	Entire Agreement . This Agreement supersedes any and all agreements, either oral or in writing, between the parties regarding Consultant’s consulting services and contains all the covenants and agreements between the parties with respect to the consulting arrangement.

13.	Validity . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

14.	Applicable Law . This Agreement shall be governed by and construed in accordance with the domestic, internal laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles.

15.	Headings . The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.


ATTEST:		PEOPLES FINANCIAL SERVICES CORP.

	By	/s/ William E. Aubrey II
		William E. Aubrey II
		Chairman of the Board of Directors

		PEOPLES NEIGHBORHOOD BANK

	By	/s/ William E. Aubrey
		William E. Aubrey II
		Chairman of the Board of Directors

WITNESS:		CONSULTANT

		/s/ Alan W. Dakey
		Alan W. Dakey

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “ Agreement ”), dated as of December 1, 2013, is made and entered into by and among Peoples Financial Services Corp., a Pennsylvania corporation (“Corporation”), Peoples Security Bank and Trust Company, a Pennsylvania state-chartered bank (the “Bank”), and Joseph M. Ferretti (the “ Executive ”).

ARTICLE I

RECITALS

WHEREAS, the Executive previously entered into an employment agreement with the Corporation and Peoples Neighborhood Bank (“Peoples Bank”) dated May 9, 2011 (“2011 Employment Agreement”); and

WHEREAS, the Executive and Peoples Bank entered into a Peoples Neighborhood Bank Executive Retirement Plan dated May 9, 2011 (“2011 SERP”); and

WHEREAS , Corporation entered into an Agreement and Plan of Merger dated as of June 28, 2013 (“Merger Agreement”), with Penseco Financial Services Corporation (“Penseco”), which provides for the merger of Penseco into Corporation and Penseco’s wholly owned subsidiary, Penn Security Bank and Trust Company (“Penn Security”), will merge with and into Peoples Bank (“Merger”); and

WHEREAS, upon the merger of Penn Security into Peoples Bank, the name of the surviving institution became Peoples Security Bank and Trust Company; and

WHEREAS , the Bank desires to continue the Executive’s employment as the Bank’s Executive Vice President and Co-Chief Lending Officer - North pursuant to the terms and conditions set forth in this Agreement; and

WHEREAS , the Executive desires to be so employed by the Bank; and

WHEREAS, this Agreement shall supersede any and all agreements, either oral or in writing, between the parties with respect to the employment of Executive including but not limited to the 2011 Agreement and the 2011 SERP; and

WHEREAS, Executive specifically acknowledges that this Agreement terminates and cancels the 2011 Employment Agreement and that the obligations under the 2011 SERP have been satisfied; and

WHEREAS, Executive specifically releases the Corporation and Bank from any and all obligations under the 2011 Employment Agreement and the 2011 SERP.

NOW, THEREFORE , in consideration of the foregoing and the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE II

DEFINITIONS

Section 2.1. “Accrued Obligations” means, as of the Date of Termination, to the extent not theretofore paid, the sum of (i) Executive’s Base Salary through the Date of Termination, (ii) the amount of any bonus or other incentive compensation for any completed bonus period and other vested cash compensation earned by Executive as of the Date of Termination under the terms of any compensation, benefit plans, and deferred compensation plans, policies or arrangements maintained in force by the Corporation and Bank, and (iii) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive, in accordance with the Bank’s policies as of the Date of Termination.

Section 2.2. “Bank Board” means the board of directors of the Bank.

Section 2.3. “Cause” means: (i) conviction of, or the entry of a plea of guilty or no contest to a felony or any other crime of moral turpitude that causes the Corporation, the Bank or any of their subsidiaries or affiliates public disgrace or disrepute, or adversely affects their operations, financial performance, or relationship with its customers; (ii) fraud, embezzlement or other misappropriation of funds; (iii) illegal use of controlled drugs; (iv) material breach of this Agreement; (v) refusal to perform the lawful and reasonable directives of the Chief Executive Officer of the Bank or the Bank Board or Corporation Board; (v) any government regulatory agency instructs the Corporation or Bank to terminate the employment of the Executive or relieve him of his duties; (vi) the Executive’s willful violation of any law, rule or regulation governing banks or bank officers; or (vii) the Executive’s unlawful discrimination, including harassment against employees, customers, business associates, contractors, or visitors of the Bank or the Corporation or any of their affiliates and subsidiaries.

Section 2.4. “Change in Control” means the occurrence of any one of the following events provided such event is a change in the ownership or effective control of the Corporation or in the ownership of a substantial portion of the assets of the Corporation as defined under Code Section 409A: (i) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), other than any Corporation and Bank employee stock ownership plan or an equivalent retirement plan, becomes the beneficial owner (as such term is used in Section 13(d) of the Exchange Act), directly or indirectly, of securities of Corporation representing 50% or more of the combined voting power of Corporation’s then outstanding voting securities, other than in a transaction described in clause (iv) below, (ii) the Corporation Board ceases to consist of a majority of Continuing Directors (as defined below), (iii) the consummation of a sale of all or substantially all of the

Corporation and Bank’s assets (as measured by the fair value of the assets being sold compared to the fair value of all of the Corporation and Bank’s assets), or (iv) a merger or other combination occurs such that a majority of the equity securities of the resultant entity after the merger or other combination are not owned by those who owned a majority of the equity securities of the Corporation prior to the merger or other combination. A “ Continuing Director ” shall mean a member of the Corporation Board who either (i) is a member of the Corporation Board as of the date of this Agreement or (ii) is nominated or appointed to serve as a member of the Corporation Board by a majority of the then Continuing Directors.

Section 2.5. “Change in Control Termination” means the termination of Executive’s employment under this Agreement by the Bank or its successor or assignee without Cause or by Executive for Good Reason, which occurs within 24 months following a Change in Control.

Section 2.6. “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended.

Section 2.7. “Code” means the Internal Revenue Code of 1986, as amended and the regulations issued thereunder.

Section 2.8. “Date of Termination” has the meaning given to that term in Section 3.6 .

Section 2.9. “Disability” means a condition entitling Executive to benefits under the long term disability plan, policy or arrangement maintained for employees of the Bank. Termination as a result of a Disability will not be construed as a termination by the Bank “without Cause.”

Section 2.10. “Good Reason” means any of the following, without Executive’s prior consent: (i) a material, adverse change in authority, duties or reporting relationships (including the assignment of duties materially inconsistent with the Executive’s position); (ii) a material reduction in Base Salary (except in connection with an across-the-board salary reduction applicable to all of the Bank’s management employees, as described in Section 3.4(a) ) or bonus or incentive compensation opportunities described in Article III or employee benefits; (iii) any other material breach of this Agreement by the Bank or the Corporation, excluding inadvertent action which is remedied by the Bank or the Corporation, as applicable, within ten (10) days after its receipt of written notice thereof from the Executive specifying in reasonable detail the alleged breach; or (iv) executive being required to relocate to a principal place of employment more than 50 miles from Hallstead, Pennsylvania; provided, that no event or condition described in clauses (i) through (iv) of this Section 2.10 will constitute Good Reason unless: (a) the Executive provides the Bank with written objection to the event or condition within 60 days of the first occurrence of such event or condition, (b) the Bank does not reverse or otherwise cure the event or condition within 30 days of receiving that written objection (the “ Cure Period ”) or the Bank notifies the Executive in writing that it does not intend to cure the event or condition, and (c) the Executive resigns his employment within 30 days

following the expiration of that Cure Period. For purposes of this Section 2.10 , the Cure Period shall end on the earlier of the date the Bank notifies Executive in writing that it does not intend to cure the event or condition referenced in the Executive’s written objection, or the 30 ^th day following the Bank’s receipt of such written objection.

Section 2.11. “Corporation Board” means the board of directors of Corporation.

Section 2.12. “Restricted Period” means the period commencing on the Date of Termination and ending either (i) on the date that is 24 months after the Date of Termination, in the event of a Change in Control Termination, or (ii) on date that is 12 months after the Date of Termination, in any other event.

ARTICLE III

EMPLOYMENT AND COMPENSATION

Section 3.1. Employment Term .

(a) The Executive’s employment under this Agreement shall be for a period (“Initial Term”) commencing at the Effective Time as defined in the Merger Agreement and if not previously terminated pursuant to the terms of this Agreement, the Employment Period shall end three (3) years later. The Employment Period shall be automatically extended by one (1) year on the first annual anniversary date of this Agreement and again on each annual anniversary date thereafter, to provide for a three (3) year term annually, effective as of such respective dates, unless the Corporation, the Bank or the Executive shall have given written notice of non-renewal to the other at least ninety (90) days before the date of such renewal. The Initial Term and any renewals thereof are herein collectively referred to as the “Term”. It is the intention of the parties that this Agreement be “Evergreen”. This Agreement shall be null and void and without legal effect in the event that the Merger is not consummated as contemplated in the Merger Agreement.

(b) If Executive dies while employed by the Bank, this Agreement and Executive’s employment by the Bank shall automatically terminate on the date of Executive’s death. The Bank may terminate Executive’s employment and all other positions with the Corporation and Bank upon written notice to Executive at any time (i) due to the Disability of Executive, (ii) for Cause, or (iii) without Cause, for any or no reason. Executive may terminate his employment with the Bank and all other positions with the Corporation and Bank at any time (i) for Good Reason, or (ii) without Good Reason, for any or no reason.

Section 3.2. Positions and Duties . Executive will serve as Executive Vice President and Co-Chief Lending Officer - North (“ CLO ”) of the Bank, reporting directly to the Chief Executive Officer (“ CEO ”) of the Bank and will have all duties customarily associated with the position of a CLO, any duties as are set forth in the Bank’s bylaws for such position, if any, and all duties as are delegated to Executive from time to time by the CEO or the Bank Board. Executive shall devote his best efforts and substantially all of his business time and services to the Corporation and Bank.

Section 3.3. Other Activities . Executive may be involved in various leadership and non-leadership capacities on a volunteer basis for not-for-profit organizations as a representative of the Bank. In addition, nothing contained herein shall preclude the Executive from (i) engaging in charitable and community activities; (ii) participating in industry and trade organization activities; (iii) managing his and his family’s personal investments and affairs; and (iv) delivering lectures, fulfilling speaking engagements or teaching at educational institutions; provided that such activities do not interfere with the regular performance of his duties and responsibilities under this Agreement and do not violate his obligations under Article IV of this Agreement, and provided further that except as disclosed to the Bank prior to the date hereof or with consent of the Bank Board, the Executive shall not serve as a paid director of any organization.

Section 3.4. Compensation . The Bank shall pay or cause to be paid or provided to Executive the following compensation and benefits:

(a) Base Salary . Effective as of the Effective Date, the Executive will receive an initial base salary of $175,000 per annum, paid in accordance with the Bank’s payroll practices. The base salary shall be reviewed on an annual basis by the Compensation and Benefits Committee of the Corporation Board (the “ Compensation Committee ”) and may be increased (but not decreased, except in connection with an across-the-board salary reduction applicable to all of the Bank’s management employees) from time to time at the discretion of the Compensation Committee. The initial base salary or such later base salary is hereinafter referred to as Executive’s “ Base Salary .”

(b) Annual Bonus .

(i) For each fiscal year ending during the Term, beginning with the 2014 fiscal year, the Executive will be eligible to earn a cash incentive payment. The target amount of that cash incentive payment will be twenty percent (20%) of the Executive’s Base Salary at the commencement of the applicable fiscal year (the “ Target Bonus ”). The actual cash incentive payment payable with respect to a particular fiscal year (the “ Annual Bonus ”) will be determined by the Compensation Committee based upon the degree of achievement of corporate and/or individual performance objectives established by the Compensation Committee in its sole discretion. The foregoing notwithstanding, with respect to the 2014 fiscal year, the Executive’s Annual Bonus will be no less than $25,000.

(c) Signing Retention Bonus . As inducement for Executive to enter into this Agreement and to remain in the employ of the Bank, the Bank shall pay the Executive a Signing/Retention Bonus equal to fifty nine thousand seven hundred twenty nine dollars ($59,729) on the effective day of this Agreement and on each of the first and second anniversary dates of this Agreement provided Executive is employed by the Bank.

(d) Deferred Compensation Plan . Provided that Executive executes a receipt and release agreement in favor of the Bank acknowledging payment of the Bank’s obligation under the 2011 SERP, the Bank will endeavor to provide Executive a

supplement executive retirement plan, subject to the terms and provisions of such plan, which will pay Executive a retirement benefit equal to $40,000 per year commencing upon his retirement at age sixty-five (65) and continuing for ten (10) years.

(e) General Employee Benefits . The Executive will be eligible to participate in the employee benefit plans, policies or arrangements maintained by the Bank for employees of the Bank generally, subject to the terms and conditions of such plans, policies or arrangements; provided, however, that this Agreement will not limit the Bank’s ability to amend, modify or terminate such plans, policies or arrangements at any time for any reason.

(f) Vacation . Executive shall be entitled to paid time off in accordance with the terms of the Bank’s paid time off policy in effect from time to time.

(g) Country Club Dues . During the term of this Agreement, Peoples shall pay or reimburse Executive for annual dues associated with a golf membership at the Scranton Country Club.

Section 3.5. Reimbursement of Expenses . Executive will be reimbursed by the Bank for all reasonable business expenses incurred by him in accordance with the Bank’s customary expense reimbursement policies as in effect from time to time. Executive will receive an automobile allowance equal to six hundred dollars ($600) per month.

Section 3.6. Severance; Severance Payments . Upon a termination of his employment with the Bank (the effective date of such termination is herein referred to as the “ Date of Termination ”), Executive will be entitled only to such compensation, benefits and rights as described in this Section 3.6 and in any other agreement between Executive and the Bank.

(a) Termination without Cause or for Good Reason . Except as otherwise provided in this Section 3.6 , if Executive’s employment by the Bank is terminated by the Bank without Cause or if Executive terminates his employment for Good Reason, Executive will be entitled to:

(i) Payment of all Accrued Obligations, including but not limited to those earned by Executive under Sections 3.4 and 3.5 above;

(ii) Cash severance payments equal to the sum of (A) one-twelfth of Executive’s Base Salary as of the Date of such Termination plus (B) one-twelfth of Executive’s average Annual Bonus in the three fiscal years ending before the Date of Termination (or, if Executive has not been eligible for an Annual Bonus for three fiscal years, his average Annual Bonus for each fiscal year for which he was eligible to receive an Annual Bonus) (collectively, the “ Monthly Severance Payment ”) for a period of 12 months from and after the Date of Termination, payable in accordance with the Bank’s payroll practices; and

(iii) For a period of 18 months from and after the Date of Termination, Executive will receive monthly payments equal to the monthly “applicable premium,” as that term is defined under COBRA.

(b) Change in Control Termination . In lieu of any compensation and benefits payable under Section 3.6(a) , in the event that Executive’s employment by the Bank ceases due to a Change in Control Termination, Executive will be entitled to:

(i) Payment of all Accrued Obligations, including but not limited to those earned by Executive under Sections 3.4 and 3.5 above;

(ii) Cash severance payments equal to the Monthly Severance Payment (as determined under Section 3.6(a)(ii) above) for a period of 24 months from and after the Date of Termination, payable in accordance with the Bank’s payroll practices;

(iii) Monthly payments equal to the monthly “applicable premium,” as that term is defined under COBRA, for a period of 24 months from and after the Date of Termination; and

(iv) Executive’s rights under other benefit plans, policies and arrangements maintained for the employees of the Bank generally shall vest or become exercisable, as applicable, to the extent of, and in accordance with the provisions of such benefit plans, policies and arrangements.

(c) Except as provided in this Section 3.6 , all compensation and participation in all benefit plans, policies and arrangements will cease at the Date of Termination, subject to the terms of any benefit plans, policies and arrangements then in force and applicable to Executive, and the Corporation and Bank shall have no further liability or obligation by reason of such termination, provided, however , that nothing in this paragraph shall affect or be deemed to affect Executive’s rights to accrued or vested benefits under any benefit plan, policy or arrangement. The payments and benefits described in this Section 3.6 are in lieu of, and not in addition to, any other severance arrangement maintained for the employees of the Bank generally.

Notwithstanding any provision of this Agreement, the payments and benefits described in this Section 3.6 are conditioned on: (a) the Executive’s execution and delivery to the Bank and the expiration of all applicable statutory revocation periods, by the 60th day following the Date of Termination, of a general release of claims against the Corporation and Bank in a form reasonably prescribed by the Bank (the “ Release ”); and (b) the Executive’s continued compliance with the provisions of Article IV of this Agreement. Subject to Section 3.6(e) , below, the benefits described in this Section 3.6 will be paid or provided (or begin to be paid or provided as applicable) as soon as administratively practicable after the Release becomes irrevocable, provided that if the 60-day period described above begins in one taxable year and ends in a second taxable year such payments or benefits shall not commence until the second taxable year. Any payments to be made to Executive and any benefits to be provided to Executive pursuant to this Section 3.6 shall be paid or provided, as applicable, to Executive’s beneficiaries, heirs or estate in the event of Executive’s death.

(d) Other Terminations . If Executive’s employment with the Bank ceases for any reason other than as described in Sections 3.6(a) and 3.6(b) above (including but not limited to termination (a) by the Bank for Cause, (b) as a result of Executive’s death, (c) as a result of Executive’s Disability, or (d) by Executive without Good Reason), then

the Bank’s obligation to Executive will be limited solely to the payment of Accrued Obligations. All compensation and participation in benefits will cease at the time of such termination and, except as otherwise provided by COBRA or the terms of such plans, the Corporation and Bank will have no further liability or obligation by reason of such termination. The foregoing will not be construed to limit Executive’s right to payment or reimbursement for claims incurred prior to the Date of Termination under any insurance contract funding an employee benefit plan, policy or arrangement of the Corporation and Bank in accordance with the terms of such insurance contract or Executive’s right to accrued or vested benefits under the terms of any employee benefit plan, policy or arrangement.

(e) Application of Section 409A of the Code .

(i) Notwithstanding anything to the contrary in this Agreement, no portion of the benefits or payments to be made under Section 3.6 hereof will be payable until the Executive has a “separation from service” from the Corporation and Bank within the meaning of Section 409A of the Code. In addition, to the extent compliance with the requirements of Treas. Reg. § 1.409A-3(i)(2) (or any successor provision) is necessary to avoid the application of an additional tax under Section 409A of the Code to payments due to the Executive upon or following his “separation from service,” then notwithstanding any other provision of this Agreement (or any applicable plan, policy, program, agreement or arrangement), any such payments that are otherwise due within six months following the Executive’s “separation from service” (taking into account the preceding sentence of this paragraph) will be deferred without interest and paid to the Executive in a lump sum immediately following that six month period. This paragraph should not be construed to prevent the application of Treas. Reg. § 1.409A-1(b)(9)(iii) (or any successor provision) to amounts payable hereunder. For purposes of the application of Section 409A of the Code, each payment in a series of payments will be deemed a separate payment.

(ii) Any reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (i) any reimbursement shall be for expenses incurred during the period of time specified in this Agreement, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

(f) Limitation on Payments . If any payment or benefit due under this Agreement, together with all other payments and benefits that Executive receives or is entitled to receive from the Bank, the Corporation or any of their subsidiaries, affiliates or related entities, would (if paid or provided) constitute an Excess Parachute Payment (as defined below), the amounts otherwise payable and benefits otherwise due under this Agreement will be limited to the minimum extent necessary to ensure that no portion thereof will fail to be tax-deductible to the Corporation and Bank by reason of

Section 280G of the Code. The determination of whether any payment or benefit would (if paid or provided) constitute an Excess Parachute Payment will be made by the Corporation Board, in its good faith discretion. If a reduction to Executive’s payments and benefits is required pursuant to this Section 3.6(f) , such reduction shall occur to the payments and benefits in the order that results in the greatest economic present value of all payments actually made to Executive.

(g) Adjustments Necessary to Comply with Maximum Payment Limit . If, notwithstanding the initial application of Section 3.6(f) , the Internal Revenue Service determines that any amount paid or benefit provided to Executive would constitute an Excess Parachute Payment, Section 3.6(f) will be reapplied based on the Internal Revenue Service’s determination and Executive will be required to repay to the Bank any Overpayment (as defined below) immediately upon receipt of written notice of the applicability of this section.

(h) Recoupment of Certain Incentive-Based Compensation .

(i) Breach of Restrictive Covenants . If the Executive breaches, in any respect, any of the covenants to be performed by the Executive pursuant to Article IV below (regarding non-competition, non-solicitation, confidentiality, or non-disparagement), whether during the Term or the Restricted Period, then the Executive shall repay or return to the Bank the entire amount of any incentive-based compensation received by the Executive during the 12 month period preceding such breach.

(ii) Obligations Not Exclusive . The rights of the Bank and the obligations of the Executive set forth in this Section 3.6(f) are in addition to any other rights and obligations under applicable laws and regulations, the terms and conditions of any plan and award agreement pursuant to which incentive-based compensation is award to the Executive, and the terms and conditions of any claw back, recoupment or similar policy applicable to the executive officers of the Bank, which the Bank or the Corporation and Bank may adopt and maintain from time to time.

(i) Definitions . For purposes of this Agreement:

(i) “ Excess Parachute Payment ” has the same meaning as used in Section 280G(b)(1) of the Code.

(ii) “ Overpayment ” means any amount paid to Executive in excess of the maximum payment limit of Section 3.6(f) of this Agreement.

ARTICLE IV

RESTRICTIVE COVENANTS AND REMEDIES

Section 4.1. Confidential Information . In consideration of the employment by the Bank of Executive and the consideration outlined in Article III of this Agreement, and as an inducement to the Corporation and Bank to continue to entrust Executive with its Trade Secrets (as hereinafter defined), Executive agrees that Executive will not use for himself or disclose to any person any Trade Secret of the Corporation and/or the Bank obtained by Executive as a result of his employment by the Bank unless authorized in

writing by the Bank to do so. For purposes of this Agreement, “ Trade Secrets ” means any trade secrets and is deemed to include, but not be limited to, all confidential information, including price lists, patents, designs, inventions, copyrighted materials, product lists, marketing strategies, personnel files, customer lists, and all other information or material received by Executive in connection with his employment by the Bank which is not otherwise available to the general public; provided, that the term Trade Secrets shall exclude (i) information that is or subsequently becomes publicly available other than as a result of Executive’s breach of this Agreement; (ii) is acquired from another source not under a duty of confidentiality to the Corporation and Bank and not as a result of a breach of this Agreement; (iii) is independently developed by Executive without use of the Trade Secrets; (iv) is approved for public release by the Corporation and Bank; or (v) is required to be disclosed by court order, subpoena, in connection with a civil or criminal investigative demand, the discovery rules of any court or otherwise by law or legal process. Upon cessation of Executive’s service to the Bank for any reason, all written or electronic materials evidencing Trade Secrets, and all copies thereof, in the possession or control of Executive shall be delivered to the Bank.

Section 4.2. Ownership of Inventions and Ideas . Executive acknowledges that the Bank shall be the sole owner of all the results and proceeds of his service to the Corporation and Bank, including but not limited to, all patents, patent applications, patent rights, formulas, copyrights, inventions, developments, discoveries, other improvements, data, documentation, drawings, charts, and other written, audio and/or visual materials relating to equipment, methods, products, processes or programs in connection with or useful to the business of the Corporation and Bank (collectively, the “ Developments ”) which Executive, by himself or in conjunction with any other person, may conceive, make, acquire, acquire knowledge of, develop or create during Executive’s employment by the Bank, free and clear of any claims by Executive (or any successor or assignee of Executive) of any kind or character whatsoever. Executive acknowledges that all copyrightable Developments shall be considered works made for hire under the Federal Copyright Act. Executive hereby assigns and transfers his right, title and interest in and to all such Developments and agrees that he shall, at the request of the Bank, execute or cooperate with the Corporation and Bank in any patent applications, execute such assignments, certificates or other instruments, and do any and all other acts, as the Bank from time to time reasonably deems necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend the Corporation and Bank’s right, title and interest in or to any such Developments.

Section 4.3. Restrictive Covenants . In consideration of the employment by the Bank of Executive and the consideration outlined in Article III of this Agreement, Executive agrees to be bound by this Section 4.3 . Executive will not, directly or indirectly, do any of the following during the Term and the Restricted Period:

(a) engage or participate in any business activity substantially similar to an activity from which the Corporation and Bank derives revenue, including but not limited to the banking or financial services industry (a “ Competing Business ”), or, with respect to the application of this provision during the Restricted Period, engage or participate in a Competing Business in any county or contiguous county in which at any time during the Term of Executive’s employment a branch, office or other facility of the Corporation, Bank, or any of their subsidiaries is located;

(b) become interested in (as owner, stockholder, lender, partner, co-venturer, director, officer, employee, advisor, agent or consultant) any person, firm, corporation, association or other entity engaged in any Competing Business. Notwithstanding the foregoing, Executive may hold up to 4.9% of the outstanding securities of any class of any publicly traded securities of any Corporation and Bank;

(c) solicit or call on, either directly or indirectly, for purposes of selling goods or services competitive with goods or services sold by the Corporation and Bank, any customer with whom the Corporation and Bank shall have dealt or any prospective customer that the Corporation and Bank has identified and solicited at any time during Executive’s employment by the Bank;

(d) adversely influence or attempt to adversely influence any supplier, customer or potential customer of the Corporation and Bank to terminate or modify any written or oral agreement or course of dealing with the Corporation and Bank;

(e) adversely influence or attempt to adversely influence any person to terminate or modify any employment, consulting, agency, distributorship or other arrangement with the Corporation and Bank;

(f) employ or retain, or arrange to have any other person or entity employ or retain, any employee, consultant, agent or distributor of the Corporation and Bank (or with respect to the application of this provision during the Restricted Period, any person or entity who, within the 12 months preceding the Date of Termination, was employed or engaged by the Corporation and Bank as an employee, consultant, agent or distributor); or

(g) orally or in writing, disparage or defame the Corporation and Bank or any of their board members, officers or employees to any third party or commit any libelous or slanderous act against the Corporation and Bank or any of their board members, officers or employees whether in the capacity as his former employer or otherwise.

Executive acknowledges that the restrictions contained in Sections 4.1 , 4.2 and 4.3 are reasonable and necessary to protect the legitimate interests of the Bank and the Corporation and that the duration of the Restricted Period, and the provisions of Sections 4.1 , 4.2 and 4.3 , are reasonable given Executive’s position within the Bank and the substantial consideration payable under this Agreement. Executive further acknowledges that Sections 4.1 , 4.2 and 4.3 are included herein in order to induce the Bank and the Corporation to enter into this Agreement and that the Bank and the Corporation would not have entered into this Agreement in the absence of these provisions.

Section 4.4. Enforcement .

(a) Specific Enforcement . Executive acknowledges that any material breach by him, willfully or otherwise, of this Article IV will cause continuing and irreparable injury to the Bank and the Corporation for which monetary damages would not be an adequate remedy. Executive will not, in any action or proceeding to enforce any of the provisions of this Agreement, assert the claim or defense that such an adequate remedy at law exists.

In the event of any such material breach by Executive, the Bank and/or the Corporation will have the right, but not the obligation, to enforce this Agreement by seeking injunctive or other relief in any court and this Agreement will not in any way limit remedies of law or in equity otherwise available to the Bank and the Corporation.

(b) Restitution . If Executive materially breaches any part of Section 4.1 , 4.2 or 4.3 , the Bank and the Corporation will have the right and remedy to require Executive to account for and pay over to the Bank and the Corporation all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as the result of such breach. This right and remedy will be in addition to, and not in lieu of, any other rights and remedies available to the Bank and the Corporation under law or in equity.

(c) Extension of Restricted Period . If Executive breaches Section 4.1 , 4.2 or 4.3 , the Restricted Period will be extended by an amount of time equal to the period that Executive was in breach.

(d) Judicial Modification . If any court determines that Section 4.1 , 4.2 or 4.3 , or this Section 4.4 (or any part thereof) is unenforceable because of its duration or geographic scope, that court will have the power to modify that section and, in its modified form, that section will then be enforceable.

(e) Restrictions Enforceable in All Jurisdictions . If any court holds that Section 4.1 , 4.2 or 4.3 , or this Section 4.4 (or any part thereof) is unenforceable by reason of its breadth or scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the right of the Bank and the Corporation to the relief provided above in the courts of any other jurisdiction within the geographic scope of this section.

(f) Disclosure of Protective Provisions . Executive agrees to disclose the existence and terms of Sections 4.1 , 4.2 and 4.3 to any employer for whom Executive seeks to work during the Restricted Period. Executive also agrees that during the Restricted Period the Executive will provide and the Corporation and Bank may similarly provide a copy of this Section 4 to any business or enterprise (i) which Executive may directly or indirectly own, manage, operate, finance, join, control or of which he may participate in the ownership, management, operation, financing, or control, or (ii) with which Executive may be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which Executive may use or permit to be used Executive’s name.

ARTICLE V

MISCELLANEOUS

Section 5.1. No Liability of Officers and Directors for Severance Upon Insolvency . Notwithstanding any other provision of the Agreement and intending to be bound by this provision, Executive hereby (a) waives any right to claim payment of amounts owed to him, now or in the future, pursuant to this Agreement from directors or officers of the Corporation or Bank if the Corporation and Bank becomes insolvent, and (b) fully and

forever releases and discharges the Corporation’s or Bank’s officers and directors from any and all claims, demands, liens, actions, suits, causes of action or judgments arising out of any present or future claim for such amounts.

Section 5.2. Ability to Perform . Executive represents and warrants to the Corporation and Bank that there are no restrictions, agreements or understandings whatsoever to which he is a party that would prevent or make unlawful his execution of this Agreement, that would be inconsistent or in conflict with this Agreement or Executive’s obligations hereunder, or that would otherwise prevent, limit or impair the performance by Executive of his duties under this Agreement on and after the Effective Date.

Section 5.3. Payments Subject to Tax Withholding . All payments and transfers of property described in this Agreement will be made net of any applicable tax withholding.

Section 5.4. Dispute Resolution . Except as provided in Section 4.4, all disputes involving the interpretation, construction, application or alleged breach of this Agreement and all disputes relating to the termination of Executive’s employment with the Bank shall be submitted to final and binding arbitration in Scranton, Pennsylvania. The arbitrator shall be selected and the arbitration shall be conducted pursuant to the then most recent Employment Dispute Resolution Rules of the American Arbitration Association. The arbitrator shall have authority to rule on any dispositive motions filed by the parties. The decision of the arbitrator shall be final and binding, and any court of competent jurisdiction may enter judgment upon the award. The arbitrator shall have jurisdiction and authority to interpret and apply the provisions of this Agreement and relevant federal, state and local laws, rules and regulations insofar as necessary to the determination of the dispute and to remedy any breaches of the Agreement and/or violations of applicable laws, but shall not have jurisdiction or authority to alter in any way the provisions of this Agreement. The arbitrator shall have the authority to award attorneys’ fees and costs to the prevailing party. The parties hereby agree that this arbitration provision shall be in lieu of any requirement that either party exhausts such party’s administrative remedies under federal, state or local law.

Section 5.5. Successors and Assigns . Each of the Bank and the Corporation may assign this Agreement to any affiliate or to any successor to its assets or business by means of liquidation, dissolution, merger, consolidation, sale of assets or otherwise. For avoidance of doubt, a termination of the Executive’s employment by the Bank in connection with a permitted assignment of the Bank’s rights and obligations under this Agreement is not a termination “without Cause” so long as the successor or assignee offers employment to the Executive on the terms herein specified (without regard to whether the Executive accepts employment with the successor or assignee). The duties of the Executive hereunder are personal to Executive and may not be assigned by him.

Section 5.6. Severability . Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. However, if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement will be reformed, construed and enforced as though the invalid, illegal or unenforceable provision had never been herein contained.

Section 5.7. Survival . This Agreement, including, without limitation, the recoupment provisions set forth in Section 3.6(h) and the restrictive covenants set forth in Article IV , will survive the cessation of the Executive’s employment to the extent necessary to fulfill the purposes and intent of this Agreement.

Section 5.8. Entire Agreement; Amendments . Except as otherwise provided herein, this Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof. Therefore, this Agreement merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to Executive’s employment, compensation, severance, termination or any related matter, including but not limited to the 2011 Employment Agreement and 2011 SERP. Executive specifically acknowledges that this Agreement terminates the 2011 Employment Agreement and 2011 SERP and releases the Corporation and Bank from any and all obligations thereunder. This Agreement may not be changed or modified, except by an Agreement in writing signed by the Executive, the Bank and the Corporation.

Section 5.9. Notice . Any notice or communication required or permitted under this Agreement will be made in writing and (a) sent by overnight courier, (b) mailed by certified or registered mail, return receipt requested or (c) sent by telecopier, addressed as follows:

If to Executive:

Joseph M. Ferretti

If to the Bank or the Corporation:

Peoples Financial Services Corporation

150 North Washington Avenue

Scranton, PA 18503

Section 5.11. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the principles of conflicts of laws rules of any state

Section 5.12. Counterparts and Facsimiles . This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which will be deemed an original, and all of which together will be deemed to be one agreement.

IN WITNESS WHEREOF , the parties hereto have executed this Agreement on the date first written above.


ATTEST:				PEOPLES FINANCIAL SERVICES CORP.

				/s/ William E. Aubrey II
				William E. Aubrey II
				Chairman of the Board of Directors

				PEOPLES SECURITY BANK AND TRUST COMPANY

				/s/ William E. Aubrey II
				William E. Aubrey II
				Chairman of the Board of Directors

WITNESS:				EXECUTIVE

				/s/ Joseph M. Ferretti
				Joseph M. Ferretti

Exhibit 99.1

LOGO

NEWS RELEASE

FOR IMMEDIATE RELEASE


Contacts:		Craig W. Best
		President and CEO
		Peoples Financial Services Corp.
		(570) 346-7741

PEOPLES FINANCIAL SERVICES CORP.

COMPLETES MERGER WITH

PENSECO FINANCIAL SERVICES CORPORATION

December 2, 2013 Scranton, PA — Craig W. Best, President and CEO of Peoples Financial Services Corp. (“Peoples”; OTCQB: PFIS) announced today the closing of its merger with Penseco Financial Services Corporation on November 30, 2013. Peoples also announced the merger of its subsidiary bank, Peoples Neighborhood Bank with Penn Security Bank and Trust Company on December 1, 2013. The combined bank will operate as Peoples Security Bank and Trust Company. Full integration of the banks is expected to be completed in April, 2014.

“We are excited to join together two strong and dynamic banks,” said Mr. Best. “We believe the combined company will create value for our shareholders and enable us to better serve our customers and communities.”

William E. Aubrey II, Chairman of the Board of Peoples and Peoples Security Bank and Trust Company added, “The new bank should play a major role in economic development in Northeastern Pennsylvania. During 2012, the banks collectively spent $8.5 million with local vendors and extended credit in the amount of $380 million to local residents and businesses.”

The combined company has approximately $1.6 billion in total assets, $1.3 billion in total deposits, $1.1 billion in total loans, and an expanded network of ATMs and 25 branches across northeast Pennsylvania and Broome County, New York. The new bank is the largest community bank headquartered in northeastern Pennsylvania and the 16 ^th largest bank in the state.

William D. Hume, former Chairman of the Penseco Board added, “The bank’s name is changing but our employees are not. Our customers will continue to work with bankers who they know and trust. The merger of both banks represents an exciting opportunity to grow our business and expand our footprint.”

###

Peoples Security Bank and Trust Company is the subsidiary of Peoples Financial Services Corp. and is headquartered in Scranton, Pennsylvania, and has 25 office locations in Lackawanna, Luzerne, Wayne, Monroe, Susquehanna and Wyoming counties in Pennsylvania and Broome County of Southern New York.

We make statements in this press release, and we may from time to time make other statements, regarding our outlook or expectations for future financial or operating results and/or other matters regarding or affecting Peoples Financial Services Corp., Peoples Security Bank and Trust Company, and its subsidiaries (collectively, “Peoples”) that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Such forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “intend” and “potential.” For these statements, Peoples claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.

Peoples cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: prevailing economic and political conditions, particularly in our market area; credit risk associated with our lending activities; changes in interest rates, loan demand, real estate values and competition; changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; and other economic, competitive, governmental, regulatory and technological factors affecting Peoples’ operations, pricing, products and services and other factors that may be described in Peoples’ Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission (“SEC”) from time to time.

In addition to these risks, acquisitions and business combinations present risks other than those presented by the nature of the business acquired. Acquisitions and business combinations may be substantially more expensive to complete than originally anticipated, and the anticipated benefits may be significantly harder—or take longer—to achieve than expected. As regulated financial institutions, our pursuit of attractive acquisition and business combination opportunities could be negatively impacted by regulatory delays or other regulatory issues. Regulatory and/or legal issues related to the pre-acquisition operations of an acquired or combined business may cause reputational harm to Peoples following the acquisition or combination, and integration of the acquired or combined business with ours may result in additional future costs arising as a result of those issues.

The forward-looking statements are made as of the date of this release, and, except as may be required by applicable law or regulation, Peoples assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.