PINX:PFIS Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

Form 10-Q

(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2012 or
 
(  ) Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the transition period from
0-23863
 (Commission File Number)
 
PEOPLES FINANCIAL SERVICES CORP.
(Exact name of registrant as specified in its charter)

Pennsylvania
23-2391852
(State of incorporation)
(IRS Employer ID Number)
   
82 Franklin Avenue, Hallstead, PA
18822
(Address of principal executive offices)
(Zip code)
   
(570) 879-2175
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days.  Yes X No____
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months or for such shorter period that the registrant was required to submit and post such files.  Yes X No ____
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  __
Accelerated filer  X
Non-accelerated filer __
Smaller reporting company __
 
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.  Yes ____ No X
 
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: 3,118,356 at July 31, 2012.
 
Page 1 of 50
Exhibit index on page

 
1

 

PEOPLES FINANCIAL SERVICES CORP.
FORM 10-Q

For the Quarter Ended June 30, 2012

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


 
2

 
 
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)

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





See Notes to Consolidated Financial Statements

 
3

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

See Notes to Consolidated Financial Statements

 
4

 
 
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(Dollars in thousands, except per share data)

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




See Notes to Consolidated Financial Statements

 
5

 
 
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands, except per share data)

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

See Notes to Consolidated Financial Statements

 
6

 
 
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

1.  Basis of presentation:

The accompanying unaudited consolidated financial statements of  Peoples Financial Services Corp, and subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform with the current year’s presentation. These reclassifications did not have any effect on the operating results or financial position of the Company. The operating results and financial position of the Company for the three and six months ended and as of June 30, 2012, are not necessarily indicative of the results of operations and financial position that may be expected in the future.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2011.

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

2.  Earnings per share:

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

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

 
7

 
 
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

3.  Investment securities available-for-sale:

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

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


 
8

 
 
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

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

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

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

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

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

The fair value and gross unrealized losses of investment securities available-for-sale with unrealized losses for which an other-than-temporary impairment (“OTTI”) has not been recognized at June 30, 2012 and December 31, 2011, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

   
Less Than 12 Months
   
12 Months or More
   
Total
 
June 30, 2012
 
Fair Value
   
Unrealized Losses
   
Fair Value
   
Unrealized Losses
   
Fair Value
   
Unrealized Losses
 
U.S. Government-sponsored enterprises
                                   
State and municipals:
                                   
Taxable
                                   
Tax-Exempt
  $ 1,176     $ 6     $ 300     $ 3     $ 1,476     $ 9  
Corporate debt securities
                    2,417       594       2,417       594  
Mortgage-backed securities:
                                               
U.S. Government agencies
    3,538       13       2,801       17       6,339       30  
U.S. Government-sponsored enterprises
    9,294       89       2,651       27       11,945       116  
Equity securities:
                                               
Preferred
                                               
Common
                    98       39       98       39  
Total
  $ 14,008     $ 108     $ 8,267     $ 680     $ 22,275     $ 788  


 
9

 
 
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

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

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

The Company had 20 investment securities, consisting of three tax-exempt state and municipal obligations, two corporate debt securities, 13 mortgage-backed securities and two common equity securities that were in unrealized loss positions at June 30, 2012.  Of these securities, one state and municipal obligation, two corporate debt securities, four mortgage-backed securities and two common equity securities were in continuous unrealized loss positions for 12 months or more.  The unrealized losses on the common equity securities were a direct reflection of reductions in stock values in the financial industry sector, as a whole, and was not a result of credit or other issues that would cause the Company to recognize an OTTI charge.  Management does not consider the unrealized losses on the debt securities, as a result of changes in interest rates, to be OTTI based on historical evidence that indicates the cost of these securities is recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest. Moreover, because there has been no material change in the credit quality of the issuers or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, and management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider the unrealized losses to be OTTI at June 30, 2012.

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


 
10

 
 
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

4.  Loans, net and allowance for loan losses:

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

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



 
11

 
 
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

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

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

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


 
12

 
 
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

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

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

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








 
13

 
 
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

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

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

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

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

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

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



 
14

 
 
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

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

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

 

 
15

 
 
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

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

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

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