THIS AGREEMENT ("Agreement") made as of this 23 rd day of October 2009, by and between PEOPLES FINANCIAL SERVICES CORP ., a Pennsylvania corporation ("Peoples") and FREDERICK MALLOY (“Malloy”).

WHEREAS , Peoples is engaged in the business of a bank holding company and is the owner of all the issued and outstanding capital stock of Peoples National Bank (the "Bank"); and

WHEREAS , Malloy is presently serving as Treasurer of Peoples and Vice President and Controller of the Bank; and

WHEREAS , Peoples considers the continued services of Malloy to be in the best interests of Peoples and its shareholders and desires to induce Malloy to remain in the employ of the Bank on an impartial and objective basis in the event of a change in control of Peoples.

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

1.            Term of Agreement .

(a)           The term of this Agreement shall:

(i)           initially be a term commencing as of October 23, 2009, and ending on October 23, 2010; and

(ii)           be automatically extended to provide for a two (2) year term, annually, on October 23, 2010, and again on October 23 of each year thereafter, effective as of such respective dates, unless either Peoples or Malloy shall have given written notice of nonextension of the term of this Agreement to the other at least ninety (90) days before the date of any such extension.

(b)           Notwithstanding the provisions of Section 1(a) of this Agreement, this Agreement shall terminate automatically upon termination by Peoples of Malloy's employment for Cause.  As used in this Agreement, "Cause" shall mean the following:

(i)           Malloy is convicted of or enters a plea of guilty or nolo contendere to a felony, a crime of falsehood, or a crime involving fraud or moral turpitude, or the actual incarceration of Malloy for a period of forty-five (45) consecutive days;

(ii)           Malloy willfully fails to follow the lawful, good faith instructions of the Board of Directors of Peoples after Malloy's receipt of written notice of such instructions, other than a failure resulting from Malloy's incapacity because of physical or mental illness; or

(iii)           any government regulatory agency orders that Peoples terminate the employment of Malloy or relieve him of his duties.

Notwithstanding the foregoing, Malloy's employment under this Agreement shall not be deemed to have been terminated for "Cause" under Clause (i) or (ii) above if such termination took place solely as a result of:

(i)           questionable judgment on the part of Malloy;

(ii)           any act or omission believed by Malloy, in good faith, to have been in, or not opposed to, the best interests of Peoples or its affiliated companies; or

(iii)           any act or omission in respect of which a determination could properly be made that Malloy met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Charter or Bylaws of Peoples (or its affiliates) or the directors' and officers' liability insurance of Peoples (or its affiliates), in each case as in effect at the time of such act or omission.

If Malloy's employment is terminated for Cause, Malloy's rights under this Agreement shall cease as of the effective date of such termination.

(c)           Notwithstanding the provisions of Section 1(a) of this Agreement, this Agreement shall terminate automatically upon termination of Malloy's employment as a result of Malloy's voluntary termination (other than in accordance with Section 2 of this Agreement), retirement at Malloy's election, or death, and Malloy's rights under this Agreement shall cease as of the date of such voluntary termination, retirement at Malloy's election, or death; provided, however, that if Malloy dies after a Notice of Termination (as defined in Section 2(a) of this Agreement) is delivered by Malloy, the provisions of Section 11(b) of this Agreement shall apply.

(d)           Notwithstanding the provisions of Section 1(a) of this Agreement, this Agreement shall terminate automatically upon termination of Malloy's employment as a result of Malloy's disability and Malloy's rights under this Agreement shall cease as of the date of such termination.  For purposes of this Agreement, "disability" shall mean Malloy's incapacitation by accident, sickness,