Investment Securities

Available-for-sale

The following table summarizes Peoples’ available-for-sale investment securities:



(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2011
Obligations of:
U.S. Treasury and government agencies	$	34	$	—	$	—		$	34
U.S. government sponsored agencies	12,400		604		—			13,004
States and political subdivisions	35,697		2,415		—			38,112
Residential mortgage-backed securities	534,200		15,639		(10,745		)	539,094
Commercial mortgage-backed securities	35,852		549		—			36,401
Bank-issued trust preferred securities	13,883		2		(1,204		)	12,681
Equity securities	1,213		2,216		(96		)	3,333
Total available-for-sale securities	$	633,279	$	21,425	$	(12,045	)	$	642,659
December 31, 2010
Obligations of:
U.S. Treasury and government agencies	$	38	$	1	$	—		$	39
U.S. government sponsored agencies	12,753		55		(546		)	12,262
States and political subdivisions	46,717		1,063		(401		)	47,379
Residential mortgage-backed securities	512,399		14,155		(19,020		)	507,534
Commercial mortgage-backed securities	30,124		648		(72		)	30,700
Bank-issued trust preferred securities	13,877		79		(972		)	12,984
Equity securities	1,214		1,970		(96		)	3,088
Total available-for-sale securities	$	617,122	$	17,971	$	(21,107	)	$	613,986

Peoples’ investment in equity securities was comprised entirely of common stocks issued by various unrelated bank holding companies at both September 30, 2011 and December 31, 2010.

At September 30, 2011, there were no securities of a single issuer, other than U.S. Treasury and government agencies and U.S. government sponsored agencies that exceeded 10% of stockholders' equity. Peoples had pledged investment securities with a carrying value of $366.1 million and $394.7 million at September 30, 2011 and December 31, 2010, respectively, to secure public and trust department deposits and repurchase agreements in accordance with federal and state requirements. Peoples also pledged investment securities with carrying values of $69.5 million and $28.1 million at September 30, 2011 and December 31, 2010, respectively, to secure additional borrowing capacity at the Federal Home Loan Bank of Cincinnati (“FHLB”) and the Federal Reserve Bank of Cleveland (“FRB”).

The gross gains and gross losses realized by Peoples from sales of available-for-sale securities for the three and nine months ended September 30 were as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2011		2010		2011		2010
Gross gains realized	$	612	$	5,272	$	1,110	$	8,306
Gross losses realized	555		1,454		637		1,454
Net gain realized	$	57	$	3,818	$	473	$	6,852

The cost of investment securities sold, and any resulting gain or loss, was based on the specific identification method and recognized as of the trade date.

The following table presents a summary of available-for-sale investment securities that had an unrealized loss:



	Less than 12 Months					12 Months or More					Total
(Dollars in thousands)	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss
September 30, 2011
Obligations of:
U.S. government sponsored agencies	$	—	$	—	—	$	—	$	—	—	$	—	$	—
States and political subdivisions	—		—		—	—		—		—	—		—
Residential mortgage-backed securities	57,381		1,064		12	84,245		9,681		14	141,626		10,745
Commercial mortgage-backed securities	—		—		—	—		—		—	—		—
Bank-issued trust preferred securities	7,981		432		6	2,225		772		3	10,206		1,204
Equity securities	—		—		—	80		96		1	80		96
Total	$	65,362	$	1,496	18	$	86,550	$	10,549	18	$	151,912	$	12,045
December 31, 2010
Obligations of:
U.S. government sponsored agencies	$	11,202	$	546	1	$	—	$	—	—	$	11,202	$	546
States and political subdivisions	13,055		401		19	—		—		—	13,055		401
Residential mortgage-backed securities	152,075		13,080		23	39,540		5,939		9	191,615		19,019
Commercial mortgage-backed securities	21,388		72		4	—		—		—	21,388		72
Bank-issued trust preferred securities	4,290		47		3	5,144		925		5	9,434		972
Equity securities	—		—		—	80		96		1	80		96
Total	$	202,010	$	14,146	50	$	44,764	$	6,960	15	$	246,774	$	21,106

Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis. At September 30, 2011, management concluded no individual securities were other-than-temporarily impaired since Peoples did not have the intent to sell nor was it more likely than not that Peoples would be required to sell any of the securities with an unrealized loss prior to recovery. Further, the unrealized losses at both September 30, 2011 and December 31, 2010, were attributable to changes in market interest rates and spreads since the securities were purchased.

At September 30, 2011, the residential mortgage-backed securities that have been at an unrealized loss position for less than twelve months consisted almost entirely of securities issued by U.S government sponsored agencies. Additionally, approximately 96% of the mortgage-backed securities that have been at an unrealized loss position for twelve months or more were issued by U.S government sponsored agencies. Of the remaining mortgage-backed securities, all of the underlying mortgages were originated prior to 2004. Furthermore, six of the nine bank-issued trust preferred securities were within 90% of book value, while the unrealized losses for the remaining three were primarily attributable to the floating nature of these investments and the current interest rate environment.

Of the positions with a fair value less than 90% of their book value, four of the ten securities were mortgage-backed securities issued by U.S government sponsored agencies. The remaining securities were limited to three variable rate bank-issued trust preferred securities, which had an aggregate book value of $3.0 million and fair value of $2.2 million at September 30, 2011, and three variable rate residential mortgage-backed securities with book and market values of $2.3 million and $1.6 million, respectively. Management has analyzed the underlying credit quality of these securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and current market interest rates.

The table below presents the amortized cost, fair value and weighted-average yield of securities by contractual maturity at September 30, 2011. The average yields are based on the amortized cost. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. Rates are calculated on a fully tax-equivalent basis using a 35% federal income tax rate.



(Dollars in thousands)	Within 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total
Amortized cost
Obligations of:
U.S. Treasury and government agencies	$	—		$	12		$	22		$	—		$	34
U.S. government sponsored agencies	—			783			11,617			—			12,400
States and political subdivisions	3,037			5,892			9,817			16,951			35,697
Residential mortgage-backed securities	—			5,885			49,627			478,688			534,200
Commercial mortgage-backed securities	—			—			34,575			1,277			35,852
Bank-issued trust preferred securities	—			—			—			13,883			13,883
Equity securities	—			—			—			1,213			1,213
Total available-for-sale securities	$	3,037		$	12,572		$	105,658		$	512,012		$	633,279
Fair value
Obligations of:
U.S. Treasury and government agencies	$	—		$	12		$	22		$	—		$	34
U.S. government sponsored agencies	—			846			12,158			—			13,004
States and political subdivisions	3,066			6,092			10,784			18,170			38,112
Residential mortgage-backed securities	—			6,531			51,662			480,901			539,094
Commercial mortgage-backed securities	—			—			34,995			1,406			36,401
Bank-issued trust preferred securities	—			—			—			12,681			12,681
Equity securities	—			—			—			3,333			3,333
Total available-for-sale securities	$	3,066		$	13,481		$	109,621		$	516,491		$	642,659
Total average yield	5.76		%	5.66		%	4.32		%	3.75		%	3.89		%

Held-to-Maturity

At September 30, 2011, Peoples’ held-to-maturity investments consisted of two qualified school construction bonds that are classified as held-to-maturity because of Peoples’ intent and ability to hold the securities to maturity given uncertainty regarding ownership rights of associated tax credits. These securities are carried at an aggregate amortized cost of $3.0 million and have gross unrealized gains totaling $76,831; weighted average cash coupon and tax credit rates of 1.83% and 6.09%, respectively, and remaining contractual maturity over 10 years.

Other Securities

Peoples’ other investment securities on the Consolidated Balance Sheets consisted solely of restricted equity securities of the FHLB and the FRB. These securities are carried at cost since they do not have readily determinable fair values due to their restricted nature and Peoples does not exercise significant influence over the entities.