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
March 31, 2014
Obligations of:
U.S. Treasury and government agencies	$	19	$	—	$	—		$	19
U.S. government sponsored agencies	287		8		—			295
States and political subdivisions	50,365		1,814		(511		)	51,668
Residential mortgage-backed securities	510,072		5,186		(14,742		)	500,516
Commercial mortgage-backed securities	27,885		—		(1,135		)	26,750
Bank-issued trust preferred securities	8,513		2		(520		)	7,995
Equity securities	1,304		3,635		(85		)	4,854
Total available-for-sale securities	$	598,445	$	10,645	$	(16,993	)	$	592,097
December 31, 2013
Obligations of:
U.S. Treasury and government agencies	$	20	$	—	$	—		$	20
U.S. government sponsored agencies	308		11		—			319
States and political subdivisions	50,509		1,480		(1,027		)	50,962
Residential mortgage-backed securities	527,283		5,334		(22,520		)	510,097
Commercial mortgage-backed securities	33,256		274		(1,226		)	32,304
Bank-issued trust preferred securities	8,508		—		(679		)	7,829
Equity securities	1,242		3,421		(86		)	4,577
Total available-for-sale securities	$	621,126	$	10,520	$	(25,538	)	$	606,108

Peoples’ investment in equity securities was comprised largely of common stocks issued by various unrelated bank holding companies at both March 31, 2014 and December 31, 2013. During the third quarter of 2013, Peoples also classified certain mutual funds as equity securities, which are intended for the payment of benefits under a deferred compensation plan for certain key officers of Peoples. At March 31, 2014, 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.

The gross gains and gross losses realized by Peoples from sales of available-for-sale securities for the periods ended March 31 were as follows:



	Three Months Ended
	March 31,
(Dollars in thousands)	2014			2013
Gross gains realized	$	514		$	2,045
Gross losses realized	544			1,627
Net (loss) gain realized	$	(30	)	$	418

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
March 31, 2014
Obligations of:
U.S. Treasury and government agencies	$	—	$	—	—	$	—	$	—	—	$	—	$	—
U.S. government sponsored agencies	—		—		—	—		—		—	—		—
States and political subdivisions	12,445		251		18	5,440		260		9	17,885		511
Residential mortgage-backed securities	279,545		9,400		60	83,715		5,342		26	363,260		14,742
Commercial mortgage-backed securities	19,556		696		4	7,194		439		2	26,750		1,135
Bank-issued trust preferred securities	2,103		7		1	3,485		513		4	5,588		520
Equity securities	—		—		—	90		85		1	90		85
Total	$	313,649	$	10,354	83	$	99,924	$	6,639	42	$	413,573	$	16,993
December 31, 2013
Obligations of:
U.S. Treasury and government agencies	$	—	$	—	—	$	—	$	—	—	$	—	$	—
U.S. government sponsored agencies	—		—		—	—		—		—	—		—
States and political subdivisions	15,848		659		22	6,180		368		10	22,028		1,027
Residential mortgage-backed securities	310,315		16,709		75	57,440		5,811		20	367,755		22,520
Commercial mortgage-backed securities	19,560		779		4	7,205		447		2	26,765		1,226
Bank-issued trust preferred securities	2,013		90		1	4,803		589		4	6,816		679
Equity securities	—		—		—	97		86		2	97		86
Total	$	347,736	$	18,237	102	$	75,725	$	7,301	38	$	423,461	$	25,538

Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair value on a quarterly basis. At March 31, 2014, 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 March 31, 2014 and December 31, 2013, were largely attributable to changes in market interest rates and spreads since the securities were purchased.

At March 31, 2014, approximately 98% of the mortgage-backed securities that had been at an unrealized loss position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 2%, or four positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Two of the four positions had a fair value less than 90% of their book value, with an aggregate book and fair value of $0.9 million and $0.6 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 the low number of loans remaining in these securities.

Furthermore, the four bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at March 31, 2014 were primarily attributable to the floating nature of those investments, the current interest rate environment and spreads within that sector.

The table below presents the amortized cost, fair value and weighted-average yield of available-for-sale securities by contractual maturity at March 31, 2014. 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	$	—		$	19		$	—		$	—		$	19
U.S. government sponsored agencies	287			—			—			—			287
States and political subdivisions	350			4,232			20,099			25,684			50,365
Residential mortgage-backed securities	18			7,384			35,814			466,856			510,072
Commercial mortgage-backed securities	—			—			23,120			4,765			27,885
Bank-issued trust preferred securities	—			—			—			8,513			8,513
Equity securities													1,304
Total available-for-sale securities	$	655		$	11,635		$	79,033		$	505,818		$	598,445
Fair value
Obligations of:
U.S. Treasury and government agencies	$	—		$	19		$	—		$	—		$	19
U.S. government sponsored agencies	295			—			—			—			295
States and political subdivisions	355			4,483			20,703			26,127			51,668
Residential mortgage-backed securities	18			7,574			34,897			458,027			500,516
Commercial mortgage-backed securities	—			—			22,063			4,687			26,750
Bank-issued trust preferred securities	—			—			—			7,995			7,995
Equity securities													4,854
Total available-for-sale securities	$	668		$	12,076		$	77,663		$	496,836		$	592,097
Total average yield	4.14		%	4.78		%	2.86		%	2.74		%	2.81		%

Held-to-Maturity

The following table summarizes Peoples’ held-to-maturity investment securities:



(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2014
Obligations of:
States and political subdivisions	$	3,848	$	200	$	(11	)	$	4,037
Residential mortgage-backed securities	37,151		50		(1,171		)	36,030
Commercial mortgage-backed securities	7,804		—		(272		)	7,532
Total held-to-maturity securities	$	48,803	$	250	$	(1,454	)	$	47,599
December 31, 2013
Obligations of:
States and political subdivisions	$	3,850	$	91	$	(12	)	$	3,929
Residential mortgage-backed securities	37,536		35		(3,041		)	34,530
Commercial mortgage-backed securities	7,836		2		(203		)	7,635
Total held-to-maturity securities	$	49,222	$	128	$	(3,256	)	$	46,094

There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for the three months ended March 31, 2014 and 2013.

The following table presents a summary of held-to-maturity 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
March 31, 2014
Obligations of:
States and political subdivisions	$	322	$	11	1	$	—	$	—	—	$	322	$	11
Residential mortgage-backed securities	23,392		542		6	10,624		629		2	34,016		1,171
Commercial mortgage-backed securities	7,532		272		2	—		—		—	7,532		272
Total	$	31,246	$	825	9	$	10,624	$	629	2	$	41,870	$	1,454
December 31, 2013
Obligations of:
States and political subdivisions	$	321	$	12	1	$	—	$	—	—	$	321	$	12
Residential mortgage-backed securities	$	31,341	$	2,908	7	$	1,181	$	133	1	$	32,522	$	3,041
Commercial mortgage-backed securities	6,547		203		1	—		—		—	6,547		203
Total	$	38,209	$	3,123	9	$	1,181	$	133	1	$	39,390	$	3,256

The table below presents the amortized cost, fair value and weighted-average yield of held-to-maturity securities by contractual maturity at March 31, 2014. 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:
States and political subdivisions	$	—		$	—		$	333		$	3,515		$	3,848
Residential mortgage-backed securities	—			—			522			36,629			37,151
Commercial mortgage-backed securities	—			—			—			7,804			7,804
Total held-to-maturity securities	$	—		$	—		$	855		$	47,948		$	48,803
Fair value
Obligations of:
States and political subdivisions	$	—		$	—		$	322		$	3,715		$	4,037
Residential mortgage-backed securities	—			—			504			35,526			36,030
Commercial mortgage-backed securities	—			—			—			7,532			7,532
Total held-to-maturity securities	$	—		$	—		$	826		$	46,773		$	47,599
Total average yield	—		%	—		%	2.60		%	2.74		%	2.74		%

Pledged Securities

Peoples had pledged available-for-sale investment securities with carrying values of $326.0 million and $303.8 million at March 31, 2014 and December 31, 2013, respectively, to secure public and trust department deposits and repurchase agreements in accordance with federal and state requirements. Additionally, Peoples had pledged held-to-maturity investment securities with carrying values of $23.2 million and $21.4 million at March 31, 2014 and December 31, 2013, respectively, to secure public and trust department deposits and repurchase agreements in accordance with federal and state requirements. Peoples also pledged available-for-sale investment securities with carrying values of $15.6 million and $16.2 million at March 31, 2014 and December 31, 2013, respectively, and held-to-maturity securities with carrying values of $25.6 million and $25.9 million at March 31, 2014 and December 31, 2013, respectively, to secure additional borrowing capacity at the Federal Home Loan Bank of Cincinnati ("FHLB") and the Federal Reserve Bank of Cleveland ("FRB").