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Fair Value of Assets and Liabilities | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value of Assets and Liabilities | Fair Value of Assets and Liabilities Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, Peoples measures, records and reports various types of assets and liabilities at fair value on either a recurring or a non-recurring basis in the Unaudited Condensed Consolidated Financial Statements. Those assets and liabilities are presented below in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis.” Depending on the nature of the asset or the liability, Peoples uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under US GAAP uses a hierarchy, which is described in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2022 Form 10-K. Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or liabilities required to be measured at fair value on a recurring basis between levels of the fair value hierarchy during the periods presented. Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis The following table provides the fair value for assets and liabilities required to be measured and reported at fair value on a recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy.
|  | Recurring Fair Value Measurements at Reporting Date
|  | September 30, 2023 |  | December 31, 2022
(Dollars in thousands) |  | Level 1 | Level 2 | Level 3 |  | Level 1 | Level 2 | Level 3
Assets: |  |  |  |  |  |  |  |
Available-for-sale investment securities: |  |  |  |  |  |  |  |
Obligations of: |  |  |  |  |  |  |  |
U.S. Treasury and government agencies |  | $ | 42,466 |  | $ | — |  | $ | — |  |  | $ | 152,422 |  | $ | — |  | $ | — |
U.S. government sponsored agencies |  | — |  | 103,932 |  | — |  |  | — |  | 88,115 |  | — |
States and political subdivisions |  | — |  | 220,460 |  | — |  |  | — |  | 225,882 |  | — |
Residential mortgage-backed securities |  | — |  | 593,104 |  | — |  |  | — |  | 604,653 |  | — |
Commercial mortgage-backed securities |  | — |  | 50,840 |  | — |  |  | — |  | 50,049 |  | — |
Bank-issued trust preferred securities |  | — |  | 5,927 |  | 1,852 |  |  | — |  | 10,278 |  | — |
Total available-for-sale securities |  | $ | 42,466 |  | $ | 974,263 |  | $ | 1,852 |  |  | $ | 152,422 |  | $ | 978,977 |  | $ | — |
Equity investment securities (a) |  | 155 |  | 239 |  | — |  |  | 147 |  | 199 |  | — |
Derivative assets (b) |  | — |  | 34,709 |  | — |  |  | — |  | 34,123 |  | — |
Liabilities: |  |  |  |  |  |  |  |
Derivative liabilities (c) |  | $ | — |  | $ | 29,491 |  | $ | — |  |  | $ | — |  | $ | 28,529 |  | $ | — |
(a) Included in "Other investment securities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements. (b) Included in "Other assets" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements. (c) Included in "Accrued expenses and other liabilities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements. Available-for-Sale Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level 1) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, SOFR (or other relevant) yield curves, credit spreads and prices from market makers and live trading systems (Level 2). As of September 30, 2023, Peoples had one available-for-sale investment security for which quoted market prices or observable market data was unavailable. Therefore, a broker estimated market value based on the price an interested buyer would be willing to pay was used to estimate the fair value (Level 3). Management reviews the valuation methodology and quality controls utilized by the pricing services or broker in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists. Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from q uoted prices in active exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2). Derivative Assets and Derivative Liabilities: Derivative assets and derivative liabilities are recognized on the Unaudited Consolidated Balance Sheets at their fair value within "Other assets" and "Accrued expenses and other liabilities", respectively. The fair value for derivative financial instruments is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters (Level 2). Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis The following table provides the fair value for each class of assets and liabilities required to be measured and reported at fair value on a non-recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy at September 30, 2023 and December 31, 2022.
|  |  | Non-Recurring Fair Value Measurements at Reporting Date
|  |  | September 30, 2023 |  |  | December 31, 2022
(Dollars in thousands) |  |  | Level 2 | Level 3 |  |  | Level 2 | Level 3
Assets: |  |  |  |  |  |  |  |
Collateral dependent loans |  |  | $ | — |  | $ | 508 |  |  |  | $ | — |  | $ | 10,354 |
Loans held for sale (a) |  |  | $ | 1,443 |  | $ | — |  |  |  | $ | 1,254 |  | $ | — |
Other real estate owned |  |  | $ | — |  | $ | 32 |  |  |  | $ | — |  | $ | 55 |
(a) Loans held for sale are presented gross of a valuation allowance of $237 and $105 at September 30, 2023 and at December 31, 2022, respectively. Collateral Dependent Loans: Loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty, are considered collateral dependent. Peoples utilizes outside third-party appraisal services to value the underlying collateral, which Peoples then uses to report the loans at their fair value (Level 3). Loans Held for Sale: Loans originated and intended to be sold in the secondary market, generally one-to-four family residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. Peoples uses a valuation model using quoted market prices of similar instruments in arriving at the fair value (Level 2). Other Real Estate Owned ("OREO"): OREO, included in "Other assets" on the Unaudited Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches, including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available (Level 3). Servicing Rights: Servicing rights are included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. The fair value of servicing rights is determined by using a discounted cash flow model, which estimates the present value of the future net cash flows of the servicing portfolio based on various factors, such as servicing costs, expected prepayment speeds and discount rates (Level 3). The carrying value of servicing rights is not re-measured to fair value on a recurring basis. Peoples assesses the carrying value of servicing rights quarterly for impairment. Financial Instruments Not Required to be Measured or Reported at Fair Value The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Unaudited Consolidated Balance Sheets.
|  | Fair Value Measurements of Other Financial Instruments
(Dollars in thousands) |  | Fair Value Hierarchy Level | September 30, 2023 |  | December 31, 2022
| Carrying Amount | Fair Value |  | Carrying Amount | Fair Value
Assets: |  |  |  |  |  |  |
Cash and cash equivalents |  | 1 | $ | 299,109 |  | $ | 299,109 |  |  | $ | 154,022 |  | $ | 154,022 |
Held-to-maturity investment securities: |  |  |  |  |  |  |
Obligations of: |  |  |  |  |  |  |
U.S. government sponsored agencies |  | 2 | 174,699 |  | 160,985 |  |  | 132,366 |  | 123,020 |
States and political subdivisions (a) |  | 2 | 144,728 |  | 104,810 |  |  | 145,263 |  | 108,776 |
Residential mortgage-backed securities |  | 2 | 248,627 |  | 218,970 |  |  | 176,215 |  | 157,998 |
Commercial mortgage-backed securities |  | 2 | 102,845 |  | 85,123 |  |  | 101,861 |  | 85,354 |
Commercial mortgage-backed securities |  | 3 | 4,748 |  | — |  |  | 4,748 |  | 3,361 |
Total held-to-maturity securities |  |  | 675,647 |  | 569,888 |  |  | 560,453 |  | 478,509 |
Other investment securities: |  |  |  |  |  |  |
Other investment securities at cost: |  |  |  |  |  |  |
Federal Home Loan Bank ("FHLB") stock |  | N/A | 33,808 |  | 33,808 |  |  | 26,605 |  | 26,605 |
Federal Reserve Bank ("FRB") stock |  | N/A | 26,897 |  | 26,897 |  |  | 21,231 |  | 21,231 |
Banker's Bank of Kentucky ("BBKY") stock |  | N/A | 445 |  | 445 |  |  | 355 |  | 355 |
Total other investment securities at cost |  |  | 61,150 |  | 61,150 |  |  | 48,191 |  | 48,191 |
Other investment securities at fair value: |  |  |  |  |  |  |
Nonqualified deferred compensation (b) |  | 1 | 2,744 |  | 2,744 |  |  | 2,048 |  | 2,048 |
Other investment securities (c) |  | 2 | 2,044 |  | 2,044 |  |  | 1,024 |  | 1,024 |
Total other investment securities |  |  | 65,938 |  | 65,938 |  |  | 51,263 |  | 51,263 |
Loans and leases, net of deferred fees and costs (d) |  | 3 | 6,084,390 |  | 5,808,484 |  |  | 4,707,150 |  | 4,516,695 |
Bank owned life insurance |  | 2 | 139,554 |  | 139,554 |  |  | 105,292 |  | 105,292 |
Liabilities: |  |  |  |  |  |  |
Deposits |  | 2 | $ | 7,037,518 |  | $ | 5,992,880 |  |  | $ | 5,716,941 |  | $ | 4,682,491 |
Short-term borrowings |  | 2 | 585,437 |  | 595,045 |  |  | 500,138 |  | 504,584 |
Long-term borrowings |  | 2 | 173,312 |  | 176,156 |  |  | 101,093 |  | 101,992 |
(a) Held-to-maturity investment securities are presented gross of an allowance for credit losses of $238 and $241 at September 30, 2023 and December 31, 2022, respectively. (b) Nonqualified deferred compensation includes mutual funds as part of the investment. (c) "Other investment securities", as reported on the Unaudited Consolidated Balance Sheets, also included equity investment securities at September 30, 2023 and at December 31, 2022, which are reported in the Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis table above and not included in this table. (d) Loans and leases, net of deferred fees and costs, are presented gross of an allowance for credit losses of $62.9 million and $53.2 million at September 30, 2023 and at December 31, 2022, respectively. For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These financial instruments include cash and cash equivalents, and overnight borrowings. Peoples used the following methods and assumptions in estimating the fair value of the following financial instruments: Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash and cash equivalents balances are a reasonable estimate of fair value (Level 1). Held-to-Maturity Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, relevant yield curves, credit spreads and prices from market makers and live trading systems (Level 2). When observable market data is absent, the independent pricing service estimates prices based on underlying cash flow characteristics and discount rates and compares them to similar securities (Level 3). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists. Other Investment Securities: Other investment securities at cost are not recorded at fair value as they are not marketable securities. Other investment securities at fair value are valued using quoted prices in an active market (Level 1) or quoted prices in less active markets (Level 2). Loans and Leases, Net of Deferred Fees and Costs: The fair value of portfolio loans and leases assumes sale of the underlying notes to a third-party financial investor. Accordingly, this value is not necessarily the value to Peoples if the notes were held to maturity. Peoples considers interest rate, credit and market factors in estimating the fair value of loans and leases (Level 3). Fair values for loans and leases are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans and leases with similar terms, the credit risk associated with the loans and leases and other market factors, including liquidity. Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level 2). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits. Deposits: The fair value of fixed-maturity certificates of deposit ("CDs") is estimated using a discounted cash flow calculation based on current rates offered for deposits of similar remaining maturities. Demand and other non-fixed-maturity deposits are estimated using a discounted cash flow calculation based on maturity, attrition and re-pricing assumptions (Level 2). Short-term Borrowings: The fair value of short-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2). Long-term Borrowings: The fair value of long-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2). Certain financial assets and financial liabilities that are not required to be measured or reported at fair value can be subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These financial assets and financial liabilities include the following: customer relationships, the deposit base, and other information required to compute Peoples’ aggregate fair value, which are not included in the above information. Accordingly, the fair values described above are not intended to represent the aggregate fair value of Peoples.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 820 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//820/tableOfContent + Details
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