Note 10 - Fair Values of Financial Instruments

9 Months Ended

Sep. 30, 2016

10.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amounts, estimated fair values and level within the fair value hierarchy of financial instruments were as follows as of September 30, 2016 and December 31, 2015 (dollars in thousands):

	Level in	September 30, 2016				December 31, 2015
	Fair Value Hierarchy	Carrying Values		Fair Values		Carrying Values		Fair Values

Financial assets:
Cash	Level 1	$	10,815	$	10,815	$	12,496	$	12,496
Cash equivalents	Level 2		130,915		130,915		77,395		77,395
Securities available for sale	(1)		325,443		325,443		346,992		346,992
FHLBI stock	(2)		8,026		8,026		7,567		7,567
Loans, net	Level 3		2,385,513		2,382,258		2,260,730		2,259,710
Loans held for sale	Level 2		3,338		3,338		1,316		1,316
Bank owned life insurance	Level 2		66,876		66,876		58,971		58,971
Accrued interest receivable	Level 2		8,064		8,064		7,836		7,836

Financial liabilities:
Deposits	Level 2		2,329,437		2,267,226		2,275,382		2,208,724
Repurchase agreements	Level 2		146,843		146,843		154,771		154,771
FHLBI advances	Level 2		178,000		180,481		68,000		68,858
Subordinated debentures	Level 2		44,665		44,782		55,154		55,760
Accrued interest payable	Level 2		1,570		1,570		1,479		1,479
Interest rate swap	(1)		165		165		253		253

(1)

See Note 11 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

(2)

It is not practical to determine the fair value of FHLBI stock due to transferability restrictions.

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, bank owned life insurance, noninterest checking deposits, securities sold under agreements to repurchase, and variable rate loans and deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans and deposits and for variable rate loans and deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of subordinated debentures and FHLBI advances is based on current rates for similar financing. Fair value of the interest rate swap is determined primarily utilizing market-consensus forecasted yield curves. Fair value of off-balance sheet items is estimated to be nominal.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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