Note 17 - Fair Values of Financial Instruments

12 Months Ended

Dec. 31, 2018

NOTE

– FAIR VALUES OF FINANCIAL INSTRUMENTS

Carrying amount, estimated fair value and level within the fair value hierarchy of financial instruments were as follows at year-end (dollars in thousands):

	Level in	2018				2017
	Fair Value	Carrying		Fair		Carrying		Fair
	Hierarchy	Amount		Value		Amount		Value
Financial assets
Cash	Level 1	$	15,656	$	15,656	$	11,565	$	11,565
Cash equivalents	Level 2		59,698		59,698		188,536		188,536
Securities available for sale	(1)		337,366		337,366		335,744		335,744
Federal Home Loan Bank stock	(2)		16,022		16,022		11,036		11,036
Loans, net	Level 3		2,729,583		2,711,687		2,536,498		2,520,063
Loans held for sale	Level 2		1,122		1,122		2,553		2,553
Mortgage servicing rights	Level 2		4,436		8,444		5,106		8,373
Accrued interest receivable	Level 2		9,896		9,896		8,770		8,770

Financial liabilities
Deposits	Level 2		2,463,708		2,471,617		2,522,365		2,368,188
Securities sold under agreements to repurchase	Level 2		103,519		103,519		118,748		118,748
Federal Home Loan Bank advances	Level 2		350,000		348,428		220,000		217,130
Subordinated debentures	Level 2		46,199		46,543		45,517		45,732
Accrued interest payable	Level 2		2,249		2,249		1,919		1,919
Interest rate swap	(1)		0		0		2		2

( 1 )	See Note 18 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; therefore, fair value is estimated at carrying amount.

Carrying amount is the estimated fair value for cash and cash equivalents, FHLBI stock, accrued interest receivable and payable, noninterest-bearing checking accounts and securities sold under agreements to repurchase. Security fair values are based on market prices or dealer quotes, and if

such information is available, on the rate and term of the security and information about the issuer. Fair value for loans as of

December 31, 2018

is based on an exit price model as required by ASU

2016

01,

taking into account inputs such as discounted cash flows, probability of default and loss given default assumptions. As of

December 31, 2017,

the fair value of floating rate loans was primarily based on carrying value, while fair value of other loans was estimated using discounted cash flow analysis using interest rates being offered for loans with similar terms to borrowers of similar credit quality. Fair value for deposit accounts other than noninterest-bearing checking accounts is based on discounted cash flows using current market rates applied to the estimated life. The fair value of mortgage servicing rights is estimated using a valuation model that calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The fair values of subordinated debentures and FHLBI advances are based on current rates for similar financing. The fair value of the interest rate swap was determined primarily utilizing market-consensus forecasted yield curves. The 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.

+ References + Details