Note 9 - Fair Values of Financial Instruments

9 Months Ended

Sep. 30, 2019

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, 2019

and

December 31, 2018 (

dollars in thousands):

	Level in		September 30, 2019				December 31, 2018
	Fair Value Hierarchy		Carrying Values		Fair Values		Carrying Values		Fair Values

Financial assets:
Cash		Level 1	$	16,077	$	16,077	$	15,656	$	15,656
Cash equivalents		Level 2		212,461		212,461		59,698		59,698
Securities available for sale		(1)		345,533		345,533		337,366		337,366
FHLBI stock		(2)		18,002		18,002		16,022		16,022
Loans, net		Level 3		2,895,843		2,980,135		2,729,583		2,711,687
Loans held for sale		Level 2		12,756		12,756		1,122		1,122
Mortgage servicing rights		Level 2		4,385		7,117		4,436		8,444
Accrued interest receivable		Level 2		10,505		10,505		9,896		9,896

Financial liabilities:
Deposits		Level 2		2,767,091		2,666,671		2,463,708		2,471,617
Repurchase agreements		Level 2		103,990		103,990		103,519		103,519
FHLBI advances		Level 2		364,000		376,724		350,000		348,428
Subordinated debentures		Level 2		46,710		46,167		46,199		46,543
Accrued interest payable		Level 2		4,295		4,295		2,249		2,249

(

)

See Note

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

(

)

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 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. Fair value for deposits 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 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