Note 9 - Fair Values of Financial Instruments

3 Months Ended

Mar. 31, 2020

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

March 31, 2020

and

December 31, 2019 (

dollars in thousands):

	Level in	March 31, 2020				December 31, 2019
	Fair Value	Carrying		Fair		Carrying		Fair
	Hierarchy	Values		Values		Values		Values

Financial assets:
Cash	Level 1	$	20,358	$	20,358	$	16,430	$	16,430
Cash equivalents	Level 2		216,361		216,361		217,301		217,301
Securities available for sale	(1)		312,147		312,147		334,655		334,655
FHLBI stock	(2)		18,002		18,002		18,002		18,002
Loans, net	Level 3		2,852,063		2,898,038		2,827,800		2,887,168
Loans held for sale	Level 2		24,652		24,652		4,978		4,978
Mortgage servicing rights	Level 2		4,633		7,056		4,652		7,375
Accrued interest receivable	Level 2		9,724		9,724		9,944		9,944

Financial liabilities:
Deposits	Level 2		2,645,416		2,628,189		2,690,384		2,600,452
Repurchase agreements	Level 2		133,270		133,270		102,675		102,675
FHLBI advances	Level 2		394,000		404,371		354,000		361,887
Subordinated debentures	Level 2		47,051		45,803		46,881		46,140
Accrued interest payable	Level 2		3,277		3,277		3,949		3,949

(

)

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