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Note 10 - Fair Values of Financial Instruments

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Fair Value Disclosures [Text Block]

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 March 31, 2021 and December 31, 2020 (dollars in thousands):

	Level in		March 31, 2021								December 31, 2020
	Fair Value		Carrying				Fair				Carrying				Fair
	Hierarchy		Values				Values				Values				Values

Financial assets:
Cash	Level 1		$	16,853			$	16,853			$	16,953			$	16,953
Cash equivalents	Level 2			635,491				635,491				609,053				609,053
Securities available for sale	(1)			434,257				434,257				387,347				387,347
FHLBI stock	(2)			18,002				18,002				18,002				18,002
Loans, net	Level 3			3,325,675				3,463,032				3,155,503				3,294,522
Mortgage loans held for sale	Level 2			40,297				41,318				22,888				24,029
Mortgage servicing rights	Level 2			9,029				11,036				8,189				10,006
Accrued interest receivable	Level 2			11,832				11,832				10,861				10,861

Financial liabilities:
Deposits	Level 2			3,644,962				3,648,390				3,411,553				3,397,768
Repurchase agreements	Level 2			141,310				141,310				118,365				118,365
FHLBI advances	Level 2			394,000				409,589				394,000				410,881
Subordinated debentures	Level 2			47,733				47,733				47,563				47,574
Liabilities held for sale	Level 2			17,280				18,144				0				0
Accrued interest payable	Level 2			2,056				2,056				2,313				2,313

(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; 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 no 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 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. Liabilities held for sale reflects aggregate deposit balances that are included in the pending sale of our Hastings, Michigan branch; fair value reflects the 5.0% sales premium. The fair value of off-balance sheet items is estimated to be nominal.

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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