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Note 10 - Fair Values of Financial Instruments

9 Months Ended

Sep. 30, 2022

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 September 30, 2022 and December 31, 2021 (dollars in thousands):

	Level in		September 30, 2022								December 31, 2021
	Fair Value		Carrying				Fair				Carrying				Fair
	Hierarchy		Values				Values				Values				Values
Financial assets:
Cash	Level 1		$	17,016			$	17,016			$	17,872			$	17,872
Cash equivalents	Level 1			266,998				266,998				957,288				957,288
Securities available for sale	(1)			582,999				582,999				592,743				592,743
FHLBI stock	(2)			17,721				17,721				18,002				18,002
Loans, net	Level 3			3,841,838				3,803,053				3,418,096				3,498,345
Mortgage loans held for sale	Level 2			14,411				14,709				16,117				16,707
Mortgage servicing rights	Level 2			12,088				17,014				12,248				15,445
Accrued interest receivable	Level 2			13,988				12,988				9,311				9,311
Interest rate swaps	Level 2			28,445				28,445				4,609				4,609

Financial liabilities:
Deposits	Level 2			3,846,085				3,434,643				4,083,193				4,028,249
Repurchase agreements	Level 2			198,605				198,605				197,463				197,463
FHLBI advances	Level 2			338,263				318,419				374,000				384,927
Subordinated debentures	Level 2			48,787				49,854				48,244				48,284
Subordinated notes	Level 2			88,542				78,828				73,646				73,646
Accrued interest payable	Level 2			1,995				1,995				1,393				1,393
Interest rate swaps	Level 2			28,544				28,544				4,857				4,857

(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, subordinated notes, and FHLBI advances are based on current rates for similar financing. The fair values of interest rate swaps are based on discounted cash flows using forecasted yield curves, along with insignificant unobservable inputs, such as borrower credit spreads. The fair value of other 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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