NOTE

— FINANCIAL INSTRUMENTS

Fair values of financial instruments —

The consolidated financial statements include various estimated fair value information as of

December

31,

2018

and

2017.

Such information, which pertains to the Company’s financial instruments, does

not

purport to represent the aggregate net fair value of the Company. Further, the fair value estimates are based on various assumptions, methodologies, and subjective considerations, which vary widely among different financial institutions and which are subject to change. The following methods and assumptions are used by the Company.

Cash and cash equivalents

— The carrying amounts of cash and cash equivalents approximate their fair value.

Restricted Equity Securities

—

The carrying amounts of the stock the Company’s owns in FRB and FHLB approximate their fair value and are considered a level

valuation.

Securities (including mortgage-backed securities)

— Fair values for securities are based on quoted market prices, where available. If quoted market prices are

not

available, fair values are based on quoted market prices of comparable instruments. See Note

for additional disclosure regarding fair values of securities.

Loans receivable

— The fair value of the loan portfolio is estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The Company’s fair value model takes into account many inputs including loan discounts due to credit risk, current market rates on new loans, the U.S. treasury yield curve, LIBOR yield curve, rate floors, rate ceilings, remaining maturity, and average life based on specific loan type. Adoption of ASU

2016

during the

first

quarter of

2018

resulted in the use of an exit price rather than an entrance price to determine the fair value of loans

not

measured at fair value on a non-recurring basis. Loans are considered to be a level

valuation.

Deposit liabilities

— The fair values estimated for demand deposits (interest and non-interest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of the aggregate expected monthly maturities on time deposits.

Interest

receivable and payable

— The carrying amounts of accrued interest approximate their fair value.

Off-balance-sheet instruments

— Fair values for the Company’s off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the credit standing of the counterparties.

The estimated fair values of the Company’s financial instruments at

December

31,

2018

were as follows:

							Hierarchy
(in thousands)	Carrying			Fair			Valuation
	Amount			Value			Level
Financial assets:
Cash and cash equivalents	$	126,145		$	126,145		1
Restricted equity securities		4,357			4,357		2
Loans, net		702,220			697,369		3
Interest receivable		3,755			3,755		2

Financial liabilities:
Deposits		(986,495	)		(986,096	)	3
Interest payable		(40	)		(40	)	2

Off-balance-sheet assets (liabilities):
Commitments and standby letters of credit					(1,539	)	3

The estimated fair values of the Company’s financial instruments at

December

31,

2017

were as follows:

							Hierarchy
(in thousands)	Carrying			Fair			Valuation
	Amount			Value			Level
Financial assets:
Cash and cash equivalents	$	149,173		$	149,173		1
Restricted equity securities		4,135			4,135		2
Loans, net		652,989			658,618		3
Interest receivable		1,312			1,312		2

Financial liabilities:
Deposits		(938,882	)		(829,992	)	3
Interest payable		(45	)		(45	)	2

Off-balance-sheet assets (liabilities):
Commitments and standby letters of credit					(1,180	)	3