The following is a summary of the carrying values and estimated fair values of the Company’s significant financial instruments as of the dates indicated:

	December 31, 2019				December 31, 2018
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(dollars in thousands)
Financial assets
Cash and cash equivalents	$	61,335	$	61,335	$	18,473	$	18,473
Securities available for sale		140,330		140,330		168,163		168,163
Securities held to maturity		258,172		264,114		282,869		281,310
Loans, net		2,208,548		2,160,087		1,543,004		1,484,905
Loans held for sale		1,546		2,051		—		—
FHLB Boston stock		7,854		7,854		6,844		6,844
Accrued interest receivable		7,052		7,052		5,762		5,762
Mortgage servicing rights		1,321		1,526		666		941
Interest rate contracts		2,911		2,911		1,970		1,970
Loan level interest rate swaps		12,980		12,980		5,782		5,782
Risk participation agreements out to counterparties		21		21		28		28

Financial liabilities
Deposits		2,358,878		2,358,089		1,811,410		1,809,051
Short-term borrowings		135,691		135,744		90,000		90,000
Long-term borrowings		—		—		3,409		3,363
Loan level interest rate swaps		12,980		12,980		5,782		5,782
Risk participation agreements in with counterparties		250		250		179		179

The Company follows ASC 820, “Fair Value Measurements and Disclosures,” for financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements about fair value measurements. ASC 820, among other things, emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on the assumptions the market participants would use in pricing the asset or liability. In addition, ASC 820 specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:

Under ASC 820, fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, the Company uses quoted market prices to determine fair value. If quoted prices are not available, fair value is based upon valuation techniques, such as matrix pricing or other models that use, where possible, current market-based or independently sourced market parameters, such as interest rates. If observable market-based inputs are not available, the Company uses unobservable inputs to determine appropriate valuation adjustments using methodologies applied consistently over time.

Valuation techniques based on unobservable inputs are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows and the selection of discount rates that may appropriately reflect market and credit risks.

Changes in these judgments often have a material impact on the fair value estimates. In addition, since these estimates are as of a specific point in time, they are susceptible to material near-term changes. The fair values disclosed do not reflect any premium or discount that could result from offering significant holdings of financial instruments at bulk sale, nor do they reflect the possible tax ramifications or estimated transaction costs. Changes in economic conditions may also dramatically affect the estimated fair values.

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale, derivative instruments, and hedges are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as collateral dependent impaired loans. In accordance with the requirements of ASU 2016-01, the Company uses an exit price notion for its fair value disclosures.

The following tables summarize certain assets reported at fair value on a recurring basis:

	Fair Value as of December 31, 2019
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Measured on a recurring basis
Securities available for sale
U.S. GSE obligations	$	—	$	37,848	$	—	$	37,848
Mortgage-backed securities		—		102,482		—		102,482
Corporate debt securities		—		—		—		—
Other assets
Interest rate swaps with customers		—		12,980		—		12,980
Risk participation agreements out to counterparties		—		21		—		21
Interest rate contracts		—		2,911		—		2,911
Other liabilities
Mirror swaps with counterparties		—		12,980		—		12,980
Risk participation agreements in with counterparties		—		250		—		250

	Fair Value as of December 31, 2018
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Measured on a recurring basis
Securities available for sale
U.S. GSE obligations	$	—	$	74,039	$	—	$	74,039
Mortgage-backed securities		—		89,268		—		89,268
Corporate debt securities		—		4,856		—		4,856
Other assets
Interest rate swaps with customers		—		5,782		—		5,782
Risk participation agreements out to counterparties		—		28		—		28
Interest rate contracts		—		1,970		—		1,970
Other liabilities
Mirror swaps with counterparties		—		5,782		—		5,782
Risk participation agreements in with counterparties		—		179		—		179

The following table presents the carrying value of assets held at December 31, 2019, which were measured at fair value on a non-recurring basis:

	December 31, 2019
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Items recorded at fair value on a non-recurring basis
Assets
Collateral dependent impaired loans	$	—	$	—	$	2,541	$	2,541
Loans held for sale		1,546		—		—		1,546
Other real estate owned		—		—		163		163
Total	$	1,546	$	—	$	2,704	$	4,250

Collateral dependent impaired loans. Collateral dependent loans are carried at the lower of cost or fair value of the collateral less estimated costs to sell which approximates fair value. The Company uses the appraisal value of the collateral and applies certain adjustments depending on the nature, quality, and type of collateral securing the loan.

Loans held for sale. Loans held for sale are carried at the lower of fair value or carrying value (unpaid principal and unamortized loans fees).

Other Real Estate Owned. These properties are carried at fair value less estimated costs to sell. There were no assets measured at fair value on a non-recurring basis during the year ended December 31, 2018.

There were no transfers between fair value levels for the years ended December 31, 2019 and 2018.

The following is a description of the principal valuation methodologies used by the Company to estimate the fair values of its financial instruments.

For investment securities, fair values are primarily based upon valuations obtained from a national pricing service which uses matrix pricing with inputs that are observable in the market or can be derived from, or corroborated by, observable market data. When available, quoted prices in active markets for identical securities are utilized.

For loans held for sale, fair values are estimated using projected future cash flows, discounted at rates based upon either trades of similar loans or mortgage-backed securities, or at current rates at which similar loans would be made to borrowers with similar credit ratings and for similar remaining maturities.

For most categories of loans, fair values are estimated using projected future cash flows, discounted at rates based upon current rates at which similar loans would be made to borrowers with similar credit ratings, and for similar remaining maturities. Projected estimated cash flows are adjusted for prepayment assumptions, liquidity premium assumptions, and credit loss assumptions. Loans that are deemed to be impaired in accordance with ASC 310, “Receivables,” are valued based upon the lower of cost or fair value of the underlying collateral.

The fair value of FHLB of Boston stock equals its carrying value since such stock is only redeemable at its par value.

The fair value of non-maturity deposit accounts is the amount payable on demand at the reporting date. This amount does not take into account the value of the Bank’s long-term relationships with core depositors. The fair value of fixed-maturity certificates of deposit is estimated using a replacement cost of funds approach and is based upon rates currently offered for deposits of similar remaining maturities.

For long-term borrowings, fair values are estimated using future cash flows, discounted at rates based upon current costs for debt securities with similar terms and remaining maturities.

Cash and cash equivalents, accrued interest receivable, and short-term borrowings have fair values which approximate their respective carrying values because these instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk.

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Bank incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Bank has considered the impact of netting and any applicable credit enhancements, such as collateral postings.

In the course of originating loans and extending credit, the Bank will charge fees in exchange for its commitment. While these commitment fees have value, the Bank has not estimated their value due to the short-term nature of the underlying commitments and their immateriality.

In accordance with ASC 820, the Company has not estimated fair values for non-financial assets such as banking premises and equipment, goodwill, the intangible value of the Bank’s portfolio of loans serviced for itself, and the intangible value inherent in the Bank’s deposit relationships (i.e., core deposits), among others. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.