(

)

Fair Value of Financial Instruments

The estimated fair values and fair value measurement method with respect to the Company's financial instruments were as follows:

			At September 30, 2020				At December 31, 2019
			Carrying		Fair		Carrying		Fair
(in thousands)	Level		Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents		1	$	56,004	$	56,004	$	75,082	$	75,082
Debt securities available for sale		2		61,060		61,060		61,333		61,333
Loans held for sale		3		14,900		15,137		6,193		6,296
Loans, net		3		465,642		481,058		337,710		342,435
Federal Home Loan Bank stock		3		493		493		404		404
Accrued interest receivable		3		1,879		1,879		1,137		1,137
Derivative contract assets		3		189		189		-		-

Financial liabilities:
Deposits		3		555,247		555,988		438,624		439,208
Other borrowings		3		-		-		1,254		1,254
Derivative contract liabilities		3		189		189		-		-

Off-Balance Sheet Items		3		-		-		-		-

Discussion regarding the assumptions used to compute the estimated fair values of financial instruments can be found in Note

to the consolidated financial statements included in the Company's annual report on Form

-K for the year ended

December 31, 2019

During the

third

quarter of

2020,

the Company put an interest rate swap program in place to offer its clients fixed rates on floating rate loans. The Company's interest rate swaps are reported at fair value utilizing models provided by an independent,

third

-party and observable market data. When entering into an interest rate swap agreement, the Company is exposed to fair value changes due to interest rate movements, and also to the potential nonperformance of our contract.

(

)

Off-

alance

heet

Financial Instruments

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its clients. These financial instruments are commitments to extend credit, construction loans in process, unused lines of credit, standby letters of credit, and guaranteed accounts and

may

involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the condensed consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for available lines of credit, construction loans in process and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

Commitments to extend credit, construction loans in process and unused lines of credit are agreements to lend to a client as long as there is

violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and

may

require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do

not

necessarily represent future cash requirements. The Company evaluates each client's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty.

Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a client to a

third

party. These letters of credit are primarily issued to support

third

-party borrowing arrangements and generally have expiration dates within

one

year of issuance. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to clients. In the event the client does

not

perform in accordance with the terms of the agreement with the

third

party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the client. Some of the Company's standby letters of credit are secured by collateral and those secured letters of credit totaled

$648,000

September 30, 2020

Guaranteed accounts are irrevocable standby letters of credit issued by us to guarantee a client's credit line with our

third

-party credit card company, First Arkansas Bank & Trust. As a part of this agreement, we are responsible for the established credit limit on certain accounts plus

10%.

The maximum potential amount of future payments we could be required to make is represented by the dollar amount disclosed in the table below.

Standby letters of credit and commitments to extend credit typically result in loans with a market interest rate when funded.

The maximum potential amount of future payments we could be required to make for off-balance sheet financial instruments is represented by the dollar amount disclosed in the table below.

	At September 30, 2020
(in thousands)
Commitments to extend credit	$	20,823
Construction loans in process	$	16,507
Unused lines of credit	$	58,323
Standby financial letters of credit	$	2,400
Standby performance letters of credit	$	318
Guaranteed accounts	$	1,372