SP Bancorp, Inc. - 10-Q filing on 2012-08-13

Disclosure About the Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2012

Disclosure About the Fair Value of Financial Instruments [Abstract]

Disclosure About the Fair Value of Financial Instruments

Note 10. Disclosure About the Fair Value of Financial Instruments

The carrying amount, estimated fair value and the financial hierarchy of the Company’s financial instruments at June 30, 2012 and December 31, 2011 were as follows:


					Fair Value Measurements at Reporting
					Date Using
	June 30,				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	2012
	Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	6,933	$	6,933		6,933		—		—
Securities available for sale		16,296		16,296		—		16,296		—
Fixed annuity investment		1,199		1,199		—		1,199		—
Restricted stock		1,315		1,315		—		1,315		—
Loans and loans held for sale		228,423		227,794		—		226,158		1,636
Accrued interest receivable		747		747		—		747
Financial liabilities:
Deposit accounts		226,397		223,288		—		223,288		—
Accrued interest payable		27		27		—		27		—
Borrowings		9,045		9,299		—		9,299		—
Off-balance sheet assets (liabilities):
Commitments to extend credit		—		—		—		—		—

					Fair Value Measurements at Reporting
					Date Using
	December 31,				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	2011
	Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	9,928	$	9,928		9,928		—		—
Securities available for sale		25,097		25,097		—		25,097		—
Fixed annuity investment		1,176		1,176		—		1,176		—
Restricted stock		2,020		2,020		—		2,020		—
Loans and loans held for sale		217,572		217,829		—		217,817		12
Accrued interest receivable		961		961		—		961		—
Financial liabilities:
Deposit accounts		211,934		208,744		—		208,744		—
Accrued interest payable		29		29		—		29		—
Borrowings		25,978		26,299		—		26,299		—
Off-balance sheet assets (liabilities):
Commitments to extend credit		—		—		—		—		—

Fair Values of Financial Instruments

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. ASC 820 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Cash and short-term instruments

The carrying amounts of cash and short-term instruments approximate their fair value.

Securities

See Note 9 to Consolidated Financial Statements for methods and assumptions used to estimate fair values for securities.

The carrying value of Federal Home Loan Bank stock and other restricted equities approximate fair value based on the redemption provisions of the Federal Home Loan Bank.

Fixed annuity investment

The carrying amount approximates fair value.

Loans and loans held for sale

For variable-rate loans that reprice frequently and have no significant changes in credit risk, fair values are based on carrying values. Fair values for real estate and commercial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable. Fair value of loans held for sale is based on commitments on hand from investors or prevailing market rates.

Deposits

The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is their carrying amounts). The carrying amounts of variable-rate, fixed term money market accounts and variable-rate certificates of deposit (CD’s) approximate their fair values at the reporting date. Fair values for fixed-rate CD’s are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Advances from Federal Home Loan Bank

The fair value of advances from the Federal Home Loan Bank maturing within 90 days approximates carrying value. Fair value of other advances is based on the discounted value of contractual cash flows based on the Bank’s current incremental borrowing rate for similar borrowing arrangements.

Accrued interest

The carrying amounts of accrued interest approximate their fair values.