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EX-32.0 - EXHIBIT 32.0 - QUAINT OAK BANCORP INCexh320.htm
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EX-31.1 - EXHIBIT 3.1 - QUAINT OAK BANCORP INCexh311.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
 _______________________________
 
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2016
OR
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from
 
to
   
 
Commission file number: 000-52694
 
QUAINT OAK BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Pennsylvania
35-2293957
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
   
 
501 Knowles Avenue, Southampton, Pennsylvania  18966
(Address of Principal Executive Offices)
 
(215) 364-4059
(Registrant's Telephone Number, Including Area Code)
 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X]  Yes
[   ]  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X]  Yes
[   ]  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer
[   ]
Accelerated filer
[   ]
Non-accelerated filer
[   ]
Smaller reporting company
[X]
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[   ]  Yes
 
[X]  No
 
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  As of November 8, 2016, 1,879,243 shares of the Registrant's common stock were issued and outstanding.
 
 
 

 
INDEX


PART I - FINANCIAL INFORMATION
Page
 
Item 1 -                Financial Statements
 
 Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 (Unaudited)
1
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2016 and 2015 (Unaudited)
2
 
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2016
and 2015 (Unaudited)
3
 
Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2016 (Unaudited)
4
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (Unaudited)
5
 
Notes to Unaudited Consolidated Financial Statements                                                           
6
   
Item 2 -                Management's Discussion and Analysis of Financial Condition and Results of Operations
35
 
Item 3 -                Quantitative and Qualitative Disclosures About Market Risk                                                                          
46
 
Item 4 -                Controls and Procedures                                                                                     
46
 
PART II - OTHER INFORMATION
 
Item 1 -                Legal Proceedings                                                                                                                   
47
 
Item 1A -             Risk Factors     
47
 
Item 2 -                Unregistered Sales of Equity Securities and Use of Proceeds
47
 
Item 3 -                Defaults Upon Senior Securities                                                                                                              
47
 
Item 4 -                Mine Safety Disclosures                                                                                              
47
 
Item 5 -                Other Information                                                                                                         
48
 
Item 6 -                Exhibits                                                                                                         
48
 
SIGNATURES
 
 
 

ITEM 1. FINANCIAL STATEMENTS
 
 
Quaint Oak Bancorp, Inc.
Consolidated Balance Sheets (Unaudited)
 
   
At September 30,
   
At December 31,
 
   
2016
   
2015
 
 
 
(In thousands, except share data)
 
Assets                
Due from banks, non-interest-bearing
 
$
460
   
$
43
 
Due from banks, interest-bearing
   
17,220
     
17,163
 
Cash and cash equivalents
   
17,680
     
17,206
 
Investment in interest-earning time deposits
   
6,063
     
6,136
 
   Investment securities available for sale
   
10,055
     
3,005
 
Loans held for sale
   
4,247
     
5,064
 
Loans receivable, net of allowance for loan losses (2016 $1,485; 2015 $1,313)
 
 
161,627
     
143,305
 
Accrued interest receivable
   
932
     
983
 
Investment in Federal Home Loan Bank stock, at cost
   
593
     
618
 
Bank-owned life insurance
   
3,705
     
3,638
 
Premises and equipment, net
   
1,744
     
1,834
 
Intangibles, net of accumulated amortization
   
1,044
     
45
 
Other real estate owned, net
   
720
     
1,410
 
Prepaid expenses and other assets
   
1,078
     
924
 
Total Assets
 
$
209,488
   
$
184,168
 
   
Liabilities and Stockholders' Equity
 
Liabilities
               
Deposits:
               
Non-interest bearing
 
$
4,203
   
$
2,407
 
Interest-bearing
   
170,448
     
146,822
 
Total deposits
   
174,651
     
149,229
 
Federal Home Loan Bank short-term borrowings
   
6,000
     
6,000
 
Federal Home Loan Bank long-term borrowings
   
6,500
     
7,500
 
Accrued interest payable
   
136
     
123
 
Advances from borrowers for taxes and insurance
   
1,437
     
1,859
 
Accrued expenses and other liabilities
   
466
     
421
 
Total Liabilities
   
189,190
     
165,132
 
                   
Stockholders' Equity
               
Preferred stock – $0.01 par value, 1,000,000 shares authorized; none issued or outstanding 
-
     
-
 
Common stock – $0.01 par value; 9,000,000 shares authorized; 2,777,250 issued;
               
1,879,284 and 1,841,475 outstanding at September 30, 2016 and 
December 31, 2015, respectively
   
28
     
28
 
Additional paid-in capital
   
14,178
     
14,013
 
Treasury stock, at cost: 2016 897,966 shares; 2015 935,775 shares
   
(4,670
)
   
(4,859
)
Unallocated common stock held by:
               
                Employee Stock Ownership Plan (ESOP)
   
(337
)
   
(387
)
Recognition & Retention Plan Trust (RRP)
   
(47
)
   
(70
)
Accumulated other comprehensive loss
   
(2
)
   
(12
)
Retained earnings
   
11,148
     
10,323
 
Total Stockholders' Equity
   
20,298
     
19,036
 
Total Liabilities and Stockholders' Equity
 
$
209,488
   
$
184,168
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
1

Quaint Oak Bancorp, Inc.
 
Consolidated Statements of Income (Unaudited)
 
    
For the Three
Months Ended
   
For the Nine
Months Ended
 
    
September 30,
   
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
     (In thousands, except for share data)  
Interest Income
   
  Interest on loans
 
$
2,213
   
$
2,095
   
$
6,497
   
$
6,106
 
  Interest and dividends on short-term investments and investment securities
   
96
     
47
     
244
     
156
 
Total Interest Income
   
2,309
     
2,142
     
6,741
     
6,262
 
                                 
Interest Expense
                               
  Interest on deposits
   
638
     
511
     
1,774
     
1,448
 
  Interest on Federal Home Loan Bank borrowings
   
34
     
27
     
100
     
70
 
Total Interest Expense
   
672
     
538
     
1,874
     
1,518
 
                                 
Net Interest Income
   
1,637
     
1,604
     
4,867
     
4,744
 
                                 
Provision for Loan Losses
   
61
     
71
     
172
     
280
 
                                 
Net Interest Income after Provision for Loan Losses
   
1,576
     
1,533
     
4,695
     
4,464
 
                                 
Non-Interest Income
                               
  Mortgage banking and title abstract fees
   
129
     
114
     
409
     
334
 
  Other fees and services charges
   
(20
)
   
22
     
32
     
93
 
  Insurance commissions
   
60
     
-
     
60
     
-
 
  Income from bank-owned life insurance
   
23
     
23
     
67
     
66
 
  Net gain on the sale of residential mortgage loans
   
531
     
357
     
1,289
     
993
 
  Gain on sale of SBA loans
   
51
     
-
     
108
     
7
 
  Loss on sale of investment securities available for sale
   
-
     
(75
)
   
-
     
(75
)
  Loss on sales and write-downs of other real estate owned
   
(54
)
   
(2
)
   
(126
)
   
(4
)
  Other
   
13
     
11
     
36
     
27
 
Total Non-Interest Income
   
733
     
450
     
1,875
     
1,441
 
                                 
Non-Interest Expense
                               
  Salaries and employee benefits
   
1,132
     
942
     
3,321
     
2,980
 
  Directors' fees and expenses
   
48
     
49
     
155
     
153
 
  Occupancy and equipment
   
167
     
167
     
479
     
453
 
  Professional fees
   
94
     
129
     
291
     
301
 
  FDIC deposit insurance assessment
   
35
     
32
     
103
     
90
 
  Other real estate owned expense
   
13
     
14
     
32
     
17
 
  Advertising
   
23
     
21
     
84
     
83
 
  Other
   
145
     
130
     
412
     
383
 
Total Non-Interest Expense
   
1,657
     
1,484
     
4,877
     
4,460
 
                                 
Income before Income Taxes
   
652
     
499
     
1,693
     
1,445
 
Income Taxes
   
250
     
189
     
650
     
552
 
Net Income
 
$
402
   
$
310
   
$
1,043
   
$
893
 
                                 
 Earnings per share - basic
 
$
0.22
   
$
0.18
   
$
0.59
   
$
0.52
 
 Average shares outstanding - basic
   
1,792,673
     
1,706,946
     
1,774,343
     
1,714,689
 
 Earnings per share - diluted
 
$
0.21
   
$
0.16
   
$
0.54
   
$
0.48
 
 Average shares outstanding - diluted
   
1,950,413
     
1,888,113
     
1,935,757
     
1,876,708
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
2

Quaint Oak Bancorp, Inc.
 
Consolidated Statements of Comprehensive Income (Unaudited)
 
   
For the Three
Months Ended
   
For the Nine
Months Ended
 
   
September 30,
   
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
   
(In thousands)   
 
Net Income
 
$
402
   
$
310
   
$
1,043
   
$
893
 
                                 
Other Comprehensive Income  (Loss):
                               
Unrealized gains (losses) on investment securities available-for-sale
   
(5
)
   
(14
)
   
15
     
(21
)
            Income tax effect
   
2
     
4
     
(5
)
   
7
 
Reclassification adjustment for losses on sale of investment securities
     included in net income
   
-
     
75
     
-
     
75
 
            Income tax effect
   
-
     
(25
)
   
-
     
(25
)
                                 
Other comprehensive income (loss)
   
(3
)
   
40
     
10
     
36
 
                                 
Total Comprehensive Income
 
$
399
   
$
350
   
$
1,053
   
$
929
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
3

Quaint Oak Bancorp, Inc.
 
Consolidated Statements of Stockholders' Equity (Unaudited)
 
 
 
For the Nine Months Ended September 30, 2016
 
                             Unallocated                          
     Common Stock                           Common       Accumulated                    
    Number of                Additional                Stock Held       Other               Total   
    Shares                Paid-in        Treasury        by Benefit       Comprehensive       Retained        Stockholders'  
    Outstanding        Amount        Capital        Stock        Plans       Income (Loss)       Earnings       Equity  
                          (In thousands, except share data)                 
                                                               
BALANCE – DECEMBER 31, 2015
 
1,841,475
   
$
28
   
$
14,013
   
$
(4,859
)
 
$
(457
)
 
$
(12
)
 
$
10,323
   
$
19,036
 
                                                               
Common stock allocated by ESOP
                 
78
             
51
                     
129
 
                                                               
Treasury stock purchased
 
(1,097
)
                   
(13
)
                           
(13
)
                                                               
Reissuance of treasury stock under 401(k) Plan 
6,992
             
46
     
36
                             
82
 
                                                               
Reissuance of treasury stock for share
  awards  
5,396
             
(28
)
   
28
                             
-
 
                                                               
Reissuance of treasury stock for exercised stock options
 
26,518
             
(5
)
   
138
                             
133
 
                                                               
Stock based compensation expense
                 
96
                                     
96
 
                                                               
Release of 4,864 vested RRP shares  
               
(22
)
           
22
                     
-
 
                                                               
Cash dividends declared ($0.118 per
  share)  
                                               
(218
)
   
(218
)
                                                               
Net income
                                                 
1,043
     
1,043
 
                                                               
Other comprehensive income, net
                                         
10
             
10
 
                                                               
BALANCE – September 30, 2016
 
1,879,284
   
$
28
   
$
14,178
   
$
(4,670
)
 
$
(384
)
 
$
(2
)
 
$
11,148
   
$
20,298
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
4

Quaint Oak Bancorp, Inc.
 
Consolidated Statements of Cash Flows (Unaudited)
 
 
     
For the Nine Months
Ended September 30, 
 
      2016        2015   
          (In Thousands)   
Cash Flows from Operating Activities                
Net income
 
$
1,043
   
$
893
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
   
172
     
280
 
Depreciation expense
   
140
     
132
 
Amortization of intangibles
   
22
     
3
 
Net amortization of securities premiums
   
14
     
-
 
Accretion of deferred loan fees and costs, net
   
(227
)
   
(247
Stock-based compensation expense
   
225
     
211
 
               Realized loss on sale of investment securities available for sale     -       75  
       Net gain on the sale of loans
   
(1,289
)
   
(993
)
       Gain on the sale of SBA loans
   
(108
)
   
(7
)
       Net loss on sale and write-downs of other real estate owned
   
126
     
4
 
       Increase in the cash surrender value of bank-owned life insurance
   
(67
)
   
(66
)
       Changes in assets and liabilities which provided (used) cash:
               
     Loans held for sale-originations
   
(47,942
)
   
(38,029
)
     Loans held for sale-proceeds
   
50,048
     
39,291
 
            Accrued interest receivable
   
51
     
(141
)
            Prepaid expenses and other assets
   
(159
)
   
(175
)
    Accrued interest payable
   
13
     
4
 
    Accrued expenses and other liabilities
   
45
     
18
 
Net Cash Provided by Operating Activities
   
2,107
     
1,253
 
Cash Flows from Investing Activities            
Net decrease in investment in interest-earning time deposits
   
73
     
524
 
Purchase of investment securities available for sale
   
(7,833
)
   
(35
)
Principal repayments of investment securities available for sale
   
784
     
-
 
Proceeds from sale of investment securities available for sale
   
-
     
1,720
 
Net increase in loans receivable
   
(18,159
)
   
(19,351
)
Net decrease (increase) in investment in Federal Home Loan Bank stock
   
25
     
(91
)
Proceeds from the sale of other real estate owned
   
844
     
160
 
Capitalized expenditures on other real estate owned
   
(280
)
   
(109
)
Purchase of premises and equipment
   
(50
)
   
(315
)
Purchase of intangibles
   
(1,021
)
   
(1
)
Net Cash Used in Investing Activities
   
(25,617
)
   
(17,498
)
Cash Flows from Financing Activities            
Net increase in demand deposits and savings accounts
   
3,273
     
2,875
 
Net increase in certificate accounts
   
22,149
     
13,526
 
Proceeds from Federal Home Loan Bank short-term borrowings
   
-
     
1,000
 
Repayment of Federal Home Loan Bank short-term borrowings
   
-
     
(2,000
)
Proceeds from Federal Home Loan Bank long-term borrowings
   
-
     
3,000
 
Repayment of Federal Home Loan Bank long-term borrowings
   
(1,000
)
   
-
 
Dividends paid
   
(218
)
   
(182
)
Purchase of treasury stock
   
(13
)
   
(9
)
Proceeds from the reissuance of treasury stock
   
82
     
40
 
Proceeds from the exercise of stock options
   
133
     
25
 
Decrease in advances from borrowers for taxes and insurance
   
(422
)
   
(420
)
Net Cash Provided by Financing Activities
   
23,984
     
17,855
 
Net Increase in Cash and Cash Equivalents
   
474
     
1,610
 
Cash and Cash Equivalents – Beginning of Year
   
17,206
     
13,937
 
Cash and Cash Equivalents – End of Year
 
$
17,680
   
$
15,547
 
Cash payments for interest
 
$
1,861
   
$
1,514
 
Cash payments for income taxes
 
$
560
   
$
665
 
Transfer of loans to other real estate owned
 
$
-
   
$
670
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
5

Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies
Basis of Financial Presentation. The consolidated financial statements include the accounts of Quaint Oak Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, Quaint Oak Bank (the "Bank") along with its wholly-owned subsidiaries.  At September 30, 2016, the Bank has five wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, Quaint Oak Insurance Agency, LLC, and QOB Properties, LLC, each a Pennsylvania limited liability company.  The mortgage, real estate and abstract companies offer mortgage banking, real estate sales and title abstract services, respectively, and began operation in July 2009.  QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure.  On August 1, 2016, Quaint Oak Insurance Agency, LLC began operations by acquiring the renewal rights to the book of business produced and serviced by Signature Insurance Services, LLC, an independent insurance agency located in New Britain, Pennsylvania, that provides a broad range of personal and commercial insurance coverage solutions.  All significant intercompany balances and transactions have been eliminated.
The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation.  Pursuant to the Bank's election under Section 10(l) of the Home Owners' Loan Act, the Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System.  The market area served by the Bank's two regional offices includes Bucks, Montgomery, Lehigh and Northampton Counties, Pennsylvania, and northeast Philadelphia and the surrounding area.  The principal deposit products offered by the Bank are certificates of deposit, passbook savings accounts, savings accounts and money market accounts.  Loan products offered are fixed and adjustable rate residential and commercial mortgages, construction loans, home equity loans, auto loans, and lines of credit.
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) for interim information and with the instructions to Form 10-Q, as applicable to a smaller reporting company.  Accordingly, they do not include all the information and footnotes required by US GAAP for complete financial statements.
The foregoing consolidated financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof.  The balances as of December 31, 2015 have been derived from the audited financial statements.  These financial statements should be read in conjunction with the financial statements and notes thereto included in Quaint Oak Bancorp's 2015 Annual Report on Form 10-K.  The results of operations for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
Use of Estimates in the Preparation of Financial Statements. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates.  The Company's most significant estimates are the determination of the allowance for loan losses, the assessment of other-than-temporary impairment of investment and mortgage-backed securities, valuation of other real estate owned, and the valuation of deferred tax assets.
 
6

Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
Loans Receivable.  Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees and costs.  Interest income is accrued on the unpaid principal balance.  Loan origination fees and costs are deferred and recognized as an adjustment of the yield (interest income) of the related loans.  The Bank is generally amortizing these amounts over the contractual life of the loan.
The loans receivable portfolio is segmented into residential loans, commercial real estate loans, construction loans and consumer loans.  The residential loan segment has two classes: one-to-four family residential owner occupied loans and one-to-four residential family non-owner occupied loans.  The commercial real estate loan segment consists of the following classes: multi-family (five or more) residential, commercial real estate and commercial lines of credit.  Construction loans are generally granted for the purpose of building a single residential home.  Commercial business loans are loans to businesses primarily for purchase of business essential equipment. Business essential equipment is equipment necessary for a business to support or assist with the day-to-day operation or profitability of the business.  The consumer loan segment consists of the following classes: home equity loans and other consumer loans.  Included in the home equity class are home equity loans and home equity lines of credit.  Included in the other consumer are loans secured by saving accounts and auto loans.
The accrual of interest is generally discontinued when principal or interest has become 90 days past due unless the loan is in the process of collection and is either guaranteed or well secured.  When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses.  Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectability of principal.  Generally, a loan is restored to accrual status when the obligation is brought current, it has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
Allowance for Loan Losses.  The allowance for loan losses represents management's estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans receivable. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

 
7

Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are designated as impaired. For loans that are designated as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment.  Residential owner occupied mortgage lending generally entails a lower risk of default than other types of lending. Consumer loans and commercial real estate loans generally involve more risk of collectability because of the type and nature of the collateral and, in certain cases, the absence of collateral. It is the Company's policy to establish a specific reserve for loss on any delinquent loan when it determines that a loss is probable. An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent.  An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company's impaired loans are measured based on the estimated fair value of the loan's collateral.

A loan is identified as a troubled debt restructuring ("TDR") if the Company, for economic or legal reasons related to a debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider. Concessions granted under a TDR typically involve a temporary or permanent reduction in payments or interest rate or an extension of a loan's stated maturity date at less than a current market rate of interest. Loans identified as TDRs are designated as impaired.


 
 
 
8

Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property. The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower's overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for all loans (except one-to-four family residential owner-occupied loans) where the total amount outstanding to any borrower or group of borrowers exceeds $500,000, or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized as special mention have potential weaknesses that deserve management's close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management's comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Loans Held for SaleLoans originated by the Bank's mortgage banking subsidiary, Quaint Oak Mortgage, LLC, are intended for sale in the secondary market and are carried at the lower of cost or fair value (LOCOM). Gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income, and direct loan origination costs, commissions and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.

Federal Home Loan Bank StockFederal law requires a member institution of the Federal Home Loan Bank (FHLB) system to hold restricted stock of its district Federal Home Loan Bank according to a predetermined formula.  FHLB stock is carried at cost and evaluated for impairment. When evaluating FHLB stock for impairment, its value is determined based on the ultimate recoverability of the par value of the stock. We evaluate our holdings of FHLB stock for impairment each reporting period. No impairment charges were recognized on FHLB stock during the three or nine months ended September 30, 2016 and 2015.

Bank Owned Life Insurance (BOLl).  The Company purchases bank owned life insurance as a mechanism for funding various employee benefit costs.  The Company is the beneficiary of these policies that insure the lives of certain officers of its subsidiaries. The Company has recognized the cash surrender value under the insurance policies as an asset in the consolidated balance sheets. Changes in the cash surrender value are recorded in non-interest income in the consolidated statements of income.


 
 
 
 
9

Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
Other Real Estate Owned.  Other real estate owned or foreclosed assets are comprised of property acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure and loans classified as in-substance foreclosures.  A loan is classified as in-substance foreclosure when the Bank has taken possession of the collateral regardless of whether formal foreclosure proceedings take place.  Other real estate properties are initially recorded at fair value, net of estimated selling costs at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value less estimated costs to sell.  Net revenue and expenses from operations and additions to the valuation allowance are included in other expenses.  The Company has one one-to-four family residential non-owner occupied loan and one multi-family loan for which foreclosure proceedings are in process at September 30, 2016.  The total recorded investment is $385,000.
Intangible Assets.  Intangible assets on the consolidated balance sheets are comprised of the acquisition by Quaint Oak Insurance Agency of the renewal rights to the book of business produced and serviced by Signature Insurance Services, LLC on August 1, 2016 at a total cost of $1.0 million. These renewal rights are being amortized over a ten year period based upon the annual retention rate of the book of business.  This amortization is included in non-interest expense.  Also included in intangible assets are mortgage servicing rights recognized as separate assets when mortgage loans are sold and the servicing rights are retained. These capitalized mortgage servicing rights are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing period of the underlying mortgage loans.
Share-Based Compensation.  Compensation expense for share-based compensation awards is based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.
At September 30, 2016, the Company has three share-based plans: the 2008 Recognition and Retention Plan ("RRP"), the 2008 Stock Option Plan, and the 2013 Stock Incentive Plan.  Awards under these plans were made in May 2008 and 2013.  These plans are more fully described in Note 11.
The Company also has an employee stock ownership plan ("ESOP").  This plan is more fully described in Note 11.  As ESOP shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares over the period earned.
Comprehensive Income (Loss).  Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income.  Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the consolidated balance sheet and  along with net income, are components of comprehensive income.
Earnings per Share.  Amounts reported in earnings per share reflect earnings available to common stockholders' for the period divided by the weighted average number of shares of common stock outstanding during the period, exclusive of unearned ESOP shares, unvested restricted stock (RRP) shares and treasury shares.  Stock options and unvested restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would have a dilutive effect if converted to common stock, computed using the "treasury stock" method.
 
 
10

Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
Recent Accounting Pronouncements.  In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  The Company is evaluating the effect of adopting this new accounting Update.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year.  Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.  All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.  The Company is evaluating the effect of adopting this new accounting Update.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the a  mendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

 
11

Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
 
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease id defined as one in which: (a) the lease term is 12 months or less, and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise.  For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity's ordinary activities) in exchange for consideration.  The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.
 
12

Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance.  The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the ASU is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

 
13

 
Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), which addresses eight specific cash flow issues with the objective of reducing diversity in practice.  Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company's statement of cash flows.

Reclassifications.   Certain items in the 2015 consolidated financial statements have been reclassified to conform to the presentation in the 2016 consolidated financial statements. Such reclassifications did not have a material impact on the presentation of the overall financial statements.  The reclassifications had no effect on net income or stockholders' equity.


Note 2 – Stock Split

On August 13, 2015, the Company's Board of Directors declared a two-for-one stock split in the form of a 100% stock dividend effective for shareholders of record on August 24, 2015 that was distributed on September 8, 2015. All per share amounts in this report have been restated to reflect this stock split. An amount equal to the par value of the additional common shares issued pursuant to the stock split was reflected as a transfer from additional paid-in capital to common stock on the consolidated financial statements as of the year ended December 31, 2015.


Note 3 – Earnings Per Share

Earnings per share ("EPS") consists of two separate components, basic EPS and diluted EPS.  Basic EPS is computed based on the weighted average number of shares of common stock outstanding for each period presented.  Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents ("CSEs").  CSEs consist of shares that are assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested restricted stock (RRP) shares. Common stock equivalents which are considered antidilutive are not included for the purposes of this calculation. For the three months and nine months ended September 30, 2016 and 2015, all unvested restricted stock program awards and outstanding stock options representing shares were dilutive.
 
 
 
 
 
 
 
 
 
 
 

14

 
Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 3 – Earnings Per Share (Continued)

The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computations.

   
For the Three Months Ended
September 30,
   
For the Nine Months Ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Net Income
 
$
402,000
   
$
310,000
   
$
1,043,000
   
$
893,000
 
                                 
Weighted average shares outstanding – basic
   
1,792,673
     
1,706,946
     
1,774,343
     
1,714,689
 
Effect of dilutive common stock equivalents
   
157,740
     
181,167
     
161,414
     
162,019
 
Adjusted weighted average shares outstanding – diluted
   
1,950,413
     
1,888,113
     
1,935,757
     
1,876,708
 
                                 
Basic earnings per share
 
$
0.22
   
$
0.18
   
$
0.59
   
$
0.52
 
Diluted earnings per share
 
$
0.21
   
$
0.16
   
$
0.54
   
$
0.48
 


Note 4 – Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months and the nine months ended September 30, 2016 and 2015 (in thousands):

   
Unrealized Gains (Losses) on Investment Securities
Available for Sale (1)
 
   
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Balance at the beginning of the period
 
$
1
   
$
(40
)
 
$
(12
)
 
$
(36
)
Other comprehensive income (loss) before classifications
   
(3
)
   
(10
)
   
10
     
(14
)
Amount reclassified from accumulated other comprehensive income
   
-
     
50
     
-
     
50
 
Total other comprehensive income (loss)
   
(3
)
   
40
     
10
     
36
 
Balance at the end of the period 
 
$
(2
)
 
$
-
   
$
(2
)
 
$
-
 
 _________________                              
(1)
All amounts are net of tax.  Amounts in parentheses indicate debits.

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive loss for the three months and the nine months ended September 30, 2016 and 2015 (in thousands):
 
 
 
 
Amount Reclassified from Accumulated
Other Comprehensive Loss (1)
 
 
 
 
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
Affected Line Item in the 
Details About Other Comprehensive Loss  
2016
   
2015
   
2016
   
2015
  Statement of Income
Unrealized losses on investment securities
    available for sale
 
$
-
   
$
(75
)
 
$
-
   
$
(75
)
 
Loss on sales of investment securities
     
-
     
25
     
-
     
25
 
Income taxes
   
$
-
   
$
(50
)
 
-
   
$
(50
)
Net of tax
____________________                                  
(1)  Amounts in parentheses indicate debits.
 
15

 
Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 5 – Investment in Interest-Earning Time Deposits
The investment in interest-earning time deposits as of September 30, 2016 and December 31, 2015, by contractual maturity, are shown below:
 
   
September 30,
2016
   
December 31,
2015
 
   
(In Thousands)
 
Due in one year or less
 
$
3,107
   
$
3,585
 
Due after one year through five years
   
2,956
     
2,551
 
   
$
6,063
   
$
6,136
 

Note 6 – Investment Securities Available for Sale
The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale at September 30, 2016 and December 31, 2015 are summarized below (in thousands): 
   
September 30, 2016
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
(Losses)
   
Fair Value
 
    Available for Sale:
                       
   Mortgage-backed securities:
                       
      Governmental National Mortgage Association securities
 
$
6,902
   
$
10
   
$
(6
)
 
$
6,906
 
      Federal Home Loan Mortgage Corporation securities
   
1,928
     
2
     
(1
)
   
1,929
 
          Federal National Mortgage Association securities
   
868
     
-
     
(7
)
   
861
 
             Total mortgage-backed securities
   
9,698
     
12
     
(14
)
   
9,696
 
      Federal Home Loan Mortgage Corporation Medium Term Note Step
   
360
     
-
     
(1
)
   
359
 
             Total available-for-sale-securities
 
$
10,058
   
$
12
   
$
(15
)
 
$
10,055
 

   
December 31, 2015
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
   Available for Sale:
                       
  Mortgage-backed securities:
                       
     Governmental National Mortgage Association securities
 
$
2,003
   
$
-
   
$
(13
)
 
$
1,990
 
     Federal Home Loan Mortgage Corporation securities
   
1,020
     
-
     
(5
)
   
1,015
 
Total mortgage-backed securities
 
$
3,023
   
$
-
   
$
(18
)
 
$
3,005
 

 
 
 
16

Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
Note 6 – Investment Securities Available for Sale (Continued)
 
The following tables show the Company's gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2016 and December 31, 2015 (in thousands):
 
 
September 30, 2016
 
         
Less than Twelve Months
   
Twelve Months or Greater
   
Total
 
 
 
Number of
Securities
   
Fair Value
   
Gross
Unrealized
Losses
   
Fair Value
   
Gross
Unrealized
Losses
   
Fair Value
   
Gross
Unrealized
Losses
 
                             
Governmental National Mortgage Association securities
   
5
   
$
3,946
   
$
(6
)
 
$
-
   
$
-
   
$
3,946
   
$
(6
)
Federal Home Loan Mortgage Corporation securities
   
1
     
984
     
(1
)
   
-
     
-
     
984
     
(1
)
                                                         
Federal National Mortgage Association securities
   
1
     
861
     
(7
)
   
-
     
-
     
861
     
(7
)
Federal Home Loan Mortgage Corporation Medium Term Note Step
   
1
     
359
     
(1
)
   
-
     
-
     
359
     
(1
)
     
8
   
$
6,150
   
$
(15
)
 
$
-
   
$
-
   
$
6,150
   
$
(15
)
                                                         
 
 
December 31, 2015
 
         
Less than Twelve Months
   
Twelve Months or Greater
   
Total
 
 
 
Number of
Securities
   
Fair Value
   
Gross
Unrealized
Losses
   
Fair Value
   
Gross
Unrealized
Losses
   
Fair Value
   
Gross
Unrealized
Losses
 
                             
Governmental National Mortgage
  Association mortgage-backed 
  securities
   
2
   
$
1,990
   
$
(13
)
 
$
-
   
$
-
   
$
1,990
   
$
(13
)
Federal Home Loan Mortgage
  Corporation mortgage-backed
  security 
 
1
     
1,015
     
(5
)
   
-
     
-
     
1,015
     
(5
)
       Total
   
3
   
$
3,005
   
$
(18
)
 
$
-
   
$
-
   
$
3,005
   
$
(18
)

At September 30, 2016, there were eight securities in an unrealized loss position that at such date had an aggregate depreciation of 0.24% from the Company's amortized cost basis. Management believes that the estimated fair value of the securities disclosed above is primarily dependent on the movement of market interest rates.  Management evaluated the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer.  The Company has the ability and intent to hold the securities until the anticipated recovery of fair value occurs. Management does not believe any individual unrealized loss as of September 30, 2016 represents an other-than-temporary impairment. There were no impairment charges recognized during the three and nine months ended September 30, 2016 or 2015.

In September 2015 the Company sold its investment securities available for sale portfolio consisting of two bond funds totaling $1.7 million and realized gross losses of $75,000 on the transaction.  There were no realized gross gains on the transaction.


 
 
 
 
 
 
 
 
 
17

 
Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
Note 7 - Loans Receivable, Net and Allowance for Loan Losses

The composition of net loans receivable is as follows:
     
September 30,
2016
   
December 31,
2015
 
   
(In Thousands)
 
 
Real estate loans:
           
 
One-to-four family residential:
           
 
Owner occupied
 
$
5,710
   
$
5,777
 
 
Non-owner occupied
   
53,191
     
51,036
 
 
Total one-to-four family residential
   
58,901
     
56,813
 
                   
 
Multi-family (five or more) residential
   
12,252
     
12,402
 
 
Commercial real estate
   
63,869
     
47,550
 
 
Commercial lines of credit
   
2,201
     
2,215
 
 
Construction
   
15,889
     
16,100
 
 
Home equity loans
   
4,886
     
7,409
 
 
Total real estate loans
   
157,998
     
142,489
 
                   
 
Commercial business
   
5,716
     
2,576
 
 
Other consumer
   
28
     
71
 
 
Total Loans
   
163,742
     
145,136
 
                   
 
Deferred loan fees and costs
   
(630
)
   
(518
)
 
Allowance for loan losses
   
(1,485
)
   
(1,313
)
                   
 
Net Loans
 
$
161,627
   
$
143,305
 

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of September 30, 2016 and December 31, 2015  (in thousands): 

   
September 30, 2016
 
   
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
       
One-to-four family residential owner occupied
 
$
5,710
   
$
-
   
$
-
   
$
-
   
$
5,710
 
One-to-four family residential non-owner occupied
   
52,072
     
106
     
1,013
     
-
     
53,191
 
Multi-family residential
   
12,252
     
-
     
-
     
-
     
12,252
 
Commercial real estate and lines of credit
   
64,630
     
117
     
1,323
     
-
     
66,070
 
Construction
   
14,015
     
-
     
1,874
     
-
     
15,889
 
Home equity
   
4,886
     
-
     
-
     
-
     
4,886
 
Commercial business
   
5,716
     
-
     
-
     
-
     
5,716
 
Other consumer
   
28
     
-
     
-
     
-
     
28
 
   
$
159,309
   
$
223
   
$
4,210
   
$
-
   
$
163,742
 

 
 
 
 
 
18

 
Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

   
December 31, 2015
 
   
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
       
One-to-four family residential owner occupied
 
$
5,777
   
$
-
   
$
-
   
$
-
   
$
5,777
 
One-to-four family residential non-owner occupied
   
49,457
     
331
     
1,248
     
-
     
51,036
 
Multi-family residential
   
12,402
     
-
     
-
     
-
     
12,402
 
Commercial real estate and lines of credit
   
48,185
     
262
     
1,318
     
-
     
49,765
 
Construction
   
14,621
     
-
     
1,479
     
-
     
16,100
 
Home equity
   
7,409
     
-
     
-
     
-
     
7,409
 
Commercial business
   
2,576
     
-
     
-
     
-
     
2,576
 
Other consumer
   
71
     
-
     
-
     
-
     
71
 
   
$
140,498
   
$
593
   
$
4,045
   
$
-
   
$
145,136
 


The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of September 30, 2016 as well as the average recorded investment and related interest income for the period then ended (in thousands):

   
September 30, 2016
 
   
Recorded
Investment
   
Unpaid
Principal
Balance
   
Related
Allowance
   
Average
Recorded
Investment
   
Interest
Income
Recognized
 
                               
With no related allowance recorded:                              
One-to-four family residential owner occupied
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
One-to-four family residential non-owner occupied
   
1,110
     
1,122
     
-
     
1,183
     
21
 
Multi-family residential
   
-
     
-
     
-
     
-
     
-
 
Commercial real estate and lines of credit
   
262
     
262
     
-
     
262
     
-
 
Construction
   
-
     
-
     
-
     
-
     
-
 
Home equity
   
50
     
50
     
-
     
83
     
5
 
    Commercial business
   
-
     
-
     
-
     
-
     
-
 
    Other consumer
   
-
     
-
     
-
     
-
     
-
 
                                         
With an allowance recorded:
                                       
One-to-four family residential owner occupied
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
One-to-four family residential non-owner occupied
   
96
     
96
     
30
     
197
     
12
 
Multi-family residential
   
-
     
-
     
-
     
-
     
-
 
Commercial real estate and lines of credit
   
133
     
133
     
11
     
133
     
7
 
Construction
   
-
     
-
     
-
     
-
     
-
 
Home equity
   
-
     
-
     
-
     
-
     
-
 
    Commercial business
   
-
     
-
     
-
     
-
     
-
 
    Other consumer
   
-
     
-
     
-
     
-
     
-
 
                                         
Total:
                                       
One-to-four family residential owner occupied
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
One-to-four family residential non-owner occupied
   
1,206
     
1,218
     
30
     
1,380
     
33
 
Multi-family residential
   
-
     
-
     
-
     
-
     
-
 
Commercial real estate and lines of credit
   
395
     
395
     
11
     
395
     
7
 
Construction
   
-
     
-
     
-
     
-
     
-
 
Home equity
   
50
     
50
     
-
     
83
     
5
 
    Commercial business
   
-
     
-
     
-
     
-
     
-
 
    Other consumer
   
-
     
-
     
-
     
-
     
-
 
    Total
 
$
1,651
   
$
1,663
   
$
41
   
$
1,858
   
$
45
 
 
 
19

Quaint Oak Bancorp, Inc.
 
Notes to Unaudited Consolidated Financial Statements
 
 
Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2015 as well as the average recorded investment and related interest income for the year then ended (in thousands):

   
December 31, 2015
 
   
Recorded
Investment
   
Unpaid
Principal
Balance
   
Related
Allowance
   
Average
Recorded
Investment
   
Interest
Income
Recognized
 
                               
With no related allowance recorded:
                             
One-to-four family residential owner occupied
 
$
-
   
$
-
   
$
-
   
$
828
   
$
15
 
One-to-four family residential non-owner occupied
   
653
     
659
     
-
     
1,464
     
62
 
Multi-family residential
   
-
     
-
     
-
     
66
     
5
 
Commercial real estate and lines of credit
   
-
     
-
     
-
     
1,085
     
77
 
Construction
   
-
     
-
     
-
     
-
     
-
 
Home equity
   
84
     
84
     
-
     
87
     
7
 
    Commercial business
   
-
     
-
     
-
     
-
     
-
 
    Other consumer
   
-
     
-
     
-
     
-
     
-
 
                                         
With an allowance recorded:
                                       
One-to-four family residential owner occupied
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
One-to-four family residential non-owner occupied
   
321
     
321
     
33
     
556
     
22
 
Multi-family residential
   
-
     
-
     
-
     
-
     
-
 
Commercial real estate and lines of credit
   
133
     
133
     
7
     
332
     
9
 
Construction
   
-
     
-
     
-
     
-
     
-
 
Home equity
   
-
     
-
     
-
     
45
     
4
 
    Commercial business
   
-
     
-
     
-