Attached files
file | filename |
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EX-32.0 - EXHIBIT 32.0 - QUAINT OAK BANCORP INC | exh320.htm |
EX-31.2 - EXHIBIT 31.2 - QUAINT OAK BANCORP INC | exh312.htm |
EX-31.1 - EXHIBIT 31.1 - QUAINT OAK BANCORP INC | exh311.htm |
UNITED STATES
|
SECURITIES AND EXCHANGE COMMISSION
|
Washington, D.C. 20549
|
_______________________________ |
FORM 10-Q/A
|
(Amendment No. 1) |
(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, 2018
|
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)
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(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 every Interactive Data File required to be submitted
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 such
files).
[X] Yes [ ] No
|
|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller
reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
|
[ ]
|
Accelerated filer
|
[ ]
|
|
Non-accelerated filer
|
[ ]
|
Emerging growth company
|
[ ]
|
|
Smaller reporting company
|
[X] | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act. [ ]
|
||||
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, 2018, 1,986,410 shares of the Registrant's common stock were issued and outstanding.
|
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A (the "Amendment") of Quaint Oak Bancorp, Inc. (the "Company") amends the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2018, originally filed with the Securities and Exchange Commission on November 13, 2018 (the “Original Report”). This Amendment is being filed solely to correct a typographical error in the Consolidated
Balance Sheets included in the Original Report with respect to the amount of loans receivable, net of allowance for loan losses at September 30, 2018 and December 31, 2017. The amounts were inadvertently omitted in the Original Report due to printer
error.
As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, Item 1 of Part I of the Original Report is hereby
amended and restated in its entirety. In addition, the Exhibit Index in Item 6 of Part II of the Original Report is hereby amended to include currently dated certificates of the Company's principal executive officer and principal financial officer
as exhibits to this Amendment No. 1. Because this Amendment includes financial statements, the certifications required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are included.
This Amendment No. 1 speaks as of the original filing date of the Original Report, does not reflect events that may have occurred
subsequent to the original filing date, and does not modify or update in any way disclosures made in the Original Report. Except as described above, no other changes have been made to the Original Report. Accordingly, this Amendment No. 1 should be
read in conjunction with the Company's filings with the Securities and Exchange Commission subsequent to the date of the Original Report.
INDEX
PART I - FINANCIAL INFORMATION
|
Page
|
Item 1 - Financial Statements
|
|
Consolidated Balance Sheets as of September 30,
2018 and December 31, 2018 (Unaudited)
|
1 |
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2018 and 2018 (Unaudited)
|
2
|
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and
2017 (Unaudited)
|
3
|
Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2018 (Unaudited)
|
4
|
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (Unaudited)
|
5
|
Notes to Unaudited Consolidated Financial Statements
|
6
|
PART II - OTHER INFORMATION
|
|
Item 6 - Exhibits
|
36
|
SIGNATURES
|
ITEM 1. FINANCIAL STATEMENTS
|
|
Quaint Oak Bancorp, Inc. |
Consolidated Balance Sheets (Unaudited)
|
At September 30,
|
At December 31,
|
|||||||||
2018
|
2017
|
|||||||||
(In thousands, except share data)
|
||||||||||
Assets
|
||||||||||
Due from banks, non-interest-bearing
|
$
|
468
|
$
|
64
|
||||||
Due from banks, interest-bearing
|
13,092
|
7,846
|
||||||||
Cash and cash equivalents
|
13,560
|
7,910
|
||||||||
Investment in interest-earning time deposits
|
4,927
|
4,879
|
||||||||
Investment securities available for sale
|
6,950
|
7,912
|
||||||||
Loans held for sale
|
7,433
|
7,006
|
||||||||
Loans receivable, net of allowance for loan losses
(2018 $1,898; 2017 $1,812)
|
213,960 |
201,667 |
||||||||
Accrued interest receivable
|
1,117
|
1,021
|
||||||||
Investment in Federal Home Loan Bank stock, at cost
|
1,086
|
1,234
|
||||||||
Bank-owned life insurance
|
3,874
|
3,814
|
||||||||
Premises and equipment, net
|
2,097
|
1,988
|
||||||||
Goodwill
|
515
|
515
|
||||||||
Other intangible, net of accumulated amortization
|
380
|
416
|
||||||||
Other real estate owned, net
|
1,600
|
-
|
||||||||
Prepaid expenses and other assets
|
1,436
|
1,234
|
||||||||
Total Assets
|
$
|
258,955
|
$
|
239,596
|
||||||
Liabilities and Stockholders' Equity
|
||||||||||
Liabilities
|
||||||||||
Deposits:
|
||||||||||
Non-interest bearing
|
$
|
15,624
|
$
|
7,956
|
||||||
Interest-bearing
|
193,375
|
178,265
|
||||||||
Total deposits
|
208,999
|
186,221
|
||||||||
Federal Home Loan Bank short-term borrowings
|
9,000
|
10,000
|
||||||||
Federal Home Loan Bank long-term borrowings
|
15,000
|
18,000
|
||||||||
Accrued interest payable
|
183
|
167
|
||||||||
Advances from borrowers for taxes and insurance
|
1,811
|
2,423
|
||||||||
Accrued expenses and other liabilities
|
412
|
600
|
||||||||
Total Liabilities
|
235,405
|
217,411
|
||||||||
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; 1,991,623 and
1,920,024 outstanding at September 30, 2018
and December 31, 2017, respectively
|
28
|
28
|
||||||||
Additional paid-in capital
|
14,604
|
14,481
|
||||||||
Treasury stock, at cost: 2018 785,627 shares; 2017
857,226 shares
|
(4,621
|
)
|
(4,675
|
)
|
||||||
Unallocated common stock held by:
|
||||||||||
Employee Stock Ownership Plan (ESOP)
|
(202
|
)
|
(253
|
)
|
||||||
Recognition & Retention Plan Trust (RRP)
|
-
|
(24
|
)
|
|||||||
Accumulated other comprehensive loss
|
(11
|
)
|
(15
|
)
|
||||||
Retained earnings
|
13,752
|
12,643
|
||||||||
Total Stockholders' Equity
|
23,550
|
22,185
|
||||||||
Total Liabilities and Stockholders' Equity
|
$
|
258,955
|
$
|
239,596
|
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,
|
|||||||||||||||
2018
|
2017
|
2018
|
2017
|
|||||||||||||
(In thousands, except share data)
|
||||||||||||||||
Interest Income
|
||||||||||||||||
Interest and fees on loans
|
$
|
2,932
|
$
|
2,577
|
$
|
8,490
|
$
|
7,530
|
||||||||
Interest and dividends on investment securities and interest-bearing deposits with others
|
181
|
96
|
457
|
262
|
||||||||||||
Total Interest Income
|
3,113
|
2,673
|
8,947
|
7,792
|
||||||||||||
Interest Expense
|
||||||||||||||||
Interest on deposits
|
856
|
685
|
2,384
|
1,987
|
||||||||||||
Interest on Federal Home Loan Bank short-term borrowings
|
57
|
32
|
142
|
68
|
||||||||||||
Interest on Federal Home Loan Bank long-term borrowings
|
88
|
68
|
270
|
139
|
||||||||||||
Total Interest Expense
|
1,001
|
785
|
2,796
|
2,194
|
||||||||||||
Net Interest Income
|
2,112
|
1,888
|
6,151
|
5,598
|
||||||||||||
Provision for Loan Losses
|
183
|
83
|
348
|
189
|
||||||||||||
Net Interest Income after Provision for Loan Losses
|
1,929
|
1,805
|
5,803
|
5,409
|
||||||||||||
Non-Interest Income
|
||||||||||||||||
Mortgage banking and title abstract fees
|
273
|
229
|
600
|
487
|
||||||||||||
Other fees and services charges
|
32
|
5
|
150
|
49
|
||||||||||||
Insurance commissions
|
101
|
90
|
283
|
256
|
||||||||||||
Income from bank-owned life insurance
|
19
|
21
|
60
|
65
|
||||||||||||
Net gain on loans held for sale
|
673
|
687
|
1,579
|
1,511
|
||||||||||||
Gain on sale of SBA loans
|
82
|
32
|
105
|
48
|
||||||||||||
Gain (loss) on sales and write-downs of other
real estate owned
|
-
|
-
|
63
|
(63
|
)
|
|||||||||||
Other
|
41
|
32
|
143
|
61
|
||||||||||||
Total Non-Interest Income
|
1,221
|
1,096
|
2,983
|
2,414
|
||||||||||||
Non-Interest Expense
|
||||||||||||||||
Salaries and employee benefits
|
1,569
|
1,324
|
4,858
|
3,994
|
||||||||||||
Directors' fees and expenses
|
54
|
52
|
148
|
154
|
||||||||||||
Occupancy and equipment
|
150
|
137
|
446
|
427
|
||||||||||||
Data processing
|
108
|
86
|
287
|
219
|
||||||||||||
Professional fees
|
108
|
105
|
291
|
289
|
||||||||||||
FDIC deposit insurance assessment
|
47
|
44
|
140
|
131
|
||||||||||||
Other real estate owned expense
|
8
|
4
|
10
|
12
|
||||||||||||
Advertising
|
53
|
39
|
161
|
117
|
||||||||||||
Amortization of other intangible
|
12
|
13
|
36
|
37
|
||||||||||||
Other
|
166
|
144
|
486
|
447
|
||||||||||||
Total Non-Interest Expense
|
2,275
|
1,948
|
6,863
|
5,827
|
||||||||||||
Income before Income Taxes
|
875
|
953
|
1,923
|
1,996
|
||||||||||||
Income Taxes
|
217
|
358
|
442
|
706
|
||||||||||||
Net Income
|
$
|
658
|
$
|
595
|
$
|
1,481
|
$
|
1,290
|
||||||||
Earnings per share - basic
|
$
|
0.34
|
$
|
0.32
|
$
|
0.77
|
$
|
0.69
|
||||||||
Average shares outstanding - basic
|
1,945,553
|
1,868,969
|
1,916,817
|
1,857,682
|
||||||||||||
Earnings per share - diluted
|
$
|
0.33
|
$
|
0.30
|
$
|
0.75
|
$
|
0.65
|
||||||||
Average shares outstanding - diluted
|
2,016,537
|
2,007,819
|
1,978,517
|
1,998,138
|
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,
|
|||||||||||||||
2018
|
2017
|
2018
|
2017
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Net Income
|
$
|
658
|
$
|
595
|
$
|
1,481
|
$
|
1,290
|
||||||||
Other Comprehensive Income (Loss):
|
||||||||||||||||
Unrealized gains (losses) on investment securities available-for-sale
|
(9
|
)
|
11
|
5
|
56
|
|||||||||||
Income tax effect
|
2
|
(4
|
)
|
(1
|
)
|
(19
|
)
|
|||||||||
Other comprehensive income (loss)
|
(7
|
)
|
7
|
4
|
37
|
|||||||||||
Total Comprehensive Income
|
$
|
651
|
$
|
602
|
$
|
1,485
|
$
|
1,327
|
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, 2018
|
||||||||||||||||||||||||||||||||
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 | Loss | Earnings | Equity | |||||||||||||||||||||||||
(In thousands, except share data)
|
||||||||||||||||||||||||||||||||
BALANCE –DECEMBER 31, 2017
|
1,920,024
|
$
|
28
|
$
|
14,481
|
$
|
(4,675
|
)
|
$
|
(277
|
)
|
$
|
(15
|
)
|
$
|
12,643
|
$
|
22,185
|
||||||||||||||
Common stock allocated by
ESOP (10,821 shares)
|
94
|
51
|
145
|
|||||||||||||||||||||||||||||
Treasury stock purchase
|
(44,311
|
)
|
(588
|
)
|
2
|
(586
|
)
|
|||||||||||||||||||||||||
Reissuance of treasury stock
under 401(k) Plan
|
4,069
|
31
|
23
|
54
|
||||||||||||||||||||||||||||
Reissuance of treasury stock
under stock incentive plan
|
4,997
|
(28
|
)
|
28
|
-
|
|||||||||||||||||||||||||||
Reissuance of treasury stock
for exercised stock options
|
106,844
|
(57
|
)
|
591
|
534
|
|||||||||||||||||||||||||||
Stock based compensation expense
|
105
|
105
|
||||||||||||||||||||||||||||||
Release of 4,664 vested RRP shares
|
(22
|
)
|
22
|
-
|
||||||||||||||||||||||||||||
Cash dividends declared ($0.19 per share)
|
(372
|
)
|
(372
|
)
|
||||||||||||||||||||||||||||
Net income
|
1,481
|
1,481
|
||||||||||||||||||||||||||||||
Other comprehensive income, net
|
4
|
4
|
||||||||||||||||||||||||||||||
BALANCE –SEPTEMBER 30, 2018
|
1,991,623
|
$
|
28
|
$
|
14,604
|
$
|
(4,621
|
)
|
$
|
(202
|
)
|
$
|
(11
|
)
|
$
|
13,752
|
$
|
23,550
|
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,
|
||||||||
2018
|
2017
|
|||||||
(In Thousands)
|
||||||||
Cash Flows from Operating Activities
|
||||||||
Net income
|
$
|
1,481
|
$
|
1,290
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Provision for loan losses
|
348
|
189
|
||||||
Depreciation expense
|
153
|
121
|
||||||
Amortization of intangibles
|
36
|
37
|
||||||
Net amortization of securities premiums
|
15
|
15
|
||||||
Accretion of deferred loan fees and costs, net
|
(269
|
)
|
(253
|
)
|
||||
Stock-based compensation expense
|
250
|
235
|
||||||
Net gain on loans held for sale
|
(1,579
|
)
|
(1,511
|
)
|
||||
Loans held for sale-originations
|
(80,537
|
)
|
(62,106
|
)
|
||||
Loans held for sale-proceeds
|
81,689
|
61,856
|
||||||
Gain on the sale of SBA loans
|
(105
|
)
|
(48
|
)
|
||||
Net (gain) loss on sale and write-downs of other real estate owned
|
(63
|
)
|
63
|
|||||
Increase in the cash surrender value of bank-owned life insurance
|
(60
|
)
|
(65
|
)
|
||||
Changes in assets and liabilities which provided (used) cash:
|
||||||||
Accrued interest receivable
|
(96
|
)
|
(63
|
)
|
||||
Prepaid expenses and other assets
|
(203
|
)
|
(243
|
)
|
||||
Accrued interest payable
|
16
|
5
|
||||||
Accrued expenses and other liabilities
|
(188
|
)
|
(152
|
)
|
||||
Net Cash Provided by (Used in) Operating Activities
|
888
|
(630
|
)
|
|||||
Cash Flows from Investing Activities
|
||||||||
Purchase of interest-earning time deposits
|
(809
|
)
|
(1,630
|
)
|
||||
Redemption of interest-earning time deposits
|
761
|
2,849
|
||||||
Principal repayments of investment securities available for sale
|
952
|
1,162
|
||||||
Net increase in loans receivable
|
(13,828
|
)
|
(16,852
|
)
|
||||
Redemption (purchase) of Federal Home Loan Bank stock
|
148
|
(421
|
)
|
|||||
Proceeds from the sale of other real estate owned
|
63
|
210
|
||||||
Capitalized expenditures on other real estate owned
|
(59
|
)
|
(23
|
)
|
||||
Purchase of premises and equipment
|
(262
|
)
|
(364
|
)
|
||||
Net Cash Used in Investing Activities
|
(13,034
|
)
|
(15,069
|
)
|
||||
Cash Flows from Financing Activities
|
||||||||
Net increase in demand deposits, money markets, and savings accounts
|
5,878
|
43
|
||||||
Net increase in certificate accounts
|
16,900
|
5,348
|
||||||
Decrease in advances from borrowers for taxes and insurance
|
(612
|
)
|
(429
|
)
|
||||
Net (repayments) proceeds from Federal Home Loan Bank short-term borrowings
|
(1,000
|
)
|
4,500
|
|||||
Proceeds from Federal Home Loan Bank long-term borrowings
|
-
|
8,000
|
||||||
Repayment of Federal Home Loan Bank long-term borrowings
|
(3,000
|
)
|
(2,500
|
)
|
||||
Dividends paid
|
(372
|
)
|
(269
|
)
|
||||
Purchase of treasury stock
|
(586
|
)
|
(341
|
)
|
||||
Proceeds from the reissuance of treasury stock
|
54
|
83
|
||||||
Proceeds from the exercise of stock options
|
534
|
193
|
||||||
Net Cash Provided by Financing Activities
|
17,796
|
14,628
|
||||||
Net Increase (Decrease) in Cash and Cash Equivalents
|
5,650
|
(1,071
|
)
|
|||||
Cash and Cash Equivalents – Beginning of Year
|
7,910
|
9,300
|
||||||
Cash and Cash Equivalents – End of Year
|
$
|
13,560
|
$
|
8,229
|
||||
Cash payments for interest
|
$
|
2,780
|
$
|
2,189
|
||||
Cash payments for income taxes
|
$
|
321
|
$
|
789
|
||||
Transfer of loans to other real estate owned
|
$
|
1,541
|
$
|
-
|
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., a Pennsylvania chartered corporation (the "Company" or "Quaint Oak Bancorp") and its wholly owned subsidiary, Quaint Oak Bank, a Pennsylvania chartered stock savings bank, along with its wholly owned subsidiaries. At
September 30, 2018, the Bank has five wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, and Quaint Oak Insurance Agency, 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, in the Lehigh Valley region of Pennsylvania, 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. Quaint Oak Insurance Agency, LLC began operations in August 2016 and 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 is principally Bucks County, Pennsylvania and to a lesser extent, Montgomery and Philadelphia Counties in Pennsylvania. The Bank has two locations: the main office location in Southampton, Pennsylvania and a
regional banking office in the Lehigh Valley area of Pennsylvania. The principal deposit products offered by the Bank are certificates of deposit, money market accounts, non-interest bearing checking accounts for businesses and consumers, and
savings accounts. The principal loan products offered by the Bank are fixed and adjustable rate residential and commercial mortgages, construction loans, commercial business loans, home equity 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, 2017 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 2017 Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2018 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2018.
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 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 for working capital, purchase of a business, tenant improvements, receivables, purchase of inventory, and for the 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.
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.
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.
8
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
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 Sale. Loans 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. To a lesser extent, the Bank originates equipment loans for sale primarily to other financial institutions.
Federal Home Loan Bank Stock. Federal 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, 2018 and 2017.
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.
Intangible
Assets. Intangible assets on the consolidated balance sheets represent 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. Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed an other
intangible asset. The renewal rights are being amortized over a ten year period based upon the annual retention rate of the book of business.
9
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 1 – Financial Statement Presentation and Significant
Accounting Policies (Continued)
The Company will complete a goodwill and other intangible asset analysis at least on an annual basis or more often
if events and circumstances indicate that there may be impairment.
Other Real Estate Owned, Net. 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 had two one-to-four family residential properties for which foreclosure proceedings are in process at September 30, 2018. The total investment in these two
properties is $182,000.
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, 2018, the Company has outstanding equity awards under two share-based plans:
the 2013 Stock Incentive Plan and the 2018 Stock Incentive Plan. Awards under these plans were made in May 2013 and 2018. These plans are more fully described in Note 10.
The Company also has an employee stock ownership plan ("ESOP"). This plan is more fully
described in Note 10. 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. 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 undeserved
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.
Revenue from Contracts with Customers. The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" ("Topic 606"). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price,
allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that
results from performance obligations satisfied in previous periods.
10
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
The Company's primary sources of revenue are derived from interest and dividends earned on
loans and investment securities, gains on the sale of loans, income from bank-owned life insurance, and other financial instruments that are not within the scope of Topic 606. The main types of non-interest income within the scope of the
standard are as follows:
Service Charges on Deposits:
The Bank has contracts with its commercial checking deposit customers where fees are charged if the account balance falls below predetermined levels defined as compensating balances. These agreements can be cancelled at any time by either the
Bank or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Bank has an unconditional right to the fee consideration. The Bank also has transaction fees related to specific transactions or activities
resulting from customer request or activity that include overdraft fees, wire fees, and other transaction fees. All of these fees are attributable to specific performance obligations of the Bank where the revenue is recognized at a defined point
in time, completion of the requested service/transaction.
Insurance Commissions: Insurance income generally consist of commissions from the sale of insurance policies and performance-based commissions from insurance companies. The Bank
recognizes commission income from the sale of insurance policies when it acts as an agent between the insurance carrier and policyholder, arranging for the insurance carrier to provide policies to policyholders, and acts on behalf of the
insurance carrier by providing customer service to the policyholder during the policy period. Commission income is recognized over time, using the output method of time elapsed, which corresponds with the underlying insurance policy period, for
which the Bank is obligated to perform under contract with the insurance carrier. Commission income is variable, as it is comprised of a certain percentage of the underlying policy premium. The Bank estimates the variable consideration based upon
the "most likely amount" method, and does not expect or anticipate a significant reversal of revenue in future periods, based upon historical experience. Payment is due from the insurance carrier for commission income once the insurance policy
has been sold. The Bank has elected to apply a practical expedient related to capitalizable costs, which are the commissions paid to insurance producers, and will expense these commissions paid to insurance producers as incurred, as these costs
are related to the commission income and would have been amortized within one year or less if they had been capitalized, the same period over which the commission income was earned. Performance-based commissions from insurance companies are
recognized at a point in time, when received, and no contingencies remain.
Recent Accounting
Pronouncements. 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 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 (g) 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.
11
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
The Bank has adopted this standard effective January 1, 2018. On a prospective basis, the Bank implemented changes to the measurement
of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 11 to the financial statements. The Bank estimated the fair value based on guidance from ASC 820-10, Fair Value Measurements, which
defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is no active observable market for sale information on
community bank loans and, thus, Level III fair value procedures were utilized, primarily in the use of present value techniques incorporating assumptions that market participants would use in estimating fair values. In the absence of reliable
market information, the Bank used its own assumptions in an effort to determine a reasonable estimate of fair value.
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 is 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. 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 assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant
impact to the financial statements. Based on the Company's preliminary analysis of its current portfolio, the impact to the Company's balance sheet is estimated to result in less than a 1% increase in assets and liabilities. The Company also
anticipates additional disclosures to be provided at adoption.
In September 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update 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 Update 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. We expect to recognize a one-time cumulative
effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new
guidance on the consolidated financial statements.
12
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
In January 2017, the FASB issued ASU 2017-04, Simplifying
the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform
procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired
and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.
An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A
public business entity that is a U.S. Securities and Exchange Commission ("SEC") filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. This
Update is not expected to have a significant impact on the Company's financial statements.
In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in
this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for
securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. 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 should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to
retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in
accounting principle. This Update is not expected to have a significant impact on the Company's financial statements.
In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842),
which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840. An entity that elects
this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption
of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02.
This Update is not expected to have a significant impact on the Company's financial statements
In July 2018, the FASB issued ASU 2018-09, Codification
Improvements, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing
clarifications. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance of this ASU. However, many of the
amendments in this ASU do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. This Update is not expected to have a significant impact on the Company's financial
statements.
13
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
In July 2018, the FASB issued ASU 2018-10, Codification
Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for
which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not
adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. This Update is not expected to have a significant impact on the Company's financial statements.
In July 2018, the FASB issued ASU 2018-11, Leases (Topic
842): Targeted Improvements. This Update provides another transition method which allows entities to initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in
the period of adoption. Entities that elect this approach should report comparative periods in accordance with ASC 840, Leases. In addition, this Update provides a practical expedient under which lessors may elect, by class of underlying assets,
to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise
would be accounted for under the new revenue guidance and both (a) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (b) the lease component, if accounted for separately, would be
classified as an operating lease. If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with ASC 606,
Revenue from Contracts with Customers. Otherwise, the entity should account for the combined component as an operating lease in accordance with ASC 842. If a lessor elects the practical expedient, certain disclosures are required. This Update is
effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years
beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company's financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value
Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the
fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other
comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This
Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company's financial statements.
Reclassifications. Certain items in the 2017 consolidated financial statements have been reclassified to conform to the presentation in the 2018 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.
14
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 2 – 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 and nine months ended September 30, 2018 and 2017, all unvested restricted stock program awards and outstanding stock options representing shares were dilutive.
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,
|
|||||||||||||||
2018
|
2017
|
2018
|
2017
|
|||||||||||||
Net Income
|
$
|
658,000
|
$
|
595,000
|
$
|
1,481,000
|
$
|
1,290,000
|
||||||||
Weighted average shares outstanding – basic
|
1,945,553
|
1,868,969
|
1,916,817
|
1,857,682
|
||||||||||||
Effect of dilutive common stock equivalents
|
70,984
|
138,850
|
61,700
|
140,456
|
||||||||||||
Adjusted weighted average shares outstanding – diluted
|
2,016,537
|
2,007,819
|
1,978,517
|
1,998,138
|
||||||||||||
Basic earnings per share
|
$
|
0.34
|
$
|
0.32
|
$
|
0.77
|
$
|
0.69
|
||||||||
Diluted earnings per share
|
$
|
0.33
|
$
|
0.30
|
$
|
0.75
|
$
|
0.65
|
Note 3 – 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 and nine months ended
September 30, 2018 and 2017 (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,
|
|||||||||||||||
2018
|
2017
|
2018
|
2017
|
|||||||||||||
Balance at the beginning of the period
|
$
|
(4
|
)
|
$
|
(8
|
)
|
$
|
(15
|
)
|
$
|
(38
|
)
|
||||
Other comprehensive income (loss) before classifications
|
(7
|
)
|
7
|
4
|
37
|
|||||||||||
Amount reclassified from accumulated other comprehensive income (loss)
|
-
|
-
|
-
|
-
|
||||||||||||
Total other comprehensive income (loss)
|
(7
|
)
|
7
|
4
|
37
|
|||||||||||
Balance at the end of the period
|
$
|
(11
|
)
|
$
|
(1
|
)
|
$
|
(11
|
)
|
$
|
(1
|
)
|
_______________
(1) All amounts are net of tax. Amounts in
parentheses indicate debits.
15
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 4 – Investment in Interest-Earning Time Deposits
The investment in interest-earning time deposits as of September 30, 2018 and December 31, 2017, by contractual maturity, are shown below (in thousands):
September 30,
2018
|
December 31,
2017
|
|||||||
Due in one year or less
|
$
|
1,604
|
$
|
761
|
||||
Due after one year through five years
|
3,323
|
4,118
|
||||||
Total
|
$
|
4,927
|
$
|
4,879
|
Note 5 – 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, 2018 and
December 31, 2017 are summarized below (in thousands):
September 30, 2018
|
||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
(Losses)
|
Fair Value
|
|||||||||||||
Available for Sale:
|
||||||||||||||||
Mortgage-backed securities:
|
||||||||||||||||
Governmental National Mortgage Association securities
|
$
|
5,002
|
$
|
29
|
$
|
(1
|
)
|
$
|
5,030
|
|||||||
Federal Home Loan Mortgage Corporation securities
|
1,208
|
-
|
(36
|
)
|
1,172
|
|||||||||||
Federal National Mortgage Association securities
|
394
|
-
|
(1
|
)
|
393
|
|||||||||||
Total mortgage-backed securities
|
6,604
|
29
|
(38
|
)
|
6,595
|
|||||||||||
Debt securities:
|
||||||||||||||||
U.S. government agency
|
360
|
-
|
(5
|
)
|
355
|
|||||||||||
Total available-for-sale-securities
|
$
|
6,964
|
$
|
29
|
$
|
(43
|
)
|
$
|
6,950
|
December 31, 2017
|
||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
(Losses)
|
Fair Value
|
|||||||||||||
Available for Sale:
|
||||||||||||||||
Mortgage-backed securities:
|
||||||||||||||||
Governmental National Mortgage Association securities
|
$
|
5,624
|
$
|
19
|
$
|
-
|
$
|
5,643
|
||||||||
Federal Home Loan Mortgage Corporation securities
|
1,377
|
-
|
(35
|
)
|
1,342
|
|||||||||||
Federal National Mortgage Association securities
|
570
|
-
|
-
|
570
|
||||||||||||
Total mortgage-backed securities
|
7,571
|
19
|
(35
|
)
|
7,555
|
|||||||||||
Debt securities:
|
||||||||||||||||
U.S. government agency
|
360
|
-
|
(3
|
)
|
357
|
|||||||||||
Total available-for-sale-securities
|
$
|
7,931
|
$
|
19
|
$
|
(38
|
)
|
$
|
7,912
|
The amortized cost and fair value of debt securities at September 30, 2018, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):
Available for Sale
|
||||||||
Amortized Cost
|
Fair Value
|
|||||||
Debt securities
|
||||||||
Due after one year through five years
|
$
|
360
|
$
|
355
|
||||
Due after ten years
|
6,604
|
6,595
|
||||||
Total
|
$
|
6,964
|
$
|
6,950
|
16
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 5 – 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, 2018 and December 31, 2017 (in thousands):
|
September 30, 2018
|
|||||||||||||||||||||||||||
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
|
$
|
646
|
$
|
(1
|
)
|
$
|
-
|
$
|
-
|
$
|
646
|
$
|
(1
|
)
|
|||||||||||||
Federal Home Loan Mortgage Corporation mortgage-backed securities
|
2
|
-
|
-
|
1,172
|
(36
|
)
|
1,172
|
(36
|
)
|
|||||||||||||||||||
Federal National Mortgage Association securities
|
1
|
393
|
(1
|
)
|
-
|
-
|
393
|
(1
|
)
|
|||||||||||||||||||
Debt securities, U.S. government agency
|
1
|
-
|
-
|
355
|
(5
|
)
|
355
|
(5
|
)
|
|||||||||||||||||||
Total
|
6
|
$
|
1,039
|
$
|
(2
|
)
|
$
|
1,527
|
$
|
(41
|
)
|
$
|
2,566
|
$
|
(43
|
)
|
|
December 31, 2017
|
|||||||||||||||||||||||||||
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 |
|||||||||||||||||||||
Federal Home Loan Mortgage Corporation mortgage-backed securities
|
2
|
$
|
-
|
$
|
-
|
$
|
1,342
|
$
|
(35
|
)
|
$
|
1,342
|
$
|
(35
|
)
|
|||||||||||||
Debt securities, U.S. government agency
|
1
|
-
|
-
|
357
|
(3
|
)
|
357
|
(3
|
)
|
|||||||||||||||||||
Total
|
3
|
$
|
-
|
$
|
-
|
$
|
1,699
|
$
|
(38
|
)
|
$
|
1,699
|
$
|
(38
|
)
|
At September 30, 2018, there were six securities in an unrealized loss position that at such date had an aggregate depreciation of 1.67%
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, 2018 represents an other-than-temporary impairment. There were no impairment charges recognized during the
three and nine months ended September 30, 2018 or 2017.
17
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 6 - Loans Receivable, Net and Allowance for Loan Losses
The composition of net loans receivable is as follows (in thousands):
September 30,
2018
|
December 31,
2017
|
|||||||
Real estate loans:
|
||||||||
One-to-four family residential:
|
||||||||
Owner occupied
|
$
|
6,773
|
$
|
5,681
|
||||
Non-owner occupied
|
46,907
|
51,833
|
||||||
Total one-to-four family residential
|
53,680
|
57,514
|
||||||
Multi-family (five or more) residential
|
24,774
|
21,715
|
||||||
Commercial real estate
|
102,352
|
92,234
|
||||||
Construction
|
10,798
|
15,632
|
||||||
Home equity
|
4,485
|
5,129
|
||||||
Total real estate loans
|
196,089
|
192,224
|
||||||
Commercial business
|
20,527
|
11,954
|
||||||
Other consumer
|
119
|
138
|
||||||
Total Loans
|
216,735
|
204,316
|
||||||
Deferred loan fees and costs
|
(857
|
)
|
(837
|
)
|
||||
Allowance for loan losses
|
(1,898
|
)
|
(1,812
|
)
|
||||
Net Loans
|
$
|
213,980
|
$
|
201,667
|
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, 2018 and December 31, 2017 (in thousands):
September 30, 2018
|
||||||||||||||||||||
Pass
|
Special
Mention
|
Substandard
|
Doubtful
|
Total
|
||||||||||||||||
One-to-four family residential owner occupied
|
$
|
6,356
|
$
|
-
|
$
|
417
|
$
|
-
|
$
|
6,773
|
||||||||||
One-to-four family residential non-owner occupied
|
46,598
|
309
|
-
|
-
|
46,907
|
|||||||||||||||
Multi-family residential
|
24,774
|
-
|
-
|
-
|
24,774
|
|||||||||||||||
Commercial real estate
|
100,789
|
1,563
|
-
|
-
|
102,352
|
|||||||||||||||
Construction
|
10,798
|
-
|
-
|
-
|
10,798
|
|||||||||||||||
Home equity
|
4,485
|
-
|
-
|
-
|
4,485
|
|||||||||||||||
Commercial business
|
20,022
|
80
|
425
|
-
|
20,527
|
|||||||||||||||
Other consumer
|
119
|
-
|
-
|
-
|
119
|
|||||||||||||||
Total
|
$
|
213,941
|
$
|
1,952
|
$
|
842
|
$
|
-
|
$
|
216,735
|
18
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
December 31, 2017
|
||||||||||||||||||||
Pass
|
Special
Mention
|
Substandard
|
Doubtful
|
Total
|
||||||||||||||||
One-to-four family residential owner occupied
|
$
|
5,258
|
$
|
423
|
$
|
-
|
$
|
-
|
$
|
5,681
|
||||||||||
One-to-four family residential non-owner occupied
|
51,372
|
29
|
432
|
-
|
51,833
|
|||||||||||||||
Multi-family residential
|
21,715
|
-
|
-
|
-
|
21,715
|
|||||||||||||||
Commercial real estate
|
91,549
|
399
|
286
|
-
|
92,234
|
|||||||||||||||
Construction
|
13,563
|
-
|
2,069
|
-
|
15,632
|
|||||||||||||||
Home equity
|
5,129
|
-
|
-
|
-
|
5,129
|
|||||||||||||||
Commercial business
|
11,419
|
535
|
-
|
-
|
11,954
|
|||||||||||||||
Other consumer
|
138
|
-
|
-
|
-
|
138
|
|||||||||||||||
Total
|
$
|
200,143
|
$
|
1,386
|
$
|
2,787
|
$
|
-
|
$
|
204,316
|
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, 2018 as well as the average recorded investment and related interest income for the period then ended (in thousands):
September 30, 2018
|
||||||||||||||||||||
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
|
417
|
421
|
$
|
-
|
$
|
417
|
$
|
-
|
||||||||||||
One-to-four family residential non-owner occupied
|
267
|
267
|
-
|
324
|
13
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
2,050
|
37
|
|||||||||||||||
Home equity
|
-
|
-
|
-
|
44
|
2
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
With an allowance recorded:
|
||||||||||||||||||||
One-to-four family residential owner occupied
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
One-to-four family residential non-owner occupied
|
-
|
-
|
-
|
94
|
4
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
133
|
133
|
5
|
133
|
7
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Home equity
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Total:
|
||||||||||||||||||||
One-to-four family residential owner occupied
|
$
|
417
|
$
|
421
|
$
|
-
|
$
|
417
|
$
|
-
|
||||||||||
One-to-four family residential non-owner occupied
|
267
|
267
|
-
|
418
|
17
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
133
|
133
|
5
|
133
|
7
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
2,050
|
37
|
|||||||||||||||
Home equity
|
-
|
-
|
-
|
44
|
2
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Total
|
$
|
817
|
$
|
821
|
$
|
5
|
$
|
3,062
|
$
|
63
|
|
19
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 6 - 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, 2017 as well as the average recorded investment and related interest income for the year then ended (in thousands):
December 31, 2017
|
||||||||||||||||||||
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
|
442
|
442
|
-
|
937
|
24
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
-
|
-
|
-
|
398
|
38
|
|||||||||||||||
Construction
|
2,069
|
2,069
|
-
|
2,064
|
58
|
|||||||||||||||
Home equity
|
45
|
45
|
-
|
47
|
5
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
With an allowance recorded:
|
||||||||||||||||||||
One-to-four family residential owner occupied
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
One-to-four family residential non-owner occupied
|
214
|
214
|
70
|
214
|
5
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
133
|
133
|
1
|
395
|
9
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Home equity
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Total:
|
||||||||||||||||||||
One-to-four family residential owner occupied
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
One-to-four family residential non-owner occupied
|
656
|
656
|
70
|
1,151
|
29
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
133
|
133
|
1
|
793
|
47
|
|||||||||||||||
Construction
|
2,069
|
2,069
|
-
|
2,064
|
58
|
|||||||||||||||
Home equity
|
45
|
45
|
-
|
47
|
5
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Total
|
$
|
2,903
|
$
|
2,903
|
$
|
71
|
$
|
4,055
|
$
|
139
|
The loan portfolio also includes certain loans that have been modified in a troubled debt restructuring, where economic concessions have
been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions,
forbearance, or other actions. At September 30, 2018, the Company had two loans totaling $400,000 that were identified as troubled debt restructurings. These two loans were performing in accordance with their modified terms. At December 31, 2017,
the Company had eight loans totaling $714,000 that were identified as troubled debt restructurings. If a TDR is placed on non-accrual it is not reverted back to accruing status until the borrower makes timely payments as contracted for at least nine
months and future collection under the revised terms is probable. During the nine months ended September 30, 2018, no new loans were identified as TDRs and six loans previously identified as TDRs were paid off.
20
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
The following tables present the Company's TDR loans as of September 30, 2018 and December 31, 2017 (dollar amounts in thousands):
September 30, 2018
|
||||||||||||||||||||
Number of
Contracts
|
Recorded
Investment
|
Non-
Accrual
|
Accruing
|
Related
Allowance
|
||||||||||||||||
One-to-four family residential owner occupied
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||||
One-to-four family residential non-owner occupied
|
1
|
267
|
-
|
267
|
-
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
1
|
133
|
-
|
133
|
5
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Home equity
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Total
|
2
|
$
|
400
|
$
|
-
|
$
|
400
|
$
|
5
|
December 31, 2017
|
||||||||||||||||||||
Number of
Contracts
|
Recorded
Investment
|
Non-
Accrual
|
Accruing
|
Related
Allowance
|
||||||||||||||||
One-to-four family residential owner occupied
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||||
One-to-four family residential non-owner occupied
|
5
|
536
|
-
|
536
|
25
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
1
|
133
|
-
|
133
|
1
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Home equity
|
2
|
45
|
-
|
45
|
-
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Total
|
8
|
$
|
714
|
$
|
-
|
$
|
714
|
$
|
26
|
The contractual aging of the TDRs in the table above as of September 30, 2018 and December 31, 2017 is as follows (in thousands):
September 30, 2018
|
||||||||||||||||||||
Accruing
Past Due
Less than 30
Days
|
Past Due
30-89 Days
|
90 Days or
More Past
Due
|
Non-
Accrual
|
Total
|
||||||||||||||||
One-to-four family residential owner occupied
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
One-to-four family residential non-owner occupied
|
267
|
-
|
-
|
-
|
267
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
133
|
-
|
-
|
-
|
133
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Home equity
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Total
|
$
|
400
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
400
|
21
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
December 31, 2017
|
||||||||||||||||||||
Accruing
Past Due
Less than 30
Days
|
Past Due
30-89 Days
|
90 Days or
More Past
Due
|
Non-
Accrual
|
Total
|
||||||||||||||||
One-to-four family residential owner occupied
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
One-to-four family residential non-owner occupied
|
536
|
-
|
-
|
-
|
536
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
133
|
-
|
-
|
-
|
133
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Home equity
|
45
|
-
|
-
|
-
|
45
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Total
|
$
|
714
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
714
|
Any reserve for an impaired TDR loan is based upon the present value of the future expected cash flows discounted at the loan's original effective rate or
upon the fair value of the collateral less costs to sell, if the loan is deemed collateral dependent. At September 30, 2018 there were no commitments to lend additional funds to debtors whose loan terms have been modified as TDRs.
The general practice of the Bank is to work with borrowers so that they are able to pay back their loan in full. If a borrower continues to be delinquent
or cannot meet the terms of a TDR modification and the loan is determined to be uncollectible, the loan will be charged off.
22
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the three and nine months ended September 30, 2018 and
recorded investment in loans receivable as of September 30, 2018 (in thousands):
September 30, 2018
|
||||||||||||||||||||||||||||||||||||
1-4 Family
Residential
Owner
Occupied
|
1-4 Family
Residential
Non-Owner
Occupied
|
Multi-Family
Residential
|
Commercial
Real Estate
|
Construction
|
Home
Equity
|
Commercial
Business
and Other
Consumer
|
Unallocated
|
Total
|
||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2018
|
||||||||||||||||||||||||||||||||||||
Allowance for loan losses:
|
||||||||||||||||||||||||||||||||||||
Beginning balance
|
$
|
60
|
$
|
439
|
$
|
166
|
$
|
728
|
$
|
179
|
$
|
24
|
$
|
201
|
$
|
33
|
$
|
1,830
|
||||||||||||||||||
Charge-offs
|
-
|
-
|
-
|
-
|
(115
|
)
|
-
|
-
|
-
|
(115
|
)
|
|||||||||||||||||||||||||
Recoveries
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||
Provision
|
(9
|
)
|
(14
|
)
|
7
|
203
|
98
|
(17
|
)
|
(72
|
)
|
(13
|
)
|
183
|
||||||||||||||||||||||
Ending balance
|
$
|
51
|
$
|
425
|
$
|
173
|
$
|
931
|
$
|
162
|
$
|
7
|
$
|
129
|
$
|
20
|
$
|
1,898
|
||||||||||||||||||
For the Nine Months Ended September 30, 2018
|
||||||||||||||||||||||||||||||||||||
Allowance for loan losses:
|
||||||||||||||||||||||||||||||||||||
Beginning balance
|
$
|
48
|
$
|
540
|
$
|
152
|
$
|
687
|
$
|
136
|
$
|
27
|
$
|
140
|
$
|
82
|
$
|
1,812
|
||||||||||||||||||
Charge-offs
|
-
|
(47
|
)
|
-
|
-
|
(215
|
)
|
-
|
-
|
-
|
(262
|
)
|
||||||||||||||||||||||||
Recoveries
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||
Provision
|
3
|
(68
|
)
|
21
|
244
|
241
|
(20
|
)
|
(11
|
)
|
(62
|
)
|
348
|
|||||||||||||||||||||||
Ending balance
|
$
|
51
|
$
|
425
|
$
|
173
|
$
|
931
|
$
|
162
|
$
|
7
|
$
|
129
|
$
|
20
|
$
|
1,898
|
||||||||||||||||||
Ending balance evaluated
|
||||||||||||||||||||||||||||||||||||
for impairment:
|
||||||||||||||||||||||||||||||||||||
Individually
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
5
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
5
|
||||||||||||||||||
Collectively
|
$
|
51
|
$
|
425
|
$
|
173
|
$
|
926
|
$
|
162
|
$
|
7
|
$
|
129
|
$
|
20
|
$
|
1,893
|
||||||||||||||||||
Loans receivable:
|
||||||||||||||||||||||||||||||||||||
Ending balance:
|
$
|
6,773
|
$
|
46,907
|
$
|
24,774
|
$
|
102,352
|
$
|
10,798
|
$
|
4,485
|
$
|
20,646
|
$
|
216,735
|
||||||||||||||||||||
Ending balance evaluated
|
||||||||||||||||||||||||||||||||||||
for impairment:
|
||||||||||||||||||||||||||||||||||||
Individually
|
$
|
417
|
$
|
267
|
$
|
-
|
$
|
133
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
817
|
||||||||||||||||||||
Collectively
|
$
|
6,356
|
$
|
46,640
|
$
|
24,774
|
$
|
102,219
|
$
|
10,798
|
$
|
4,485
|
$
|
20,646
|
$
|
215,918
|
The Bank allocated increased allowance for loan loss provisions to the commercial real estate portfolio classes for the three and nine months ended
September 30, 2018, due primarily to increased balances and delinquencies in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the construction loan portfolio classes for the three and nine months ended
September 30, 2018, due primarily to charge-offs in this portfolio class. The Bank allocated decreased allowance for loan loss provisions to the commercial business portfolio classes for the three and nine months ended September 30, 2018, due
primarily to changes in qualitative factors in this portfolio class.
23
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the three and nine months
ended September 30, 2017 (in thousands):
September 30, 2017
|
||||||||||||||||||||||||||||||||||||
1-4 Family
Residential
Owner
Occupied
|
1-4 Family
Residential
Non-Owner
Occupied
|
Multi-Family
Residential
|
Commercial
Real Estate
|
Construction
|
Home
Equity
|
Commercial
Business
and Other
Consumer
|
Unallocated
|
Total
|
||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2017
|
||||||||||||||||||||||||||||||||||||
Allowance for loan losses:
|
||||||||||||||||||||||||||||||||||||
Beginning balance
|
$
|
45
|
$
|
465
|
$
|
156
|
$
|
645
|
$
|
137
|
$
|
41
|
$
|
111
|
$
|
90
|
$
|
1,690
|
||||||||||||||||||
Charge-offs
|
-
|
(38
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
(38
|
)
|
|||||||||||||||||||||||||
Recoveries
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||
Provision
|
(2
|
)
|
93
|
(14
|
)
|
10
|
(4
|
)
|
(18
|
)
|
18
|
-
|
83
|
|||||||||||||||||||||||
Ending balance
|
$
|
43
|
$
|
520
|
$
|
142
|
$
|
655
|
$
|
133
|
$
|
23
|
$
|
129
|
$
|
90
|
$
|
1,735
|
||||||||||||||||||
For the Nine Months Ended September 30, 2017
|
||||||||||||||||||||||||||||||||||||
Allowance for loan losses:
|
||||||||||||||||||||||||||||||||||||
Beginning balance
|
$
|
41
|
$
|
503
|
$
|
103
|
$
|
616
|
$
|
138
|
$
|
37
|
$
|
87
|
$
|
80
|
$
|
1,605
|
||||||||||||||||||
Charge-offs
|
-
|
(38
|
)
|
-
|
(24
|
)
|
-
|
-
|
-
|
-
|
(62
|
)
|
||||||||||||||||||||||||
Recoveries
|
-
|
-
|
-
|
3
|
-
|
-
|
-
|
-
|
3
|
|||||||||||||||||||||||||||
Provision
|
2
|
55
|
39
|
60
|
(5
|
)
|
(14
|
)
|
42
|
10
|
189
|
|||||||||||||||||||||||||
Ending balance
|
$
|
43
|
$
|
520
|
$
|
142
|
$
|
655
|
$
|
133
|
$
|
23
|
$
|
129
|
$
|
90
|
$
|
1,735
|
||||||||||||||||||
Ending balance evaluated for impairment:
|
||||||||||||||||||||||||||||||||||||
Individually
|
$
|
-
|
$
|
38
|
$
|
-
|
$
|
1
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
39
|
||||||||||||||||||
Collectively
|
$
|
43
|
$
|
482
|
$
|
142
|
$
|
654
|
$
|
133
|
$
|
23
|
$
|
129
|
$
|
90
|
$
|
1,696
|
||||||||||||||||||
The Bank allocated increased allowance for loan loss provisions to the 1-4 family residential non-owner occupied portfolio class for the three and
nine months ended September 30, 2017, due primarily to charge-offs in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the commercial real estate portfolio class for the three and nine months ended
September 30, 2017, due primarily to increased balances and delinquencies in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the commercial business portfolio class for the three and nine months ended
September 30, 2017, due primarily to increased balances and changes to qualitative factors in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the multi-family residential portfolio class for the nine
months ended September 30, 2017, due primarily to increased balances in this portfolio class. The Bank allocated decreased allowance for loan loss provisions to the home equity portfolio class for the three and nine months ended September 30,
2017, due primarily to decreased balances and delinquencies in this portfolio class.
24
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the year ended December 31, 2017
and recorded investment in loans receivable based on impairment evaluation as of December 31, 2017 (in thousands):
December 31, 2017
|
||||||||||||||||||||||||||||||||||||
1-4 Family
Residential
Owner
Occupied
|
1-4 Family
Residential
Non-Owner
Occupied
|
Multi-Family
Residential
|
Commercial
Real Estate
|
Construction
|
Home
Equity
|
Commercial
Business
and Other
Consumer
|
Unallocated
|
Total
|
||||||||||||||||||||||||||||
Allowance for loan losses:
|
||||||||||||||||||||||||||||||||||||
Beginning balance
|
$
|
41
|
$
|
503
|
$
|
103
|
$
|
616
|
$
|
138
|
$
|
37
|
$
|
87
|
$
|
80
|
$
|
1,605
|
||||||||||||||||||
Charge-offs
|
-
|
(56
|
)
|
-
|
(24
|
)
|
-
|
-
|
-
|
-
|
(80
|
)
|
||||||||||||||||||||||||
Recoveries
|
-
|
-
|
-
|
3
|
-
|
-
|
-
|
-
|
3
|
|||||||||||||||||||||||||||
Provision
|
7
|
93
|
49
|
92
|
(2
|
)
|
(10
|
)
|
53
|
2
|
284
|
|||||||||||||||||||||||||
Ending balance
|
$
|
48
|
$
|
540
|
$
|
152
|
$
|
687
|
$
|
136
|
$
|
27
|
$
|
140
|
$
|
82
|
$
|
1,812
|
||||||||||||||||||
Ending balance evaluated for impairment:
|
||||||||||||||||||||||||||||||||||||
Individually
|
$
|
-
|
$
|
70
|
$
|
-
|
$
|
1
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
71
|
||||||||||||||||||
Collectively
|
$
|
48
|
$
|
470
|
$
|
152
|
$
|
686
|
$
|
136
|
$
|
27
|
$
|
140
|
$
|
82
|
$
|
1,741
|
||||||||||||||||||
Loans receivable:
|
||||||||||||||||||||||||||||||||||||
Ending balance
|
$
|
5,681
|
$
|
51,833
|
$
|
21,715
|
$
|
92,234
|
$
|
15,632
|
$
|
5,129
|
$
|
12,092
|
$
|
204,316
|
||||||||||||||||||||
Ending balance evaluated for impairment:
|
||||||||||||||||||||||||||||||||||||
Individually
|
$
|
-
|
$
|
656
|
$
|
-
|
$
|
133
|
$
|
2,069
|
$
|
45
|
$
|
-
|
$
|
2,903
|
||||||||||||||||||||
Collectively
|
$
|
5,681
|
$
|
51,177
|
$
|
21,715
|
$
|
92,101
|
$
|
13,563
|
$
|
5,084
|
$
|
12,092
|
$
|
201,413
|
The Bank allocated increased allowance for loan loss provisions to the commercial real estate, commercial business, and multi-family portfolio classes for
the year ended December 31, 2017, due primarily to increased balances in these portfolio classes. The Bank allocated increased allowance for loan loss provisions to the 1-4 family residential non-owner occupied portfolio class for the year ended
December 31, 2017, due primarily to increased specific reserves in this portfolio class.
25
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2018 and December 31, 2017 (in
thousands):
September 30,
2018
|
December 31,
2017
|
|||||||
One-to-four family residential owner occupied
|
$
|
417
|
$
|
-
|
||||
One-to-four family residential non-owner occupied
|
-
|
120
|
||||||
Multi-family residential
|
-
|
-
|
||||||
Commercial real estate
|
-
|
-
|
||||||
Construction
|
-
|
2,069
|
||||||
Home equity
|
-
|
-
|
||||||
Commercial business
|
-
|
-
|
||||||
Other consumer
|
-
|
-
|
||||||
Total
|
$
|
417
|
$
|
2,189
|
Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, amounted to $1.6 million and $3.1
million at September 30, 2018 and December 31, 2017, respectively. For the delinquent loans in our portfolio, we have considered our ability to collect the past due interest, as well as the principal balance of the loan, in order to determine
whether specific loans should be placed on non-accrual status. In cases where our evaluations have determined that the principal and interest balances are collectible, we have continued to accrue interest.
For the three and nine months ended September 30, 2018 and 2017 there was no interest income recognized on non-accrual loans on a cash
basis. Interest income foregone on non-accrual loans was approximately $6,000 and $18,000 for the three and nine months ended September 30, 2018, respectively. Interest income foregone on non-accrual loans was approximately $63,000 and $103,000
for the three and nine months ended September 30, 2017, respectively. In October 2018, a one-to-four family owner occupied loan on non-accrual as of September 30, 2018 in the amount of $236,000 was paid-off and approximately $23,000 of previously
written-off and foregone interest was paid.
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by
the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of September 30, 2018 and December 31, 2017 (in thousands):
September 30, 2018
|
||||||||||||||||||||||||
30-89
Days Past
Due
|
90 Days
or More
Past Due
|
Total
Past Due
|
Current
|
Total Loans
Receivable
|
Loans
Receivable
90 Days or
More Past
Due and
Accruing
|
|||||||||||||||||||
One-to-four family residential owner occupied
|
$
|
564
|
$
|
417
|
$
|
981
|
$
|
5,792
|
$
|
6,773
|
$
|
-
|
||||||||||||
One-to-four family residential non-owner occupied
|
1,867
|
533
|
2,400
|
44,507
|
46,907
|
533
|
||||||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
24,774
|
24,774
|
-
|
||||||||||||||||||
Commercial real estate
|
2,085
|
190
|
2,275
|
100,077
|
102,352
|
190
|
||||||||||||||||||
Construction
|
295
|
-
|
295
|
10,503
|
10,798
|
-
|
||||||||||||||||||
Home equity
|
173
|
-
|
173
|
4,312
|
4,485
|
-
|
||||||||||||||||||
Commercial business
|
37
|
425
|
462
|
20,065
|
20,527
|
425
|
||||||||||||||||||
Other consumer
|
-
|
-
|
-
|
119
|
119
|
-
|
||||||||||||||||||
Total
|
$
|
5,021
|
$
|
1,565
|
$
|
6,586
|
$
|
210,149
|
$
|
216,735
|
$
|
1,148
|
26
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
December 31, 2017
|
||||||||||||||||||||||||
30-89
Days Past
Due
|
90 Days
or More
Past Due
|
Total
Past Due
|
Current
|
Total Loans
Receivable
|
Loans
Receivable
90 Days or
More Past
Due and
Accruing
|
|||||||||||||||||||
One-to-four family residential owner occupied
|
$
|
670
|
$
|
423
|
$
|
1,093
|
$
|
4,588
|
$
|
5,681
|
$
|
423
|
||||||||||||
One-to-four family residential non-owner occupied
|
969
|
337
|
1,306
|
50,527
|
51,833
|
217
|
||||||||||||||||||
Multi-family residential
|
313
|
-
|
313
|
21,402
|
21,715
|
-
|
||||||||||||||||||
Commercial real estate
|
505
|
241
|
746
|
91,488
|
92,234
|
241
|
||||||||||||||||||
Construction
|
407
|
2,069
|
2,476
|
13,156
|
15,632
|
-
|
||||||||||||||||||
Home equity
|
51
|
-
|
51
|
5,078
|
5,129
|
-
|
||||||||||||||||||
Commercial business
|
-
|
-
|
-
|
11,954
|
11,954
|
-
|
||||||||||||||||||
Other consumer
|
-
|
-
|
-
|
138
|
138
|
-
|
||||||||||||||||||
Total
|
$
|
2,915
|
$
|
3,070
|
$
|
5,985
|
$
|
198,331
|
$
|
204,316
|
$
|
881
|
Note 7 – Goodwill and Other Intangible, Net
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 an
independent insurance agency located in New Britain, Pennsylvania, that provides a broad range of personal and commercial insurance coverage solutions. The Company paid $1.0 million for these rights. Based on a valuation, $515,000 of the purchase
price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed to be an other intangible asset. This other intangible asset is being amortized over a ten year period based
upon the annual retention rate of the book of business. The balance of other intangible asset at September 30, 2018 was $380,000 net of accumulated amortization of $105,000. Amortization expense for the three and nine months ended September 30,
2018 amounted to $12,000 and $36,000, respectively. Amortization expense for the three and nine months ended September 30, 2017 amounted to $13,000 and $37,000, respectively.
Note 8 – Deposits
Deposits consist of the following classifications (in thousands):
September 30,
2018
|
December 31,
2017
|
|||||||
Non-interest bearing checking accounts
|
$
|
15,624
|
$
|
7,956
|
||||
Passbook accounts
|
262
|
463
|
||||||
Savings accounts
|
1,881
|
2,353
|
||||||
Money market accounts
|
29,294
|
30,411
|
||||||
Certificates of deposit
|
161,938
|
145,038
|
||||||
Total deposits
|
$
|
208,999
|
$
|
186,221
|
27
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 9 – Borrowings
Federal Home Loan Bank advances consist of the following at September 30, 2018 and December 31, 2017 (in thousands):
September 30, 2018 | December 31, 2017 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Interest | Interest | |||||||||||||||
Amount | Rate | Amount | Rate | |||||||||||||
Short-term borrowings
|
$
|
9,000
|
2.38
|
%
|
$
|
10,000
|
1.54
|
%
|
||||||||
Fixed rate borrowings maturing:
|
||||||||||||||||
2018
|
-
|
-
|
3,000
|
1.46
|
||||||||||||
2019
|
3,000
|
1.86
|
3,000
|
1.86
|
||||||||||||
2020
|
2,000
|
2.00
|
2,000
|
2.00
|
||||||||||||
2021
|
3,000
|
2.05
|
3,000
|
2.05
|
||||||||||||
2022
|
3,000
|
2.18
|
3,000
|
2.18
|
||||||||||||
2023
|
3,000
|
2.33
|
3,000
|
2.33
|
||||||||||||
2024
|
1,000
|
2.54
|
1,000
|
2.54
|
||||||||||||
Total FHLB long-term debt
|
$
|
15,000
|
2.22
|
%
|
$
|
18,000
|
2.01
|
%
|
Note 10 – Stock Compensation Plans
Employee Stock Ownership Plan
The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of employees who meet the eligibility requirements of the plan. Using
proceeds from a loan from the Company, the ESOP purchased 8%, or 222,180 shares of the Company's then outstanding common stock in the open market during 2007. The Bank makes cash contributions to the ESOP on a quarterly basis sufficient to enable
the ESOP to make the required loan payments to the Company. The loan bears an interest rate of 7.75% per annum, with principal and interest to be paid quarterly in equal installments over 15 years. The loan is secured by the unallocated shares of
common stock held by the ESOP.
Shares of the Company's common stock purchased by the ESOP are held in a suspense account and reported as unallocated common stock held by the ESOP in
stockholders' equity until released for allocation to participants. As the debt is repaid, shares are released from collateral and are allocated to each eligible participant based on the ratio of each such participant's base compensation to the
total base compensation of eligible plan participants. As the unearned shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market value of the shares, and the
shares become outstanding for earnings per share computations. During the three and nine months ended September 30, 2018, the Company recognized $49,000 and $145,000 of ESOP expense, respectively. During the three and nine months ended September
30, 2017, the Company recognized $46,000 and $138,000 of ESOP expense, respectively.
Recognition & Retention and Stock Incentive Plans
In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Recognition and Retention
Plan (the "RRP") and Trust Agreement. In order to fund the RRP, the 2008 Recognition and Retention Plan Trust acquired 111,090 shares of the Company's stock in the open market at an average price of $4.68 totaling $520,000. In May 2013, the
shareholders of Quaint Oak Bancorp approved the adoption of the 2013 Stock Incentive Plan (the "2013 Stock Incentive Plan"). The 2013 Stock Incentive Plan approved by shareholders in May 2013 covered a total of 195,000 shares, of which 48,750,
or 25%, may be restricted stock awards, for a balance of 146,250 stock options assuming all the restricted shares are awarded. In May 2018, the shareholders of Quaint Oak Bancorp approved the adoption of the 2018 Stock Incentive Plan (the
"2018 Stock Incentive Plan"). The 2018 Stock Incentive Plan approved by shareholders in May 2018 covered a total of 155,000 shares, of which 38,750, or 25%, may be restricted stock awards, for a balance of 116,250 stock options assuming all
the restricted shares are awarded.
28
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 10 – Stock Compensation Plans (Continued)
Recognition & Retention and Stock Incentive Plans
(Continued)
As of September 30, 2018, a total of 48,608 share awards were unvested under the 2013 and 2018 Stock Incentive Plan and up to 11,750
share awards were available for future grant under the 2018 Stock Incentive Plan and none under the 2013 Stock Incentive Plan. The 2013 and 2018 Stock Incentive Plan share awards have vesting periods of five years.
A summary of the status of the share awards under the RRP and the 2013 and 2018 Stock Incentive Plans as of September 30, 2018 and 2017 and changes during
the nine months ended September 30, 2018 and 2017 is as follows:
September 30, 2018
|
September 30, 2017
|
|||||||||||||||
Number of
Shares
|
Weighted
Average Grant
Date Fair Value
|
Number of
Shares
|
Weighted
Average Grant
Date Fair Value
|
|||||||||||||
Unvested at the beginning of the period
|
10,061
|
$
|
8.10
|
20,524
|
$
|
8.10
|
||||||||||
Granted
|
48,608
|
13.30
|
-
|
-
|
||||||||||||
Vested
|
(9,661
|
)
|
8.10
|
(10,263
|
)
|
8.10
|
||||||||||
Forfeited
|
(400
|
)
|
8.10
|
-
|
-
|
|||||||||||
Unvested at the end of the period
|
48,608
|
$
|
13.30
|
10,261
|
$
|
8.10
|
Compensation expense on the restricted stock awards is recognized ratably over the five year vesting period in an amount which is equal to the fair value
of the common stock at the date of grant. During the nine months ended September 30, 2018 and 2017, the Company recognized compensation expense of approximately $75,000 and $63,000, respectively. A tax benefit of approximately $16,000 and $21,000
was recognized during the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, approximately $598,000 in additional compensation expense will be recognized over the remaining service period of approximately 4.6
years.
Stock Option and Stock Incentive Plans
In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Stock Option Plan (the "Option Plan"). In May 2013, the
shareholders of Quaint Oak Bancorp approved the adoption of the 2013 Stock Incentive Plan (the "2013 Stock Incentive Plan"). The Option Plan authorized the grant of stock options to officers, employees and directors of the Company to acquire
277,726 shares of common stock with an exercise price no less than the fair market value on the date of the grant. The 2013 Stock Incentive Plan approved by shareholders in May 2013 covered a total of 195,000 shares, of which 48,750, or 25%, may
be restricted stock awards, for a balance of 146,250 stock options assuming all the restricted shares are awarded. In May 2018, the shareholders of Quaint Oak Bancorp approved the adoption of the 2018 Stock Incentive Plan (the "2018 Stock
Incentive Plan"). The 2018 Stock Incentive Plan approved by shareholders in May 2018 covered a total of 155,000 shares, of which 38,750, or 25%, may be restricted stock awards, for a balance of 116,250 stock options assuming all the restricted
shares are awarded.
29
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 10 – Stock Compensation Plans (Continued)
Stock Option and Stock Incentive Plans (Continued)
For grants in May 2008, the Compensation Committee of the Board of Directors determined to grant the stock options at an exercise price equal to $5.00 per
share (split-adjusted) which is higher than the fair market value of the common stock on the grant date. All of the options granted in May 2008 were either exercised or expired in May 2018. All incentive stock options issued under the Option Plan
and the Stock Incentive Plan are intended to comply with the requirements of Section 422 of the Internal Revenue Code.
As of September 30, 2018, a total of 279,836 grants of stock options were outstanding under the Option Plan and Stock Incentive Plan and 38,250 stock
options were available for future grant under the Stock Incentive Plan and none under the Option Plan. Options will become vested and exercisable over a five year period and are generally exercisable for a period of ten years after the grant date.
A summary of option activity under the Company's Option Plan and 2013 and 2018 Stock Incentive Plans of September 30, 2018 and 2017 and changes during the nine months ended September 30, 2018 and 2017 is as follows:
2018
|
2017
|
|||||||||||||||||||||||
Number of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life (in
years)
|
Number of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life (in
years)
|
|||||||||||||||||||
Outstanding at the beginning of the year
|
265,302
|
$
|
6.74
|
3.2
|
316,348
|
$
|
6.49
|
3.8
|
||||||||||||||||
Granted
|
136,636
|
13.30
|
9.6
|
-
|
-
|
-
|
||||||||||||||||||
Exercised
|
(106,844
|
)
|
5.00
|
-
|
(38,800
|
)
|
5.00
|
-
|
||||||||||||||||
Forfeited
|
(15,258
|
)
|
6.22
|
-
|
-
|
-
|
-
|
|||||||||||||||||
Outstanding at end of period
|
279,836
|
$
|
10.64
|
7.7
|
277,548
|
$
|
6.70
|
3.4
|
||||||||||||||||
Exercisable at end of period
|
143,200
|
$
|
8.10
|
4.6
|
247,228
|
$
|
6.53
|
3.1
|
The estimated fair value of the options granted in May 2018 was $1.75 per share. The fair value was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
|
Expected dividend yield
|
2.11%
|
|
Risk-free interest rate
|
2.96%
|
|
Expected life of options
|
6.5 years
|
|
Expected stock-price volatility
|
12.42%
|
The dividend yield was calculated on the dividend amount and stock price existing at the grant date. The risk free interest rate used was based on the rates of United States Treasury securities with maturities equal to the expected lives of the options. Although the contractual term of the options granted is ten years, the expected term of the options is less. Management estimated the expected term of the stock options to be the average of the vesting period and the contractual term. The expected stock-price volatility was estimated by considering the Company's own stock volatility. The actual future volatility may differ from our historical volatility.
30
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 10 – Stock Compensation Plans (Continued)
Stock Option and Stock Incentive Plans (Continued)
During both the nine month periods ended September 30, 2018 and 2017, compensation expense was recognized in the amount of approximately $30,000 and
$34,000, respectively. There was no tax benefit recognized during the nine months ended September 30, 2018. A tax benefit of approximately $2,000 was recognized during the nine months ended September 30, 2017. As of September 30, 2018,
approximately $204,000 in additional compensation expense will be recognized over the remaining service period of approximately 4.6 years.
Note 11 – Fair Value Measurements and Fair Values of Financial
Instruments
Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or
liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions, and risk assumptions used. Therefore, fair value estimates may not
be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.
Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect
the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future
earnings and cash flows.
The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations
utilized in measuring assets and liabilities at fair value. The three broad levels of pricing are as follows:
Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly
observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which
can be directly observed.
Level III: Valuations derived from valuation techniques in which one or more significant inputs or significant value
drivers are unobservable.
This hierarchy requires the use of observable market data when available.
The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation
techniques applied:
Investment Securities Available-For-Sale: The fair value of securities
available for sale are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without
relying exclusively on quoted market prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted prices.
31
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 11 – Fair Value Measurements and Fair Values of Financial
Instruments (Continued)
We may be required from time to time to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to
fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.
Impaired Loans: Impaired loans are carried at the
lower of cost or the fair value of the collateral for collateral-dependent loans less estimated costs to sell. Collateral is primarily in the form of real estate. The use of independent appraisals, discounted cash flow models and management's best
judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within level 3 of the fair value hierarchy.
Other Real Estate Owned: Other real estate owned is carried at the
lower of the investment in the real estate or the fair value of the real estate less estimated selling costs. The use of independent appraisals and management's best judgment are significant inputs in arriving at the fair value measure of the
underlying collateral and therefore other real estate owned is classified within level 3 of the fair value hierarchy.
The table below sets forth the financial assets and liabilities that were accounted for on a recurring and
nonrecurring basis by level within the fair value hierarchy as of September 30, 2018 (in thousands):
September 30, 2018
|
||||||||||||||||
Fair Value Measurements Using:
|
||||||||||||||||
Total Fair
Value
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
Significant Other Observable
Inputs
(Level 2)
|
Unobservable
Inputs
(Level 3)
|
|||||||||||||
Recurring fair value measurements
|
||||||||||||||||
Investment securities available for sale
|
||||||||||||||||
Governmental National Mortgage Association mortgage-backed securities
|
$
|
5,030
|
$
|
-
|
$
|
5,030
|
$
|
-
|
||||||||
Federal Home Loan Mortgage Corporation mortgage-backed securities
|
1,172
|
-
|
1,172
|
-
|
||||||||||||
Federal National Mortgage Association mortgage-backed securities
|
393
|
-
|
393
|
-
|
||||||||||||
Debt securities, U.S. government agency
|
355
|
-
|
355
|
-
|
||||||||||||
Total investment securities available for sale
|
$
|
6,950
|
$
|
-
|
$
|
6,950
|
$
|
-
|
||||||||
Total recurring fair value measurements
|
$
|
6,950
|
$
|
-
|
$
|
6,950
|
$
|
-
|
||||||||
Nonrecurring fair value measurements
|
||||||||||||||||
Impaired loans
|
$
|
812
|
$
|
-
|
$
|
-
|
$
|
812
|
||||||||
Other real estate owned
|
1,600
|
-
|
-
|
1,600
|
||||||||||||
Total nonrecurring fair value measurements
|
$
|
2,412
|
$
|
-
|
$
|
-
|
$
|
2,412
|
32
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 11 – Fair Value Measurements and Fair Values of Financial
Instruments (Continued)
The table below sets forth the financial assets and liabilities that were accounted for on a recurring and nonrecurring
basis by level within the fair value hierarchy as of December 31, 2017 (in thousands):
December 31, 2017
|
||||||||||||||||
Fair Value Measurements Using:
|
||||||||||||||||
Total Fair
Value
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
Significant Other Observable
Inputs
(Level 2)
|
Unobservable
Inputs
(Level 3)
|
|||||||||||||
Recurring fair value measurements
|
||||||||||||||||
Investment securities available for sale
|
||||||||||||||||
Governmental National Mortgage Association mortgage-backed securities
|
$
|
5,643
|
$
|
-
|
$
|
5,643
|
$
|
-
|
||||||||
Federal Home Loan Mortgage Corporation mortgage-backed securities
|
1,342
|
-
|
1,342
|
-
|
||||||||||||
Federal National Mortgage Association mortgage-backed securities
|
570
|
-
|
570
|
-
|
||||||||||||
Debt securities, U.S. government agency
|
357
|
-
|
357
|
-
|
||||||||||||
Total investment securities available for sale
|
$
|
7,912
|
$
|
-
|
$
|
7,912
|
$
|
-
|
||||||||
Total recurring fair value measurements
|
$
|
7,912
|
$
|
-
|
$
|
7,912
|
$
|
-
|
||||||||
Nonrecurring fair value measurements
|
||||||||||||||||
Impaired loans
|
$
|
2,832
|
$
|
-
|
$
|
-
|
$
|
2,832
|
||||||||
Total nonrecurring fair value measurements
|
$
|
2,832
|
$
|
-
|
$
|
-
|
$
|
2,832
|
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which
the Company has used Level 3 inputs to determine fair value as of September 30, 2018 and December 31, 2017 (in thousands):
September 30, 2018
|
|||||||||||
Quantitative Information About Level 3 Fair Value Measurements
|
|||||||||||
Total Fair Value
|
Valuation Techniques
|
Unobservable Input
|
Range (Weighted
Average)
|
||||||||
Impaired loans | $ | 812 | Appraisal of collateral (1) | Appraisal adjustments (2) | 0%-4% (1 | %) | |||||
Other real estate owned | $ | 1,600 | Appraisal of collateral (1) | Appraisal adjustments (2) |
0%-12% (12
|
%) |
December 31, 2017
|
|||||||||||
Quantitative Information About Level 3 Fair Value Measurements
|
|||||||||||
Total Fair Value
|
Valuation Techniques
|
Unobservable Input
|
Range (Weighted
Average)
|
||||||||
Impaired loans | $ | 2,832 | Appraisal of collateral (1) | Appraisal adjustments (2) |
0%-27% (1
|
%) |
________________
(1)
|
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs
which are identifiable.
|
(2)
|
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and
weighted average of liquidation expenses and other appraisal adjustments are presented as a percentage of the appraisal.
|
33
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 11 – Fair Value Measurements and Fair Values of Financial
Instruments (Continued)
The estimated fair values of the Company's financial instruments that are not required to be measured or reported at fair value were as follows at September
30, 2018 and December 31, 2017 (in thousands):
Fair Value Measurements at
|
||||||||||||||||||||
September 30, 2018
|
||||||||||||||||||||
Carrying
Amount
|
Fair Value
Estimate
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Unobservable
Inputs
(Level 3)
|
||||||||||||||||
Financial Assets
|
||||||||||||||||||||
Cash and cash equivalents
|
$
|
13,560
|
$
|
13,560
|
$
|
13,560
|
$
|
-
|
$
|
-
|
||||||||||
Investment in interest-earning time deposits
|
4,927
|
4,934
|
-
|
-
|
4,934
|
|||||||||||||||
Loans held for sale
|
7,433
|
7,690
|
7,690
|
-
|
-
|
|||||||||||||||
Loans receivable, net
|
213,980
|
214,363
|
-
|
-
|
214,363
|
|||||||||||||||
Accrued interest receivable
|
1,117
|
1,117
|
1,117
|
-
|
-
|
|||||||||||||||
Investment in FHLB stock
|
1,086
|
1,086
|
1,086
|
-
|
-
|
|||||||||||||||
Bank-owned life insurance
|
3,874
|
3,874
|
3,874
|
-
|
-
|
|||||||||||||||
Financial Liabilities
|
||||||||||||||||||||
Deposits
|
208,999
|
209,182
|
47,061
|
-
|
162,121
|
|||||||||||||||
FHLB short-term borrowings
|
9,000
|
9,000
|
9,000
|
-
|
-
|
|||||||||||||||
FHLB long-term borrowings
|
15,000
|
14,954
|
-
|
-
|
14,954
|
|||||||||||||||
Accrued interest payable
|
183
|
183
|
183
|
-
|
-
|
|||||||||||||||
Advances from borrowers for taxes and insurance
|
1,811
|
1,811
|
1,811
|
-
|
-
|
Fair Value Measurements at
|
||||||||||||||||||||
December 31, 2017
|
||||||||||||||||||||
Carrying
Amount
|
Fair Value
Estimate
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Unobservable
Inputs
(Level 3)
|
||||||||||||||||
Financial Assets
|
||||||||||||||||||||
Cash and cash equivalents
|
$
|
7,910
|
$
|
7,910
|
$
|
7,910
|
$
|
-
|
$
|
-
|
||||||||||
Investment in interest-earning time deposits
|
4,879
|
4,912
|
-
|
-
|
4,912
|
|||||||||||||||
Loans held for sale
|
7,006
|
7,232
|
7,232
|
-
|
-
|
|||||||||||||||
Loans receivable, net
|
201,667
|
202,803
|
-
|
-
|
202,803
|
|||||||||||||||
Accrued interest receivable
|
1,021
|
1,021
|
1,021
|
-
|
-
|
|||||||||||||||
Investment in FHLB stock
|
1,234
|
1,234
|
1,234
|
-
|
-
|
|||||||||||||||
Bank-owned life insurance
|
3,814
|
3,814
|
3,814
|
-
|
-
|
|||||||||||||||
Financial Liabilities
|
||||||||||||||||||||
Deposits
|
186,221
|
187,309
|
41,183
|
-
|
146,126
|
|||||||||||||||
FHLB short-term borrowings
|
10,000
|
10,000
|
10,000
|
-
|
-
|
|||||||||||||||
FHLB long-term borrowings
|
18,000
|
16,982
|
-
|
-
|
16,982
|
|||||||||||||||
Accrued interest payable
|
167
|
167
|
167
|
-
|
-
|
|||||||||||||||
Advances from borrowers for taxes and insurance
|
2,423
|
2,423
|
2,423
|
-
|
-
|
34
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements
|
Note 11 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)
The following methods and assumptions were used to measure the fair value of financial instruments recorded at cost on the Company's consolidated balance
sheets:
Cash and Cash Equivalents. The
carrying amounts reported in the consolidated balance sheets for cash and short-term instruments approximate those assets' fair values.
Interest-Earning Time Deposits. Fair values for
interest-earning time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. The
Company generally purchases amounts below the insured limit, limiting the amount of credit risk on these time deposits.
Loans Held for Sale. Fair values
of loans held for sale are based on commitments on hand from investors at prevailing market rates.
Loans Receivable, Net. The fair
values of loans are estimated using discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loan and market factors,
including liquidity. The valuation of the loan portfolio reflects discounts that the Company believes are consistent with transactions occurring in the market place for both performing and distressed loan types. The carrying value that fair value
is compared to is net of the allowance for loan losses and other associated premiums and discounts. Due to the significant judgment involved in evaluating credit quality, loans are classified with Level 3 of the fair value hierarchy.
Accrued Interest Receivable. The
carrying amount of accrued interest receivable approximates its fair value.
Investment in Federal Home Loan Bank
Stock. The carrying amount of restricted investment in Federal Home Loan Bank stock approximates fair value, and considers the limited marketability of such securities.
Bank-Owned Life Insurance. The carrying amount of
the investment in bank-owned life insurance approximates its cash surrender value under the insurance policies.
Deposits. The carrying amount is
considered a reasonable estimate of fair value for demand savings deposit accounts. The fair value of fixed maturity certificates of deposit is estimated by a discounted cash flow method using the rates currently offered for deposits of similar
maturities.
Federal Home Loan Bank Borrowings. Fair
values of FHLB borrowings are estimated based on rates currently available to the Company for similar terms and remaining maturities.
Accrued Interest Payable. The
carrying amount of accrued interest payable approximates its fair value.
Advances from Borrowers for Taxes and
Insurance. The carrying amount of advances from borrowers for taxes and insurance approximates its fair value.
Off-Balance Sheet Financial Instruments. Off-balance
sheet financial instruments consist of commitments to extend credit. Fair values for commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the
agreement and the present credit standing of the counterparties. The estimated fair value of the commitments to extend credit are insignificant and therefore are not presented in the above table.
35
PART II
ITEM 6.
|
EXHIBITS
|
No.
|
Description
|
||
101.INS
|
XBRL Instance Document.
|
||
101.SCH
|
XBRL Taxonomy Extension Schema Document.
|
||
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
||
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document.
|
||
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: November 21, 2018
|
By:
|
|
/s/Robert T. Strong |
Robert T. Strong | |||
|
|
|
President and Chief Executive Officer
|
Date: November 21, 2018
|
By:
|
|
/s/John J. Augustine
|
|
|
|
John J. Augustine
|
Executive Vice President and Chief Financial Officer
|
36