Attached files
file | filename |
---|---|
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
|
(Mark One)
|
[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2020
|
OR
|
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
|
to
|
Commission file number: 000-52694
|
QUAINT OAK BANCORP, INC.
|
(Exact Name of Registrant as Specified in Its Charter)
|
Pennsylvania
|
35-2293957
|
|
(State or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S. Employer Identification No.)
|
|
501 Knowles Avenue, Southampton, Pennsylvania 18966
|
(Address of Principal Executive Offices)
|
(215) 364-4059
|
(Registrant’s Telephone Number, Including Area Code)
|
Not applicable
|
(Former name, former address and former fiscal year, if changed since last report)
|
Securities registered pursuant to Section 12(b) of the Act: None
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
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
|
[X]
|
Smaller reporting company
|
[X]
|
|
Emerging growth company | [ ] |
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 May 8, 2020, 1,995,067 shares of the Registrant’s common stock were issued
and outstanding.
|
INDEX
PART I - FINANCIAL INFORMATION
|
Page
|
Item 1 - Financial Statements
|
|
Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (Unaudited)
|
1 |
Consolidated Statements of Income for the Three Months Ended March 31, 2020 and 2019 (Unaudited)
|
2
|
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 (Unaudited)
|
3
|
Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019 (Unaudited)
|
4
|
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (Unaudited)
|
5
|
Notes to Unaudited Consolidated Financial Statements
|
6
|
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
36
|
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
|
47
|
Item 4 - Controls and Procedures
|
47
|
PART II - OTHER INFORMATION
|
|
Item 1 - Legal Proceedings
|
48
|
Item 1A - Risk Factors
|
48
|
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
|
49
|
Item 3 - Defaults Upon Senior Securities
|
50
|
Item 4 - Mine Safety Disclosures
|
50
|
Item 5 - Other Information
|
50
|
Item 6 - Exhibits
|
50
|
SIGNATURES
|
ITEM 1. FINANCIAL STATEMENTS
|
Quaint Oak Bancorp, Inc.
|
Consolidated Balance Sheets (Unaudited)
|
At March 31,
|
At December 31,
|
||||||||
2020
|
2019
|
||||||||
(In thousands, except share data)
|
|||||||||
Assets
|
|||||||||
Due from banks, non-interest-bearing
|
$
|
328
|
$
|
541
|
|||||
Due from banks, interest-bearing
|
14,615
|
14,014
|
|||||||
Cash and cash equivalents
|
14,943
|
14,555
|
|||||||
Investment in interest-earning time deposits
|
9,922
|
10,172
|
|||||||
Investment securities available for sale
|
7,332
|
7,623
|
|||||||
Loans held for sale
|
10,923
|
8,928
|
|||||||
Loans receivable, net of allowance for loan losses (2020 $2,346; 2019 $2,231)
|
251,088 |
246,692 |
|||||||
Accrued interest receivable
|
1,528
|
1,349
|
|||||||
Investment in Federal Home Loan Bank stock, at cost
|
1,340
|
1,580
|
|||||||
Bank-owned life insurance
|
3,993
|
3,974
|
|||||||
Premises and equipment, net
|
2,309
|
2,226
|
|||||||
Goodwill
|
515
|
515
|
|||||||
Other intangible, net of accumulated amortization
|
307
|
319
|
|||||||
Other real estate owned, net
|
1,931
|
1,824
|
|||||||
Prepaid expenses and other assets
|
3,315
|
2,783
|
|||||||
Total Assets
|
$
|
309,446
|
$
|
302,540
|
|||||
Liabilities and Stockholders’ Equity
|
|||||||||
Liabilities
|
|||||||||
Deposits:
|
|||||||||
Non-interest bearing
|
$
|
17,619
|
$
|
15,775
|
|||||
Interest-bearing
|
222,735
|
211,683
|
|||||||
Total deposits
|
240,354
|
227,458
|
|||||||
Federal Home Loan Bank short-term borrowings
|
-
|
10,000
|
|||||||
Federal Home Loan Bank long-term borrowings
|
30,193
|
26,271
|
|||||||
Subordinated debt
|
7,873
|
7,865
|
|||||||
Accrued interest payable
|
313
|
314
|
|||||||
Advances from borrowers for taxes and insurance
|
1,908
|
2,780
|
|||||||
Accrued expenses and other liabilities
|
2,576
|
1,945
|
|||||||
Total Liabilities
|
283,217
|
276,633
|
|||||||
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; 1,986,836 and 1,984,857
outstanding at March 31, 2020 and December 31, 2019, respectively
|
28
|
28
|
|||||||
Additional paid-in capital
|
15,088
|
14,990
|
|||||||
Treasury stock, at cost: 790,414 and 792,393 shares at March 31, 2020
and December 31, 2019, respectively
|
(4,973
|
)
|
(4,950
|
)
|
|||||
Unallocated common stock held by:
|
|||||||||
Employee Stock Ownership Plan (ESOP)
|
(101
|
)
|
(118
|
)
|
|||||
Accumulated other comprehensive (loss) income
|
(4
|
)
|
20
|
||||||
Retained earnings
|
16,191
|
15,937
|
|||||||
Total Stockholders’ Equity
|
26,229
|
25,907
|
|||||||
Total Liabilities and Stockholders’ Equity
|
$
|
309,446
|
$
|
302,540
|
See accompanying notes to the unaudited consolidated financial statements.
1
Quaint Oak Bancorp, Inc.
|
Consolidated Statements of Income (Unaudited)
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2020
|
2019
|
|||||||
(In thousands, except share
|
||||||||
and per share data)
|
||||||||
Interest Income
|
||||||||
Interest on loans, including fees
|
$
|
3,472
|
$
|
3,137
|
||||
Interest and dividends on time deposits, investment securities, interest-bearing
|
||||||||
deposits with others, and Federal Home Loan Bank stock
|
199
|
265
|
||||||
Total Interest Income
|
3,671
|
3,402
|
||||||
Interest Expense
|
||||||||
Interest on deposits
|
1,121
|
999
|
||||||
Interest on Federal Home Loan Bank short-term borrowings
|
30
|
58
|
||||||
Interest on Federal Home Loan Bank long-term borrowings
|
147
|
79
|
||||||
Interest on subordinated debt
|
130
|
129
|
||||||
Total Interest Expense
|
1,428
|
1,265
|
||||||
Net Interest Income
|
2,243
|
2,137
|
||||||
Provision for Loan Losses
|
115
|
85
|
||||||
Net Interest Income after Provision for Loan Losses
|
2,128
|
2,052
|
||||||
Non-Interest Income
|
||||||||
Mortgage banking and title abstract fees
|
294
|
145
|
||||||
Real estate sales commissions, net
|
33
|
18
|
||||||
Insurance commissions
|
97
|
92
|
||||||
Other fees and services charges
|
83
|
28
|
||||||
Income from bank-owned life insurance
|
19
|
20
|
||||||
Net gain on loans held for sale
|
781
|
433
|
||||||
Gain on the sale of SBA loans
|
-
|
106
|
||||||
Total Non-Interest Income
|
1,307
|
842
|
||||||
Non-Interest Expense
|
||||||||
Salaries and employee benefits
|
1,978
|
1,626
|
||||||
Directors’ fees and expenses
|
61
|
57
|
||||||
Occupancy and equipment
|
205
|
160
|
||||||
Data processing
|
137
|
102
|
||||||
Professional fees
|
114
|
82
|
||||||
FDIC deposit insurance assessment
|
21
|
28
|
||||||
Other real estate owned expenses
|
14
|
7
|
||||||
Advertising
|
75
|
71
|
||||||
Amortization of other intangible
|
12
|
12
|
||||||
Other
|
210
|
162
|
||||||
Total Non-Interest Expense
|
2,827
|
2,307
|
||||||
Income before Income Taxes
|
608
|
587
|
||||||
Income Taxes
|
176
|
174
|
||||||
Net Income
|
$
|
432
|
$
|
413
|
||||
Earnings per share – basic
|
$
|
0.22
|
$
|
0.21
|
||||
Average shares outstanding - basic
|
1,964,132
|
1,940,363
|
||||||
Earnings per share - diluted
|
$
|
0.21
|
$
|
0.21
|
||||
Average shares outstanding - diluted
|
2,031,494
|
1,991,779
|
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
|
||||||||
March 31,
|
||||||||
2020
|
2019
|
|||||||
(In Thousands)
|
||||||||
Net Income
|
$
|
432
|
$
|
413
|
||||
Other Comprehensive (Loss) Income:
|
||||||||
Unrealized (losses) gains on investment securities available for sale
|
(29
|
)
|
2
|
|||||
Income tax effect
|
5
|
(1
|
)
|
|||||
Net other comprehensive (loss) income
|
(24
|
)
|
1
|
|||||
Total Comprehensive Income
|
$
|
408
|
$
|
414
|
See accompanying notes to the unaudited consolidated financial statements.
3
Quaint Oak Bancorp, Inc.
|
Consolidated Statements of Stockholders’ Equity (Unaudited)
|
For the Three Months Ended March 31, 2020
|
||||||||||||||||||||||||||||||||
Unallocated
|
||||||||||||||||||||||||||||||||
Common Stock
|
Common
|
Accumulated
|
||||||||||||||||||||||||||||||
Number
|
Additional
|
Stock Held
|
Other
|
Total
|
||||||||||||||||||||||||||||
of
|
Paid-In
|
Treasury
|
by Benefit
|
Comprehensive
|
Retained
|
Stockholders’
|
||||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Stock
|
Plans
|
Income (Loss)
|
Earnings
|
Equity
|
|||||||||||||||||||||||||
(In thousands, except share data)
|
||||||||||||||||||||||||||||||||
BALANCE –DECEMBER 31, 2019
|
1,984,857
|
$
|
28
|
$
|
14,990
|
$
|
(4,950
|
)
|
$
|
(118
|
)
|
$
|
20
|
$
|
15,937
|
$
|
25,907
|
|||||||||||||||
Common stock allocated by ESOP (3,607 shares)
|
35
|
17
|
52
|
|||||||||||||||||||||||||||||
Treasury stock purchase
|
(5,372
|
)
|
(67
|
)
|
(67
|
)
|
||||||||||||||||||||||||||
Reissuance of treasury stock under 401(k) Plan
|
851
|
7
|
5
|
12
|
||||||||||||||||||||||||||||
Reissuance of treasury stock for exercised stock options
|
6,500
|
13
|
39
|
52
|
||||||||||||||||||||||||||||
Stock based compensation expense
|
43
|
43
|
||||||||||||||||||||||||||||||
Cash dividends declared ($0.09 per share)
|
(178
|
)
|
(178
|
)
|
||||||||||||||||||||||||||||
Net income
|
432
|
432
|
||||||||||||||||||||||||||||||
Other comprehensive (loss), net
|
(24
|
)
|
(24
|
)
|
||||||||||||||||||||||||||||
BALANCE – March 31, 2020
|
1,986,836
|
$
|
28
|
$
|
15,088
|
$
|
(4,973
|
)
|
$
|
(101
|
)
|
$
|
(4
|
)
|
$
|
16,191
|
$
|
26,229
|
For the Three Months Ended March 31, 2019
|
||||||||||||||||||||||||||||||||
Unallocated
|
||||||||||||||||||||||||||||||||
Common Stock |
Common
|
Accumulated
|
||||||||||||||||||||||||||||||
Number
|
Additional
|
Stock Held
|
Other
|
Total
|
||||||||||||||||||||||||||||
of
|
Paid-In
|
Treasury
|
by Benefit
|
Comprehensive
|
Retained
|
Stockholders’
|
||||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Stock
|
Plans
|
Income (Loss)
|
Earnings
|
Equity
|
|||||||||||||||||||||||||
(In thousands, except share data)
|
||||||||||||||||||||||||||||||||
BALANCE –DECEMBER 31, 2018
|
1,975,947
|
$
|
28
|
$
|
14,683
|
$
|
(4,824
|
)
|
$
|
(185
|
)
|
$
|
(2
|
)
|
$
|
14,136
|
$
|
23,836
|
||||||||||||||
Common stock allocated by ESOP (3,607 shares)
|
28
|
17
|
45
|
|||||||||||||||||||||||||||||
Treasury stock purchase
|
(9,326
|
)
|
(115
|
)
|
(115
|
)
|
||||||||||||||||||||||||||
Reissuance of treasury stock under 401(k) Plan
|
970
|
6
|
6
|
12
|
||||||||||||||||||||||||||||
Reissuance of treasury stock for exercised stock options
|
13,500
|
30
|
79
|
109
|
||||||||||||||||||||||||||||
Stock based compensation expense
|
43
|
43
|
||||||||||||||||||||||||||||||
Cash dividends declared ($0.07 per share)
|
(138
|
)
|
(138
|
)
|
||||||||||||||||||||||||||||
Net income
|
413
|
413
|
||||||||||||||||||||||||||||||
Other comprehensive income, net
|
1
|
1
|
||||||||||||||||||||||||||||||
BALANCE – March 31, 2019
|
1,981,091
|
$
|
28
|
$
|
14,790
|
$
|
(4,854
|
)
|
$
|
(168
|
)
|
$
|
(1
|
)
|
$
|
14,411
|
$
|
24,206
|
See accompanying notes to the unaudited consolidated financial statements.
4
Quaint Oak Bancorp, Inc.
|
Consolidated Statements of Cash Flows (Unaudited)
|
For the Three Months
|
||||||||
Ended March 31,
|
||||||||
2020
|
2019
|
|||||||
(In Thousands)
|
||||||||
Cash Flows from Operating Activities
|
||||||||
Net income
|
$
|
432
|
$
|
413
|
||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
||||||||
Provision for loan losses
|
115
|
85
|
||||||
Depreciation of premises and equipment
|
53
|
50
|
||||||
Amortization of operating right-of-use assets
|
28
|
29
|
||||||
Amortization of subordinated debt issuance costs
|
8
|
9
|
||||||
Amortization of other intangible
|
12
|
12
|
||||||
Net amortization of securities premiums
|
3
|
5
|
||||||
Accretion of deferred loan fees and costs, net
|
(116
|
)
|
(125
|
)
|
||||
Stock-based compensation expense
|
95
|
88
|
||||||
Net gain on loans held for sale
|
(781
|
)
|
(433
|
)
|
||||
Loans held for sale-originations
|
(34,672
|
)
|
(17,843
|
)
|
||||
Loans held for sale-proceeds
|
33,458
|
19,167
|
||||||
Gain on the sale of SBA loans
|
-
|
(106
|
)
|
|||||
Increase in the cash surrender value of bank-owned life insurance
|
(19
|
)
|
(20
|
)
|
||||
Changes in assets and liabilities which provided (used) cash:
|
||||||||
Accrued interest receivable
|
(179
|
)
|
(102
|
)
|
||||
Prepaid expenses and other assets
|
77
|
87
|
||||||
Accrued interest payable
|
(1
|
)
|
143
|
|||||
Accrued expenses and other liabilities
|
(1
|
)
|
(570
|
)
|
||||
Net Cash (Used in) Provided by Operating Activities
|
(1,488
|
)
|
889
|
|||||
Cash Flows from Investing Activities
|
||||||||
Purchase of interest-earning time deposits
|
(499
|
)
|
(6,297
|
)
|
||||
Redemption of interest-earning time deposits
|
749
|
1,071
|
||||||
Principal repayments on investment securities available for sale
|
259
|
183
|
||||||
Net increase in loans receivable
|
(4,395
|
)
|
(2,398
|
)
|
||||
Redemption of Federal Home Loan Bank stock
|
240
|
-
|
||||||
Capitalized expenditures on other real estate owned
|
(107
|
)
|
(94
|
)
|
||||
Purchase of premises and equipment
|
(136
|
)
|
(53
|
)
|
||||
Net Cash Used in Investing Activities
|
(3,889
|
)
|
(7,588
|
)
|
||||
Cash Flows from Financing Activities
|
||||||||
Net increase (decrease) in demand deposits, money market, and savings accounts
|
4,501
|
(2,815
|
)
|
|||||
Net increase in certificate accounts
|
8,395
|
12,890
|
||||||
Decrease in advances from borrowers for taxes and insurance
|
(872
|
)
|
(878
|
)
|
||||
Repayments of Federal Home Loan Bank short-term borrowings
|
(10,000
|
) |
-
|
|||||
Proceeds from Federal Home Loan Bank long-term borrowings
|
3,922
|
-
|
||||||
Dividends paid
|
(178
|
)
|
(138
|
)
|
||||
Purchase of treasury stock
|
(67
|
)
|
(115
|
)
|
||||
Proceeds from the reissuance of treasury stock
|
12
|
12
|
||||||
Proceeds from the exercise of stock options
|
52
|
109
|
||||||
Net Cash Provided by Financing Activities
|
5,765
|
9,065
|
||||||
Net Increase in Cash and Cash Equivalents
|
388
|
2,366
|
||||||
Cash and Cash Equivalents – Beginning of Year
|
14,555
|
26,012
|
||||||
Cash and Cash Equivalents – End of Year
|
$
|
14,943
|
$
|
28,378
|
||||
Supplementary Disclosure of Cash Flow and Non-Cash Information:
|
||||||||
Cash payments for interest
|
$
|
1,430
|
$
|
1,122
|
||||
Cash payments for income taxes
|
$
|
60
|
$
|
45
|
||||
Initial recognition of operating lease right-of use assets
|
$
|
632
|
$
|
1,366
|
||||
Initial recognition of operating lease obligations
|
$
|
632
|
$
|
1,366
|
||||
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 March 31, 2020, 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 company offers mortgage banking in the Lehigh Valley, Delaware Valley and Philadelphia County region of Pennsylvania. The real estate and abstract companies
offer real estate sales and title abstract services, respectively, primarily in the Lehigh Valley region of Pennsylvania. These companies began operation in July 2009. In February, 2019, Quaint Oak Mortgage opened a mortgage banking office
in Philadelphia, Pennsylvania. 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, Montgomery and Philadelphia Counties and the Lehigh Valley area in Pennsylvania. The Bank has three banking locations: the main office location in Southampton,
Pennsylvania and regional banking offices in the Lehigh Valley and Philadelphia. The Bank also has a mortgage office in Philadelphia and an insurance agency office in New Britain Township, 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, 2019 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 2019 Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2020 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2020.
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, commercial
business 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
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 months ended March 31, 2020 and 2019.
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. At March 31, 2020 the Company had four properties in other real estate owned
(OREO) totaling $1.9 million. The balance of this OREO property amounted to $1.8 million at December 31, 2019.
Share-Based Compensation. Compensation
expense for share-based compensation awards is based on the grant date fair value of the award. Compensation expense for stock options is based on a Black-Scholes model to estimate the fair value. The cost is recognized over the period during
which an employee is required to provide service in exchange for the award.
At March 31, 2020, 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 unearned ESOP shares, unvested restricted stock
(RRP) shares and treasury shares. Stock options and unvested restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would have a dilutive effect if converted
to common stock, computed using the “treasury stock” method.
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.
Abstract Title Fees: The Bank provides abstract title services through its wholly owned
subsidiary, Quaint Oak Abstract, LLC. Fees for these services are recognized as revenue immediately after the completion of the real estate settlement.
Real Estate Sales Commissions, Net: The Bank provides real estate sales services through its wholly owned subsidiary, Quaint Oak Real Estate,
LLC. Commission income is earned for these services and recognized as revenue immediately after the completion of the real estate settlement.
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.
Recently Adopted Accounting Pronouncements. 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.
11
Quaint Oak Bancorp, Inc.
|
Notes to Unaudited Consolidated Financial Statements
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update did not have a significant impact on the Company’s financial statements.
Recent Accounting Pronouncements Not Yet Adopted. In June 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.
In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all
other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. 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.
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 unit’s 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. In November 2019, the FASB issued ASU
2019-10, Financial Instruments– Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date for ASC 350, Intangibles – Goodwill and Other,
for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. This update is not expected to have a significant impact on the Company’s financial statements.
12
Quaint Oak Bancorp, Inc.
|
Notes to Unaudited Consolidated Financial Statements
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows
entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset
must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either
available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect
adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the
effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those
fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. In November, 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which
deferred the effective date for ASC 944, Financial Services – Insurance, for public business entities that are SEC filers, except for smaller reporting companies, to fiscal years beginning after December 15, 2021, and interim periods within
those fiscal years and for all other entities, including smaller reporting companies, to fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. This Update is not expected
to have a significant impact on the Company’s financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for
income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is
not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The Update also changes current guidance
for making an intraperiod allocation, if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from
the equity method of accounting; accounting for tax law changes and year-to-date losses in interim periods; and determining how to apply the income tax guidance to franchise taxes that are partially based on income. 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, 2020. For all other entities, the amendments are effective for fiscal years beginning after
December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s financial statements.
In January 2020, the FASB issued ASU 2020-02, Financial Instruments – Credit Losses (Topic 326) and Leases (Topic
842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), February 2020, to add and amend
SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119, related to the new credit losses standard, and comments by the SEC staff related to the revised effective date of the
new leases standard. This ASU is effective upon issuance. This did not 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 March 2020, the FASB issued ASU 2020-03, Codification Improvements to
Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the
areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change
practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to
measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an
entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption
of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon
issuance of this ASU. This Update is not expected to have a significant impact on the Company’s financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the
expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts
affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to re-measure the contracts at the modification date or reassess a previous accounting determination.
Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to
sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company is
currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
Reclassifications. Certain items in the 2019 consolidated financial statements have been reclassified to conform to the presentation in the 2020 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
Earnings per share (“EPS”) consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed based on the weighted average number of
shares of common stock outstanding for each period presented. Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents (“CSEs”). CSEs consist of shares that are
assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested restricted stock (RRP) shares. Common stock equivalents which are considered antidilutive are not included for the purposes of this
calculation. For the three months ended March 31, 2020 and 2019, all unvested restricted stock program awards and outstanding stock options under the 2008 Stock Option Plan and the 2013 Stock Incentive Plan representing shares were dilutive. For
the three months ended March 31, 2020, all outstanding stock options awarded in 2018 under the 2013 and 2018 Stock Incentive Plans representing shares were dilutive. For the three months ended March 31, 2019, all outstanding stock options awarded
in 2018 under the 2013 and 2018 Stock Incentive Plans representing shares were anti-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 March 31,
|
||||||||
2020
|
2019
|
|||||||
Net Income
|
$
|
432,000
|
$
|
413,000
|
||||
Weighted average shares outstanding – basic
|
1,964,132
|
1,940,363
|
||||||
Effect of dilutive common stock equivalents
|
67,362
|
51,416
|
||||||
Adjusted weighted average shares outstanding – diluted
|
2,031,494
|
1,991,779
|
||||||
Basic earnings per share
|
$
|
0.22
|
$
|
0.21
|
||||
Diluted earnings per share
|
$
|
0.21
|
$
|
0.21
|
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 months ended March 31,
2020 and 2019 (in thousands):
Unrealized Gains (Losses)
on Investment Securities
Available for Sale (1)
|
||||||||
For the Three Months
Ended March 31,
|
||||||||
2020
|
2019
|
|||||||
Balance at the beginning of the period
|
$
|
20
|
$
|
(2
|
)
|
|||
Other comprehensive (loss) income before classifications
|
(24
|
)
|
1
|
|||||
Amount reclassified from accumulated other comprehensive income
|
- |
- |
||||||
Total other comprehensive (loss) income
|
(24
|
)
|
1
|
|||||
Balance at the end of the period
|
$
|
(4
|
)
|
$
|
(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 March 31, 2020 and December 31, 2019, by contractual maturity, are shown below (in thousands):
March 31,
2020
|
December 31,
2019
|
|||||||
Due in one year or less
|
$
|
2,776
|
$
|
2,026
|
||||
Due after one year through five years
|
7,146
|
8,146
|
||||||
Total
|
$
|
9,922
|
$
|
10,172
|
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 March 31, 2020 and December 31,
2019 are summarized below (in thousands):
March 31, 2020
|
||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
(Losses) |
Fair Value
|
|||||||||||||
Available for Sale:
|
||||||||||||||||
Mortgage-backed securities:
|
||||||||||||||||
Governmental National Mortgage Association securities
|
$
|
5,587
|
$
|
4
|
$
|
(51
|
)
|
$
|
5,540
|
|||||||
Federal National Mortgage Association securities
|
250
|
-
|
(2
|
)
|
248
|
|||||||||||
Total mortgage-backed securities
|
5,837
|
4
|
(53
|
)
|
5,788
|
|||||||||||
Debt securities:
|
||||||||||||||||
Corporate notes
|
1,500
|
44
|
-
|
1,544
|
||||||||||||
Total available-for-sale-securities
|
$
|
7,337
|
$
|
48
|
$
|
(53
|
)
|
$
|
7,332
|
December 31, 2019
|
||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
(Losses)
|
Fair Value
|
|||||||||||||
Available for Sale:
|
||||||||||||||||
Mortgage-backed securities:
|
||||||||||||||||
Governmental National Mortgage Association securities
|
$
|
5,841
|
$
|
13
|
$
|
(1
|
)
|
$
|
5,853
|
|||||||
Federal National Mortgage Association securities
|
258
|
2
|
--
|
260
|
||||||||||||
Total mortgage-backed securities
|
6,099
|
15
|
(1
|
)
|
6,113
|
|||||||||||
Debt securities:
|
||||||||||||||||
Corporate notes
|
1,500
|
10
|
--
|
1,510
|
||||||||||||
Total available-for-sale-securities
|
$
|
7,599
|
$
|
25
|
$
|
(1
|
)
|
$
|
7,623
|
16
Quaint Oak Bancorp, Inc.
|
Notes to Unaudited Consolidated Financial Statements
Note 5 – Investment Securities Available for Sale (Continued)
The amortized cost and fair value of debt securities at March 31, 2020, 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
|
|||||||
Due after one year through five years
|
$
|
1,500
|
$
|
1,544
|
||||
Due after ten years
|
5,837
|
5,788
|
||||||
Total
|
$
|
7,337
|
$
|
7,332
|
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 March 31, 2020 and December 31, 2019 (in thousands):
|
March 31, 2020
|
|||||||||||||||||||||||||||
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 |
|||||||||||||||||||||
Government National Mortgage Association securities
|
8
|
$
|
4,496
|
$
|
(51
|
)
|
$
|
-
|
$
|
-
|
$
|
4,496
|
$
|
(51
|
)
|
|||||||||||||
Federal National Mortgage Association securities
|
1
|
248
|
(2
|
)
|
-
|
-
|
248
|
(2
|
)
|
|||||||||||||||||||
Total
|
9
|
$
|
4,744
|
$
|
(53
|
)
|
$
|
-
|
$
|
-
|
$
|
4,744
|
$
|
(53
|
)
|
|
March 31, 2019
|
|||||||||||||||||||||||||||
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 |
|||||||||||||||||||||
Government National Mortgage Association securities
|
4
|
$
|
2,295
|
$
|
(1
|
)
|
$
|
-
|
$
|
-
|
$
|
2,295
|
$
|
(1
|
)
|
At March 31, 2020, there were nine securities in an unrealized loss position that at such date had an aggregate depreciation of 1.10% 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 March 31, 2020 represents an other-than-temporary impairment. There were no impairment charges
recognized during the three months ended March 31, 2020 or 2019.
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:
March 31,
2020
|
December 31,
2019
|
|||||||
Real estate loans:
|
||||||||
One-to-four family residential:
|
||||||||
Owner occupied
|
$
|
6,446
|
$
|
6,298
|
||||
Non-owner occupied
|
39,427
|
39,897
|
||||||
Total one-to-four family residential
|
45,873
|
46,195
|
||||||
Multi-family (five or more) residential
|
24,061
|
22,233
|
||||||
Commercial real estate
|
123,902
|
119,323
|
||||||
Construction
|
9,327
|
12,523
|
||||||
Home equity
|
4,247
|
3,726
|
||||||
Total real estate loans
|
207,410
|
204,000
|
||||||
Commercial business
|
46,797
|
45,745
|
||||||
Other consumer
|
16
|
22
|
||||||
Total Loans
|
254,223
|
249,767
|
||||||
Deferred loan fees and costs
|
(789
|
)
|
(844
|
)
|
||||
Allowance for loan losses
|
(2,346
|
)
|
(2,231
|
)
|
||||
Net Loans
|
$
|
251,088
|
$
|
246,692
|
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 March 31, 2020 and December 31, 2019 (in thousands):
March 31, 2020
|
||||||||||||||||||||
Pass
|
Special
Mention
|
Substandard
|
Doubtful
|
Total
|
||||||||||||||||
One-to-four family residential owner occupied
|
$
|
6,274
|
$
|
-
|
$
|
172
|
$
|
-
|
$
|
6,446
|
||||||||||
One-to-four family residential non-owner occupied
|
39,110
|
-
|
317
|
-
|
39,427
|
|||||||||||||||
Multi-family residential
|
24,061
|
-
|
-
|
-
|
24,061
|
|||||||||||||||
Commercial real estate
|
123,102
|
508
|
292
|
-
|
123,902
|
|||||||||||||||
Construction
|
9,327
|
-
|
-
|
-
|
9,327
|
|||||||||||||||
Home equity
|
4,247
|
-
|
-
|
-
|
4,247
|
|||||||||||||||
Commercial business
|
46,797
|
-
|
-
|
-
|
46,797
|
|||||||||||||||
Other consumer
|
16
|
-
|
-
|
-
|
16
|
|||||||||||||||
Total
|
$
|
252,934
|
$
|
508
|
$
|
781
|
$
|
-
|
$
|
254,223
|
December 31, 2019
|
||||||||||||||||||||
Pass
|
Special
Mention
|
Substandard
|
Doubtful
|
Total
|
||||||||||||||||
One-to-four family residential owner occupied
|
$
|
6,126
|
$
|
-
|
$
|
172
|
$
|
-
|
$
|
6,298
|
||||||||||
One-to-four family residential non-owner occupied
|
39,579
|
-
|
318
|
-
|
39,897
|
|||||||||||||||
Multi-family residential
|
22,233
|
-
|
-
|
-
|
22,233
|
|||||||||||||||
Commercial real estate
|
118,233
|
798
|
292
|
-
|
119,323
|
|||||||||||||||
Construction
|
12,523
|
-
|
-
|
-
|
12,523
|
|||||||||||||||
Home equity
|
3,726
|
-
|
-
|
-
|
3,726
|
|||||||||||||||
Commercial business
|
45,745
|
-
|
-
|
-
|
45,745
|
|||||||||||||||
Other consumer
|
22
|
-
|
-
|
-
|
22
|
|||||||||||||||
Total
|
$
|
248,187
|
$
|
798
|
$
|
782
|
$
|
-
|
$
|
249,767
|
18
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 March 31, 2020 as well as the average recorded investment and related interest income for the period then ended (in thousands):
March 31, 2020
|
||||||||||||||||||||
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
|
$
|
172
|
$
|
178
|
$
|
-
|
$
|
178
|
$
|
-
|
||||||||||
One-to-four family residential non-owner occupied
|
19
|
19
|
-
|
19
|
1
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Home equity
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
-
|
||||||||||||||||||||
With an allowance recorded:
|
||||||||||||||||||||
One-to-four family residential owner occupied
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
One-to-four family residential non-owner occupied
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
131
|
131
|
3
|
131
|
3
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Home equity
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Total:
|
||||||||||||||||||||
One-to-four family residential owner occupied
|
$
|
172
|
$
|
178
|
$
|
-
|
$
|
178
|
$
|
-
|
||||||||||
One-to-four family residential non-owner occupied
|
19
|
19
|
-
|
19
|
1
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
131
|
131
|
3
|
131
|
3
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Home equity
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Total
|
$
|
322
|
$
|
328
|
$
|
3
|
$
|
328
|
$
|
4
|
19
Quaint Oak Bancorp, Inc.
|
Notes to Unaudited Consolidated Financial Statements
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, 2019 as well as the average recorded investment and related interest income for the year then ended (in thousands):
December 31, 2019
|
||||||||||||||||||||
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
|
$
|
172
|
$
|
178
|
$
|
-
|
$
|
178
|
$
|
-
|
||||||||||
One-to-four family residential non-owner occupied
|
19
|
19
|
-
|
225
|
13
|
|||||||||||||||
Multi-family residential
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial real estate
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Home equity
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Commercial business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other consumer
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
With an allowance recorded:
|