UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

March 31,June 30, 2023

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)

(Zip Code)

 

(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. Yes☒ Yes     No ☐ 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). Yes  ☒   Yes  No  ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☒   Smaller reporting company ☒   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   ☒No☒  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,August 10, 2023, 2,227,0722,236,495 shares of the Registrant’sissuer’s common stock were issued and outstanding.

 

 

 
 

 

 

INDEX

 

PART I - FINANCIAL INFORMATION

Page

  

Item 1 -

Financial Statements

 

Consolidated Balance Sheets as of March 31,June 30, 2023 and December 31, 2022 (Unaudited)         

1

Consolidated Statements of Income for the Three and Six Months Ended March 31,June 30, 2023 and 2022 (Unaudited)         

2

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended March 31,June 30, 2023 and 2022 (Unaudited)         

3

Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)         

4

Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 (Unaudited)         

5

Consolidated Statements of Cash Flows for the ThreeSix Months Ended March 31,June 30, 2023 and 2022 (Unaudited)         

6

Notes to the Unaudited Consolidated Financial Statements         

8

  

Item 2 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations         

 2836

 

Item 3 -

Quantitative and Qualitative Disclosures About Market Risk         

 34

Item 4 -

Controls and Procedures

 34

47
 

PART II - OTHER INFORMATION

 

Item 1 -

Legal Proceedings         

 34

Item 1A -

Risk Factors

 34

Item 2 -

Unregistered Sales of Equity Securities and Use of Proceeds         

 34

Item 3 -

Defaults Upon Senior Securities         

 35

Item 4 -

Mine Safety Disclosures         

 35

Item 5 -

Other Information         

 35

Item 6 -

Exhibits         

 3548

 

SIGNATURES

 

 

 

 
 

EXPLANATORY NOTE REGARDING RESTATEMENT

Quaint Oak Bancorp, Inc., a Pennsylvania corporation, is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 (“Amended Report”) to reflect a restatement of the consolidated financial statements contained in the Company’s original Quarterly Report on Form 10-Q for that period filed with the Securities and Exchange Commission (“SEC”) on August 14, 2023 (the “Original Report”).

Restatement of Previously Issued Consolidated Financial Statements

On December 11, 2023, the Audit Committee of the Board of Directors of Quaint Oak Bancorp, Inc. (the “Company,” “we” or “our”) concluded that the Company’s previously issued consolidated financial statements for the interim period ended June 30, 2023 (the “Restated Period”), should no longer be relied upon because of a reclassification related to expenses on deposit accounts obtained from a correspondent banking relationship that resulted in material misstatements of interest expense and other non-interest expense for the Restated Period.

The Audit Committee determined that the Company accounted for the expense related to checking account deposits received from the correspondent banking relationship as other non-interest expense rather than interest expense on deposits.  The deposits which were reported as non-interest bearing deposits on our consolidated balance sheets have been reclassified, in part, as interest-bearing deposits for the Restated Period. A portion of the deposits related to the correspondent banking relationship remain classified as non-interest bearing deposits. As a result of the reclassification, interest expense for the Restated Period increased resulting in a decrease in net interest income for the Restated Period.  Other non-interest expense and total non-interest expense decreased for the Restated Period as a result of the reclassification. In addition, as a result of the restatement, the Company’s interest rate spread and net interest margin will decrease for the Restated Period.

Items Amended in this Filing

We are filing this Amended Report in order to amend the following items of the Original Report to the extent necessary to reflect the adjustments discussed above and make corresponding revisions to the financial data appearing elsewhere in the Original Report:

●Part I, Item 1. Financial Statements

●

Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

●Part 1, Item 4. Controls and Procedures

Except as indicated above, no other information in the Original Report is amended hereby.  In order to preserve the nature and character of the disclosures set forth in the Original Report, except as expressly noted above, this Amended Report speaks as of the date of the filing of the Original Report, and we have not updated the disclosures in this Amended Report to speak as of a later date. All information contained in this Amended Report is subject to updating and supplementing as provided in filings with the SEC subsequent to the filing date of the Original Report. Accordingly, this Amended Report should be read in conjunction with our filings made with the SEC subsequent to the filing date of the Original Report.

Control Considerations

In connection with the above, our management has reassessed the effectiveness of our disclosure controls and procedures as of June 30, 2023, and we have included applicable disclosure in Part I, Item 4 herein, “Controls and Procedures.” Management identified a material weakness in our internal control over financial reporting, as described in Part I, Item 4 of this Amended Report, resulting in the conclusion by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures were not effective as of June 30, 2023. Management has taken steps, and is continuing to take steps, to remediate this material weakness, as described under “Remediation Plan and Status” in Part I, Item 4 of this Amended Report.

 
 

ITEM 1. FINANCIAL STATEMENTS

 

Quaint Oak Bancorp, Inc.

Consolidated Balance Sheets (Unaudited)

 

  

At June 30,

  

At December 31,

 
  

2023

  

2022

 

 

 

(In thousands, except share and per share data)

 
Assets        

Due from banks, non-interest-bearing

 $833  $421 

Due from banks, interest-bearing

  8,754   3,472 

Cash and cash equivalents

  9,587   3,893 

Investment in interest-earning time deposits

  2,162   3,833 

Investment securities available for sale

  2,656   2,970 

Loans held for sale

  115,697   133,222 

Loans receivable, net of allowance for credit losses (2023 $7,456; 2022 $7,678)

  626,767   621,864 

Accrued interest receivable

  3,132   3,462 

Investment in Federal Home Loan Bank stock, at cost

  5,722   6,601 

Bank-owned life insurance

  4,275   4,226 

Premises and equipment, net

  2,945   2,775 

Goodwill

  2,573   2,573 

Other intangible, net of accumulated amortization

  150   174 

Prepaid expenses and other assets

  8,129   6,757 

Total Assets

 $783,795  $792,350 

Liabilities and Stockholders’ Equity

 

Liabilities

        

Deposits:

        

Non-interest bearing

 $70,811  $88,728 

Interest-bearing

  502,587   460,520 

Total deposits

 $573,398   549,248 

Federal Home Loan Bank short-term borrowings

  72,000   93,200 

Federal Home Loan Bank long-term borrowings

  42,022   66,022 

Federal Reserve Bank short-term borrowings

  -   7,000 

Other short-term borrowings

  9,659   5,489 

Subordinated debt

  21,811   7,966 

Accrued interest payable

  736   584 

Advances from borrowers for taxes and insurance

  4,546   4,186 

Accrued expenses and other liabilities

  10,860   9,573 

Total Liabilities

  735,032   743,268 

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; 2,236,422 and

2,167,613 outstanding at June 30, 2023 and December 31, 2022, respectively

  28   28 

Additional paid-in capital

  18,121   17,906 

Treasury stock, at cost: 540,828 and 609,637 shares at June 30, 2023 and December 31, 2022, respectively

  (3,814)  (3,992)

Accumulated other comprehensive loss

  (16)  (24)

Retained earnings

  31,440   30,875 

Total Quaint Oak Bancorp, Inc. Stockholders' Equity

  45,759   44,793 

Noncontrolling Interest

  3,004   4,289 

Total Stockholders' Equity

 $48,763  $49,082 

Total Liabilities and Stockholders’ Equity

 $783,795  $792,350 

 

  

At March 31,

  

At December 31,

 
  

2023

  

2022

 

 

 

(In thousands, except share and per share data)

 
Assets        

Due from banks, non-interest-bearing

 $484  $421 

Due from banks, interest-bearing

  3,390   3,472 

Cash and cash equivalents

  3,874   3,893 

Investment in interest-earning time deposits

  2,662   3,833 

Investment securities available for sale

  2,836   2,970 

Loans held for sale

  141,206   133,222 

Loans receivable, net of allowance for credit losses (2023 $7,658; 2022 $7,678)

  632,826   621,864 

Accrued interest receivable

  3,540   3,462 

Investment in Federal Home Loan Bank stock, at cost

  6,741   6,601 

Bank-owned life insurance

  4,250   4,226 

Premises and equipment, net

  2,911   2,775 

Goodwill

  2,573   2,573 

Other intangible, net of accumulated amortization

  162   174 

Prepaid expenses and other assets

  8,019   6,757 

Total Assets

 $811,600  $792,350 

Liabilities and Stockholders’ Equity

 

Liabilities

        

Deposits:

        

Non-interest bearing

 $95,214  $88,728 

Interest-bearing

  459,230   460,520 

Total deposits

  554,444   549,248 

Federal Home Loan Bank short-term borrowings

  113,200   93,200 

Federal Home Loan Bank long-term borrowings

  46,022   66,022 

Federal Reserve Bank short-term borrowings

  -   7,000 

Other short-term borrowings

  11,117   5,489 

Subordinated debt

  21,739   7,966 

Accrued interest payable

  763   584 

Advances from borrowers for taxes and insurance

  3,196   4,186 

Accrued expenses and other liabilities

  11,698   9,573 

Total Liabilities

  762,179   743,268 

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; 2,192,432 and 2,167,613 outstanding at March 31, 2023 and December 31, 2022, respectively

  28   28 

Additional paid-in capital

  18,005   17,906 

Treasury stock, at cost: 584,818 and 609,637 shares at March 31, 2023 and December 31, 2022, respectively

  (3,888)  (3,992)

Accumulated other comprehensive loss

  (14)  (24)

Retained earnings

  31,155   30,875 

Total Quaint Oak Bancorp, Inc. Stockholders' Equity

  45,286   44,793 

Noncontrolling Interest

  4,135   4,289 

Total Stockholders' Equity

 $49,421  $49,082 

Total Liabilities and Stockholders’ Equity

 $811,600  $792,350 

 

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 Six

Months Ended

 
  

June 30,

  

June 30,

 
  

2023

  

2022

  

2023

  

2022

 
  

(In thousands, except for share data)

 

Interest Income

                

Interest on loans, including fees

 $11,852  $7,200  $22,446  $13,500 

Interest and dividends on time deposits, investment securities, interest-bearing deposits with others, and Federal Home Loan Bank stock

  266   108   490   181 

Total Interest Income

  12,118   7,308   22,936   13,681 
                 

Interest Expense

                

Interest on deposits

  4,439   907   8,205   1,527 

Interest on Federal Home Loan Bank short-term borrowings

  1,500   53   2,800   75 

Interest on Federal Home Loan Bank long-term borrowings

  354   389   631   501 

Interest on Federal Reserve Bank long-term borrowings

  9   1   19   4 

Interest on subordinated debt

  582   130   778   260 

Interest on other short-term borrowings

  388   18   604   27 

Total Interest Expense

  7,272   1,498   13,037   2,394 

Net Interest Income

  4,846   5,810   9,899   11,287 

(Recovery of) Provision for Credit Losses

  (189)  599   203   1,278 

Net Interest Income after (Recovery of) Provision for Credit Losses

  5,035   5,211   9,696   10,009 
                 

Non-Interest Income

                

Mortgage banking, equipment lending and title abstract fees

  566   824   1,372   1,461 

Real estate sales commissions, net

  48   64   72   125 

Insurance commissions

  160   139   296   255 

Other fees and services charges

  212   82   443   248 

Loan servicing income

  1,123   308   2,352   474 

Income from bank-owned life insurance

  25   22   49   43 

Net gain on loans held for sale

  1,073   2,858   1,953   7,068 

Gain on the sale of SBA loans

  201   34   251   167 

Total Non-Interest Income

  3,408   4,331   6,788   9,841 
                 

Non-Interest Expense

                

Salaries and employee benefits

  5,528   4,891   10,870   9,482 

Directors' fees and expenses

  102   72   207   143 

Occupancy and equipment

  561   466   1,088   886 

Data processing

  208   163   425   360 

Professional fees

  225   228   400   412 

FDIC deposit insurance assessment

  240   113   472   229 

Advertising

  137   154   436   362 

Amortization of other intangible

  12   12   24   24 

Other

  892   490   1,357   873 

Total Non-Interest Expense

  7,905   6,589   15,279   12,771 
                 

Income before Income Taxes

 $538  $2,953  $1,205  $7,079 

Income Taxes

  273   658   491   1,519 

Net Income

 $265  $2,295  $714  $5,560 

Net Income (Loss) Attributable to Noncontrolling Interest

 $(305) $525  $(419) $1,541 

Net Income Attributable to Quaint Oak Bancorp, Inc.

 $570  $1,770  $1,133  $4,019 
                 

Earnings per share - basic

 $0.25  $0.87  $0.51  $1.99 

Average shares outstanding - basic

  2,236,885   2,038,479   2,209,891   2,023,511 

Earnings per share - diluted

 $0.25  $0.82  $0.51  $1.88 

Average shares outstanding - diluted

  2,241,570   2,161,277   2,233,369   2,142,169 

 

 

  

For the Three Months Ended

 
  

March 31,

 
  

2023

  

2022

 
  

(In thousands)

 

Interest Income

        

Interest on loans, including fees

 $10,594  $6,301 

Interest and dividends on time deposits, investment securities, interest-bearing deposits with others, and Federal Home Loan Bank stock

  224   73 

Total Interest Income

  10,818   6,374 
         

Interest Expense

        

Interest on deposits

  3,510   620 

Interest on Federal Home Loan Bank short-term borrowings

  1,300   22 

Interest on Federal Home Loan Bank long-term borrowings

  277   112 

Interest on Federal Reserve Bank short-term borrowings

  10   3 

Interest on subordinated debt

  216   130 

Interest on other short-term borrowings

  196   9 

Total Interest Expense

  5,509   896 

Net Interest Income

  5,309   5,478 

Provision for Credit Losses

  392   679 

Net Interest Income after Provision for Credit Losses

  4,917   4,799 
         

Non-Interest Income

        

Mortgage banking, equipment lending and title abstract fees

  806   637 

Real estate sales commissions, net

  24   61 

Insurance commissions

  136   116 

Other fees and services charges

  231   166 

Net loan servicing income

  1,229   165 

Income from bank-owned life insurance

  24   21 

Net gain on loans held for sale

  880   4,210 

Gain on the sale of SBA loans

  50   133 

Total Non-Interest Income

  3,380   5,509 
         

Non-Interest Expense

        

Salaries and employee benefits

  5,342   4,591 

Directors' fees and expenses

  105   71 

Occupancy and equipment

  527   420 

Data processing

  217   197 

Professional fees

  175   184 

FDIC deposit insurance assessment

  232   116 

Advertising

  299   208 

Amortization of other intangible

  12   12 

Other

  721   384 

Total Non-Interest Expense

  7,630   6,183 

 

 

 

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,

 
  

2023

  

2022

 
  

(In thousands, except for share and per share data)

 

Income before Income Taxes

 $667  $4,125 

Income Taxes

  218   861 

Net Income

 $449  $3,264 

Net (Loss) Income Attributable to Noncontrolling Interest

 $(114) $1,016 

Net Income Attributable to Quaint Oak Bancorp, Inc.

 $563  $2,248 
         

Earnings per share - basic

 $0.26  $1.12 

Average shares outstanding - basic

  2,182,597   2,013,638 

Earnings per share - diluted

 $0.25  $1.05 

Average shares outstanding - diluted

  2,272,530   2,137,122 
  

For the Three

Months Ended

  

For the Six

Months Ended

 
  

June 30,

  

June 30,

 
  

2023

  

2022

  

2023

  

2022

 
  

(In thousands)

 

Net Income

 $265  $2,295  $714  $5,560 
                 

Other Comprehensive Income (Loss):

                

Unrealized gains (losses) on investment securities available for sale

  (3)  (26)  10   (53)

Income tax effect

  1   6   (2)  12 

Other comprehensive income (loss)

  (2)  (20)  8   (41)
                 

Total Comprehensive Income

  263   2,275   722   5,519 

Comprehensive Income (Loss) Attributable to Noncontrolling Interest

  (305)  525   (419)  1,541 

Comprehensive Income Attributable to Quaint Oak Bancorp, Inc.

 $568  $1,750  $1,141  $3,978 

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 June 30, 2023

                         
  

Common Stock

                         
  

Number of

Shares

Outstanding

  Amount  

Additional

Paid-in

Capital

  

Treasury

Stock

  

Accumulated

Other

Comprehensive Loss

  

Retained

Earnings

  

Noncontrolling

Interest

  

Total

Stockholders’

Equity

 
   (In thousands, except share and per share data) 

BALANCE – MARCH 31, 2023

  2,192,432  $28  $18,005  $(3,888) $(14) $31,155  $4,135  $49,421 
                                 

Treasury stock purchase

  (16,854)          (306)              (306)
                                 

Reissuance of treasury stock under 401(k) Plan

  1,422       16   10               26 
                                 

Reissuance of treasury stock under stock incentive plan

  9,122       (57)  57               - 
                                 

Reissuance of treasury stock for exercised stock options

  50,300       95   313               408 
                                 

Stock based compensation expense

          62                   62 
                                 

Cash dividends declared ($0.13 per share)

                      (285)      (285)
                                 

Noncontrolling interest distribution

                          (826)  (826)
                                 

Net income (loss)

                      570   (305)  265 
                                 

Other comprehensive loss

                  (2)          (2)

BALANCE – JUNE 30, 2023

  2,236,422  $28  $18,121  $(3,814) $(16) $31,440  $3,004  $48,763 

 

 

For the Three Months Ended June 30, 2022

                         
  

Common Stock

                         
  

Number of

Shares

Outstanding

  

Amount

  Additional
Paid-in
Capital		  Treasury Stock  

Accumulated

Other Comprehensive

Income (Loss)

  

Retained

Earnings

  

Noncontrolling

Interest

  

Total

Stockholders’

Equity

 
   (In thousands, except share and per share data) 

BALANCE - MARCH 31, 2022

  2,016,517  $28  $15,813  $(4,955) $2  $26,057  $3,019  $39,964 
                                 

Common stock allocated by ESOP (4,000 shares)

  4,000       59   25               84 
                                 

Treasury stock purchase

  (571)          (14)              (14)
                                 

Reissuance of treasury stock under stock incentive plan

  9,123       (57)  57               - 
                                 

Reissuance of treasury stock under 401(k) Plan

  652       11   4               15 
                                 

Reissuance of treasury stock for exercised stock options

  16,000       36   99               135 
                                 

Stock based compensation expense

          42                   42 
                                 

Cash dividends declared ($0.13 per share)

                      (263)      (263)
                                 

Noncontrolling interest member distribution

                          (59)  (59)
                                 

Net income

                      1,770   525   2,295 
                                 

Other comprehensive loss

                  (20)          (20)

BALANCE – JUNE 30, 2022

  2,045,721  $28  $15,904  $(4,784) $(18) $27,564  $3,485  $42,179 

 

See accompanying notes to the unaudited consolidated financial statements.

3

Quaint Oak Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

  

For the Three

Months Ended

 
  

March 31,

 
  

2023

  

2022

 
  

(In thousands)

 

Net Income

 $449  $3,264 
         

Other Comprehensive Income (Loss):

        

Unrealized gains (losses) on investment securities available-for-sale

  13   (27)

Income tax effect

  (3)  6 

Other comprehensive income (loss)

  10   (21)
         

Total Comprehensive Income

 $459  $3,243 

Comprehensive (Loss) Income Attributable to Noncontrolling Interest

 $(114) $1,016 

Comprehensive Income Attributable to Quaint Oak Bancorp, Inc.

 $573  $2,227 

See accompanying notes to the unaudited consolidated financial statements.

4

Quaint Oak Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity (Unaudited)

For the Six Months Ended June 30, 2023

                         
  

Common Stock

                         
  

Number of

Shares

Outstanding

  Amount  

Additional

Paid-in

Capital

  Treasury Stock  

Accumulated
Other Comprehensive

Income (Loss)

  

Retained

Earnings

  

Noncontrolling

Interest

  

Total

Stockholders’

Equity

 
   (In thousands, except share and per share data) 

BALANCE – DECEMBER 31, 2022

  2,167,613  $28  $17,906  $(3,992) $(24) $30,875  $4,289  $49,082 
                                 

Treasury stock purchase

  (16,854)          (306)              (306)
                                 

Reissuance of treasury stock under stock incentive plan

  9,122       (57)  57               - 
                                 

Reissuance of treasury stock under 401(k) Plan

  3,241       45   21               66 
                                 

Reissuance of treasury stock for exercised stock options

  73,300       123   406               529 
                                 

Stock based compensation expense

          104                   104 
                                 

Cash dividends declared ($0.26 per share)

                      (568)      (568)
                                 

Noncontrolling interest member distribution

                          (866)  (866)
                                 

Net income

                      1,133   (419)  714 
                                 

Other comprehensive income

                  8           8 

BALANCE – JUNE 30, 2023

  2,236,422  $28  $18,121  $(3,814) $(16) $31,440  $3,004  $48,763 

 

For the Three Months Ended March 31, 2023

 

  

 

  

 

  

 

  

 

         
  

Common Stock

                         
  

Number of

Shares

Outstanding

  

Amount

   

Additional

Paid-in

Capital 

    Treasury Stock    Accumulated Other Comprehensive Loss   

Retained

Earnings 

  

Noncontrolling

Interest

  

Total

Stockholders’

Equity

 
   (In thousands, except share and per share data) 

BALANCE – 

  2,167,613  $28  $17,906  $(3,992) $(24) $30,875  $4,289  $49,082 
DECEMBER 31, 2022                                
                                 

Reissuance of treasury stock

  under 401(k) Plan

  1,819       29   11               40 
                                 

Reissuance of treasury stock for

  exercised stock options

  23,000       28   93               121 
                                 

Stock based compensation

  expense

          42                   42 
                                 

Cash dividends declared ($0.13

  per share)

                      (283)      (283)
                                 

Noncontrolling interest

  distribution

                        (40)  (40)
                                 

Net income (loss)

                      563   (114)  449 
                                 

Other comprehensive income, net

                 10           10 
                                 

BALANCE – MARCH 31, 2023

  2,192,432  $28  $18,005  $(3,888) $(14) $31,155  $4,135  $49,421 

For the Six Months Ended June 30, 2022

                         
  

Common Stock

                         
  

Number of

Shares

Outstanding

  Amount  Additional
Paid-in
Capital		  Treasury Stock  

Accumulated
Other Comprehensive

Income (Loss)

  

Retained

Earnings

  

Noncontrolling

Interest

  

Total

Stockholders’

Equity

 
   (In thousands, except share and per share data) 

BALANCE - DECEMBER 31, 2021

  2,011,313  $28  $15,685  $(4,977) $23  $24,030  $2,120  $36,909 
                                 

Common stock allocated by ESOP (8,000 shares)

  8,000       125   50               175 
                                 

Treasury stock purchase

  (1,209)          (28)              (28)
                                 

Reissuance of treasury stock under stock incentive plan

  9,123       (57)  57               - 
                                 

Reissuance of treasury stock under 401(k) Plan

  1,494       24   9               33 
                                 

Reissuance of treasury stock for exercised stock options

  17,000       43   105               148 
                                 

Stock based compensation expense

          84                   84 
                                 

Cash dividends declared ($0.24 per share)

                      (485)      (485)
                                 

Noncontrolling interest member distribution

                          (176)  (176)
                                 

Net income

                      4,019   1,541   5,560 
                                 

Other comprehensive loss

                  (41)          (41)

BALANCE – JUNE 30, 2022

  2,045,721  $28  $15,904  $(4,784) $(18) $27,564  $3,485  $42,179 

For the Three Months Ended March 31, 2022

 

  

 

  

 

  

 

  

 

         
  

Common Stock

                         
  

Number of

Shares

Outstanding

  

Amount

   

Additional

Paid-in

Capital 

    Treasury Stock    Accumulated Other Comprehensive Income   

Retained

Earnings 

  

Noncontrolling

Interest

  

Total

Stockholders’

Equity

 
   (In thousands, except share data) 

BALANCE –

     

DECEMBER 31, 2021

  2,011,313  $28  $15,685  $(4,977) $23  $24,030  $2,120  $36,909 
                                 

Contribution of shares to ESOP

  from Treasury

  4,000       66   25               91 

Treasury stock purchased

  (638)          (14)              (14)

Reissuance of treasury stock

  under 401(k) Plan

  842       13   5               18 
                                 

Reissuance of treasury stock for

  exercised stock options

  1,000       7   6               13 
                                 

Stock based compensation

   expense

          42                   42 
                                 

Cash dividends declared ($0.11

  per share)

                      (221)      (221)
                                 

Noncontrolling interest member

  distribution

                          (117)  (117)
                                 

Net income

                      2,248   1,016   3,264 
                                 

Other comprehensive loss, net

                  (21)          (21)
                                 

BALANCE – MARCH 31, 2022

  2,016,517  $28  $15,813  $(4,955) $2  $26,057  $3,019  $39,964 

 

See accompanying notes to the unaudited consolidated financial statements.

5
 

Quaint Oak Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

 

For the Three Months

 

For the Six Months

 

Ended March 31,

 

Ended June 30,

 

2023

 

2022

 

2023

 

2022

 

(In Thousands)

 

(In Thousands)

 

Cash Flows from Operating Activities

  

Net income

$449 $3,264 $714 $5,560 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

Provision for credit losses

 211  679  203  1,278 

Depreciation of premises and equipment

 121  89  248  177 

Amortization (accretion), net of operating right-of-use assets

 31  71 

Amortization (accretion), net of subordinated debt issuance costs

 30  8 

Amortization (accretion), net of other intangible

 12  12 

Amortization (accretion), net of securities premiums

 -  (2)

Amortization (accretion), net of deferred loan fees and costs, net

 (279) (832)

Amortization, net of operating right-of-use assets

 81  111 

Amortization, net of subordinated debt issuance costs

 103  16 

Amortization, net of other intangible

 24  24 

Accretion of deferred loan fees and costs, net

 (475) (296)

Stock-based compensation expense

 42  133  104  259 

Net gain on loans held for sale

 (880) (4,210) (1,953) (7,068)

Loans held for sale-originations

 (129,126) (102,252) (203,017) (247,162)

Loans held for sale-proceeds

 122,022  157,418  222,494  271,726 

Gain on the sale of SBA loans

 (50) (133) (251) (167)

Increase in the cash surrender value of bank-owned life insurance

 (24) (21) (49) (42)

Changes in assets and liabilities which provided (used) cash:

  

Accrued interest receivable

 (78) 362  330  (515)

Prepaid expenses and other assets

 (1,297) 1,002  (1,455) (1,395)

Accrued interest payable

 179  124  152  254 

Accrued expenses and other liabilities

 2,126  2,354  1,287  2,262 

Net Cash (Used in) Provided by Operating Activities

 (6,511) 58,066 

Net Cash Provided by Operating Activities

 18,540  25,022 

Cash Flows from Investing Activities

  

Purchase of interest-earning time deposits

 (619) (590) (1,780) (1,840)

Redemption of interest-earning time deposits

 1,790  1,553  3,451  1,553 

Principal repayments of investment securities available for sale

 146  236  324  527 

Net increase in loans receivable

 (10,844) (33,056) (4,379) (144,275)

Purchase of Federal Home Loan Bank stock

 (740) (920) (1,140) (5,652)

Redemption of Federal Home Loan Bank stock

 600  -  2,019  3,630 

Purchase of premises and equipment

 (256) (139) (418) (277)

Net Cash Used in Investing Activities

 (9,923) (32,916) (1,923) (146,334)

Cash Flows from Financing Activities

  

Net (decrease) increase in demand deposits, money markets, and savings accounts

 (11,544) 6,507 

Net increase in demand deposits, money markets, and savings accounts

 2,991  135,828 

Net increase in certificate accounts

 16,740  4,962  21,159  6,771 

Decrease in advances from borrowers for taxes and insurance

 (990) (359)

Increase in advances from borrowers for taxes and insurance

 360  1,300 

Repayments of Federal Home Loan Bank short-term borrowings

 (13,500) (26,000) (21,200) (26,000)

Proceeds from Federal Home Loan Bank short-term borrowings

 33,500  23,000 

Repayments of Federal Home Loan Bank long-term borrowings

 (20,000) -  (44,000) (4,000)

Proceeds from Federal Home Loan Bank long-term borrowings

 20,000  80,000 

Repayments of Federal Reserve Bank short-term borrowings

 (49,700) (546) (7,000) (3,895)

Proceeds from Federal Reserve Bank short-term borrowings

 42,700  - 

Proceeds from other borrowings

 5,628  916  4,170  - 

Net proceeds from subordinated debt

 13,743  -  13,742  - 

Dividends paid

 (283) (221) (568) (485)

Noncontrolling interest capital distribution

 (40) (117) (866) (176)

Purchase of treasury stock

 -  (14) (306) (28)

Proceeds from the reissuance of treasury stock

 40  18  66  33 

Proceeds from the exercise of stock options

 121  13  529  148 

Net Cash Provided by Financing Activities

 16,415  8,159 

Net (Decrease) Increase in Cash and Cash Equivalents

 (19) 33,309 

Net Cash (Used in) Provided by Financing Activities

 (10,923) 189,496 

Net Increase in Cash and Cash Equivalents

 5,694  68,184 

Cash and Cash Equivalents – Beginning of Year

 3,893  10,705  3,893  10,705 

Cash and Cash Equivalents – End of Year

$3,874 $44,014 $9,587 $78,889 

 

 

See accompanying notes to the unaudited consolidated financial statements.

6
 

Quaint Oak Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

 

 

For the Three Months

  

For the Six Months

 
 

Ended March 31,

  

Ended June 30,

 
 

2023

  

2022

  

2023

  

2022

 
 

(In Thousands)

  

(In Thousands)

 

Supplementary Disclosure of Cash Flow and Non-Cash Information:

        

Cash payments for interest

 $5,329  $771  $12,173  $2,140 

Cash payments for income taxes

 $191  $107  $2,317  $2,267 

Initial recognition of operating lease right-of use assets

 $1,563  $-  $1,563  $560 

Initial recognition of operating lease obligations

 $1,563  $-  $1,563  $502 

 

 

See accompanying notes to the unaudited consolidated financial statements.

7

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 (the “Bank”), along with its wholly owned subsidiaries. At March 31,June 30, 2023, the Bank has six wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, Quaint Oak Insurance Agency, LLC, and Oakmont Commercial, LLC, each a Pennsylvania limited liability company. The mortgage company offers mortgage banking in the Lehigh Valley, Delaware Valley and Philadelphia County regions 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. Oakmont Commercial, LLC was formed in October 2021 and operates as a multi-state specialty commercial real estate financing company. As of January 4, 2021, the Bank holds a majority equity position in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota. The consolidated financial statements include the Bank’s investment in Oakmont Capital Holdings, LLC. The Bank reflects the 49% interest it does not hold in Oakmont Capital in its consolidated financial statements as noncontrolling interest. 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 in Pennsylvania and the Lehigh Valley area in Pennsylvania. The Bank has three regional offices located in the Delaware Valley, Lehigh Valley and Philadelphia markets. The principal deposit products offered by the Bank are money market accounts, certificates of deposit, 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, 2022 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 2022 Annual Report on Form 10-K. The results of operations for the threesix months ended March 31,June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

 

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 credit losses and the valuation of deferred tax assets.

8

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1– Financial Statement Presentation and Significant Accounting Policies (Continued)

 

Critical Accounting Policies. During the quartersix months ended March 31,June 30, 2023, the Company implemented new CECL accounting policies, procedures, and controls as part of its adoption of ASU No. 2016-13 and subsequent ASUs issued to amend ASC Topic 326. There were no other changes made to the Company's internal control over financial reporting that occurred during the quartersix months ended March 31,June 30, 2023 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

8

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1– Financial Statement Presentation and Significant Accounting Policies (Continued)

 

Accounting Pronouncements Recently Adopted. In January 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 the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls "reference“reference rate reform",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. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the sunset (or expiration) date of Accounting Standards Codification (ASC) Topic 848 to December 31, 2024. This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform. ASU 2022-06 is effective for all reporting entities immediately upon issuance and must be applied on a prospective basis. This update did not have a significant impact on the Company’s financial statements.

 

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary guidance for entities transitioning away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions within Topic 848. ASU 2021-01 clarifies that the derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective immediately for all entities. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The amendments in this update do not apply to contract modifications made, as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for effectiveness for periods after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. This update did not have a significant impact on the Company’s financial statements.

 

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment.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 did not have a significant impact on the Company’s financial statements.

 

9

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1– Financial Statement Presentation and Significant Accounting Policies (Continued)

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures.Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidanceorigination, which is only for entities that have adoptedavailable in Note 5 in the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.Notes to Unaudited Consolidated Financial Statements contained elsewhere herein.

 

The Company adopted ASU 326 using the weighted average maturity method (WARM) for all financial assets measured at amortized cost, net of investments in leases and off balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASU 326, while prior period results are reported in accordance with the previously applicable incurred loss methodology. The Company recorded no change to retained earnings as of January 1, 2023 for the cumulative effect of adopting ASC 326.

 

9

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1– Financial Statement Presentation and Significant Accounting Policies (Continued)

The following table presents the impact of adopting ASU 2016-13 on January 1, 2023 (in thousands):

 

As Reported
Under
ASC 326

 

Impact of ASC 326
Adoption

 Prior to Adopting
ASC 326		 

Allowance for credit losses - loans

         

 

Prior to Adopting
ASC 326

 

 

Impact of
ASC 326 Adoption

 As Reported
Under
ASC 326		 

Real estate loans:

        

One-to-four family residential:

        

Owner occupied

$123 $- $123  $123  $-  $123 

Non-owner occupied

 295  -  295   295   -   295 

Total one-to-four family residential

 418 - 418  418  -  418 

Multi-family (five or more) residential

 451 - 451  451  -  451 

Commercial real estate

 3,750 - 3,750  3,750  -  3,750 

Construction

 304 - 304  304  -  304 

Home equity

 33 - 33   33   -   33 

Total real estate loans

 4,956 - 4,956  4,956  -  4,956 
       

Commercial business and other consumer

 2,422 - 2,422  2,422  -  2,422 

Unallocated

 300 - 300   300   -   300 

Total allowance for credit losses

 7,678 - 7,678  $7,678  $-  $7,678 
                

Allowance for credit losses - unfunded commitments

        
Allowance for credit losses – unfunded commitments         

Reserve for unfunded commitments

 27 -  27  $27  $-  $27 
       

Total

$7,705 $- $7,705  $7,705  $-  $7,705 

 

10

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

Loans are stated at their principal amount outstanding, except for loans held for sale, which are carried at fair value. Interest income on loans is accrued as earned.

 

In general, loans are placed on non-accrual status once they become 90 days delinquent as to principal or interest. In certain cases a loan may be placed on nonaccrual status prior to being 90 days delinquent if there is an indication that the borrower is having difficulty making payments, or the Company believes it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. When interest accruals are discontinued, unpaid interest previously credited to income is reversed. Non-accrual loans may be restored to accrual status when all delinquent principal and interest has been paid currently for six consecutive months or the loan is considered secured and in the process of collection. The Company generally applies payments received on non-accruing loans to principal until such time as the principal is paid off, after which time any payments received are recognized as interest income. If the Company believes that all amounts outstanding on a non-accrual loan will ultimately be collected, payments received subsequent to its classification as a non-accrual loan are allocated between interest income and principal.

 

A loan that is 90 days delinquent may continue to accrue interest if the loan is both adequately secured and is in0in the process of collection. Past due status is determined based on contractual due dates for loan payments. An adequately secured loan is one that has collateral with a supported fair value that is sufficient to discharge the debt, and/or has an enforceable guarantee from a financially responsible party. A loan is considered to be in the process of collection if collection is proceeding through legal action or through other activities that are reasonably expected to result in repayment of the debt or restoration to current status in the near future.

 

Loans deemed to be a loss are written off through a charge against the allowance for credit losses (ACL). All loans are evaluated for possible charge-off when it is probable that the balance will not be collected, based on the ability of the borrower to pay and the value of the underlying collateral, if any. Principal recoveries of loans previously charged off are recorded as increases to the ACL.

 

Loan Origination Fees and Costs. Loan origination fees and the related direct origination costs are deferred and amortized over the life of the loan as an adjustment to interest income.

 

Allowance for Credit Losses. The discussion that follows describes the methodology for determining the ACL under the ASU 326 model that was adopted effective January 1, 2023. The allowance methodology for prior periods is disclosed in the Company’s 2022 Annual Report on Form 10-K.

 

The Company has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.

 

1011
 

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

 

Note 1 –Financial Statement Presentation and Significant Accounting Policies (Continued)

Loans.The ACL for loans is an estimate of the expected losses to be realized over the life of the loans in the portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses and 2) loans evaluated individually for expected credit losses. The ACL also includes certain qualitative adjustments to the ASU 326 model.adjustments.

 

Loans Evaluated Collectively.Collectively. Homogeneous loans are evaluated collectively for expected credit losses.

 

Loans Evaluated Individually. Loans evaluated individually for expected credit losses could include loans on non-accrual status or loans whose terms are modified if the Company grants such borrowers concessions.status.

 

Loans evaluated individually may have specific allocations assigned if the measured value of the loan using one of the noted techniques is less than its current carrying value. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assigned to those loans. Collateral could be in the form of real estate or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate.

 

Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification. For all loans, an internal risk rating process is used. The Company believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk rating categories is a significant component of the ACL methodology for these loans, which bases the probability of default on this migration. Assigning risk ratings involves judgment. Risk ratings may be changed based on ongoing monitoring procedures, or if specific loan review assessments identify a deterioration or an improvement in the loan.

 

The following is a summary of the Company's internal risk rating categories:

 

 

●•

Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.

 

 

●•

Special Mention: These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in this category are currently acceptable, but are nevertheless potentially weak.

 

 

●•

Substandard or Lower:Substandard: These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.

•

Doubtful: These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

The allocation of the ACL is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Company considers risk factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type.

 

Qualitative and Other Adjustments to Allowance for Credit Losses: In addition to the quantitative credit loss estimates for loans evaluated collectively, qualitative factors that may not be fully captured in the quantitative results are also evaluated. TheseFor example, the Company considers the impact of current environmental factors at the reporting date that did not exist over the period from which historical experience was used. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), economic trends and conditions, changes in underwriting standards, experience and depth of lending policy,staff, trends in delinquencies, and the nature and volumelevel of the portfolio, overall business conditions in the economy, credit concentrations, competition, model imprecision, and legal and regulatory requirements.criticized loans. Qualitative adjustments are judgmental and are based on Management’smanagement’s knowledge of the portfolio and the markets in which the Company operates. Qualitative adjustments are evaluated and approved on a quarterly basis. Additionally, the ACL includes other allowance categories that are not directly incorporated in the quantitative results. These include but are not limited to loans-in-process, trade acceptances and overdrafts. The ACL utilizes 36-month economic forecasts which include housing starts, real estate prices, loan delinquency trends, and U.S. GDP changes.

 

12

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1– Financial Statement Presentation and Significant Accounting Policies (Continued)

Off Balance Sheet Credit Exposures: The ACL for off balance sheet credit exposures is recorded in other liabilities on the Consolidated Balance Sheet. This ACL represents management’s estimate of expected losses in its unfunded loan commitments and other off balance sheet credit exposures, such as letters of credit and credit recourse on sold residential mortgage loans. The allowance for credit losses specific to unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). The ACL for off balance sheet credit exposures is increased or decreased by charges or reductions to expense, through the provision for credit losses.

During the quarter ended March 31, 2023, the Company implemented new CECL accounting policies, procedures, and controls as part of its adoption of ASU No.2016-13 and subsequent ASUs issued to amend ASC Topic 326. There were no other changes made to the Company's internal control over financial reporting that occurred during the quarter ended March 31, 2023 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

Reclassifications.Certain items in the 2022 consolidated financial statements have been reclassified to conform to the presentation in the 2023 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.

11

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 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 awards. Common stock equivalents which are considered antidilutive are not included for the purposes of this calculation. For the three and sixmonths ended March 31,June 30, 2023 and 2022, all outstanding stock options granted under the 20082013 Stock OptionIncentive Plan, the 20132018 Stock Incentive Plan and the 20182023 Stock Incentive Plan 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 March 31,

 
  

2023

  

2022

 

Net Income Attributable to Quaint Oak Bancorp, Inc.

 $563,000  $2,248,000 
         

Weighted average shares outstanding – basic

  2,182,597   2,013,638 

Effect of dilutive common stock equivalents

  89,932   123,484 

Adjusted weighted average shares outstanding – diluted

  2,272,530   2,137,122 
         

Basic earnings per share

 $0.26  $1.12 

Diluted earnings per share

 $0.25  $1.05 

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, 2023 and 2022 (in thousands):

  

Unrealized (Losses) Gains on Investment Securities Available for Sale (1)

 
  

For the Three Months Ended March 31,

 
  

2023

  

2022

 

Balance at the beginning of the period

 $(24) $23 

Total other comprehensive income (loss)

  10   (21)

Balance at the end of the period

 $(14) $2 

_________________

(1) All amounts are net of tax.  Amounts in parentheses indicate debits.

12

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, 2023 and December 31,2022, by contractual maturity, are shown below (in thousands):

  

March 31,

2023

  

December 31,

2022

 

Due in one year or less

 $750  $2,541 

Due after one year through five years

  1,912   1,292 

Total

 $2,662  $3,833 

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, 2023 and December 31, 2022 are summarized below (in thousands): 

  

March 31, 2023

 
  

Amortized Cost

  

Gross Unrealized Gains

  

Gross Unrealized (Losses)

  

Fair Value

 

Available for Sale:

                

Mortgage-backed securities:

                

Government National Mortgage Association securities

 $2,757  $-  $(17) $2,740 

Federal National Mortgage Association securities

  97   -   (1)  96 

Total available-for-sale-securities

 $2,854  $-  $(18) $2,836 

  

December 31, 2022

 
  

Amortized Cost

  

Gross Unrealized Gains

  

Gross Unrealized (Losses)

  

Fair Value

 

Available for Sale:

                

Mortgage-backed securities:

                

Government National Mortgage Association securities

 $2,902  $-  $(31) $2,871 

Federal National Mortgage Association securities

  98   1   -   99 

Total available-for-sale-securities

 $3,000  $1  $(31) $2,970 
  

For the Three Months Ended June 30,

  

For the Six Months Ended June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Net Income Attributable to Quaint Oak Bancorp, Inc.

 $570,000  $1,770,000  $1,133,000  $4,019,000 
                 

Weighted average shares outstanding – basic

  2,236,885   2,038,479   2,209,891   2,023,511 

Effect of dilutive common stock equivalents

  4,685   122,797   23,478   118,658 

Adjusted weighted average shares outstanding – diluted

  2,241,570   2,161,277   2,233,369   2,142,169 
                 

Basic earnings per share

 $0.25  $0.87  $0.51  $1.99 

Diluted earnings per share

 $0.25  $0.82  $0.51  $1.88 

 

 

13
 

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3– Accumulated Other Comprehensive Loss

The following table presents the changes in accumulated other comprehensive loss by component, net of tax, for the three and six months ended June 30, 2023 and 2022 (in thousands):

  

Unrealized Gains (Losses) on Investment Securities Available for Sale (1)

 
  

For the Three Months Ended June 30,

  

For the Six Months Ended June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Balance at the beginning of the period

 $(14) $2  $(24) $23 

Other comprehensive income (loss) before classifications

  (2)  (20)  8   (41)

Balance at the end of the period

 $(16) $(18) $(16) $(18)

_________________

(1)    All amounts are net of tax. Amounts in parentheses indicate debits.

Note 4–Investment Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale at June 30, 2023 and December 31, 2022 are summarized below (in thousands): 

  

June 30, 2023

 
  

Amortized Cost

  

Gross Unrealized Gains

  

Gross Unrealized Losses

  

Fair Value

 

Available for Sale:

                

Mortgage-backed securities:

                

Government National Mortgage Association securities

 $2,584  $-  $(18) $2,566 

Federal National Mortgage Association securities

  92   -   (2)  90 

Total available-for-sale-securities

 $2,676  $-  $(20) $2,656 

  

December 31, 2022

 
  

Amortized Cost

  

Gross Unrealized Gains

  

Gross Unrealized Losses

  

Fair Value

 

Available for Sale:

                

Mortgage-backed securities:

                

Government National Mortgage Association securities

 $2,902  $-  $(31) $2,871 

Federal National Mortgage Association securities

  98   1   -   99 

Total available-for-sale-securities

 $3,000  $1  $(31) $2,970 

14

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

 

Note 54 –Investment Securities Available for Sale (Continued)

The amortized cost and fair value of mortgage-backed securities at March 31,June 30, 2023, 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

  

Available for Sale

 
 

Amortized Cost

 

Fair Value

  

Amortized Cost

 

Fair Value

 

Due after ten years

 $2,854  $2,836  $2,676  $2,656 

Total

 $2,854  $2,836  $2,676  $2,656 

 

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,June 30, 2023 (in thousands):

  March 31, 2023 
      

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

  11  $2,740  $(17) $-  $-  $2,740  $(17)

Federal National Mortgage Association securities

  1   96   (1)  -   -   96   (1)

Total

  12  $2,836  $(18) $-  $-  $2,836  $(18)

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 December 31, 2022 (in thousands):

 

  

December 31, 2022

 
      

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

  11  $2,871  $(31) $--  $--  $2,871  $(31)
  June 30, 2023 
      

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

  11  $-  $-  $2,584  $(18) $2,584  $(18)

Federal National Mortgage Association securities

  1   92   (2)  -   -   92   (2)

Total

  12  $92  $(2) $2,584  $(18) $2,676  $(20)

     December 31, 2022 
      

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

  11  $2,871  $(31) $--  $--  $2,871  $(31)

 

The Company’s mortgage-backed securities have contractual terms that generally do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. The change in fair value of these securities is attributable to changes in interest rates and not credit quality, and the Company does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost. Therefore, the Company does not have an allowance for credit losses for these investments as of March 31,June 30, 2023.

 

There were no impairment charges recognized during the three or sixmonths ended March 31,June 30, 2023 or 2022.

 

1415

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

 

Note 65 - Loans Receivable, Net and Allowance for Credit Losses

 

The composition of net loans receivable is as follows (in thousands):

  

March 31,

2023

  

December 31,

2022

 

Real estate loans:

        

One-to-four family residential:

        

Owner occupied

 $18,080  $18,070 

Non-owner occupied

  38,181   39,315 

Total one-to-four family residential

  56,261   57,385 

Multi-family (five or more) residential

  47,632   46,909 

Commercial real estate

  339,226   333,540 

Construction

  39,204   28,938 

Home equity

  5,321   4,918 

Total real estate loans

  487,644   471,690 
         

Commercial business(1)

  153,901   159,069 

Other consumer

  14   2 

Total Loans

  641,559   630,761 
         

Deferred loan fees and costs

  (1,075)  (1,219)

Allowance for credit losses

  (7,658)  (7,678)

Net Loans

 $632,826  $621,864 

 

(1) Includes $163,000 and $214,000 of PPP loans at March 31, 2023 and December 31, 2022, respectively.

The following table summarizes designated internal risk categories by portfolio segment and loan class, by origination year, as of March 31, 2023 (in thousands):

  

Term Loans Amortized Cost by Origination Year

         

As of March 31, 2023

 

2023

  

2022

  

2021

  

2020

  

2019

  

Prior

  

Revolving Loans Amortized Cost Basis

  

Total

 

One-to-four family residential owner occupied

                                
Risk rating                                

Pass

 $524  $9,035  $3,553  $1,950  $575  $2,443  $-  $18,080 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total one-to-four family residential owner occupied

 $524  $9,035  $3,553  $1,950  $575  $2,443  $-  $18,080 

One-to-four family residential non-owner occupied

                                
Current period gross charge-offs $-  $-  $-  $-  $-  $-  $-  $- 
Risk rating                                

Pass

 $-  $6,972  $9,267  $3,333  $933  $17,676  $-  $38,181 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total one-to-four family residential non-owner occupied

 $-  $6,972  $9,267  $3,333  $933  $17,676  $-  $38,181 
Current period gross charge-offs $-  $-  $-  $-  $-  $-  $-  $- 

15

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Credit Losses (Continued)

  

Term Loans Amortized Cost by Origination Year

   Revolving Loans Amortized Cost Basis     

As of March 31, 2023

 

2023

  

2022

  

2021

  

2020

  

2019

  

Prior

    

Total

 
                                 

Multi-family residential

Risk rating

                                

Pass

 $972  $17,363  $13,155  $4,574  $603  $9,388  $-  $46,055 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   1,577   -   1,577 

Doubtful

  -   -   -   -   -   -   -   - 

Total multi-family residential

 $972  $17,363  $13,155  $4,574  $603  $10,965  $-  $47,632 
Current period gross charge-offs $-  $-  $-  $-  $-  $-  $-  $- 

Commercial real estate

Risk rating

                                

Pass

 $18,789  $158,332  $73,192  $22,984  $15,985  $49,009  $935  $339,226 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total commercial real estate

 $18,789  $158,332  $73,192  $22,984  $15,985  $49,009  $935  $339,226 

Current period gross charge-offs

 $-  $-  $-  $134  $-  $-  $-  $134 

Construction

Risk rating

                                

Pass

 $3,874  $16,783  $12,653  $3,767  $-  $-  $-  $37,077 

Special mention

  -   -   -   -   -   2,127   -   2,127 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total construction

 $3,874  $16,783  $12,653  $3,767  $-  $2,127  $-  $39,204 
Current period gross charge-offs $-  $-  $-  $-  $-  $-  

$

-  $- 

Home equity

Risk rating

                                

Pass

 $500  $64  $-  $-  $-  $240  $4,517  $5,321 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total home equity

 $500  $64  $-  $-  $-  $240  $4,517  $5,321 
Current period gross charge-offs $-  $-  $-  $-  $-  $-  $-  $- 

Commercial business

Risk rating

                                

Pass

 $3,921  $85,027  $35,262  $5,748  $7,273  $743  $9,806  $147,780 

Special mention

  -   893   925   -   -   -   1,999   3,817 

Substandard

  -   -   739   -   1,242   323   -   2,304 

Doubtful

  -   -   -   -   -   -   -   - 

Total commercial business

 $3,921  $85,920  $36,926  $5,748  $8,515  $1,066  $11,805  $153,901 

Current period gross charge-offs

 $-  $-  $-  $97  $-  $-  $-   97 

Other consumer

Risk rating

                                

Pass

 $14  $-  $-  $-  $-  $-  $-  $14 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total other consumer

 $14  $-  $-  $-  $-  $-  $-  $14 
Current period gross charge-offs $-  $-  $-  $-  $-  $-  $-  $- 

Total

Risk rating

                                

Pass

 $28,594  $293,576  $147,082  $42,356  $25,369  $79,499  $15,258  $631,734 

Special mention

  -   893   925   -   -   2,127   1,999   5,944 

Substandard

  -   -   739   -   1,242   1,900   -   3,881 

Doubtful

  -   -   -   -   -   -   -   - 

Total

 $28,594  $294,469  $148,746  $42,356  $26,611  $83,526  $17,257  $641,559 

Current period gross charge-offs

 $-  $-  $-  $231  $-  $-  $-   231 
  

June 30,

2023

  

December 31,

2022

 

Real estate loans:

        

One-to-four family residential:

        

Owner occupied

 $17,627  $18,070 

Non-owner occupied

  36,791   39,315 

Total one-to-four family residential

  54,418   57,385 

Multi-family (five or more) residential

  48,656   46,909 

Commercial real estate

  342,646   333,540 

Construction

  35,620   28,938 

Home equity

  5,241   4,918 

Total real estate loans

  486,581   471,690 
         

Commercial business

  148,527   159,069 

Other consumer

  13   2 

Total Loans

  635,121   630,761 
         

Deferred loan fees and costs

  (898)  (1,219)

Allowance for credit losses

  (7,456)  (7,678)

Net Loans

 $626,767  $621,864 

 

16
 

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

 

Note 65 - Loans Receivable, Net and Allowance for Credit Losses (Continued)

The following table summarizes designated internal risk categories by portfolio segment and loan class, by origination year, as of June 30, 2023 (in thousands):

  

Term Loans Amortized Cost by Origination Year

   

As of June 30, 2023

 

2023

  

2022

  

2021

  

2020

  

2019

  

Prior

  

Revolving Loans

Amortized Cost Basis

  

Total

 

One-to-four family residential owner occupied

                                
Risk rating                                

Pass

 $522  $8,918  $3,520  $1,915  $574  $2,178  $-  $17,627 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total one-to-four family residential owner occupied

 $522  $8,918  $3,520  $1,915  $574  $2,178  $-  $17,627 

Current period gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 

One-to-four family residential non- owner occupied

                                
Risk rating                                

Pass

 $-  $6,931  $8,250  $3,311  $924  $17,375  $-  $36,791 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total one-to-four family residential non-owner occupied

 $-  $6,931  $8,250  $3,311  $924  $17,375  $-  $36,791 

Current period gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 

Multi-family residential

                                
Risk rating                                

Pass

 $1,858  $17,268  $13,491  $4,544  $600  $9,178  $-  $46,939 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   1,717   -   1,717 

Doubtful

  -   -   -   -   -   -   -   - 

Total multi-family residential

 $1,858  $17,268  $13,491  $4,544  $600  $10,895  $-  $48,656 

Current period gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 

Commercial real estate

                                
Risk rating                                

Pass

 $33,012  $152,049  $72,479  $22,558  $15,755  $45,337  $1,383  $342,573 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   73   -   -   73 

Doubtful

  -   -   -   -   -   -   -   - 

Total commercial real estate

 $33,012  $152,049  $72,479  $22,558  $15,828  $45,337  $1,383  $342,646 

Current period gross charge-offs

 $-  $-  $-  $134  $-  $-  $-  $134 

Construction

                                
Risk rating                                

Pass

 $6,387  $10,862  $11,870  $4,374  $-  $-  $-  $33,493 

Special mention

  -   -   -   -   -   2,127   -   2,127 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total construction

 $6,387  $10,862  $11,870  $4,374  $-  $2,127  $-  $35,620 

Current period gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 

Home equity

                                
Risk rating                                

Pass

 $500  $40  $-  $-  $-  $226  $4,475  $5,241 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total home equity

 $500  $40  $-  $-  $-  $226  $4,475  $5,241 

Current period gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 

17

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 5 - Loans Receivable, Net and Allowance for Credit Losses (Continued)

  

Term Loans Amortized Cost by Origination Year

   

As of June 30, 2023

 

2023

  

2022

  

2021

  

2020

  

2019

  

Prior

  

Revolving Loans

Amortized Cost Basis

  

Total

 

Commercial business

                                
Risk rating                                

Pass

 $5,357  $80,234  $32,281  $5,153  $6,956  $795  $11,365  $142,141 

Special mention

  -   877   -   -   -   -   1,999   2,876 

Substandard

  -   -   2,290   -   1,220   -   -   3,510 

Doubtful

  -   -   -   -   -   -   -   - 

Total commercial business

 $5,357  $81,111  $34,571  $5,153  $8,176  $795  $13,364  $148,527 

Current period gross charge-offs

 $-  $-  $-  $97  $-  $-  $-  $97 

Other consumer

                                
Risk rating                                

Pass

 $13  $-  $-  $-  $-  $-  $-  $13 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total other consumer

 $13  $-  $-  $-  $-  $-  $-  $13 
Current period gross charge-offs                                

Total

 $-  $-  $-  $-  $-  $-  $-  $- 

Pass

 $47,649  $276,302  $141,891  $41,855  $24,809  $75,089  $17,223  $624,818 

Special mention

  -   877   -   -   -   2,127   1,999   5,003 

Substandard

  -   -   2,290   -   1,293   1,717   -   5,300 

Doubtful

  -   -   -   -   -   -   -   - 

Total

 $47,649  $277,179  $144,181  $41,855  $26,102  $78,933  $19,222  $635,121 

Current period gross charge-offs

 $-  $-  $-  $231  $-  $-  $-  $231 

 

The information presented in the table above is not required for periods prior to the adoption of ASU 326. The following table presents the most comparable required information for the prior period, internal credit risk ratings for the indicated loan class segments as of December 31, 2022 (in thousands):

 

  

December 31, 2022

 
  

Pass

  

Special Mention

  

Substandard

  

Doubtful

  

Total

 

One-to-four family residential owner occupied

 $17,663  $407  $-  $-  $18,070 

One-to-four family residential non-owner occupied

  39,315   -   -   -   39,315 

Multi-family residential

  45,201   -   1,708   -   46,909 

Commercial real estate

  333,406   -   134   -   333,540 

Construction

  28,938   -   -   -   28,938 

Home equity

  4,918   -   -   -   4,918 

Commercial business

  153,746   2,908   2,415   -   159,069 

Other consumer

  2   -   -   -   2 

Total

 $623,189  $3,315  $4,257  $-  $630,761 

 

The following table presents non-accrual loans by classes of the loan portfolio as of March 31, 2023 and December 31, 2022 (in thousands):

  

March 31, 2023

  December 31, 
  

Non-accrual loans

     

 

  2022 
  

With a Related

Allowance

  

Without a

Related Allowance

  

Total

  90 Days or More Past Due and Accruing  

Total Non-

Performing

  

Total Non-

Accrual Loans

 

One-to-four family residential owner occupied

 $-  $-  $-  $-  $-  $- 

One-to-four family residential non-owner occupied

  -   -   -   -   -   - 

Multi-family residential

  1,577   -   1,577   -  $1,577   1,708 

Commercial real estate

  -   -   -   -   -   - 

Construction

  -   -   -   -   -   - 

Home equity

  -   -   -   -   -   - 

Commercial business

  -   -   -   -   -   - 

Other consumer

  -   -   -   -   -   - 

Total

 $1,577  $-  $1,577   -  $1,577  $1,708 

17
18

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

 

Note 65 - Loans Receivable, Net and Allowance for Credit Losses (Continued)

The following table presents non-accrual loans by classes of the loan portfolio as of June 30, 2023 and December 31, 2022 (in thousands):

 

  

June 30, 2023

  

December 31,

 
  

Non-accrual loans

  2022 
  

With a Related Allowance

  

Without a Related Allowance

  

Total

  

90 Days or More Past Due and Accruing

  

Total Non-Performing

  

Total Non-Accrual Loans

 

One-to-four family residential owner occupied

 $-  $-  $-  $-  $-  $- 

One-to-four family residential non-owner occupied

  -   -   -   -   -   - 

Multi-family residential

  -   -   -   -   -   - 

Commercial real estate

  73   -   73   -   73   73 

Construction

  -   -   -   -   -   - 

Home equity

  -   -   -   -   -   - 

Commercial business

  -   -   -   -   -   - 

Other consumer

  -   -   -   -   -   - 

Total

 $73  $-  $73  $-  $73  $73 

For the three and six months ended June 30, 2023 and 2022 there was no interest income recognized on non-accrual loans on a cash basis. There was $1,000 and $60,000 of interest income foregone on non-accrual loans for the three and six months ended June 30, 2023 and $79,000 for both the three and six months ended June 30, 2022.

19

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 5 - Loans Receivable, Net and Allowance for Credit 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, 2022 as well as the average recorded investment and related interest income for the year then ended (in thousands):

 

 

December 31, 2022

  

December 31, 2022

 
 

Recorded

Investment

 

Unpaid

Principal

Balance

 

Related

Allowance

 

Average

Recorded

Investment

 

Interest

Income

Recognized

  

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

 7  9  -  7  -  7  9  -  7  - 

Multi-family residential

 1,708  1,722  -  1,708  -  1,708  1,722  -  1,708  - 

Commercial real estate

 129  129  -  130  12  129  129  -  130  12 

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

 134  134  118  136  9  134  134  118  136  9 

Construction

 -  -  -  -  -  -  -  -  -  - 

Home equity

 -  -  -  -  -  -  -  -  -  - 

Commercial business

 97  97  96  102  6  97  97  96  102  6 

Other consumer

 -  -  -  -  -  -  -  -  -  - 
  

Total:

  

One-to-four family residential owner occupied

 $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 

One-to-four family residential non-owner occupied

 7  9  -  7  -  7  9  -  7  - 

Multi-family residential

 1,708  1,722  -  1,708  -  1,708  1,722  -  1,708  - 

Commercial real estate

 263  263  118  266  21  263  263  118  266  21 

Construction

 -  -  -  -  -  -  -  -  -  - 

Home equity

 -  -  -  -  -  -  -  -  -  - 

Commercial business

 97  97  96  102  6  97  97  96  102  6 

Other consumer

  -   -   -   -   -   -   -   -   -   - 

Total

 $2,075  $2,091  $215  $2,083  $27  $2,075  $2,091  $215  $2,083  $27 

 

Prior to the adoption of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, the Company had granted a variety of concessions to borrowers in the form of loan modifications that were considered TDRs. At December 31, 2022, the Company had two loans totaling $136,000 that were identified as troubled debt restructurings. Both of these loans were performing in accordance with their modified terms as of December 31, 2022.

 

As of March 31,June 30, 2023, there were no loans whose terms were modified for borrowers who may be experiencing financial difficulties.

1820

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

 

Note 65 - Loans Receivable, Net and Allowance for Credit Losses (Continued)

Following is a summary, by loan portfolio class, of changes in the allowance for credit losses for the three and sixmonths ended March 31,June 30, 2023 and recorded investment in loans receivable as of March 31,June 30, 2023 (in thousands):

 

      

March 31, 2023

 
  

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 credit losses: 

 

                                 

Beginning balance

 $123  $295  $451  $3,750  $304  $33  $2,422  $300  $7,678 

Impact of ASU

  -   -   -   -   -   -   -   -   - 

Charge-offs

  -   -   -   (134)  -   -   (97)  -   (231)

Recoveries

  -   -   -   -   -   -   -   -   - 

Provision(1)

  30   (39)  (55)  (249)  102   21   701   (300)  211 

Ending balance

 $153  $256  $396  $3,367  $406  $54  $3,026  $-  $7,658 

  

June 30, 2023

 
  

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 June 30, 2023

                               
Allowance for credit losses:                                    

Beginning balance

 $153  $256  $396  $3,367  $406  $54  $3,026  $-  $7,658 

Impact of ASU 326

  -   -   -   -   -   -   -   -   - 

Charge-offs

  -   -   -   (134)  -   -   (97)  -   (231)

Recoveries

  -   -   -   -   -   -   -   -   - 

Provision(1)

  (16)  (13)  19   (58)  442   (5)  (340)  -   29 

Ending balance

 $137  $243  $415  $3,175  $848  $49  $2,589  $-  $7,456 
                                     

For the Six Months Ended June 30, 2023

                              
Allowance for credit losses:                                    

Beginning balance

 $123  $295  $451  $3,750  $304  $33  $2,422  $300  $7,678 

Impact of ASU 326

  -   -   -   -   -   -   -   -   - 

Charge-offs

  -   -   -   (134)  -   -   (97)  -   (231)

Recoveries

  -   -   -   -   -   -   -   -   - 

Provision(1)

  14   (52)  (36)  (441)  544   16   264   (300)  9 

Ending balance

 $137  $243  $415  $3,175  $848  $49  $2,589  $-  $7,456 
 

(1.1)

Provision included in the table only includes the portion related to loans receivable. TheFor the three months ended June 30, 2023, the total recovery of credit losses of $189,000 includes a provision of $13,000 for off balance sheet credit exposure, which is reflected in other liabilities on the balance sheet. For the six months ended June 30, 2023, the total provision for credit losses of $392,000$203,000 includes a provision of $181,000$194,000 for off balance sheet credit exposure, which is reflected in other liabilities on the balance sheet.

 

The BankCompany allocated increased allowance for credit loss provisions to the construction loan portfolio class for the three and six months ended June 30, 2023, due primarily to increased loan balances and changes in qualitative factors associated with the current economic environment in this portfolio class. The Company allocated decreased allowance for credit loss provisions to the commercial real estate loan portfolio class for the three and sixmonths ended March 31,June 30, 2023, due primarily to changes in quantitativequalitative factors related to improved asset quality in this portfolio class. The BankCompany allocated increaseddecreased allowance for credit loss provisions to the commercial business loan portfolio class for the three months ended March 31,June 30, 2023, due primarily to changes in quantitative factorsdecreased loan balances in this portfolio class. The BankCompany allocated decreasedincreased allowance for credit loss provisions to the multi-family residentialcommercial business loan portfolio class for the threesix months ended March 31,June 30, 2023, due primarily to changes in qualitative and quantitative factors in this portfolio class.

 

21

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 5 - Loans Receivable, Net and Allowance for Credit Losses (Continued)

Following is a summary, by loan portfolio class, of changes in the allowance for creditloam losses for the year ended December 31, 2022 and recorded investment in loans receivable based on impairment evaluation as of December 31, 2022 (in thousands):

 

  

December 31, 2022

 
  

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 credit losses:

 

Beginning balance

 $73  $292  $249  $2,475  $119  $29  $1,625  $400  $5,262 

Charge-offs

  -   -   -   -   -   -   (59)  -   (59)

Recoveries

  -   -   -   -   -   -   -   -   - 

Provision

  50   3   202   1,275   185   4   856   (100)  2,475 

Ending balance

 $123  $295  $451  $3,750  $304  $33  $2,422  $300  $7,678 

 

 

Ending balance evaluated for impairment:

                                    

Individually

 $-  $-  $-  $118  $-  $-  $97  $-  $215 

Collectively

 $123  $295  $451  $3,632  $304  $33   2,325  $300  $7,463 
                                     

Loans receivable:

                                    

Ending balance

 $18,070  $39,315  $46,909  $333,540  $28,938  $4,918  $159,071     $630,761 

Ending balance evaluated for impairment:

                                    

Individually

 $-  $7  $1,708  $263  $-  $-  $97     $2,075 

Collectively

 $18,070  $39,308  $45,201  $333,277  $28,938  $4,918  $158,974     $628,686 

19

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Credit Losses (Continued)

  

December 31, 2022

 
  

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

 $73  $292  $249  $2,475  $119  $29  $1,625  $400  $5,262 

Charge-offs

  -   -   -   -   -   -   (59)  -   (59)

Recoveries

  -   -   -   -   -   -   -   -   - 

Provision

  50   3   202   1,275   185   4   856   (100)  2,475 

Ending balance

 $123  $295  $451  $3,750  $304  $33  $2,422  $300  $7,678 

 

 

Ending balance evaluated for impairment:

                                    

Individually

 $-  $-  $-  $118  $-  $-  $97  $-  $215 

Collectively

 $123  $295  $451  $3,632  $304  $33   2,325  $300  $7,463 

Loans receivable:

                                    

Ending balance

 $18,070  $39,315  $46,909  $333,540  $28,938  $4,918  $159,071     $630,761 

 

 

Ending balance evaluated for impairment:

                                    

Individually

 $-  $7  $1,708  $263  $-  $-  $97     $2,075 

Collectively

 $18,070  $39,308  $45,201  $333,277  $28,938  $4,918  $158,974     $628,686 

 

The BankCompany allocated increased allowance for creditloan loss provisions to the commercial real estate loan portfolio class for the year ended December 31, 2022, due primarily to changes in qualitative and quantitative factors in this portfolio class. The BankCompany allocated increased allowance for creditloan loss provisions to the commercial business loan portfolio class for the year ended December 31, 2022, due primarily to changes in quantitative factors in this portfolio class. The BankCompany allocated increased allowance for creditloan loss provisions to the multi-family loan portfolio class for the year ended December 31, 2022, due primarily to changes in qualitative and quantitative factors in this portfolio class.

 

22

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 5 - Loans Receivable, Net and Allowance for Credit Losses (Continued)

Following is a summary, by loan portfolio class, of changes in the allowance for creditloan losses for the three and sixmonths ended March 31,June 30, 2022 and recorded investment in loans receivable as of March 31,June 30, 2022 (in thousands):

 

 

March 31, 2022

  

June 30, 2022

 
 

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

  

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 credit losses:

 

For the Three Months Ended June 30, 2022

For the Three Months Ended June 30, 2022

                              
Allowance for loan losses:                                    

Beginning balance

 $73  $292  $249  $2,475  $119  $29  $1,625  $400  $5,262  $99  $305  $464  $2,637  $132  $28  $1,876  $400  $5,941 

Charge-offs

 -  -  -  -  -  -  -  -   -  -  -  -  -  -  -  -  -  - 

Recoveries

 -  -  -  -  -  -  -  -   -  -  -  -  -  -  -  -  -  - 

Provision

  26   13   215   162   13   (1)  251   -   679   5   (29)  (87)  746   151   4   (141)  (50)  599 

Ending balance

 $99  $305  $464  $2,637  $132  $28  $1,876  $400  $5,941  $104  $276  $377  $3,383  $283  $32  $1,735  $350  $6,540 
                                        

Ending balance evaluated for impairment:

                                    

Individually

 $-  $-  $-  $-  $-  $-  $-  $-  $- 

Collectively

 $99  $305  $464  $2,637  $132  $28  $1,876  $400  $5,941 

 

For the Six Months Ended June 30, 2022

For the Six Months Ended June 30, 2022

                               
Allowance for loan losses:                                    

Beginning balance

 $73  $292  $249  $2,475  $119  $29  $1,625  $400  $5,262 

Charge-offs

 -  -  -  -  -  -  -  -  - 

Recoveries

 -  -  -  -  -  -  -  -  - 

Provision

  31   (16)  128   908   164   3   110   (50)  1,278 

Ending balance

 $104  $276  $377  $3,383  $283  $32  $1,735  $350  $6,540 

 

The BankCompany allocated increased allowance for creditloan loss provisions to the commercial real estate loan portfolio class for the three and six months ended June 30, 2022, due primarily to changes in quantitative factors in this portfolio class. The Company allocated increased allowance for loan loss provisions to the construction loan portfolio class for the three and six months ended June 30, 2022 due primarily to qualitative and quantitative factors in this portfolio class. The Company allocated increased allowance for loan loss provisions to the commercial business loan portfolio class for the six months ended June 30, 2022, due primarily to changes in quantitative factors in this portfolio class. The Company allocated decreased allowance for loan loss provisions to the multi-family residential loan portfolio class for the three months ended June 30, 2022 due primarily to qualitative factors in this portfolio class. The Company allocated decreased allowance for loan loss provisions to the commercial business loan portfolio class for the three months ended March 31,June 30, 2022, due primarily to changes in qualitative and quantitative factors in this portfolio class. The Bank allocated increased allowance

23

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 5 - Loans Receivable, Net and Allowance for credit loss provisions to the multi-family residential loan portfolio class for the three months ended March 31, 2022 due primarily to qualitative and quantitative factors in this portfolio class. The Bank also allocated increased allowance for credit loss provisions to the commercial real estate loan portfolio class for the three months ended March 31, 2022, due primarily to changes in quantitative factors in this portfolio class.Credit Losses (Continued)

 

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 presenttable presents the classes of the loan portfolio summarized by the past due status as of March 31,June 30, 2023and December 31, 2022 (in thousands):

 

 

March 31, 2023

  

June 30, 2023

 
 

30-89 Days Past Due

 

90 Days or More Past Due and Accruing

 

90 Days or More Past Due and on Non-Accrual

 

Current

 

Total Loans Receivable

  

30-89 Days Past Due

 

90 Days or More Past Due 

 

Current

 

Total Loans Receivable

 

One-to-four family residential owner occupied

 $406  $-  $-  $17,674  $18,080  $403 $-  $17,224  $17,627 

One-to-four family residential non-owner occupied

 69  -  -  38,112  38,181  132 -  36,659  36,791 

Multi-family residential

 -  -  1,577  46,055  47,632  - 73  48,583  48,656 

Commercial real estate

 739  -  -  338,487  339,226  1,708 -  340,938  342,646 

Construction

 -  -  -  39,204  39,204  2,127 -  33,493  35,620 

Home equity

 38  -  -  5,283  5,321  38 -  5,203  5,241 

Commercial business

 -  -  -  153,901  153,901  2,004 -  146,523  148,527 

Other consumer

  -   -   -   14   14   -  -   13   13 

Total

 $1,252  $,-  $1,577  $638,730  $641,559  $6,412 $73  $628,636  $635,121 

 

20

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Credit Losses (Continued)

The information presented in the table above is not required for periods prior to the adoption of ASU 326. The following table presents the most comparable required information for the classes of the loan portfolio summarized by the past due status prior to ASU 326 methodology as of December 31, 2022 (in thousands):

 

  

December 31, 2022

 
  

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

 $407  $-  $407  $17,663  $18,070  $- 

One-to-four family residential non-owner occupied

  23   -   23   39,292   39,315   - 

Multi-family residential

  -   1,708   1,708   45,201   46,909   - 

Commercial real estate

  2,895   134   3,029   330,511   333,540   - 

Construction

  2,062   -   2,062   26,876   28,938   - 

Home equity

  39   -   39   4,879   4,918   - 

Commercial business

  10   97   107   158,962   159,069   51 

Other consumer

  -   -   -   2   2   - 

Total

 $5,436  $1,939  $7,375  $623,386  $630,761  $51 

 

Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, amounted to $1.6 million$73,000 at March 31,June 30, 2023 and $2.0 million at December 31, 2022. 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 months ended March 31, 2023 and the year ended December 31, 2022 there was no interest income recognized on non-accrual loans on a cash basis. There was $59,000 of interest income foregone on non-accrual loans for the three months ended March 31, 2023. There was $167,000 of interest income foregone on non-accrual loans for the year ended December 31, 2022.

 

24

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

 

Note 76 – Goodwill and Other Intangible, Net

 

On January 4, 2021, the Bank acquired a majority ownership interest in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota. The Bank recognized $2.1 million of goodwill as part of the acquisition of Oakmont Capital Holdings, LLC. On August 1, 2016, Quaint Oak Insurance Agency, LLC began operations by acquiring the renewal rights to a 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 March 31,June 30, 2023 was $162,000,$150,000, which is net of accumulated amortization of $253,000.$335,000. Amortization expense for both the three and six months ended March 31,June 30, 2023 and 2022 amounted to approximately $12,000.

$12,000 and $24,000, respectively.

 

Note 87 – Deposits

 

Deposits consist of the following classifications (in thousands):

 

 

March 31,

2023

 

December 31,

2022

  

June 30, 2023

 

December 31, 2022

 

Non-interest bearing checking accounts(1)

 $95,214  $88,728  $70,811  $88,728 
Interest bearing checking accounts(1) 52,589  - 

Savings accounts

 1,536  1,597  1,379  1,597 

Money market accounts

 243,003  260,972 

Money market accounts(2)

 229,509  260,972 

Certificates of deposit

  214,691   197,951   219,110   197,951 

Total deposits

 $554,444  $549,248  $573,398  $549,248 

(1)

The Company has identified one major checking account deposit customer that accounted for approximately 12.2% and 5.3% of total deposits at June 30, 2023 and December 31, 2022, respectively. At June 30, 2023 and December 31, 2022, the combined outstanding balances of the major deposit customer’s checking accounts totaled approximately $70.1 million and $29.2 million, respectively.
(2)The Company has identified one major money market deposit customer that accounted for approximately 26.2% and 27.3% of total deposits at June 30, 2023 and December 31, 2022, respectively. At both June 30, 2023 and December 31, 2022, the combined outstanding balances of the major deposit customer’s money market accounts totaled approximately $150.0 million.

Note 8– Borrowings

Federal Home Loan Bank ("FHLB") advances consist of the following at June 30, 2023 and December 31, 2022 (in thousands):

  

June 30, 2023

  

December 31, 2022

 
  

Amount

  

Weighted Interest
Rate

  

Amount

  

Weighted Interest
Rate

 

Short-term borrowings

 $72,000   5.39% $93,200   4.45%
                 

Fixed rate borrowings maturing:

                

2023

  13,000   2.38   57,000   2.22 

2024

  21,167   4.25   6,167   2.05 

2025

  7,855   3.40   2,855   1.25 

Total FHLB long-term debt

 $42,022   3.51% $66,022   2.16%

 

2125
 

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 98 – Borrowings (Continued)

 

Federal Home Loan Bank advances consist of the following

FHLB borrowings decreased $45.2 million, or 28.4%, to $114.0 million at March 31,June 30, 2023 and December 31, 2022 (in thousands):

  

March 31, 2023

  

December 31, 2022

 
  

Amount

  

Weighted

Interest
Rate

  

Amount

  

Weighted

Interest
Rate

 

Short-term borrowings

 $113,200   5.15% $93,200   4.45%
                 

Fixed rate borrowings maturing:

                

2023

  37,000   2.34   57,000   2.22 

2024

  6,167   2.05   6,167   2.05 

2025

  2,855   1.25   2,855   1.25 

Total FHLB long-term debt

 $46,022   2.23% $66,022   2.16%

Federal Home Loan Bank (FHLB) borrowings totaledfrom $159.2 million atMarch 31, 2023 and December 31, 2022. During the threesix months ended March 31,June 30, 2023, the Company borrowed $33.5$20.0 million of FHLB long-term borrowings. During the six months ended June 30, 2023, the Company paid down $21.2 million of FHLB short-term borrowings and paid down $13.5 million of FHLB short-term borrowings and $20.0$44.0 million of FHLB long-term borrowings. Federal Reserve Bank (FRB) borrowings decreased $7.0 million, or 100.0%, to none at March 31,June 30, 2023 as the Company borrowed $42.7 million and paid downoff the $49.7$7.0 million of FRB borrowings.borrowings at December 31, 2022.

 

On December 27, 2018, the Company issued $8.0 million in subordinated notes. These notes have a maturity date of December 31, 2028, and bear interest at a fixed rate of 6.50% for the first five years of their term and a floating rate for the remaining five years. The Company may, at its option, at any time on an interest payment date on or after December 31, 2023, redeem the notes, in whole or in part, at par plus accrued interest to the date of redemption.

 

On March 2, 2023, the Company announced the completion of a private offering ofissued $12.0 million in aggregate principal amount of fixed rate subordinated notes due March 15, 2025 (the “Notes”) to certain qualified institutional buyers.  On March 16, 2023, the Company completedissued an additional $2.0 million in aggregate private offeringprincipal amount of subordinated debt to certain accredited investors under the same terms.  The Company intends to use the net proceeds of the offerings for general corporate purposes. 

The Notes bear interest at a fixed annual rate of 8.50%, payable semi-annually in arrears on March 15 and September 15 of each year, beginning September 15, 2023. The Notes’ maturity date is March 15, 2025. The Company is entitled to redeem the Notes, in whole or in part, on or after March 15, 2024, and to redeem the Notes at any time in whole upon certain other events, at a redemption price equal to 100% of the outstanding principal amount of the Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date.

 

The balance of subordinated debt, net of unamortized debt issuance costs, was $21.7$21.8 million at March 31,June 30, 2023 and $8$8.0 million at December 31, 2022. 

 

Other short-term borrowings increased $5.6$4.2 million, or 102.5%76.0%, to $11.1$9.7 million at March 31,June 30, 2023 from $5.5 million at December 31, 2022. Other borrowings represent outstanding balances on two lines of credit that Oakmont Capital Holdings, LLC has with a credit union which are used to fund equipment loans. Borrowing capacity onDetail regarding the two lines of credit total $15.0 million atas of March 31, 2023.June 30, 2023 is below (in thousands):

 

  

Borrowing Capacity

  

Borrowings at

June 30, 2023

  

Rate at June 30, 2023

  

Borrowing Capacity

  

Borrowings at

December 31, 2022

  

Rate at

December 31, 2022

 

Line of Credit A

 $9,000  $5,996   8.25% $9,000  $-   7.00%

Line of Credit B

  6,000   3,663   8.75%  6,000   5,489   7.50%

Total

 $15,000  $9,659      $15,000  $5,489     

 

22

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

 

Note 109 – 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. The Bank may make cash contributions to the ESOP on a quarterly basis which are allocated to participant accounts on an annual basis.

 

During the quartersix months ended March 31,June 30, 2023, the Company did not make a discretionary contribution of shares to the ESOP and no expense was recognized.

 

During the secondquarter endedof March 31, 2022,the Company made a discretionary contribution of 4,000 shares to the ESOP. These shares were released from Treasury Stock at a cost of approximately $84,000. During both the three and six months ended March 31,June 30, 2022, the Company recognized $91,000 of ESOP expense.

 

26

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 9– Stock Compensation Plans (Continued)

Stock Incentive Plans – Share Awards

 

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 terminated on March 13, 2023, however the outstanding unvested shares awards as of such date remainremained outstanding for the remainder of their original five-year vesting term endingwhich ended May 9, 2023.

 

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 2018covered 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.

 

In May 2023, the shareholders of Quaint Oak Bancorp approved the adoption of the 2023 Stock Incentive Plan (the “2023 Stock Incentive Plan”).  The 2023 Stock Incentive Plan approved by shareholders in May 2023 covered a total of 175,000 shares, of which 43,750, or 25%, may be restricted stock awards, for a balance of 131,250 stock options assuming all the restricted shares are awarded.

As of March 31,June 30, 2023 a total of 9,12245,000 share awards were unvested under the 20132018 and 20182023 Stock Incentive PlansPlan and up to 11,75010,500 share awards were available for future grant under the 2023 Stock Incentive Plan and none under the 2018 Stock Incentive Plan.  The 20132018 and 20182023 Stock Incentive Plan share awards have vesting periods of five years.

 

A summary of share award activity under the Company’s 20132018 and 20182023 Stock Incentive Plans as of March 31,June 30, 2023 and 2022 and changes during the threesix months ended March 31,June 30, 2023 and 2022 is as follows:

 

 

 

March 31, 2023

  

June 30,

 
 

2023

 

2022

  

2023

2022 
 

Number of

Shares

 

Weighted

Average Grant Date Fair Value

 

Number of

Shares

 

Weighted

Average Grant Date Fair Value

  

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

  9,122  $13.30  18,845  $13.30   9,122  $13.30  18,845  $13.30 

Granted

  -   -  -  -   45,000  18.00  -  - 

Vested

  -   -  -  -   (9,122) 13.30  (9,123) 13.30 

Forfeited

  -   -   -   -   -  -   (600) 13.30 

Unvested at the end of the period

  9,122  $13.30   18,845  $13.30   45,000  $18.00   9,122  $13.30 

 

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 both the three months ended March 31,June 30, 2023 and 2022, the Company recognized approximately $43,000 and $31,000 of compensation expense.expense, respectively. During both the three months ended March 31,June 30, 2023 and 2022, the Company recognized a tax benefit of approximately $7,000.$9,000 and $7,000, respectively. During the six months ended June 30, 2023 and 2022, the Company recognized approximately $74,000 and $62,000 of compensation expense, respectively. During the six months ended June 30, 2023 and 2022, the Company recognized a tax benefit of approximately $15,000 and $13,000, respectively. As of March 31,June 30, 2023, approximately $12,000$790,000 in additional compensation expense will be recognized over the remaining service period of approximately 0.14.9 years.

27

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 9– Stock Compensation Plans (Continued)

Stock Option and Stock Incentive Plans – Stock Options

 

In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Stock Option Plan (the “Option 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 Option Plan expired February 13, 2018, however, outstanding options granted in 2013 remainremained valid and existing for the remainder of their 10 year terms, expiringwhich expired May 8, 2023. The 2013 Stock Incentive Plan approved by shareholders in May 2013 covered a total of 195,000 shares, of which 146,250 may be stock options assuming all the restricted shares are awarded. The 2013 Stock Incentive Plan terminated on March 13, 2023, however the outstanding unexercised stock options as of such date remain outstanding for the remainder of their original ten-year terms. The 2018 Stock Incentive Plan approved by shareholders in May 2018 covered a total of 155,000 shares, of which 116,250 may be stock options assuming all the restricted shares are awarded. In May 2023, the shareholders of Quaint Oak Bancorp approved the adoption of the 2023 Stock Incentive Plan. The 2023 Stock Incentive Plan approved by shareholders in May 2023 covered a total of 175,000 shares, of which 131,250 may be stock options assuming all the restricted shares are awarded.

 

All incentive stock options issued under the Option Plan and the 20132018 and 20182023 Stock Incentive Plans are intended to comply with the requirements of Section 422 of the Internal Revenue Code. 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.

  

23

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10– Stock Compensation Plans (Continued)

Stock Incentive Plans – Share Awards (Continued)

As of March 31,June 30, 2023, a total of 195,936255,136 grants of stock options were outstanding under the Option Plan and 20132018 and 20182023 Stock Incentive Plans and 37,25036,000 stock options were available for future grant under the 20182023 Stock Incentive 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.

 

During the three months ended June 30, 2023 and 2022, the Company recognized approximately $19,000 and $11,000 of compensation expense, respectively. During both the three months ended June 30, 2023 and 2022, the Company recognized a tax benefit of approximately $1,000. During the six months ended June 30, 2023 and 2022, the Company recognized approximately $30,000 and $22,000 of compensation expense, respectively. During the six months ended June 30, 2023 and 2022, the Company recognized a tax benefit of approximately $2,000 and $1,000, respectively. As of June 30, 2023, approximately $392,000 in additional compensation expense will be recognized over the remaining service period of approximately 4.9 years.

28

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 9– Stock Compensation Plans (Continued)

Stock Option and Stock Incentive Plans – Stock Options

 

A summary of option activity under the Company’s Option Plan and 2013, 2018and 20182023 Stock Incentive Plans for theas of three months ended March 31,June 30, 2023 and 2022 and changes during the threesix months ended March 31,June 30, 2023 and 2022 is as follows:

 

  

March 31,

 
  

2023

  

2022

 
  

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 period

  195,936  $11.24   3.5   233,136  $10.96   4.2 

Granted

  -   -   -   -   -   - 

Exercised

  (23,000)  8.10   -   (1,000)  13.30   - 

Forfeited

  -   -   -   -   -   - 

Outstanding at end of period

  172,936  $11.66   3.7   232,136  $10.95   4.1 

Exercisable at end of period

  147,009  $10.62   6.5   179,081  $10.26   5.6 

During both the three months ended March 31, 2023 and 2022, approximately $11,000 in compensation expense on stock options was recognized. A tax benefit of approximately $1,000, was recognized during each of these periods. As of March 31, 2023, approximately $6,000 in additional compensation expense will be recognized over the remaining service period of approximately 0.1 years.

  

June 30,

 
  

2023

  

2022

 
  

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 period

  195,936  $11.24   3.5   233,136  $10.96   4.2 

Granted

  132,500   18.00   9.9   -   -   - 

Exercised

  (73,300)  8.10   -   (17,000)  8.71   - 

Forfeited

  -   -   -   (2,000)  13.30   - 

Outstanding at end of period

  255,136  $15.65   7.8   214,136  $11.12   3.9 

Exercisable at end of period

  122,636  $13.30   4.9   183,209  $10.79   6.0 

 

 

Note 1110  – 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 values 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.

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.

 

29

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10– Fair Value Measurements and Fair Values of Financial Instruments (Continued)

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 19 of the Company’s 2022 Form 10-K, as the fair value of loans, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and non-performance risk. Loans are considered a Level 3 classification.

24

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11– Fair Value Measurements and Fair Values of Financial Instruments (Continued)

 

The following is a discussion of assets and liabilities measured at fair value on a recurring and non-recurring basis and valuation techniques applied:

 

Investment Securities Available For Sale: The fair value of securities available for sale are determined by using 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.

 

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.

 

Non-performing loans:Non-Performing Loans: Non-performing 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.

 

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 March 31,June 30, 2023 (in thousands):

 

 

March 31, 2023

 

June 30, 2023 
 

Fair Value Measurements Using:

  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)

  

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

  

Government National Mortgage Association mortgage-backed securities

 $2,740  $-  $2,740  $-  $2,566  $-  $2,566  $- 

Federal National Mortgage Association mortgage- backed securities

  96   -   96   -   90   -   90   - 

Total investment securities available for sale

 $2,836  $-  $2,836  $-  $2,656  $-  $2,656  $- 

Total recurring fair value measurements

 $2,836  $-  $2,836  $-  $2,656  $-  $2,656  $- 
  

Nonrecurring fair value measurements

                

Collateral-dependent loans

 $1,577  $-  $-  $1,577  $73  $-  $-  $73 

Total nonrecurring fair value measurements

 $1,577  $-  $-  $1,577  $73  $-  $-  $73 

 

30

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10– 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, 2022 (in thousands):

 

  

December 31, 2022

 
  

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

                

Government National Mortgage Association mortgage-backed securities

 $2,871  $-  $2,871  $- 

Federal National Mortgage Association mortgage- backed securities

  99   -   99   - 

Total investment securities available for sale

 $2,970  $-  $2,970  $- 

Total recurring fair value measurements

 $2,970  $-  $2,970  $- 
                 

Nonrecurring fair value measurements

                

Impaired loans

 $1,860  $-  $-  $1,860 

Total nonrecurring fair value measurements

 $1,860  $-  $-  $1,860 

25

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11– Fair Value Measurements and Fair Values of Financial Instruments (Continued)

 

 December 31, 2022
  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

                

Government National Mortgage Association mortgage-backed securities

 $2,871  $-  $2,871  $- 

Federal National Mortgage Association mortgage- backed securities

  99   -   99   - 

Total investment securities available for sale

 $2,970  $-  $2,970  $- 

Total recurring fair value measurements

 $2,970  $-  $2,970  $- 
                 

Nonrecurring fair value measurements

                

Impaired loans

 $1,860  $-  $-  $1,860 

Total nonrecurring fair value measurements

 $1,860  $-  $-  $1,860 

 

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 March 31,June 30, 2023 and December 31, 2022 (in thousands):

 

  

March 31, 2023

 
  

Quantitative Information About Level 3 Fair Value Measurements

 
  

Total Fair Value

 

Valuation Techniques

 

Unobservable Input

  

Range (Weighted Average)

 

Collateral-dependent loans

 $1,577 

Appraisal of collateral (1)

 

Appraisal adjustments (2)

   8%  (8%) 

 

June 30, 2023 
 

Quantitative Information About Level 3 Fair Value Measurements

  

Total Fair Value

 

Valuation Techniques

Unobservable Input

 

Range (Weighted Average)

  

Collateral-dependent loans

 $73 

Appraisal of collateral (1)

Appraisal adjustments (2)

  8%(8%) 

 

 

December 31, 2022
 Quantitative Information About Level 3 Fair Value Measurements
  

Total Fair Value

 

Valuation Techniques

Unobservable Input

 

Range (Weighted Average)

 

Impaired loans

 $1,860 

Appraisal of collateral (1)

Appraisal adjustments (2)

  10%(10%)

  December 31, 2022
  

Quantitative Information About Level 3 Fair Value Measurements

 
  

Total Fair Value

 

Valuation Techniques

 

Unobservable Input

  

Range (Weighted Average)

 

Impaired loans

 $1,860 

Appraisal of collateral (1)

 

Appraisal adjustments (2)

   10%  (10%) 

______________________________________

(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.

 

31

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10– 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 March 31,June 30, 2023 and December 31, 2022 (in thousands):

 

         

Fair Value Measurements at

          

Fair Value Measurements at

 
         

March 31, 2023

          

June 30, 2023

 
 

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)

  

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

                    

Investment in interest-earning time deposits

 $2,662  $2,742  $-  $-  $2,742  $2,162  $2,235  $-  $-  $2,235 

Loans held for sale

 141,206  145,046  -  145,046  -  115,697  117,703  -  117,703  - 

Loans receivable, net

 632,826  610,989  -  -  610,989  626,767  610,883  -  -  610,883 
  

Financial Liabilities

          ��          

Deposits

 554,444  558,001  339,753  -  218,248  573,398  572,360  354,288  -  218,072 

FHLB long-term borrowings

 46,022  45,881  -  -  45,881  42,022  41,918  -  -  41,918 

Subordinated debt

 21,739  21,165  -  -  21,165  21,811  20,045  -  -  20,045 

 

         

Fair Value Measurements at

          

Fair Value Measurements at

 
         

December 31, 2022

          

December 31, 2022

 
 

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)

  

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

                    

Investment in interest-earning time deposits

 $3,833  $3,907  $-  $-  $3,907  $3,833  $3,907  $-  $-  $3,907 

Loans held for sale

 133,222  137,253  -  137,253  -  133,222  137,253  -  137,253  - 

Loans receivable, net

 621,864  600,186  -  -  600,186  621,864  600,186  -  -  600,186 
  

Financial Liabilities

                    

Deposits

 549,248  551,157  351,297  -  199,860  549,248  551,157  351,297  -  199,860 

FHLB long-term borrowings

 66,022  65,846  -  -  65,846  66,022  65,846  -  -  65,846 

FRB long-term borrowings

 7,000  6,981  -  -  6,981  7,000  6,981  -  -  6,981 

Subordinated debt

 7,966  7,886  -  -  7,886  7,966  7,886  -  -  7,886 

 

For cash and cash equivalents, accrued interest receivable, investment in FHLB stock, bank-owned life insurance, FHLB short-term borrowings, other short-term borrowings, accrued interest payable, and advances from borrowers for taxes and insurance, the carrying value is a reasonable estimate of the fair value and are considered Level 1 measurements.

26

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

 

Note 1211 – Operating Segments

 

The Company's operations currently consist of two reportable operating segments: Banking and Oakmont Capital Holdings, LLC. The Company offers different products and services through its two segments. The accounting policies of the segments are generally the same as those of the consolidated company.

 

32

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11– Operating Segments (Continued)

The Banking Segment generates its revenues primarily from its lending, deposit gathering and fee business activities. The profitability of this segment's operations depends primarily on its net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for credit losses. The provision for credit losses is almost entirely dependent on changes in the Banking Segment's loan and investment portfolio and management’s assessment of the collectability of the loan and investment portfolio as well as prevailing economic and market conditions. The profitability of this segment’s operations also depends on the generation of non-interest income which includes fees and commissions generated by Quaint Oak Bank and its wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, Quaint Oak Insurance Agency, LLC, and Oakmont Commercial, LLC, which are included in the Banking Segment for segment reporting purposes. The Banking Segment is also subject to an extensive system of laws and regulations that are intended primarily for the protection of depositors and other customers, federal deposit insurance funds and the banking system as a whole. These laws and regulations govern such areas as capital, permissible activities, allowance for loan and lease losses, loans and investments, and rates of interest that can be charged on loans. For segment reporting purposes, Quaint Oak Bancorp, Inc. is included as part of the Company’s Banking segment.

 

The Oakmont Capital Holdings, LLC Segment originates equipment loans which are generally sold to third party institutions with the loans’ servicing rights retained. The profitability of this segment’s operations depends primarily on the gains realized from the sale of loans, processing fees, and service fees. The Bank reflects the 49% interest it does not hold in the Oakmont Capital Holdings, LLC Segment in its consolidated financial statements as noncontrolling interest. The Oakmont Capital Holdings, LLC Segment is also subject to an extensive system of laws and regulations that are intended primarily for the protection of commercial customers.

 

33

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11– Operating Segments (Continued)

The following table presents summary financial information for the reportable segments (in thousands):

 

  

As of or for the Three Months Ended March 31,

 
  

2023

  

2022

 
  

Quaint Oak Bank(1)

  

Oakmont Capital Holdings, LLC

  

Consolidated

  

Quaint Oak Bank(1)

  

Oakmont Capital Holdings, LLC

  

Consolidated

 

Net Interest Income (Loss)

 $5,596  $(287) $5,309  $5,501  $(23) $5,478 

Provision for Credit Losses

  392   -   392   679   -   679 

Net Interest Income (Loss) after Provision for Credit Losses

  5,204   (287)  4,917   4,822   (23)  4,799 
                         

Non-Interest Income

                        

Mortgage banking, equipment lending and title abstract fees

  137   669   806   204   433   637 

Real estate sales commissions, net

  24   -   24   61   -   61 

Insurance commissions

  136   -   136   116   -   116 

Other fees and services charges

  98   133   231   149   17   166 

Net loan servicing income

  143   1,086   1,229   5   160   165 

Income from bank-owned life insurance

  24   -   24   21   -   21 

Net gain on loans held for sale

  391   489   880   1,038   3,172   4,210 

Gain on the sale of SBA loans

  50   -   50   133   -   133 

Total Non-Interest Income

  1,003   2,377   3,380   1,727   3,782   5,509 
                         

Non-Interest Expense

                        

Salaries and employee benefits

  3,576   1,766   5,342   3,238   1,353   4,591 

Directors’ fees and expenses

  105   -   105   71   -   71 

Occupancy and equipment

  342   185   527   308   112   420 

Data processing

  217   -   217   197   -   197 

Professional fees

  148   27   175   171   13   184 

FDIC deposit insurance assessment

  232   -   232   116   -   116 

Advertising

  83   216   299   85   123   208 

Amortization of other intangible

  12   -   12   12   -   12 

Other

  593   128   721   299   85   384 

Total Non-Interest Expense

  5,308   2,322   7,630   4,497   1,686   6,183 

Pretax Segment Profit (Loss)

 $899  $(232) $667  $2,052  $2,073  $4,125 

Net (Loss) Income Attributable to Noncontrolling Interest

 $(114) $-  $(114) $1,016  $-  $1,016 

Segment Assets

 $767,307  $44,293  $811,600  $514,970  $20,896  $535,866 

  

As of or for the Three Months Ended June 30,

 
  

2023

  

2022

 
  

Quaint Oak Bank(1)

  

Oakmont Capital

Holdings, LLC

  

Consolidated

  

Quaint Oak

Bank(1)

  

Oakmont Capital

Holdings, LLC

  

Consolidated

 

Net Interest Income (Loss)

 $5,223  $(377) $4,846  $5,894  $(84) $5,810 

(Recovery of) Provision for Credit Losses

  (189)  -   (189)  599   -   599 

Net Interest Income (Loss) after (Recovery of) Provision for Credit Losses

  5,412   (377)  5,035   5,295   (84)  5,211 
                         

Non-Interest Income

                        

Mortgage banking, equipment lending and title abstract fees

  126   440   566   223   601   824 

Real estate sales commissions, net

  48   -   48   64   -   64 

Insurance commissions

  160   -   160   139   -   139 

Other fees and services charges

  43   169   212   15   67   82 

Net loan servicing income

  2   1,121   1,123   -   308   308 

Income from bank-owned life insurance

  25   -   25   22   -   22 

Net gain on loans held for sale

  437   636   1,073   899   1,959   2,858 

Gain on the sale of SBA loans

  201   -   201   34   -   34 

Total Non-Interest Income

  1,042   2,366   3,408   1,396   2,935   4,331 
                         

Non-Interest Expense

                        

Salaries and employee benefits

  3,548   1,980   5,528   3,429   1,462   4,891 

Directors’ fees and expenses

  102   -   102   72   -   72 

Occupancy and equipment

  350   211   561   343   123   466 

Data processing

  208   -   208   163   -   163 

Professional fees

  193   32   225   214   14   228 

FDIC deposit insurance assessment

  240   -   240   113   -   113 

Advertising

  82   55   137   84   70   154 

Amortization of other intangible

  12   -   12   12   -   12 

Other

  559   333   892   379   111   490 

Total Non-Interest Expense

  5,294   2,611   7,905   4,809   1,780   6,589 

Pretax Segment Profit (Loss)

 $1,160  $(622) $538  $1,882  $1,071  $2,953 

Net (Loss) Income Attributable to Noncontrolling Interest

 $(305) $-  $(305) $525  $-  $525 

Segment Assets

 $743,969  $39,826  $783,795  $730,244  $21,678  $751,922 

 

(1)

Includes Quaint Oak Bancorp, Inc. and the Bank’s subsidiaries, Quaint Oak Mortgage, Quaint Oak Real Estate, Quaint Oak Abstract, Quaint Oak Insurance Agency, QOB Properties, and Oakmont Commercial.

 

27
34
 

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11– Operating Segments (Continued)

The following table presents summary financial information for the reportable segments (in thousands):

  

As of or for the Six Months Ended June 30,

 
  

2023

  

2022

 
  

Quaint Oak Bank(1)

  

Oakmont Capital Holdings, LLC

  

Consolidated

  

Quaint Oak Bank(1)

  

Oakmont Capital Holdings, LLC

  

Consolidated

 

Net Interest Income (Loss)

 $10,563  $(664) $9,899  $11,395  $(108) $11,287 

Provision for Credit Losses

  203   -   203   1,278   -   1,278 

Net Interest Income (Loss) after Provision for Credit Losses

  10,360   (664)  9,696   10,117   (108)  10,009 
                         

Non-Interest Income

                        

Mortgage banking, equipment lending and title abstract fees

  263   1,109   1,372   427   1,034   1,461 

Real estate sales commissions, net

  72   -   72   125   -   125 

Insurance commissions

  296   -   296   255   -   255 

Other fees and services charges

  142   301   443   164   84   248 

Net loan servicing income

  145   2,207   2,352   5   469   474 

Income from bank-owned life insurance

  49   -   49   43   -   43 

Net gain on loans held for sale

  828   1,125   1,953   1,938   5,130   7,068 

Gain on the sale of SBA loans

  251   -   251   167   -   167 

Total Non-Interest Income

  2,046   4,742   6,788   3,124   6,717   9,841 
                         

Non-Interest Expense

                        

Salaries and employee benefits

  7,124   3,746   10,870   6,666   2,816   9,482 

Directors’ fees and expenses

  207   -   207   143   -   143 

Occupancy and equipment

  692   396   1,088   651   235   886 

Data processing

  425   -   425   360   -   360 

Professional fees

  341   59   400   385   27   412 

FDIC deposit insurance assessment

  472   -   472   229   -   229 

Advertising

  166   270   436   170   192   362 

Amortization of other intangible

  24   -   24   24   -   24 

Other

  895   462   1,357   678   195   873 

Total Non-Interest Expense

  10,346   4,933   15,279   9,306   3,465   12,771 

Pretax Segment Profit (Loss)

 $2,060  $(855) $1,205  $3,935  $3,144  $7,079 

Net (Loss) Income Attributable to Noncontrolling Interest

 $(419) $-  $(419) $1,541  $-  $1,541 

Segment Assets

 $743,969  $39,826  $783,795  $730,244  $21,678  $751,922 

(1)

Includes Quaint Oak Bancorp, Inc. and the Bank’s subsidiaries, Quaint Oak Mortgage, Quaint Oak Real Estate, Quaint Oak Abstract, Quaint Oak Insurance Agency, QOB Properties, and Oakmont Commercial.

35
 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements Are Subject to Change

 

This Quarterly Report contains certain forward-looking statements (as defined in the Securities Exchange Act of 1934 and the regulations thereunder). Forward-looking statements are not historical facts but instead represent only the beliefs, expectations or opinions of the Company and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward-looking statements may be identified by the use of such words as: “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or words of similar meaning, or future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly.” Forward-looking statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks, uncertainties and assumptions, many of which are difficult to predict and generally are beyond the control of and its management, that could cause actual results to differ materially from those expressed in, or implied or projected by, forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) economic and competitive conditions which could affect the volume of loan originations, deposit flows and real estate values; (2) the levels of non-interest income and expense and the amount of credit losses; (3) competitive pressure among depository institutions increasing significantly; (4) changes in the interest rate environment causing reduced interest margins; (5) general economic conditions, either nationally or in the markets in which the Company is or will be doing business, being less favorable than expected;(6) political and social unrest, including acts of war or terrorism; (7) the impact of the current outbreak of the novel coronavirus (COVID-19) or (8)(7) legislation or changes in regulatory requirements adversely affecting the business in which the Company is or will be engaged. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

 

General

 

The Company was formed in connection with the Bank’s conversion to a stock savings bank completed on July 3, 2007. The Company’s results of operations are dependent primarily on the results of the Bank, which is a wholly owned subsidiary of the Company, along with the Bank’s wholly owned subsidiaries and the Bank'sBank’s majority equity position in Oakmont Capital Holdings, LLC. The Bank’s results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by provisions for credit losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation, directors’ fees and expenses, office occupancy and equipment expense, data processing expense, professional fees, advertising expense, FDIC deposit insurance assessment, and other expenses. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial condition and results of operations.

 

At March 31,June 30, 2023, the Bank has six wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, Quaint Oak Insurance Agency, LLC, and Oakmont Commercial, LLC, each a Pennsylvania limited liability company. The mortgage company offers mortgage banking primarily in the Lehigh Valley, Delaware Valley and Philadelphia County regions 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. Oakmont Commercial, LLC was formed in October 2021 and operates as a multi-state specialty commercial real estate financing company. As of January 4, 2021, the Bank holds a 51% majority equity position in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota. The discussion of financial results that follows includes the Bank’s investment in Oakmont Capital Holdings, LLC. The Bank reflects the 49% interest it does not hold in Oakmont Capital Holdings, LLC in its consolidated financial statements as noncontrolling interest. All significant intercompany balances and transactions have been eliminated.

36

 

Critical Accounting Policies

 

The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. Critical accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

 

During the quartersix months ended March 31,June 30, 2023, the Company implemented new CECL accounting policies, procedures, and controls as part of its adoption of ASU No. 2016-13 and subsequent ASUs issued to amend ASC Topic 326. There were no other changes made to the Company's internal control over financial reporting that occurred during the quartersix months ended March 31,June 30, 2023 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

28

Comparison of Financial Condition at MarchJune 31,30, 2023 and December 31, 2022

 

General. The Company’s total assets at March 31,June 30, 2023 were $811.6$783.8 million, an increasea decrease of $19.3$8.6 million, or 2.4%1.1%, from $792.4 million at December 31, 2022. This growthdecrease in total assets was primarily due to an $11.0a $17.5 million, or 1.8%13.2%, decrease in loans held for sale, partially offset by a $5.7 million, or 146.3%, increase in cash and cash equivalents and a $4.9 million, or 0.8%, increase in loans receivable, net, and an $8.0 million, or 6.0%, increase in loans held for sale. The largest increases within the loan portfolio occurred in construction loans which increased $10.3 million, or 35.5%, commercial real estate loans which increased $5.7 million, or 1.7%, multi-family residential loans which increased $723,000, or 1.5%, home equity loans which increased $403,000, or 8.2%, and other consumer loans which increased $12,000, or 600.0%. Partially offsetting these increases was a $5.2 million, or 3.2% decrease in commercial business loans, and a $1.1 million, or 2.9%, decrease in one-to-four family non-owner occupied loans.net. 

 

Cash and Cash Equivalents. Cash and cash equivalents decreased $19,000,increased $5.7 million, or 0.5%146.3%, and remained atfrom $3.9 million at March 31, 2023 and December 31, 2022 asto $9.6 million at June 30, 2023, with the expectation that excess liquidity waswill be used primarily to fund loans.

37

 

Investment in Interest-Earning Time Deposits.Investment in interest-earning time deposits decreased $1.2$1.7 million, or 30.6%43.6%, from $3.8 million at December 31, 2022 to $2.7$2.2 million at March 31,June 30, 2023 as six interest-earning time deposits matured and were not renewed and one interest-earning time deposit was purchased during the threesix months ended March 31,June 30, 2023.

 

Investment Securities Available for Sale.Investment securities available for sale decreased $134,000,$314,000, or 4.5%10.6%, from $3.0 million at December 31, 2022 to $2.8$2.7 million at March 31,June 30, 2023, due primarily to the principal repayments on these securities during the threesix months ended March 31,June 30, 2023.

 

Loans Held for Sale.Loans held for sale increased $8.0decreased $17.5 million, or 6.0%13.2%, from $133.2 million at December 31, 2022 to $141.2$115.7 million at March 31,June 30, 2023 as the Bank originated $113.8$168.9 million in equipment loans held for sale and sold $106.4$168.5 million of equipment loans during the threesix months ended March 31,June 30, 2023. Partially offsettingContributing to the increasedecrease in loans held for sale is $18.5 million of loan amortization and prepayments. Additionally, the Bank’s mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $15.4$37.1 million of one-to-four family residential loans during the threesix months ended March 31,June 30, 2023 and sold $14.7$36.5 million of loans in the secondary market during this same period.

 

Loans Receivable, Net. Loans receivable, net, increased $11.0$4.9 million, or 1.8%0.8%, to $632.8$626.8 million at March 31,June 30, 2023 from $621.9 million December 31, 2022. This increase was funded primarily from deposits. Increases within the portfolio occurred in construction loans which increased $10.3$6.7 million, or 35.5%23.1%, commercial real estate loans which increased $5.7$9.1 million, or 1.7%2.7%, multi-family residential loans which increased $723,000,$1.7 million, or 1.5%3.7%, home equity loans which increased $403,000,$323,000, or 8.2%6.6%, and other consumer loans which increased $12,000,$11,000, or 600.0%550.0%. Partially offsetting these increases was a $5.2$10.5 million, or 3.2%6.6% decrease in commercial business loans, and a $1.1$3.0 million, or 2.9%5.2%, decrease in one-to-four family non-owner occupiedresidential loans.

 

Deposits. Total deposits increased $5.2$24.2 million, or 1.0%4.4%, to $554.4$573.4 million at March 31,June 30, 2023 from $549.2 million at December 31, 2022. This increase in deposits was primarily attributable to an increase of $16.7$34.7 million, or 8.5%39.1%, in checking accounts, and an increase of $21.2 million, or 10.7%, in certificates of deposit, and an increase of $6.5 million, or 7.3%, in non-interest bearing checking accounts.deposit. The increase in total deposits was partially offset by an $18.0a $31.5 million, or 6.9%12.1%, decrease in money market accounts, and a $61,000,$218,000, or 3.8%13.7%, decrease in savings accounts.

 

The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) was $121.7$209.9 million, or 22.0%36.3% of total deposits at March 31,June 30, 2023.

29

 

Borrowings. Federal Home Loan Bank (FHLB)FHLB borrowings totaleddecreased $45.2 million, or 28.4%, to $114.0 million at June 30, 2023 from $159.2 million at both March 31, 2023 and December 31, 2022. During the threesix months ended March 31,June 30, 2023, the Company borrowed $33.5$45.5 million of FHLB short-term borrowings and $20.0 million of FHLB long-term borrowings. During the six months ended June 30, 2023, the Company paid down $13.5$66.7 million of FHLB short-term borrowings and $20.0$44.0 million of FHLB long-term borrowings. Federal Reserve Bank (FRB) borrowings decreased $7.0 million, or 100.0%, to none at March 31,June 30, 2023 as the Company paid downoff the $7.0 million of FRB borrowings.borrowings at December 31, 2022. Other borrowings increased $5.6$4.2 million, or 102.5%76.0%, to $11.1$9.7 million at March 31,June 30, 2023 from $5.5 million at December 31, 2022.

 

Accrued Expenses and Other Liabilities.Accrued expenses and other liabilities increased $2.1$1.3 million, or 22.2%13.4%, to $11.7$10.9 million at March 31,June 30, 2023 from $9.6 million at December 31, 2022, due primarily to an increase in right of useoperating lease liability driven by the capitalization of leases for Oakmont in accordance with Financial Accounting Standards Board accounting standard ASU 2016-02, Leases (Topic 842). Also contributing to the increase is an increase in tax and other expense accruals.

 

Stockholders’ Equity. Total stockholders’ equity increased $339,000,decreased $319,000, or 0.7%0.6%, to $49.4$48.8 million at March 31,June 30, 2023 from $49.1 million at December 31, 2022. Contributing to the increasedecrease was the noncontrolling interest distribution of $866,000, dividends paid of $568,000, net loss attributable to noncontrolling interest of $419,000, and purchase of treasury stock of $306,000, partially offset by net income for the threesix months ended March 31,June 30, 2023 of $563,000,$1.1 million, the reissuance of treasury stock for exercised stock options of $121,000,$529,000, amortization of stock awards and options under our stock compensation plans of $42,000,$104,000, the reissuance of treasury stock under the Bank’s 401(k) Plan of $40,000,$66,000, and other comprehensive income, net of $10,000. These increases were partially offset by dividends paid of $283,000, net loss attributable to noncontrolling interest of $114,000, and noncontrolling interest distribution of $40,000.$8,000.

38

 

Comparison of Operating Results for the Three Months Ended March 31,June 30, 2023 and 2022

 

General.Net income amounted to $563,000$570,000 for the three months ended March 31,June 30, 2023, a decrease of $1.7$1.2 million, or 75.0%67.8%, compared to net income of $2.2$1.8 million for the three months ended March 31,June 30, 2022. The decrease in net income on a comparative quarterly basis was primarily the result of an increase in non-interest expense of $1.3 million, a decrease in non-interest income of $2.1 million, an increase in non-interest expense of $1.6 million,$923,000, and a decrease in net interest income of $169,000,$964,000, partially offset by a decrease in net income attributable to noncontrolling interest of $1.1 million,$830,000, a decrease in the provision for credit losses of $788,000, and a decrease in the provision for income taxes of $643,000, and a decrease in the provision for credit losses of $468,000.$385,000.

 

Net Interest Income. Net interest income decreased $169,000,$964,000, or 3.1%16.6% to $5.3$4.8 million for the three months ended March 31,June 30, 2023 from $5.5$5.8 million for the three months ended March 31,June 30, 2022. The decrease was driven by a $4.6$5.8 million, or 514.8%385.5%, increase in interest expense, partially offset by a $4.4$4.8 million, or 69.7%65.8%, increase in interest income.

 

Interest Expense. The $4.6$5.8 million, or 514.8%385.5%, increase in interest expense for the three months ended March 31,June 30, 2023 over the comparable period in 2022 was primarily attributable to a 321335 basis point increase in the rate on average money market accounts which increased from 0.41% at March 31,0.75% for the three months ended June 30, 2022 to 3.62% at March 31,4.10% for the three months ended June 30, 2023 and had the effect of increasing interest expense by $2.0 million. Also contributing to the increase in interest expense is a 461439 basis point increase in the rate on average FHLB short-term borrowings which increased from 0.25% at March 31,1.07% for the three months ended June 30, 2022 to 4.86% at March 31,5.46% for the three months ended June 30, 2023 and had the effect of increasing interest expense by $1.2 million. Also contributing to the increase in interest expense was a 148196 basis point increase in average rate of certificates of deposit, which increased from 0.90%0.93% for the three months ended March 31,June 30, 2022 to 2.38%2.89% for the three months ended March 31,June 30, 2023, and had the effect of increasing interest expense by $774,000.$1.1 million. Also contributing to the increase in interest expense is a $12.0 million increase in average other short-term borrowings, which increased from $458,000 for the six months ended June 30, 2022 to $12.5 million for the six months ended June 30, 2023, and had the effect of increasing interest expense by $484,000.  The average interest rate spread decreased from 4.00%3.37% for the three months ended March 31,June 30, 2022 to 2.10%1.79% for the three months ended March 31,June 30, 2023 while the net interest margin decreased from 4.15%3.54% for the three months ended March 31,June 30, 2022 to 2.72%2.42% for the three months ended March 31,June 30, 2023. The year over year margin compression was primarily due to the 450 basis point increase in the federal funds rate over the same timeframe.

 

Interest Income. The $4.4$4.8 million, or 69.7%65.8%, increase in interest income was primarily due to a $235.0$192.5 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $528.3$590.4 million for the three months ended March 31,June 30, 2022 to an average balance of $763.4$782.9 million for the three months ended March 31,June 30, 2023, and had the effect of increasing interest income $2.9$2.3 million. Also contributing to the increase in interest income was a 58119 basis point increase in the yield on average loans receivable, net, including loans held for sale, which increased from 4.97%4.88% for the three months ended March 31,June 30, 2022 to 5.55%6.06% for the three months ended March 31,June 30, 2023, and had the effect of increasing interest income $1.1$2.3 million.

 

 

3039
 

 

Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances.

 

 Three Months Ended March 31, 
 2023 2022 
 Average Average  

Three Months Ended June 30,

 
 Average Yield/ Average Yield/  

2023

 

2022

 
 Balance Interest Rate Balance Interest Rate  

Average

Balance

 

Interest

 

Average

Yield/

Rate

 

Average

Balance

 

Interest

 

Average

Yield/

Rate

 
 (Dollars in thousands)  

(Dollars in thousands)

 

Interest-earning assets:

              

Due from banks, interest-bearing

 $5,769  $56  3.88% $12,319  $3  0.10% $5,834  $66  4.53% $50,148  $42  0.33%

Investment in interest-earning time deposits

 3,238  27  3.34  7,441  34  1.83  2,646  34  5.14  7,071  28  1.58 

Investment securities available for sale

 2,923  32  4.38  3,935  9  0.91  2,775  38  5.48  3,682  8  0.76 

Loans receivable, net (1) (2)

 763,363  10,594  5.55  528,325  6,570  4.97  782,855  11,852  6.06  590,403  7,200  4.88 

Investment in FH LB stock

  6,644   109  6.56   2,443   27  4.42 

Investment in FHLB stock

  6,512   128  7.86   4,442   30  2.70 

Total interest-earning assets

  781,937   10,818   5.53%  554,463   6,643   4.79% 800,622   12,118   6.05% 655,746   7,308   4.46%

Non-interest-earning assets

  22,030         15,932         21,438        20,231      

Total assets

 $803,967         $570,395         $822,060       $675,977      

Interest-bearing liabilities:

              

Savings accounts

 $1,562  $1  0.26% $1,867  $1  0.22% $1,418  $1  0.28% $1,553  $1  0.26%

Money market accounts

 249,798  2,260  3.62  198,003  205  0.41  234,834  2,407  4.10  255,129  476  0.75 
Checking accounts 38,141  456  4.79  -  -  - 

Certificate of deposit accounts

  209,935   1,249  2.38   183,127   414  0.90   218,163   1,575  2.89   185,086   430  0.93 

Total deposits

 461,295  3,510  3.04  382,997  620  0.65  492,556  4,439  3.51  441,768  907  0.82 

FHLB short-term borrowings

 107,106  1,300  4.86  35,678  22  0.25  109,890  1,500  5.46  19,722  53  1.07 

FHLB long-term borrowings

 51,855  277  2.14  23,193  112  1.93  44,418  354  3.20  79,061  389  1.97 

FRB long-term borrowings

 974  10  4.11  3,580  3  0.34  756  9  4.76  1,656  1  0.24 

Other short-term borrowings

 13,324  582  17.44  458  18  15.72 

Subordinated debt

 12,255  216  7.05  7,936  130  6.55   21,772   388  7.13   7,944   130  6.55 

Other short-term borrowings

  9,062   196   8.65   458   9   7.86 

Total interest-bearing liabilities

 642,547   5,509   3.43% 453,842   896   0.79% 682,716   7,272   4.23% 550,609   1,498   1.09%

Non-interest-bearing liabilities

  115,657         80,761         93,568        86,895      

Total liabilities

 758,204       534,603       776,284       637,504      

Stockholders’ Equity

  45,763         35,792         45,776        38,473      

Total liabilities and Stockholders’ Equity

 $803,967       $570,395       $822,060       $675,977      

Net interest-earning assets

 $139,390       $100,621       $117,906       $105,137      

Net interest income; average interest rate spread

    $5,309   2.10%    $5,747   4.00%

Net interest income; average interest rate spread

  $4,846   1.79%    $5,810  3.37%

Net interest margin (3)

         2.72%         4.15%       2.42%      3.54%

Average interest-earning assets to average interest-bearing liabilities

         121.69%         122.17%

Average interest-earning assets to average interest-bearing liabilities

     117.29.%      119.09%

________________________

(1)         Includes loans held for sale.

(2)         Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for credit losses.

(3)         Equals net interest income divided by average interest-earning assets.

 

Provision for Credit Losses. The Company’s provision for (recovery of) credit losses decreased $287,000,$788,000, or 42.3%131.6%, to $392,000a recovery of $189,000 for the three months ended March 31,June 30, 2023 from $679,000a provision for $599,000 for the three months ended March 31,June 30, 2022. The decrease in the provision for credit losses for the three months ended March 31,June 30, 2023 over the three months ended March 31,June 30, 2022 was primarily due to the implementation of ASU 2016-13, Financial Instruments – Credit Losses, which became effective for the Company as of January 1, 2023. More specifically, under the Company’s current Allowance for Credit Losses accounting model, certain qualitative factors used prior to the adoption of ASU 2016-13 were evaluated and adjusted in accordance with the model criteria and the general reserve which was used in the past to cover uncertainties that could affect management’s estimate of probable losses primarily associated with the COVID-19 pandemic was eliminated.

 

40

Non-performing loans at March 31,June 30, 2023 consisted of one SBA loan on non-accrual status in the amount of $1.6 million.$73,000. The non-performing loan at March 31,June 30, 2023 is generally well-collateralized or adequately reserved for. During the quartersix months ended March 31,June 30, 2023, one commercial business loan and one commercial real estate loan totaling $231,000 that were previously on non-accrual were charged-off through the allowance for credit losses. The allowance for credit losses as a percent of total loans receivable, net was 1.20%1.18% at March 31,June 30, 2023 and 1.22% at December 31, 2022. Non-performing assets amounted to $1.6 million,$73,000, or 0.19 %0.01% of total assets at March 31,June 30, 2023 compared to $2.0 million, or 0.25%, of total net assets at December 31, 2022.

 

Non-Interest Income.Non-interest income decreased $2.1 million,$923,000, or 38.7%21.3%, from $5.5$4.3 million for the three months ended March 31,June 30, 2022 to $3.4 million for the three months ended March 31,June 30, 2023. The decrease was primarily attributable to a $3.3$1.8 million, or 79.1%62.5%, decrease in net gain on loans held for sale, as the general lack of liquidity in the marketplace affected our ability to sell equipment loans during the quarter ended March 31,June 30, 2023. Also contributing to the decrease in non-interest income was an $83,000,a $258,000, or 62.4%31.3%, decrease in gain on sale of SBA loans,mortgage banking, equipment lending, and title abstract fees, and a $37,000,$16,000, or 60.7%25.0%, decrease in real estate sales commissions, net. These decreases were partially offset by a $1.1 million,an $815,000, or 644.8%264.6%, increase in loan servicing income, a $169,000,$167,000, or 26.5%491.2%, increase in mortgage banking, equipment lending, and title abstract fees,gain on sale of SBA loans, a $65,000,$130,000, or 39.2%158.5%, increase in other fees and service charges, and a $20,000,$21,000, or 17.2%15.1%, increase in insurance commissions. 

31

 

Non-Interest Expense. Total non-interest expense increased $1.4$1.3 million, or 23.4%20.0%, from $6.2$6.6 million for the three months ended March 31,June 30, 2022 to $7.6$7.9 million for the three months ended March 31,June 30, 2023, primarily due to an $402,000, or 82.0%, increase in other expense, a $751,000,$637,000, or 16.4%13.0%, increase in salaries and employee benefits expense, a $337,000,$127,000, or 87.8%, increase in other expense, a $116,000, or 100.0%112.4%, increase in FDIC deposit insurance assessment, a $107,000,$95,000, or 25.5%20.4%, increase in occupancy and equipment expense, a $91,000,$45,000, or 43.8%27.6%, increase in advertisingdata processing expense, and a $34,000,$30,000, or 47.9%,41.7% increase in director’s fees and expenses, and a $20,000, or 10.2%,expenses. The increase in data processing expense.other expense is primarily due to ongoing costs incurred as a result of the Bank’s correspondent banking initiatives. The increase in salaries and employee benefits expense is primarily due to expanding and improving the level of staff at the Bank and its subsidiary companies, including Oakmont. Oakmont’s results for the three months ended March 31, 2023Oakmont also contributed to the increases in occupancy and equipment expense, professional fees, advertising expense, and other expense.expense for the three months ended June 30, 2023. The increase in non-interest expense was partially offset by a $9,000,$17,000, or 4.9%11.0%, decrease in advertising expense, and a $3,000, or 1.3% decrease in professional fees.

 

Provision for Income Tax.The provision for income tax decreased $643,000,$385,000, or 74.7%58.5%, from $861,000$658,000 for the three months ended March 31,June 30, 2022 to $218,000$273,000 for the three months ended March 31,June 30, 2023 due primarily to the decrease in pre-tax income.

 

Comparison of Operating Results for the Six Months Ended June 30, 2023 and 2022

General. Net income amounted to $1.1 million for the six months ended June 30, 2023, a decrease of $2.9 million, or 71.8%, compared to net income of $4.0 million for the six months ended June 30, 2022. The decrease in net income on a comparative six-month basis was primarily the result of an increase in non-interest expense of $2.5 million, a decrease in non-interest income of $3.1 million, and a decrease in net interest income of $1.4 million, partially offset by a decrease in net income attributable to noncontrolling interest of $2.0 million, a decrease in the provision for credit losses of $1.1 million, and a decrease in the provision for income taxes of $1.0 million.

41

Net Interest Income. Net interest income decreased $1.4 million, or 12.3% to $9.9 million for the six months ended June 30, 2023 from $11.3 million for the six months ended June 30, 2022. The decrease was driven by a $10.6 million, or 444.6%, increase in interest expense, partially offset by a $9.3 million, or 67.6%, increase in interest income.

Interest Expense. The $10.6 million, or 444.6%, increase in interest expense for the six months ended June 30, 2023 over the comparable period in 2022 was primarily attributable to a 325 basis point increase in the rate on average money market accounts which increased from 0.60% for the six months ended June 30, 2022 to 3.85% for the six months ended June 30, 2023 and had the effect of increasing interest expense by $3.9 million. Also contributing to the increase in interest expense is a 462 basis point increase in the rate on average FHLB short-term borrowings which increased from 0.54% for the six months ended June 30, 2022 to 5.16% for the six months ended June 30, 2023 and had the effect of increasing interest expense by $2.5 million. Also contributing to the increase in interest expense was a 172 basis point increase in average rate of certificates of deposit, which increased from 0.92% for the six months ended June 30, 2022 to 2.64% for the six months ended June 30, 2023, and had the effect of increasing interest expense by $1.8 million. Also contributing to the increase in interest expense for the six months ended June 30, 2023 is a $9.1 million increase in the average other short-term borrowings, which increased from $229,000 for the six months ended June 30, 2022 to $9.3 million for the six months ended June 30, 2023, and had the effect of increasing interest expense by $1.1 million. The average interest rate spread decreased from 3.57% for the six months ended June 30, 2022 to 1.94% for the six months ended June 30, 2023 while the net interest margin decreased from 3.73% for the six months ended June 30, 2022 to 2.51% for the six months ended June 30, 2023.

Interest Income. The $9.3 million, or 67.6%, increase in interest income was primarily due to a $213.1 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $559.3 million for the six months ended June 30, 2022 to an average balance of $772.4 million for the six months ended June 30, 2023, and had the effect of increasing interest income $4.9 million. Also contributing to the increase in interest income was a 98 basis point increase in the yield on average loans receivable, net, including loans held for sale, which increased from 4.83% for the six months ended June 30, 2022 to 5.81% for the six months ended June 30, 2023, and had the effect of increasing interest income $4.0 million.

42

Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances.

  

Six Months Ended June 30,

 
  

2023

  

2022

 
  

Average

Balance

  

Interest

  

Average

Yield/

Rate

  

Average

Balance

  

Interest

  

Average

Yield/

Rate

 
  

(Dollars in thousands)

 

Interest-earning assets:

                        

Due from banks, interest-bearing

 $5,492  $122   4.44% $31,363  $44   0.28%

Investment in interest-earning time deposits

  2,941   60   4.08   7,255   62   1.71 

Investment securities available for sale

  2,848   70   4.92   3,808   17   0.89 

Loans receivable, net (1) (2)

  772,425   22,446   5.81   559,307   13,500   4.83 

Investment in FHLB stock

  6,578   238   7.21   3,448   58   3.36 

Total interest-earning assets

  790,284   22,936   5.80%  605,181   13,681   4.52%

Non-interest-earning assets

  22,041           17,865         

Total assets

 $812,325          $623,046         

Interest-bearing liabilities:

                        

Savings accounts

 $1,489  $1   0.13% $1,709  $2   0.24%

Money market accounts

  242,275   4,668   3.85   226,724   681   0.60 
Checking accounts  31,590   712   4.51   -   -   - 

Certificate of deposit accounts

  214,072   2,824   2.64   184,112   844   0.92 

Total deposits

  489,426   8,205   3.27   412,545   1,527   0.74 

FHLB short-term borrowings

  108,506   2,800   5.16   27,656   75   0.54 

FHLB long-term borrowings

  48,116   631   2.62   51,281   501   1.95 

FRB long-term borrowings

  865   19   4.39   2,613   4   0.31 

Other short-term borrowings

  10,477   778   14.87   229   27   23.58 

Subordinated debt

  17,040   604   7.09   7,940   260   6.55 

Total interest-bearing liabilities

  674,430   13,037   3.87%  502,264   2,394   0.95%

Non-interest-bearing liabilities

  92,129           83,323         

Total liabilities

  766,559           585,587         

Stockholders’ Equity

  45,766           37,459         

Total liabilities and Stockholders’ Equity

 $812,325          $623,046         

Net interest-earning assets

 $115,854          $102,917         

Net interest income; average interest rate spread

  $9,899   1.94%     $11,287   3.57%

Net interest margin (3)

          2.51%          3.73%

Average interest-earning assets to average interest-bearing liabilities

       117.21%          120.49%

________________________

(1)         Includes loans held for sale.

(2)         Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for credit losses.

(3)         Equals net interest income divided by average interest-earning assets.

Provision for Credit Losses. The Company’s provision for credit losses decreased $1.1 million, or 84.1%, to $203,000 for the six months ended June 30, 2023 from $1.3 million for the six months ended June 30, 2022. The decrease in the provision for credit losses for the six months ended June 30, 2023 over the six months ended June 30, 2022 was primarily due to the implementation of ASU 2016-13, Financial Instruments – Credit Losses, which became effective for the Company as of January 1, 2023. More specifically, under the Company’s current Allowance for Credit Losses accounting model, certain qualitative factors used prior to the adoption of ASU 2016-13 were evaluated and adjusted in accordance with the model criteria and the general reserve which was used in the past to cover uncertainties that could affect management’s estimate of probable losses primarily associated with the COVID-19 pandemic was eliminated.

43

Non-performing loans at June 30, 2023 consisted of one SBA loan on non-accrual status in the amount of $73,000. The non-performing loan at June 30, 2023 is generally well-collateralized or adequately reserved for. During the six months ended June 30, 2023, one commercial business loan and one commercial real estate loan totaling $231,000 that were previously on non-accrual were charged-off through the allowance for credit losses. The allowance for credit losses as a percent of total loans receivable, net was 1.18% at June 30, 2023 and 1.22% at December 31, 2022. Non-performing assets amounted to $73,000, or 0.01% of total assets at June 30, 2023 compared to $2.0 million, or 0.25%, of total net assets at December 31, 2022.

Non-Interest Income. Non-interest income decreased $3.1 million, or 31.0%, from $9.8 million for the six months ended June 30, 2022 to $6.8 million for the six months ended June 30, 2023. The decrease was primarily attributable to a $5.1 million, or 72.4%, decrease in net gain on loans held for sale, as the general lack of liquidity in the marketplace affected our ability to sell equipment loans during the six months ended June 30, 2023. Also contributing to the decrease in non-interest income was an $89,000, or 6.1%, decrease in mortgage banking, equipment lending, and title abstract fees, and a $53,000, or 42.4%, decrease in real estate sales commissions, net. These decreases were partially offset by a $1.9 million, or 396.2%, increase in loan servicing income, a $195,000, or 78.6%, increase in other fees and service charges, an $84,000, or 50.3%, increase in gain on sale of SBA loans, and a $41,000, or 16.1%, increase in insurance commissions.

Non-Interest Expense. Total non-interest expense increased $2.5 million, or 19.6%, from $12.8 million for the six months ended June 30, 2022 to $15.3 million for the six months ended June 30, 2023, primarily due to a $1.4 million, or 14.6%, increase in salaries and employee benefits expense, a $484,000, or 55.4%, increase in other expense, a $243,000, or 106.1%, increase in FDIC deposit insurance assessment, a $202,000, or 22.8%, increase in occupancy and equipment expense, a $74,000, or 20.4%, increase in advertising expense, a $65,000, or 18.1%, increase in data processing expense, and a $64,000, or 44.8%, increase in director’s fees and expenses. As was the case for the quarter, the increase in other expense is primarily due to ongoing costs incurred as a result of the Bank’s correspondent banking initiatives. The increase in salaries and employee benefits expense is primarily due to expanding and improving the level of staff at the Bank and Oakmont. Oakmont also contributed to the increases in occupancy and equipment expense, advertising expense, and other expense for the six months ended June 30, 2023. The increase in non-interest expense was partially offset by a $12,000, or 2.9% decrease in professional fees.

Provision for Income Tax. The provision for income tax decreased $1.0 million, or 67.7%, from $1.5 million for the six months ended June 30, 2022 to $491,000 for the six months ended June 30, 2023 due primarily to the decrease in pre-tax income.

Operating Segments

 

The Company's operations consist of two reportable operating segments: Banking and Oakmont Capital Holdings, LLC. Our Banking Segment generates revenues primarily from its lending, deposit gathering and fee business activities. Our Oakmont Capital Holdings, LLC Segment originates equipment loans which are generally sold to third party institutions with the loans’ servicing rights retained. Detailed segment information appears in Note 1211 in the Notes to Unaudited Consolidated Financial Statements.

 

Our Banking Segment reported a pre-tax segment profit (“PTSP”) for the three months ended March 31,June 30, 2023 of $899,000, a $1.2 million, a $722,000, or 56.2%38.4%, decrease from the same period in 2022. This decrease in PTSP was primarily due to a $811,000 million$485,000 or 18.0%10.1%, increase in non-interest expense, and a $724,000,$354,000, or 41.9%25.4%, decrease in non-interest income. This decrease was partially offset by a $287,000,$788,000, or 42.3%131.6%, decrease in the provision for credit losses, and a $95,000,$671,000, or 1.7%11.4%, increasedecrease in net interest income. The increase in non-interest expense was primarily due to a $294,000,$180,000, or 98.3%47.5% increase in other expense, a $338,000,$127,000, or 10.4%112.4%, increase in FDIC deposit insurance assessment expense, and a $119,000, or 3.5%, increase in salaries and employee benefits expense. The decrease in non-interest income is primarily attributable to a $462,000, or 51.4%, decrease in the net gain on loans held for sale, and a $97,000, or 43.5% decrease in mortgage banking and title abstract fees, partially offset by a $167,000, or 491.2%, increase in the gain on sale of SBA loans.

44

Our Oakmont Capital Holdings, LLC Segment reported a pre-tax segment loss ("PTSL") for the three months ended June 30, 2023 of $622,000, a $1.7 million, or 158.1%, decrease from the same period in 2022. The decrease in PTSL was primarily due to a $569,000, or 19.4%, decrease in non-interest income, an $831,000, or 46.7%, increase in non-interest expense, and a $293,000, or 348.8%, decrease in net interest income. The decrease in non-interest income was primarily due to a $1.3 million, or 67.5%, decrease net gain on loans held for sale, and a $161,000, or 26.8%, decrease in equipment lending fees, partially offset by an $813,000, or 264.0% increase in net loan servicing income, and a $102,000, or 152.2%, increase in other fees and service charges. The increase in non-interest expense was primarily due to a $518,000, 35.4%, increase in salaries and employee benefits expense, a $222,000, or 200.0%, increase in other non-interest expense, an $88,000, or 71.5%, increase in occupancy and equipment expense, and an $18,000, or 128.6% increase in professional fees.

Our Banking Segment reported a pre-tax segment profit (“PTSP”) for the six months ended June 30, 2023 of $2.1 million, a $1.9 million, or 47.6%, decrease from the same period in 2022. This decrease in PTSP was primarily due to a $1.1 million, or 34.5%, decrease in non-interest income, a $1.0 million, or 11.2%, increase in non-interest expense, and an $832,000, or 7.3%, decrease in net interest income. This decrease was partially offset by a $1.1 million, or 84.1%, decrease in the provision for credit losses. The increase in non-interest expense was primarily due to a $217,000, or 32.0% increase in other expense, a $458,000, or 6.9%, increase in salaries and employee benefits expense, and a $116,000,$243,000, or 100.0%106.1%, increase in FDIC deposit insurance assessment expense. The decrease in non-interest income is primarily attributable to a $647,000,$1.1 million, or 62.3%57.3%, decrease in the net gain on loans held for sale, an $83,000, or 62.4%, decrease in the gain on sale of SBA loans, and a $67,000,$164,000, or 32.8%38.4% decrease in mortgage banking and title abstract fees, partially offset by a $138,000 increase$140,000 decrease in loan servicing income.income, and an $84,000, or 50.3%, increase in the gain on sale of SBA loans.

 

Our Oakmont Capital Holdings, LLC Segment reported a pre-tax segment loss (“PTSL”)PTSL for the threesix months ended March 31,June 30, 2023 of $232,000,$855,000, a $2.3$4.0 million, or 111.2%127.2%, decrease from the same period in 2022. The decrease in PTSPPTSL was primarily due to a $1.4$2.0 million, or 37.1%29.4%, decrease in non-interest income, a $636,000,$1.5 million, or 37.7%42.4%, increase in non-interest expense, and a $264,000$556,000, or 514.8%, decrease in net interest income. The decrease in non-interest income was primarily due to a $2.7$4.0 million, or 84.6%78.1%, decrease net gain on loans held for sale, partially offset by a $926,000,$1.7 million, or 578.8%370.6% increase in loan servicing income, a $236,000,$217,000, or 54.5%, increase in equipment lending fees, and a $116,000, or 682.4%258.3%, increase in other fees and service charges.charges, and a $75,000, or 7.3%, increase in equipment lending fees. The increase in non-interest expense was primarily due to a $413,000, 30.5%$930,000, 33.0%, increase in salaries and employee benefits expense, a $93,000,$267,000, or 75.6%136.9%, increase in advertising expense,other non-interest expenses, a $73,000,$161,000, or 65.2%68.5%, increase in occupancy and equipment expense, a $43,000,$78,000, or 50.6%,40.6% increase in other non-interest expenses,advertising expense, and a $14,000,$32,000, or 107.7%118.5% increase in professional fees.

 

Liquidity and Capital Resources

 

The Company’s primary sources of funds are deposits, amortization and prepayment of loans and to a lesser extent, loan sales and other funds provided from operations. While scheduled principal and interest payments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company sets the interest rates on its deposits to maintain a desired level of total deposits. In addition, the Company invests excess funds in short-term interest-earning assets that provide additional liquidity. At March 31,June 30, 2023, the Company's cash and cash equivalents amounted to $3.9$9.6 million. At such date, the Company also had $750,000$1.3 million invested in interest-earning time deposits maturing in one year or less.

 

45

 

The Company uses its liquidity to fund existing and future loan commitments, to fund deposit outflows, to invest in other interest-earning assets and to meet operating expenses. At March 31,June 30, 2023, Quaint Oak Bank had outstanding commitments to originate loans of $46.0$47.6 million, commitments under unused lines of credit of $53.3$50.4 million, and $1.4 million$142,000 under standby letters of credit.

 

At March 31,June 30, 2023, certificates of deposit scheduled to mature in one year or less totaled $95.8$96.1 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case.

32

 

In addition to cash flow from loan payments and prepayments and deposits, the Company has significant borrowing capacity available to fund liquidity needs. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Pittsburgh (FHLB), which provide an additional source of funds. As of March 31,June 30, 2023, we had $159.2$114.0 million of borrowings from the FHLB and had $308.3$323.8 million in borrowing capacity. Under terms of the collateral agreement with the FHLB of Pittsburgh, we pledge residential mortgage loans as well as Quaint Oak Bank’s FHLB stock as collateral for such advances. In addition, as of March 31,June 30, 2023 Quaint Oak Bank had $8.7$8.1 million in borrowing capacity with the Federal Reserve Bank of Philadelphia. There were no borrowings under this facility at March 31,June 30, 2023. Oakmont Capital Holdings, LLC has two lines of credit with a credit union which are used to fund equipment loans totaling $15.0 million at March 31,June 30, 2023. As of March 31,June 30, 2023, there was $11.1$9.7 million outstanding on these two lines of credit.

 

The following table summarizes the Company's primary and secondary sources of liquidity which were available at March 31,June 30, 2023 (dollars in thousands).

 

June 30, 2023

 
 

March 31, 2023

  

(Dollars in thousands)

 
 

(Dollars in thousands)

  

Cash and cash equivalents

 $3,874  $9,587 

Unpledged investment securities, amortized cost

 2,836  2,656 

FHLB advance availability

 149,003  209,500 

Federal Reserve discount window availability

  8,676   8,090 
 
Total primary and secondary sources of available liquidity $164,389  $229,833 

 

In addition, we anticipate the continued sale ofon a significant amountregular basis of our equipment loans in the second quarter of 2023 and to a lesser extent, we  may sell commercial real estate loans as a source of liquidity..held for sale. We also anticipate that in the future our subsidiary, Oakmont Commercial LLC, will move from an originate and hold (i.e., portfolio) commercial real estate lending operation to an originate and sell model of operations.

 

Total stockholders’ equity increased $339,000,decreased $319,000, or 0.7%0.6%, to $49.4$48.8 million at March 31,June 30, 2023 from $49.1 million at December 31, 2022. Contributing to the increasedecrease was the noncontrolling interest distribution of $866,000, dividends paid of $568,000, net loss attributable to noncontrolling interest of $419,000, and purchase of treasury stock of $306,000, partially offset by net income for the threesix months ended March 31,June 30, 2023 of $563,000,$1.1 million, the reissuance of treasury stock for exercised stock options of $121,000,$529,000, amortization of stock awards and options under our stock compensation plans of $42,000,$104,000, the reissuance of treasury stock under the Bank’s 401(k) Plan of $40,000,$66,000, and other comprehensive income, net of $10,000. These increases were partially offset by dividends paid of $283,000, net loss attributable to noncontrolling interest of $114,000, and noncontrolling interest distribution of $40,000.For$8,000. For further discussion of the stock compensation plans, see Note 109 in the Notes to Unaudited Consolidated Financial Statements contained elsewhere herein.

 

Quaint Oak Bank is required to maintain regulatory capital sufficient to meet tier 1 leverage, common equity tier 1 capital, tier 1 risk-based and total risk-based capital ratios of at least 4.00%, 4.50%, 6.00%, and 8.00%, respectively. At March 31,June 30, 2023, Quaint Oak Bank exceeded each of its capital requirements with ratios of 8.49%8.43%, 9.10%9.63%, 9.10%9.63% and 10.17%10.73%, respectively. As a small savings and loan holding company eligible for exemption, the Company is not currently subject to any regulatory capital requirements.

46

 

Off-Balance Sheet Arrangements

 

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit. Our exposure to credit loss from non-performance by the other party to the above-mentioned financial instruments is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. In general, we do not require collateral or other security to support financial instruments with off–balance sheet credit risk.

 

Commitments. At March 31,June 30, 2023, we had unfunded commitments under lines of credit of $53.3$50.4 million, $46.0$47.6 million of commitments to originate loans, and $1.4 million$142,000 under standby letters of credit. We had no commitments to advance additional amounts pursuant to outstanding lines of credit or undisbursed construction loans.

 

33

Impact of Inflation and Changing Prices

 

The consolidated financial statements and related financial data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the Company’s assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on the Company’s performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of March 31,June 30, 2023.  Based on their evaluation of the Company’s disclosureThe term "disclosure controls and procedures," under the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosureExchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner. Based on the assessment using those criteria, management identified material weaknesses related to the Company's internal control over financial reporting and, as such, concluded that the Company's internal control over financial reporting was ineffective as of June 30, 2023.

In connection with our self-evaluation, a reclassification was determined to be required as explained in the explanatory note contained in this filing. Our Chief Executive Officer and Chief Financial Officer have determined that the Company's financial reporting controls and procedures with respect to accounting for the expense related to checking account deposits received from a correspondent banking relationship was not operating effectively for the quarter ended June 30, 2023. Accordingly, management has determined that the Company's disclosure controls and procedures were not effective as of June 30, 2023.

Management's Financial Reporting Remediation Initiatives

In order to remediate the identified material weakness, management has commenced the redesign of specific processes and controls associated with the review of contracts for correspondent banking relationships to ensure that the relevant accounting implications are identified and considered.

Management is committed to maintaining a strong internal control environment and believes this remediation effort will represent an improvement in existing controls. Management anticipates that the new controls, as implemented and when tested for a sufficient period of time, will remediate the material weakness. As we continue to evaluate and strengthen our internal control over financial reporting in light of the foregoing, we may determine to take additional measures to address control deficiencies or modify certain activities in connection with the remediation measures described above.

Changes in Internal Control Over Financial Reporting

 

During the quarterperiod ended March 31,June 30, 2023, the Company implemented new CECLallowance for credit losses accounting policies, procedures, and controls as part of its adoption of ASU No. 2016-13 and subsequent ASUs issued to amend ASC Topic 326. ThereExcept as described above, there were no other changes made to the Company's internal control over financial reporting that occurred during the quarterperiod ended March 31,June 30, 2023 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

PART II

 

ITEM 1.

LEGAL PROCEEDINGS

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition and operating results of the Company.

ITEM 1A.

RISK FACTORS

There have been no material changes in the Risk Factors previously disclosed in Item 1A of our 2022 Form 10-K.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)        Not applicable.

(b)        Not applicable.

(c)        Purchases of Equity Securities

 

 

3447
 

 

The Company did not repurchase any of its common stock made during the quarter ended March 31, 2023 including stock-for-stock option exercises of outstanding stock options:

Period

Total Number

of Shares

Purchased

Average

Price

Paid

per

Share

Total Number of

Shares Purchased

as Part of Publicly

Announced Plans

or Programs

Maximum

Number of Shares

that May Yet Be

Purchased Under

the Plans or

Programs (1)

January 1, 2023 – January 31, 2023

-$--24,375

February 1, 2023 – February 28, 2023

---24,375

March 1, 2023 – March 31, 2023

---24,375

Total

-$--24,375

Notes to this table:

(1)

On December 12, 2018, the Board of Directors of Quaint Oak Bancorp approved its fifth share repurchase program which provides for the repurchase of up to 50,000 shares, or approximately 2.5% of the Company’s then issued and outstanding shares of common stock, and announced the fifth repurchase program on Form 8-K filed on December 13, 2018.  The repurchase program does not have an expiration date.  

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

Not applicable.PART II

 

ITEM 6.

EXHIBITS

 

No.

 

Description

31.1

 

Rule 13a-14(d) and 15d-14(d) Certification of the Chief Executive Officer.

31.2

 

Rule 13a-14(d) and 15d-14(d) Certification of the Chief Financial Officer.

32.0

 

Section 1350 Certification.

101.INS

 

Inline XBRL Instance Document.

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

 

Inline XBRL Taxonomy Extension Definitions Linkbase Document.

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

 

 

3548
 
 

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: May 19,December 21, 2023

By:

By:

/s/ Robert T. Strong

  

Robert T. Strong

President and Chief Executive Officer

   
   

Date: December 21, 2023

By:

/s/ John J. Augustine

Date:  May 19, 2023

John J. Augustine

Executive Vice President and

Chief Financial Officer