UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
 _______________________________
 
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended SeptemberJune 30, 20162017
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)
 
Pennsylvania35-2293957
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
  
 
501 Knowles Avenue, Southampton, Pennsylvania  18966
(Address of Principal Executive Offices)
 
(215) 364-4059
(Registrant's Telephone Number, Including Area Code)
 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X]                                                                                                                                                                                                                                                                                  [X]  Yes[   ]  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X]                                                                                                                                                                                                                                                                                 [X]  Yes[   ]   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer[   ]Accelerated filer[   ]
Non-accelerated filer[   ]Smaller reporting company[X]
(Do not check if a smaller reporting company)
               Smaller reporting company[X]Emerging growth company[   ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   [   ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[  ] Yes[X]     [X]  No
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  As of November 8, 2016, 1,879,243August 9, 2017, 1,940,677 shares of the Registrant's common stock were issued and outstanding.
 
 
 
 
INDEX


PART I - FINANCIAL INFORMATION
Page
 
Item 1 -                Financial Statements
 
 Consolidated Balance Sheets as of SeptemberJune 30, 20162017 and December 31, 20152016 (Unaudited)1
Consolidated Statements of Income for the Three and NineSix Months Ended SeptemberJune 30, 20162017 and 20152016 (Unaudited)
2
 
Consolidated Statements of Comprehensive Income for the Three and NineSix Months Ended SeptemberJune 30, 2016
2017 and 20152016 (Unaudited)
3
 
Consolidated Statement of Stockholders' Equity for the NineSix Months Ended SeptemberJune 30, 20162017 (Unaudited)
4
 
Consolidated Statements of Cash Flows for the NineSix Months Ended SeptemberJune 30, 20162017 and 20152016 (Unaudited)
5
 
Notes to Unaudited Consolidated Financial Statements                                                           6
  
Item 2 -                Management's                Management's Discussion and Analysis of Financial Condition and Results of Operations
35
 
Item 3 -                Quantitative and Qualitative Disclosures About Market Risk                                                                          
46
 
Item 4 -                Controls and Procedures                                                                                     
46
 
PART II - OTHER INFORMATION
 
Item 1 -                Legal Proceedings                                                                                                                   
47
 
Item 1A -             Risk Factors     47
 
Item 2 -                Unregistered Sales of Equity Securities and Use of Proceeds47
 
Item 3 -                Defaults Upon Senior Securities                                                                                                              
47
 
Item 4 -                Mine Safety Disclosures                                                                                              
47
 
Item 5 -                Other Information                                                                                                         
48
 
Item 6 -                Exhibits                                                                                                         
48
 
SIGNATURES 
 
 
ITEM 1. FINANCIAL STATEMENTS
 
 
Quaint Oak Bancorp, Inc.
Consolidated Balance Sheets (Unaudited)

 
 At June 30,  At December 31, 
 2017  2016 
 (In thousands, except share data) 
Assets     
Due from banks, non-interest-bearing$42  $399 
Due from banks, interest-bearing 7,833   8,901 
Cash and cash equivalents 7,875   9,300 
Investment in interest-earning time deposits 5,365   6,098 
 Investment securities available for sale 8,893   9,555 
Loans held for sale 7,219   4,712 
       Loans receivable, net of allowance for loan losses (2017 $1,690; 2016 $1,605) 189,046   176,807 
Accrued interest receivable 875   862 
Investment in Federal Home Loan Bank stock, at cost 1,134   713 
Bank-owned life insurance 3,772   3,728 
Premises and equipment, net 1,993   1,730 
Goodwill 515   515 
Other intangible, net of accumulated amortization 441   465 
Other real estate owned, net 185   435 
Prepaid expenses and other assets 1,827   1,243 
Total Assets$229,140  $216,163 
  
Liabilities and Stockholders' Equity 
Liabilities       
Deposits:       
               Non-interest bearing$7,040  $5,852 
               Interest-bearing 172,063   171,155 
                            Total deposits 179,103   177,007 
Federal Home Loan Bank short-term borrowings 10,000   7,000 
Federal Home Loan Bank long-term borrowings 15,500   8,500 
Accrued interest payable 147   142 
Advances from borrowers for taxes and insurance 2,163   2,210 
Accrued expenses and other liabilities 472   514 
Total Liabilities 207,385   195,373 
         
Stockholders' Equity       
Preferred stock – $0.01 par value, 1,000,000 shares authorized;
         none issued or outstanding
 
-
   
-
 
Common stock – $0.01 par value; 9,000,000 shares       
authorized; 2,777,250 issued; 1,940,290 and 1,891,150
outstanding at June 30, 2017 and December 31, 2016, respectively
 
28
   
28
 
Additional paid-in capital 14,344   14,240 
Treasury stock, at cost: 2017 836,960 shares; 2016 886,100 shares (4,359)  (4,611)
       Unallocated common stock held by:       
         Employee Stock Ownership Plan (ESOP) (286)  (320)
Recognition & Retention Plan Trust (RRP) (25)  (47)
Accumulated other comprehensive loss (8)  (38)
Retained earnings 12,061   11,538 
Total Stockholders' Equity 21,755   20,790 
Total Liabilities and Stockholders' Equity$229,140  $216,163 
  
At September 30,
  
At December 31,
 
  2016  2015 
  (In thousands, except share data) 
Assets        
Due from banks, non-interest-bearing $460  $43 
Due from banks, interest-bearing  17,220   17,163 
Cash and cash equivalents  17,680   17,206 
Investment in interest-earning time deposits  6,063   6,136 
   Investment securities available for sale  10,055   3,005 
Loans held for sale  4,247   5,064 
Loans receivable, net of allowance for loan losses (2016 $1,485; 2015 $1,313)  161,627   143,305 
Accrued interest receivable  932   983 
Investment in Federal Home Loan Bank stock, at cost  593   618 
Bank-owned life insurance  3,705   3,638 
Premises and equipment, net  1,744   1,834 
Intangibles, net of accumulated amortization  1,044   45 
Other real estate owned, net  720   1,410 
Prepaid expenses and other assets  1,078   924 
Total Assets $209,488  $184,168 
  
Liabilities and Stockholders' Equity 
Liabilities        
Deposits:        
Non-interest bearing $4,203  $2,407 
Interest-bearing  170,448   146,822 
Total deposits  174,651   149,229 
Federal Home Loan Bank short-term borrowings  6,000   6,000 
Federal Home Loan Bank long-term borrowings  6,500   7,500 
Accrued interest payable  136   123 
Advances from borrowers for taxes and insurance  1,437   1,859 
Accrued expenses and other liabilities  466   421 
Total Liabilities  189,190   165,132 
          
Stockholders' Equity        
Preferred stock – $0.01 par value, 1,000,000 shares authorized; none issued or outstanding 
-
   
-
 
Common stock – $0.01 par value; 9,000,000 shares authorized; 2,777,250 issued;        
1,879,284 and 1,841,475 outstanding at September 30, 2016 and 
December 31, 2015, respectively
  
28
   
28
 
Additional paid-in capital  14,178   14,013 
Treasury stock, at cost: 2016 897,966 shares; 2015 935,775 shares  (4,670)  (4,859)
Unallocated common stock held by:        
                Employee Stock Ownership Plan (ESOP)  (337)  (387)
Recognition & Retention Plan Trust (RRP)  (47)  (70)
Accumulated other comprehensive loss  (2)  (12)
Retained earnings  11,148   10,323 
Total Stockholders' Equity  20,298   19,036 
Total Liabilities and Stockholders' Equity $209,488  $184,168 
 
See accompanying notes to the unaudited consolidated financial statements.
1
Quaint Oak Bancorp, Inc.
Consolidated Statements of Income (Unaudited)
 
 
For the Three
Months Ended
  
For the Nine
Months Ended
  
For the Three
Months Ended
  
For the Six
Months Ended
 
 September 30,  September 30,  June 30,  June 30, 
 2016  2015  2016  2015  2017  2016  2017  2016 
  (In thousands, except for share data)   (In thousands, except for share data) 
Interest Income    
Interest on loans $2,213  $2,095  $6,497  $6,106  $2,523  $2,195  $4,953  $4,284 
Interest and dividends on short-term investments and investment securities  
96
   
47
   
244
   
156
   
81
   
75
   
166
   
148
 
Total Interest Income  2,309   2,142   6,741   6,262   2,604   2,270   5,119   4,432 
                                
Interest Expense                                
Interest on deposits  638   511   1,774   1,448   654   589   1,302   1,136 
Interest on Federal Home Loan Bank borrowings  34   27   100   70   61   33   107   66 
Total Interest Expense  672   538   1,874   1,518   715   622   1,409   1,202 
                                
Net Interest Income  1,637   1,604   4,867   4,744   1,889   1,648   3,710   3,230 
                                
Provision for Loan Losses  61   71   172   280   64   66   106   111 
                                
Net Interest Income after Provision for Loan Losses  1,576   1,533   4,695   4,464   1,825   1,582   3,604   3,119 
                                
Non-Interest Income                                
Mortgage banking and title abstract fees  129   114   409   334   147   147   258   280 
Other fees and services charges  (20)  22   32   93   18   34   44   52 
Insurance commissions  60   -   60   -   89   -   166   - 
Income from bank-owned life insurance  23   23   67   66   22   22   44   44 
Net gain on the sale of residential mortgage loans
  531   357   1,289   993   716   504   824   758 
Gain on sale of SBA loans  51   -   108   7   16   -   16   57 
Loss on sale of investment securities available for sale  -   (75)  -   (75)
Loss on sales and write-downs of other real estate owned  (54)  (2)  (126)  (4)
Loss on sales and write-downs on other real estate owned  (67)  (20)  (63)  (72)
Other  13   11   36   27   20   14   29   23 
Total Non-Interest Income  733   450   1,875   1,441   961   701   1,318   1,142 
                                
Non-Interest Expense                                
Salaries and employee benefits  1,132   942   3,321   2,980   1,353   1,115   2,670   2,189 
Directors' fees and expenses  48   49   155   153   50   51   102   107 
Occupancy and equipment  167   167   479   453   145   139   290   270 
Data processing  86   42   133   85 
Professional fees  94   129   291   301   94   106   184   197 
FDIC deposit insurance assessment  35   32   103   90   43   36   87   68 
Other real estate owned expense  13   14   32   17   1   6   8   19 
Advertising  23   21   84   83   39   30   78   61 
Amortization of other intangible  12   -   24   - 
Other  145   130   412   383   165   117   303   224 
Total Non-Interest Expense  1,657   1,484   4,877   4,460   1,988   1,642   3,879   3,220 
                                
Income before Income Taxes  652   499   1,693   1,445   798   641   1,043   1,041 
Income Taxes  250   189   650   552   274   239   348   400 
Net Income $402  $310  $1,043  $893  $524  $402  $695  $641 
                                
Earnings per share - basic $0.22  $0.18  $0.59  $0.52  $0.28  $0.23  $0.38  $0.36 
Average shares outstanding - basic  1,792,673   1,706,946   1,774,343   1,714,689   1,865,612   1,775,829   1,851,945   1,765,078 
Earnings per share - diluted $0.21  $0.16  $0.54  $0.48  $0.26  $0.21  $0.35  $0.33 
Average shares outstanding - diluted  1,950,413   1,888,113   1,935,757   1,876,708   2,008,404   1,938,627   1,993,280   1,930,675 
 
 
See accompanying notes to the unaudited consolidated financial statements.
2
Quaint Oak Bancorp, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
 
 
For the Three
Months Ended
  
For the Nine
Months Ended
  
For the Three
Months Ended
  
For the Six
Months Ended
 
 September 30,  September 30,  June 30,  June 30, 
 2016  2015  2016  2015  2017  2016  2017  2016 
 (In thousands)     (In thousands)    
Net Income $402  $310  $1,043  $893  $524  $402  $695  $641 
                                
Other Comprehensive Income (Loss):                                
Unrealized gains (losses) on investment securities available-for-sale  (5)  (14)  15   (21)  25   (7)  45   20 
Income tax effect  2   4   (5)  7   (8)  2   (15)  (7)
Reclassification adjustment for losses on sale of investment securities
included in net income
  -   75   -   75 
Income tax effect  -   (25)  -   (25)
                                
Other comprehensive income (loss)  (3)  40   10   36   17   (5)  30   13 
                                
Total Comprehensive Income $399  $350  $1,053  $929  $541  $397  $725  $654 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
3
Quaint Oak Bancorp, Inc.
Consolidated Statements of Stockholders' Equity (Unaudited)
 
 
For the Nine Months Ended September 30, 2016
For the Six Months Ended June 30, 2017
 
                         
              Unallocated          
  Common Stock        Common  Accumulated       
  Number of     Additional     Stock Held  Other     Total 
  Shares     Paid-in  Treasury  by Benefit  Comprehensive  Retained  Stockholders' 
  Outstanding  Amount  Capital  Stock  Plans  Income (Loss)  Earnings  Equity 
  (In thousands, except share data) 
BALANCE –DECEMBER 31, 2016  1,891,150  $28  $14,240  $(4,611) $(367) $(38) $11,538  $20,790 
                                 
Common stock allocated by ESOP          58       34           92 
                                 
Treasury stock  purchase  (385)          (5)              (5)
                                 
Reissuance of treasury stock
 under 401(k) Plan
  5,328       40   28               68 
                                 
Reissuance of treasury stock 
     under stock incentive plan
  5,397       (28)  28               - 
                                 
Reissuance of treasury stock
 for exercised stock options
  38,800       (8)  201               193 
                                 
Stock based compensation
 expense
          64                   64 
                                 
Release of 4,864 vested RRP shares          (22)      22           - 
                                 
Cash dividends declared ($0.09 per share)                        (172)  (172)
                                 
Net income                          695   695 
                                 
Other comprehensive income, net                      30       30 
                                 
BALANCE – JUNE 30,  2017  1,940,290  $28  $14,344  $(4,359) $(311) $(8) $12,061  $21,755 
 
               Unallocated             
   Common Stock               Common   Accumulated           
  Number of        Additional        Stock Held   Other       Total  
  Shares        Paid-in    Treasury    by Benefit   Comprehensive   Retained    Stockholders' 
  Outstanding    Amount    Capital    Stock    Plans   Income (Loss)   Earnings   Equity 
             (In thousands, except share data)          
                                
BALANCE – DECEMBER 31, 2015 
1,841,475
  $28  $14,013  $(4,859) $(457) $(12) $10,323  $19,036 
                                
Common stock allocated by ESOP         
78
       
51
           
129
 
                                
Treasury stock purchased (1,097)          (13)              (13)
                                
Reissuance of treasury stock under 401(k) Plan 
6,992
       
46
   
36
               
82
 
                                
Reissuance of treasury stock for share
  awards  
5,396
       (28)  
28
               
-
 
                                
Reissuance of treasury stock for exercised stock options 26,518       (5)  138               133 
                                
Stock based compensation expense         
96
                   
96
 
                                
Release of 4,864 vested RRP shares          (22)      
22
           
-
 
                                
Cash dividends declared ($0.118 per
  share)  
                        (218)  (218)
                                
Net income                         1,043   1,043 
                                
Other comprehensive income, net                     
10
       
10
 
                                
BALANCE – September 30, 2016 
1,879,284
  $28  $14,178  $(4,670) $(384) $(2) $11,148  $20,298 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
4
Quaint Oak Bancorp, Inc.
Consolidated Statements of Cash Flows (Unaudited)
 
 
   
For the Nine Months
Ended September 30, 
 
   2016    2015  
       (In Thousands)  
Cash Flows from Operating Activities        
Net income $1,043  $893 
Adjustments to reconcile net income to net cash provided by operating activities:        
Provision for loan losses  172   280 
Depreciation expense  140   132 
Amortization of intangibles  22   3 
Net amortization of securities premiums  14   - 
Accretion of deferred loan fees and costs, net  (227)  (247) 
Stock-based compensation expense  225   211 
               Realized loss on sale of investment securities available for sale  -   75 
       Net gain on the sale of loans  (1,289)  (993)
       Gain on the sale of SBA loans  (108)  (7)
       Net loss on sale and write-downs of other real estate owned  126   4 
       Increase in the cash surrender value of bank-owned life insurance  (67)  (66)
       Changes in assets and liabilities which provided (used) cash:        
     Loans held for sale-originations  (47,942)  (38,029)
     Loans held for sale-proceeds  50,048   39,291 
            Accrued interest receivable  51   (141)
            Prepaid expenses and other assets  (159)  (175)
    Accrued interest payable  13   4 
    Accrued expenses and other liabilities  45   18 
Net Cash Provided by Operating Activities  2,107   1,253 
Cash Flows from Investing Activities      
Net decrease in investment in interest-earning time deposits  73   524 
Purchase of investment securities available for sale  (7,833)  (35)
Principal repayments of investment securities available for sale  784   - 
Proceeds from sale of investment securities available for sale  -   1,720 
Net increase in loans receivable  (18,159)  (19,351)
Net decrease (increase) in investment in Federal Home Loan Bank stock  25   (91)
Proceeds from the sale of other real estate owned  844   160 
Capitalized expenditures on other real estate owned  (280)  (109)
Purchase of premises and equipment  (50)  (315)
Purchase of intangibles  (1,021)  (1)
Net Cash Used in Investing Activities  (25,617)  (17,498)
 
For the Six Months
Ended June 30,
 
 2017  2016 
  (In thousands) 
Cash Flows from Operating Activities  
Net income $695  $641 
Adjustments to reconcile net income to net cash used in operating activities:        
Provision for loan losses  106   111 
Depreciation expense  91   96 
Amortization of intangibles  24   - 
Net amortization of securities premiums  9   9 
Accretion of deferred loan fees and costs, net  (178)  (156)
Stock-based compensation expense  156   150 
Net gain on the sale of loans  (824)  (758)
Gain on the sale of SBA loans  (16)  (57)
Net loss on sale and write-downs of other real estate owned  63   72 
Increase in the cash surrender value of bank-owned life insurance  (44)  (44)
Changes in assets and liabilities which provided (used) cash:        
Loans held for sale-originations  (34,193)  (30,142)
Loans held for sale-proceeds  32,510   30,339 
Accrued interest receivable  (13)  (115)
Prepaid expenses and other assets  (599)  (365)
Accrued interest payable  5   2 
Accrued expenses and other liabilities  (42)  143 
Net Cash Used in Operating Activities  (2,250)  (74)
Cash Flows from Investing Activities        
Net decrease (increase) in investment in interest-earning time deposits  733   (10)
Purchase of investment securities available for sale  -   (3,895)
Principal repayments of investment securities available for sale  698   409 
Net increase in loans receivable  (12,151)  (10,935)
Net increase in investment in Federal Home Loan Bank stock  (421)  (15)
Proceeds from the sale of other real estate owned  210   67 
Capitalized expenditures on other real estate owned  (23)  (175)
Purchase of premises and equipment  (354)  (26)
Net Cash Used in Investing Activities  (11,308)  (14,580)
Cash Flows from Financing Activities              
Net increase in demand deposits and savings accounts  3,273   2,875   1,636   3,180 
Net increase in certificate accounts  22,149   13,526   460   14,018 
Proceeds from Federal Home Loan Bank short-term borrowings  -   1,000 
Repayment of Federal Home Loan Bank short-term borrowings  -   (2,000)
Net proceeds from Federal Home Loan Bank short-term borrowings  3,000   - 
Proceeds from Federal Home Loan Bank long-term borrowings  -   3,000   8,000   - 
Repayment of Federal Home Loan Bank long-term borrowings  (1,000)  -   (1,000)  - 
Dividends paid  (218)  (182)  (172)  (143)
Purchase of treasury stock  (13)  (9)  (5)  (6)
Proceeds from the reissuance of treasury stock  82   40   68   50 
Proceeds from the exercise of stock options  133   25   193   112 
Decrease in advances from borrowers for taxes and insurance  (422)  (420)  (47)  (68)
Net Cash Provided by Financing Activities  23,984   17,855   12,133   17,143 
Net Increase in Cash and Cash Equivalents  474   1,610 
Cash and Cash Equivalents – Beginning of Year  17,206   13,937 
Cash and Cash Equivalents – End of Year $17,680  $15,547 
Net Increase (Decrease) in Cash and Cash Equivalents  (1,425)  2,489 
Cash and Cash Equivalents – Beginning of Period  9,300   17,206 
Cash and Cash Equivalents – End of Period $7,875  $19,695 
        
Cash payments for interest $1,861  $1,514  $1,404  $1,200 
Cash payments for income taxes $560  $665  $505  $365 
Transfer of loans to other real estate owned $-  $670 
 
 
See accompanying notes to the unaudited consolidated financial statements.
5
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies
Basis of Financial Presentation.  The consolidated financial statements include the accounts of Quaint Oak Bancorp, Inc., a Pennsylvania chartered corporation (the "Company" or "Quaint Oak Bancorp") and its wholly-ownedwholly owned subsidiary, Quaint Oak Bank, (the "Bank"a Pennsylvania chartered stock savings bank ("Bank"), along with its wholly-ownedwholly owned subsidiaries.  At SeptemberJune 30, 2016,2017, the Bank has five wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, and Quaint Oak Insurance Agency, LLC, and QOB Properties, LLC, each a Pennsylvania limited liability company.  The mortgage, real estate and abstract companies offer mortgage banking, real estate sales and title abstract services, respectively, in the Lehigh Valley region of Pennsylvania, and began operation in July 2009.  QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure.  On August 1, 2016, Quaint Oak Insurance Agency, LLC began operations by acquiring the renewal rights to the book of business produced and serviced by Signature Insurance Services, LLC, an independent insurance agency located in New Britain, Pennsylvania, that provides a broad range of personal and commercial insurance coverage solutions. All significant intercompany balances and transactions have been eliminated.
The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation.  Pursuant to the Bank's election under Section 10(l) of the Home Owners' Loan Act, the Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System.  The market area served by the Bank's two regional offices includesBank is principally Bucks Montgomery, Lehigh and Northampton Counties,County, Pennsylvania and northeastto a lesser extent, Montgomery and Philadelphia Counties in Pennsylvania.  The Bank has two locations: the main office location in Southampton, Pennsylvania and a regional banking office in the surrounding area.Lehigh Valley area of Pennsylvania. The principal deposit products offered by the Bank are certificates of deposit, passbook savingsmoney market accounts, savings accounts and, money market accounts.  Loanbeginning in December 2014, non-interest bearing checking accounts for businesses and consumers.  The principal loan products offered by the Bank are fixed and adjustable rate residential and commercial mortgages, construction loans, home equity loans, auto loans, and lines of credit.credit, and commercial business loans.
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, 20152016 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 20152016 Annual Report on Form 10-K.  The results of operations for the ninethree or six months ended SeptemberJune 30, 20162017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.2017.
Use of Estimates in the Preparation of Financial Statements. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates.  The Company's most significant estimates are the determination of the allowance for loan losses the assessment of other-than-temporary impairment of investment and mortgage-backed securities, valuation of other real estate owned, and the valuation of deferred tax assets.
 
6
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
Loans Receivable.  Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees and costs.  Interest income is accrued on the unpaid principal balance.  Loan origination fees and costs are deferred and recognized as an adjustment of the yield (interest income) of the related loans.  The Bank is generally amortizing these amounts over the contractual life of the loan.
The loans receivable portfolio is segmented into residential loans, commercial real estate loans, construction loans and consumer loans.  The residential loan segment has two classes: one-to-four family residential owner occupied loans and one-to-four residential family non-owner occupied loans.  The commercial real estate loan segment consists of the following classes: multi-family (five or more) residential, commercial real estate and commercial lines of credit.  Construction loans are generally granted for the purpose of building a single residential home.  Commercial business loans are loans to businesses primarily for working capital, purchase of a business, tenant improvements, receivables, purchase of inventory, and for the purchase of business essential equipment.  Business essential equipment is equipment necessary for a business to support or assist with the day-to-day operation or profitability of the business.   The consumer loan segment consists of the following classes: home equity loans and other consumer loans.  Included in the home equity class are home equity loans and home equity lines of credit.  Included in the other consumer are loans secured by saving accounts and auto loans.accounts.
The accrual of interest is generally discontinued when principal or interest has become 90 days past due unless the loan is in the process of collection and is either guaranteed or well secured.  When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses.  Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectability of principal.  Generally, a loan is restored to accrual status when the obligation is brought current, it has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
Allowance for Loan Losses.  The allowance for loan losses represents management's estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans receivable. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

7
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are designated as impaired. For loans that are designated as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment.  Residential owner occupied mortgage lending generally entails a lower risk of default than other types of lending. Consumer loans and commercial real estate loans generally involve more risk of collectability because of the type and nature of the collateral and, in certain cases, the absence of collateral. It is the Company's policy to establish a specific reserve for loss on any delinquent loan when it determines that a loss is probable. An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent.  An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company's impaired loans are measured based on the estimated fair value of the loan's collateral.

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


8
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
8
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower's overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for all loans (except one-to-four family residential owner-occupied loans) where the total amount outstanding to any borrower or group of borrowers exceeds $500,000, or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized as special mention have potential weaknesses that deserve management's close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management's comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

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

Federal Home Loan Bank Stock.  Federal law requires a member institution of the Federal Home Loan Bank (FHLB) system to hold restricted stock of its district Federal Home Loan Bank according to a predetermined formula.  FHLB stock is carried at cost and evaluated for impairment. When evaluating FHLB stock for impairment, its value is determined based on the ultimate recoverability of the par value of the stock. We evaluate our holdings of FHLB stock for impairment each reporting period. No impairment charges were recognized on FHLB stock during the three or ninesix months ended SeptemberJune 30, 20162017 and 2015.2016.

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


Intangible Assets.   Intangible assets on the consolidated balance sheets represent the acquisition by Quaint Oak Insurance Agency of the renewal rights to the book of business produced and serviced by Signature Insurance Services, LLC on August 1, 2016 at a total cost of $1.0 million. Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed an other intangible asset.  The renewal rights are being amortized over a ten year period based upon the annual retention rate of the book of business.
 
 
9
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

The Company will complete a goodwill and other intangible asset analysis at least on an annual basis or more often if events and circumstances indicate that there may be impairment.

Other Real Estate Owned.Owned, Net. Other real estate owned or foreclosed assets are comprised of property acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure and loans classified as in-substance foreclosures.  A loan is classified as in-substance foreclosure when the Bank has taken possession of the collateral regardless of whether formal foreclosure proceedings take place.  Other real estate properties are initially recorded at fair value, net of estimated selling costs at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value less estimated costs to sell.  Net revenue and expenses from operations and additions to the valuation allowance are included in other expenses.  The Company has onehad no one-to-four family residential non-owner occupied loan and one multi-family loanproperties for which foreclosure proceedings are in process at SeptemberJune 30, 2016.  The total recorded investment is $385,000.2017.
Intangible Assets.  Intangible assets on the consolidated balance sheets are comprised of the acquisition by Quaint Oak Insurance Agency of the renewal rights to the book of business produced and serviced by Signature Insurance Services, LLC on August 1, 2016 at a total cost of $1.0 million. These renewal rights are being amortized over a ten year period based upon the annual retention rate of the book of business.  This amortization is included in non-interest expense.  Also included in intangible assets are mortgage servicing rights recognized as separate assets when mortgage loans are sold and the servicing rights are retained. These capitalized mortgage servicing rights are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing period of the underlying mortgage loans.
Share-Based Compensation.  Compensation expense for share-based compensation awards is based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.
At SeptemberJune 30, 2016,2017, the Company has three share-based plans: the 2008 Recognition and Retention Plan ("RRP"), the 2008 Stock Option Plan, and the 2013 Stock Incentive Plan.  Awards under these plans were made in May 2008 and 2013.  These plans are more fully described in Note 11.10.
The Company also has an employee stock ownership plan ("ESOP").  This plan is more fully described in Note 11.10.  As ESOP shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares over the period earned.
Comprehensive Income (Loss).  Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income.  Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the consolidated balance sheet and  along with net income, are components of comprehensive income.
Earnings per Share.  Amounts reported in earnings per share reflect earnings available to common stockholders' for the period divided by the weighted average number of shares of common stock outstanding during the period, exclusive of unearned ESOP shares, unvested restricted stock (RRP) shares and treasury shares.  Stock options and unvested restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would have a dilutive effect if converted to common stock, computed using the "treasury stock" method.
10
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
Recent Accounting Pronouncements.  In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this updateUpdate specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year.  Public business entities, certain not-for-profit entities, and certain employee benefit plans should applyBecause the guidance does not apply to revenue associated with financial instruments, including loans and securities, we do not expect the new standard, or any of the amendments, to result in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periodsa material change from our current accounting for revenue because the majority of the Company's financial instruments are not within the scope of Topic 606.  However, we do expect that reporting period.  All other entities should apply the guidancestandard will result in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.  The Company is evaluating the effect of adopting this new accounting Update.disclosure requirements, which are currently being evaluated.
10
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements

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

11
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease idis defined as one in which:which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise.  For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period.   The Company is currently evaluatingassessing the impactpractical expedients it may elect at adoption, but does not anticipate the adoption of the standardamendments will have a significant impact to the financial statements. Based on the Company's financial position or resultspreliminary analysis of operations.its current portfolio, the impact to the Company's balance sheet is estimated to result in less than a 1% increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity's ordinary activities) in exchange for consideration.  The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.
 
1211
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance.  The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-CreditInstruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which changes the impairment model for most financial assets. This ASUUpdate is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the ASUUpdate is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  The Company is currently evaluatingadopted.. We expect to recognize a one-time cumulative effect adjustment to the impact the adoptionallowance for loan losses as of the beginning of the first reporting period in which the new standard will haveis effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the Company'sconsolidated financial position or results of operations.statements.

13
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), which addresses eight specific cash flow issues with the objective of reducing diversity in practice.  Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company's statement of cash flows.

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customer. This Update, among others things, clarifies that guarantee fees within the scope of Topic 460, Guarantees, (other than product or service warranties) are not within the scope of Topic 606. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for the new revenue recognition guidance. For public entities with a calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.
12
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  A public business entity that is a U.S. Securities and Exchange Commission ("SEC") filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company's financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.  For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Early adoption is permitted, including adoption in an interim period.  If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle.  This Update is not expected to have a significant impact on the Company's financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), which affects any entity that changes the terms or conditions of a share-based payment award.  This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards.  The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. This Update is not expected to have a significant impact on the Company's financial statements.

Reclassifications.   Certain items in the 20152016 consolidated financial statements have been reclassified to conform to the presentation in the 20162017 consolidated financial statements. Such reclassifications did not have a material impact on the presentation of the overall financial statements.  The reclassifications had no effect on net income or stockholders' equity.


Note 2 – Stock Split

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


Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 32 – Earnings Per Share

Earnings per share ("EPS") consists of two separate components, basic EPS and diluted EPS.  Basic EPS is computed based on the weighted average number of shares of common stock outstanding for each period presented.  Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents ("CSEs").  CSEs consist of shares that are assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested restricted stock (RRP) shares. Common stock equivalents which are considered antidilutive are not included for the purposes of this calculation. For the three months and ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, all unvested restricted stock program awards and outstanding stock options representing shares were dilutive.

14
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 3 – Earnings Per Share (Continued)

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

 
For the Three Months Ended
September 30,
  
For the Nine Months Ended
September 30,
  
For the Three Months Ended
June 30,
  
For the Six Months Ended
June 30,
 
 2016  2015  2016  2015  2017  2016  2017  2016 
Net Income $402,000  $310,000  $1,043,000  $893,000  $
524,000
  $402,000  $
695,000
  $641,000 
                                
Weighted average shares outstanding – basic  1,792,673   1,706,946   1,774,343   1,714,689   1,865,612   1,775,829   
1,851,945
   1,765,078 
Effect of dilutive common stock equivalents  157,740   181,167   161,414   162,019   142,792   162,798   141,335   165,597 
Adjusted weighted average shares outstanding – diluted  1,950,413   1,888,113   1,935,757   1,876,708   2,008,404   1,938,627   
1,993,280
   1,930,675 
                                
Basic earnings per share $0.22  $0.18  $0.59  $0.52  $0.28  $0.23  $0.38  $0.36 
Diluted earnings per share $0.21  $0.16  $0.54  $0.48  $0.26  $0.21  $0.35  $0.33 

Note 43 – Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months and the ninesix months ended SeptemberJune 30, 20162017 and 20152016 (in thousands):

 
Unrealized Gains (Losses) on Investment Securities
Available for Sale (1)
  
Unrealized Gains (Losses) on Investment Securities
Available for Sale (1)
 
 
For the Three Months
Ended September 30,
  
For the Nine Months
Ended September 30,
  
For the Three Months
Ended June 30,
  
For the Six Months
Ended June 30,
 
 2016  2015  2016  2015  2017  2016  2017  2016 
Balance at the beginning of the period $1  $(40) $(12) $(36) $(25) $6  $(38) $(12)
Other comprehensive income (loss) before classifications  (3)  (10)  10   (14)  17   (5)  30   13 
Amount reclassified from accumulated other comprehensive income  -   50   -   50 
Amount reclassified from accumulated other comprehensive income (loss)  
-
   
-
   
-
   
-
 
Total other comprehensive income (loss)  
(3
)  40   10   36   17   
(5
)  30   13 
Balance at the end of the period
 $(2) $-  $(2) $-  $
(8
) $1  $(8) $1 
_________________               
(1)_____________________
(1)           All amounts are net of tax.  Amounts in parentheses indicate debits.

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive loss for the three months and the nine months ended September 30, 2016 and 2015 (in thousands):
 
 
 
Amount Reclassified from Accumulated
Other Comprehensive Loss (1)
  
   
For the Three Months
Ended September 30,
  
For the Nine Months
Ended September 30,
 
 
Affected Line Item in the 
Details About Other Comprehensive Loss 2016  2015  2016  2015 Statement of Income
Unrealized losses on investment securities
    available for sale
 $-  $(75) $-  $(75)
 
Loss on sales of investment securities
   -   25   -   25 Income taxes
  $-  $(50) $ -  $(50)Net of tax
____________________                 
(1)  Amounts in parentheses indicate debits.debits.
 
15
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 54 – Investment in Interest-Earning Time Deposits
The investment in interest-earning time deposits as of SeptemberJune 30, 20162017 and December 31, 2015,2016, by contractual maturity, are shown below:below (in thousands):
 
 
September 30,
2016
  
December 31,
2015
  
June 30,
2017
  
December 31,
2016
 
 (In Thousands) 
Investment in interest-earning time deposits   
Due in one year or less $3,107  $3,585  $2,053  $2,849 
Due after one year through five years  2,956   2,551   3,312   3,249 
 $6,063  $6,136 
Total $5,365  $6,098 
14
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements

Note 65 – Investment Securities Available for Sale
The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale at SeptemberJune 30, 20162017 and December 31, 20152016 are summarized below (in thousands): 
  September 30, 2016 
  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
(Losses)
  
Fair Value
 
    Available for Sale:            
   Mortgage-backed securities:            
      Governmental National Mortgage Association securities $6,902  $10  $(6) $6,906 
      Federal Home Loan Mortgage Corporation securities  1,928   2   (1)  1,929 
          Federal National Mortgage Association securities  868   -   (7)  861 
             Total mortgage-backed securities  9,698   12   (14)  9,696 
      Federal Home Loan Mortgage Corporation Medium Term Note Step  
360
   
-
   (1)  
359
 
             Total available-for-sale-securities $10,058  $12  $(15) $10,055 

 December 31, 2015  June 30, 2017 
 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair Value
  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
(Losses)
  
Fair Value
 
Available for Sale:                        
Mortgage-backed securities:                        
Governmental National Mortgage Association securities $2,003  $-  $(13) $1,990  $6,128  $14  $(1) $6,141 
Federal Home Loan Mortgage Corporation securities  1,020   -   (5)  1,015   1,767   -   (11)  1,756 
Federal National Mortgage Association securities  650   -   (10)  640 
Total mortgage-backed securities $3,023  $-  $(18) $3,005   8,545   14   (22)  8,537 
Debt securities:                
U.S. government agency  360   -   (4)  356 
Total available-for-sale-securities $8,905  $14  $(26) $8,893 

  December 31, 2016 
  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
(Losses)
  
Fair Value
 
    Available for Sale:            
   Mortgage-backed securities:            
      Governmental National Mortgage Association securities $6,608  $1  $(19) $6,590 
      Federal Home Loan Mortgage Corporation securities  1,892   -   (21)  1,871 
          Federal National Mortgage Association securities  752   -   (12)  740 
             Total mortgage-backed securities  9,252   1   (52)  9,201 
      Debt securities:                
          U.S. government agency  360   -   (6)  354 
             Total available-for-sale-securities $9,612  $1  $(58) $9,555 

The amortized cost and fair value of debt securities at June 30, 2017, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

  Available for Sale 
  Amortized Cost  Fair Value 
Debt securities      
     Due after one year through five years $360  $356 
     Due after ten years  8,545   8,537 
Total $8,905  $8,893 

 
1615
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 65 – Investment Securities Available for Sale (Continued)
The following tables show the Company's gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at SeptemberJune 30, 20162017  and December 31, 20152016 (in thousands):
  June 30, 2017 
     Less than Twelve Months  Twelve Months or Greater  Total 
  
Number of
Securities
  Fair Value  
Gross
Unrealized
Losses
  Fair Value  
Gross
Unrealized
Losses
  Fair Value  
Gross
Unrealized
Losses
 
Governmental National Mortgage Association mortgage-backed securities  2  $1,027  $(1) $-  $-  $1,027  $(1)
Federal Home Loan Mortgage Corporation mortgage-backed securities  2   1,756   (11)  -   -   1,756   (11)
Federal National Mortgage Association mortgage-backed securities  1   -   -   640   (10)  640   (10)
Debt securities, U.S. government agency  1   -   -   356   (4)  356   (4)
        Total  6  $2,783  $(12) $996  $(14) $3,779  $(26)
  September 30, 2016 
     Less than Twelve Months  Twelve Months or Greater  Total 
  
Number of
Securities
  Fair Value  
Gross
Unrealized
Losses
  Fair Value  
Gross
Unrealized
Losses
  Fair Value  
Gross
Unrealized
Losses
 
               
Governmental National Mortgage Association securities  5  $3,946  $(6) $-  $-  $3,946  $(6)
Federal Home Loan Mortgage Corporation securities  1   984   (1)  -   -   984   (1)
                             
Federal National Mortgage Association securities  1   861   (7)  -   -   861   (7)
Federal Home Loan Mortgage Corporation Medium Term Note Step  1   359   (1)  -   -   359   (1)
   8  $6,150  $(15) $-  $-  $6,150  $(15)
                             

  December 31, 2015 
     Less than Twelve Months  Twelve Months or Greater  Total 
  
Number of
Securities
  Fair Value  
Gross
Unrealized
Losses
  Fair Value  
Gross
Unrealized
Losses
  Fair Value  
Gross
Unrealized
Losses
 
               
Governmental National Mortgage
  Association mortgage-backed 
  securities
  2  $1,990  $(13) $-  $-  $1,990  $(13)
Federal Home Loan Mortgage
  Corporation mortgage-backed
  security 
 1   
1,015
   (5)  -   -   1,015   (5)
       Total  3  $3,005  $(18) $-  $-  $3,005  $(18)
  December 31, 2016 
     Less than Twelve Months  Twelve Months or Greater  Total 
  
Number of
Securities
  Fair Value  
Gross
Unrealized
Losses
  Fair Value  
Gross
Unrealized
Losses
  Fair Value  
Gross
Unrealized
Losses
 
Governmental National Mortgage Association mortgage-backed securities  8  $5,874  $(19) $-  $-  $5,874  $(19)
Federal Home Loan Mortgage Corporation mortgage-backed securities  2   1,871   (21)  -   -   1,871   (21)
Federal National Mortgage Association mortgage-backed securities  1   740   (12)  -   -   740   (12)
Debt securities, U.S. government agency  1   354   (6)  -   -   354   (6)
        Total  12  $8,839  $(58) $-  $-  $8,839  $(58)

At SeptemberJune 30, 2016,2017, there were eightsix securities in an unrealized loss position that at such date had an aggregate depreciation of 0.24%0.67% from the Company's amortized cost basis. Management believes that the estimated fair value of the securities disclosed above is primarily dependent on the movement of market interest rates.  Management evaluated the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer.  The Company has the ability and intent to hold the securities until the anticipated recovery of fair value occurs. Management does not believe any individual unrealized loss as of SeptemberJune 30, 20162017 represents an other-than-temporary impairment. There were no impairment charges recognized during the three and ninesix months ended SeptemberJune 30, 20162017 or 2015.2016.

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


 
1716
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 7 6 - Loans Receivable, Net and Allowance for Loan Losses

The composition of net loans receivable is as follows:follows (in thousands):
   
September 30,
2016
  
December 31,
2015
 
  (In Thousands) 
 Real estate loans:      
 One-to-four family residential:      
 Owner occupied $5,710  $5,777 
 Non-owner occupied  53,191   51,036 
 Total one-to-four family residential  58,901   56,813 
          
 Multi-family (five or more) residential  12,252   12,402 
 Commercial real estate  63,869   47,550 
 Commercial lines of credit  2,201   2,215 
 Construction  15,889   16,100 
 Home equity loans  4,886   7,409 
 Total real estate loans  157,998   142,489 
          
 Commercial business  5,716   2,576 
 Other consumer  28   71 
 Total Loans  163,742   145,136 
          
 Deferred loan fees and costs  (630)  (518)
 Allowance for loan losses  (1,485)  (1,313)
          
 Net Loans $161,627  $143,305 
  
June 30,
2017
  
December 31,
2016
 
Real estate loans:      
One-to-four family residential:      
Owner occupied $5,636  $5,389 
Non-owner occupied  49,946   51,893 
Total one-to-four family residential  55,582   57,282 
Multi-family (five or more) residential  20,801   14,641 
Commercial real estate  85,230   77,730 
Construction  14,740   15,355 
Home equity  4,344   4,775 
Total real estate loans  180,697   169,783 
         
Commercial business  10,709   9,295 
Other consumer  47   26 
Total Loans  191,453   179,104 
         
Deferred loan fees and costs  (717)  (692)
Allowance for loan losses  (1,690)  (1,605)
Net Loans $189,046  $176,807 

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of SeptemberJune 30, 20162017 and December 31, 20152016  (in thousands): 

 September 30, 2016 
 Pass  
Special
Mention
  Substandard  Doubtful  Total  June 30, 2017 
    Pass  
Special
Mention
  Substandard  Doubtful  Total 
One-to-four family residential owner occupied $5,710  $-  $-  $-  $5,710  $5,636  $-  $-  $-  $5,636 
One-to-four family residential non-owner occupied  52,072   106   1,013   -   53,191   49,065   119   762   -   49,946 
Multi-family residential  12,252   -   -   -   12,252   20,801   -   -   -   20,801 
Commercial real estate and lines of credit  64,630   117   1,323   -   66,070 
Commercial real estate  84,145   117   968   -   85,230 
Construction  14,015   -   1,874   -   15,889   12,680   -   2,060   -   14,740 
Home equity  4,886   -   -   -   4,886   4,344   -   -   -   4,344 
Commercial business  5,716   -   -   -   5,716   10,672   37   -   -   10,709 
Other consumer  28   -   -   -   28   47   -   -   -   47 
 $159,309  $223  $4,210  $-  $163,742 
Total $187,390  $273  $3,790  $-  $191,453 
 
 
 
 
1817
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 76 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

 December 31, 2015 
 Pass  
Special
Mention
  Substandard  Doubtful  Total  December 31, 2016 
    Pass  
Special
Mention
  Substandard  Doubtful  Total 
One-to-four family residential owner occupied $5,777  $-  $-  $-  $5,777  $5,389  $-  $-  $-  $5,389 
One-to-four family residential non-owner occupied  49,457   331   1,248   -   51,036   50,864   122   907   -   51,893 
Multi-family residential  12,402   -   -   -   12,402   14,641   -   -   -   14,641 
Commercial real estate and lines of credit  48,185   262   1,318   -   49,765 
Commercial real estate  76,281   117   1,332   -   77,730 
Construction  14,621   -   1,479   -   16,100   13,355   -   2,000   -   15,355 
Home equity  7,409   -   -   -   7,409   4,775   -   -   -   4,775 
Commercial business  2,576   -   -   -   2,576   9,295   -   -   -   9,295 
Other consumer  71   -   -   -   71   26   -   -   -   26 
 $140,498  $593  $4,045  $-  $145,136 
Total $174,626  $239  $4,239  $-  $179,104 


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 SeptemberJune 30, 20162017 as well as the average recorded investment and related interest income for the period then ended (in thousands):

 September 30, 2016 
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
  
Interest
Income
Recognized
  June 30, 2017 
                
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
  
Interest
 Income
Recognized
 
With no related allowance recorded:                              
One-to-four family residential owner occupied $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
One-to-four family residential non-owner occupied  1,110   1,122   -   1,183   21   866   866   -   1,060   13 
Multi-family residential  -   -   -   -   -   -   -   -   -   - 
Commercial real estate and lines of credit  262   262   -   262   - 
Commercial real estate  398   398   -   398   - 
Construction  -   -   -   -   -   308   308   -   308   - 
Home equity  50   50   -   83   5   47   47   -   48   3 
Commercial business  -   -   -   -   -   -   -   -   -   - 
Other consumer  -   -   -   -   -   -   -   -   -   - 
                                        
With an allowance recorded:                                        
One-to-four family residential owner occupied $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
One-to-four family residential non-owner occupied  96   96   30   197   12   95   95   21   95   3 
Multi-family residential  -   -   -   -   -   -   -   -   -   - 
Commercial real estate and lines of credit  133   133   11   133   7 
Commercial real estate  133   133   1   395   5 
Construction  -   -   -   -   -   -   -   -   -   - 
Home equity  -   -   -   -   -   -   -   -   -   - 
Commercial business  -   -   -   -   -   -   -   -   -   - 
Other consumer  -   -   -   -   -   -   -   -   -   - 
                                        
Total:                                        
One-to-four family residential owner occupied $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
One-to-four family residential non-owner occupied  1,206   1,218   30   1,380   33   961   961   21   1,155   16 
Multi-family residential  -   -   -   -   -   -   -   -   -   - 
Commercial real estate and lines of credit  395   395   11   395   7 
Commercial real estate  531   531   1   793   5 
Construction  -   -   -   -   -   308   308   -   308   - 
Home equity  50   50   -   83   5   47   47   -   48   3 
Commercial business  -   -   -   -   -   -   -   -   -   - 
Other consumer  -   -   -   -   -   -   -   -   -   - 
Total $1,651  $1,663  $41  $1,858  $45  $1,847  $1,847  $22  $2,304  $24 

1918
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 76 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 20152016 as well as the average recorded investment and related interest income for the year then ended (in thousands):

 December 31, 2015 
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
  
Interest
Income
Recognized
  December 31, 2016 
                
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
  
Interest
Income
Recognized
 
With no related allowance recorded:                              
One-to-four family residential owner occupied $-  $-  $-  $828  $15  $-  $-  $-  $-  $- 
One-to-four family residential non-owner occupied  653   659   -   1,464   62   925   925   -   1,208   56 
Multi-family residential  -   -   -   66   5   -   -   -   -   - 
Commercial real estate and lines of credit  -   -   -   1,085   77 
Commercial real estate  660   660   -   660   7 
Construction  -   -   -   -   -   -   -   -   -   - 
Home equity  84   84   -   87   7   49   49   -   82   6 
Commercial business  -   -   -   -   -   -   -   -   -   - 
Other consumer  -   -   -   -   -   -   -   -   -   - 
                                        
With an allowance recorded:                                        
One-to-four family residential owner occupied $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
One-to-four family residential non-owner occupied  321   321   33   556   22   167   167   28   169   8 
Multi-family residential  -   -   -   -   -   -   -   -   -   - 
Commercial real estate and lines of credit  133   133   7   332   9 
Commercial real estate  133   133   11   133   9 
Construction  -   -   -   -   -   -   -   -   -   - 
Home equity  -   -   -   45   4   -   -   -   -   - 
Commercial business  -   -   -   -   -   -   -   -   -   - 
Other consumer  -   -   -   -   -   -   -   -   -   - 
                                        
Total:                                        
One-to-four family residential owner occupied $-  $-  $-  $828  $15  $-  $-  $-  $-  $- 
One-to-four family residential non-owner occupied  974   980   33   2,020   84   1,092   1,092   28   1,377   64 
Multi-family residential  -   -   -   66   5   -   -   -   -   - 
Commercial real estate and lines of credit  133   133   7   1,417   86 
Commercial real estate  793   793   11   793   16 
Construction  -   -   -   -   -   -   -   -   -   - 
Home equity  84   84   -   132   11   49   49   -   82   6 
Commercial business  -   -   -   -   -   -   -   -   -   - 
Other consumer  -   -   -   -   -   -   -   -   -   - 
Total $1,191  $1,197  $40  $4,463  $201  $1,934  $1,934  $39  $2,252  $86 

The loan portfolio also includes certain loans that have been modified in a troubled debt restructuring, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forbearance, or other actions.  At SeptemberJune 30, 2016,2017, the Company had eight loans totaling $737,000$724,000 that were identified as troubled debt restructurings.  All eight of these loans were performing in accordance with their modified terms.  At December 31, 2015,2016, the Company had nineeight loans totaling $781,000$733,000 that were identified as troubled debt restructurings.  If a TDR is placed on non-accrual it is not reverted back to accruing status until the borrower makes timely payments as contracted for at least ninesix months and future collection under the revised terms is probable.  During the six months ended June 30, 2017, no new loans were identified as TDRs.

 
 
2019
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 76 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following tables present the Company's TDR loans as of SeptemberJune 30, 20162017 and December 31, 20152016 (dollar amounts in thousands):

 September 30, 2016  June 30, 2017 
 
Number of
Contracts
  
Recorded
Investment
  
Non-
Accrual
  Accruing  
Related
Allowance
  
Number of
Contracts
  
Recorded
Investment
  
Non-
Accrual
  Accruing  
Related
Allowance
 
One-to-four family residential owner occupied  -  $-  $-  $-  $-   -  $-  $-  $-  $- 
One-to-four family residential non-owner occupied  5   554   -   554   30   5   544   -   544   21 
Multi-family residential  -   -   -   -   -   -   -   -   -   - 
Commercial real estate and lines of credit  1   133   -   133   11 
Commercial real estate  1   133   -   133   1 
Construction  -   -   -   -   -   -   -   -   -   - 
Home equity  2   50   -   50   -   2   47   -   47   - 
Commercial business  -   -   -   -   -   -   -   -   -   - 
Other consumer  -   -   -   -   -   -   -   -   -   - 
Total  8  $737  $-  $737  $41   8  $724  $-  $724  $22 


 December 31, 2015  December 31, 2016 
 
Number of
Contracts
  
Recorded
Investment
  
Non-
Accrual
  Accruing  
Related
Allowance
  
Number of
Contracts
  
Recorded
Investment
  
Non-
Accrual
  Accruing  
Related
Allowance
 
One-to-four family residential owner occupied  -  $-  $-  $-  $-   -  $-  $-  $-  $- 
One-to-four family residential non-owner occupied  5   564   -   564   25   5   551   -   551   28 
Multi-family residential ��-   -   -   -   -   -   -   -   -   - 
Commercial real estate and lines of credit  1   133   -   133   7 
Commercial real estate  1   133   -   133   11 
Construction  -   -   -   -   -   -   -   -   -   - 
Home equity  3   84   -   84   -   2   49   -   49   - 
Commercial business  -   -   -   -   -   -   -   -   -   - 
Other consumer  -   -   -   -   -   -   -   -   -   - 
Total  9  $781  $-  $781  $32   8  $733  $-  $733  $39 

The contractual aging of the TDRs in the table above as of SeptemberJune 30, 20162017 and December 31, 20152016 is as follows (in thousands):

 September 30, 2016  June 30, 2017 
 Accruing Past Due Less than 30 Days  Past Due 30-89 Days  
Greater
than 90 Days
  Non-Accrual  Total  
Accruing
Past Due
Less than 30
Days
  
Past Due
30-89 Days
  
90 Days or
More Past
Due
  
Non-
Accrual
  Total 
One-to-four family residential owner occupied $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
One-to-four family residential non-owner occupied  554   -   -   -   554   544   -   -   -   544 
Multi-family residential  -   -   -   -   -   -   -   -   -   - 
Commercial real estate and lines of credit  133   -   -   -   133 
Commercial real estate  133   -   -   -   133 
Construction  -   -   -   -   -   -   -   -   -   - 
Home equity  50   -   -   -   50   47   -   -   -   47 
Commercial business  -   -   -   -   -   -   -   -   -   - 
Other consumer  -   -   -   -   -   -   -   -   -   - 
Total $737  $-  $-  $-  $737  $724  $-  $-  $-  $724 


 
 
2120
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 76 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

  December 31, 2015 
  
Accruing
Past Due
Less than 30
Days
  
Past Due
30-89 Days
  
Greater
than 90
Days
  
Non-
Accrual
  Total 
One-to-four family residential owner occupied $-  $-  $-  $-  $- 
One-to-four family residential non-owner occupied  564   -   -   -   564 
Multi-family residential  -   -   -   -   - 
Commercial real estate and lines of credit  133   -   -   -   133 
Construction  -   -   -   -   - 
Home equity  84   -   -   -   84 
Commercial business  -   -   -   -   - 
Other consumer  -   -   -   -   - 
Total $781  $-  $-  $-  $781 

During the three and nine months ended September 30, 2016 there were no new loans identified as TDRs and one loan previously identified as a TDR was paid-off in the second quarter of 2016.
  December 31, 2016 
  
Accruing
Past Due
Less than 30
Days
  
Past Due
30-89 Days
  
90 Days or
More Past
Due
  
Non-
Accrual
  Total 
One-to-four family residential owner occupied $-  $-  $-  $-  $- 
One-to-four family residential non-owner occupied  551   -   -   -   551 
Multi-family residential  -   -   -   -   - 
Commercial real estate  133   -   -   -   133 
Construction  -   -   -   -   - 
Home equity  49   -   -   -   49 
Commercial business  -   -   -   -   - 
Other consumer  -   -   -   -   - 
Total $733  $-  $-  $-  $733 

Any reserve for an impaired TDR loan is based upon the present value of the future expected cash flows discounted at the loan's original effective rate or upon the fair value of the collateral less costs to sell, if the loan is deemed collateral dependent. At SeptemberJune 30, 20162017 there were no commitments to lend additional funds to debtors whose loan terms have been modified as TDRs.

The general practice of the Bank is to work with borrowers so that they are able to pay back their loan in full. If a borrower continues to be delinquent or cannot meet the terms of a TDR modification and the loan is determined to be uncollectible, the loan will be charged off.  The Company did not have any troubled debt restructurings default within the nine months ended September 30, 2016.


 
 
 
 
 


 
 
 
2221
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 76 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the three and ninesix months ended SeptemberJune 30, 20162017 and recorded investment in loans receivable as of SeptemberJune 30, 20162017 (in thousands):
 
 
September 30, 2016
  
June 30, 2017
 
 
1-4 Family
Residential
Owner
Occupied
  
1-4 Family
Residential
Non-Owner
Occupied
  
Multi-Family
Residential
  
Commercial
 Real Estate
and Lines of
Credit
  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 
For the Three Months Ended September 30, 2016 
For the Three Months Ended June 30, 2017For the Three Months Ended June 30, 2017 
Allowance for loan losses:Allowance for loan losses: Allowance for loan losses: 
Beginning balance Beginning balance $46  $525  $66  $484  $115  $51  $37  $100  $1,424  $44  $524  $108  $612  $127  $51  $94  $90  $1,650 
Charge-offs  -   -   -   -   -   -   -   -   -   -   -   -   (24)  -   -   -   -   (24)
Recoveries  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Provision  (9)  25   (11)  63   28   (19)  14   (30)  61   1   (59)  48   57   10   (10)  17   -   64 
Ending balance $37  $550  $55  $547  $143  $32  $51  $70  $1,485  $45  $465  $156  $645  $137  $41  $111  $90  $1,690 
                                                                        
For the Nine Months Ended September 30, 2016 
For the Six Months Ended June 30, 2017For the Six Months Ended June 30, 2017 
Allowance for loan losses:Allowance for loan losses: Allowance for loan losses: 
Beginning balance Beginning balance $55  $486  $81  $389  $153  $50  $18  $81  $1,313  $41  $503  $103  $616  $138  $37  $87  $80  $1,605 
Charge-offs  -   -   -   -   -   -   -   -   -   -   -   -   (24)  -   -   -   -   (24)
Recoveries  -   -   -   -   -   -   -   -   -   -   -   -   3   -   -   -   -   3 
Provision  (18)  64   (26)  158   (10)  (18)  33   (11)  172   4   (38)  53   50   (1)  4   24   10   106 
Ending balance $37  $550  $55  $547  $143  $32  $51  $70  $1,485  $45  $465  $156  $645  $137  $41  $111  $90  $1,690 
                                                                        
Ending balance evaluatedEnding balance evaluated Ending balance evaluated 
for impairment:                                                                        
Individually $-  $30  $-  $11  $-  $-  $-  $-  $41  $-  $21  $-  $1  $-  $-  $-  $-  $22 
Collectively $37  $520  $55  $536  $143  $32  $51  $70  $1,444  $45  $444  $156  $644  $137  $41  $111  $90  $1,668 
                                                                        
Loans receivable:Loans receivable:                                 Loans receivable:                                 
Ending balance: $5,710  $53,191  $12,252  $66,070  $15,889  $4,886  $5,744  $-  $163,742  $5,636  $49,946  $20,801  $85,230  $14,740  $4,344  $10,756  $-  $191,453 
                                                                        
Ending balance evaluatedEnding balance evaluated                                 Ending balance evaluated                                 
for impairment:                                                                        
Individually $-  $1,206  $-  $395  $-  $50  $-  $-  $1,651  $-  $961  $-  $531  $308  $47  $-  $-  $1,847 
Collectively $5,710  $51,985  $12,252  $65,675  $15,889  $4,836  $5,744  $-  $162,091  $5,636  $48,985  $20,801  $84,699  $14,432  $4,297  $10,756  $-  $189,606 

The Bank allocated decreased allowance for loan loss provisions to the 1-4 family residential non-owner occupied portfolio class  for the three and six months ended June 30, 2017, due primarily to decreased delinquencies and changes to qualitative factors in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the multi-family residential and commercial real estate and lines of credit, the 1-4 family residential non-owner occupied, and the commercial business loans portfolio classes for the three and ninesix months ended SeptemberJune 30, 2016,2017, due primarily to increased balances in these portfolio classes. The Bank allocated increased allowance for loan loss provisions to the construction loan portfolio class for the three months ended September 30, 2016, due primarily to an increase in delinquencies in this portfolio class.


 
 
 
 
 
2322
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 76 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the three and ninesix months ended SeptemberJune 30, 20152016 (in thousands):

 
September 30, 2015
  
June 30, 2016
 
 
1-4 Family
Residential
Owner
Occupied
  
1-4 Family
Residential
Non-Owner
Occupied
  
Multi-
Family
Residential
  
Commercial
 Real Estate
 and Lines of
Credit
  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 
For the Three Months Ended September 30, 2015 
For the Three Months Ended June 30, 2016For the Three Months Ended June 30, 2016 
Allowance for loan losses:Allowance for loan losses: Allowance for loan losses: 
Beginning balance Beginning balance $60  $369  $65  $412  $203  $73  $23  $71  $1,276  $51  $512  $56  $425  $149  $52  $32  $81  $1,358 
Charge-offs  -   (12)  -   (21)  -   (45)  -   -   (78)  -   -   -   -   -   -   -   -   - 
Recoveries  -   -   -   21   -   -   -   -   21   -   -   -   -   -   -   -   -   - 
Provision  (1)  140   1   (53)  (35)  15   (5)  9   71   (5)  13   10   59   (34)  (1)  5   19   66 
Ending balance $59  $497  $66  $359  $168  $43  $18  $80  $1,290  $46  $525  $66  $484  $115  $51  $37  $100  $1,424 
                                                                        
For the Nine Months Ended September 30, 2015 
For the Six Months Ended June 30, 2016For the Six Months Ended June 30, 2016 
Allowance for loan losses:Allowance for loan losses: Allowance for loan losses: 
Beginning balance Beginning balance $75  $418  $60  $324  $122  $46  $7  $96  $1,148  $55  $486  $81  $389  $153  $50  $18  $81  $1,313 
Charge-offs  -   (93)  -   (21)  -   (45)  -   -   (159)  -   -   -   -   -   -   -   -   - 
Recoveries  -   -   -   21   -   -   -   -   21   -   -   -   -   -   -   -   -   - 
Provision  (16)  172   6   35   46   42   11   (16)  280   (9)  39   (15)  95   (38)  1   19   19   111 
Ending balance $59  $497  $66  $359  $168  $43  $18  $80  $1,290  $46  $525  $66  $484  $115  $51  $37  $100  $1,424 
                                     
Ending balance evaluatedEnding balance evaluated Ending balance evaluated 
for impairment:                                                                        
Individually $-  $21  $-  $7  $-  $-  $-  $-  $28  $-  $31  $-  $11  $-  $-  $-  $-  $42 
Collectively $59  $476  $66  $352  $168  $43  $18  $80  $1,262  $46  $494  $66  $473  $115  $51  $37  $100  $1,382 
                                           

The Bank allocated increased allowance for loan loss provisions to the one-to-four family residential non-owner occupied portfolio class for the three months and nine months ended September 30, 2015 due primarily to increased balances and specific reserves needed on impaired loans.  The Bank allocated increased allowance for loan loss provisions to the commercial real estate, the 1-4 family residential non-owner occupied, and lines of credit and constructionthe commercial business loans portfolio classes for the ninethree and six months ended SeptemberJune 30, 2015,2016, due primarily to increased balances in these portfolio classes.
  The Bank allocated decreased allowance for loan loss provisions to the construction loan portfolio class for the three and six months ended June 30, 2016, due to decreased activity in this portfolio class.
 
 
 
 
 
 
 
 
 
 
 

 
2423
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 76 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the year ended December 31, 20152016 and recorded investment in loans receivable based on impairment evaluation as of December 31, 20152016 (in thousands):

 
December 31, 2015
  
December 31, 2016
 
 
1-4 Family
Residential
Owner
Occupied
  
1-4 Family
Residential
Non-Owner
Occupied
  
Multi-
Family
Residential
  
Commercial
Real Estate
and Lines of
Credit
  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 loan losses:Allowance for loan losses: Allowance for loan losses: 
Beginning balance $75  $418  $60  $324  $122  $46  $7  $96  $1,148  $55  $486  $81  $389  $153  $50  $18  $81  $1,313 
Charge-offs  -   (110)  -   (21)  -   (45)  -   -   (176)  -   -   -   -   -   -   -   -   - 
Recoveries  -   -   -   21   -   -   -   -   21   -   -   -   -   -   -   -   -   - 
Provision  (20)  178   21   65   31   49   11   
(15
)  320   (14)  17   22   227   (15)  (13)  69   (1)  292 
Ending balance $55  $486  $81  $389  $153  $50  $18  $81  $1,313  $41  $503  $103  $616  $138  $37  $87  $80  $1,605 
Ending balance evaluatedEnding balance evaluated Ending balance evaluated 
for impairment                                                                        
Individually $-  $33  $-  $7  $-  $-  $-  $-  $40  $-  $28  $-  $11  $-  $-  $-  $-  $39 
Collectively $55  $453  $81  $382  $153  $50  $18  $81  $1,273  $41  $475  $103  $605  $138  $37  $87  $80  $1,566 
Loans receivable:              
Ending balance $5,777  $51,036  $12,402  $49,765  $16,100  $7,409  $2,647  $-  $145,136  $5,389  $51,893  $14,641  $77,730  $15,355  $4,775  $9,321  $-  $179,104 
Ending balance evaluatedEnding balance evaluated Ending balance evaluated 
for impairment                                                                        
Individually $-  $974  $-  $133  $-  $84  $-  $-  $1,191  $-  $1,092  $-  $793  $-  $49  $-  $-  $1,934 
Collectively $5,777  $50,062  $12,402  $49,632  $16,100  $7,325  $2,647  $-  $143,945  $5,389  $50,801  $14,641  $76,937  $15,355  $4,726  $9,321  $-  $177,170 

The Bank allocated increased allowance for loan loss provisions to the commercial real estate, commercial business, and multi-family portfolio classes for the year ended December 31, 2016, due primarily to increased balances in these portfolio classes.  The Bank allocated increased allowance for loan loss provisions to the 1-4 family residential non-owner occupied portfolio class for the year ended December 31, 2016, due primarily to increased specific reserves in this portfolio class.  The Bank allocated decreased allowance for loan loss provisions to the construction, home equity, and one-to-four family owner occupied classes for the year ended December 31, 2016 due decreased balances or changes to qualitative factors in these portfolio classes.

24
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following table presents nonaccrual loans by classes of the loan portfolio as of SeptemberJune 30, 20162017 and December 31, 20152016 (in thousands):
 
 
September 30,
2016
  
December 31,
2015
  
June 30,
2017
  
December 31,
2016
 
One-to-four family residential owner occupied $-  $-  $-  $- 
One-to-four family residential non-owner occupied  652   186   417   541 
Multi-family residential  -   -   -   -- 
Commercial real estate and lines of credit  262   - 
Commercial real estate  398   660 
Construction  -   -   308   - 
Home equity  -   -   -   - 
Commercial business  -   -   -   - 
Other consumer  -   -   -   - 
 $914  $186 
Total $1,123  $1,201 

Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, amounted to $1.5$1.7 million and $852,000$1.9 million at SeptemberJune 30, 20162017 and December 31, 2015,2016, respectively.  For the delinquent loans in our portfolio, we have considered our ability to collect the past due interest, as well as the principal balance of the loan, in order to determine whether specific loans should be placed on non-accrual status. In cases where our evaluations have determined that the principal and interest balances are collectible, we have continued to accrue interest.

For the three and ninesix months ended SeptemberJune 30, 20162017 and 20152016 there was no interest income recognized on non-accrual loans on a cash basis.  Interest income foregone on non-accrual loans was approximately $82,000$30,000 and $48,000$55,000 for the ninethree and six months ended SeptemberJune 30, 2017, respectively.   Interest income foregone on non-accrual loans was approximately $29,000 and $56,000 for the three and six months ended June 30, 2016, and 2015, respectively.
 
25
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 7 - Loans Receivable, Net and Allowance for Loan 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 present the classes of the loan portfolio summarized by the past due status as of SeptemberJune 30, 20162017 and December 31, 20152016 (in thousands):

 September 30, 2016  June 30, 2017 
 
30-90
Days
Past
 Due
  
Greater
than 90
Days
  
Total
Past Due
  
Current
  
Total Loans
Receivable
  
Loans
Receivable >
90 Days and
Accruing
  
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 $323  $-  $323  $5,387  $5,710  $-  $546  $244  $790  $4,846  $5,636  $244 
One-to-four family residential non-owner occupied One-to-four family residential non-owner occupied  
1,033
   
870
   
1,903
   
51,288
   
53,191
   
218
   
654
   
635
   
1,289
   
48,657
   
49,946
   
218
 
Multi-family residential  -   -   -   12,252   12,252   -   -   -   -   20,801   20,801   - 
Commercial real estate and lines of credit  979   660   1,639   64,431   66,070   398 
Commercial real estate  667   500   1,167   84,063   85,230   102 
Construction  1,063   -   1,063   14,826   15,889   -   697   308   1,005   13,735   14,740   - 
Home equity  171   -   171   4,715   4,886   -   34   -   34   4,310   4,344   - 
Commercial business  -   -   -   5,716   5,716   -   -   -   -   10,709   10,709   - 
Other consumer  -   -   -   28   28   -   -   -   -   47   47   - 
 $3,569  $1,530  $5,099  $158,643  $163,742  $616 
Total $2,598  $1,687  $4,285  $187,168  $191,453  $564 

25
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

  December 31, 2016 
  
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 $310  $9  $319  $5,070  $5,389  $9 
One-to-four family residential non-owner
occupied
  
271
   
778
   
1,049
   
50,844
   
51,893
   
237
 
Multi-family residential  -   -   -   14,641   14,641   - 
Commercial real estate  385   777   1,162   76,568   77,730   117 
Construction  596   308   904   14,451   15,355   308 
Home equity  115   -   115   4,660   4,775   - 
Commercial business  43   -   43   9,252   9,295   - 
Other consumer  -   -   -   26   26   - 
 Total $1,720  $1,872  $3,592  $175,512  $179,104  $671 


  December 31, 2015 
  
30-90
Days Past
Due
  
Greater
than 90
Days
  
Total
Past Due
  
Current
  
Total Loans
Receivable
  
Loans
Receivable >
90 Days and
Accruing
 
    
One-to-four family residential owner occupied $253  $-  $253  $5,524  $5,777  $- 
One-to-four family residential non-owner occupied  
1,227
   
590
   
1,817
   
49,219
   
51,036
   
404
 
Multi-family residential  -   -   -   12,402   12,402   - 
Commercial real estate and lines of credit  894   262   1,156   48,609   49,765   262 
Construction  558   -   558   15,542   16,100   - 
Home equity  55   -   55   7,354   7,409   - 
Commercial business  -   -   -   2,576   2,576   - 
Other consumer  -   -   -   71   71   - 
  $2,987  $852  $3,839  $141,297  $145,136  $666 

Note 87 – Intangibles,Goodwill and Other Intangible, Net

On August 1, 2016, Quaint Oak Insurance Agency, LLC began operations by acquiring the renewal rights to the book of business produced and serviced by Signature Insurance Services, LLC, an independent insurance agency located in New Britain, Pennsylvania, that provides a broad range of personal and commercial insurance coverage solutions.  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 years, which isyear period based upon the remaining lifeannual retention rate of the purchased book of business.  The balance of other intangible assets at June 30, 2017 was $441,000 net of accumulated amortization of $44,000.  Amortization expense for the three and the ninesix months ended SeptemberJune 30, 2016 was $17,000.
26
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 8 – Intangibles, Net (Continued)

Also included in intangible assets are mortgage servicing rights recognized as separate assets when mortgage loans are sold2017 amounted to $12,000 and the servicing rights are retained. The total mortgage servicing rights intangibles at September 30, 2016 and December 31, 2015 totaled $61,000 and $45,000, respectively.  During the three and nine months ended September 30, 2016, approximately $2,000 and $5,000 in amortization was recognized, respectively.  During the three and nine months ended September 30, 2015, approximately $1,000 and $3,000 in amortization was recognized,$24,000, respectively.


Note 98 – Deposits

Deposits consist of the following classifications (in thousands):

 
September 30,
2016
  
December 31,
2015
  
June 30,
2017
  
December 31,
 2016
 
Non-interest bearing checking accounts $4,203  $2,407  $7,040  $5,852 
Passbook accounts  1,161   1,185   731   1,189 
Savings accounts  1,984   3,275   1,523   1,784 
Money market accounts  29,363   26,571   32,281   31,114 
Certificates of deposit  137,940   115,791   137,528   137,068 
Total deposits $174,651  $149,229  $179,103  $177,007 

26
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 109 – Borrowings

Federal Home Loan Bank advances consist of the following at SeptemberJune 30, 20162017 and December 31, 20152016 (in thousands):

 June 3, 2017  December 31, 2016 
    Weighted     Weighted 
    Interest     Interest 
  September 30, 2016   December 31, 2015   Amount  Rate  Amount  Rate 
  Amount    
Weighted
Interest
Rate 
   Amount    
Weighted
Interest
Rate 
              
Short-term borrowingsShort-term borrowings $6,000   0.46% $6,000   0.45%Short-term borrowings $10,000   1.24% $7,000   0.54%
                                      
Fixed rate borrowings maturing:Fixed rate borrowings maturing:                    Fixed rate borrowings maturing:                
2016    -   -% $1,000   0.88%
2017    2,500   1.15   2,500   1.15   $1,500   1.30% $2,500   1.15%
2018    3,000   1.46   3,000   1.46    3,000   1.46   3,000   1.46 
2019    1,000   2.02   1,000   2.02    3,000   1.86   2,000   1.95 
2020   2,000   2.00   1,000   2.15 
2021   2,000   1.96   -   - 
2022   2,000   2.12   -   - 
2023   2,000   2.28   -   - 
Total FHLB long-term debt Total FHLB long-term debt $6,500   1.42% $7,500   1.35% Total FHLB long-term debt $15,500   1.85% $8,500   1.56%




27
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 1110 – Stock Compensation Plans

Employee Stock Ownership Plan

The Company adoptedmaintains an Employee Stock Ownership Plan (ESOP) during fiscal 2007 for the benefit of employees who meet the eligibility requirements of the plan.  Using proceeds from a loan from the Company, the ESOP purchased 8%, or 222,180 shares of the Company's then outstanding common stock in the open market at an average price of $4.68 (split-adjusted) for a total of $1.0 million.during 2007.  The Bank makes cash contributions to the ESOP on a quarterly basis sufficient to enable the ESOP to make the required loan payments to the Company.  The loan bears an interest rate of 7.75% per annum, with principal and interest to be paid quarterly in equal installments over 15 years. The loan is secured by the unallocated shares of common stock held by the ESOP.

Shares of the Company's common stock purchased by the ESOP are held in a suspense account and reported as unallocated common stock held by the ESOP in stockholders' equity until released for allocation to participants.  As the debt is repaid, shares are released from collateral and are allocated to each eligible participant based on the ratio of each such participant's base compensation to the total base compensation of eligible plan participants.  As the unearned shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market value of the shares, and the shares become outstanding for earnings per share computations.  During the three and ninesix months ended SeptemberJune 30, 2016,2017, the Company recognized $43,000$47,000 and $129,000$92,000 of ESOP expense, respectively.  During the three and ninesix months ended SeptemberJune 30, 2015,2016, the Company recognized $42,000$43,000 and $115,000$86,000 of ESOP expense, respectively.

Recognition & Retention and Stock Incentive Plans

In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Recognition and Retention Plan (the "RRP") and Trust Agreement.  In order to fund the RRP, the 2008 Recognition and Retention Plan Trust acquired 111,090 shares of the Company's stock in the open market at an average price of $4.68 (split adjusted) totaling $520,000.  In May 2013, the shareholders of Quaint Oak Bancorp approved the adoption of the 2013 Stock Incentive Plan (the "Stock Incentive Plan").  The Stock Incentive Plan provides that no more than 48,750, or 25%, of the shares may be granted as sharerestricted stock awards.
27
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 10 – Stock Compensation Plans (Continued)

Recognition & Retention and Stock Incentive Plans (Continued)
As of SeptemberJune 30, 2016,2017, a total of 20,52410,261 share awards were unvested under the RRP and Stock Incentive Plan and up to 21,968 share awards were available for future grant under the Stock Incentive Plan and none under the RRP.  The RRP and Stock Incentive Plan share awards have vesting periods fromof five to seven years.

A summary of the status of the share awards under the RRP and Stock Incentive Plan as of SeptemberJune 30, 20162017 and 20152016 and changes during the ninesix months ended SeptemberJune 30, 20162017 and 20152016 is as follows:

  September 30, 2016  September 30, 2015 
  
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  30,784  $8.10   41,966  $8.09 
Granted  -   -   -   - 
Vested  (10,260)  8.10   (10,582)  7.73 
Forfeited  -   -   (800)  8.10 
Unvested at the end of the period  20,524  $8.10   30,584  $8.21 


28
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 11 – Stock Compensation Plans (Continued)

Recognition & Retention and Stock Incentive Plans (Continued)
  June 30, 2017  June 30, 2016 
  
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  20,524  $8.10   30,784  $8.10 
Granted  -   -   -   - 
Vested  (10,263)  8.10   (10,260)  8.10 
Forfeited  -   -   -   - 
Unvested at the end of the period  10,261  $8.10   20,524  $8.10 

Compensation expense on the sharerestricted stock awards is recognized ratably over the five to seven 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 threesix month periods ended June 30, 2017 and nine months ended September 30, 2016, approximately $21,000 and $62,000$42,000 in compensation expense was recognized, respectively.recognized.  A tax benefit of approximately $7,000 and $21,000, respectively,$14,000 was recognized during each of these periods.  During the three and nine months ended September 30, 2015, approximately $19,000 and $62,000 in compensation expense was recognized, respectively. A tax benefit of approximately $6,000 and $15,000, respectively, was recognized during eachboth of these periods.  As of SeptemberJune 30, 2016,2017, approximately $136,000$73,000 in additional compensation expense will be recognized over the remaining service period of approximately 1.60.9 years.

Stock Option and Stock Incentive Plans

In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Stock Option Plan (the "Option Plan").  The Option Plan authorizes 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 Stock Incentive Plan approved by shareholders in May 2013 covered a total of 195,000 shares, of which 48,750 may be sharerestricted stock awards, for a balance of 146,250 stock options assuming all the share awardsrestricted shares are granted.awarded.

For grants in May 2008, the Compensation Committee of the Board of Directors determined to grant the stock options at an exercise price equal to $5.00 per share (split-adjusted) which is higher than the fair market value of the common stock on the grant date.  Stock options granted in May 2013 have an exercise price of $8.10 per share (split adjusted), the fair market value of the common stock on the date of grant. All incentive stock options issued under the Option Plan and the Stock Incentive Plan are intended to comply with the requirements of Section 422 of the Internal Revenue Code.
28
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 10 – Stock Compensation Plans (Continued)

Stock Option and Stock Incentive Plans (Continued)

As of SeptemberJune 30, 2016,2017, a total of 327,748277,548 grants of stock options were outstanding under the Option Plan and Stock Incentive Plan and 56,276 stock options were available for future grant under the Stock Incentive Plan and none under the Option Plan.  Options will become vested and exercisable over a five to seven year period and are generally exercisable for a period of ten years after the grant date.

A summary of option activity under the Company's Option Plan and Stock Incentive Plan of SeptemberJune 30,, 2017 and 2016 and 2015 and changes during the ninesix months ended SeptemberJune 30, 2017, 2016 and 20152016 is as follows:

  2016  2015 
  
Number
of
Shares
  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Contractual
Life (in
years)
  
Number
 of
Shares
  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Contractual
 Life (in
years)
 
Outstanding at the beginning of the year  
354,266
  $6.33   
4.7
   
369,140
  $6.30   
5.7
 
Granted  -   -   -   -   -   - 
Exercised  (26,518)  5.00   -   (4,960)  5.00   - 
Forfeited  -   -   -   (1,920)  8.10   - 
Outstanding at end of period  327,748  $6.44   4.0   362,260  $6.30   4.8 
Exercisable at end of  period  266,148  $6.06   1.6   271,780  $5.70   2.6 

29
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 11 – Stock Compensation Plans (Continued)

Stock Option and Stock Incentive Plans  (Continued)
  2017  2016 
  
Number
of
Shares
  
Weighted
Average
Exercise
Price
  
Weighted
Average
 Remaining
Contractual
 Life (in
years)
  
Number
of
Shares
  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Contractual
Life (in
years)
 
Outstanding at the beginning of the year  
316,348
  $6.49   
3.8
   
354,266
  $6.33   
4.7
 
Granted  -   -   -   -   -   - 
Exercised  (38,800)  5.00   -   (22,518)  5.00   - 
Forfeited  -   -   -   -   -   - 
Outstanding at end of period  277,548  $6.70   3.6   331,748  $6.42   4.2 
Exercisable at end of  period  247,228  $6.53   3.4   270,148  $6.04   1.9 

During both the threesix month periods ended June 30, 2017 and nine months ended September 30, 2016, and 2015, approximately $12,000 and $34,000$22,000 in compensation expense was recognized, respectively.recognized.  A tax benefit of approximately $1,000 and $3,000, respectively,$2,000 was recognized during eachboth of these periods.  As of SeptemberJune 30, 2016,2017, approximately $73,000$40,000 in additional compensation expense will be recognized over the remaining service period of approximately 1.60.9 years.

Note 1211 – Fair Value Measurements and Fair Values of Financial Instruments
Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions, and risk assumptions used. Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.
Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.
29
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 11 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)
The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value.  The three broad levels of pricing are as follows:
Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date.  The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.
Level III: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
This hierarchy requires the use of observable market data when available.
The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation techniques applied:
Investment Securities Available-For-Sale: The fair value of securities available for sale are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted prices.


30
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 12 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)
We may be required from time to time to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.
Impaired Loans: Impaired loans are carried at the lower of cost or the fair value of the collateral for collateral-dependent loans less estimated costs to sell. Collateral is primarily in the form of real estate. The use of independent appraisals, discounted cash flow models and management's best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within level 3 of the fair value hierarchy.

Other Real Estate Owned: Other real estate owned is carried at the lower of the investment in the real estate or the fair value of the real estate less estimated selling costs. The use of independent appraisals and management's best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and therefore other real estate owned is classified within level 3 of the fair value hierarchy.

The table below sets forth the financial assets and liabilities that were accounted for on a recurring and nonrecurring basis by level within the fair value hierarchy as of September 30, 2016 (in thousands):
  September 30, 2016 
  Fair Value Measurements Using: 
  
 
 
 
 
 
Total Fair
Value
  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
 
 
 
Significant Other
Observable
Inputs
(Level 2)
  
 
 
 
 
Unobservable
Inputs
(Level 3)
 
Recurring fair value measurements   
Investment securities available for sale   
   Governmental National Mortgage Association mortgage-backed securities $6,906  $-  $6,906  $- 
Federal Home Loan Mortgage Corporation mortgage-backed securities  
1,929
   
-
   
1,929
   
-
 
   Federal National Mortgage Association mortgage-backed securities  
861
   
-
   
861
   
-
 
   Federal Home Loan Mortgage Corporation Medium Term Note Step  
359
   
-
   
359
   
-
 
            Total investment securities available for sale $10,055  $-  $10,055  $- 
Total recurring fair value measurements $10,055  $-  $10,055  $- 
    
Nonrecurring fair value measurements   
Impaired loans $1,610  $-  $-  $1,610 
Other real estate owned  720   -   -   720 
Total nonrecurring fair value measurements $2,330  $-  $-  $2,330 


 
 
3130
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 1211 – 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, 2015June 30, 2017 (in thousands):
 December 31, 2015  June 30, 2017 
 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      
Governmental National Mortgage Association mortgage-backed securities $1,990  $-  $1,990  $-  $6,141  $-  $6,141  $- 
Federal Home Loan Mortgage Corporation mortgage-backed securities  
1,015
   
-
   
1,015
   
-
   
1,756
   
-
   
1,756
   
-
 
Federal National Mortgage Association mortgage-backed securities  
640
   
-
   
640
   
-
 
Debt securities, U.S. government agency  356   -   356   - 
Total investment securities available for sale $3,005  $-  $3,005  $-  $8,893  $-  $8,893  $- 
Total recurring fair value measurements $3,005  $-  $3,005  $- 
      
Nonrecurring fair value measurements      
Impaired loans $1,151  $-  $-  $1,151  $1,825  $-  $-  $1,825 
Other real estate owned  1,410   -   -   1,410   185   -   -   185 
Total nonrecurring fair value measurements $2,561  $-  $-  $2,561 
                

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, 2016 (in thousands):
  December 31, 2016 
  Fair Value Measurements Using: 
  
 
 
 
 
 
Total Fair
Value
  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
 
 
 
Significant Other Observable
Inputs
(Level 2)
  
 
 
 
 
Unobservable
Inputs
(Level 3)
 
Recurring fair value measurements   
Investment securities available for sale   
Governmental National Mortgage Association mortgage-backed securities $6,590  $-  $6,590  $- 
Federal Home Loan Mortgage Corporation mortgage-backed securities  
1,871
   
-
   
1,871
   
-
 
Federal National Mortgage Association mortgage-backed securities  
740
   
-
   
740
   
-
 
Debt securities, U.S. government agency  354   -   354   - 
            Total investment securities available for sale $9,555  $-  $9,555  $- 
    
Nonrecurring fair value measurements   
Impaired loans $1,895  $-  $-  $1,895 
Other real estate owned  435   -   -   435 
                 

31
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 11 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has used levelLevel 3 inputs to determine fair value as of SeptemberJune 30, 20162017 and December 31, 20152016 (in thousands):
 
 September 30, 2016  June 30, 2017 
 Quantitative Information About Level 3 Fair Value Measurements  Quantitative Information About Level 3 Fair Value Measurements 
 
 
Total Fair
Value
 
 
Valuation
Techniques
 
 
Unobservable
Input
 
 
Range (Weighted
Average)
  
 
Total Fair
Value
 
 
Valuation
Techniques
 
Unobservable
Input
 
 
Range (Weighted
Average)
 
Impaired loans $1,610 
Appraisal of collateral (1)
 
Appraisal adjustments (2)
  0%-31% (3%)  $1,825 
Appraisal of collateral (1)
Appraisal adjustments (2)
  0%-23% (1%)
                    
Other real estate owned $720 
Appraisal of collateral (1)
 
Appraisal adjustments (2)
  0%-29% (8%)  $185 
Appraisal of collateral (1)
Appraisal adjustments (2)
  0%-10% (10%)

 December 31, 2015  December 31, 2016 
 Quantitative Information About Level 3 Fair Value Measurements  Quantitative Information About Level 3 Fair Value Measurements 
 
 
Total Fair
Value
 
 
Valuation
Techniques
 
 
Unobservable
Input
 
 
Range (Weighted
Average)
  
 
Total Fair
Value
 
 
Valuation
Techniques
 
Unobservable
Input
 
 
Range (Weighted
Average)
 
Impaired loans $1,151 
Appraisal of collateral (1)
 
Appraisal adjustments (2)
  0%-25% (3%)  $1,895 
Appraisal of collateral (1)
Appraisal adjustments (2)
  0%-22% (2%)
                    
Other real estate owned $1,410 
Appraisal of collateral (1)
 
Appraisal adjustments (2)
  0% -29% (5%)  $435 
Appraisal of collateral (1)
Appraisal adjustments (2)
  0%-29% (12%)
________________
(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.

32
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 12 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

The estimated fair values of the Company's financial instruments were as follows at SeptemberJune 30, 20162017 and December 31, 20152016 (in thousands):

        Fair Value Measurements at 
        September 30, 2016 
  
 
 
 
Carrying
Amount
  
 
 
 
Fair Value
Estimate
  
Quoted Prices in
 Active Markets
 for Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
 
 
Unobservable
Inputs
(Level 3)
 
Financial Assets         
Cash and cash equivalents $17,680  $17,680  $17,680  $-  $- 
Investment in interest-earning time deposits  6,063   6,112   -   -   6,112 
Investment securities available for sale  10,055   10,055   -   10,055   - 
Loans held for sale  4,247   4,419   -   4,419   - 
Loans receivable, net  161,627   163,450   -   -   163,450 
Accrued interest receivable  932   932   932   -   - 
Investment in FHLB stock  593   593   593   -   - 
Bank-owned life insurance  3,705   3,705   3,705   -   - 
                     
Financial Liabilities                    
Deposits  174,651   176,620   36,712   -   139,908 
FHLB short-term borrowings  6,000   6,000   6,000   -   - 
FHLB long-term borrowings  6,500   6,544   -   -   6,544 
Accrued interest payable  136   136   136   -   - 

        Fair Value Measurements at 
        December 31, 2015 
  
 
 
 
Carrying
Amount
  
 
 
 
Fair Value
Estimate
  
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
  
Significant
Other
 Observable
Inputs
(Level 2)
  
 
 
Unobservable
Inputs
(Level 3)
 
Financial Assets         
Cash and cash equivalents $17,206  $17,206  $17,206  $-  $- 
Investment in interest-earning time deposits  6,136   6,206   -   -   6,206 
Investment securities available for sale  3,005   3,005   -   3,005   - 
Loans held for sale  5,064   5,244   -   5,244   - 
Loans receivable, net  143,305   145,134   -   -   145,134 
Accrued interest receivable  983   983   983   -   - 
Investment in FHLB stock  618   618   618   -   - 
Bank-owned life insurance  3,638   3,638   3,638   -   - 
                     
Financial Liabilities                    
Deposits  149,229   150,644   33,438   -   117,206 
FHLB short-term borrowings  6,000   6,000   6,000   -   - 
FHLB long-term borrowings  7,500   7,479   -   -   7,479 
Accrued interest payable  123   123   123   -   - 

        Fair Value Measurements at 
        June 30, 2017 
  
 
 
 
Carrying
Amount
  
 
 
 
Fair Value
Estimate
  
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
 
 
Unobservable
Inputs
(Level 3)
 
Financial Assets         
Cash and cash equivalents $7,875  $7,875  $7,875  $-  $- 
Investment in interest-earning time deposits  5,365   5,405   -   -   5,405 
Investment securities available for sale  8,893   8,893   -   8,893   - 
Loans held for sale  7,219   7,513   -   7,513   - 
Loans receivable, net  189,046   189,564   -   -   189,564 
Accrued interest receivable  875   875   875   -   - 
Investment in FHLB stock  1,134   1,134   1,134   -   - 
Bank-owned life insurance  3,772   3,772   3,772   -   - 
                     
Financial Liabilities                    
Deposits  179,103   180,567   41,575   -   138,992 
FHLB short-term borrowings  10,000   10,000   10,000   -   - 
FHLB long-term borrowings  15,500   15,499   -   -   15,499 
Accrued interest payable  147   147   147   -   - 
3332
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 1211 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)
        Fair Value Measurements at 
        December 31, 2016 
  
 
 
 
Carrying
Amount
  
 
 
 
Fair Value
Estimate
  
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
 
 
Unobservable
Inputs
(Level 3)
 
Financial Assets         
Cash and cash equivalents $9,300  $9,300  $9,300  $-  $- 
Investment in interest-earning time deposits  6,098   6,163   -   -   6,163 
Investment securities available for sale  9,555   9,555   -   9,555   - 
Loans held for sale  4,712   4,879   -   4,879   - 
Loans receivable, net  176,807   177,870   -   -   177,870 
Accrued interest receivable  862   862   862   -   - 
Investment in FHLB stock  713   713   713   -   - 
Bank-owned life insurance  3,728   3,728   3,728   -   - 
                     
Financial Liabilities                    
Deposits  177,007   179,050   39,939   -   139,111 
FHLB short-term borrowings  7,000   7,000   7,000   -   - 
FHLB long-term borrowings  8,500   8,507   -   -   8,507 
Accrued interest payable  142   142   142   -   - 

The following methods and assumptions were used to measure the fair value of financial instruments recorded at cost on the Company's consolidated balance sheets:

Cash and Cash Equivalents.  The carrying amounts reported in the consolidated balance sheets for cash and short-term instruments approximate those assets' fair values.
Interest-Earning Time Deposits. Fair values for interest-earning time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. The Company generally purchases amounts below the insured limit, limiting the amount of credit risk on these time deposits.
Loans Held for Sale.  Fair values of loans held for sale are based on commitments on hand from investors at prevailing market rates.
Loans Receivable, Net.  The fair values of loans are estimated using discounted cash flow methodology.  The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loan and market factors, including liquidity.  The valuation of the loan portfolio reflects discounts that the Company believes are consistent with transactions occurring in the market place for both performing and distressed loan types.  The carrying value that fair value is compared to is net of the allowance for loan losses and other associated premiums and discounts.  Due to the significant judgment involved in evaluating credit quality, loans are classified with Level 3 of the fair value hierarchy.
Accrued Interest Receivable.  The carrying amount of accrued interest receivable approximates its fair value.
33
Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 11 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)
Investment in Federal Home Loan Bank Stock.  The carrying amount of restricted investment in Federal Home Loan Bank stock approximates fair value, and considers the limited marketability of such securities.
Bank-Owned Life Insurance.  The carrying amount of the investment in bank-owned life insurance approximates its cash surrender value under the insurance policies.
Deposits.  The carrying amount is considered a reasonable estimate of fair value for demand savings deposit accounts.  The fair value of fixed maturity certificates of deposit is estimated by a discounted cash flow method using the rates currently offered for deposits of similar maturities.
Federal Home Loan Bank Borrowings.  Fair values of FHLB borrowings are estimated based on rates currently available to the Company for similar terms and remaining maturities.
Accrued Interest Payable.  The carrying amount of accrued interest payable approximates its fair value.
Off-Balance Sheet Financial Instruments. Off-balance sheet financial instruments consist of commitments to extend credit.  Fair values for commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the present credit standing of the counterparties.  The estimated fair value of the commitments to extend credit are insignificant and therefore are not presented in the above table.
 
 
 
34
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements Are Subject to Change

We make certain statements in this document as to what we expect may happen in the future. These statements usually contain the words "believe," "estimate," "project," "expect," "anticipate," "intend" or similar expressions. Because these statements look to the future, they are based on our current expectations and beliefs. Actual results or events may differ materially from those reflected in the forward-looking statements. You should be aware that our current expectations and beliefs as to future events are subject to change at any time, and we can give you no assurances that the future events will actually occur.

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.  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 loan 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, professional fees, 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 SeptemberJune 30, 20162017 the Bank had five subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, Quaint Oak Insurance Agency, LLC, and QOB Properties, LLC, each a Pennsylvania limited liability company.  The mortgage, real estate and abstract companies offer mortgage banking, real estate sales and title abstract services, respectively, and began operation in July 2009.  QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure.  On August 1, 2016, Quaint Oak Insurance Agency, LLC began operations by acquiring the renewal rights to the book of business produced and serviced by Signature Insurance Services, LLC, an independent insurance agency located in New Britain, Pennsylvania, that provides a broad range of personal and commercial insurance coverage solutions.  The aggregate purchase price was $1.0 million and this intangible asset is being amortized over ten years, which is the remaining life of the purchased book of business.

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. The following 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.
 
 
35
Allowance for Loan Losses.  The allowance for loan losses represents management's estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans receivable. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are designated as impaired. For loans that are designated as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment.  Residential owner occupied mortgage lending generally entails a lower risk of default than other types of lending. Consumer loans and commercial real estate loans generally involve more risk of collectability because of the type and nature of the collateral and, in certain cases, the absence of collateral. It is the Company's policy to establish a specific reserve for loss on any delinquent loan when it determines that a loss is probable. An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent.  An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company's impaired loans are measured based on the estimated fair value of the loan's collateral.
 
 
36

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

For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower's overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for all loans (except one-to-four family residential owner-occupied loans) where the total amount outstanding to any borrower or group of borrowers exceeds $500,000, or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized special mention have potential weaknesses that deserve management's close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management's comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Income Taxes.  Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and net operating loss carryforwards and gives current recognition to changes in tax rates and laws.  The realization of our deferred tax assets principally depends upon our achieving projected future taxable income.  We may change our judgments regarding future profitability due to future market conditions and other factors.  We may adjust our deferred tax asset balances if our judgments change.



37
Comparison of Financial Condition at SeptemberJune 30, 20162017 and December 31, 20152016

General.   The Company's total assets at SeptemberJune 30, 20162017 were $209.5$229.1 million, an increase of $25.3$13.0 million, or 13.7%6.0%, from $184.2$216.2 million at December 31, 2015.2016.  This growth in total assets was primarily due to an $18.3a $12.2 million, or 12.8%6.9%, increase in loans receivable, net, and a $7.1$2.5 million, or 234.6%53.2%, increase in investment securities availableloans held for sale, a $999,000 increase in intangible assets, net of accumulated amortization, and a $474,000, or 2.8% increase in cash and cash equivalents.sale.   These increases were partially offset by an $817,000,a $1.4 million, or 16.1%15.3%, decrease in loans held for salecash and cash equivalents, a $733,000, or 12.0%, decrease in investment in interest-earning time deposits, and a $690,000,$662,000, or 48.9%6.9%, decrease in other real estate owned, net.investment securities available for sale.

Cash and Cash Equivalents. Cash and cash equivalents increased $474,000,decreased $1.4 million, or 2.8%15.3%, from $17.2$9.3 million at December 31, 20152016 to $17.7$7.9 million at SeptemberJune 30, 20162017 as excess deposits, notliquidity was primarily used to fund loansloans.

Investment in Interest-Earning Time Deposits.  Investment in interest-earning time deposits decreased $733,000, or investment securities available for sale,12.0%, from $6.1 million at December 31, 2016 to $5.4 million at June 30, 2017 primarily due to the maturity and redemption of time deposits. The proceeds were invested in overnight funds with the Federal Reserve Bank.used to fund loans.

Investment Securities Available for Sale.  Investment securities available for sale increased $7.1 million,decreased $662,000, or 234.6%6.9%, from $3.0$9.6 million at December 31, 20152016 to $10.1$8.9 million at SeptemberJune 30, 2016, as2017 due primarily to the Company purchased $7.8 million of GNMA, FNMA and FHLMC mortgage-backed securities and a Federal Home Loan Mortgage Corporation Medium Term Note Step with excess liquidity.  Principalprincipal repayments on these securities totaled $784,000 during the ninesix months ended SeptemberJune 30, 2016.2017.

Loans Held for Sale.  Loans held for sale decreased $817,000,increased $2.5 million, or 16.1%53.2%, from $5.1$4.7 million at December 31, 20152016 to $4.2$7.2 million at SeptemberJune 30, 20162017 as the Bank's mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $47.9$34.2 million of one-to-four family residential loans during the ninesix months ended SeptemberJune 30, 20162017 and sold $48.8$31.7 million of loans in the secondary market during this same period.

Loans Receivable, Net.  Loans receivable, net, increased $18.3$12.2 million, or 12.8%6.9%, to $161.6$189.0 million at SeptemberJune 30, 20162017 from $143.3$176.8 million December 31, 2015.2016.  This increase was funded primarily from depositsFederal Home Loan Bank borrowings and excess liquidity in cash and cash equivalents.deposits.  Increases within the portfolio occurred in commercial real estate loans which increased $16.3$7.5 million, or 34.3%9.6%, multi-family residential loans which increased $6.2 million, or 42.1%, commercial business loans which increased $3.1$1.4 million, or 121.9%15.2%, and one-to-four family residential non-ownerowner occupied loans which increased $2.2 million,$247,000, or 4.2%4.6%, and other consumer loans which increased $21,000, or 80.8%.  These increases were partially offset by decreases of $2.5a $1.9 million, or 34.1%3.8%, in home equity loans, $211,000, or 1.3%, in construction loans, $150,000, or 1.2%, in multi-family residential loans, $67,000, or 1.2%,decrease in one-to-four family residential ownernon-owner occupied loans, $43,000,a $615,000, or 0.63%4.0%, decrease in other consumerconstruction loans, and $14,000,a $431,000, or 0.6%9.0%, decrease in commercial lines of credit.home equity loans.  The Company continues its strategy of diversifying its loan portfolio with higher yielding and shorter-term loan products and selling substantially all of its newly originated one-to-four family owner-occupied loans into the secondary market.

Other Real Estate Owned, Net. Other real estate owned, (OREO), net amounted to $720,000$185,000 at SeptemberJune 30, 2016,2017, consisting of five properties.one property.  This compares to seventhree properties totaling $1.4 million$435,000 at December 31, 2015.  During2016. For the quartersix months ended SeptemberJune 30, 20162017, $23,000 of capital improvements were made to the properties, one propertyof the properties incurred a write-down totaling $48,000, and two properties with a carrying value of $790,000 was sold and a loss of $14,000 realized on the transaction, and one property was written-down $40,000.$225,000 were sold.  The Company is in the process of marketing the other propertiesremaining property for sale.  Non-performing assets amounted to $2.2$1.9 million, or 1.07%0.82%, of total assets at SeptemberJune 30, 20162017 compared to $2.3 million, or 1.23%1.07%, of total assets at December 31, 2015.2016.

38
Deposits.  Total deposits increased $25.4$2.1 million, or 17.0%1.2%, to $174.7$179.1 million at SeptemberJune 30, 20162017 from $149.2$177.0 million at December 31, 2015.2016.  This increase in deposits was primarily attributable to increases of $22.1$1.2 million, or 19.1%20.3%, in certificates of deposit, $2.8non-interest bearing checking accounts, $1.2 million, or 10.5%3.8%, in money market accounts, and $1.8 million,$460,000, or 74.6%0.3%, in non-interest bearing check accounts,certificates of deposit, partially offset by a $1.3 million,$458,000, or 39.4%38.5%, decrease in passbook accounts and a $261,000, or 14.6%, decrease in savings accounts. The increases in certificates of deposit and money market accounts were due to the competitive interest rates offered by the Bank.
38
Federal Home Loan Bank Advances.  Federal Home Loan Bank borrowings decreased $1.0 million, or 7.4%, to $12.5 million at September 30, 2016 from $13.5 million at December 31, 2015.  During the quarter ended September 30, 2016, the Company used excess liquidity to pay-off $1.0 million of long-term fixed rate borrowings that matured in September 2016.

Stockholders' Equity.  Total stockholders' equity increased $1.3 million,$965,000, or 6.6%4.6%, to $20.3$21.8 million at SeptemberJune 30, 20162017 from $19.0$20.8 million at December 31, 2015.2016.  Contributing to the increase was net income for the ninesix months ended SeptemberJune 30, 20162017 of $1.0 million,$695,000, the reissuance of treasury stock for exercised stock options of $133,000,$193,000, common stock earned by participants in the employee stock ownership plan of $129,000,$92,000, amortization of stock awards and options under our stock compensation plans of $96,000,$64,000, the reissuance of treasury stock under the Bank's 401(k) Plan of $82,000,$68,000, and a decrease in other comprehensive lossincome of $10,000.$30,000.  These increases were partially offset by dividends paid of $218,000$172,000 and the purchase of 1,097 sharestreasury stock of the Company's stock as part of the Company's stock repurchase program for an aggregate purchase price of $13,000.$5,000.

Comparison of Operating Results for the Three Months Ended SeptemberJune 30, 20162017 and 20152016

General.  Net income amounted to $402,000$524,000 for the three months ended SeptemberJune 30, 2016,2017, an increase of $92,000,$122,000, or 29.7%30.3%, compared to net income of $310,000$402,000 for three months ended SeptemberJune 30, 2015.2016.  The increase in net income on a comparative quarterly basis was primarily the result of increases in non-interest income of $283,000 and$260,000, net interest income of $33,000,$241,000, and a decrease in the provision for loan losses of $10,000,$2,000, partially offset by an increase in non-interest expense of $173,000$346,000 and an increase in the provision for income taxes of $61,000.$35,000.

Net Interest Income.  Net interest income increased $33,000,$241,000 or 2.1%14.6%, to $1.64$1.9 million for the three months ended SeptemberJune 30, 20162017 from $1.60$1.6 million for the three months ended SeptemberJune 30, 2015.2016.  The increasewas driven by a $167,000,$334,000, or 7.8%14.7%, increase in interest income, partially offset by a $134,000,$93,000, or 24.9%15.0%, increase in interest expense.

Interest Income.  Interest income increased $167,000,$334,000, or 7.8%14.7%, to $2.6 million for the three months ended June 30, 2017 from $2.3 million for the three months ended SeptemberJune 30, 2016 from $2.1 million for the three months ended September 30, 2015.  2016. The increase in interest income was primarily due to a $15.6$31.8 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $146.2$156.1 million for the three months ended SeptemberJune 30, 20152016 to an average balance of $161.8$187.9 million for the three months ended SeptemberJune 30, 2016,2017, and had the effect of increasing interest income $224,000.$447,000.  Partially offsetting this increase was a 26 basis point decline in the average yield on loans receivable, net, including loans held for sale, from 5.73%5.63% for the three months ended SeptemberJune 30, 20152016 to 5.47%5.37% for the three months ended SeptemberJune 30, 2016,2017, which had the effect of decreasing interest income by $105,000. Also contributing to the increase in interest income for the three months ended September 30, 2016 was a $9.7 million increase in average funds due from banks, interest-bearing, which increased from an average balance of $9.1 million for the three months ended September 30, 2015 to an average balance of $18.8 million for the three months ended September 30, 2016, and had the effect of increasing interest income $5,000.  In addition, the average yield on funds due from banks, interest-bearing, increased 33 basis points from 0.22% for the three months ended September 30, 2015 to 0.55% for the three months ended September 30, 2016, which had the effect of increasing interest income by $16,000.  Also contributing to the increase in interest income for the three months ended September 30, 2016 was a $6.8 million increase in average balance of investment securities available for sale from an average balance of $1.7 million for the three months ended September 30, 2015 to an average balance of $8.5 million for the three months ended September 30, 2016, which had the effect of increasing interest income $43,000.  Partially offsetting this increase was a 117 basis decrease in the average yield on investment securities available for sale from 2.57% for the three months ended September 30, 2016 to an average yield of 1.40% which had the effect of decreasing interest income $24,000.
$119,000.

39
Interest Expense.  Interest expense increased $134,000,$93,000, or 24.9%15.0%, to $672,000$715,000 for the three months ended SeptemberJune 30, 20162017 from $538,000$622,000 for the three months ended SeptemberJune 30, 2015.2016.  The increase in interest expense was primarily attributable to a $30.4an $18.5 million increase in average interest-bearing liabilities, which increased from an average balance of $150.0$170.5 million for the three months ended SeptemberJune 30, 20152016 to an average balance of $180.4$189.0 million for the three months ended SeptemberJune 30, 2016,2017, and had the effect of increasing interest expense $123,000.$65,000. This increase in average interest-bearing liabilities was primarily attributable to the $26.2a $10.8 million increase in average certificate of deposit accounts which increased from an average balance of $108.0$125.4 million for the three months ended SeptemberJune 30, 20152016 to an average balance of $134.1$136.2 million for the three months ended SeptemberJune 30, 2016,2017, and had the effect of increasing interest expense $112,000.  $46,000. Also contributing to this increase was a sixfive basis point increase in the average rate on interest-bearing liabilities, from 1.43%1.46% for the three months ended SeptemberJune 30, 20152016 to 1.49%1.51% for the three months ended SeptemberJune 30, 2016, which had the effect of increasing interest expense by $11,000.

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 September 30,
 
 2016  2015 
  
Average
Balance
  Interest  
Average
Yield/
Rate
  
Average
Balance
  Interest  
Average
Yield/
Rate
 
Interest-earning assets: (Dollars in thousands) 
  Due from banks, interest-bearing $18,833  $26   0.55% $9,090  $5   0.22%
  Investment in interest-earning time deposits  6,120   32   2.09   6,112   24   1.57 
  Investment securities available for sale  8,547   30   1.40   1,712   11   2.57 
  Loans receivable, net (1) (2) (3)  161,840   2,214   5.47   146,228   2,095   5.73 
  Investment in FHLB stock  633   7   4.42   618   7   4.53 
     Total interest-earning assets  195,973   2,309   4.71%  163,760   2,142   5.23%
Non-interest-earning assets  9,425           7,625         
     Total assets $205,398          $171,385         
Interest-bearing liabilities:                        
   Passbook accounts $1,182  $-   -% $1,360  $1   0.29%
   Savings accounts  2,173   1   0.18   3,498   2   0.23 
   Money market accounts  29,614   60   0.81   23,644   47   0.80 
   Certificate of deposit accounts  134,099   577   1.72   107,981   461   1.71 
      Total deposits  167,068   638   1.53   136,483   511   1.50 
FHLB short-term borrowings  6,000   8   0.53   6,000   5   0.33 
FHLB long-term borrowings  7,294   26   1.43   7,500   22   1.17 
     Total interest-bearing liabilities  180,362   672   1.49%  149,983   538   1.43%
Non-interest-bearing liabilities ��5,038           3,054         
     Total liabilities  185,400           153,037         
Stockholders' Equity  19,998           18,348         
     Total liabilities and Stockholders' Equity $205,398          $171,385         
Net interest-earning assets $15,661          $13,777         
Net interest income; average interest rate spread     $1,637   3.22%     $1,604   3.80%
Net interest margin (4)          3.34%          3.92%
Average interest-earning assets to average interest-bearing liabilities          108.66%          109.19%

__________________________
(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 loan losses.
(3)           Includes tax free municipal leases with an aggregate average balance of $111,000 and an average yield of 4.02% for the three months ended September 30, 2016 and an aggregate average balance of $154,000 and an average yield of 4.01% for the three months ended September 30, 2015.  The tax-exempt income from such loans has not been calculated on a tax equivalent basis.
(4)Equals net interest income divided by average interest-earning assets.
40
Provision for Loan Losses.  The Company's provision for loan losses decreased $10,000, or 14.1%, from $71,000 for the three months ended September 30, 2015 to $61,000 for the three months ended September 30, 2016, based on an evaluation of the allowance relative to such factors as volume of the loan portfolio, concentrations of credit risk, prevailing economic conditions, prior loan loss experience and amount of non-performing loans at September 30, 2016.

Non-performing loans amounted to $1.5 million, or 0.95% of net loans receivable at September 30, 2016, consisting of eleven loans, seven of which are on non-accrual status and four of which are 90 days or more past due and accruing interest. Comparably, non-performing loans amounted to $852,000, or 0.59% of net loans receivable at December 31, 2015, consisting of nine loans, three of which were on non-accrual status and six of which were 90 days or more past due and accruing interest. The non- performing loans at September 30, 2016 include nine one-to-four family non-owner occupied residential loans and two commercial real estate loans, and we believe all are generally well-collateralized or adequately reserved for.  During the quarter ended September 30, 2016, no new loans were placed on non-accrual status. The allowance for loan losses as a percent of total loans receivable was 0.91% at both September 30, 2016 and December 31, 2015.

Other real estate owned, net, amounted to $720,000 at September 30, 2016, consisting of five properties. This compares to seven properties totaling $1.4 million at December 31, 2015.  During the quarter ended September 30, 2016 one property with a carrying value of $790,000 was sold and a loss of $14,000 realized on the transaction, and one property was written-down $40,000. The Company is in the process of marketing the other properties for sale.  Non-performing assets amounted to $2.2 million, or 1.07% of total assets at September 30, 2016 compared to $2.3 million, or 1.23% of total assets at December 31, 2015.

Non-Interest Income.  Non-interest income increased $283,000, or 62.9%, for the three months ended September 30, 2016 over the comparable period in 2015 primarily due to a 174,000, or 48.7% increase in net gain on the sales of residential mortgage loans, a $75,000 decrease on the loss on the sale of investment securities available for sale, a $60,000 increase in insurance commissions earned by Quaint Oak Insurance Agency, a wholly owned insurance subsidiary of Quaint Oak Bank which began operations on August 1, 2016, a $51,000 increase in gain on the sale of SBA loans, a $15,000 increase in mortgage banking and title abstract fees, and a $2,000 increase in other income. These increases were partially offset by a $52,000 increase in the loss on sales and write-downs of other real estate owned and a $42,000 decrease in other fees and service charges.

Non-Interest Expense.  Non-interest expense increased $173,000, or 11.7%, from $1.5 million for the three months ended September 30, 2015 to $1.7 million for the three months ended September 30, 2016.  Salaries and employee benefits expense accounted for $190,000 of the change as this expense increased 20.2%, from $942,000 for the three months ended September 30, 2015 to $1.1 million for the three months ended September 30, 2016 due primarily to increased staff as the Company continues to expand its mortgage banking and lending operations.  Also contributing to the period over period increase was a $15,000 increase in other expense, a $3,000 increase in FDIC deposit insurance assessment, and a $2,000 increase in advertising expense.   Offsetting these increases was a $35,000 decrease in professional fees, a $1,000 decrease in directors' fees and expenses, and a $1,000 decrease in other real estate owned expense. The decrease in professional fees can be attributed primarily to a decrease in legal fees related to loan collections.
Provision for Income Tax.  The provision for income tax increased $61,000, or 32.3%, from $189,000 for the three months ended September 30, 2015 to $250,000 for the three months ended September 30, 2016 due primarily to the increase in pre-tax income as our effective tax rate remained relatively consistent at 38.3% for the 2016 period compared to 37.9% for the comparable period in 2015.
41

Comparison of Operating Results for the Nine Months Ended September 30, 2016 and 2015

General.  Net income amounted to $1.0 million for the nine months ended September 30, 2016, an increase of $150,000, or 16.8%, compared to net income of $893,000 for nine months ended September 30, 2015.  The increase in net income was primarily the result of increases in non-interest income of $434,000 and net interest income of $123,000 and a decrease in the provision for loan losses of $108,000, offset by increases in non-interest expense of $417,000 and the provision for income taxes of $98,000.

Net Interest Income.  Net interest income increased $123,000, or 2.6%, to $4.9 million for the nine months ended September 30, 2016 from $4.7 million for the nine months ended September 30, 2015 due primarily to a$479,000, or 7.6% increase in interest income, partially offset by a $356,000, or 23.5% increase in interest expense. 

Interest Income.  Interest income increased $479,000, or 7.6%, to $6.7 million for the nine months ended September 30, 2016 from $6.3 million for the nine months ended September 30, 2015.  The increase in interest income was primarily due to a $15.9 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $139.6 million for the nine months ended September 30, 2015 to an average balance of $155.5 million for the nine months ended September 30, 2016, and had the effect of increasing interest income $694,000.  Partially offsetting this increase was a 26 basis point decline in the average yield on loans receivable, net, including loans held for sale, from 5.83% for the nine months ended September 30, 2015 to 5.57% for the nine months ended September 30, 2016, which had the effect of decreasing interest income by $303,000.  Also contributing to the increase in interest income for the nine months ended September 30, 2016 was a $10.0 million increase in average funds due from banks, interest-bearing, which increased from an average balance of $8.0 million for the nine months ended September 30, 2015 to an average balance of $18.0 million for the nine months ended September 30, 2016, and had the effect of increasing interest income $17,000.  In addition, the average yield on funds due from banks, interest-bearing, increased 30 basis points from 0.22% for the nine months ended September 30, 2015 to 0.52% for the nine months ended September 30, 2016, which had the effect of increasing interest income by $40,000.  Also contributing to the increase in interest income for the nine months ended September 30, 2016 was a $4.4 million increase in average balance of investment securities available for sale from an average balance of $1.7 million for the nine months ended September 30, 2015 to an average balance of $6.1 million for the nine months ended September 30, 2016, which had the effect of increasing interest income $96,000.  Partially offsetting this increase was a 141 basis point decrease in the average yield on investment securities available for sale from 2.95% for the nine months ended September 30, 2015 to an average yield of 1.54% for the nine months ended September 30, 2016 which had the effect of decreasing interest income $64,000.

Interest Expense.  Interest expense increased $356,000, or 23.5%, to $1.9 million for the nine months ended September 30, 2016 from $1.5 million for the nine months ended September 30, 2015.   The increase in interest expense was primarily attributable to a $27.9 million increase in average interest-bearing liabilities, which increased from an average balance of $143.0 million for the nine months ended September 30, 2015 to an average balance of $170.9 million for the nine months ended September 30, 2016, and had the effect of increasing interest expense $328,000.  This increase in average interest-bearing liabilities was primarily attributable to the $22.9 million increase in average certificate of deposit accounts which increased from an average balance of $102.7 million for the nine months ended September 30, 2015 to an average balance of $125.6 million for the nine months ended September 30, 2016, and had the effect of increasing interest expense $292,000.  Also contributing to this increase was a four basis point increase in the average rate on interest-bearing liabilities, from 1.42% for the nine months ended September 30, 2015 to 1.46% for the nine months ended September 30, 2016,2017, which had the effect of increasing interest expense by $28,000.
 
 
4239
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 June 30, 
 Nine Months Ended September 30,  2017  2016 
 2016  2015  
Average
Balance
  Interest  
Average
Yield/
Rate
  
Average
Balance
  Interest  
Average
Yield/
Rate
 
 
Average
Balance
  Interest  
Average
Yield/
Rate
  
Average
Balance
  Interest  
Average
Yield/
Rate
   (Dollars in thousands) 
Interest-earning assets: (Dollars in thousands)   
Due from banks, interest-bearing $17,994  $70   0.52% $8,000  $13   0.22% $6,697  $17   1.02% $17,470  $20   0.46%
Investment in interest-earning time deposits  6,135   82   1.78   6,411   72   1.50   5,361   20   1.49   6,146   25   1.63 
Investment securities available for sale  6,080   70   1.54   1,716   38   2.95   9,102   36   1.58   5,842   23   1.57 
Loans receivable, net (1) (2) (3)  155,459   6,497   5.57   139,587   6,106   5.83   187,863   2,523   5.37   156,056   2,195   5.63 
Investment in FHLB stock  631   22   4.65   579   33   7.60   797   8   4.02   643   7   4.35 
Total interest-earning assets  186,299   6,741   4.82%  156,293   6,262   5.34%  209,820   2,604   4.96%  186,157   2,270   4.88%
Non-interest-earning assets  8,995           7,246           9,034           8,821         
Total assets $195,294          $163,539          $218,854          $194,978         
Interest-bearing liabilities:                                                
Passbook accounts $1,268  $1   0.11% $1,711  $2   0.16% $721  $*   *% $1,326  $1   0.30%
Savings accounts  2,527   4   0.21   3,911   8   0.27   1,437   1   0.28   2,460   1   0.16 
Money market accounts  28,099   169   0.80   21,998   126   0.76   33,718   67   0.79   27,793   55   0.79 
Certificate of deposit accounts  125,589   1,600   1.70   102,726   1,312   1.70   136,170   586   1.72   125,403   532   1.70 
Total deposits  157,483   1,774   1.50   130,346   1,448   1.48   172,046   654   1.52   156,982   589   1.50 
FHLB short-term borrowings  6,000   24   0.53   6,000   14   0.31   7,750   21   1.08   6,000   8   0.53 
FHLB long-term borrowings  7,434   76   1.36   6,643   56   1.12   9,179   40   1.74   7,511   25   1.33 
Total interest-bearing liabilities  170,917   1,874   1.46%  142,989   1,518   1.42%  188,975   715   1.51%  170,493   622   1.46%
Non-interest-bearing liabilities  4,791           2,558           8,406           4,904         
Total liabilities  175,708           145,547           197,381           175,397         
Stockholders' Equity  19,586           17,992           21,473           19,581         
Total liabilities and Stockholders' Equity $195,294          $163,539          $218,854          $194,978         
Net interest-earning assets $15,382          $13,304          $20,845          $15,664         
Net interest income; average interest rate spread     $4,867   3.36%     $4,744   3.92%     $1,889   3.45%     $1,648   3.42%
Net interest margin (4)          3.48%          4.05%          3.60%          3.54%
Average interest-earning assets to average interest-bearing liabilities Average interest-earning assets to average interest-bearing liabilities         109.00%          109.30%          111.03%          109.19%

_________________________
*Not meaningful.
(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 loan losses.
(3)Includes tax free municipal leases with an aggregate average balance of $73,000 and an average yield of 4.04% for the three months ended June 30, 2017 and an aggregate average balance of $120,000 and an average yield of 4.02% for the three months ended June 30, 2016.  The tax-exempt income from such loans has not been calculated on a tax equivalent basis.
 (4)Equals net interest income divided by average interest-earning assets.

Provision for Loan Losses.  The provision for loan losses decreased $2,000, or 3.0%, from $66,000 for the three months ended June 30, 2016 to $64,000 for the three months ended June 30, 2017.  The decrease was based on an evaluation of the allowance relative to such factors as volume of the loan portfolio, concentrations of credit risk, prevailing economic conditions, prior loan loss experience and amount of non-performing loans at June 30, 2017.

40
    Non-performing loans amounted to $1.7 million, or 0.89%, of net loans receivable at June 30, 2017, consisting of twelve loans, six of which are on non-accrual status and six of which are 90 days or more past due and accruing interest. Comparably, non-performing loans amounted to $1.9 million, or 1.06% of net loans receivable at December 31, 2016, consisting of fourteen loans, seven of which were on non-accrual status and seven of which were 90 days or more past due and accruing interest.  The non-performing loans at June 30, 2017 include seven one-to-four family non-owner occupied residential loans, two one-to-four family owner occupied residential loans, two commercial real estate loans, and one construction loan, and all are generally well-collateralized or adequately reserved for.  During the quarter ended June 30, 2017, no new loans were placed on non-accrual status and three loans previously on non-accrual status were paid-off. The allowance for loan losses as a percent of total loans receivable was 0.89% at June 30, 2017, and 0.90% at December 31, 2016.

Other real estate owned, net amounted to $185,000 at June 30, 2017, consisting of one property.  This compares to three properties totaling $435,000 at December 31, 2016.  During the three months ended June 30, 2017, one property with a carrying value of $148,000 was sold and an $18,000 loss was recognized. The Company is in the process of marketing the remaining property for sale.  Non-performing assets amounted to $1.9 million, or 0.82%, of total assets at June 30, 2017 compared to $2.3 million, or 1.07%, of total assets at December 31, 2016.

Non-Interest Income.  Non-interest income increased $260,000, or 37.1%, from $701,000 for the three months ended June 30, 2016 to $961,000 for the three months ended June 30, 2017 due primarily to a $212,000, or 42.1%, increase in net gain on the sales of residential mortgage loans, $89,000 in insurance commissions earned by Quaint Oak Insurance Agency, a wholly owned insurance subsidiary of Quaint Oak Bank which began operations on August 1, 2016, $16,000 in gain on the sale of SBA loans, and a $6,000, or 42.9%, increase in other non-interest income.  These increases were partially offset by a $47,000, or 235.0%, increase in loss on sales and write-downs of other real estate owned and a $16,000, or 47.1%, decrease in other fees and services charges.

Non-Interest Expense.  Non-interest expense increased $346,000, or 21.1%, from $1.6 million for the three months ended June 30, 2016 to $2.0 million for the three months ended June 30, 2017.  Salaries and employee benefits expense accounted for $238,000 of the change as this expense increased 21.3%, from $1.1 million for the three months ended June 30, 2016 to $1.4 million for the three months ended June 30, 2017 due primarily to increased staff related to the continued expansion of the Company's mortgage banking and lending operations and the launch of Quaint Oak Insurance Agency on August 1, 2016.  Also contributing to the increase was a $48,000, or 41.0%, increase in other non-interest expense, a $44,000 increase, or 104.8%, increase in data processing expense, $12,000 in amortization of other intangible related to the renewal rights of the book of business acquired from Signature Insurance Services, LLC on August 1, 2016, a $9,000, or 30%, increase in advertising expense, and a $7,000, or 19.4%, increase in FDIC insurance assessment, a $19,000, a $6,000, or 4.3%, increase in occupancy and equipment expense.  These increases were partially offset by a $12,000, or 11.3%, decease in professional fees, a $5,000, or 83.3%, decrease in other real estate owned expense, and a $1,000, or 2.0%, decrease in directors' fees and expenses.

Provision for Income Tax.  The provision for income tax increased $35,000, or 14.6%, from $239,000 for the three months ended June 30, 2016 to $274,000 for the three months ended June 30, 2017 due primarily to the increase in pre-tax income. Our effective tax rate decreased from 37.3% for the three months ended June 30, 2016 to 34.3% for the three months ended June 30, 2017 primarily due to a tax deduction taken in the second quarter of 2017 related to the exercise of non-qualified stock options during the three months ended June 30, 2017.
41
Comparison of Operating Results for the Six Months Ended June 30, 2017 and 2016

General.  Net income amounted to $695,000 for the six months ended June 30, 2017, an increase of $54,000, or 8.4%, compared to net income of $641,000 for six months ended June 30, 2016. The increase in net income was primarily the result of increases in net interest income of $480,000 and non-interest income of $176,000, and decreases in the provision for income taxes of $52,000 and the provision for loan losses of $5,000, partially offset by an increase in non-interest expense of $659,000.

Net Interest Income.  Net interest income increased $480,000, or 14.9%, to $3.7 million for the six months ended June 30, 2017 from $3.2 million for the six months ended June 30, 2016 due primarily to a $687,000, or 15.5%, increase in interest income, partially offset by a $207,000, or 17.2%, increase in interest expense.

Interest Income.  Interest income increased $687,000, or 15.5%, to $5.1 million for the six months ended June 30, 2017 from $4.4 million for the six months ended June 30, 2016.  The increase in interest income was primarily due to a $32.6 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $152.2 million for the six months ended June 30, 2016 to an average balance of $184.8 million for the six months ended June 30, 2017, and had the effect of increasing interest income $917,000.  Partially offsetting this increase was a 27 basis point decline in the average yield on loans receivable, net, including loans held for sale, from 5.63% for the six months ended June 30, 2016 to 5.36% for the six months ended June 30, 2017, which had the effect of decreasing interest income by $248,000.

Interest Expense.  Interest expense increased $207,000, or 17.2%, to $1.4 million for the six months ended June 30, 2017 from $1.2 million for the six months ended June 30, 2016.  The increase in interest expense was primarily attributable to a $22.5 million increase in average interest-bearing liabilities, which increased from an average balance of $166.1 million for the six months ended June 30, 2016 to an average balance of $188.6 million for the six months ended June 30, 2017, and had the effect of increasing interest expense $167,000. This increase in average interest-bearing liabilities was primarily attributable to a $15.7 million increase in average certificate of deposit accounts which increased from an average balance of $121.3 million for the six months ended June 30, 2016 to an average balance of $137.0 million for the six months ended June 30, 2017, and had the effect of increasing interest expense $132,000. Also contributing to this increase was a four basis point increase in the average rate on interest-bearing liabilities, from 1.45% for the six months ended June 30, 2016 to 1.49% for the six months ended June 30, 2017, which had the effect of increasing interest expense by $40,000.

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, 
 2017  2016 
  
Average
Balance
  Interest  
Average
Yield/
Rate
  
Average
Balance
  Interest  
Average
Yield/
Rate
 
   (Dollars in thousands) 
Interest-earning assets:  
  Due from banks, interest-bearing $8,453  $40   0.95% $17,634  $44   0.50%
  Investment in interest-earning time deposits  5,712   46   1.61   6,142   50   1.63 
  Investment securities available for sale  9,254   65   1.40   4,833   39   1.61 
  Loans receivable, net (1) (2)  (3)  184,824   4,953   5.36   152,234   4,284   5.63 
  Investment in FHLB stock  755   15   3.97   630   15   4.76 
     Total interest-earning assets  208,998   5,119   4.90%  181,473   4,432   4.88%
Non-interest-earning assets  9,135           8,713         
     Total assets $218,133          $190,186         
Interest-bearing liabilities:                        
   Passbook accounts $817  $1   0.24% $1,311  $1   0.15%
   Savings accounts  1,608   2   0.25   2,706   3   0.22 
   Money market accounts  33,000   131   0.79   27,333   109   0.80 
   Certificate of deposit accounts  136,961   1,168   1.71   121,287   1,023   1.69 
      Total deposits  172,386   1,302   1.51   152,637   1,136   1.49 
FHLB short-term borrowings  7,429   33   0.89   6,000   16   0.53 
FHLB long-term borrowings  8,789   74   1.68   7,505   50   1.33 
     Total interest-bearing liabilities  188,604   1,409   1.49%  166,142   1,202   1.45%
Non-interest-bearing liabilities  8,261           4,661         
     Total liabilities  196,865           170,803         
Stockholders' Equity  21,268           19,383         
     Total liabilities and Stockholders' Equity $218,133          $190,186         
Net interest-earning assets $20,394          $15,331         
Net interest income; average interest rate spread     $3,710   3.41%     $3,230   3.43%
Net interest margin (4)          3.55%          3.56%
Average interest-earning assets to average interest-bearing liabilities          110.81%          109.23%

_______________________
(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 loan losses.
(3)           Includes tax free municipal leases with an aggregate average balance of $104,000 and an average yield of 4.02% for the nine months ended September 30, 2016 and an aggregate average balance of $163,000 and an average yield of 4.06% for the nine months ended September 30, 2015.  The tax-exempt income from such loans has not been calculated on a tax equivalent basis.
(3)Includes tax free municipal leases with an aggregate average balance of $79,000 and an average yield of 4.03% for the six months ended June 30, 2017 and an aggregate average balance of $124,000 and an average yield of 4.02% for the six months ended June 30, 2016.  The tax-exempt income from such loans has not been calculated on a tax equivalent basis.
(4)Equals net interest income divided by average interest-earning assets.


43
Provision for Loan Losses.  The Company decreased its provision for loan losses by $108,000,$5,000, or 38.6%4.5%, from $280,000$111,000 for the ninesix months ended SeptemberJune 30, 20152016 to $172,000$106,000 for the ninesix months ended SeptemberJune 30, 2016.2017.  As was the case for the quarter, the decrease was based on an evaluation of the allowance relative to such factors as volume of the loan portfolio, concentrations of credit risk, prevailing economic conditions, prior loan loss experience and amount of non-performing loans.  See additional discussion under "Comparison of Operating Results for the Three Months Ended SeptemberJune 30, 20162017 and 2015-Provision2016-Provision for Loan Losses."


43
Non-Interest Income.  Non-interest income increased $434,000,$176,000, or 30.1%15.4%, for the ninesix months ended SeptemberJune 30, 20162017 over the comparable period in 20152016 primarily due to a $296,000, or 29.8% increase in net gain on the sales of residential mortgage loans, a $101,000 increase in gain on the sale of SBA loans, a $75,000 increase in mortgage banking and title abstract fees, a $75,000 decrease on the loss on the sale of investment securities available for sale, a $60,000 increase$166,000 in insurance commissions earned by Quaint Oak Insurance Agency, a wholly owned insurance subsidiary of Quaint Oak Bank which began operations on August 1, 2016,  a $9,000$66,000, or 8.7%, increase in other income, andnet gain on the sales of residential mortgage loans, a $1,000 increase$9,000, or 12.5%, decrease in income from bank-owned life insurance. These increases were partially offset by a $122,000 increase in the loss on sales and write-downs of other real estate owned, and a $61,000$6,000, or 26.1%, increase in other non-interest income, partially offset by a $41,000, or 71.9%, decrease in the gain on the sale of SBA loans, a $22,000, or 7.9%, decrease in mortgage banking and title abstract fees, and an $8,000, or 15.4%, decrease in other fees and serviceservices charges.

Non-Interest Expense.  Non-interest expense increased $417,000,$659,000, or 9.3%20.5%, from $4.5$3.2 million for the ninesix months ended SeptemberJune 30, 20152016 to $4.9$3.9 million for the ninesix months ended SeptemberJune 30, 2016.  2017.  Salaries and employee benefits expense accounted for $341,000$481,000 of the change as this expense increased 11.4%22.0%, from $3.0$2.2 million for the ninesix months ended SeptemberJune 30, 20152016 to $3.3$2.7 million for the ninesix months ended SeptemberJune 30, 2016.  As was the case for the quarter, the increase in salaries and employee benefits expense for the 2016 period compared to 2015 was2017 due primarily attributable to increased staff asrelated to the Company continues to expand itscontinued expansion of the Company's mortgage banking and lending operations.operations and the launch of Quaint Oak Insurance Agency on August 1, 2016. Also contributing to the period over period increase was a  $29,000$79,000, or 35.3%, increase in other non-interest expense, a $26,000$48,000, or 56.5%, increase in data processing expense, $24,000 in amortization of other intangible related to the renewal rights of the book of business acquired from Signature Insurance Services, LLC on August 1, 2016, a $20,000, or 7.4%, increase in occupancy and equipment expense, a $15,000$19,000, or 27.9%, increase in FDIC insurance assessment, and a $17,000, or 27.9%, increase in advertising expense.  These increases were partially offset by a $13,000, or 6.6%, decease in professional fees, an $11,000, or 57.9%, decrease in other real estate owned expense, and a $13,000 increase in FDIC deposit insurance assessment, a $2,000 increase$5,000, or 4.7%, decrease in directors' fees and expenses, and a $1,000 increase in advertising expense.   Offsetting these increases was a $10,000 decrease in professional fees.expenses.

Provision for Income Tax.  The provision for income tax increased $98,000,decreased $52,000, or 17.8%13.0%, from $552,000$400,000 for the ninesix months ended SeptemberJune 30, 20152016 to $650,000$348,000 for the ninesix months ended SeptemberJune 30, 20162017 due primarily to the increasedecrease in pre-tax income as our effective tax rate remained consistent atwhich decreased from 38.4% for the six months ended June 30, 2016 period and 38.2%to 33.4% for the comparable period in 2015.six months ended June 30, 2017 primarily due to a tax deduction taken during the six months ended June 30, 2017 related to the exercise of non-qualified stock options during this same period.

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 SeptemberJune 30, 2016,2017, the Company's cash and cash equivalents amounted to $17.7$7.9 million.  At such date, the Company also had $3.1$2.1 million invested in interest-earning time deposits maturing in one year or less.

44
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 SeptemberJune 30, 2016,2017, Quaint Oak Bank had outstanding commitments to originate loans of $15.1$5.9 million and commitments under unused lines of credit of $14.8$15.6 million.

At SeptemberJune 30, 2016,2017, certificates of deposit scheduled to mature in less than one year totaled $40.8$44.3 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.


44
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 SeptemberJune 30, 2016,2017, we had $12.5$25.5 million of borrowings from the FHLB and had $89.4$109.3 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 SeptemberJune 30, 20162017 Quaint Oak Bank had $950,000$745,000 in borrowing capacity with the Federal Reserve Bank of Philadelphia.  There were no borrowings under this facility at SeptemberJune 30, 2016.2017.

Our stockholders' equity amounted to $20.3$21.8 million at SeptemberJune 30, 2016,2017, an increase of $1.3$965,000 million, or 6.6%4.6%, from $19.0$20.8 million at December 31, 2015.2016. Contributing to the increase was net income for the ninesix months ended SeptemberJune 30, 20162017 of $1.0 million,$695,000, the reissuance of treasury stock for exercised stock options of $133,000,$193,000, common stock earned by participants in the employee stock ownership plan of $129,000,$92,000, amortization of stock awards and options under our stock compensation plans of $96,000,$64,000, the reissuance of treasury stock under the Bank's 401(k) Plan of $82,000,$68,000, and a decrease in other comprehensive lossincome of $10,000.$30,000.  These increases were partially offset by dividends paid of $218,000$172,000 and the purchase of 1,097 sharestreasury stock of the Company's stock as part of the Company's stock repurchase program for an aggregate purchase price of $13,000.$5,000.  For further discussion of the stock compensation plans, see Note 1110 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 SeptemberJune 30, 2016,2017, Quaint Oak Bank exceeded each of its capital requirements with ratios of 8.88%8.94%, 13.13%11.73%, 13.13%11.73% and 14.22%12.77%, respectively. As a small savings and loan holding company eligible for exemption, the Company is not currently subject to any regulatory capital requirements.

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.

45
Commitments.  At SeptemberJune 30, 2016,2017, we had unfunded commitments under lines of credit of $14.8$15.6 million and $15.1$5.9 million of commitments to originate loans.  We had no commitments to advance additional amounts pursuant to outstanding lines of credit or undisbursed construction loans.

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.
45


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 SeptemberJune 30, 2016.2017.  Based on their evaluation of the Company's disclosure controls and procedures, the Company's Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures 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.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the thirdsecond fiscal quarter of fiscal 20162017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
 
 
 
 
 
 
 
 
 
 

46
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

Not applicable.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Not applicable.

(b) Not applicable.

(c) Purchases of Equity Securities

The Company's repurchases of its common stock made during the quarter ended SeptemberJune 30, 20162017 are set forth in the table below:

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)
 
July 1, 2016 – July 31, 2016  -  $-   -   39,329 
August 1, 2016 – August 31, 2016  600   11.90   600   38,729 
September 1, 2016 – September 30, 2016  -   -   -   38,729 
Total  600  $11.90   600   38,729 
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)
 
April 1, 2017 – April 30, 2017  -  $-   -   38,729 
May 1, 2017 – May 31, 2017  385  $13.05   385   38,344 
June 1, 2017 – June 30, 2017  -   -   -   38,344 
Total  385  $13.05   385   38,344 

Notes to this table:

(1)On February 21, 2014, the Board of Directors of Quaint Oak Bancorp approved its fourth share repurchase program which provides for the repurchase of up to 69,432 shares (adjusted to reflect the two-for-one stock split), or approximately 2.5% of the Company's then issued and outstanding shares of common stock, and announced the fourth repurchase program on Form 8-K filed on February 26, 2014.  The repurchase program does not have an expiration date.


ITEM 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.


ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.
 
47

ITEM 5.OTHER INFORMATION

Not applicable.



ITEM 6.
EXHIBITS

No.Description
31.1
31.1
Rule 13a-14(d) and 15d-14(d) Certification of the Chief Executive Officer.
31.2
31.2
Rule 13a-14(d) and 15d-14(d) Certification of the Chief Financial Officer.
32.0
32.0
Section 1350 Certification.
101.INSXBRL Instance Document. 
101.SCHXBRL Taxonomy Extension Schema Document. 
101.CALXBRL Taxonomy Extension Calculation Linkbase Document. 
101.LABXBRL Taxonomy Extension Label Linkbase Document. 
101.PREXBRL Taxonomy Extension Presentation Linkbase Document. 
101.DEFXBRL Taxonomy Extension Definitions Linkbase Document. 

 
 
 
 
 
48
SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




 
Date:  November 14, 2016August 11, 2017
 
By:
 
/s/Robert T. Strong
  Robert T. Strong
President and Chief Executive Officer
��
Date:  November 14, 2016August 11, 2017
By:
/s/John J. Augustine
  John J. Augustine
Executive Vice President and
Chief Financial Officer