Quaint Oak Bancorp, Inc. |
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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.
Quaint Oak Bancorp, Inc.
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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.
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.
Quaint Oak Bancorp, Inc.
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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.
Quaint Oak Bancorp, Inc.
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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 | |
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) | | | | |
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 | | | | | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized (Losses) | | | | |
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) | | | | |
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 | |
Quaint Oak Bancorp, Inc. |
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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.
Quaint Oak Bancorp, Inc. |
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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):
| | | | | | | |
| | | (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 | |
| | | | | | |
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 | |
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 | | |
| | | | | Unpaid Principal Balance | | | | | | Average Recorded Investment | | | Interest Income Recognized | | | June 30, 2017 | |
| | | | | | | | | | | | | | | | | | | | Unpaid Principal Balance | | | | | | 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 | |
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 | | |
| | | | | Unpaid Principal Balance | | | | | | Average Recorded Investment | | | Interest Income Recognized | | | December 31, 2016 | |
| | | | | | | | | | | | | | | | | | | | Unpaid Principal Balance | | | | | | 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.
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 | |
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.
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):
| | | | | | |
| | 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 | | | | | | 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 | | | | | | Total | |
For the Three Months Ended September 30, 2016 | | |
For the Three Months Ended June 30, 2017 | | For 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, 2017 | | For 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 evaluated | Ending 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 evaluated | Ending 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.
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):
| | | | | | |
| | 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 | | | | | | 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 | | | | | | Total | |
For the Three Months Ended September 30, 2015 | | |
For the Three Months Ended June 30, 2016 | | For 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, 2016 | | For 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 evaluated | Ending 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.
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):
| | | | | | |
| | 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 | | | | | | 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 | | | | | | 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 evaluated | Ending 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 evaluated | Ending 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.
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):
| | | | | December 31, 2015 | | | | | | 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.
Quaint Oak Bancorp, Inc.
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|
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 | |
| | | | | Greater than 90 Days | | | | | | | | | | | | Loans Receivable > 90 Days and Accruing | | | | | | 90 Days or More Past Due | | | | | | | | | | | | 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 | |
Quaint Oak Bancorp, Inc. |
Notes to Unaudited Consolidated Financial Statements |
Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
| | December 31, 2016 | |
| | | | | 90 Days or More Past Due | | | | | | | | | | | | 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 | |
| | | | | Greater than 90 Days | | | | | | | | | | | | 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.
Quaint Oak Bancorp, Inc.
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|
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):
| | | | | December 31, 2015 | | | | | | 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 | |
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 borrowings | Short-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 | % |
Quaint Oak Bancorp, Inc.
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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.
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 | |
Quaint Oak Bancorp, Inc.
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|
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.
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 | |
Quaint Oak Bancorp, Inc.
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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.
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.
Quaint Oak Bancorp, Inc.
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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: | |
| | | | | 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 | |
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: | |
| | | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Unobservable Inputs (Level 3) | | | | | | 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: | |
| | | | | 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 | |
| | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | |
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. |
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 | |
| | | | | | | | 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 | |
| | | | | | | | 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 | |
| | | | | | | | 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 | | | | - | | | | - | |
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 | |
| | | | | | | | 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.
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.
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.
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.
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.
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.
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.
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.
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. |
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.
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.
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 | % |
_________________________
(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.
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.
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.
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. |
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."
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.
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.
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.
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.
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.
PART II
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.
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.
Not applicable.
| No. | | Description |
| 31.1 | | |
| 31.2 | | |
| 32.0 | | |
| 101.INS | | XBRL Instance Document. | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 101.DEF | | XBRL Taxonomy Extension Definitions Linkbase Document. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 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 |