Company Quick10K Filing
Quick10K
Quaint Oak Bancorp
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-01-30 Earnings, Exhibits
8-K 2019-01-09 Exhibits
8-K 2018-12-27 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-12-12 Regulation FD, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-10-10 Regulation FD, Exhibits
8-K 2018-07-23 Earnings, Exhibits
8-K 2018-07-11 Regulation FD, Exhibits
8-K 2018-05-09 Shareholder Vote, Exhibits
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-04-11 Regulation FD, Exhibits
8-K 2018-01-30 Earnings, Exhibits
8-K 2018-01-10 Regulation FD, Exhibits
MEEC Midwest Energy Emissions
VIVIC Vivic
KTWO K2M Group Holdings
USPB US Premium Beef
VGRBF VGrab
BRTI Blackridge Technology
LIBE Liberated Solutions
ASNT Arias Intel
NXMD Nexeon Medsystems
PTRC Petro River Oil
QNTO 2018-09-30
Item 1. Financial Statements Quaint Oak Bancorp, Inc. Consolidated Balance Sheets (Unaudited)
Note 1 - Financial Statement Presentation and Significant Accounting Policies
Note 2 - Earnings per Share
Note 3 - Accumulated Other Comprehensive Income (Loss)
Note 4 - Investment in Interest-Earning Time Deposits
Note 5 - Investment Securities Available for Sale
Note 6 - Loans Receivable, Net and Allowance for Loan Losses
Note 7 - Goodwill and Other Intangible, Net
Note 8 - Deposits
Note 9 - Borrowings
Note 10 - Stock Compensation Plans
Note 11 - Fair Value Measurements and Fair Values of Financial Instruments
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 exh311.htm
EX-31.2 exh312.htm
EX-32.0 exh320.htm

Quaint Oak Bancorp Earnings 2018-09-30

QNTO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10q.htm FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
 _______________________________
 
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2018
OR
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from
 
to
   
 
Commission file number: 000-52694
 
QUAINT OAK BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Pennsylvania
35-2293957
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
   
 
501 Knowles Avenue, Southampton, Pennsylvania  18966
(Address of Principal Executive Offices)
 
(215) 364-4059
(Registrant's Telephone Number, Including Area Code)
 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
                                                                                                                                                                                                                                                                    [X]  Yes     [   ]  No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                                                                                           
                                                                                                                                                                                      [X]  Yes      [   ]   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer
[   ]
Accelerated filer
[   ]
Non-accelerated filer
[   ]
Emerging growth company
[   ]
Smaller reporting company
[X]
 
               If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   [   ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).         
                                                                                                                                                                                                                [  ] Yes     [X]  No
 
                Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  As of November 8, 2018, 1,986,410 shares of the Registrant's common stock were issued and outstanding.
 
 
 

 
INDEX


PART I - FINANCIAL INFORMATION
Page
 
Item 1 -                Financial Statements
 
 Consolidated Balance Sheets as of September 30, 2018 and December 31, 2018 (Unaudited)
1
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2018 and 2018 (Unaudited)
2
 
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)
3
 
Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2018 (Unaudited)
4
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (Unaudited)
5
 
Notes to Unaudited Consolidated Financial Statements                                                           
6
   
Item 2 -                Management's Discussion and Analysis of Financial Condition and Results of Operations
 36
 
Item 3 -                Quantitative and Qualitative Disclosures About Market Risk                                                                          
48
 
Item 4 -                Controls and Procedures                                                                                     
48
 
PART II - OTHER INFORMATION
 
Item 1 -                Legal Proceedings                                                                                                                   
49
 
Item 1A -             Risk Factors     
49
 
Item 2 -                Unregistered Sales of Equity Securities and Use of Proceeds
49
 
Item 3 -                Defaults Upon Senior Securities                                                                                                              
49
 
Item 4 -                Mine Safety Disclosures                                                                                              
49
 
Item 5 -                Other Information                                                                                                         
50
 
Item 6 -                Exhibits                                                                                                         
50
 
SIGNATURES
 
 
 

 
ITEM 1. FINANCIAL STATEMENTS
 
 
 Quaint Oak Bancorp, Inc.
Consolidated Balance Sheets (Unaudited)
 
     
At September 30,
   
At December 31,
 
     
2018
   
2017
 
     
(In thousands, except share data)
 
Assets
       
Due from banks, non-interest-bearing
   
$
468
   
$
64
 
Due from banks, interest-bearing
     
13,092
     
7,846
 
Cash and cash equivalents
     
13,560
     
7,910
 
Investment in interest-earning time deposits
     
4,927
     
4,879
 
Investment securities available for sale
     
6,950
     
7,912
 
Loans held for sale
     
7,433
     
7,006
 
Loans receivable, net of allowance for loan losses
   (2018 $1,898; 2017 $1,812)  
             
Accrued interest receivable
     
1,117
     
1,021
 
Investment in Federal Home Loan Bank stock, at cost 
   
1,086
     
1,234
 
Bank-owned life insurance
     
3,874
     
3,814
 
Premises and equipment, net
     
2,097
     
1,988
 
Goodwill
     
515
     
515
 
Other intangible, net of accumulated amortization
     
380
     
416
 
Other real estate owned, net
     
1,600
     
-
 
Prepaid expenses and other assets
     
1,436
     
1,234
 
Total Assets
   
$
258,955
   
$
239,596
 
   
Liabilities and Stockholders' Equity
 
Liabilities
                 
Deposits:
                 
Non-interest bearing
   
$
15,624
   
$
7,956
 
Interest-bearing
     
193,375
     
178,265
 
Total deposits
     
208,999
     
186,221
 
Federal Home Loan Bank short-term borrowings
     
9,000
     
10,000
 
Federal Home Loan Bank long-term borrowings
     
15,000
     
18,000
 
Accrued interest payable
     
183
     
167
 
Advances from borrowers for taxes and insurance
     
1,811
     
2,423
 
Accrued expenses and other liabilities
     
412
     
600
 
Total Liabilities
     
235,405
     
217,411
 
                     
Stockholders' Equity
                 
Preferred stock – $0.01 par value, 1,000,000 shares
   authorized; none issued or outstanding
     
-
     
-
 
Common stock – $0.01 par value; 9,000,000 shares
                 
authorized; 2,777,250 issued; 1,991,623 and
1,920,024 outstanding at September 30, 2018
 and December 31, 2017, respectively
     
28
     
28
 
Additional paid-in capital
     
14,604
     
14,481
 
Treasury stock, at cost: 2018 785,627 shares; 2017
    857,226 shares  
 
(4,621
)
   
(4,675
)
Unallocated common stock held by:
                 
Employee Stock Ownership Plan (ESOP)
     
(202
)
   
(253
)
Recognition & Retention Plan Trust (RRP)
     
-
     
(24
)
Accumulated other comprehensive loss
     
(11
)
   
(15
)
Retained earnings
     
13,752
     
12,643
 
Total Stockholders' Equity
     
23,550
     
22,185
 
Total Liabilities and Stockholders' Equity
   
$
258,955
   
$
239,596
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
1

 Quaint Oak Bancorp, Inc.
Consolidated Statements of Income (Unaudited)
 
 
    
For the Three
Months Ended
   
For the Nine
Months Ended
 
    
September 30,
   
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
   
(In thousands, except share data)
 
Interest Income
     
  Interest and fees on loans
 
$
2,932
   
$
2,577
   
$
8,490
   
$
7,530
 
  Interest and dividends on investment securities and interest-bearing deposits with others
   
181
     
96
     
457
     
262
 
Total Interest Income
   
3,113
     
2,673
     
8,947
     
7,792
 
                                 
Interest Expense
                               
  Interest on deposits
   
856
     
685
     
2,384
     
1,987
 
  Interest on Federal Home Loan Bank short-term borrowings
   
57
     
32
     
142
     
68
 
  Interest on Federal Home Loan Bank long-term borrowings
   
88
     
68
     
270
     
139
 
Total Interest Expense
   
1,001
     
785
     
2,796
     
2,194
 
                                 
Net Interest Income
   
2,112
     
1,888
     
6,151
     
5,598
 
                                 
Provision for Loan Losses
   
183
     
83
     
348
     
189
 
                                 
Net Interest Income after Provision for Loan Losses
   
1,929
     
1,805
     
5,803
     
5,409
 
                                 
Non-Interest Income
                               
  Mortgage banking and title abstract fees
   
273
     
229
     
600
     
487
 
  Other fees and services charges
   
32
     
5
     
150
     
49
 
  Insurance commissions
   
101
     
90
     
283
     
256
 
  Income from bank-owned life insurance
   
19
     
21
     
60
     
65
 
  Net gain on loans held for sale
   
673
     
687
     
1,579
     
1,511
 
  Gain on sale of SBA loans
   
82
     
32
     
105
     
48
 
  Gain (loss) on sales and write-downs of other real estate owned
   
-
     
-
     
63
     
(63
)
  Other
   
41
     
32
     
143
     
61
 
Total Non-Interest Income
   
1,221
     
1,096
     
2,983
     
2,414
 
                                 
Non-Interest Expense
                               
  Salaries and employee benefits
   
1,569
     
1,324
     
4,858
     
3,994
 
  Directors' fees and expenses
   
54
     
52
     
148
     
154
 
  Occupancy and equipment
   
150
     
137
     
446
     
427
 
  Data processing
   
108
     
86
     
287
     
219
 
  Professional fees
   
108
     
105
     
291
     
289
 
  FDIC deposit insurance assessment
   
47
     
44
     
140
     
131
 
  Other real estate owned expense
   
8
     
4
     
10
     
12
 
  Advertising
   
53
     
39
     
161
     
117
 
  Amortization of other intangible
   
12
     
13
     
36
     
37
 
  Other
   
166
     
144
     
486
     
447
 
Total Non-Interest Expense
   
2,275
     
1,948
     
6,863
     
5,827
 
                                 
Income before Income Taxes
   
875
     
953
     
1,923
     
1,996
 
Income Taxes
   
217
     
358
     
442
     
706
 
Net Income
 
$
658
   
$
595
   
$
1,481
   
$
1,290
 
                                 
 Earnings per share - basic
 
$
0.34
   
$
0.32
   
$
0.77
   
$
0.69
 
 Average shares outstanding - basic
   
1,945,553
     
1,868,969
     
1,916,817
     
1,857,682
 
 Earnings per share - diluted
 
$
0.33
   
$
0.30
   
$
0.75
   
$
0.65
 
 Average shares outstanding - diluted
   
2,016,537
     
2,007,819
     
1,978,517
     
1,998,138
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
2

 Quaint Oak Bancorp, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
 
 
   
For the Three
Months Ended
   
For the Nine
Months Ended
 
   
September 30,
   
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
   
(In thousands)   
 
Net Income
 
$
658
   
$
595
   
$
1,481
   
$
1,290
 
                                 
Other Comprehensive Income  (Loss):
                               
Unrealized gains (losses) on investment securities available-for-sale
   
(9
)
   
11
     
5
     
56
 
            Income tax effect
   
2
     
(4
)
   
(1
)
   
(19
)
                                 
Other comprehensive income (loss)
   
(7
)
   
7
     
4
     
37
 
                                 
Total Comprehensive Income
 
$
651
   
$
602
   
$
1,485
   
$
1,327
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
3


 Quaint Oak Bancorp, Inc.
Consolidated Statements of Stockholders' Equity (Unaudited)
 
 
For the Nine Months Ended September 30, 2018
                                   
                      Unallocated                     
       Common Stock                   Common     Accumulated               
     Number of           Additional             Stock Held      Other           Total   
     Shares            Paid-in     Treasury       by Benefit      Comprehensive     Retained       Stockholders'  
     Outstanding     Amount       Capital      Stock      Plans      Loss      Earnings      Equity  
   
(In thousands, except share data)
 
BALANCE –DECEMBER 31, 2017
   
1,920,024
   
$
28
   
$
14,481
   
$
(4,675
)
 
$
(277
)
 
$
(15
)
 
$
12,643
   
$
22,185
 
                                                                 
Common stock allocated by
     ESOP (10,821 shares)
                   
94
             
51
                     
145
 
                                                                 
Treasury stock  purchase
   
(44,311
)
                   
(588
)
   
2
                     
(586
)
                                                                 
Reissuance of treasury stock
under 401(k) Plan
   
4,069
             
31
     
23
                             
54
 
                                                                 
Reissuance of treasury stock
 under stock incentive plan
   
4,997
             
(28
)
   
28
                             
-
 
                                                                 
Reissuance of treasury stock
     for exercised stock options
   
106,844
             
(57
)
   
591
                             
534
 
                                                                 
Stock based compensation expense
                   
105
                                     
105
 
                                                                 
Release of 4,664 vested RRP shares 
                 
(22
)
           
22
                     
-
 
                                                                 
Cash dividends declared ($0.19 per share) 
                                                 
(372
)
   
(372
)
                                                                 
Net income
                                                   
1,481
     
1,481
 
                                                                 
Other comprehensive income,  net
                                           
4
             
4
 
                                                                 
BALANCE –SEPTEMBER 30,  2018
   
1,991,623
   
$
28
   
$
14,604
   
$
(4,621
)
 
$
(202
)
 
$
(11
)
 
$
13,752
   
$
23,550
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
4


 Quaint Oak Bancorp, Inc.
Consolidated Statements of Cash Flows (Unaudited)
 
 
   
For the Nine Months
Ended September 30,
 
   
2018
   
2017
 
   
(In Thousands)
 
Cash Flows from Operating Activities
     
Net income
 
$
1,481
   
$
1,290
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
   
348
     
189
 
Depreciation expense
   
153
     
121
 
              Amortization of intangibles
   
36
     
37
 
              Net amortization of securities premiums
   
15
     
15
 
              Accretion of deferred loan fees and costs, net
   
(269
)
   
(253
)
              Stock-based compensation expense
   
250
     
235
 
Net gain on loans held for sale
   
(1,579
)
   
(1,511
)
Loans held for sale-originations
   
(80,537
)
   
(62,106
)
Loans held for sale-proceeds
   
81,689
     
61,856
 
Gain on the sale of SBA loans
   
(105
)
   
(48
)
Net (gain) loss on sale and write-downs of other real estate owned
   
(63
)
   
63
 
Increase in the cash surrender value of bank-owned life insurance
   
(60
)
   
(65
)
Changes in assets and liabilities which provided (used) cash:
               
Accrued interest receivable
   
(96
)
   
(63
)
Prepaid expenses and other assets
   
(203
)
   
(243
)
Accrued interest payable
   
16
     
5
 
Accrued expenses and other liabilities
   
(188
)
   
(152
)
Net Cash Provided by (Used in) Operating Activities
   
888
     
(630
)
Cash Flows from Investing Activities
               
Purchase of interest-earning time deposits
   
(809
)
   
(1,630
)
Redemption of interest-earning time deposits
   
761
     
2,849
 
Principal repayments of investment securities available for sale
   
952
     
1,162
 
Net increase in loans receivable
   
(13,828
)
   
(16,852
)
Redemption (purchase) of Federal Home Loan Bank stock
   
148
     
(421
)
Proceeds from the sale of other real estate owned
   
63
     
210
 
Capitalized expenditures on other real estate owned
   
(59
)
   
(23
)
Purchase of premises and equipment
   
(262
)
   
(364
)
Net Cash Used in Investing Activities
   
(13,034
)
   
(15,069
)
Cash Flows from Financing Activities
               
Net increase in demand deposits, money markets, and savings accounts
   
5,878
     
43
 
Net increase in certificate accounts
   
16,900
     
5,348
 
Decrease in advances from borrowers for taxes and insurance
   
(612
)
   
(429
)
Net (repayments) proceeds from Federal Home Loan Bank short-term borrowings
   
(1,000
)
   
4,500
 
Proceeds from Federal Home Loan Bank long-term borrowings
   
-
     
8,000
 
Repayment of Federal Home Loan Bank long-term borrowings
   
(3,000
)
   
(2,500
)
Dividends paid
   
(372
)
   
(269
)
Purchase of treasury stock
   
(586
)
   
(341
)
Proceeds from the reissuance of treasury stock
   
54
     
83
 
Proceeds from the exercise of stock options
   
534
     
193
 
Net Cash Provided by Financing Activities
   
17,796
     
14,628
 
Net Increase (Decrease)  in Cash and Cash Equivalents
   
5,650
     
(1,071
)
Cash and Cash Equivalents – Beginning of Year
   
7,910
     
9,300
 
Cash and Cash Equivalents – End of Year
 
$
13,560
   
$
8,229
 
                 
Cash payments for interest
 
$
2,780
   
$
2,189
 
Cash payments for income taxes
 
$
321
   
$
789
 
Transfer of loans to other real estate owned
 
$
1,541
   
$
-
 
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
5

 Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies
Basis of Financial Presentation.   The consolidated financial statements include the accounts of Quaint Oak Bancorp, Inc., a Pennsylvania chartered corporation (the "Company" or "Quaint Oak Bancorp") and its wholly owned subsidiary, Quaint Oak Bank, a Pennsylvania chartered stock savings bank, along with its wholly owned subsidiaries.  At September 30, 2018, the Bank has five wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, and Quaint Oak Insurance Agency, LLC, each a Pennsylvania limited liability company.  The mortgage, real estate and abstract companies offer mortgage banking, real estate sales and title abstract services, respectively, in the Lehigh Valley region of Pennsylvania, and began operation in July 2009.  QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure.  Quaint Oak Insurance Agency, LLC began operations in August 2016 and provides a broad range of personal and commercial insurance coverage solutions. All significant intercompany balances and transactions have been eliminated.
The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation.  Pursuant to the Bank's election under Section 10(l) of the Home Owners' Loan Act, the Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System.  The market area served by the Bank is principally Bucks County, Pennsylvania and to a lesser extent, Montgomery and Philadelphia Counties in Pennsylvania.  The Bank has two locations: the main office location in Southampton, Pennsylvania and a regional banking office in the Lehigh Valley area of Pennsylvania. The principal deposit products offered by the Bank are certificates of deposit, money market accounts, non-interest bearing checking accounts for businesses and consumers, and savings accounts.  The principal loan products offered by the Bank are fixed and adjustable rate residential and commercial mortgages, construction loans, commercial business loans, home equity loans, and lines of credit.
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) for interim information and with the instructions to Form 10-Q, as applicable to a smaller reporting company.  Accordingly, they do not include all the information and footnotes required by US GAAP for complete financial statements.
The foregoing consolidated financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof.  The balances as of December 31, 2017 have been derived from the audited financial statements.  These financial statements should be read in conjunction with the financial statements and notes thereto included in Quaint Oak Bancorp's 2017 Annual Report on Form 10-K.  The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.
Use of Estimates in the Preparation of Financial Statements. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates.  The Company's most significant estimates are the determination of the allowance for loan losses and the valuation of deferred tax assets.
 
 
 
 
 
6

 Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)
Loans Receivable.  Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees and costs.  Interest income is accrued on the unpaid principal balance.  Loan origination fees and costs are deferred and recognized as an adjustment of the yield (interest income) of the related loans.  The Bank is generally amortizing these amounts over the contractual life of the loan.
The loans receivable portfolio is segmented into residential loans, commercial real estate loans, construction loans and consumer loans.  The residential loan segment has two classes: one-to-four family residential owner occupied loans and one-to-four residential family non-owner occupied loans.  The commercial real estate loan segment consists of the following classes: multi-family (five or more) residential, commercial real estate and commercial lines of credit.  Construction loans are generally granted for the purpose of building a single residential home.  Commercial business loans are loans to businesses for working capital, purchase of a business, tenant improvements, receivables, purchase of inventory, and for the purchase of business essential equipment.  Business essential equipment is equipment necessary for a business to support or assist with the day-to-day operation or profitability of the business.   The consumer loan segment consists of the following classes: home equity loans and other consumer loans.  Included in the home equity class are home equity loans and home equity lines of credit.  Included in the other consumer are loans secured by saving accounts.
The accrual of interest is generally discontinued when principal or interest has become 90 days past due unless the loan is in the process of collection and is either guaranteed or well secured.  When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses.  Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectability of principal.  Generally, a loan is restored to accrual status when the obligation is brought current, it has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
Allowance for Loan Losses.  The allowance for loan losses represents management's estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans receivable. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
 
 
 
 
7

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

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

For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
 
 
8

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

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

Loans Held for SaleLoans originated by the Bank's mortgage banking subsidiary, Quaint Oak Mortgage, LLC, are intended for sale in the secondary market and are carried at the lower of cost or fair value (LOCOM). Gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income, and direct loan origination costs, commissions and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.  To a lesser extent, the Bank originates equipment loans for sale primarily to other financial institutions.

Federal Home Loan Bank StockFederal law requires a member institution of the Federal Home Loan Bank (FHLB) system to hold restricted stock of its district Federal Home Loan Bank according to a predetermined formula.  FHLB stock is carried at cost and evaluated for impairment. When evaluating FHLB stock for impairment, its value is determined based on the ultimate recoverability of the par value of the stock. We evaluate our holdings of FHLB stock for impairment each reporting period. No impairment charges were recognized on FHLB stock during the three or nine months ended September 30, 2018 and 2017.

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

Intangible Assets.   Intangible assets on the consolidated balance sheets represent the acquisition by Quaint Oak Insurance Agency of the renewal rights to the book of business produced and serviced by Signature Insurance Services, LLC on August 1, 2016 at a total cost of $1.0 million. Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed an other intangible asset.  The renewal rights are being amortized over a ten year period based upon the annual retention rate of the book of business.
 

9

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

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

Other Real Estate Owned, Net. Other real estate owned or foreclosed assets are comprised of property acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure and loans classified as in-substance foreclosures.  A loan is classified as in-substance foreclosure when the Bank has taken possession of the collateral regardless of whether formal foreclosure proceedings take place.  Other real estate properties are initially recorded at fair value, net of estimated selling costs at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value less estimated costs to sell.  Net revenue and expenses from operations and additions to the valuation allowance are included in other expenses.  The Company had two one-to-four family residential properties for which foreclosure proceedings are in process at September 30, 2018.  The total investment in these two properties is $182,000.

Share-Based Compensation.  Compensation expense for share-based compensation awards is based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.
At September 30, 2018, the Company has outstanding equity awards under two share-based plans: the 2013 Stock Incentive Plan and the 2018 Stock Incentive Plan.  Awards under these plans were made in May 2013 and 2018.  These plans are more fully described in Note 10.
The Company also has an employee stock ownership plan ("ESOP").  This plan is more fully described in Note 10.  As ESOP shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares over the period earned.
Comprehensive Income. Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income.  Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the consolidated balance sheet and  along with net income, are components of comprehensive income.
Earnings per Share.  Amounts reported in earnings per share reflect earnings available to common stockholders' for the period divided by the weighted average number of shares of common stock outstanding during the period, exclusive of undeserved ESOP shares, unvested restricted stock (RRP) shares and treasury shares.  Stock options and unvested restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would have a dilutive effect if converted to common stock, computed using the "treasury stock" method.
Revenue from Contracts with Customers.   The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" ("Topic 606"). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.
 
10

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

The Company's primary sources of revenue are derived from interest and dividends earned on loans and investment securities, gains on the sale of loans, income from bank-owned life insurance, and other financial instruments that are not within the scope of Topic 606.  The main types of non-interest income within the scope of the standard are as follows:
Service Charges on Deposits: The Bank has contracts with its commercial checking deposit customers where fees are charged if the account balance falls below predetermined levels defined as compensating balances. These agreements can be cancelled at any time by either the Bank or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Bank has an unconditional right to the fee consideration. The Bank also has transaction fees related to specific transactions or activities resulting from customer request or activity that include overdraft fees, wire fees, and other transaction fees. All of these fees are attributable to specific performance obligations of the Bank where the revenue is recognized at a defined point in time, completion of the requested service/transaction.
Insurance CommissionsInsurance income generally consist of commissions from the sale of insurance policies and performance-based commissions from insurance companies.  The Bank recognizes commission income from the sale of insurance policies when it acts as an agent between the insurance carrier and policyholder, arranging for the insurance carrier to provide policies to policyholders, and acts on behalf of the insurance carrier by providing customer service to the policyholder during the policy period. Commission income is recognized over time, using the output method of time elapsed, which corresponds with the underlying insurance policy period, for which the Bank is obligated to perform under contract with the insurance carrier. Commission income is variable, as it is comprised of a certain percentage of the underlying policy premium. The Bank estimates the variable consideration based upon the "most likely amount" method, and does not expect or anticipate a significant reversal of revenue in future periods, based upon historical experience.  Payment is due from the insurance carrier for commission income once the insurance policy has been sold. The Bank has elected to apply a practical expedient related to capitalizable costs, which are the commissions paid to insurance producers, and will expense these commissions paid to insurance producers as incurred, as these costs are related to the commission income and would have been amortized within one year or less if they had been capitalized, the same period over which the commission income was earned. Performance-based commissions from insurance companies are recognized at a point in time, when received, and no contingencies remain.

Recent Accounting Pronouncements.  In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.
 
 
11

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

The Bank has adopted this standard effective January 1, 2018.  On a prospective basis, the Bank implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 11 to the financial statements.  The Bank estimated the fair value based on guidance from ASC 820-10, Fair Value Measurements, which defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is no active observable market for sale information on community bank loans and, thus, Level III fair value procedures were utilized, primarily in the use of present value techniques incorporating assumptions that market participants would use in estimating fair values. In the absence of reliable market information, the Bank used its own assumptions in an effort to determine a reasonable estimate of fair value.

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

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

12

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

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

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

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840.  An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease.  The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02.  This Update is not expected to have a significant impact on the Company's financial statements

In July 2018, the FASB issued ASU 2018-09, Codification Improvements, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance of this ASU. However, many of the amendments in this ASU do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. This Update is not expected to have a significant impact on the Company's financial statements.
 
 
 
 
13

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

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. This Update is not expected to have a significant impact on the Company's financial statements.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. This Update provides another transition method which allows entities to initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities that elect this approach should report comparative periods in accordance with ASC 840, Leases.  In addition, this Update provides a practical expedient under which lessors may elect, by class of underlying assets, to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both (a) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (b) the lease component, if accounted for separately, would be classified as an operating lease. If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with ASC 606, Revenue from Contracts with Customers. Otherwise, the entity should account for the combined component as an operating lease in accordance with ASC 842. If a lessor elects the practical expedient, certain disclosures are required. This Update is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted.  For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.  This Update is not expected to have a significant impact on the Company's financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements.  The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  This Update is not expected to have a significant impact on the Company's financial statements.

Reclassifications.   Certain items in the 2017 consolidated financial statements have been reclassified to conform to the presentation in the 2018 consolidated financial statements. Such reclassifications did not have a material impact on the presentation of the overall financial statements.  The reclassifications had no effect on net income or stockholders' equity.
 
 
 
 
14

 Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 2 – Earnings Per Share

Earnings per share ("EPS") consists of two separate components, basic EPS and diluted EPS.  Basic EPS is computed based on the weighted average number of shares of common stock outstanding for each period presented.  Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents ("CSEs").  CSEs consist of shares that are assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested restricted stock (RRP) shares. Common stock equivalents which are considered antidilutive are not included for the purposes of this calculation. For the three and nine months ended September 30, 2018 and 2017, all unvested restricted stock program awards and outstanding stock options representing shares were dilutive.

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

   
For the Three Months Ended
 September 30,
   
For the Nine Months Ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Net Income
 
$
658,000
   
$
595,000
   
$
1,481,000
   
$
1,290,000
 
                                 
Weighted average shares outstanding – basic
   
1,945,553
     
1,868,969
     
1,916,817
     
1,857,682
 
Effect of dilutive common stock equivalents
   
70,984
     
138,850
     
61,700
     
140,456
 
Adjusted weighted average shares outstanding – diluted
   
2,016,537
     
2,007,819
     
1,978,517
     
1,998,138
 
                                 
Basic earnings per share
 
$
0.34
   
$
0.32
   
$
0.77
   
$
0.69
 
Diluted earnings per share
 
$
0.33
   
$
0.30
   
$
0.75
   
$
0.65
 

Note 3 – Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and nine months ended September 30, 2018 and 2017 (in thousands):

   
Unrealized Gains (Losses) on Investment Securities Available for Sale (1)
 
   
For the Three Months Ended
 September 30,
   
For the Nine Months Ended
 September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Balance at the beginning of the period
 
$
(4
)
 
$
(8
)
 
$
(15
)
 
$
(38
)
Other comprehensive income (loss) before classifications
   
(7
)
   
7
     
4
     
37
 
Amount reclassified from accumulated other comprehensive income (loss)
   
-
     
-
     
-
     
-
 
Total other comprehensive income (loss)
   
(7
)
   
7
     
4
     
37
 
Balance at the end of the period
 
$
(11
)
 
$
(1
)
 
$
(11
)
 
$
(1
)
_______________
(1)          All amounts are net of tax.  Amounts in parentheses indicate debits.


 
 
 
 
 
 
 
 
 
15

 Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 4 – Investment in Interest-Earning Time Deposits
The investment in interest-earning time deposits as of September 30, 2018 and December 31, 2017, by contractual maturity, are shown below (in thousands):

   
September 30,
2018
   
December 31,
2017
 
     Due in one year or less
 
$
1,604
   
$
761
 
     Due after one year through five years
   
3,323
     
4,118
 
Total
 
$
4,927
   
$
4,879
 

Note 5 – Investment Securities Available for Sale
The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale at September 30, 2018 and December 31, 2017 are summarized below (in thousands): 

   
September 30, 2018
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
 Unrealized
(Losses)
   
Fair Value
 
    Available for Sale:
                       
   Mortgage-backed securities:
                       
      Governmental National Mortgage Association securities
 
$
5,002
   
$
29
   
$
(1
)
 
$
5,030
 
      Federal Home Loan Mortgage Corporation securities
   
1,208
     
-
     
(36
)
   
1,172
 
          Federal National Mortgage Association securities
   
394
     
-
     
(1
)
   
393
 
             Total mortgage-backed securities
   
6,604
     
29
     
(38
)
   
6,595
 
      Debt securities:
                               
          U.S. government agency
   
360
     
-
     
(5
)
   
355
 
             Total available-for-sale-securities
 
$
6,964
   
$
29
   
$
(43
)
 
$
6,950
 

   
December 31, 2017
 
   
Amortized
Cost
   
Gross
Unrealized
 Gains
   
Gross
Unrealized
 (Losses)
   
Fair Value
 
    Available for Sale:
                       
   Mortgage-backed securities:
                       
      Governmental National Mortgage Association securities
 
$
5,624
   
$
19
   
$
-
   
$
5,643
 
      Federal Home Loan Mortgage Corporation securities
   
1,377
     
-
     
(35
)
   
1,342
 
          Federal National Mortgage Association securities
   
570
     
-
     
-
     
570
 
             Total mortgage-backed securities
   
7,571
     
19
     
(35
)
   
7,555
 
      Debt securities:
                               
          U.S. government agency
   
360
     
-
     
(3
)
   
357
 
             Total available-for-sale-securities
 
$
7,931
   
$
19
   
$
(38
)
 
$
7,912
 

The amortized cost and fair value of debt securities at September 30, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):
   
Available for Sale
 
   
Amortized Cost
   
Fair Value
 
Debt securities
           
     Due after one year through five years
 
$
360
   
$
355
 
     Due after ten years
   
6,604
     
6,595
 
Total
 
$
6,964
   
$
6,950
 
 
 
 
16

 
 Quaint Oak Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 5 – Investment Securities Available for Sale (Continued)

The following tables show the Company's gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2018  and December 31, 2017 (in thousands):

 
 
September 30, 2018
 
         
Less than Twelve Months
   
Twelve Months or Greater
   
Total
 
 
 
Number of
Securities
   
Fair Value
   
Gross
Unrealized
Losses
   
Fair Value
   
Gross
Unrealized
Losses
   
Fair Value
   
Gross
Unrealized
Losses
 
Governmental National Mortgage Association mortgage-backed securities
   
2
   
$
646
   
$
(1
)
 
$
-
   
$
-
   
$
646
   
$
(1
)
Federal Home Loan Mortgage Corporation mortgage-backed securities
   
2
     
-
     
-
     
1,172
     
(36
)
   
1,172
     
(36
)
Federal National Mortgage Association securities 
 
1
     
393
     
(1
)
   
-
     
-
     
393
     
(1
)
Debt securities, U.S. government agency
   
1
     
-
     
-
     
355
     
(5
)
   
355
     
(5
)
        Total
   
6
   
$
1,039
   
$
(2
)
 
$
1,527
   
$
(41
)
 
$
2,566
   
$
(43
)


 
 
December 31, 2017
 
         
Less than Twelve Months
   
Twelve Months or Greater
   
Total
 
 
 
Number of
Securities
   
Fair Value
   
Gross
Unrealized
Losses
   
Fair Value
   
Gross
Unrealized
Losses
   
Fair Value
   
Gross
Unrealized
Losses
 
Federal Home Loan Mortgage Corporation mortgage-backed securities
   
2
   
$
-
   
$
-
   
$
1,342
   
$
(35
)
 
$
1,342
   
$
(35
)
Debt securities, U.S. government agency
   
1
     
-
     
-
     
357
     
(3
)
   
357
     
(3
)
        Total
   
3
   
$
-
   
$
-
   
$
1,699
   
$
(38
)
 
$
1,699
   
$
(38
)


At September 30, 2018, there were six securities in an unrealized loss position that at such date had an aggregate depreciation of 1.67% from the Company's amortized cost basis. Management believes that the estimated fair value of the securities disclosed above is primarily dependent on the movement of market interest rates.  Management evaluated the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer.  The Company has the ability and intent to hold the securities until the anticipated recovery of fair value occurs. Management does not believe any individual unrealized loss as of September 30, 2018 represents an other-than-temporary impairment. There were no impairment charges recognized during the three and nine months ended September 30, 2018 or 2017.
 
 
 
 
17

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

The composition of net loans receivable is as follows (in thousands):
   
September 30,
2018
   
December 31,
2017
 
Real estate loans:
           
One-to-four family residential:
           
Owner occupied
 
$
6,773
   
$
5,681
 
Non-owner occupied
   
46,907
     
51,833
 
Total one-to-four family residential
   
53,680
     
57,514
 
Multi-family (five or more) residential
   
24,774
     
21,715
 
Commercial real estate
   
102,352
     
92,234
 
Construction
   
10,798
     
15,632
 
Home equity
   
4,485
     
5,129
 
Total real estate loans
   
196,089
     
192,224
 
                 
Commercial business
   
20,527
     
11,954
 
Other consumer
   
119
     
138
 
Total Loans
   
216,735
     
204,316
 
                 
Deferred loan fees and costs
   
(857
)
   
(837
)
Allowance for loan losses
   
(1,898
)
   
(1,812
)
Net Loans
 
$
213,980
   
$
201,667
 

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of September 30, 2018 and December 31, 2017 (in thousands): 

   
September 30, 2018
 
   
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
One-to-four family residential owner occupied
 
$
6,356
   
$
-
   
$
417
   
$
-
   
$
6,773
 
One-to-four family residential non-owner occupied
   
46,598
     
309
     
-
     
-
     
46,907
 
Multi-family residential
   
24,774
     
-
     
-
     
-
     
24,774
 
Commercial real estate
   
100,789
     
1,563
     
-
     
-
     
102,352
 
Construction
   
10,798
     
-
     
-
     
-
     
10,798
 
Home equity
   
4,485
     
-
     
-
     
-
     
4,485
 
Commercial business
   
20,022
     
80
     
425
     
-
     
20,527
 
Other consumer
   
119
     
-
     
-
     
-
     
119
 
Total
 
$
213,941
   
$
1,952
   
$
842
   
$
-
   
$
216,735
 
 
 
 
 
 
 
 
 
18

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

   
December 31, 2017
 
   
Pass
   
Special
 Mention
   
Substandard
   
Doubtful
   
Total
 
One-to-four family residential owner occupied
 
$
5,258
   
$
423
   
$
-
   
$
-
   
$
5,681
 
One-to-four family residential non-owner occupied
   
51,372
     
29
     
432
     
-
     
51,833
 
Multi-family residential
   
21,715
     
-
     
-
     
-
     
21,715
 
Commercial real estate
   
91,549
     
399
     
286
     
-
     
92,234
 
Construction
   
13,563
     
-
     
2,069
     
-
     
15,632
 
Home equity
   
5,129
     
-
     
-
     
-
     
5,129
 
Commercial business
   
11,419
     
535
     
-
     
-
     
11,954
 
Other consumer
   
138
     
-
     
-
     
-
     
138
 
Total
 
$
200,143
   
$
1,386
   
$
2,787
   
$
-
   
$
204,316
 


The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of September 30, 2018 as well as the average recorded investment and related interest income for the period then ended (in thousands):
 
   
September 30, 2018
 
   
Recorded
Investment
   
Unpaid
Principal
Balance
   
Related
Allowance
   
Average
Recorded
 Investment
   
Interest
 Income
Recognized
 
With no related allowance recorded:
                             
One-to-four family residential owner occupied
   
417
     
421
   
$
-
   
$
417
   
$
-
 
One-to-four family residential non-owner occupied
   
267
     
267
     
-
     
324
     
13
 
Multi-family residential
   
-
     
-
     
-
     
-
     
-
 
Commercial real estate
   
-
     
-
     
-
     
-
     
-
 
Construction
   
-
     
-
     
-
     
2,050
     
37
 
Home equity
   
-
     
-
     
-
     
44
     
2
 
Commercial business
   
-
     
-
     
-
     
-
     
-
 
Other consumer
   
-
     
-
     
-
     
-
     
-
 
                                         
With an allowance recorded:
                                       
One-to-four family residential owner occupied
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
One-to-four family residential non-owner occupied
   
-
     
-
     
-
     
94
     
4
 
Multi-family residential
   
-
     
-
     
-
     
-
     
-
 
Commercial real estate
   
133
     
133
     
5
     
133
     
7
 
Construction
   
-
     
-
     
-
     
-
     
-
 
Home equity
   
-
     
-
     
-
     
-
     
-
 
Commercial business
   
-
     
-
     
-
     
-
     
-
 
Other consumer
   
-
     
-
     
-
     
-
     
-
 
                                         
Total:
                                       
One-to-four family residential owner occupied
 
$
417
   
$
421
   
$
-
   
$
417
   
$
-
 
One-to-four family residential non-owner occupied
   
267
     
267
     
-
     
418
     
17
 
Multi-family residential
   
-
     
-
     
-
     
-
     
-
 
Commercial real estate
   
133
     
133
     
5
     
133
     
7
 
Construction
   
-
     
-
     
-
     
2,050
     
37
 
Home equity
   
-
     
-
     
-
     
44
     
2
 
Commercial business
   
-
     
-
     
-
     
-
     
-
 
Other consumer
   
-
     
-
     
-
     
-
     
-
 
Total
 
$
817
   
$
821
   
$
5
   
$
3,062
   
$
63
 
 
 
 
19

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

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2017 as well as the average recorded investment and related interest income for the year then ended (in thousands):

   
December 31, 2017
 
   
Recorded
Investment
   
Unpaid
Principal
 Balance
   
Related
Allowance
   
Average
Recorded
 Investment
   
Interest
Income
Recognized
 
With no related allowance recorded:
                             
One-to-four family residential owner occupied
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
One-to-four family residential non-owner occupied
   
442
     
442
     
-
     
937
     
24
 
Multi-family residential
   
-
     
-
     
-
     
-
     
-
 
Commercial real estate
   
-
     
-
     
-
     
398
     
38
 
Construction
   
2,069
     
2,069
     
-
     
2,064
     
58
 
Home equity
   
45
     
45
     
-
     
47
     
5
 
Commercial business
   
-
     
-
     
-
     
-
     
-
 
Other consumer
   
-
     
-
     
-
     
-
     
-
 
                                         
With an allowance recorded:
                                       
One-to-four family residential owner occupied
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
One-to-four family residential non-owner occupied
   
214
     
214
     
70
     
214
     
5
 
Multi-family residential
   
-
     
-
     
-
     
-
     
-
 
Commercial real estate
   
133
     
133
     
1
     
395
     
9
 
Construction
   
-
     
-
     
-
     
-
     
-
 
Home equity
   
-
     
-
     
-
     
-
     
-
 
Commercial business
   
-
     
-
     
-
     
-
     
-
 
Other consumer
   
-
     
-
     
-
     
-
     
-
 
                                         
Total:
                                       
One-to-four family residential owner occupied
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
One-to-four family residential non-owner occupied
   
656
     
656
     
70
     
1,151
     
29
 
Multi-family residential
   
-
     
-
     
-
     
-
     
-
 
Commercial real estate
   
133
     
133
     
1
     
793
     
47
 
Construction
   
2,069
     
2,069
     
-