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On March 29, 2024, Quaint Oak Bank sold its 51% interest in Oakmont Capital Holdings, LLC (“OCH”). The decision was based on a number of strategic priorities and other factors. As a result of this action, the Company classified the operations of OCH as discontinued operations under ASC 205-20. The Consolidated Balance Sheets and Consolidated Statements of Income present discontinued operations for the current period and retrospectively for prior periods.

Also on March 29, 2024, the Company discontinued the operations of Quaint Oak Real Estate, LLC (“Quaint Oak Real Estate”), a 100% wholly owned subsidiary of the Bank. Quaint Oak Real Estate was engaged in the real estate brokerage business. The Bank agreed to cease operations of Quaint Oak Real Estate and discontinue utilizing the services of the real estate agents it had been doing business with and had developed relationships with.

Comparison of Quarter-over-Quarter Operating Results

Net income amounted to $100,000 for the three months ended June 30, 2024, a decrease of $470,000, or 82.5%, compared to net income of $570,000 for the three months ended June 30, 2023. The decrease in net income on a comparative quarterly basis was primarily the result of a decrease in interest income of $1.0 million, an increase in the provision for credit losses of $148,000, and an increase in interest expense of $133,000, partially offset by a decrease in the net provision for income taxes of $279,000, an increase in non-interest income of $261,000, a decrease in net loss from discontinued operations of $229,000, and a decrease in non-interest expense of $58,000.

The $1.0 million, or 8.5%, decrease in interest income was primarily due to a decrease in the average balance of loans receivable, net, which decreased $164.2 million from $769.5 million for the three months ended June 30, 2023 to $605.3 million for the three months ended June 30, 2024 and had the effect of decreasing interest income $2.5 million. This decrease was partially offset by a $98.1 million increase in the average balance of due from banks – interest earning, which increased from $5.8 million for the three months ended June 30, 2023 to $103.9 million for the three months ended June 30, 2024, and had the effect of increasing interest income $1.1 million, and a 127 basis point increase in the average yield on due from banks – interest earning from 4.53% for the three months ended June 30, 2023 to 5.80% for the three months ended June 30, 2024, and had the effect of increasing interest income $330,000.

The $133,000, or 2.0%, increase in interest expense for the three months ended June 30, 2024 over the comparable period in 2023 was driven by a $1.7 million, or 39.0%, increase in interest on deposits, primarily attributable to an increase in the average balance of interest-bearing checking accounts which increased from $38.1 million for the three months ended June 30, 2023 to $109.6 million for the three months ended June 30, 2024, and had the effect of increasing interest expense by $855,000. Also contributing to the increase in interest expense was a 117 basis point increase in average rate of certificates of deposit, which increased from 2.89% for the three months ended June 30, 2023 to 4.06% for the three months ended June 30, 2024, and had the effect of increasing interest expense by $654,000. Also contributing to the increase in interest expense was a 44 basis point increase in the rate on average money market accounts which increased from 4.10% for the three months ended June 30, 2023 to 4.54% for the three months ended June 30, 2024 and had the effect of increasing interest expense by $234,000. Partially offsetting these increases in interest expense for the three months ended June 30, 2024 was a $1.5 million, or 100.0%, decrease in the interest on Federal Home Loan Bank short-term borrowings due to a $108.9 million, or 99.1%, decrease in the average balance of Federal Home Loan Bank short-term borrowings which decreased from $109.9 million for the three months ended June 30, 2023 to $1.0 million for the three months ended June 30, 2024. The average interest rate spread decreased from 2.05% for the three months ended June 30, 2023 to 1.48% for the three months ended June 30, 2024 while the net interest margin decreased from 2.65% for the three months ended June 30, 2023 to 2.28% for the three months ended June 30, 2024.

The $148,000, or 78.3%, increase in the provision for credit losses for the three months ended June 30, 2024 over the three months ended June 30, 2023 was due to an increase in individually evaluated loans which increased the provision for credit losses by $640,000, partially offset by a decrease in loans receivable, net.

The $261,000, or 25.0%, increase in non-interest income for the three months ended June 30, 2024 over the comparable period in 2023 was primarily attributable to a $196,000, or 445.5%, increase in other fees and service charges, a $124,000, or 28.4%, increase in net gain on sale of loans, a $57,000, or 45.2%, increase in mortgage banking, equipment lending, and title abstract fees, and a $16,000, or 10.0%, increase in insurance commissions. These increases were partially offset by a $103,000, or 51.2%, decrease in gain on sale of SBA loans, and a $32,000, or 66.7%, decrease in real estate sales commissions, net. The increase in net gain on sale of loans was due to the sale of mortgage loans during the three months ended June 30, 2024.

The $58,000, or 1.1%, decrease in non-interest expense for the three months ended June 30, 2024 over the comparable period in 2023 was primarily due to a $175,000, or 31.4%, decrease in other expense, a $77,000, or 32.1%, decrease in FDIC deposit insurance assessment, a $52,000, or 51.0%, decrease in directors’ fees and expenses, a $37,000, or 19.2%, decrease in professional fees, and a $10,000, or 12.1%, decrease in advertising expense. The decrease in non-interest expense was partially offset by a $125,000, or 3.5%, increase in salaries and employee benefits expense, a $102,000, or 48.8%, increase in data processing expense, and a $66,000, or 18.9%, increase in occupancy and equipment expense.

The provision for income tax decreased $279,000, or 77.1%, from $362,000 for the three months ended June 30, 2023 to $83,000 for the three months ended June 30, 2024 due primarily to a decrease in pre-tax income and an increase in the effective tax rate which was driven by the increase in state taxes related to subsidiary activity in various states.

Comparison of Six-Month Operating Results

Net income amounted to $973,000 for the six months ended June 30, 2024, a decrease of $160,000, or 14.1%, compared to net income of $1.1 million for the six months ended June 30, 2023. The decrease in net income on a comparative quarterly basis was primarily the result of an increase in interest expense of $1.3 million, an increase in the provision for credit losses of $892,000, an increase in net loss from discontinued operations of $272,000, an increase in the net provision for income taxes of $120,000, and an increase in non-interest expense of $15,000, partially offset by an increase in non-interest income of $2.2 million, and an increase in interest income of $197,000.

The $197,000, or 0.9%, increase in interest income was primarily due to a 202 basis point increase in the yield on average loans receivable, net, including loans held for sale, which increased from 4.92% for the six months ended June 30, 2023 to 6.94% for the six months ended June 30, 2024, and had the effect of increasing interest income $2.0 million. Also contributing to the increase in interest income was an $81.3 million increase in the average balance of due from banks – interest earning, which increased from $5.5 million for the six months ended June 30, 2023 to $86.8 million for the six months ended June 30, 2024, and had the effect of increasing interest income $1.8 million and an 83 basis point increase in the average yield on due from banks – interest earning which increased from 4.44% for the six months ended June 30, 2023 to 5.27% for the six months ended June 30, 2024, and had the effect of increasing interest income $365,000. These increases were partially offset by a decrease in the average balance of loans receivable, net, which decreased $130.1 million from $761.9 million for the six months ended June 30, 2023 to $631.9 million for the six months ended June 30, 2024 and had the effect of decreasing interest income $3.8 million.

The $1.3 million, or 10.4%, increase in interest expense for the six months ended June 30, 2024 over the comparable period in 2023 was driven by a $3.9 million, or 48.1%, increase in interest on average deposits, primarily attributable to an increase in the average balance of interest-bearing checking accounts which increased from $31.6 million for the six months ended June 30, 2023 to $105.6 million for the six months ended June 30, 2024, and had the effect of increasing interest expense by $1.7 million. Also contributing to the increase in interest expense was an increase in the average rate on interest-bearing checking accounts to 5.30% that had the effect of increasing interest expense by $415,000. Also contributing to the increase in interest expense was a 135 basis point increase in the average rate on certificates of deposit, which increased from 2.64% for the six months ended June 30, 2023 to 3.99% for the six months ended June 30, 2024, and had the effect of increasing interest expense by $1.5 million. Also contributing to the increase in interest expense was a 68 basis point increase in the rate on average money market accounts which increased from 3.85% for the six months ended June 30, 2023 to 4.53% for the six months ended June 30, 2024 and had the effect of increasing interest expense by $736,000. Partially offsetting the increase in interest expense for the six months ended June 30, 2024 was a $2.8 million, or 100.0%, decrease in the interest on Federal Home Loan Bank short-term borrowings due to a $108.0 million, or 99.5%, decrease in the average balance of Federal Home Loan Bank short-term borrowings which decreased from $108.5 million for the three months ended June 30, 2023 to $495,000 for the three months ended June 30, 2024. The average interest rate spread decreased from 2.16% for the six months ended June 30, 2023 to 1.78% for the six months ended June 30, 2024 while the net interest margin decreased from 2.71% for the six months ended June 30, 2023 to 2.62% for the six months ended June 30, 2024.

The $892,000, or 439.4%, increase in the provision for credit losses for the six months ended June 30, 2024 over the six months ended June 30, 2023 was due to an increase in the amount of non-performing loans. There were three individually evaluated loans which increased the provision for credit losses by $654,000.

The $2.2 million, or 108.4%, increase in non-interest income for the six months ended June 30, 2024 over the comparable period in 2023 was primarily attributable to a $1.4 million gain on sale of Oakmont Capital Holdings, LLC, a $667,000, or 80.6%, increase in net gain on sale of loans, a $324,000, or 228.2%, increase in other fees and service charges, a $127,000, or 48.3%, increase in mortgage banking, equipment lending, and title abstract fees, and a $32,000, or 10.8%, increase in insurance commissions. These increases were partially offset by a $142,000 or 97.9%, decrease in net loan servicing income, a $124,000, or 49.4%, decrease in gain on sale of SBA loans, and a $52,000, or 72.2%, decrease in real estate sales commissions, net.

The $15,000, or 0.1%, increase in non-interest expense for the six months ended June 30, 2024 over the comparable period in 2023 was primarily due to a $211,000, or 3.0%, increase in salaries and employee benefits expense, and a $148,000, or 34.8%, increase in data processing expense. The increase in non-interest expense was partially offset by a $136,000, or 28.8%, decrease in FDIC deposit insurance assessment, a $106,000, or 51.2%, decrease in directors’ fees and expenses, a $44,000, or 12.9%, decrease in professional fees, a $26,000, or 3.8%, decrease in occupancy and equipment expense, and a $26,000, or 2.9%, decrease in other expense. The decrease in directors’ fees and expenses was primarily due to a reduction in directors’ fees for the six months ended June 30, 2024.

The provision for income tax increased $120,000, or 19.6%, from $613,000 for the six months ended June 30, 2023 to $733,000 for the six months ended June 30, 2024 due primarily to an increase in pre-tax income, partially offset by an increase in the effective tax rate, similar to the quarter, which was driven by the increase in state taxes related to subsidiary activity in various states.

Comparison of Financial Condition

The Company’s total assets at June 30, 2024 were $701.9 million, a decrease of $52.2 million, or 6.9%, from $754.1 million at December 31, 2023. This decrease in total assets was primarily due to a $26.4 million, or 72.4%, decrease in loans held for sale, and a $23.9 million, or 3.9%, decrease in loans receivable, net of allowance for credit losses. The largest decreases within the loan portfolio occurred in commercial business loans which decreased $27.1 million, or 19.0%, one-to-four family non-owner occupied loans which decreased $4.1 million, or 10.1%, and construction loans which decreased $2.9 million, or 8.3%. Partially offsetting these decreases were commercial real estate loans which increased $7.0 million, or 2.1%, one-to-four family owner occupied loans which increased $1.2 million, or 5.1%, and home equity loans which increased $72,000, or 1.2%. Partially offsetting the decrease in total assets was a $17.6 million, or 30.3%, increase in cash and cash equivalents, a $662,000, or 18.9%, increase in accrued interest receivable, a $624,000, or 42.3%, increase in investment in Federal Home Loan Bank stock, at cost, and a $135,000, or 5.1%, increase in premises and equipment, net. Contributing to the $17.6 million increase in cash and cash equivalents were the proceeds from the sale of loans held for sale.

Loans held for sale decreased $26.4 million, or 72.4%, from $36.4 million at December 31, 2023 to $10.1 million at June 30, 2024 as the Bank originated $51.6 million in equipment loans held for sale and sold $71.6 million of equipment loans during the six months ended June 30, 2024. Contributing to the decrease in loans held for sale was $8.5 million of loan amortization and prepayments. On March 29, 2024, the Bank transferred $4.4 million of equipment loans held for sale into loans receivable as part of the discontinued operations of OCH. Additionally, the Bank’s mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $64.0 million of one-to-four family residential loans during the six months ended June 30, 2024 and sold $57.5 million of loans in the secondary market during this same period.

Total deposits decreased $55.3 million, or 8.8%, to $576.4 million at June 30, 2024 from $631.7 million at December 31, 2023. This decrease in deposits was primarily attributable to a decrease of $62.9 million, or 45.2%, in interest bearing checking accounts, and a decrease of $4.2 million, or 1.9%, in money market accounts. These decreases in deposits were partially offset by an increase of $6.5 million, or 3.0%, in certificates of deposit, an increase of $5.5 million, or 9.6%, in non-interest bearing checking accounts, and a $155,000, or 18.5%, increase in savings accounts. The decrease in interest bearing checking accounts was primarily due to reduced correspondent banking activity.

Total Federal Home Loan Bank (FHLB) borrowings increased $15.9 million, or 54.9%, to $45.0 million at June 30, 2024 from $29.0 million at December 31, 2023. During the six months ended June 30, 2024, the Company paid down $14.1 million of FHLB long-term borrowings and borrowed $30.0 million of FHLB short-term borrowings.

Total stockholders’ equity increased $2.9 million, or 6.0%, to $51.4 million at June 30, 2024 from $48.5 million at December 31, 2023. Contributing to the increase was net income for the six months ended June 30, 2024 of $973,000, shares issued from authorized and unallocated of $2.5 million, amortization of stock awards and options under our stock compensation plans of $121,000, the reissuance of treasury stock under the Bank’s 401(k) Plan of $46,000, and other comprehensive income, net of $8,000. The increase in stockholders’ equity was partially offset by dividends paid of $654,000, and $44,000 purchase of treasury stock. In addition, there was a $3.1 million, or 100.0%, decrease in noncontrolling interest from discontinued operations. The $2.5 million of shares issued from authorized and unallocated were due to two private placement offerings to two investors.

Non-performing loans at June 30, 2024 totaled $8.7 million, or 1.46%, of total loans receivable, net of allowance for credit losses, consisting of $7.2 million on non-accrual status and $1.5 million 90-days or more delinquent. Non-accrual loans consist of one construction loan, one pool of equipment loans, and four other commercial business loans. Loans 90-days or more past due include one one-to-four family owner occupied loan, two commercial business loans, and one SBA loan, which is still accruing. All non-performing loans are generally well-collateralized or adequately reserved for. During the six months ended June 30, 2024, four commercial business loans totaling $450,000 that were previously non-accrual were charged-off through the allowance for credit losses. The allowance for credit losses as a percent of total loans receivable was 1.23% at June 30, 2024 and 1.11% at December 31, 2023. Non-performing loans at December 31, 2023 consisted of one SBA loan on non-accrual status in the amount of $51,000 and one one-to-four family owner occupied loan that was 90 days or more past due but still accruing in the amount of $401,000. During the year ended December 31, 2023, two commercial business loans, one SBA loan, one multi-family residential loan, and two equipment loans totaling $272,000 that were previously on non-accrual were charged-off through the allowance for credit losses. In addition, there was one commercial business loan in the amount of $652,000 that was written down by $603,000.

Quaint Oak Bancorp, Inc., a Financial Services Company, is the parent company for the Quaint Oak Family of Companies. Quaint Oak Bank, a Pennsylvania-chartered stock savings bank and wholly-owned subsidiary of the Company, is headquartered in Southampton, Pennsylvania and conducts business through three regional offices located in the Delaware Valley, Lehigh Valley and Philadelphia markets. Quaint Oak Bank’s subsidiary companies include Quaint Oak Abstract, LLC, Quaint Oak Insurance Agency, LLC, Quaint Oak Mortgage, LLC, and Oakmont Commercial, LLC, a specialty commercial real estate financing company. All companies are multi-state operations.

Statements contained in this news release which are not historical facts may be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors. Factors which could result in material variations include, but are not limited to, changes in interest rates which could affect net interest margins and net interest income, competitive factors which could affect net interest income and noninterest income, changes in demand for loans, deposits and other financial services in the Company's market area; changes in asset quality, general economic conditions as well as other factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

In addition to factors previously disclosed in the reports filed by the Company with the Securities and Exchange Commission and those identified elsewhere in this press release, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: the strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations; general economic conditions; legislative and regulatory changes; monetary and fiscal policies of the federal government; changes in tax policies, rates and regulations of federal, state and local tax authorities including the effects of the Tax Reform Act; changes in interest rates, deposit flows, the cost of funds, demand for loan products and the demand for financial services, competition, changes in the quality or composition of the Company’s loan, investment and mortgage-backed securities portfolios; geographic concentration of the Company’s business; fluctuations in real estate values; the adequacy of loan loss reserves; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; changes in accounting principles, policies or guidelines and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and fees.

  

QUAINT OAK BANCORP, INC.
Consolidated Statements of Income
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CONTACT: Quaint Oak Bancorp, Inc. Robert T. Strong, President and Chief Executive Officer (215) 364-4059