Quaint Oak Bancorp, Inc. Announces Second Quarter Earnings

Quaint Oak Bancorp

SOUTHAMPTON, PA — Quaint Oak Bancorp, Inc. (OTCQB: QNTO), the holding company for Quaint Oak Bank, recently announced that net income for the quarter ended June 30, 2022 was $1.8 million, or $0.87 per basic and $0.82 per diluted share, compared to $1.5 million, or $0.76 per basic and $0.72 per diluted share for the same period in 2021. Net income for the six months ended June 30, 2022 was $4.0 million, or $1.99 per basic and $1.88 per diluted share, compared to $2.5 million, or $1.28 per basic and $1.22 per diluted share for the same period in 2021.

Robert T. Strong, President and Chief Executive Officer stated, “It is my pleasure to present our earnings release for the second quarter of 2022. Net Income for the six months ended June 30, 2022 was $4.0 million compared to $2.5 million for the comparable six month period ended June 30, 2021. Income for the second quarter ending June 30, 2022 was $1.8 million compared to $1.5 million for the same quarter ended June 30, 2021.

Mr. Strong added, “During the second quarter, we completed a strategic purchase of a bulk loan package of commercial real estate loans by our wholly owned subsidiary Oakmont Commercial. This group of higher yielding, performing loans contributed approximately two months of income during the second quarter. We routinely search for opportunities that will continue to add to the growth, expansion and income for our “Family of Companies.”

Mr. Strong continued, “Our loan portfolio continues to perform well with both non-performing loans as a percent of total loans receivable, net along with non-performing assets as a percent of total loans being 0.32% and 0.23%, respectively as of June 30, 2022. Our Texas Ratio increased from 1.00% previously reported at June 30, 2021 to 3.42% at the second quarter end 2022. One loan in our non-performing category contributed to this increase. We believe, however, that this item is well collateralized or adequately reserved for.

Mr. Strong commented, “As we continue to focus on our expansion into the area of fee income growth through our subsidiary companies, we are seeking to expand the Bank’s entry into the Banking as a Service sector (“BaaS”) with potential FinTech company partnerships. The Company ended the second quarter 2022 in excess of three-quarters of a billion dollars in asset size. With the prognosis of rising rate cost and the probability of an economic slowdown, we expect the opportunity to add capital in one form or another will become more focused, currently rather than later in our planning horizon. The Company’s Board of Directors and management are focused on the support required along with optimal timing in order to support the Company’s pattern of growth and profitability.

Mr. Strong concluded, “We are very pleased to report an increase in stockholders’ equity over the six months ending June 30, 2022 when compared to December 31, 2021, by approximately $5.3 million or 14.3%. As always, in conjunction with historically having maintained a strong repurchase plan, our current and continued business strategy focuses on long-term growth, profitability and payment of dividends reflecting our strong commitment to shareholder value.”

As it has since the start of the COVID-19 pandemic, the Company states that it continues to assess the effects of the pandemic on its employees, customers and the communities it serves. In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act contains many provisions related to banking, lending, mortgage forbearance and taxation. Since March 2020, the Company has continued to work diligently to help support its existing and new customers through the SBA Paycheck Protection Program (“PPP”), loan modifications, loan deferrals and fee waivers. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”) became law. The Economic Aid Act opened a new PPP loan period for first loans and implemented a second loan draw for certain PPP borrowers, each through May 31, 2021. Under the first round, the Company funded 854 PPP loans totaling $95.1 million. As of June 30, 2022, 853 of these first round PPP loans totaling $94.6 million were forgiven under the SBA forgiveness program. Under the second round of PPP the Company funded 985 PPP loans totaling $88.4 million. As of June 30, 2022, 882 of the second round PPP loans totaling $75.1 million have been forgiven under the SBA forgiveness program.

On January 4, 2021, Quaint Oak Bank, the wholly-owned subsidiary of Quaint Oak Bancorp, Inc., invested $2.3 million for a 51% majority ownership interest in Oakmont Capital Holdings, LLC (“Oakmont”), a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota. The financial results that follow include Quaint Oak Bank’s investment in Oakmont. Quaint Oak Bank reflects the 49% interest it does not hold in Oakmont in its consolidated financial statements as noncontrolling interest.

Comparison of Quarter-to-Date Operating Results

Net income amounted to $1.8 million for the three months ended June 30, 2022, an increase of $261,000, or 17.3%, compared to net income of $1.5 million for the three months ended June 30, 2021. The increase in net income on a comparative quarterly basis was primarily the result of an increase in non-interest income of $1.8 million, and an increase in net interest income of $1.1 million, partially offset by an increase in non-interest expense of $1.8 million, an increase in the provision for loan losses of $151,000, and an increase in the provision for income taxes of $91,000.

The $1.1 million, or 22.7%, increase in net interest income for the three months ended June 30, 2022 over the comparable period in 2021 was driven by a $1.5 million, or 25.1%, increase in interest income, partially offset by a $392,000 increase in interest expense. The increase in interest income was primarily due to a $104.4 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $485.8 million for the three months ended June 30, 2021 to an average balance of $590.1 million for the three months ended June 30, 2022, and had the effect of increasing interest income $1.2 million.   Also contributing to the increase in interest income was a 16 basis point increase in the yield on average loans receivable, net, including loans held for sale, which increased from 4.72% for the three months ended June 30, 2021 to 4.88% for the three months ended June 30, 2022, and had the effect of increasing interest income $230,000. Contributing to both the increase in average balance of loans receivable, net and yield was the purchase of a $55.5 million commercial real estate loan portfolio by Oakmont Commercial, LLC in April, 2022.

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The $392,000, or 35.4%, increase in interest expense for the three months ended June 30, 2022 over the comparable period in 2021 was primarily attributable to a $52.6 million increase in average FHLB long-term borrowings which increased from an average balance of $26.4 million for the three months ended June 30, 2021 to an average balance of $79.1 million for the three months ended June 30, 2022, and had the effect of increasing interest expense by $258,000. Also contributing to the increase in interest expense was a $77.1 million increase in average money market accounts which increased from an average balance of $178.0 million for the three months ended June 30, 2021 to an average balance of $255.1 million for the three months ended June 30, 2022, and had the effect of increasing interest expense by $125,000. Also contributing to the increase in money market interest expense was a 10 basis point increase in the rate on average money market accounts, which increased from 0.65% for the three months ended June 30, 2021 to 0.75% for the three months ended June 30, 2022, and had the effect of increasing interest expense by $63,000. Both the increase in money market average balance and rate was impacted by a $150.0 million deposit in May, 2022 through a deposit placement agreement with a third party bank. Partially offsetting this increase in interest expense was a 22 basis point decrease in the rate on average certificate of deposit accounts, which decreased from 1.15% for the three months ended June 30, 2021 to 0.93% for the three months ended June 30, 2022, and had the effect of decreasing interest expense by $102,000. Also partially offsetting the increase in interest expense was a $32.6 million decrease in average FRB long-term borrowings which decreased from an average balance of $34.2 million for the three months ended June 30, 2021 to an average balance of $1.7 million for the three months ended June 30, 2022, and had the effect of decreasing interest expense by $28,000. The average interest rate spread increased from 3.28% for the three months ended June 30, 2021 to 3.37% for the three months ended June 30, 2022 while the net interest margin increased from 3.50% for the three months ended June 30, 2021 to 3.54% for the three months ended June 30, 2022.

The $151,000, or 33.7%, increase in the provision for loan losses for the three months ended June 30, 2022 over the three months ended June 30, 2021 was based on an evaluation of the allowance relative to such factors as volume of the loan portfolio, concentrations of credit risk, prevailing economic conditions, which includes the impact of the COVID-19 pandemic, prior loan loss experience and amount of non-performing loans at June 30, 2022.

The $1.8 million, or 71.0%, increase in non-interest income for the three months ended June 30, 2022 over the comparable period in 2021 was primarily attributable to a $1.5 million, or 114.1%, increase in net gain on loans held for sale, a $302,000, or 57.9%, increase in mortgage banking, equipment lending, and title abstract fees, a $31,000, or 60.8%, increase in other fees and service charges, and a $31,000, or 93.9%, increase in real estate commissions, net. The increase in net gain on loans held for sale was primarily due to the sale of $75.3 million of equipment loans during the three months ended June 30, 2022. These increases were partially offset by a $45,000, or 100.0%, decrease in gain on sale of investment securities available for sale, a $32,000, or 48.5%, decrease in gain on sale of SBA loans, and a $20,000, or 6.1%, decrease in net loan servicing income.

The $1.8 million, or 36.3%, increase in non-interest expense for the three months ended June 30, 2022 over the comparable period in 2021 was primarily due to a $1.5 million, or 42.2%, increase in salaries and employee benefits expense, a $171,000, or 53.6%, increase in other expense, a $79,000, or 20.4%, increase in occupancy and equipment expense, a $40,000, or 54.8%, increase in FDIC deposit insurance assessment, a $32,000, or 26.2%, increase in advertising expense, a $12,000, or 20.0%, increase in Directors’ fees and expenses, and a $10,000, or 4.6%, increase in professional fees. The increase in salaries and employee benefits is primarily due to expanding and improving the level of staff at the Bank and its subsidiary companies, including Oakmont. Oakmont’s results for the three months ended June 30, 2022 also contributed to the increases in occupancy and equipment expense, professional fees, advertising expense, and other expense. The increase in non-interest expense was partially offset by a $39,000, or 19.3%, decrease in data processing expense, and a $3,000, or 100.0%, decrease in other real estate owned expenses.

The provision for income tax increased $91,000, or 16.1%, from $567,000 for the three months ended June 30, 2021 to $658,000 for the three months ended June 30, 2022 due primarily to the increase in pre-tax income.

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Comparison of Year-to-Date Operating Results

Net income amounted to $4.0 million for the six months ended June 30, 2022, an increase of $1.5 million, or 58.3%, compared to net income of $2.5 million for the six months ended June 30, 2021. The increase in net income on a comparative six-month basis was primarily the result of an increase in non-interest income of $4.5 million, and an increase in net interest income of $2.9 million, partially offset by an increase in non-interest expense of $3.2 million, an increase in the provision for loan losses of $576,000, and an increase in the provision for income taxes of $528,000.

The $2.9 million or 34.9%, increase in net interest income for the six months ended June 30, 2022 over the comparable period in 2021 was driven by a $2.9 million, or 27.5%, increase in interest income, partially offset by a $27,000, or 1.1%, increase in interest expense. The increase in interest income was primarily due to an $85.8 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $473.5 million for the six months ended June 30, 2021 to an average balance of $559.3 million for the six months ended June 30, 2022, and had the effect of increasing interest income $1.9 million. Also contributing to the increase in interest income was a 40 basis point increase in the yield on average loans receivable, net, including loans held for sale, which increased from 4.43% for the six months ended June 30, 2021 to 4.83% for the six months ended June 30, 2022, and had the effect of increasing interest income $1.1 million. Contributing to both the increase in average balance of loans receivable, net and yield was the purchase of a $55.5 million commercial real estate loan portfolio by Oakmont Commercial, LLC in April, 2022.

The $27,000, or 1.1%, increase in interest expense was primarily attributable to a $26.2 million increase in average FHLB short-term borrowings which increased from $1.5 million for the six months ended June 30, 2021 to $27.7 million for the six months ended June 30, 2022, and had the effect of increasing interest expense by $113,000. Also contributing to the increase in interest expense was a $20.4 million increase in average money market accounts which increased from an average balance of $153.7 million for the six months ended June 30, 2021 to an average balance of $226.7 million for the six months ended June 30, 2022, and had the effect of increasing interest expense by $251,000. The increase in money market average balance was impacted by a $150.0 million deposit in May, 2022 through a deposit placement agreement with a third party bank. This increase in money market interest expense was partially offset by a nine basis point decrease in the rate on average money market accounts, which decreased from 0.69% for the six months ended June 30, 2021 to 0.60% for the six months ended June 30, 2022, and had the effect of decreasing interest expense by $97,000. This increase in interest expense was partially offset by a 29 basis point decrease in the rate on average certificate of deposit accounts, which decreased from 1.23% for the six months ended June 30, 2021 to 0.92% for the six months ended June 30, 2022, and had the effect of decreasing interest expense by $287,000. The average interest rate spread increased from 2.96% for the six months ended June 30, 2021 to 3.57% for the six months ended June 30, 2022 while the net interest margin increased from 3.18% for the six months ended June 30, 2021 to 3.73% for the six months ended June 30, 2022.

The $576,000, or 82.1%, increase in the provision for loan losses for the six months ended June 30, 2022 over the six months ended June 30, 2021 was based on an evaluation of the allowance relative to such factors as volume of the loan portfolio, concentrations of credit risk, prevailing economic conditions, which includes the impact of the COVID-19 pandemic, prior loan loss experience and amount of non-performing loans at June 30, 2022.

The $4.5 million, or 85.7%, increase in non-interest income for the six months ended June 30, 2022 over the comparable period in 2021 was primarily attributable to a $4.5 million, or 177.2%, increase in net gain on loans held for sale, a $408,000, or 38.7%, increase in mortgage banking, equipment lending, and title abstract fees, a $75,000, or 43.4%, increase in other fees and service charges, a $61,000, or 95.3%, increase in real estate commissions, net, and a $15,000, or 6.3%, increase in insurance commissions. The increase in net gain on loans held for sale was primarily due to the sale of $183.2 million of equipment loans during the six months ended June 30, 2022. These increases were partially offset by a $362,000, or 100.0%, decrease in gain on sale of investment securities available for sale, a $100,000, or 37.5%, decrease in gain on sale of SBA loans, and a $77,000, or 14.0%, decrease in net loan servicing income.

The $3.2 million, or 33.7%, increase in non-interest expense for the six months ended June 30, 2022 over the comparable period in 2021 was primarily due to a $2.6 million, or 38.6%, increase in salaries and employee benefits expense, a $225,000, or 34.7%, increase in other expense, a $135,000, or 59.5%, increase in advertising expense, a $122,000, or 16.0%, increase in occupancy and equipment expense, a $105,000, or 84.7%, increase in FDIC deposit insurance assessment, a $31,000, or 8.1%, increase in professional fees, and a $15,000, or 11.7%, increase in Directors’ fees and expenses. The increase in salaries and employee benefits is primarily due to expanding and improving the level of staff at the Bank and its subsidiary companies, including Oakmont. Oakmont’s results for the six months ended June 30, 2022 also contributed to the increases in occupancy and equipment expense, professional fees, advertising expense, and other expense. The increase in non-interest expense was partially offset by a $47,000, or 11.5%, decrease in data processing expense, and a $12,000, or 100.0%, decrease in other real estate owned expenses.

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The provision for income tax increased $528,000, or 53.3%, from $991,000 for the six months ended June 30, 2021 to $1.5 million for the six months ended June 30, 2022 due primarily to the increase in pre-tax income.

Comparison of Financial Condition

The Company’s total assets at June 30, 2022 were $751.9 million, an increase of $197.8 million, or 35.7%, from $554.1 million at December 31, 2021.   This growth in total assets was primarily due to a $143.5 million, or 35.5%, increase in loans receivable, net, and a $68.2 million, or 636.9%, increase in cash and cash equivalents. These increases were partially offset by a $17.5 million, or 16.2%, decrease in loans held for sale, and a $578,000, or 14.3%, decrease in investment securities available for sale. The largest increases within the loan portfolio occurred in commercial real estate loans which increased $113.8 million, or 62.0%, multi-family residential loans which increased $14.2 million, or 48.4%, one-to-four family owner occupied loans which increased $5.7 million, or 58.0%, and construction loans which increased $9.9 million, or 62.2%. The increase in commercial real estate loans was primarily due to the purchase of a $55.5 million loan portfolio by Oakmont Commercial, LLC in April, 2022.

Loans held for sale decreased $17.5 million, or 16.2%, from $107.8 million at December 31, 2021 to $90.3 million at June 30, 2022 as the Bank originated $176.9 million in equipment loans held for sale and sold $183.2 million of equipment loans during the six months ended June 30, 2022. Additionally, the Bank’s mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $70.2 million of one-to-four family residential loans during the six months ended June 30, 2022 and sold $81.4 million of loans in the secondary market during this same period.

Total deposits increased $142.6 million, or 31.9%, to $589.8 million at June 30, 2022 from $447.2 million at December 31, 2021. This increase in deposits was primarily attributable to increases of $127.3 million, or 63.4%, in money market accounts, $8.8 million, or 13.6%, in non-interest bearing checking accounts, and $6.8 million, or 3.8%, in certificates of deposit. The increase in deposits was partially offset by a $295,000, or 16.1%, decrease in savings accounts and a $5,000, or 47.7%, decrease in passbook accounts. The increase in money market accounts was primarily due to a $150.0 million deposit in May, 2022 through a deposit placement agreement with a third party bank.

Total Federal Home Loan Bank (FHLB) borrowings increased $50.0 million, or 101.6%, to $99.2 million at June 30, 2022 from $49.2 million at December 31, 2021. During the six months ended June 30, 2022, the Company borrowed $63.3 million of FHLB short-term borrowings and $80.0 million of FHLB long-term borrowings and paid down $89.3 million of FHLB short-term borrowings and $4.0 million of FHLB long-term borrowings. Federal Reserve Bank (FRB) long-term borrowings decreased $3.9 million, or 100.0%, to none at June 30, 2022 from $3.9 million at December 31, 2021 as the Company paid off first round PPP loans pledged as collateral under the FRB’s Paycheck Protection Program Liquidity Facility (PPPLF). The Company did not utilize the FRB’s PPPLF to fund second round PPP loans.

Total stockholders’ equity increased $5.3 million, or 14.3%, to $42.2 million at June 30, 2022 from $36.9 million at December 31, 2021. Contributing to the increase was net income for the six months ended June 30, 2022 of $4.0 million, net income attributable to noncontrolling interest of $1.5 million, common stock earned by participants in the employee stock ownership plan of $175,000, amortization of stock awards and options under the Company’s stock compensation plans of $84,000, the reissuance of treasury stock under the Bank’s 401(k) Plan of $33,000 and the reissuance of treasury stock for exercised stock options of $148,000. These increases were partially offset by dividends paid of $485,000, noncontrolling interest distribution of $175,000, other comprehensive loss, net of $41,000, and the purchase of treasury stock of $28,000.

Non-performing loans at June 30, 2022 consisted of two loans on non-accrual status in the amount of $1.7 million. The non-performing loans at June 30, 2022 are generally well-collateralized or adequately reserved for. The allowance for loan losses as a percent of total loans receivable, net was 1.18% at June 30, 2022 and 1.30% at December 31, 2021. Non-performing assets amounted to $1.7 million, or 0.23% of assets at June 30, 2022 compared to $9,000 at December 31, 2021.

Quaint Oak Bancorp, Inc., a Financial Services Company, is the parent company for the Quaint Oak Family of Companies.

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