QUAINT OAK BANCORP INC - Annual Report: 2007 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
| x |
Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For the
fiscal year ended: December 31, 2007
or
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Transition report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934
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For the
transition period from ______ to ______
Commission
File Number: 0-52964
QUAINT
OAK BANCORP, INC.
(Exact
name of Registrant as specified in its charter)
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Pennsylvania
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35-2293957
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(State
or Other Jurisdiction of
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(I.R.S.
Employer
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Incorporation
or Organization)
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Identification
Number)
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607
Lakeside Drive, Southampton, Pennsylvania
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18966
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant's
telephone number, including area code: (215) 364-4059
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
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Common
Stock, $.01 par value per shares
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Title
of Class
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
YES o NO x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
YES o NO
x
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 and (2) has been subject to such filing requirements for the
past 90 days. YES x
NO o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
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Large
accelerated filer
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o |
Accelerated
filer
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o |
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Non-accelerated
filer
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o |
Smaller
reporting company
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x |
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(Do
not check if a smaller reporting company)
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|||
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). YES o
NO x
The
aggregate market value of the 1,189,665 shares of the Registrant's Common Stock
held by non-affiliates (1,388,625 shares outstanding less 198,960 shares held by
affiliates), based upon the closing price of $9.80 for the Common Stock on July
5, 2007, the first trading day following our initial public offering, as
reported by the OTC Bulletin Board, was approximately
$11.7 million. Shares of Common Stock held by each
executive officer and director and the employee stock ownership plan have been
excluded since such persons may be deemed affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
Number of
shares of Common Stock outstanding as of March 24, 2008: 1,388,625
DOCUMENTS
INCORPORATED BY REFERENCE
Set forth
below are the documents incorporated by reference and the part of the Form 10-K
into which the document is incorporated:
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(1)
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Portions
of the Annual Report to Stockholders for the year ended December 31, 2007
are incorporated by reference into Part II, Items 5-8 and Part IV, Item 15
of this Form 10-K.
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(2)
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Portions
of the definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders are incorporated by reference into Part III, Items 10-14 of
this Form 10-K.
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QUAINT
OAK BANCORP, INC.
2007
ANNUAL REPORT ON FORM 10-K
TABLE
OF CONTENTS
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Page
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PART
I
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Item 1.
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Business
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1
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Item
1A.
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Risk
Factors
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23
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Item
1B.
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Unresolved
Staff Comments
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23
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Item 2.
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Properties
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24
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Item 3.
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Legal
Proceedings
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24
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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24
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PART
II
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Item 5.
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Market
for the Registrant's Common Equity, Related Stockholder Matters and
Issuer
Purchases of Equity Securities
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24
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Item 6.
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Selected
Financial Data
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24
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Item 7.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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24
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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24
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Item
8.
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Financial
Statements and Supplementary Data
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25
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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25
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Item
9A.
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Controls
and Procedures
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25
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Item
9B.
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Other
Information
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25
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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26
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Item
11.
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Executive
Compensation
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26
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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26
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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26
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Item
14.
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Principal
Accounting Fees and Services
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26
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PART
IV
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Item
15.
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Exhibits,
Financial Statement Schedules
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27
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SIGNATURES
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Forward-Looking
Statements
This Annual Report on Form 10-K
contains certain forward looking statements (as defined in the Securities
Exchange Act of 1934 and the regulations thereunder). Forward looking
statements are not historical facts but instead represent only the beliefs,
expectations or opinions of Quaint Oak Bancorp and its management regarding
future events, many of which, by their nature, are inherently uncertain. Forward
looking statements may be identified by the use of such words as: "believe",
"expect", "anticipate", "intend", "plan", "estimate", or words of similar
meaning, or future or conditional terms such as "will", "would", "should",
"could", "may", "likely", "probably", or "possibly." Forward looking statements
include, but are not limited to, financial projections and estimates and their
underlying assumptions; statements regarding plans, objectives and expectations
with respect to future operations, products and services; and statements
regarding future performance. Such statements are subject to certain risks,
uncertainties and assumption, many of which are difficult to predict and
generally are beyond the control of Quaint Oak Bancorp and its management, that
could cause actual results to differ materially from those expressed in, or
implied or projected by, forward looking statements. The following factors,
among others, could cause actual results to differ materially from the
anticipated results or other expectations expressed in the forward looking
statements: (1) economic and competitive conditions which could affect the
volume of loan originations, deposit flows and real estate values; (2) the
levels of non-interest income and expense and the amount of loan losses; (3)
competitive pressure among depository institutions increasing significantly; (4)
changes in the interest rate environment causing reduced interest margins; (5)
general economic conditions, either nationally or in the markets in which Quaint
Oak Bancorp is or will be doing business, being less favorable than expected;(6)
political and social unrest, including acts of war or terrorism; or (7)
legislation or changes in regulatory requirements adversely affecting the
business in which Quaint Oak Bancorp will be engaged. Quaint Oak Bancorp
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.
As used in this report the terms "we,"
"us," and “our” refer to Quaint Oak Bancorp, a Pennsylvania corporation, or
Quaint Oak Bank, a Pennsylvania chartered savings bank and wholly owned
subsidiary of Quaint Oak Bancorp, as the context requires. In
addition, unless the context otherwise requires, references to the operations of
the Quaint Oak Bancorp include the operations of the Quaint Oak
Bank.
PART
I
Item
1. Business.
General
Quaint
Oak Bancorp is a Pennsylvania corporation headquartered in Southampton,
Pennsylvania. Quaint Oak Bancorp became the holding company for
Quaint Oak Bank in connection with the conversion of Quaint Oak Bank in July
2007 from a Pennsylvania chartered mutual savings bank to a stock savings
bank. Quaint Oak Bank, whose predecessor was originally incorporated
in 1926, converted from a Pennsylvania chartered building and loan association
to a Pennsylvania chartered mutual savings bank named Quaint Oak Savings Bank in
January 2000. Quaint Oak Bank operates from its main office located
in Bucks County, Pennsylvania. Quaint Oak Bank’s primary market area
includes Bucks County, and, to a lesser extent, Montgomery County, Pennslyvania,
northeast Philadelphia and the surrounding area. As of December 31,
2007, Quaint Oak Bancorp had $73.5 million of total assets, $55.3 million of
deposits and $17.6 million of stockholders' equity. Quaint Oak
Bancorp’s stockholders' equity constituted 23.9% of total assets as of December
31, 2007.
Quaint
Oak Bank's primary business consists of attracting deposits from the general
public through a variety of deposit programs and investing such deposits
principally in one-to-four family, multi-family and commercial real estate loans
secured by property in our primary market area. Quaint Oak Bank also
originates home equity loans and lines of credit also secured by residential
properties in our primary lending area. Quaint Oak Bank serves its
customers through its main office as well as through correspondence and
telephone banking.
Deposits
with the Quaint Oak Bank are insured to the maximum extent provided by law
through the Deposit Insurance Fund administered by the Federal Deposit Insurance
Corporation ("FDIC"). Quaint Oak Bank is subject to examination and
comprehensive regulation by the FDIC and the Pennsylvania Department of
Banking. Quaint Oak Bancorp, which elected to be treated as a savings
and loan holding company, is subject to examination and regulation by the Office
of Thrift Supervision. Quaint Oak Bank is also a member of the
Federal Home Loan Bank of Pittsburgh ("FHLB of Pittsburgh" or "FHLB"), which is
one of the 12 regional banks comprising the Federal Home Loan Bank System ("FHLB
System"). Quaint Oak Bank is also subject to regulations of the Board
of Governors of the Federal Reserve System ("Federal Reserve Board") governing
reserves required to be maintained against deposits and certain other
matters.
Quaint
Oak Bancorp’s principal executive offices are located at 607 Lakeside Drive,
Southampton, Pennsylvania 18966 and its telephone number is (215)
364-4059.
Quaint
Oak Bank's Lending Activities
General. At
December 31, 2007, the net loan portfolio of Quaint Oak Bank amounted to $61.7
million, representing approximately 83.8% of its total assets at that
date. The principal lending activity of Quaint Oak Bank is the
origination of one-to-four family residential loans and commercial real estate
loans, and to a lesser extent, multi-family residential loans, home equity loans
and construction loans. At December 31, 2007, one-to-four family
residential loans amounted to $33.0 million, or 53.0% of its total loan
portfolio of which $17.2 million or 27.7% consisted of owner occupied properties
and $15.8 million or 25.3% consisted of non-owner occupied
properties. At December 31, 2007, commercial real estate loans
totaled $17.5 million, or 28.1% of its total loan
portfolio. Multi-family residential loans totaled $4.4 million, or
7.1% of the total loan portfolio at December 31, 2007. Home equity
loans totaled $4.4 million, or 7.1% of the total loan portfolio at December 31,
2007. Construction loans totaled $1.7 million, or 2.7% of the total
loan portfolio at December 31, 2007. As part of our desire to
diversify the loan portfolio, Quaint Oak Bank also offers commercial lines of
credit, which amounted to $1.2 million, or 1.9% of the total loan portfolio at
December 31, 2007.
The types of loans that Quaint Oak Bank
may originate are subject to federal and state laws and regulations. Interest
rates charged on loans are affected principally by the demand for such loans,
the supply of money available for lending purposes and the rates offered by our
competitors. These factors are, in turn, affected by general and economic
conditions, the monetary policy of the federal government, including the Federal
Reserve Board, legislative and tax policies, and governmental budgetary
matters.
As a Pennsylvania-chartered savings
bank, Quaint Oak Bank is not subject to a regulatory loan to one borrower
limit. During fiscal 2006, we adopted a policy that limits our loans
to one borrower to an aggregate of $1.3 million. Loans in excess of
$1.3 million on the date of adoption of the policy were exempt and are not
considered in violation of such policy. At December 31, 2007, Quaint
Oak Bank's five largest loans or groups of loans-to-one borrower, including
related entities, aggregated $1.5 million, $1.3 million, $1.3 million, $1.1
million and $1.1 million. Each of Quaint Oak Bank's five largest
loans or groups of loans was performing in accordance with its terms at December
31, 2007.
2
Loan Portfolio
Composition. The following table shows the composition of our
loan portfolio by type of loan at the dates indicated.
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December
31,
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||||||||||||||||
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2007
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2006
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Amount
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%
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Amount
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%
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|||||||||||||
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(Dollars
in Thousands)
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||||||||||||||||
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Real
estate loans:
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||||||||||||||||
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One-to-four-family
residential:
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||||||||||||||||
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Owner
occupied
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$ | 17,248 | 27.7 | % | $ | 19,163 | 34.9 | % | ||||||||
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Non-owner
occupied
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15,757 | 25.3 | 11,800 | 21.5 | ||||||||||||
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Total one-to-four family
residential loans
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33,005 | 53.0 | 30,963 | 56.4 | ||||||||||||
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Multi-family
residential
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4,385 | 7.1 | 4,522 | 8.2 | ||||||||||||
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Commercial
real estate
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17,481 | 28.1 | 14,404 | 26.2 | ||||||||||||
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Construction
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1,677 | 2.7 | 288 | 0.5 | ||||||||||||
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Commercial
lines of credit
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1,206 | 1.9 | 1,242 | 2.3 | ||||||||||||
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Home
equity loans
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4,431 | 7.1 | 3,535 | 6.4 | ||||||||||||
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Total real estate
loans
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62,185 | 99.9 | 54,954 | 100.0 | ||||||||||||
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Loans
secured by deposits
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36 | .1 | 11 | -- | ||||||||||||
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Total loans
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62,221 | 100.0 | % | 54,965 | 100.0 | % | ||||||||||
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Plus
(less):
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||||||||||||||||
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Deferred loan fees and
costs
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102 | 163 | ||||||||||||||
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Allowance for loan
losses
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(667 | ) | (575 | ) | ||||||||||||
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Net loans
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$ | 61,656 | $ | 54,553 | ||||||||||||
Origination of
Loans. The lending activities of Quaint Oak Bank are subject
to the written underwriting standards and loan origination procedures
established by the board of directors and management. Loan originations are
obtained through a variety of sources, primarily consisting of referrals from
brokers and existing customers. Written loan applications are taken by one of
Quaint Oak Bank's loan officers. The loan officer also supervises the
procurement of credit reports, appraisals and other documentation involved with
a loan. To ensure independence, loan officers with the responsibility
for ordering appraisals and evaluations do not have the sole approval authority
for granting a loan request. As a matter of practice, Quaint Oak Bank
obtains independent outside appraisals on substantially all of its loans which
must conform to Quaint Oak Bank's appraisal requirements. We may make
an exception for loans submitted by licensed mortgage brokers or mortgage
bankers placing loan applications. Quaint Oak Bank also requires
hazard insurance in order to protect the properties securing its real estate
loans. Borrowers must also obtain flood insurance policies when the property is
in a flood hazard area. An environmental questionnaire may be
required on any property where an environmental issue is suspected.
All loans are presented to the loan
committee for review. Quaint Oak Bank's loan approval process is
intended to assess the borrower's ability to repay the loan, the viability of
the loan and the value of the property that will secure the
loan. Loans over $750,000 must be approved by Quaint Oak Bank's loan
committee, which currently consists of Messrs. Ager, Spink, Strong, Schulmeister
and Phillips, who is Chairman.
3
The following table shows our total
loans originated, purchased, sold and repaid during the periods
indicated.
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Year
Ended December 31,
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||||||||
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2007
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2006
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|||||||
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(In
Thousands)
|
||||||||
|
Loan
originations:
|
||||||||
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One-to-four-family residential
(owner occupied and non-owner
occupied)
|
$ | 8,569 | $ | 6,945 | ||||
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Multi-family residential,
commercial real estate, construction and commercial lines of
credit
|
9,884 | 8,781 | ||||||
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Home equity and
other
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3,441 | 3,095 | ||||||
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Total
loan originations
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21,894 | 18,821 | ||||||
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Loans
sold
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-- | (809 | ) | |||||
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Loan
principal repayments
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(14,638 | ) | (16,053 | ) | ||||
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Total
loans sold and principal repayments
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(14,638 | ) | (16,862 | ) | ||||
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Decreases
due to other items, net (1)
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(153 | ) | (96 | ) | ||||
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Net
increase in loan portfolio
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$ | 7,103 | $ | 1,863 | ||||
____________________
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(1)
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Other
items consist of loans in process, deferred fees and the allowance for
loan losses.
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Although Pennsylvania laws and
regulations permit savings banks to originate and purchase loans secured by real
estate located throughout the United States, Quaint Oak Bank concentrates its
lending activity to its primary market area in Bucks, County, and, to a lesser
extent, Montgomery County, Pennsylvania, northeast Philadelphia and the
surrounding area.
During fiscal 2006, Quaint Oak Bank
sold three loans aggregating $809,000 and recognized no gain or loss on the
sale. Loans were sold during this period to another financial
institution with servicing retained by Quaint Oak Bank. There were no
loan sales in 2007. We do not sell loans as a general
practice.
Contractual Terms to Final
Maturities. The following table shows the scheduled
contractual maturities of our loans as of December 31, 2007, before giving
effect to net items. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less. The amounts shown below do not take into account loan
prepayments.
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One-to-Four
Family
Residential
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Multi-family
Residential,
Commercial Real Estate and Construction
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Home
Equity
and
Other
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Total
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|||||||||||||
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(In
Thousands)
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||||||||||||||||
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Amounts
due after December 31, 2007 in:
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||||||||||||||||
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One
year or less
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$ | 2,465 | $ | 4,209 | $ | 1,516 | $ | 8,190 | ||||||||
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After
one year through three years
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8,109 | 7,232 | 135 | 15,476 | ||||||||||||
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After
three years through five years
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2,914 | 7,760 | 142 | 10,816 | ||||||||||||
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After
five years through ten years
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3,681 | 3,060 | 556 | 7,297 | ||||||||||||
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After
ten years through 15 years
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4,659 | 1,955 | 1,881 | 8,495 | ||||||||||||
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After
15 years
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11,177 | 533 | 237 | 11,947 | ||||||||||||
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Total
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$ | 33,005 | $ | 24,749 | $ | 4,467 | $ | 62,221 | ||||||||
4
The following table shows the dollar
amount of our loans at December 31, 2007 due in one year or less from December
31, 2007 as shown in the preceding table, which have fixed interest rates or
which have floating or adjustable interest rates. All of our loans
due after one year have fixed rates of interest.
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Fixed-Rate
|
Floating
or
Adjustable-Rate
|
Total
|
||||||||||
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(In
Thousands)
|
||||||||||||
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One-to-four-family
residential
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$ | 1,256 | $ | 1,209 | $ | 2,465 | ||||||
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Multi-family
residential, commercial real estate, construction and commercial lines of
credit
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1,686 | 2,523 | 4,209 | |||||||||
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Home
equity and other
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1,516 | -- | 1,516 | |||||||||
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Total
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$ | 4,458 | $ | 3,732 | $ | 8,190 | ||||||
Scheduled contractual maturities of
loans do not necessarily reflect the actual expected term of the loan
portfolio. The average life of mortgage loans is substantially less
than their average contractual terms because of prepayments. The average life of
mortgage loans tends to increase when current mortgage loan rates are higher
than rates on existing mortgage loans and, conversely, decrease when rates on
current mortgage loans are lower than existing mortgage loan rates (due to
refinancing of adjustable-rate and fixed-rate loans at lower rates). Under the
latter circumstance, the weighted average yield on loans decreases as higher
yielding loans are repaid or refinanced at lower rates.
One-to-Four Family Residential Real
Estate Loans. The principal lending activity of Quaint Oak
Bank is the origination of loans secured by single-family residences. At
December 31, 2007, $33.0 million, or 53.0%, of our total loan portfolio, before
net items, consisted of one-to-four family residential loans including both
owner occupied and non-owner occupied properties.
It is our policy to lend in a first
lien position on owner occupied residences with fixed and variable rates and
terms up to 30 years. Mortgages without private mortgage insurance
are limited to 80%, or less, of the appraised value, or sale price, of the
secured real estate property, whichever is lower. Mortgages with
private mortgage insurance are limited to 100% of the appraised value, or sale
price, of the secured real estate property, whichever is lower. It is
our policy to lend in a first lien position on non-owner occupied residential
property with fixed and variable rates and terms up to 15 years or longer
amortizations. Primarily such loans are originated at a fixed rate
with a five year maturity. Such loans are generally limited to 80%,
or less, of the appraised value, or sales price plus improvement costs of the
secured real estate property.
Our guidelines for credit quality
generally parallel the Federal National Mortgage Corporation, commonly called
Fannie Mae, and the Federal Home Loan Mortgage Corporation, commonly called
Freddie Mac, secondary market guidelines including income ratios and credit
scores.
In recent years, substantially all of
our residential real estate loans have been originated as fixed rate
loans. Fixed rate loans do not have the same risks associated with a
borrower's ability to repay as adjustable rate loans in a rising interest rate
environment; however, the costs of funding such loans are adversely affected by
rising interest rates.
Commercial Real Estate
Loans. Quaint Oak Bank also originates loans secured by
commercial real estate. At December 31, 2007, $17.5 million, or 28.1% of our
loan portfolio consisted of commercial real estate loans and $1.2 million, or
1.9% of our loan portfolio consisted of commercial lines of
credit. We also originate construction loans, which at December 31,
2007, amounted to $1.7 million or 2.7% of our loan
portfolio. Although commercial real estate loans are generally
considered to have greater credit risk than other certain types of loans, we
intend to continue to originate such loans in our market area.
5
It is our policy to lend in a first
lien position on real property occupied as a commercial business property or
mixed use properties. Quaint Oak Bank offers fixed and variable rate
mortgage loans with terms up to 15 years with longer
amortizations. Commercial real estate loans are limited to 100%, or
less, of the appraised value, or sales price plus improvement costs of the
secured real estate property. Commercial real estate loans are
presented to the loan committee for review and approval, including analysis of
the creditworthiness of the borrower. The loan committee reviews the
cash flows from the property to determine if the proceeds will adequately cover
debt service. A Debt Service Coverage Ratio (DSCR) is calculated
using gross income minus operating expenses vs. debt service. Quaint
Oak Bank uses a DSCR of 1.10. We obtain copies of leases to document
income. Assignments of rents and leases as well as the requirement to
provide annual updates of financial information and rent rolls are included in
the loan documentation.
Home Equity
Loans. Quaint Oak Bank is authorized to make loans for a wide
variety of personal or consumer purposes. Quaint Oak Bank originates
home equity loans in order to accommodate its customers and because such loans
generally have shorter terms and higher interest rates than residential mortgage
loans. As part of our lending strategy, we intend to focus on
increasing home equity loans, including implementing a home equity line of
credit. At December 31, 2007, $4.4 million, or 7.1% of Quaint Oak
Bank's total loan portfolio consisted of home equity loans compared to $3.5
million or 6.4% of the loan portfolio at December 31, 2006.
Loan Origination and Other
Fees. In addition to interest earned on loans, Quaint Oak Bank
generally receives loan origination fees or "points" for originating loans. Loan
points are a percentage of the principal amount of the mortgage loan and are
charged to the borrower in connection with the origination of the
loan.
Asset
Quality
General. Quaint Oak
Bank's collection procedures provide that when a loan is 17 days past due, a
telephone call is made to the borrower by a mortgage clerk. If the
borrower misses a second payment date, an executive officer will contact the
borrower to determine the reason for the delinquency and to work out a possible
solution. Late charges will be assessed based on the number of days
specified in the note beyond the due date. The Board of Directors is
notified of all delinquencies thirty days past due. In most cases,
deficiencies are cured promptly. While we generally prefer to work
with borrowers to resolve such problems, we will institute foreclosure or other
collection proceedings when necessary to minimize any potential
loss.
Loans are placed on non-accrual status
when management believes the probability of collection of interest is
doubtful. When a loan is placed on non-accrual status, previously
accrued but unpaid interest is deducted from interest income. Quaint
Oak Bank generally discontinues the accrual of interest income when the loan
becomes 90 days past due as to principal or interest unless the credit is
well secured and we believe we will fully collect.
Real estate and other assets acquired
by Quaint Oak Bank as a result of foreclosure or by deed-in-lieu of foreclosure
are classified as real estate owned until sold. Quaint Oak Bank did
not have any real estate owned at December 31, 2007 or 2006.
6
Delinquent
Loans. The following table shows the delinquencies in our loan
portfolio as of the dates indicated.
|
December
31, 2007
|
||||||||||||||||
|
30-89
Days
Overdue
|
90
or More Days
Overdue
|
|||||||||||||||
|
Number
of
Loans
|
Principal
Balance
|
Number
of
Loans
|
Principal
Balance
|
|||||||||||||
|
(Dollars
in Thousands)
|
||||||||||||||||
|
One-
to- four-family residential
|
9 | $ | 1,241 | 1 | $ | 8 | ||||||||||
|
Multi-family
residential, commercial real estate, construction and commercial lines of
credit
|
6 | 1,300 | 1 | 141 | ||||||||||||
|
Home
equity and other
|
5 | 123 | -- | -- | ||||||||||||
|
Total delinquent
loans
|
20 | $ | 2,664 | 2 | $ | 149 | ||||||||||
|
Delinquent
loans to total net loans
|
4.3 | % | 0.2 | % | ||||||||||||
|
Delinquent
loans to total loans
|
4.3 | % | 0.2 | % | ||||||||||||
Non-Performing
Assets. The following table shows the amounts of our
non-performing assets (defined as non-accruing loans, accruing loans 90 days or
more past due and real estate owned) at the dates indicated. We did not have troubled
debt restructurings at any of the dates indicated.
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(Dollars
in Thousands)
|
||||||||
|
Non-accruing
loans:
|
||||||||
|
One-
to- four-family residential
|
$ | 1,275 | $ | -- | ||||
|
Multi-family
residential, commercial real estate, construction and commercial lines of
credit
|
82 | -- | ||||||
|
Home
equity and other
|
44 | -- | ||||||
|
Total
non-accruing loans
|
1,401 | -- | ||||||
|
Accruing
loans 90 days or more past due:
|
||||||||
|
One-
to- four-family residential
|
8 | 112 | ||||||
|
Multi-family
residential, commercial real estate, construction and commercial lines of
credit
|
141 | 83 | ||||||
|
Home
equity and other
|
-- | -- | ||||||
|
Total
accruing loans 90 days or more past due
|
149 | 195 | ||||||
|
Total
non-performing loans(1)
|
149 | 195 | ||||||
|
Real
estate owned, net
|
-- | -- | ||||||
|
Total
non-performing assets
|
$ | 1,550 | $ | 195 | ||||
|
Total
non-performing loans as a percentage of
loans, net
|
2.5 | % | 0.4 | % | ||||
|
Total
non-performing loans as a percentage of
total assets
|
2.1 | % | 0.3 | % | ||||
|
Total
non-performing assets as a percentage of
total assets
|
2.1 | % | 0.3 | % | ||||
__________________
|
(1)
|
Non-performing
loans consist of non-accruing loans plus accruing loans 90 days or more
past due.
|
Classified
Assets. Federal regulations require that each insured savings
institution classify its assets on a regular basis. In addition, in connection
with examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a higher possibility of loss.
An asset classified loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. Another
category designated "special mention" also must be established and maintained
for assets which do not currently expose an insured institution to a sufficient
degree of risk to warrant classification as substandard, doubtful or loss.
Assets classified as substandard or doubtful require the institution to
establish general allowances for loan losses. If an asset or portion thereof is
classified as loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge-off such amount. General loss allowances established
to cover possible losses related to assets classified substandard or doubtful
may be included in determining an institution's regulatory capital, while
specific valuation allowances for loan losses do not qualify as regulatory
capital. Federal examiners may disagree with an insured institution's
classifications and amounts reserved.
7
At December 31, 2007, Quaint Oak Bank
had $541,000 of classified assets which were less than 90 days overdue and still
accruing interest.
Allowance for Loan
Losses. At December 31, 2007, Quaint Oak Bank's allowance for
loan losses amounted to $667,000. The allowance for loan losses is
maintained at a level believed, to the best of management's knowledge, to cover
all known and inherent losses in the portfolio both probable and reasonable to
estimate at each reporting date. The level of allowance for loan
losses is based on management's periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing
conditions. Quaint Oak Bank is primarily engaged in originating
single-family residential loans secured by owner occupied and non-owner occupied
properties as well as commercial real estate loans. The management of
Quaint Oak Bank considers the deficiencies of all classified loans in
determining the amount of allowance for loan losses required at each reporting
date. Management analyzes the probability of the correction of the
classified loans' weaknesses and the extent of any known or inherent losses that
Quaint Oak Bank might sustain on them.
While management believes that it
determines the size of the allowance based on the best information available at
the time, the allowance will need to be adjusted as circumstances change and
assumptions are updated. Future adjustments to the allowance could significantly
affect net income.
8
The
following table shows changes in our allowance for loan losses during the
periods presented.
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(Dollars
in Thousands)
|
||||||||
|
Total
loans outstanding at end of period, net
|
$ | 61,656 | $ | 54,553 | ||||
|
Average
loans outstanding
|
$ | 56,001 | $ | 55,252 | ||||
|
Allowance
for loan losses, beginning of period
|
$ | 575 | $ | 491 | ||||
|
Provision
for loan losses
|
93 | 144 | ||||||
|
Charge-offs:
|
||||||||
|
One-
to-four-family residential
|
(1 | ) | (60 | ) | ||||
|
Multi-family
residential, commercial real estate, construction and commercial
lines of credit
|
-- | -- | ||||||
|
Home
equity and other
|
-- | -- | ||||||
|
Total
charge-offs
|
(1 | ) | (60 | ) | ||||
|
Recoveries
on loans previously charged off
|
-- | -- | ||||||
|
Allowance
for loan losses, end of period
|
$ | 667 | $ | 575 | ||||
|
Allowance
for loan losses as a percent of non-performing
loans
|
43.03 | % | 294.87 | % | ||||
|
Ratio
of net charge-offs during the period to
average loans outstanding during the period
|
-- | % | 0.11 | % | ||||
The following table shows how our
allowance for loan losses is allocated by type of loan at each of the dates
indicated.
|
December
31,
|
||||||||||||||||
|
2007
|
2006
|
|||||||||||||||
|
Amount
of
Allowance
|
Loan
Category
as
a % of
Total
Loans
|
Amount
of
Allowance
|
Loan
Category
as
a % of
Total
Loans
|
|||||||||||||
|
(Dollars
in Thousands)
|
||||||||||||||||
|
One-to-four
family residential
|
$ | 231 | 53.0 | % | $ | 217 | 56.4 | % | ||||||||
|
Multi-family
residential, commercial real estate, construction and commercial lines of
credit
|
243 | 39.8 | 197 | 37.2 | ||||||||||||
|
Home
equity and other
|
26 | 7.2 | -- | 6.4 | ||||||||||||
|
Unallocated
|
167 | -- | 161 | -- | ||||||||||||
|
Total
|
$ | 667 | 100.0 | % | $ | 575 | 100.0 | % | ||||||||
Investment
Activities
General. We invest
in securities pursuant to our investment policy, which has been approved by our
Board of Directors. Our investment policy is reviewed annually by our
Asset-Liability Committee (ALCO). All policy changes recommended by
ALCO must be approved by the Board of Directors. ALCO is authorized
by the Board to make investments consistent with the investment
policy. While general investment strategies are developed and
authorized by ALCO, the execution of specific actions rests with the President
and Chief Executive Officer.
Our investment policy is designed
primarily to manage the interest rate sensitivity of our assets and liabilities,
to generate a favorable return without incurring undue interest rate and credit
risk, to complement our lending activities and to provide and maintain
liquidity.
9
Pursuant to Statement of Financial
Accounting Standards (“SFAS”) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, our securities are classified as
available for sale, held to maturity, or trading, at the time of
acquisition. Securities classified as held to maturity must be
purchased with the intent and ability to hold that security until its final
maturity and can be sold prior to maturity only under rare
circumstances. Held to maturity securities are accounted for based
upon the amortized cost of the security. Available for sale
securities can be sold at any time based upon needs or market
conditions. Available for sale securities are accounted for at fair
value, with unrealized gains and losses on these securities, net of income tax
provisions, reflected in stockholders’ equity as accumulated other comprehensive
income. At December 31, 2007, we had $2.0 of securities classified as
available for sale, $2.3 million of securities classified as held to maturity
and no securities classified as trading.
The following table sets forth our
investment portfolio at carrying value as of the dates indicated.
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(In
Thousands)
|
||||||||
|
Interest-earning
time deposits with other financial institutions
|
$ | 1,835 | $ | 1,711 | ||||
|
Mortgage
securities portfolio mutual fund
|
501 | -- | ||||||
|
Auction
market securities
|
1,500 | -- | ||||||
|
U.S.
government agency obligations
|
2,253 | -- | ||||||
|
FHLB
of Pittsburgh stock
|
237 | 263 | ||||||
|
Total
|
$ | 6,326 | $ | 1,974 | ||||
The following table sets forth the
amount of investment securities which mature during each of the periods
indicated and the weighted average yields for each range of maturities at
December 31, 2007.
|
One
Year or Less
|
Over
One Year Through
Five
Years
|
|||||||||||||||
|
Amortized
Cost
|
Weighted
Average
Yield
|
Amortized
Cost
|
Weighted
Average
Yield
|
|||||||||||||
|
(Dollars
in Thousands)
|
||||||||||||||||
|
Interest-earning
time deposits with other financial institutions
|
$ | 1,573 | 5.24 | % | $ | 262 | 4.60 | % | ||||||||
|
U.S.
government agency obligations
|
-- | -- | 2,253 | 5.01 | ||||||||||||
|
Total
|
$ | 1,573 | 5.24 | % | $ | 2,515 | 4.97 | % | ||||||||
Sources of Funds
General. Deposits
are the primary source of Quaint Oak Bank's funds for lending and other
investment purposes. In addition to deposits, principal and interest payments on
loans are a source of funds. Loan repayments are a relatively stable source of
funds, while deposit inflows and outflows are significantly influenced by
general interest rates and money market conditions. Borrowings may also be used
on a short-term basis to compensate for reductions in the availability of funds
from other sources and on a longer-term basis for general business
purposes.
Deposits. Deposits
are attracted by Quaint Oak Bank principally from southwestern Bucks and
southeastern Montgomery Counties, Pennsylvania and northeast Philadelphia. Deposit account
terms vary, with the principal differences being the minimum balance required,
the time periods the funds must remain on deposit and the interest
rate. Quaint Oak Bank does not offer transactional deposit accounts
such as demand deposit or NOW accounts. In the fourth quarter of
2007, Quaint Oak Bank introduced an e-savings deposit account
product. This account allows customers to earn money market rates on
their funds. Withdrawals from this account are processed by
electronic funds transfer through the Automatic Clearing House (ACH) to the
customer’s pre-authorized checking account.
10
Quaint Oak Bank has not solicited
deposits from outside Pennsylvania or paid fees to brokers to solicit funds for
deposit.
Interest rates paid, maturity terms,
service fees and withdrawal penalties are established on a periodic basis.
Management determines the rates and terms based on rates paid by competitors,
the need for funds or liquidity, growth goals and federal
regulations. Management attempts to control the flow of deposits by
pricing the accounts to remain generally competitive with other financial
institutions in our market area.
The following table shows the
distribution of, and certain other information relating to, our deposits by type
of deposit, as of the dates indicated.
|
December
31,
|
|||||||||||||||||
|
2007
|
2006
|
||||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||
|
(Dollars
in Thousands)
|
|||||||||||||||||
|
Certificate
accounts:
|
|||||||||||||||||
|
3.00% - 3.99%
|
$ | 2,214 | 4.0 | % | $ | 4,218 | 7.6 | % | |||||||||
|
4.00% - 4.99%
|
27,957 | 50.6 | 21,430 | 38.4 | |||||||||||||
|
5.00% - 5.99%
|
15,801 | 28.6 | 18,648 | 33.5 | |||||||||||||
|
Total
certificate accounts
|
45,972 | 83.2 | 44,296 | 79.5 | |||||||||||||
|
Transaction
accounts:
|
|||||||||||||||||
|
Passbook
|
3,659 | 6.6 | 4,702 | 8.4 | |||||||||||||
|
Statement
and e-savings accounts
|
5,630 | 10.2 | 6,752 | 12.1 | |||||||||||||
|
Total
transaction accounts
|
9,289 | 16.8 | 11,454 | 20.5 | |||||||||||||
|
Total
deposits
|
$ | 55,261 | 100.0 | % | $ | 55,750 | 100.0 | % | |||||||||
The
following table shows the average balance of each type of deposit and the
average rate paid on each type of deposit for the periods
indicated.
|
Year
Ended December 31,
|
||||||||||||||||||||||||
|
2007
|
2006
|
|||||||||||||||||||||||
|
Average
Balance
|
Interest
Expense
|
Average
Rate
Paid
|
Average
Balance
|
Interest
Expense
|
Average
Rate
Paid
|
|||||||||||||||||||
|
(Dollars
in Thousands)
|
||||||||||||||||||||||||
|
Passbook
|
$ | 4,267 | $ | 59 | 1.38 | % | $ | 6,068 | $ | 84 | 1.38 | % | ||||||||||||
|
Statement
and e-savings accounts
|
6,235 | 173 | 2.77 | 7,368 | 207 | 2.81 | ||||||||||||||||||
|
Certificates
of deposit
|
44,158 | 2,128 | 4.82 | 39,885 | 1,759 | 4.41 | ||||||||||||||||||
|
Total
interest-bearing deposits
|
54,660 | 2,360 | 4.32 | 53,321 | 2,050 | 3.84 | ||||||||||||||||||
|
Total
deposits
|
$ | 54,660 | $ | 2,360 | 4.32 | % | $ | 53,321 | $ | 2,050 | 3.84 | % | ||||||||||||
The following table shows our savings
flows during the periods indicated.
|
Year
Ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(In
Thousands)
|
||||||||
|
Total
deposits
|
$ | 16,083 | $ | 21,830 | ||||
|
Total
withdrawals
|
(18,939 | ) | (19,747 | ) | ||||
|
Interest
credited
|
2,367 | 2,055 | ||||||
|
Total
increase (decrease) in deposits
|
$ | (489 | ) | $ | 4,138 | |||
11
The following table presents, by
various interest rate categories and maturities, the amount of certificates of
deposit at December 31, 2007.
|
Balance
at December 31, 2007
Maturing
in the Twelve Months Ending December 31,
|
|||||||||||||||||||||
|
Certificates
of Deposit
|
2008
|
2009
|
2010
|
Thereafter
|
Total
|
||||||||||||||||
|
(In
Thousands)
|
|||||||||||||||||||||
|
3.00%
- 3.99%
|
$ | 1,498 | $ | 716 | $ | -- | $ | -- | $ | 2,214 | |||||||||||
|
4.00%
- 4.99%
|
16,777 | 6,140 | 3,929 | 1,111 | 27,957 | ||||||||||||||||
|
5.00%
- 5.99%
|
15,558 | 64 | 5 | 174 | 15,801 | ||||||||||||||||
|
Total
certificate accounts
|
$ | 33,833 | $ | 6,920 | $ | 3,934 | $ | 1,285 | $ | 45,972 | |||||||||||
The following table shows the
maturities of our certificates of deposit of $100,000 or more at December 31,
2007 by time remaining to maturity.
|
Quarter
Ending:
|
Amount
|
Weighted
Average
Rate
|
||||||
|
(Dollars
in Thousands)
|
||||||||
|
March
31, 2008
|
$ | 946 | 4.71 | % | ||||
|
June
30, 2008
|
2,598 | 4.89 | ||||||
|
September
30, 2008
|
2,297 | 4.85 | ||||||
|
December
31, 2008
|
2,960 | 4.86 | ||||||
|
After
December 31, 2008
|
2,210 | 4.48 | ||||||
|
Total
certificates of deposit with balances
of $100,000 or more
|
$ | 11,011 | 4.77 | % | ||||
Borrowings. Quaint
Oak Bank may obtain advances from the Federal Home Loan Bank of Pittsburgh upon
the security of the common stock it owns in that bank and certain of its
residential mortgage loans and mortgage-backed and other investment securities,
provided certain standards related to creditworthiness have been met. These
advances are made pursuant to several credit programs, each of which has its own
interest rate and range of maturities. Federal Home Loan Bank advances are
generally available to meet seasonal and other withdrawals of deposit accounts
and to permit increased lending.
As of December 31, 2007, Quaint Oak
Bank was permitted to borrow up to an aggregate total of $37.1 million from the
Federal Home Loan Bank of Pittsburgh. Quaint Oak Bank had no Federal
Home Loan Bank advances outstanding at December 31, 2007 and December 31,
2006.
The following table shows certain
information regarding our borrowings at or for the dates indicated:
|
At
or For the Year
Ended
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(Dollars
in Thousands)
|
||||||||
|
FHLB
advances:
|
||||||||
|
Average
balance outstanding
|
$ | -- | $ | 939 | ||||
|
Maximum
amount outstanding at any month-end during the period
|
-- | 3,000 | ||||||
|
Balance
outstanding at end of period
|
-- | -- | ||||||
|
Average
interest rate during the period
|
-- | % | 5.18 | % | ||||
|
Weighted
average interest rate at end of period
|
-- | % | -- | % | ||||
12
Total
Employees
Quaint Oak Bank had eight full-time
employees at December 31, 2007. None of these employees are represented by a
collective bargaining agreement, and Quaint Oak Bank believes that it enjoys
good relations with its personnel.
Market
Area
Quaint Oak Bank's primary market area
for loans and deposits is in Southampton, Pennsylvania, particularly
southwestern Bucks County, southeastern Montgomery County and northeast
Philadelphia. Quaint Oak Bank's operating strategy is based on strong
personal service and operating efficiency.
Quaint Oak Savings Bank is
headquartered in Southampton in Bucks County, Pennsylvania. Bucks
County lies north of Philadelphia, bordering Montgomery County on the west and
New Jersey to the east. In recent years, population growth has been
above Pennsylvania averages in both Bucks and Montgomery Counties. We
expect population growth and new housing growth will likely remain above the
state average in the near term. Income and wealth demographics in our
market area are also above both national and Pennsylvania averages.
Competition
Quaint Oak Bank faces significant
competition both in attracting deposits and in making loans. Its most direct
competition for deposits has come historically from commercial banks, credit
unions and other savings institutions located in its primary market area,
including many large financial institutions which have greater financial and
marketing resources available to them. In addition, Quaint Oak Bank faces
significant competition for investors' funds from short-term money market
securities, mutual funds and other corporate and government
securities. Currently, Quaint Oak Bank must compete against a number
of small community banks, four regional banks and two national banks in Bucks
County. Also, given Quaint Oak Bank's operating strategies and
reliance on savings accounts and certificates, Quaint Oak Bank also faces
intense competition from the money market mutual funds and national savings
products. Quaint Oak Bank does not rely upon any individual group or
entity for a material portion of its deposits. The ability of Quaint Oak Bank to
attract and retain deposits depends on its ability to generally provide a rate
of return, liquidity and risk comparable to that offered by competing investment
opportunities.
Quaint Oak Bank's competition for real
estate loans comes principally from mortgage banking companies, commercial
banks, other savings institutions and credit unions. Quaint Oak Bank competes
for loan originations primarily through the interest rates and loan fees it
charges, and the efficiency and quality of services it provides borrowers.
Factors that affect competition include general and local economic conditions,
current interest rate levels and volatility in the mortgage markets. Competition
may increase as a result of the continuing reduction of restrictions on the
interstate operations of financial institutions.
At June 30, 2007, the latest date for
which information is available, the size of the market in Bucks County,
Pennsylvania, as defined by total Federal Deposit Insurance Corporation insured
deposits, was $12.0 billion, populated by 256 branch offices. Based
on information available on the Federal Deposit Insurance Corporation's website
at www.fdic.gov,
commercial banks accounted for $9.2 billion of such deposits, served by 192 of
the 256 branches. Savings institutions had the remaining 64 branches
totaling $2.8 billion in deposits, or 23.3% of the market.
13
Regulation of Quaint Oak Bancorp
General. Quaint Oak
Bancorp is subject to regulation as a savings and loan holding company under the
Home Owners' Loan Act, as amended, because we made an election under Section
10(l) of the Home Owners' Loan Act to be treated as a "savings association" for
purposes of Section 10 of the Home Owners' Loan Act. As a result,
Quaint Oak Bancorp has registered with the Office of Thrift Supervision and is
subject to Office of Thrift Supervision regulations, examinations, supervision
and reporting requirements relating to savings and loan holding
companies. Quaint Oak Bancorp is also required to file certain
reports with, and otherwise comply with the rules and regulations of, the
Pennsylvania Department of Banking and the Securities and Exchange
Commission. As a subsidiary of a savings and loan holding company,
Quaint Oak Bank is subject to certain restrictions in its dealings with Quaint
Oak Bancorp and affiliates thereof, including the Office of Thrift Supervision's
qualified thrift lender requirement, dividend restrictions and transactions with
affiliates regulations.
Restrictions Applicable to Quaint Oak
Bancorp. As a non-grandfathered savings and loan holding
company, Quaint Oak Bancorp is permitted to engage only in the following
activities:
|
·
|
furnishing
or performing management services for a subsidiary savings
institution;
|
|
|
·
|
conducting
an insurance agency or escrow business;
|
|
|
·
|
holding,
managing, or liquidating assets owned or acquired from a subsidiary
savings institution;
|
|
|
·
|
holding
or managing properties used or occupied by a subsidiary savings
institution;
|
|
|
·
|
acting
as trustee under a deed of trust;
|
|
|
·
|
any
other activity (i) that the Federal Reserve Board, by regulation, has
determined to be permissible for bank holding companies under Section 4(c)
of the Bank Holding Company Act of 1956, unless the Director of the Office
of Thrift Supervision, by regulation, prohibits or limits any such
activity for savings and loan holding companies, or (ii) in which multiple
savings and loan holding companies were authorized by regulation to
directly engage in on March 5, 1987;
|
|
|
·
|
purchasing,
holding, or disposing of stock acquired in connection with a qualified
stock issuance if the purchase of such stock by such holding company is
approved by the Director of the Office of Thrift Supervision;
and
|
|
|
·
|
any
activity permissible for financial holding companies under section 4(k) of
the Bank Holding Company Act.
|
14
Permissible activities which are deemed
to be financial in nature or incidental thereto under section 4(k) of the Bank
Holding Company Act include:
|
·
|
lending,
exchanging, transferring, investing for others, or safeguarding money or
securities;
|
|
|
·
|
insurance
activities or providing and issuing annuities, and acting as principal,
agent, or broker;
|
|
|
·
|
financial,
investment, or economic advisory services;
|
|
|
·
|
issuing
or selling instruments representing interests in pools of assets that a
bank is permitted to hold directly;
|
|
|
·
|
underwriting,
dealing in, or making a market in securities;
|
|
|
·
|
activities
previously determined by the Federal Reserve Board to be closely related
to banking;
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activities
that bank holding companies are permitted to engage in outside of the
U.S.; and
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portfolio
investments made by an insurance
company.
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In
addition, Quaint Oak Bancorp cannot be acquired unless the acquirer is engaged
solely in financial activities or to acquire a company unless the company is
engaged solely in financial activities.
If a
savings and loan holding company acquires or merges with another holding
company, the holding company acquired or the holding company resulting from such
merger or acquisition may only invest in assets and engage in the activities
listed above, and it has a period of two years to cease any non-conforming
activities and divest any non-conforming investments. As of December
31, 2007, Quaint Oak Bancorp was not engaged in any non-conforming activities
and it did not have any non-conforming investments.
If the subsidiary savings association
fails to meet the Qualified Thrift Lender test set forth in Section 10(m) of the
Home Owners' Loan Act, as discussed below, then the savings and loan holding
company must register with the Federal Reserve Board as a bank holding company,
unless the savings institution requalifies as a Qualified Thrift Lender within
one year thereafter.
Qualified Thrift Lender
Test. Under Section 2303 of the Economic Growth and Regulatory
Paperwork Reduction Act of 1996, a savings association can comply with the
Qualified Thrift Lender test by either meeting the Qualified Thrift Lender test
set forth in the Home Owners' Loan Act and implementing regulations or
qualifying as a domestic building and loan association as defined in Section
7701(a)(19) of the Internal Revenue Code of 1986, as amended. A
savings association subsidiary of a savings and loan holding company that does
not comply with the Qualified Thrift Lender test must comply with the following
restrictions on its operations:
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the
institution may not engage in any new activity or make any new investment,
directly or indirectly, unless such activity or investment is permissible
for a national bank;
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the
branching powers of the institution shall be restricted to those of a
national bank; and
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payment
of dividends by the institution shall be subject to the rules regarding
payment of dividends by a national
bank.
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15
Upon the expiration of three years from the date the institution ceases to meet the Qualified Thrift Lender test, it must cease any activity and not retain any investment not permissible for a national bank (subject to safety and soundness considerations).
Quaint Oak Bank believes that it meets
the provisions of the Qualified Thrift Lender test.
Limitations on Transactions with
Affiliates. Transactions between savings associations and any
affiliate are governed by Sections 23A and 23B of the Federal Reserve Act as
made applicable to savings associations by Section 11 of the Home Owners' Loan
Act. An affiliate of a savings association is any company or entity
which controls, is controlled by or is under common control with the savings
association. In a holding company context, the holding company of a
savings association (such as Quaint Oak Bancorp) and any companies which are
controlled by such holding company are affiliates of the savings
association. Generally, Section 23A limits the extent to which the
savings association or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such association's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and
surplus. Section 23B applies to "covered transactions" as well as
certain other transactions and requires that all transactions be on terms
substantially the same, or at least as favorable, to the savings association as
those provided to a non-affiliate. The term "covered transaction"
includes the making of loans to, purchase of assets from and issuance of a
guarantee to an affiliate and similar transactions. Section 23B
transactions also include the provision of services and the sale of assets by a
savings association to an affiliate. In addition to the restrictions
imposed by Sections 23A and 23B, Section 11 of the Home Owners' Loan Act
prohibits a savings association from (i) making a loan or other extension of
credit to an affiliate, except for any affiliate which engages only in certain
activities which are permissible for bank holding companies, or (ii) purchasing
or investing in any stocks, bonds, debentures, notes or similar obligations of
any affiliate, except for affiliates which are subsidiaries of the savings
association.
In addition, Sections 22(g) and (h) of
the Federal Reserve Act as made applicable to savings associations by Section 11
of the Home Owners' Loan Act, place restrictions on loans to executive officers,
directors and principal stockholders of the savings association and its
affiliates. Under Section 22(h), loans to a director, an executive
officer and to a greater than 10% stockholder of a savings association, and
certain affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
association's loans to one borrower limit (generally equal to 15% of the
association's unimpaired capital and surplus). Section 22(h) also
requires that loans to directors, executive officers and principal stockholders
be made on terms substantially the same as offered in comparable transactions to
other persons unless the loans are made pursuant to a benefit or compensation
program that (i) is widely available to employees of the association and (ii)
does not give preference to any director, executive officer or principal
stockholder, or certain affiliated interests of either, over other employees of
the savings association. Section 22(h) also requires prior board
approval for certain loans. In addition, the aggregate amount of
extensions of credit by a savings association to all insiders cannot exceed the
association's unimpaired capital and surplus. Furthermore, Section
22(g) places additional restrictions on loans to executive
officers. As an insured state chartered savings bank, Quaint Oak Bank
currently is subject to Sections 22(g) and (h) of the Federal Reserve Act and at
December 31, 2006, was in compliance with the above restrictions.
Restrictions on
Acquisitions. Except under limited
circumstances, savings and loan holding companies are prohibited from acquiring,
without prior approval of the Director of the Office of Thrift Supervision, (i)
control of any other savings association or savings and loan holding company or
substantially all the assets thereof or (ii) more than 5% of the voting shares
of a savings association or holding company thereof which is not a
subsidiary. Except with the prior approval of the Director, no
director or officer of a savings and loan holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's stock, may
acquire control of any savings association, other than a subsidiary savings
association, or of any other savings and loan holding company.
16
The Director of the Office of Thrift
Supervision may only approve acquisitions resulting in the formation of a
multiple savings and loan holding company which controls savings associations in
more than one state if (i) the multiple savings and loan holding company
involved controls a savings association which operated a home or branch office
located in the state of the association to be acquired as of March 5, 1987; (ii)
the acquirer is authorized to acquire control of the savings association
pursuant to the emergency acquisition provisions of the Federal Deposit
Insurance Act ; or (iii) the statutes of the state in which the association to
be acquired is located specifically permit associations to be acquired by the
state-chartered associations or savings and loan holding companies located in
the state where the acquiring entity is located (or by a holding company that
controls such state-chartered savings associations).
Federal Securities
Laws. Quaint Oak Bancorp's common stock is registered with the
Securities and Exchange Commission under Section 12(g) of the Securities
Exchange Act of 1934, as amended. Quaint Oak Bancorp is subject to
information, proxy solicitation, insider trading restrictions, and other
requirements under the Securities Exchange Act of 1934.
The Sarbanes-Oxley
Act. Quaint Oak Bancorp is subject to the Sarbanes-Oxley Act
of 2002, which implements a broad range of corporate governance and accounting
measures for public companies designed to promote honesty and transparency in
corporate America and better protect investors from corporate
wrongdoing. The Sarbanes-Oxley Act's principal legislation and the
derivative regulation and rule-making promulgated by the Securities and Exchange
Commission include:
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the
creation of an independent accounting oversight board;
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auditor
independence provisions that restrict non-audit services that accountants
may provide to their audit clients;
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additional
corporate governance and responsibility measures, including the
requirement that the chief executive officer and chief financial officer
certify financial statements;
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a
requirement that companies establish and maintain a system of internal
control over financial reporting and that a company's management provide
an annual report regarding its assessment of the effectiveness of such
internal control over financial reporting to the company's independent
accountants and that such accountants provide an attestation report with
respect to management's assessment of the effectiveness of the company's
internal control over financial reporting;
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the
forfeiture of bonuses or other incentive-based compensation and profits
from the sale of an issuer's securities by directors and senior officers
in the twelve month period following initial publication of any financial
statements that later require restatement;
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an
increase in the oversight of, and enhancement of certain requirements
relating to audit committees of public companies and how they interact
with the company's independent auditors;
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the
requirement that audit committee members must be independent and are
absolutely barred from accepting consulting, advisory or other
compensatory fees from the issuer;
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17
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the
requirement that companies disclose whether at least one member of the
committee is a "financial expert" (as such term is defined by the
Securities and Exchange Commission) and if not, why
not;
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expanded
disclosure requirements for corporate insiders, including accelerated
reporting of stock transactions by insiders and a prohibition on insider
trading during pension blackout periods;
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a
prohibition on personal loans to directors and officers, except certain
loans made by insured financial institutions;
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disclosure
of a code of ethics and the requirement of filing of a Form 8-K for a
change or waiver of such code;
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mandatory
disclosure by analysts of potential conflicts of interest;
and
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a
range of enhanced penalties for fraud and other
violations.
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Regulation
of Quaint Oak Bank
Pennsylvania Banking
Law. The Pennsylvania Banking Code contains detailed
provisions governing the organization, location of offices, rights and
responsibilities of directors, officers, employees and members, as well as
corporate powers, savings and investment operations and other aspects of Quaint
Oak Bank and its affairs. The Pennsylvania Banking Code delegates
extensive rulemaking power and administrative discretion to the Pennsylvania
Department of Banking so that the supervision and regulation of state-chartered
savings banks may be flexible and readily responsive to changes in economic
conditions and in savings and lending practices.
One of the purposes of the Pennsylvania
Banking Code is to provide savings banks with the opportunity to be competitive
with each other and with other financial institutions existing under other
Pennsylvania laws and other state, federal and foreign laws. A
Pennsylvania savings bank may locate or change the location of its principal
place of business and establish an office anywhere in the Commonwealth, with the
prior approval of the Pennsylvania Department of Banking.
The Pennsylvania Department of Banking
generally examines each savings bank not less frequently than once every two
years. Although the Pennsylvania Department of Banking may accept the
examinations and reports of the Federal Deposit Insurance Corporation in lieu of
its own examination, the present practice is for the Pennsylvania Department of
Banking to conduct individual examinations. The Pennsylvania
Department of Banking may order any savings bank to discontinue any violation of
law or unsafe or unsound business practice and may direct any trustee, officer,
attorney or employee of a savings bank engaged in an objectionable activity,
after the Pennsylvania Department of Banking has ordered the activity to be
terminated, to show cause at a hearing before the Pennsylvania Department of
Banking why such person should not be removed.
Insurance of
Accounts. The deposits of Quaint Oak Bank are insured to the
maximum extent permitted by the Deposit Insurance Fund, administered by the
Federal Deposit Insurance Corporation, and are backed by the full faith and
credit of the U.S. Government. As insurer, the Federal Deposit
Insurance Corporation is authorized to conduct examinations of, and to require
reporting by, insured institutions. It also may prohibit any insured
institution from engaging in any activity determined by regulation or order to
pose a serious threat to the Federal Deposit Insurance Corporation.
18
Under regulations effective January 1,
2007, the FDIC adopted a new risk-based premium system that provides for
quarterly assessments based on an insured institution's ranking in one of four
risk categories based upon supervisory and capital
evaluations. Well-capitalized institutions (generally those with
CAMELS composite ratings of 1 or 2) are grouped in Risk Category I and assessed
for deposit insurance at an annual rate of between five and seven basis
points. The assessment rate for an individual institution is
determined according to a formula based on a weighted average of the
institution's individual CAMEL component ratings plus either five financial
ratios or, in the case of an institution with assets of $10.0 billion or more,
the average ratings of its long-term debt. Institutions in Risk
Categories II, III and IV assessed at annual rates of 10, 28 and 43 points,
respectively.
In addition, all institutions with
deposits insured by the Federal Deposit Insurance Corporation are required to
pay assessments to fund interest payments on bonds issued by the Financing
Corporation, a mixed-ownership government corporation established to
recapitalize a predecessor to the Deposit Insurance Fund. The
assessment rate for the first quarter of 2007 was 0.0122% of insured deposits
and is adjusted quarterly. These assessments will continue until the
Financing Corporation bonds mature in 2019.
The Federal Deposit Insurance
Corporation may terminate the deposit insurance of any insured depository
institution, including Quaint Oak Bank, if it determines after a hearing that
the institution has engaged or is engaging in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the Federal Deposit Insurance Corporation. It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the Federal Deposit Insurance Corporation. Management is aware of no
existing circumstances which would result in termination of Quaint Oak Bank's
deposit insurance.
Capital
Requirements. The Federal Deposit Insurance Corporation has
promulgated regulations and adopted a statement of policy regarding the capital
adequacy of state-chartered savings banks which, like Quaint Oak Bank, are not
members of the Federal Reserve System. These requirements are
substantially similar to those adopted by the Federal Reserve Board regarding
bank holding companies.
The Federal Deposit Insurance
Corporation's capital regulations establish a minimum 3.0% Tier I leverage
capital requirement for the most highly-rated state-chartered, non-member banks,
with an additional cushion of at least 100 to 200 basis points for all other
state-chartered, non-member banks, which effectively will increase the minimum
Tier I leverage ratio for such other banks to 4.0% to 5.0% or
more. Under the Federal Deposit Insurance Corporation's regulation,
highest-rated banks are those that the Federal Deposit Insurance Corporation
determines are not anticipating or experiencing significant growth and have well
diversified risk, including no undue interest rate risk exposure, excellent
asset quality, high liquidity, good earnings and, in general, which are
considered a strong banking organization and are rated composite 1 under the
Uniform Financial Institutions Rating System. Leverage or core
capital is defined as the sum of common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, and
minority interests in consolidated subsidiaries, minus all intangible assets
other than certain qualifying supervisory goodwill and certain purchased
mortgage servicing rights.
19
The Federal Deposit Insurance
Corporation also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires
the maintenance of total capital (which is defined as Tier I capital and
supplementary (Tier 2) capital) to risk weighted assets of 8%. In
determining the amount of risk-weighted assets, all assets, plus certain off
balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on
the risks the Federal Deposit Insurance Corporation believes are inherent in the
type of asset or item. The components of Tier I capital are
equivalent to those discussed above under the 3% leverage capital
standard. The components of supplementary capital include certain
perpetual preferred stock, certain mandatory convertible securities, certain
subordinated debt and intermediate preferred stock and general allowances for
loan and lease losses. Allowance for loan and lease losses includable
in supplementary capital is limited to a maximum of 1.25% of risk-weighted
assets. Overall, the amount of capital counted toward supplementary capital
cannot exceed 100% of core capital.
Quaint Oak Bank is also subject to more
stringent Pennsylvania Department of Banking capital
guidelines. Although not adopted in regulation form, the Pennsylvania
Department of Banking utilizes capital standards requiring a minimum of 6%
leverage capital and 10% risk-based capital. The components of
leverage and risk-based capital are substantially the same as those defined by
the Federal Deposit Insurance Corporation.
At
December 31, 2007, Quaint Oak Bank's capital ratios exceeded each of its capital
requirements. See Note 13 to the notes to our financial statements
included elsewhere herein.
Activities and Investments of Insured
State-Chartered Savings Banks. The activities and equity
investments of Federal Deposit Insurance Corporation-insured, state-chartered
savings banks are generally limited to those that are permissible for national
banks. Under regulations dealing with equity investments, an insured
state bank generally may not directly or indirectly acquire or retain any equity
investment of a type, or in an amount, that is not permissible for a national
bank. An insured state bank is not prohibited from, among other
things:
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acquiring
or retaining a majority interest in a subsidiary;
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investing
as a limited partner in a partnership the sole purpose of which is direct
or indirect investment in the acquisition, rehabilitation or new
construction of a qualified housing project, provided that such limited
partnership investments may not exceed 2% of the bank's total
assets;
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acquiring
up to 10% of the voting stock of a company that solely provides or
reinsures directors', trustees' and officers' liability insurance coverage
or bankers' blanket bond group insurance coverage for insured depository
institutions; and
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acquiring
or retaining the voting shares of a depository institution if certain
requirements are met.
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The
Federal Deposit Insurance Corporation has adopted regulations pertaining to the
other activity restrictions imposed upon insured state banks and their
subsidiaries. Pursuant to such regulations, insured state banks
engaging in impermissible activities may seek approval from the Federal Deposit
Insurance Corporation to continue such activities. State banks not
engaging in such activities but that desire to engage in otherwise impermissible
activities either directly or through a subsidiary may apply for approval from
the Federal Deposit Insurance Corporation to do so; however, if such bank fails
to meet the minimum capital requirements or the activities present a significant
risk to the Deposit Insurance Fund, such application will not be approved by the
Federal Deposit Insurance Corporation. Pursuant to this authority,
the Federal Deposit Insurance Corporation has determined that investments in
certain majority-owned subsidiaries of insured state banks do not represent a
significant risk to the deposit insurance funds. Investments
permitted under that authority include real estate activities and securities
activities.
20
Restrictions on Capital
Distributions. Office of Thrift Supervision regulations govern capital
distributions by savings institutions, which include cash dividends, stock
repurchases and other transactions charged to the capital account of a savings
institution to make capital distributions. These regulations apply to
Quaint Oak Bancorp because Quaint Oak Bank is considered a savings association
for certain purposes under Office of Thrift Supervision
regulations. Under applicable regulations, a savings association must
file an application for Office of Thrift Supervision approval of the capital
distribution if:
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the
total capital distributions for the applicable calendar year exceed the
sum of the institution's net income for that year to date plus the
institution's retained net income for the preceding two
years;
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the
institution would not be at least adequately capitalized following the
distribution;
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the
distribution would violate any applicable statute, regulation, agreement
or Office of Thrift Supervision-imposed condition; or
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the
institution is not eligible for expedited treatment of its filings with
the Office of Thrift Supervision.
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If an application is not required to be
filed, state savings banks that elect to be treated as savings associations such
as Quaint Oak Bank and which are a subsidiary of a holding company (as well as
certain other institutions) must still file a notice with the Office of Thrift
Supervision at least 30 days before the board of directors declares a dividend
or approves a capital distribution.
A savings association that either
before or after a proposed capital distribution fails to meet its then
applicable minimum capital requirement or that has been notified that it needs
more than normal supervision may not make any capital distributions without the
prior written approval of the Office of Thrift Supervision. In
addition, the Office of Thrift Supervision may prohibit a proposed capital
distribution, which would otherwise be permitted by Office of Thrift Supervision
regulations, if the Office of Thrift Supervision determines that such
distribution would constitute an unsafe or unsound practice.
The Federal Deposit Insurance
Corporation prohibits an insured depository institution from paying dividends on
its capital stock or interest on its capital notes or debentures (if such
interest is required to be paid only out of net profits) or distributing any of
its capital assets while it remains in default in the payment of any assessment
due the Federal Deposit Insurance Corporation. Quaint Oak Bank is
currently not in default in any assessment payment to the Federal Deposit
Insurance Corporation.
Privacy Requirements of the
Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act of 1999
provided for sweeping financial modernization for commercial banks, savings
banks, securities firms, insurance companies, and other financial institutions
operating in the United States. Among other provisions, the
Gramm-Leach-Bliley Act places limitations on the sharing of consumer financial
information with unaffiliated third parties. Specifically, the
Gramm-Leach-Bliley Act requires all financial institutions offering financial
products or services to retail customers to provide such customers with the
financial institution's privacy policy and provide such customers the
opportunity to "opt out" of the sharing of personal financial information with
unaffiliated third parties. Quaint Oak Bank currently has a privacy
protection policy in place and believes such policy is in compliance with the
Gramm-Leach-Bliley Act and its implementing regulations.
21
Anti-Money
Laundering. On
October 26, 2001, in response to the events of September 11, 2001, the President
of the United States signed into law the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (referred to as the USA PATRIOT Act). The USA PATRIOT Act
amended the Bank Secrecy Act to significantly expand the responsibilities of
financial institutions, including insured state savings banks such as Quaint Oak
Bank, in preventing the use of the U.S. financial system to fund terrorist
activities. Title III of the USA PATRIOT Act provides for a
significant overhaul of the U.S. anti-money laundering regime. Among
other provisions, it requires financial institutions operating in the United
States to develop new anti-money laundering compliance programs, due diligence
policies and controls to ensure the detection and reporting of money laundering.
Such compliance programs are intended to supplement existing compliance
requirements, also applicable to financial institutions, under the Bank Secrecy
Act and the Office of Foreign Assets Control Regulations. Quaint Oak
Bank has established policies and procedures to ensure compliance with the
USA PATRIOT Act's
provisions.
Regulatory Enforcement
Authority. The federal banking laws provide substantial
enforcement powers available to federal banking regulators. This
enforcement authority includes, among other things, the ability to assess civil
money penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with
regulatory authorities.
Federal
and State Taxation
General. Quaint Oak
Bancorp and Quaint Oak Bank are subject to federal income tax provisions of the
Internal Revenue Code of 1986, as amended, in the same general manner as other
corporations with some exceptions listed below. For federal income
tax purposes, Quaint Oak Bancorp intends to file a consolidated federal income
tax return with its wholly owned subsidiaries on a fiscal year
basis. The applicable federal income tax expense or benefit will be
properly allocated to each entity based upon taxable income or loss calculated
on a separate company basis.
Method of
Accounting. For federal income tax purposes, income and
expenses are reported on the accrual method of accounting and Quaint Oak Bancorp
files its federal income tax return using a December 31 fiscal year
end.
Bad Debt
Reserves. The Small Business Job Protection Act of 1996
eliminated the use of the reserve method of accounting for bad debt reserves by
savings institutions, effective for taxable years beginning after
1995. Prior to that time, Quaint Oak Bank was permitted to establish
a reserve for bad debts and to make additions to the reserve. These
additions could, within specified formula limits, be deducted in arriving at
taxable income. As a result of the Small Business Job Protection Act,
savings associations must use the specific charge-off method in computing their
bad debt deduction beginning with their 1996 federal tax return.
Taxable Distributions and
Recapture. Prior to the Small Business Job Protection Act, bad
debt reserves created prior to January 1, 1988 were subject to recapture into
taxable income if a savings bank failed to meet certain thrift asset and
definitional tests. New federal legislation eliminated these thrift
related recapture rules. However, under current law, pre-1988
reserves remain subject to recapture should a savings bank make certain
non-dividend distributions or cease to maintain a savings bank
charter. At December 31, 2007, Quaint Oak Bank did not have federal
pre-1988 reserves subject to recapture.
22
Minimum Tax. The
Internal Revenue Code imposes an alternative minimum tax ("AMT") at a rate of
20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable
to the extent such AMTI is in excess of an exemption amount. Net
operating losses can offset no more than 90% of AMTI. Certain
payments of alternative minimum tax may be used as credits against regular tax
liabilities in future years. Quaint Oak Bancorp has not been subject
to the AMT nor does it have any such amounts available as credits for
carryover.
Corporate Dividends Received
Deduction. Quaint Oak Bancorp may exclude from income 100% of
dividends received from a member of the same affiliated group of
corporations. The corporate dividends received deduction is 80% in
the case of dividends received from corporations, which a corporate recipient
owns less than 80%, but at least 20% of the distribution
corporation. Corporations that own less than 20% of the stock of a
corporation distributing a dividend may deduct only 70% of dividends
received.
Other Matters. Quaint Oak Bank
has not been audited by the IRS during the last five years.
State
and Local Taxation
Pennsylvania
Taxation. Quaint Oak Bancorp is subject to the Pennsylvania
Corporate Net Income Tax and Capital Stock and Franchise Tax. The
Corporation Net Income Tax rate for 2007 is 9.99% and is imposed on
unconsolidated taxable income for federal purposes with certain
adjustments. In general, the Capital Stock and Franchise Tax is a
property tax imposed on a corporation's capital stock value at a statutorily
defined rate, such value being determined in accordance with a fixed formula
based upon average net income and net worth.
Quaint Oak Bank is subject to tax under
the Pennsylvania Mutual Thrift Institutions Tax Act (the "MTIT"), as amended to
include thrift institutions having capital stock. Pursuant to the
MTIT, the tax rate is 11.5%. The MTIT exempts Quaint Oak Bank from
other taxes imposed by the Commonwealth of Pennsylvania for state income tax
purposes and from all local taxation imposed by political subdivisions, except
taxes on real estate and real estate transfers. The MTIT is a tax
upon net earnings, determined in accordance with U.S. generally accepted
accounting principles with certain adjustments. The MTIT, in
computing income under U.S. generally accepted accounting principles, allows for
the deduction of interest earned on state and federal obligations, while
disallowing a percentage of a thrift's interest expense deduction in the
proportion of interest income on those securities to the overall interest income
of Quaint Oak Bank. Net operating losses, if any, thereafter can be
carried forward three years for MTIT purposes.
Item 1A. Risk
Factors.
Not applicable.
Item 1B. Unresolved Staff
Comments.
Not applicable.
23
Item 2. Properties.
As of December 31, 2007, Quaint Oak
Bancorp conducted its business from its main office in Southampton,
Pennsylvania. The following table sets forth the net book value of
the leasehold improvements and certain other information with respect to our
main office at December 31, 2007.
|
Description/Address
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Leased/Owned
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Date
of Lease Expiration
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Net
Book Value
of
Property
|
Amount
of
Deposits
|
|||||||||
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(In
Thousands)
|
|||||||||||||
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607
Lakeside Drive
Southampton,
Pennsylvania 18966
|
Leased
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--
(1)
|
$ | -- | $ | 55,261 | |||||||
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607
Lakeside Drive
Southampton,
Pennsylvania 18966
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Leased
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11/30/08(2)
|
8 | -- | |||||||||
____________________
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(1)
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Such
lease is month to month, with 120 days' notice required for
termination.
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(2)
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Such
lease is renewable for one year, with 90 days’ notice
required.
|
Item 3. Legal
Proceedings.
Quaint
Oak Bancorp is not involved in any legal proceedings except nonmaterial
litigation incidental to the ordinary course of business.
Item
4. Submission of Matters to a Vote of Security
Holders.
Not
Applicable.
PART
II
Item
5. Market for the Registrant's
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
(a) The
information required herein is incorporated by reference from page 34 of Quaint
Oak Bancorp’s 2007 Annual Report to Shareholders ("Annual Report").
(b) Not
applicable.
(c) Not
applicable.
Item 6. Selected
Financial Data.
The
information required herein is incorporated by reference from page 2 of the
Annual Report.
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The
information required herein is incorporated by reference from pages 3 to 11 of
the Annual Report.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
As a
smaller reporting company (as defined) we are not required to provide this
information.
24
Item 8. Financial
Statements and Supplementary Data.
The
information required herein is incorporated by reference from pages 12 to 33 of
the Annual Report.
Item 9. Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
Not
Applicable.
Item 9A. Controls
and Procedures.
Attached
as exhibits to this Form 10-K are certifications of Quaint Oak Bancorp's
principal executive officer and principal financial officer, which are required
in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as
amended. This Item 9A includes information concerning the controls and controls
evaluation referred to in the certifications.
Evaluation
of Disclosure Controls and Procedures
We are not yet subject to Section 404
of the Sarbanes-Oxley Act which, when applicable, will require us to include
Management’s Report on Internal Control Over Financial Reporting and an
Attestation Report of our Independent Registered Public Accounting Firm in our
Annual Report on Form 10-K. Under the applicable rules of the
Securities and Exchange Commission for newly formed public companies, Section
404 will not apply to us until
the due date of our annual report for the year ending December 31,
2008.
Our
management evaluated, with the participation of our principal executive officer
and principal financial officer, the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of December 31, 2007. Based on such
evaluation, our principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
regulations and are operating in an effective manner.
Changes
in Internal Control over Financial Reporting
No change
in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the
fourth fiscal quarter of fiscal 2007 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other
Information.
Not
applicable.
25
PART
III
Item
10. Directors and Executive Officers of the Registrant.
The
information required herein is incorporated by reference from the information
contained in the sections captioned "Information with Respect to Nominees for
Director, Directors Whose Terms Continue and Executive Officers" and “Beneficial
Ownership of Common Stock by Certain Owners and Management – Section 16(a)
Beneficial Ownership Reporting Compliance” in Quaint Oak Bancorp’s definitive
Proxy Statement for the Annual Meeting of Shareholders to be held May 14, 2008
(the "Proxy Statement"), a copy of which will be filed with the Securities and
Exchange Commission before the meeting date.
Quaint
Oak Bancorp has adopted a Code of Conduct and Ethics that applies to its
principal executive officer and principal financial officer, as well as other
officers and employees of Quaint Oak Bancorp and Quaint Oak Bank. A copy of the
Code of Ethics is available on the Company's website at
www.quaintoak.com.
Item
11. Executive Compensation.
The
information required herein is incorporated by reference from the information
contained in the sections captioned “Information with Respect to Nominees for
Director, Continuing Directors and Executive Officers – Director Compensation”
and "Executive Compensation" in the Proxy Statement.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder
Matters.
The
information required herein is incorporated by reference from the information
contained in the section captioned "Beneficial Ownership of Common Stock by
Certain Beneficial Owners and Management" in the Proxy Statement.
Item 13. Certain
Relationships and Related Transactions.
The
information required herein is incorporated by reference from the information
contained in the section captioned “Information with Respect to Nominees for
Director, Continuing Directors and Executive Officers – Transactions with
Certain Related Persons” in the Proxy Statement.
Item
14. Principal Accounting Fees and Services.
The
information required herein is incorporated by reference from the information
contained in the section captioned "Ratification of Appointment of Independent
Registered Public Accounting Firm – Audit Fees" in the Proxy
Statement.
26
PART
IV
Item 15.
Exhibits, Financial Statement Schedules.
(a) (1) The
following financial statements are incorporated by reference from Item 8 hereof
(see Exhibit 13.0):
|
Report
of Independent Registered Public Accounting Firm
|
|
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
|
Consolidated
Statements of Income for the Years Ended December 31, 2007 and
2006
|
|
Consolidated
Statements of Stockholders' Equity for the Years Ended December 31, 2007
and 2006
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2007 and
2006
|
|
Notes
to Consolidated Financial
Statements
|
(2) All
schedules are omitted because they are not required or applicable, or the
required information is shown in the consolidated financial statements or the
notes thereto.
(3) Exhibits
The following exhibits are filed as
part of this Form 10-K and this list includes the Exhibit Index.
|
No.
|
Exhibits
|
Location
|
||
|
3.1
|
Articles
of Incorporation of Quaint Oak Bancorp, Inc.
|
(1)
|
||
|
3.2
|
Bylaws
of Quaint Oak Bancorp, Inc.
|
(1)
|
||
|
4.1
|
Form
of Stock Certificate of Quaint Oak Bancorp, Inc.
|
(1)
|
||
|
10.1
|
Employment
Agreement by and between Robert T. Strong and Quaint Oak Savings Bank, as
amended*
|
(1)
|
||
|
13.0
|
Annual
Report to Shareholders
|
Filed
herewith
|
||
|
22.0
|
Subsidiaries
of the Registrant – Reference is made to "Item 1. Business -
Subsidiaries" of this Form 10-K for the required
information
|
--
|
||
|
31.1
|
Certification
of Chief Executive Officer
|
Filed
herewith
|
||
|
31.2
|
Certification
of Chief Financial Officer
|
Filed
herewith
|
||
|
32.0
|
Section
1350 Certification of the Chief Executive Officer and Chief Financial
Officer
|
Filed
herewith
|
____________________
|
*
|
Denotes
management compensation plan or arrangement.
|
|
|
(1)
|
Incorporated
by reference from the Company's Registration Statement on Form SB-2, filed
on March 21, 2007, as amended, and declared effective on May 14, 2007
(File No. 333-141474).
|
|
(b)
|
Exhibits
|
|
|
The
exhibits listed under (a)(3) of this Item 15 are filed
herewith.
|
|
(c)
|
Reference
is made to (a)(2) of this Item 15.
|
27
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
| QUAINT OAK BANCORP, INC. | |||
|
March
31, 2008
|
By:
|
/s/ Robert T. Strong | |
|
Robert
T. Strong
|
|||
|
President
and Chief Executive Officer
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
| Name |
Title
|
Date
|
|||
| /s/ Robert T. Strong |
President
and Chief Executive
|
March
31, 2008
|
|||
|
Robert
T. Strong
|
Officer | ||||
| /s/ Diane J. Colyer | Operations Officer (principal |
March
31, 2008
|
|||
| Diane J. Colyer | financial and accounting officer | ||||
| /s/ Robert J. Phillips | Chairman |
March
31, 2008
|
|||
|
Robert
J. Phillips
|
|||||
| /s/ George M. Ager, Jr. | Director |
March
31, 2008
|
|||
| George M. Ager, Jr. | |||||
| /s/ John J. Augustine | Director |
March
31, 2008
|
|||
| John J. Augustine | |||||
| Director |
March
__, 2008
|
||||
|
James
J. Clarke, Ph.D.
|
|||||
| /s/ Andrew E. DiPiero, Jr. | Director |
March
31, 2008
|
|||
| Andrew E. DiPiero, Jr. | |||||
| /s/ Kenneth R. Gant | Director |
March
31, 2008
|
|||
|
Kenneth
R. Gant
|
|||||
| /s/ Marsh B. Spink | Director |
March
31, 2008
|
|||
| Marsh B. Spink | |||||