10-K - QNTO - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended: December 31, 2022

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to ______

Commission File Number: 000-52694

QUAINT OAK BANCORP, INC.
(Exact name of Registrant as specified in its charter)

--12-31FY2022

Pennsylvania	35-2293957
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)
501 Knowles Avenue, Southampton, Pennsylvania	18966
(Address of Principal Executive Offices)	(Zip Code)

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:

Common Stock, $.01 par value per share
Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

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 ☐ No ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the eﬀectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the Common Stock held by non-affiliates of the Registrant based on a closing price of $24.65 on June 30, 2022, the last day of the Registrant’s second quarter was $32.3 million (2,045,721 shares outstanding less 736,786 shares held by affiliates at $24.65 per share). Shares of Common Stock held by each executive officer and director and certain employee stock ownership plans have been excluded from the calculation 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 21, 2023: 2,191,450

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:

(1) Portions of the Annual Report to Shareholders for the year ended December 31, 2022 are incorporated by reference into Part II, Items 6-8 and Part IV, Item 15 of

this Form 10-K.

(2) Portions of the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders are incorporated by reference into Part III, Items 10-14 of this Form 10-K.

QUAINT OAK BANCORP, INC.

2022 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	31
Item 1B.	Unresolved Staff Comments	32
Item 2.	Properties	32
Item 3.	Legal Proceedings	33
Item 4.	Mine Safety Disclosures	33
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
Item 6.	[Reserved]	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	34
Item 9A.	Controls and Procedures	34
Item 9B.	Other Information	35
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	35
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	35
Item 11.	Executive Compensation	35
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	35
Item 13.	Certain Relationships and Related Transactions, and Director Independence	36
Item 14.	Principal Accountant Fees and Services	36
PART IV
Item 15.	Exhibits and Financial Statement Schedules	36
Item 16.	Form 10-K Summary	37
SIGNATURES		38

Forward-Looking Statements

This Annual Report 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 the Company 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 assumptions, many of which are difficult to predict and generally are beyond the control of 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 the Company is or will be doing business, being less favorable than expected;(6) political and social unrest, including acts of war or terrorism; (7) the impact of the current outbreak of the novel coronavirus (COVID-19) or (8) legislation or changes in regulatory requirements adversely affecting the business in which the Company is or will be engaged. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

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 Quaint Oak Bancorp include the operations of Quaint Oak Bank and its subsidiary companies.

PART I

Item 1. Business

General

Quaint Oak Bancorp, Inc., a Pennsylvania corporation headquartered in Southampton, Pennsylvania, was organized in 2007 as the holding company for Quaint Oak Bank. Quaint Oak Bank, 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 and converted to a stock savings bank in July 2007. Quaint Oak Bank is headquartered in Southampton in Bucks County, Pennsylvania and operates through three banking locations: the main office location in Southampton, Pennsylvania and regional banking offices in Allentown, located in the Lehigh Valley area of Pennsylvania, and a Philadelphia, Pennsylvania location. The Bank also has a mortgage office in Philadelphia and an insurance agency and real estate sales office in New Britain Township, Pennsylvania. Quaint Oak Bank, through its subsidiary companies, conducts mortgage banking, multi-state specialty commercial real estate financing, real estate sales, title abstract and insurance businesses. As of January 4, 2021, the Bank holds a majority ownership interest in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota.

As of December 31, 2022, Quaint Oak Bank’s primary market area includes Bucks, Montgomery and Philadelphia Counties, Pennsylvania, and the Lehigh Valley area of Pennsylvania. As of December 31, 2022, Quaint Oak Bancorp had $792.4 million of total assets, $549.2 million of total deposits and $49.1 million of stockholders’ equity. Quaint Oak Bancorp’s stockholders’ equity constituted 6.2% of total assets as of December 31, 2022.

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 commercial real estate loans, commercial business loans, and one-to-four family residential non-owner occupied loans, and to a lesser extent, multi-family residential loans, construction loans, one-to-four family residential owner occupied loans, and home equity loans. In addition, Quaint Oak Bank offers mortgage banking, real estate sales, title abstract and insurance services through its subsidiary companies. Quaint Oak Bank serves its customers through its offices as well as through correspondence, telephone and on-line banking.

Deposits with 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 and Securities. Quaint Oak Bancorp, which elected to be treated as a savings and loan holding company, is subject to examination and regulation by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”). 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 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 501 Knowles Avenue, Southampton, Pennsylvania 18966, its telephone number is (215) 364-4059 and Internet address is www.quaintoak.com.

Paycheck Protection Program. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, we were automatically authorized to originate PPP loans and chose to participate. Since March 2020, the Company has continued to work diligently to help support its existing and new customers through the SBA Paycheck Protection Program (“PPP”), loan modifications, loan deferrals and fee waivers. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”) became law. The Economic Aid Act opened a new PPP loan period for first loans and implemented a second loan draw for certain PPP borrowers, each through May 31, 2021. Under the first round, the Company funded 854 PPP loans totaling $95.1 million. As of December 31, 2022, 854 of these first round PPP loans totaling $95.1 million were forgiven under the SBA forgiveness program. Under the second round of PPP the Company funded 985 PPP loans totaling $88.4 million. As of December 31, 2022, 981 of the second round PPP loans totaling $88.2 million have been forgiven under the SBA forgiveness program. The Company recognized approximately $1.1 million and $4.4 million of deferred loan fees amortization related to PPP loans for the year ended December 31, 2022 and December 31, 2021, respectively.

Paycheck Protection Program Liquidity Facility. The CARES Act also allocated a limited amount of funds to the Federal Reserve Board (FRB) with a broad mandate to provide liquidity to eligible businesses, states or municipalities in light of COVID-19. On April 9, 2020, the U.S. Department of the Treasury announced several new or expanded lending programs to provide relief for businesses and governments. One of these programs was the Paycheck Protection Program Liquidity Facility (PPPLF). Under the PPPLF, all depository institutions that originate PPP loans are eligible to borrow on a non-recourse basis from their regional Federal Reserve Bank using SBA PPP loans as collateral. The principal amount of loans will be equal to the PPP loans pledged as collateral. There are no fees associated with these loans and the interest rate is 35 basis points. The maturity date of PPPLF loans will be the same as the maturity date of the PPP loans pledged as collateral. The PPPLF loan maturity date will be accelerated if the underlying PPP loan goes into default and the lender sells the PPP loan to the SBA under the SBA guarantee. The PPPLF loan maturity date also will be accelerated for any loan forgiveness reimbursement received by the lender from the SBA.

In April 2020, the Bank received approval to borrow from the FRB under the PPPLF program to assist in funding PPP loans. Through December 31, 2021, the Bank used the FRB program to fund $52.1 million of PPP loans. The Bank paid off approximately $48.2 million of PPP loans pledged as collateral under the PPPLF program and had no outstanding advances with the FRB at December 31, 2022. Through December 31, 2022 the Bank has not used the PPPLF program to fund any round two PPP loans.

Loan Modifications/Troubled Debt Restructurings. Under the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring (“TDR”), and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Financial institutions wishing to utilize this authority must make a policy election, which applies to any COVID-19 modification made between March 1, 2020 and the earlier of either January 1, 2022 or the 60th day after the end of the COVID-19 national emergency. Quaint Oak Bank has made that election. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief will not be considered TDRs.

Prior to the enactment of the CARES Act, the banking regulatory agencies provided guidance as to how certain short-term modifications would not be considered TDRs, and have subsequently confirmed that such guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act.

The Bank addresses loan payment modification requests on a case-by-case basis considering the effects of the COVID-19 pandemic, related economic slow-down and stay-at-home orders on our customer and their current and projected cash flows through the term of the loan. Through December 31, 2022, the Bank modified 231 loans with principal balances totaling $90.6 million representing approximately 21.9% of our December 31, 2022 loan balances. A majority of deferrals are two-month payment deferrals of principal and interest, with payments after deferral increased to collect amounts deferred. In some cases, certain loans were granted additional deferrals. As of December 31, 2022, there are no loans that are still on deferral.

Quaint Oak Bank’s Lending Activities

General. At December 31, 2022, the net loan portfolio of Quaint Oak Bank amounted to $621.9 million, representing approximately 78.4% of its total assets at that date. The principal lending activity of Quaint Oak Bank is the origination of commercial real estate loans, commercial business loans, and one-to-four family residential non-owner occupied loans, and to a lesser extent, multi-family residential loans, construction loans, one-to-four family residential owner occupied loans, and home equity loans. At December 31, 2022, commercial real estate loans amounted to $333.5 million, or 52.9% of its total loan portfolio. Commercial business loans totaled $159.1 million, or 25.2%, of the total loan portfolio at December 31, 2022. At December 31, 2022, one-to-four family residential loans amounted to $57.4 million or 9.1% of its total loan portfolio of which $39.3 million, or 6.2%, of the total loan portfolio consisted of non-owner occupied properties and $18.1 million, or 2.9%, of the total loan portfolio consisted of owner occupied properties. Multi-family residential loans totaled $46.9 million, or 7.4%, of the total loan portfolio at December 31, 2022. Construction loans totaled $28.9 million, or 4.6%, of the total loan portfolio at December 31, 2022. Home equity loans totaled $4.9 million, or 0.8%, of the total loan portfolio at December 31, 2022.

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.

Quaint Oak Bank is subject to a regulatory loans to one borrower limit of 15% of the Bank’s capital which amounts to $6.6 million at December 31, 2022. At December 31, 2022, Quaint Oak Bank’s five largest loans or groups of loans-to-one borrower, including related entities, were $6.4 million, $6.3 million, $6.0 million, $6.0 million, and $5.8 million. The loans consisted of one commercial business loan, two construction loans, and two commercial real estate loans. Each of Quaint Oak Bank’s five largest loans or groups of loans was performing in accordance with its terms at December 31, 2022.

Loan Portfolio Composition. The following table shows the composition of our loan portfolio by type of loan at the dates indicated.

	December 31,
	2022						2021
	Amount			%			Amount			%
	(Dollars in Thousands)
Real estate loans:
One-to-four family residential (1):
Owner occupied	$	18,070			2.9	%	$	9,779			2.4	%
Non-owner occupied		39,315			6.2			38,752			9.4
Total one-to-four family residential loans		57,385			9.1			48,531			11.8
Multi-family (five or more) residential		46,909			7.4			29,344			7.1
Commercial real estate		333,540			52.9			183,822			44.6
Construction		28,938			4.6			15,843			3.9
Home equity loans		4,918			0.8			4,706			1.1
Total real estate loans		471,690			65.7			282,246			56.7
Commercial business (2)		159,069			25.2			129,608			31.5
Other consumer		2			--			12			--
Total loans		630,761			100.0	%		411,866			100.0	%
Less:
Deferred loan fees and costs		(1,219	)					(2,638	)
Allowance for loan losses		(7,678	)					(5,262	)
Net loans	$	621,864					$	403,966

____________________

(1)	Does not include mortgage loans held for sale of $2.9 million and $17.4 million at December 31, 2022 and 2021, respectively.
(2)	Does not include equipment loans held for sale of $130.3 million and $90.4 million at December 31, 2022 and December 31, 2021, respectively.
---	---

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. New loans are generated primarily through the efforts of Quaint Oak Bank’s loan officers, referrals from brokers and existing customers. Loan applications are underwritten and processed by Quaint Oak Bank’s credit administration department.

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 collateral that will secure the loan. Individual loan requests over $1.5 million, or loan requests that would increase the relationship over $1.5 million, must be approved by our President and Chief Executive Officer, Senior Vice President Business Development, and one outside loan committee member.

The following table shows our total loans originated and repaid during the periods indicated. Included in the loan originations for commercial real estate loans was the purchase of a $55.5 million loan portfolio by the Bank’s wholly-owned subsidiary, Oakmont Commercial, LLC, in April, 2022. We did not purchase any loans in 2021.

	Year Ended December 31,
	2022			2021
	(In Thousands)
Loan originations:
One-to-four family residential owner occupied (1)	$	128,075		$	211,850
One-to-four family residential non-owner occupied (2)		7,456			29,471
Multi-family residential		18,311			10,151
Commercial real estate (3)		178,251			79,636
Construction		17,651			8,935
Home equity		1,154			--
Commercial business (4)		611,831			342,455
Other consumer		--			--
Total loan originations		962,729			682,498
Loans sold		(496,311	)		(362,498	)
Loan principal repayments		(214,224	)		(212,624	)
Total loans sold and principal repayments		(710,535	)		(575,122	)
Decreases due to other items, net (5)		(8,897	)		(7,900	)
Net increase in loan portfolio	$	243,297		$	99,476

____________________

(1) Includes $118.4 million and $208.2 million of loans originated for sale in 2022 and 2021, respectively.

(2) Includes $17.5 million of loans originated for sale in 2021.

(3) Includes $55.5 million loan portfolio purchased by the Bank’s wholly-owned subsidiary, Oakmont Commercial, in April 2022.

(4) Includes $6.8 and $88.4 million of SBA PPP loans originated in 2022 and 2021, respectively. Includes $403.2 and $164.3 million of equipment loans originated for

sale in 2022 and 2021, respectively.

(5) Other items consist of deferred fees and the allowance for loan losses.

Although Pennsylvania laws and regulations permit savings banks to originate loans secured by real estate located throughout the United States, Quaint Oak Bank concentrates its lending activity in its primary market area in Bucks, Montgomery and Philadelphia Counties, Pennsylvania, and the Lehigh Valley area of Pennsylvania.

Contractual Terms to Final Maturities. The following table shows the scheduled contractual maturities of our loans as of December 31, 2022, before giving effect to net items, and excluding loans held for sale. 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.

	1-4 Family Residential Owner Occupied		1-4 Family Residential Non-Owner Occupied		Multi-Family<br><br> <br>Residential		Commercial Real Estate		Construction		Home Equity		Commercial Business and Other Consumer		Total
	(In Thousands)
Amounts due in:
One year or less	$	-	$	2,277	$	1,708	$	12,449	$	9,978	$	-	$	5,582	$	31,994
After one year through three years		30		9,659		4,219		31,238		6,226		170		22,506		74,048
After three years through five years		27		14,019		19,017		124,762		7,555		135		47,850		213,365
After five years through 15 years		1,562		9,824		18,446		104,063		2,329		4,613		53,435		194,272
After 15 years		16,451		3,536		3,519		61,028		2,850		-		29,698		117,082
Total	$	18,070	$	39,315	$	46,909	$	333,540	$	28,938	$	4,918	$	159,071	$	630,761

The following table shows the dollar amount of our loans at December 31, 2022 due after December 31, 2023 as shown in the preceding table, which have fixed interest rates or which have floating or adjustable interest rates.

	Fixed-Rate		Floating or<br><br> <br>Adjustable-Rate		Total
	(In Thousands)
One-to-four family residential owner occupied	$	4,819	$	13,251	$	18,070
One-to-four family residential non-owner occupied		23,098		13,940		37,038
Multi-family residential		26,407		18,794		45,201
Commercial real estate		225,206		95,885		321,091
Construction		7,110		11,850		18,960
Home equity		320		4,598		4,918
Commercial business and other consumer		49,477		104,012		153,489
Total	$	336,437	$	262,330	$	598,767

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 Owner Occupied Real Estate Loans. As part of our strategy of diversifying our loan portfolio with higher yielding and shorter-term loan products, Quaint Oak Bank does not actively market the origination of one-to-four family owner occupied residential loans to be held in our loan portfolio. At December 31, 2022, $18.1 million, or 2.9%, of our total loan portfolio, before net items, consisted of one-to-four family owner occupied residential loans.

One-to-Four Family Residential Non-Owner Occupied Real Estate Loans. A significant part of Quaint Oak Bank’s lending activity is the origination of loans secured by single-family residences for non-owner occupied properties. As part of our strategy of diversifying our loan portfolio with higher yielding and shorter-term loan products, Quaint Oak Bank does not actively market the origination of one-to-four family residential non-owner occupied real estate loans. At December 31, 2022, $39.3 million, or 6.2%, of our total loan portfolio, before net items, consisted of one-to-four family residential non-owner occupied loans.

It is our policy to lend in a first lien position on non-owner occupied residential property with fixed and variable rates and terms generally up to 15 years or longer amortizations. Generally, such loans are originated with a three or five year maturity. Such loans are generally limited to 75%, or less, of the appraised value, or sales price plus improvement costs of the secured real estate property.

One-to-Four Family Residential Loans Originated for Sale. Quaint Oak Bank through its subsidiary, Quaint Oak Mortgage LLC, originates one-to-four family residential fixed and variable rate first mortgages with amortizing terms less than or equal to 30 years in accordance with secondary market standards. Loans originated by Quaint Oak Mortgage LLC are sold into the secondary market along with the loans’ servicing rights. For the year ended December 31, 2022, Quaint Oak Mortgage LLC originated $118.4 million of owner and non-owner occupied residential loans for sale and sold $132.9 million of these loans in the secondary market. For the year ended December 31, 2021, loans originated for sale through Quaint Oak Mortgage LLC totaled $225.7 million and $261.5 million of these loans were sold in the secondary market.

Multi-Family Residential Loans. Quaint Oak Bank originates loans for multi-unit (five or more) residential properties. These loans are offered with fixed and adjustable interest rates and amortizations not to exceed 25 years. Generally, the loan-to-value ratio does not exceed 75%. These loans are underwritten with the same criteria and procedures as commercial real estate loans. At December 31, 2022, $46.9 million, or 7.4%, of our total loan portfolio, before net items, consisted of multi-family residential loans.

Commercial Real Estate Loans. Quaint Oak Bank also originates loans secured by commercial real estate. At December 31, 2022, $333.5 million, or 52.9% of our total loan portfolio, before net items, consisted of commercial real estate loans. 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. At December 31, 2022, approximately 36% of total commercial real estate loans were owner occupied. Contributing to the increase in commercial real estate loans was the purchase of a $55.5 million loan portfolio by the Bank’s wholly-owned subsidiary, Oakmont Commercial, LLC, in April, 2022.

It is generally our policy to lend in a first lien position on real property occupied as a commercial business property or mixed use properties. However, in rare instances, we may take a second lien position if approved by the loan committee. Quaint Oak Bank offers fixed and variable rate mortgage loans with amortization not to exceed 25 years. Commercial real estate loans are limited to 70%, 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. Quaint Oak Bank uses a Debt Service Coverage Ratio (DSCR) of 1.20. We require the collection of various documents to verify income, including personal tax returns, business tax returns, and copies of current leases. 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.

Construction Loans. Our construction loans are generally originated for the purpose of building or renovating a single family residential home. Generally, we do not make construction loans for speculative development. Funds are advanced incrementally as work is completed. The borrower is required to make monthly interest payments. When the construction is finished, the amount of the outstanding loan is generally less than 70% of the completed value of the property. Quaint Oak Bank is paid in full when the borrower seeks permanent financing or the property is sold. At December 31, 2022, $28.9 million, or 4.6% of Quaint Oak Bank’s total loan portfolio, before net items, consisted of construction loans.

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 lines of credit in order to accommodate its customers and because such loans generally have shorter terms than residential mortgage loans. At December 31, 2022, $4.9 million, or 0.8% of Quaint Oak Bank’s total loan portfolio, before net items, consisted of home equity loans.

Commercial Business Loans. Quaint Oak Bank originates loans to businesses for working capital, purchase of a business, tenant improvements, receivables, purchase of inventory, and for the purchase of business essential equipment. Business essential equipment is equipment necessary for a business to support or assist with the day-to-day operation or profitability of the business. At December 31, 2022, $159.1 million, or 25.2% of Quaint Oak Bank’s total loan portfolio, before net items, consisted of commercial business loans. At December 31, 2022, commercial business loans include $213,000 of SBA PPP loans. During the year ended December 31, 2022 the Bank originated $403.2 million in equipment loans held for sale and sold $343.9 million of equipment loans. Also contributing to the decrease in loans held for sale at December 31, 2022 is $19.4 million of loan amortization and prepayments. Additionally, the Bank’s mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $118.4 million of one-to-four family residential loans during the year ended December 31, 2022 and sold $132.9 million of loans in the secondary market during this same period.

Other Consumer Loans. Quaint Oak Bank originates loans secured by savings accounts in order to accommodate its existing customers. At December 31, 2022, $2,000 of Quaint Oak Bank’s total loan portfolio, before net items, consisted of other consumer loans.

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. Such origination fees, net of certain direct loan origination costs, are deferred and recognized as an adjustment to the yield (interest income) of the related loans over the contractual life of the loans.

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 our collections specialist 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 30 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. There were $1.9 million and $9,000 of non-accrual loans at December 31, 2022 and 2021, respectively.

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. There was no other real estate owned as of December 31, 2022 or December 31, 2021.

Delinquent Loans. The following table shows the delinquencies in our loan portfolio as of December 31, 2022.

	December 31, 2022
	30-89<br><br> <br>Days Overdue					90 or More Days<br><br> <br>Overdue
	Number<br><br> <br>of Loans		Principal<br><br> <br>Balance			Number<br><br> <br>of Loans		Principal<br><br> <br>Balance
	(Dollars in Thousands)
One-to-four family residential-owner occupied		1	$	407			-	$	-
One-to-four family residential-non-owner occupied		1		23			-		-
Multi-family residential		1		-			1		1,708
Commercial real estate		6		2,895			1		134
Construction		1		2,062			-		-
Home equity		1		39			-		-
Commercial business and other consumer		1		10			4		148
Total delinquent loans		11	$	5,436			6	$	1,990
Delinquent loans to total net loans				0.86	%				0.32	%
Delinquent loans to total loans				0.86	%				0.01	%

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 other real estate owned) and troubled debt restructurings at the dates indicated. ****

		December 31,
		2022			2021
		(Dollars in Thousands)
Non-accruing loans:
One-to-four family residential-owner occupied	$	-		$	--
One-to-four family residential-non-owner occupied		-			9
Multi-family residential		1,708			--
Commercial real estate		134			--
Construction		-			--
Home equity		-			--
Commercial business loans and other consumer		97			--
Total non-accruing loans		1,939			9
Accruing loans 90 days or more past due:
One-to-four family residential-owner occupied		-			--
One-to-four family residential-non-owner occupied		-			--
Multi-family residential		-			--
Commercial real estate		-			--
Construction		-			--
Home equity		-			--
Commercial business loans and other consumer		51			--
Total accruing loans 90 days or more past due		-			--
Total non-performing loans (1)		1,990			9
Other real estate owned, net		-			--
Total non-performing assets		1,990			9
Troubled debt restructurings (2)		136			131
Total non-performing assets and troubled debt restructurings	$	2,126		$	140
Total non-performing loans as a percentage of loans, net		0.32	%		*n/m
Total non-performing loans as a percentage of total assets		0.25	%		*n/m
Total non-performing assets as a percentage of total assets		0.27	%		*n/m
Total non-performing assets and troubled debt restructurings as a percentage of total assets		0.27	%		*n/m

__________________

(1)	Non-performing loans consist of non-accruing loans plus accruing loans 90 days or more past due.
(2)	Troubled debt restructurings not included in non-accruing loans and accruing loans 90 days or more past due.
---	---

*n/m Not Meaningful

At December 31, 2022, we had two loans totaling $136,000 that were identified as troubled debt restructurings (“TDR”), both of which were performing in accordance with their modified terms. If a TDR is placed on non-accrual it is not reverted back to accruing status until the borrower makes timely payments as contracted for at least six months and future collection under the revised terms is probable.

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.

Allowance for Loan Losses. At December 31, 2022, Quaint Oak Bank’s allowance for loan losses amounted to $7.7 million. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

While management believes that it determines the amount 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.

The following table shows changes in our allowance for loan losses during the periods presented.

	December 31,
	2022			2021
	(Dollars in Thousands)
Total loans outstanding at end of period, net	$	621,864		$	403,966
Average loans outstanding (1)	$	531,912		$	379,896
Allowance for loan losses, beginning of period	$	5,262		$	3,061
Provision for loan losses		2,475			2,201
Charge-offs:
Commercial business		(59	)		(17	)
Total charge-offs		(59	)		(17	)
Recoveries on loans previously charged-off:
Commercial business		-			17
Total recoveries		-			17
Allowance for loan losses, end of period	$	7,678		$	5,262
Allowance for loan losses as a percent of non-performing loans		386.01	%	n/m%*
Allowance for loan losses as a percent of total loans		1.22	%		1.29	%
Non-performing loans as a percent of total loans		0.32	%		-	%
Ratio of net charge-offs during the period to average loans outstanding during the period		0.01	%		-	%

____________________

(1)	Excludes loans held for sale.

*n/m Not meaningful

The following table shows how our allowance for loan losses is allocated by loan class at each of the dates indicated.

	December 31,
	2022					2021
	Amount of Allowance		Loan<br><br> <br>Category<br><br> <br>as a % of<br><br> <br>Total Loans			Amount of Allowance		Loan<br><br> <br>Category<br><br> <br>as a % of<br><br> <br>Total Loans
	(Dollars in Thousands)
One-to-four family residential owner occupied	$	123		2.9	%	$	73		2.4	%
One-to-four family residential non- owner occupied		295		6.2			292		9.4
Multi-family residential		451		7.4			249		7.1
Commercial real estate		3,750		52.9			2,475		44.6
Construction		304		4.6			119		3.9
Home equity		33		0.8			29		1.1
Commercial business and other consumer		2,422		25.2			1,625		31.5
Unallocated		300		--			400		--
Total	$	7,678		100.0	%	$	5,262		100.0	%

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These loss factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment. Residential mortgage lending generally entails a lower risk of default than other types of lending. Consumer loans and commercial real estate loans generally involve more risk of collectability because of the type and nature of the collateral and, in certain cases, the absence of collateral. It is our policy to establish a specific reserve for loss on any delinquent loan when we determine that a loss is probable. An unallocated component is maintained to cover uncertainties that could affect our estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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 Chief Financial Officer and 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.

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 our 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, 2022, we had $3.0 million of securities classified as available for sale and no securities classified as held to maturity or trading.

The Company also invests excess liquidity in interest-earning time deposits with other banks, laddering the maturities. As of December 31, 2022, the Company held $3.8 million in interest-earning time deposits.

Federal Home Loan Bank (FHLB) stock is a restricted investment security, carried at cost. The purchase of FHLB stock provides banks with the right to be a member of the FHLB and to receive the products and services that the FHLB provides to member banking institutions. Unlike other types of stock, FHLB stock is acquired primarily for the right to receive advances from the FHLB, rather than for the purpose of maximizing dividends or stock growth. FHLB stock is an activity-based stock that is directly proportional to the volume of advances taken by a member institution. The FHLB will repurchase capital stock at $1.00 per share from Quaint Oak Bank. The FHLB has paid dividends on the capital stock in each quarter of 2022 and 2021.

The following table sets forth our investment portfolio at carrying value as of the dates indicated.

	December 31,
	2022		2021
	(In Thousands)
Interest-earning time deposits with other financial institutions	$	3,833	$	7,924
Mortgage-backed securities:
Government National Mortgage Association		2,871		3,882
Federal National Mortgage Association		99		151
Investment in FHLB stock		6,601		2,178
Total	$	13,404	$	14,135

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, 2022.

	Amounts at December 31, 2022 Which Mature In
	One Year or Less		Weighted Average Yield			Over One Year Through Five Years		Weighted Average Yield			Over Five Years Through Ten Years		Weighted Average Yield			Over Ten Years		Weighted Average Yield
	(Dollars in Thousands)
Interest-earning time deposits<br><br> <br>with other financial<br><br> <br>institutions	$	2,541		2.98	%	$	1,292		3.31	%	$	-		-	%	$	-		-	%
Mortgage-backed securities:
Government National<br><br> <br>Mortgage Association		-		-			-		-			-		-			2,871		3.98
Federal National Mortgage<br><br> <br>Association		-		-			-		-			-		-	%		99		3.69
	$	2,541		2.98	%	$	1,292		3.31	%	$	-		-	%	$	2,970		3.97	%

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 payments 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 Bucks, Montgomery and Philadelphia Counties, Pennsylvania, and the Lehigh Valley area of Pennsylvania, although we also attract deposits from outside our market area and the Commonwealth of Pennsylvania. 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 offers a variety of deposit accounts with a range of rates and terms. Our deposit accounts consist of certificates of deposit, money market and other savings products, including non-interest bearing business and consumer checking accounts. Quaint Oak Bank generally does not solicit deposits from outside Pennsylvania or pay fees to brokers to solicit funds for deposit, however the Bank does use a listing service for certificates of deposit, and has a deposit placement agreement with a third party bank for money market accounts. At December 31, 2022, approximately 50.8% of Quaint Oak Bank’s total deposits were held by customers outside the Commonwealth of Pennsylvania.

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,
****	2022					2021
****	Amount		%			Amount		%
	(Dollars in Thousands)
Certificate accounts:
0.00% - 0.99%	$	74,703		13.6	%	$	131,614		29.4	%
1.00% - 1.99%		16,698		3.0			15,245		3.4
2.00% - 2.99%		37,606		6.8			25,267		5.7
3.00% - 3.99%		50,376		9.2			7,784		1.7
4.00% - 4.99%		18,568		3.4			-		-
Total certificate<br><br> <br>accounts		197,951		36.0			179,910		40.2
Transaction accounts:
Non-interest bearing<br><br> <br>checking accounts		88,728		16.2			64,730		14.5
Passbook accounts		3		-			10		--
Savings accounts		1,594		0.3			1,828		0.4
Money market accounts		260,972		47.5			200,688		44.9
Total transaction<br><br> <br>accounts		351,297		64.0			267,256		59.8
Total deposits	$	549,248		100.0	%	$	447,166		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.

	2022							2021
	Average Balance		Interest Expense		Average Rate Paid			Average Balance		Interest Expense		Average Rate Paid
	(Dollars in Thousands)
Passbook accounts	$	5	$	--		--	%	$	11	$	--		--	%
Savings accounts		1,668		3		0.18			1,655		3		0.20
Money market accounts		259,886		3,924		1.51			174,126		1,048		0.60
Certificates of deposit		185,202		2,116		1.14			178,721		2,012		1.13
Total interest-bearing deposits	$	446,761	$	6,043		1.35	%	$	354,513	$	3,063		0.86	%
Non-interest bearing deposits	$	73,137	$	--		--	%	$	75,918	$	--		--	%
Total deposits	$	519,898	$	6,043		1.35	%	$	430,431	$	3,063		0.86	%

Uninsured deposits as of December 31, 2022 and 2021 are estimated based on regulatory reporting requirements to be $255.3 million and $153.1 million, respectively.

The following table presents, by various interest rate categories and maturities, the amount of certificates of deposit at December 31, 2022.

****	****	Balance at December 31, 2022<br><br> <br>Maturing in the Twelve Months Ending December 31,
Certificates of Deposit		2023		2024		2025		Thereafter		Total
		(In Thousands)
0.00% - 0.99	%	$	44,565	$	19,955	$	5,590	$	4,593	$	74,703
1.00% - 1.99	%		5,200		4,135		5,835		1,528		16,698
2.00% - 2.99	%		22,636		8,962		4,070		1,938		37,606
3.00% - 3.99	%		13,920		12,379		12,734		11,343		50,376
4.00% - 4.99	%		4,985		2,863		1,930		8,790		18,568
Total certificate<br><br> <br>accounts		$	91,306	$	48,294	$	30,159	$	28,192	$	197,951

The following table shows the maturities of our certificates of deposit of more than $250,000 at December 31, 2022 by time remaining to maturity.

Quarter Ending:	Amount
	(Dollars in Thousands)
March 31, 2023	$	2,138	1.22	%
December 31, 2023		5,133	3.00
After December 31, 2023		6,155	3.52
Total certificates of deposit with balances of more than $250,000	$	13,426	2.91	%

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, 2022, Quaint Oak Bank has a maximum borrowing capacity with the Federal Home Loan Bank of approximately $353.4 million. Quaint Oak Bank’s Federal Home Loan Bank advances outstanding were $159.2 million and $49.2 million at December 31, 2022 and 2021, respectively. As of December 31, 2022, Quaint Oak Bank has $8.1 million in borrowing capacity with the Federal Reserve Bank of Philadelphia under the discount window program. Quaint Oak Bank borrowed $7.0 million from the FRB discount window as of December 31, 2022. There were no borrowings under the discount window as of December 31, 2021.

As of December 31, 2022, there was $5.5 million of other short-term borrowings representing balances on two lines of credit that Oakmont Capital Holdings, LLC has with a credit union. Borrowing capacity on the two lines of credit total $15.0 million at December 31, 2022.

The following table shows certain information regarding our short-term borrowings at or for the dates indicated:

	FHLB Short-Term Borrowings<br><br> <br>At or For the Year<br><br> <br>Ended December 31,						FRB Short-Term Borrowings<br><br> <br>At or For the Year<br><br> <br>Ended December 31,					Other Short-Term Borrowings<br><br> <br>At or For the Year<br><br> <br>Ended December 31,
	2022			2021			2022			2021		2022			2021
	(Dollars in Thousands)
Average balance outstanding	$	31,505		$	10,405		$	583		$	-	$	1,601		$	1,300
Maximum amount outstanding at any month-<br><br> <br>end during the period		93,200			26,000			7,000			-		5,489			6,986
Balance outstanding at end of period		93,200			26,000			7,000			-		5,489			-
Average interest rate during the period		2.34	%		0.30	%		1.65	%		-		6.68	%		12.46	%
Weighted average interest rate at end of period		4.45	%		0.28	%		4.50	%		-		7.11	%		-	%

Federal Home Loan Bank long-term borrowings and the weighted interest rate consist of the following at December 31, 2022 and 2021 (in thousands):

	December 31, 2022					December 31, 2021
Fixed rate borrowings maturing:	Amount		Weighted<br><br> <br>Interest Rate			Amount		Weighted<br><br> <br>Interest Rate
2022	$	-	****	-	%	$	7,171		2.10	%
2023	****	57,000	****	2.22			7,000		2.16
2024	****	6,167	****	2.05			6,167		2.05
2025	****	2,855	****	1.25			2,855		1.25
Total FHLB long-term debt	$	66,022	****	2.16	%	$	23,193		2.00	%

Federal Reserve Bank (FRB) borrowings increased to $7.0 million at December 31, 2022 from $3.9 million at December 31, 2021 as the Company paid off $3.9 million of first round PPP loans pledged as collateral under the FRB’s Paycheck Protection Program Liquidity Facility (PPPLF) and borrowed $7.0 million from the FRB discount window. Under the PPPLF the Company pledged certain PPP loans as collateral and borrowed from the Federal Reserve at a rate of 0.35% that is fixed for two years. These borrowings are paid off as the PPP loans pledged as collateral are forgiven through the SBA PPP loan forgiveness program.

Total Employees

We had 129 full-time employees and no part-time employees at December 31, 2022. None of these employees are represented by a collective bargaining agreement, and we believe that the Company enjoys good relations with its personnel.

Market Area

As of December 31, 2022, our primary market area for loans and deposits is in Bucks, Montgomery and Philadelphia Counties, Pennsylvania, and the Lehigh Valley area of Pennsylvania, although we also attract deposits from outside our market area and the Commonwealth of Pennsylvania. Our operating strategy is based on strong personal service and operating efficiency.

Quaint Oak Bank is headquartered in Southampton in Bucks County, Pennsylvania and operates through its main office and two regional offices located in the Lehigh Valley and Philadelphia markets. The Bank opened its second regional office in Philadelphia on February 26, 2020. 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 are also above both national and Pennsylvania averages. The Lehigh Valley area is one of the fastest growing regions in Pennsylvania due in part to its reasonable business climate and lower cost of living in comparison to its surrounding areas and states. The Lehigh Valley is particularly noteworthy for its unusually balanced and multi-faceted economy. Far from depending on a single industry, the top four sub-sectors of the regional GDP are all extremely close to one another, which ultimately means a healthier and more vibrant regional economy. Philadelphia is the largest city in the Commonwealth of Pennsylvania and the sixth most populous city in the United States. Philadelphia's diverse economic sectors include higher education, manufacturing, oil refining, food processing, health care and biotechnology, telecommunications, tourism and financial services. Our Philadelphia regional office establishes a physical commitment to support the Company’s already significant productivity in the Philadelphia market.

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. Also, given Quaint Oak Bank’s operating strategies and reliance on savings accounts and certificates of deposit, Quaint Oak Bank also faces intense competition from 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, with the exception of using a listing agent for certificates of deposit. 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 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.

REGULATION

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. Quaint Oak Bancorp is regulated by the Federal Reserve Board and is subject to the 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 Securities 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 Federal Reserve Board’s Qualified Thrift Lender test, dividend restrictions and transactions with affiliates regulations.

In the last several years, Quaint Oak Bancorp has experienced heightened regulatory requirements and scrutiny following the global financial crisis and as a result of the enactment in 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Resulting reforms have caused Quaint Oak Bancorp’s compliance and risk management processes, and the costs thereof, to increase.

2018 Regulatory Reform. In May 2018 the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Act”), was enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act. While the Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of more than $50 billion.

The Act, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” of between 8 and 10 percent to replace the leverage and risk-based regulatory capital ratios. The Act also expands the category of holding companies that may rely on the “Small Bank Holding Company and Savings and Loan Holding Company Policy Statement” by raising the maximum amount of assets a qualifying holding company may have from $1.0 billion to $3.0 billion. This expansion also excludes such holding companies from the minimum capital requirements of the Dodd-Frank Act. In addition, the Act includes regulatory relief for community banks regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading prohibitions), mortgage disclosures and risk weights for certain high-risk commercial real estate loans.

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;
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●	holding, managing, or liquidating assets owned or acquired from a subsidiary savings institution;
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●	holding or managing properties used or occupied by a subsidiary savings institution;
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●	acting as trustee under a deed of trust;
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●	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 Federal Reserve Board, 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;
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●	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 Federal Reserve Board; and
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●	any activity permissible for financial holding companies under section 4(k) of the Bank Holding Company Act.
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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;
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●	financial, investment, or economic advisory services;
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●	issuing or selling instruments representing interests in pools of assets that a bank is permitted to hold directly;
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●	underwriting, dealing in, or making a market in securities;
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●	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 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, 2022, 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. 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. Currently the Qualified Thrift Lender test in the Home Owners’ Loan Act requires that 65% of an institution’s portfolio assets (as defined) consist of certain housing and consumer-related assets on a monthly average basis in nine out of every twelve months. To be a Qualified Thrift Lender under the IRS test, the savings institution must meet the “business operations test” and a “60 percent assets test”, each defined in the Internal Revenue Code. A savings association subsidiary of a savings and loan holding company that does not comply with the Qualified Thrift Lender test is immediately subject to the following restrictions on its operations:

●	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 both a national bank and a savings association;

●	the branching powers of the institution shall be restricted to those of a national bank; and
●	payment of dividends by the institution shall be subject to the rules regarding payment of dividends by a national bank and must be necessary to meet the obligations of its holding company.
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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 both a national bank and a savings association (subject to safety and soundness considerations). **** A savings institution not in compliance with the Qualified Thrift Lender test is also subject to an enforcement action for violation of the Home Owners’ Loan Act, as amended.

Quaint Oak Bank believes that it meets the provisions of the Qualified Thrift Lender test and for the year ended December 31, 2022, 67% of its portfolio assets meet the requirements.

Regulatory Capital Requirements*.* The Federal Reserve Board has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a savings and loan holding company and in analyzing applications to it under the Savings and Loan Holding Company Act. The Federal Reserve Board’s capital adequacy guidelines for Quaint Oak Bancorp, on a consolidated basis, are similar to those imposed on Quaint Oak Bank by the Federal Deposit Insurance Corporation. See “-Regulation of Quaint Oak Bank - Capital Requirements.” Moreover, certain of the savings and loan holding company capital requirements promulgated by the Federal Reserve Board in 2013 became effective as of January 1, 2015. Those requirements establish four minimum capital ratios that Quaint Oak Bancorp had to comply with as of that date. However, in May 2015, amendments to the Federal Reserve Board’s small bank holding company policy statement (the “SBHC Policy”) (which also applies to small savings and loan holding companies) became effective which increased the asset threshold to qualify to utilize the provisions of the SBHC Policy from $500 million to $1.0 billion. In 2018, the Act increased the asset threshold to $3.0 billion. Savings and loan holding companies which are subject to the SBHC Policy are not subject to compliance with the regulatory capital requirements set forth in the table below until they exceed $3.0 billion in assets. As a consequence, as of December 31, 2022, Quaint Oak Bancorp was not required to comply with the requirements until such time that its consolidated total assets exceed $3.0 billion or the Federal Reserve Board determines that Quaint Oak Bancorp is no longer deemed to be a small savings and loan holding company. However, if Quaint Oak Bancorp had been subject to the requirements, it would have been in compliance with such requirements.

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 includes any company or entity which controls the savings association or that is controlled by a company that controls 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 contains 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, 2022, 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 Federal Reserve Board, (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 Federal Reserve Board, 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.

The Federal Reserve Board 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. As a public company, Quaint Oak Bancorp is subject to the Sarbanes-Oxley Act of 2002 which addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our principal executive officer and principal financial officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.

Volcker Rule Regulations. Regulations have been adopted by the federal banking agencies to implement the provisions of the Dodd Frank Act commonly referred to as the Volcker Rule. The regulations contain prohibitions and restrictions on the ability of financial institutions holding companies and their affiliates to engage in proprietary trading and to hold certain interests in, or to have certain relationships with, various types of investment funds, including hedge funds and private equity funds. Federal regulations exclude from the Volcker Rule restrictions community banks with $10 billion or less in total consolidated and total trading assets and liabilities of five percent or less of total consolidated assets. Quaint Oak qualifies for the exclusion from Volcker Rule restrictions.

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 and employees, 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 and Securities 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 and Securities.

The Pennsylvania Department of Banking and Securities generally examines each savings bank not less frequently than once every two years. Although the Pennsylvania Department of Banking and Securities 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 and Securities to conduct individual examinations. The Pennsylvania Department of Banking and Securities may order any savings bank to discontinue any violation of law or unsafe or unsound business practice and may direct any director, trustee, officer, attorney or employee of a savings bank engaged in an objectionable activity, after the Pennsylvania Department of Banking and Securities has ordered the activity to be terminated, to show cause at a hearing before the Pennsylvania Department of Banking and Securities 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. The 2010 financial institution reform legislation permanently increased deposit insurance on most accounts to $250,000. 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.

The FDIC assesses deposit insurance premiums on the assessment base of a depository institution, which is its average total assets reduced by the amount of its average tangible equity. For a small institution (one with assets of less than $10 billion) that has been federally insured for at least five years, the initial base assessment rate ranges from 3 to 30 basis points, based on the institution’s CAMELS composite and component ratings and certain financial ratios; its leverage ratio; its ratio of net income before taxes to total assets; its ratio of nonperforming loans and leases to gross assets; its ratio of other real estate owned to gross assets; its brokered deposits ratio (excluding reciprocal deposits if the institution is well capitalized and has a CAMELS composite rating of 1 or 2); its one year asset growth ratio (which penalizes growth adjusted for mergers in excess of 10%); and its loan mix index (which penalizes higher risk loans based on historical industry charge off rates). The initial base assessment rate is subject to downward adjustment (not below 1.5%) based on the ratio of unsecured debt the institution has issued to its assessment base, and to upward adjustment (which can cause the rate to exceed 30 basis points) based on its holdings of unsecured debt issued by other insured institutions.

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.

Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the Deposit Insurance Fund reserve ratio to decline below the statutory minimum of 1.35 percent as of June 30, 2020. In September 2020, the Federal Deposit Insurance Corporation Board of Directors adopted a Restoration Plan to restore the reserve ratio to at least 1.35 percent within eight years, absent extraordinary circumstances, as required by the Federal Deposit Insurance Act. The Restoration Plan maintained the assessment rate schedules in place at the time and required the Federal Deposit Insurance Corporation to update its analysis and projections for the deposit insurance fund balance and reserve ratio at least semiannually.

In the semiannual update for the Restoration Plan in June 2022, the Federal Deposit Insurance Corporation projected that the reserve ratio was at risk of not reaching the statutory minimum of 1.35 percent by September 30, 2028, the statutory deadline to restore the reserve ratio. Based on this update, the Federal Deposit Insurance Corporation Board approved an Amended Restoration Plan, and concurrently proposed an increase in initial base deposit insurance assessment rate schedules uniformly by 2 basis points, applicable to all insured depository institutions.

In October 2022, the Federal Deposit Insurance Corporation Board finalized the increase with an effective date of January 1, 2023, applicable to the first quarterly assessment period of 2023. The revised assessment rate schedules are intended to increase the likelihood that the reserve ratio of the Deposit Insurance Fund reaches the statutory minimum level of 1.35 percent by September 30, 2028.

Capital Requirements . Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.

At December 31, 2022, Quaint Oak Bank’s capital exceeded all applicable capital requirements. See Note 18 to the notes to our financial statements included in Exhibit 13.0 hereto.

In determining the amount of risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the Federal Deposit Insurance Corporation takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

The FASB adopted a new credit loss accounting standard applicable to all banks, savings banks, credit unions, and financial holding companies, regardless of size and is effective for Quaint Oak Bank for our fiscal year beginning on January 1, 2023. The final rule allows for an optional three-year phase in of the day-one adverse effects on a bank’s regulatory capital. This Current Expected Credit Loss (“CECL”) standard requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for loan losses.

The Act required the federal banking agencies, including the Federal Deposit Insurance Corporation, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with assets of less than $10 billion. Institutions with capital complying with the ratio and otherwise meeting the specified requirements and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. Quaint Oak Bank has not utilized the community bank leverage ratio.

Any savings bank that fails any of the capital requirements is subject to possible enforcement action by the Federal Deposit Insurance Corporation. Such action could include a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The Federal Deposit Insurance Corporation’s capital regulations provide that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions.

Pennsylvania Department of Banking and Securities Capital Requirements*.* Quaint Oak Bank is also subject to more stringent Pennsylvania Department of Banking and Securities capital guidelines. Although not adopted in regulation form, the Pennsylvania Department of Banking and Securities 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, 2022, Quaint Oak Bank’s tier 1 leverage ratio was well capitalized and total risk-based capital was adequately capitalized.

Prompt Corrective Action*.* The following table shows the amount of capital associated with the different capital categories set forth in the prompt corrective action regulations.

Capital Category	Total Risk-Based Capital	Tier 1 Risk-Based Capital	Tier 1 Common Equity Capital	Tier 1 Leverage Capital
Well capitalized	10% or more	8% or more	6.5% or more	5% or more
Adequately capitalized	8% or more	6% or more	4.5% or more	4% or more
Undercapitalized	Less than 8%	Less than 6%	Less than 4.5%	Less than 4%
Significantly undercapitalized	Less than 6%	Less than 4%	Less than 3%	Less than 3%

In addition, an institution is “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specified circumstances, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the Federal Deposit Insurance Corporation may not reclassify a significantly undercapitalized institution as critically undercapitalized).

An institution generally must file a written capital restoration plan which meets specified requirements within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. An institution which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. In addition, undercapitalized institutions are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions.

At December 31, 2022, Quaint Oak Bank was deemed an adequately-capitalized institution for purposes of the prompt corrective regulations and as such is not subject to the above mentioned restrictions.

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:

●	acquiring or retaining a majority interest in a subsidiary;
●	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
●	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.

Brokered Deposits. A "brokered deposit" is any deposit that is obtained from or through the mediation or assistance of a deposit broker. Deposit brokers may attract deposits from individuals and companies throughout the United States and internationally whose deposit decisions are based primarily on obtaining the highest interest rates. Federal Deposit Insurance Corporation regulations limit the ability of an insured depository institution, such as Quaint Oak Bank, to accept, renew or roll over brokered deposits unless the institution is well-capitalized under the prompt corrective action framework described above, or unless it is adequately capitalized and obtains a waiver from the Federal Deposit Insurance Corporation. In addition, less than well-capitalized banks are subject to restrictions on the interest rates they may pay on deposits. The characterization of deposits as "brokered" may result in the imposition of higher deposit assessments on such deposits. As mandated by the Economic Growth Act, the Federal Deposit Insurance Corporation adopted a final rule in February 2019 to include a limited exception for reciprocal deposits for Federal Deposit Insurance Corporation insured depository institutions that are well-rated and well-capitalized (or adequately capitalized and for which the insured depository institution has obtained a waiver from the Federal Deposit Insurance Corporation.). Certain reciprocal deposits of up to the lesser of $5 billion or 20% of an insured depository institution’s deposits are excluded from the definition of brokered deposits, where the insured depository institution is "well-capitalized" and has a composite rating of 1 or 2.

In December 2020, the Federal Deposit Insurance Corporation issued a final rule amending its brokered deposits regulation. The rule sought to clarify and modernize the Federal Deposit Insurance Corporation’s regulatory framework for brokered deposits. Notable aspects of the rule included (i) the establishment of bright-line standards for determining whether an entity meets the statutory definition of "deposit broker;" (ii) the identification of a number of business relationships in which the agent or nominee is automatically not deemed to be a "deposit broker" because their primary purpose is not the placement of funds with depository institutions (the "primary purpose exception"); (iii) the establishment of a "more transparent" application process for entities that seek to rely upon the "primary purpose exception", but do not qualify for one of the identified business relationships to which the exception is automatically applicable; and (iv) the clarification that third parties that have an exclusive deposit-placement arrangement with one insured depository institution are not considered a "deposit broker." The final rule took effect on April 1, 2021, and full compliance was required by January 1, 2022.

Restrictions on Capital Distributions. Federal Reserve Board and Federal Deposit Insurance Corporation 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 Home Owners’ Loan Act, as amended. Under applicable regulations, a savings association must file an application for Federal Deposit Insurance Corporation approval of the capital distribution if:

●	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;
●	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 Federal Deposit Insurance Corporation-imposed condition; or
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●	the institution is not eligible for expedited treatment of its filings with the Federal Deposit Insurance Corporation.
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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 must still file a notice with the Federal Deposit Insurance Corporation at least 30 days before the board of directors declares a dividend or approves a capital distribution if either (1) the institution would not be well-capitalized following the distribution; or (2) the proposed distribution would reduce the amount or retire any part of its common or preferred stock or retire any part of a debt instrument included in its regulatory capital. In addition, a savings institution, such as Quaint Oak Bank, that is the subsidiary of a stock saving and loan holding company, must also file a notice with the appropriate Federal Reserve Bank at least 30 days before the proposed declaration of a dividend by its board of directors.

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 Federal Deposit Insurance Corporation. In addition, the Federal Deposit Insurance Corporation may prohibit a proposed capital distribution, which would otherwise be permitted by Federal Deposit Insurance Corporation regulations, if the Federal Deposit Insurance Corporation 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.

Commercial Real Estate Lending Concentration Guidance. Under guidance issued by the federal banking agencies, the agencies have expressed concerns with institutions that ease commercial real estate underwriting standards and have directed financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks. The agencies have also issued guidance that requires a financial institution to employ enhanced risk management practices if the institution is exposed to significant concentration risk in its commercial real estate portfolio. Under that guidance, an institution is potentially exposed to significant concentration risk if: (i) total reported loans for construction, land development, and other land represent 100% or more of total risk-based capital or (ii) total reported loans secured by multi-family and non-farm residential properties, loans for construction, land development, and other land loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital, and the outstanding balance of the institution's commercial real estate loan portfolio has increased by 50% or more during the prior 36 months. At December 31, 2022, the balance of these real estate loans represented 679.6% of Quaint Oak Bank’s total capital and our commercial real estate loan portfolio increased by 179.5% during the preceding 36 months. Institutions, which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital.

Privacy Requirements of the Gramm-Leach-Bliley Act. Federal law places limitations on financial institutions like Quaint Oak Bank regarding the sharing of consumer financial information with unaffiliated third parties. Specifically, these provisions require 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 regulations.

Consumer Financial Services. The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly with the establishment of the Consumer Financial Protection Bureau (“CFPB”) as part of the Dodd-Frank Act reforms. The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including Quaint Oak Bank, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets. FDIC-insured institutions with $10 billion or less in assets, like Quaint Oak Bank, continue to be examined by their applicable bank regulators.

Anti-Money Laundering. Federal anti-money laundering rules impose various requirements on financial institutions intended to prevent the use of the U.S. financial system to fund terrorist activities. These provisions include a requirement that financial institutions operating in the United States have anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such compliance programs 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 federal anti-laundering 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.

Community Reinvestment Act. All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. An institution’s failure to comply with the provisions of the Community Reinvestment Act could result in restrictions on its activities. Quaint Oak Bank received an “Outstanding” Community Reinvestment Act rating in its most recently completed examination.

Federal Home Loan Bank System. Quaint Oak Bank is a member of the Federal Home Loan Bank of Pittsburgh, which is one of 11 regional Federal Home Loan Banks. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds from the sale of consolidated obligations of the Federal Home Loan Bank System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the Federal Home Loan Bank.

As a member, Quaint Oak Bank is required to purchase and maintain stock in the Federal Home Loan Bank of Pittsburgh in an amount in accordance with the Federal Home Loan Bank’s capital plan and sufficient to ensure that the Federal Home Loan Bank remains in compliance with its minimum capital requirements. At December 31, 2022, Quaint Oak Bank was in compliance with this requirement.

Federal Reserve Board System. The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts, which are primarily checking and NOW accounts, and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy the liquidity requirements that are imposed by the Pennsylvania Department of Banking and Securities. At December 31, 2022, Quaint Oak Bank was in compliance with these reserve requirements.

TAXATION

Federal 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 files 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.

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, 2022, Quaint Oak Bank did not have federal pre-1988 reserves subject to recapture.

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. The Company is no longer subject to examination by taxing authorities for the years before January 1, 2019.

State and Local Taxation

Pennsylvania Taxation. Quaint Oak Bancorp is subject to the Pennsylvania Corporate Net Income Tax. The Corporation Net Income Tax rate for 2022 is 9.99% and is imposed on unconsolidated taxable income for federal purposes with certain adjustments.

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 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.

We are exploring a potential sale of our 51% stake in Oakmont Capital Holdings, LLC, primarily to reduce our asset size and increase our capital ratios.

The Bank maintains a 51% ownership interest in Oakmont Capital Holdings, LLC (“Oakmont Capital”), a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota. We are currently exploring the sale of the Bank’s interest in Oakmont Capital in order to reduce our asset size and increase the Bank’s capital ratios. In recent periods, Oakmont Capital has materially contributed to our growth in assets and our non-interest income. While we are currently exploring a sale, we may not complete the transaction if we are unable to receive favorable terms for the acquisition of Oakmont Capital. If we complete a sale, we anticipate that our non-interest income will decrease. If we do not complete a sale, we may be required to raise additional capital to support the growth attributable to continued ownership interest in Oakmont Capital. Our ability to raise additional capital, when and if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, including investor preferences regarding the banking industry, market conditions and governmental activities, many of which are outside of our control, and on our financial condition and performance.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

The following table provides certain information as of December 31, 2022 with respect to our main office located in Southampton, Pennsylvania, our regional offices located in Allentown and Philadelphia, Pennsylvania, mortgage banking, real estate sales and title abstract property in Allentown, Pennsylvania, our insurance agency office in Chalfont, Pennsylvania, and a mortgage loan production office in Philadelphia.

Description/Address	Leased/Owned	Date of Lease<br><br> <br>Expiration		Net Book Value of<br><br> <br>Property		Amount of<br><br> <br>Deposits
				(In Thousands)
01-503 Knowles Avenue<br><br> <br>Southampton, Pennsylvania 18966	Leased	03/01/2022(1)	$	39	$	423,674
1710 Union Boulevard<br><br> <br>Allentown, Pennsylvania 18019	Owned	NA		1,432		96,950
117-21 Spring Garden Street (Suite A)<br><br> <br>Philadelphia, Pennsylvania 19123	Leased	2/28/2040		93		25,382
4275 County Line Road (Suite #14)<br><br> <br>Chalfont, Pennsylvania 18914	Leased	5/31/2027(2)		48	Not applicable
100 Spring Garden Street<br><br> <br>Philadelphia, Pennsylvania 19123	Leased	8/31/2038(3)		--	Not applicable

_________________

(1)	Such lease has a five year renewal option which would commence on April 1, 2022 and end on March 31, 2027.
(2)	Such lease has a five year renewal option which would commence on June 1, 2027 and end on May 31, 2032.
---	---
(3)	Such lease has a five year renewal options which would commence on September 1, 2039 and end on August 31, 2044.
---	---

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. Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .

(a) Quaint Oak Bancorp’s common shares trade on the OTCQB, the OTC market tier for companies that report to the SEC or a U.S. banking or insurance regulator, under the symbol “QNTO.” As of March 21, 2023 Quaint Oak Bancorp had 2,191,450 common shares outstanding held of record by 145 shareholders. The number of shareholders does not reflect the number of persons or entities who may hold stock in nominee or “street” name through brokerage firms or others.

(b) Not applicable.

(c) Purchases of Equity Securities

Quaint Oak Bancorp’s repurchases of its common stock during the quarter ended December 31, 2022, including stock-for-stock option exercises of outstanding stock options, are set forth in the table below:

Period		Average Price Paid per Share
October 1, 2022 – October 31, 2022	178	$	22.26	--	24,375
November 1, 2022 – November 30, 2022	--		--	--	24,375
December 1, 2022 – December 31, 2022	--		--	--	24,375
Total	178	$	22.26	--	24,375

Notes to this table:

(1)

On December 12, 2018, the Board of Directors of Quaint Oak Bancorp approved its fifth share repurchase program which provides for the repurchase of up to 50,000 shares, or approximately 2.5% of the Company’s then issued and outstanding shares of common stock, and announced the fifth repurchase program on Form 8-K filed on December 13, 2018. The repurchase program does not have an expiration date.

Item 6. [Reserved]

Item 7. Management

’s Discussion and Analysis of Financial Condition and Results of Operations .

The information required herein is incorporated by reference from pages 2 to 19 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.

Item 8. Financial Statements and Supplementary Data

The information required herein is incorporated by reference from pages 21 to 71 of the Annual Report attached hereto as Exhibit 13.0 (“Annual Report”).

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial

Disclosure .

Not Applicable.

Item 9A. Controls and Procedures

(a) Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of December 31, 2022. Based on their evaluation of Quaint Oak Bancorp’s disclosure controls and procedures, Quaint Oak Bancorp’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by Quaint Oak Bancorp in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

**** (b) Management’s Annual Report on Internal Control over Financial Reporting

Management of Quaint Oak Bancorp is responsible for establishing and maintaining an adequate system of internal control over financial reporting. An adequate system of internal control encompasses the processes and procedures that have been established by management to:

●	Maintain records that accurately reflect Quaint Oak Bancorp’s transactions;
●	Prepare financial statements and footnote disclosures in accordance with GAAP that can be relied upon by external users;
---	---
●	Prevent and detect unauthorized acquisition, use or disposition of Quaint Oak Bancorp’s assets that could have a material effect of the financial statements.
---	---

Management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of Quaint Oak Bancorp’s controls over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on our evaluation under the framework in Internal Control – Integrated Framework, management concluded that Quaint Oak Bancorp’s internal control over financial reporting was effective as of December 31, 2022. Furthermore, during the conduct of its assessment, management identified no material weakness in its financial reporting control system.

****(c) 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 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Not applicable.

Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

Item 10. Directors and Executive Officers and Corporate Governance

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” and “Beneficial Ownership of Common Stock by Certain Owners and Management – Delinquent Section 16(a) Reports” in Quaint Oak Bancorp’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 10, 2023 (the “Proxy Statement”), a copy of which will be filed with the Securities and Exchange Commission.

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

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.

Equity Compensation Plan Information. The following table provides information as of December 31, 2022 with respect to shares of common stock that may be issued under our existing equity compensation plans, which consist of the 2013 and 2018 Stock Incentive Plans. Both of these plans were approved by our shareholders.

Plan Category			Weighted-average exercise price of outstanding options,<br><br> <br>warrants and rights<br><br> <br>(b)
Equity compensation plans approved by security holders	207,080	(1)	$	11.22	(1)	57,800
Equity compensation plans not approved by security holders	--			--		--
Total	207,080		$	11.22		57,800

___________________

(1) Includes 9,112 shares subject to restricted stock grants which were not vested as of December 31, 2022. The weighted-average exercise price excludes such restricted stock grants.

Item 13. Certain Relationships and Related Transactions, and Director Independence

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 Accountant 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.

PART IV

Item 15. Exhibits and 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 (S.R. Snodgrass, P.C., Cranberry Township, Pennsylvania, PCAOB Firm ID 74)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Income for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
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)
4.2	Form of Subordinated Note due December 31, 2028	(2)
4.3	Form of Global Subordinated Note due March 15, 2025	(3)
4.4	Form of Subordinated Note due March 15, 2025	(4)
4.5	Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934	(5)
10.1	Amended and Restated Employment Agreement by and between Robert T. Strong and Quaint Oak Bank*	(6)
10.2	Quaint Oak Bancorp, Inc. 2008 Stock Option Plan*	(7)
10.3	Employment Agreement between Quaint Oak Bank and John J. Augustine*	(8)
10.4	Quaint Oak Bancorp, Inc. 2013 Stock Incentive Plan*	(9)
10.5	Employment Agreement between Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, and Quaint Oak Abstract, LLC, and William R. Gonzalez, as amended*	(10)
10.6	Quaint Oak Bancorp, Inc. 2018 Stock Incentive Plan*	(11)
10.7	Form of Subordinated Note Purchase Agreement dated December 27, 2018	(2)
10.8	Form of Subordinated Note Purchase Agreement dated March 2, 2023	(3)
10.9	Form of Subscription Agreement dated March 15, 2023	(4)
13.0	Annual Report to Shareholders	Filed herewith
21.0	Subsidiaries of the Registrant	Filed herewith
23.1	Consent of S.R. Snodgrass, P.C.	Filed herewith
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
101.INS	Inline XBRL Instance Document	Filed herewith
101.SCH	Inline XBRL Taxonomy Extension Schema Document	Filed herewith
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith
101.DEF	Inline XBRL Taxonomy Extension Definitions Linkbase Document	Filed herewith
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 10)	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).

(2) Incorporated by reference from the Company’s Current Report on Form 8-K, filed on December 28, 2018 (File No. 000-52694).

(3) Incorporated by reference from the Company's Current Report on Form 8-K, filed on March 2, 2023 (File No. 000-52694).

(4) Incorporated by reference from the Company's Current Report on Form 8-K, filed on March 21, 2023 (File No. 000-52694).

(5) Incorporated by reference from the Company’s Annual Report on Form 10-K, filed with the Commission on March 27, 2020 (File No. 000-52694).

(6) Incorporated by reference from the Company’s Current Report on Form 8-K, filed on December 16, 2008 (File No. 000-52694).

(7) Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on May 14, 2008 (Commission

File No. 000-52694) filed with the Commission on April 11, 2008.

(8) Incorporated by reference from the Company’s Current Report on Form 8-K, filed on September 18, 2012 (File No. 000-52694).

(9) Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on May 8, 2013 (Commission

File No. 000-526341) filed with the Commission on April 8, 2013.

(10) Incorporated by reference from the Company’s Annual Report on Form 10-K, filed with the Commission on March 26, 2015 (File No. 000-52694).

(11) Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on May 9, 2018 (Commission

File No. 000-526341) filed with the Commission on April 6, 2018.

(b) Exhibits

The exhibits listed under (a)(3) of this Item 15 are filed herewith.

Item 16. Form 10-K Summary

None.

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.
	By:	/s/Robert T. Strong
March 31, 2023		Robert T. Strong<br><br> <br>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, 2023
Robert T. Strong	Officer
/s/John J. Augustine	Executive Vice President and	March 31, 2023
John J. Augustine	Chief Financial Officer
/s/Robert J. Phillips	Chairman	March 31, 2023
Robert J. Phillips
/s/George M. Ager, Jr.	Director	March 31, 2023
George M. Ager, Jr.
/s/James J. Clarke	Director	March 31, 2023
James J. Clarke
/s/Andrew E. DiPiero, Jr.	Director	March 31, 2023
Andrew E. DiPiero, Jr.
/s/Kenneth R. Gant	Director	March 31, 2023
Kenneth R. Gant

ex_490892.htm

Exhibit 13.0

A Financial Services Company

Annual Report

2022

Quaint Oak Bancorp, Inc.

PRESIDENT’S LETTER TO SHAREHOLDERS

To our Valued Shareholders:

On behalf of the Board of Directors, Senior Management and Team Members of the Quaint Oak Family of Companies, I am pleased to present our 2022 Annual Report to Shareholders.

As previously reported in our year-end earnings release:

●	Our growth in assets was 43.0% at year end when compared to the prior year-end of December 31, 2021
●	Our net income of $7.9 million for the year was an increase 22.8% over the prior year earnings of 2021
---	---
●	Stockholders’ equity increased 33.0%, or $12.2 million, over year-end December 31, 2021
---	---
●	Our asset performance continued to be positive with our non-performing assets as a percent of total assets at 0.25% at December 31, 2022. Additionally, our Texas Ratio calculation ended the year at 3.32%
---	---

Looking forward:

We had previously announced our initiative to provide “Banking as a Service (BaaS)” to other banks in the form of correspondent banking services. The infrastructure and staffing requirements to launch this initiative are targeted for completion during the third quarter of this year. We anticipate that this endeavor will ultimately provide lower cost funding, generate non-interest income and provide additional core liquidity.

In support of these endeavors, we have continued to realign reporting channels and expand certain support elements including expanded staffing and external vendor support. We have, working remotely, had the opportunity to add staffing at all levels and now employ team members in 20 states.

Additionally, we had planned a capital initiative launch in the early part of 2022. I am pleased with the response we received and to report that the plan is currently 83% complete. In addition, to this successful action, we are reviewing certain items that may provide even more liquidity and potential reduction within our own balance sheet going forward. These strategies include a reduction in equipment loans held for sale and a realignment in certain of our subsidiary companies.

The Company has repurchased an additional 2,147 shares during the twelve months ended December 31, 2022. To date we have repurchased over 40% of the original shares issued in our initial public offering. As recently announced, the Company declared a quarterly cash dividend of $0.13 per share on the common stock of the Company payable on February 6, 2023, to the shareholders of record at the close of business on January 23, 2023. As always, in conjunction with having maintained a strong repurchase plan, our current and continued business strategy includes long-term profitability and payment of dividends reflecting our strong commitment to shareholder value.

Robert T. Strong

President and Chief Executive Officer

Quaint Oak Family of Companies
Quaint Oak Bancorp, Inc.
Quaint Oak Bank
Quaint Oak Abstract, LLC I Quaint Oak Mortgage, LLC I Quaint Oak Real Estate, LLC I Quaint Oak Insurance Agency, LLC<br> <br>Oakmont Capital Holdings, LLC I Oakmont Commercial, LLC

Quaint Oak Bancorp, Inc.

TABLE OF CONTENTS

	Page
Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Reports of Independent Registered Public Accounting Firm	17
Consolidated Balance Sheets	19
Consolidated Statements of Income	20
Consolidated Statements of Comprehensive Income	22
Consolidated Statements of Stockholders’ Equity	23
Consolidated Statements of Cash Flows	24
Notes to Consolidated Financial Statements	26
General Information	66
Locations	67

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Quaint Oak Bancorp, Inc. (the “Company”) was formed in connection with Quaint Oak Bank’s (the “Bank”) conversion to a stock savings bank completed on July 3, 2007. The Company’s results of operations are dependent primarily on the results of Quaint Oak Bank, a wholly owned subsidiary of the Company, along with the Bank’s wholly owned subsidiaries. The Bank, a Pennsylvania-chartered stock savings bank, is headquartered in Southampton, Pennsylvania and conducts business through three regional offices located in the Delaware Valley, Lehigh Valley and Philadelphia markets. At December 31, 2022, the Bank has six wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, Quaint Oak Insurance Agency, LLC, and Oakmont Commercial, LLC, each a Pennsylvania limited liability company. The mortgage company offers mortgage banking services in the Lehigh Valley, Delaware Valley and Philadelphia County region of Pennsylvania. The real estate and abstract companies offer real estate sales and title abstract services, respectively, primarily in the Lehigh Valley and Bucks County regions of Pennsylvania. These companies began operation in July 2009. In February 2019, Quaint Oak Mortgage opened a mortgage banking office in Philadelphia, Pennsylvania. QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. Quaint Oak Insurance Agency, LLC, located in Chalfont, Pennsylvania, began operations in August 2016 and provides a broad range of personal and commercial insurance coverage solutions. Oakmont Commercial, LLC began operations in October 2021 and operates as a multi-state specialty commercial real estate financing company. Since January, 2021, the Bank holds a majority equity position in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota.

Quaint Oak Bank’s profitability depends, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by provisions for loan losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation, directors’ fees and expenses, office occupancy and equipment expense, data processing expense, professional fees, advertising expense, FDIC deposit insurance assessment, and other expenses.

Quaint Oak Bank’s business consists primarily of originating residential, multi-family and commercial real estate loans secured by property, commercial business loans, and to a lesser extent other consumer loans in its market area. At December 31, 2022, commercial real estate loans and commercial business loans comprise the largest percentage of Quaint Oak Bank’s loan portfolio, before net items, at 52.9% and 25.2%, respectively. At December 31, 2022, commercial business loans include $213,000 of SBA PPP loans. Quaint Oak Bank’s loans are primarily funded by certificates of deposit and money market accounts. At December 31, 2022, certificates of deposit amounted to 36.0% of total deposits compared to 40.2% of total deposits at December 31, 2021. At December 31, 2022, money market accounts amounted to 47.5% of total deposits compared to 44.9% of total deposits at December 31, 2021. At December 31, 2022, non-interest bearing checking accounts amounted to 16.2% of total deposits compared to 14.5% of total deposits at December 31, 2021. Management anticipates that certificates of deposit, money market accounts and business checking will be the primary sources of funding for Quaint Oak Bank’s assets.

Our results of operations are significantly affected by general economic and competitive conditions, particularly with respect to changes in interest rates, government policies and actions of regulatory authorities as well as other factors beyond our control. Future changes in applicable law, regulations or government policies may materially affect our financial condition and results of operations.

Forward-Looking Statements Are Subject to Change

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 2 of the notes to our financial statements. The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Allowance for Loan Losses. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans receivable. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are identified as impaired. For loans that are identified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment. Residential mortgage lending generally entails a lower risk of default than other types of lending. Consumer loans and commercial real estate loans generally involve more risk of collectability because of the type and nature of the collateral and, in certain cases, the absence of collateral. It is the Company’s policy to establish a specific reserve for loss on any delinquent loan when it determines that a loss is probable. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral.

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

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

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for all loans (except one-to-four family residential owner-occupied loans) where the total amount outstanding to any borrower or group of borrowers exceeds $750,000, or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and net operating loss carryforwards and gives current recognition to changes in tax rates and laws. The realization of our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change.

Selected Consolidated Financial and Other Data

Set forth below is selected financial and other data of Quaint Oak Bancorp, Inc. You should read the financial statements and related notes contained in this Annual Report which provide more detailed information.

	At or For the Years Ended December 31,
	2022		2021
	(Dollars in Thousands)
Selected Financial and Other Data:	****	****	****	****
Total assets	$	792,350	$	554,115
Cash and cash equivalents		3,893		10,705
Investment in interest-earning time deposits		3,833		7,924
Investment securities available for sale at fair value		2,970		4,033
Loans held for sale		133,222		107,823
Loans receivable, net		621,864		403,966
Federal Home Loan Bank stock, at cost		6,601		2,178
Premises and equipment, net		2,775		2,653
Deposits		549,248		447,166
Federal Home Loan Bank borrowings		159,222		49,193
Subordinated debt		7,966		7,933
Total Quaint Oak Bank Stockholders’ Equity		44,793		34,789
Noncontrolling Interest		4,289		2,120
Total Stockholders’ Equity		49,082		36,909
Selected Operating Data:	****	****	****	****
Total interest income	$	32,466	$	24,995
Total interest expense		8,777		4,375
Net interest income		23,689		20,620
Provision for loan losses		2,475		2,201
Net interest income after provision for loan losses		21,214		18,419
Total non-interest income		19,411		11,982
Total non-interest expense		27,260		21,087
Income before income taxes		13,365		9,314
Income taxes		3,054		2,492
Net income	$	10,311	$	6,822
Net income attributable to noncontrolling interest	$	2,448	$	418
Net income attributable to Quaint Oak Bancorp, Inc.	$	7,863	$	6,404

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

	At or For the Years Ended December 31,
		2022			2021
Selected Operating Ratios(1):	****	****	****	****	****	****
Average yield on interest-earning assets		4.88	%		4.78	%
Average rate on interest-bearing liabilities		1.58			1.03
Average interest rate spread(2)		3.30			3.75
Net interest margin(2)		3.56			3.93
Average interest-earning assets to average interest-bearing liabilities		119.85			123.99
Net interest income after provision for loan losses to non-interest expense		77.82			87.35
Total non-interest expense to average assets		3.98			3.89
Efficiency ratio(3)		63.25			69.36
Return on average assets		1.53			1.18
Return on average equity		26.92			20.68
Asset Quality Ratios(4):	****	****	****	****	****	****
Non-performing loans as a percent of loans receivable, net(5)		0.32	%		0.00	%
Non-performing assets as a percent of total assets(5)		0.25			0.00
Non-performing assets and troubled debt restructurings as a percent of total assets		0.27			0.03
Allowance for loan losses as a percent of non-performing loans		386.01		n/m*
Allowance for loan losses as a percent of total loans receivable		1.22			1.29
Net charge-offs to average loans receivable		0.01			0.00
Capital Ratios(4):	****	****	****	****
---	---	---	---	---
Tier 1 leverage ratio	7.07	%	7.41	%
Common Tier 1 capital ratio	7.41		9.45
Tier 1 risk-based capital ratio	7.41		9.45
Total risk-based capital ratio	8.49		10.69

___________________

(1) With the exception of end of period ratios, all ratios are based on average daily balances during the indicated periods.

(2) Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing

liabilities, and net interest margin represents net interest income as a percentage of average interest-earning assets.

(3) The efficiency ratio represents the ratio of non-interest expense divided by the sum of net interest income and non-interest income.

(4) Asset quality ratios and capital ratios are end of period ratios, except for net charge-offs to average loans receivable.

(5) Non-performing assets consist of non-performing loans at December 31, 2022. Non-performing loans consist of non-accruing loans plus accruing loans 90 days

or more past due.

n/m* Not meaningful

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Comparison of Financial Condition at December 31, 2022 and December 31, 2021

General. The Company’s total assets at December 31, 2022 were $792.4 million, an increase of $238.3 million, or 43.0%, from $554.1 million at December 31, 2021. This growth in total assets was primarily due to a $217.9 million, or 53.9%, increase in loans receivable, net, and a $25.4 million, or 23.6%, increase in loans held for sale. The largest increases within the loan portfolio occurred in commercial real estate loans which increased $149.7 million, or 81.4%, commercial business loans which increased $29.5 million, or 22.7%, multi-family residential loans which increased $17.6 million, or 59.9%, construction loans which increased $13.1 million, or 82.7%, and one-to-four family owner occupied loans which increased $8.3 million, or 84.8%, Contributing to the increase in commercial real estate loans was the purchase of a $55.5 million loan portfolio by the Bank’s wholly-owned subsidiary, Oakmont Commercial, LLC, in April, 2022.

Cash and Cash Equivalents. Cash and cash equivalents decreased $6.8 million, or 63.6%, from $10.7 million at December 31, 2021 to $3.9 million at December 31, 2022 as excess liquidity was used to fund loans.

Investment Securities Available for Sale. Investment securities available for sale decreased $1.1 million, or 26.4%, from $4.0 million at December 31, 2021 to $3.0 million at December 31, 2022 due primarily to the principal repayments on these securities during the year ended December 31, 2022.

Loans Held for Sale. Loans held for sale increased $25.4 million, or 23.6%, from $107.8 million at December 31, 2021 to $133.2 million at December 31, 2022 as the Bank’s mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $403.2 million in equipment loans held for sale and sold $343.9 million of equipment loans during the year ended December 31, 2022. Partially offsetting the increase in loans held for sale is $19.4 million of equipment loan amortization and prepayments. Additionally, the Bank’s mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $118.4 million of one-to-four family residential loans during the year ended December 31, 2022 and sold $132.9 million of loans in the secondary market during this same period.

Loans Receivable, Net. Loans receivable, net, increased $217.9 million, or 53.9% funded primarily from deposits, excess liquidity and FHLB borrowings. Increases within the portfolio consisted of commercial real estate which increased $149.7 million, or 81.4%, commercial business loans which increased $29.5 million, or 22.7%, construction loans which increased $13.1 million, or 82.7%, multi-family residential loans which increased $17.6 million, or 59.9%, and one-to-four family owner occupied loans which increased $8.3 million, or 84.8%. The increases within the loan portfolio were partially offset by a decrease in other consumer loans which decreased $10,000, or 83.3%. The Company continues its strategy of diversifying its loan portfolio with higher yielding and shorter-term loan products and selling substantially all of its newly originated one-to-four family owner-occupied loans into the secondary market.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Federal Home Loan Bank Stock. Federal Home Loan Bank stock increased $4.4 million, or 203.1%, from $2.2 million at December 31, 2021 to $6.6 million at December 31, 2022 as the Bank increased its level of FHLB borrowings.

Bank-Owned Life Insurance. The Company purchased $3.5 million in bank-owned life insurance (BOLI) as a mechanism for funding various employee benefit costs. The Company is the beneficiary of these policies that insure the lives of certain officers of its subsidiaries. The cash surrender value of the insurance policies amounted to $4.2 million and $4.1 million at December 31, 2022 and 2021, respectively.

Premises and Equipment, Net. Premises and equipment, net, increased $122,000, or 4.62%, to $2.8 million at December 31, 2022 from $2.7 million at December 31, 2021. The increase was due primarily to technology upgrades.

Goodwill and Other Intangible, Net. Goodwill is related to the recognition of $2.1 million of goodwill as part of the acquisition of Oakmont Capital Holdings, LLC in January 2021. Goodwill and other intangible assets, net of accumulated amortization, is also related to the acquisition by Quaint Oak Insurance Agency of the renewal rights to a book of business on August 1, 2016 at a total cost of $1.0 million, a portion of which is being amortized. The balance of other intangible asset at December 31, 2022 was $174,000, net of accumulated amortization of $311,000.

Prepaid Expenses and Other Assets. Prepaid expenses and other assets increased $2.0 million, or 41.9%, to $6.8 million at December 31, 2022 from $4.8 million at December 31, 2021, due primarily to an $856,000 net increase in the right-of-use asset driven by the capitalization of leases for Oakmont in accordance with the Financial Accounting Standards Board accounting standard ASU 2016-02, Leases (Topic 842). Also contributing to the increase is a $543,000 increase in other assets and a $234,000 increase in the net deferred tax asset.

Deposits. Total deposits increased $102.1 million, or 22.8%, to $549.3 million at December 31, 2022 from $447.2 million at December 31, 2021. This increase in deposits was primarily attributable to an increase of $60.3 million, or 30.0%, in money market accounts, an increase of $24.0 million, or 37.1%, in non-interest bearing checking accounts, and an increase of $18.0 million, or 10.0%, in certificates of deposit. The increase in total deposits was partially offset by a $241,000, or 13.1%, decrease in savings accounts. The increase in money market accounts was primarily due to a $150.0 million deposit in May, 2022 through a deposit placement agreement with a third party bank.

Borrowings. Total Federal Home Loan Bank (FHLB) borrowings increased $110.0 million, or 223.7%, to $159.2 million at December 31, 2022 from $49.2 million at December 31, 2021. During the year ended December 31, 2022, the Company borrowed $197.5 million of FHLB short-term borrowings and $80.0 million of FHLB long-term borrowings and paid down $131.3 million of FHLB short-term borrowings and $36.2 million of FHLB long-term borrowings. Federal Reserve Bank (FRB) borrowings increased $3.1 million, or 79.7%, to $7.0 million at December 31, 2022 from $3.9 million at December 31, 2021 as the Company paid off $3.9 million of first round PPP loans pledged as collateral under the FRB’s Paycheck Protection Program Liquidity Facility (PPPLF) and borrowed $7.0 million from the FRB discount window. The Company did not utilize the FRB’s PPPLF to fund second round PPP loans. Other borrowings increased to $5.5 million at December 31, 2022 from none at December 31, 2021.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Subordinated Debt. On December 27, 2018, the Company issued $8.0 million in subordinated notes. These notes have a maturity date of December 31, 2028, and bear interest at a fixed rate of 6.50% for the first five years of their term and a floating rate for the remaining five years. The Company may, at its option, at any time on an interest payment date on or after December 31, 2023, redeem the notes, in whole or in part, at par plus accrued interest to the date of redemption. The balance of subordinated debt, net of unamortized debt issuance costs, was $8.0 million at December 31, 2022 and $7.9 million at December 31, 2021.

Accrued Expenses and Other Liabilities. Accrued expenses and other liabilities increased $3.6 million, or 59.8%, to $9.6 million at December 31, 2022 from $6.0 million at December 31, 2021, due primarily to a $939,000, or 32.5%, increase in lease liability driven by the capitalization of leases for Oakmont in accordance with the Financial Accounting Standards Board accounting standard ASU 2016-02, Leases (Topic 842). Also contributing to the increase in accrued expenses and other liabilities is a $341,000 increase in the net tax liability and a $224,000 increase in accrued bonus expense. In addition, accrued expenses and other liabilities increased as a result of Oakmont’s results for the year ended December 31, 2022. The remainder of the increase is attributable to an increase in other expense accruals.

Stockholders’ Equity. Total stockholders’ equity increased $12.2 million, or 33.0%, to $49.1 million at December 31, 2022 from $36.9 million at December 31, 2021. Contributing to the increase was net income for the year ended December 31, 2022 of $7.9 million, net income attributable to noncontrolling interest of $2.4 million, issuance of treasury stock for capital raise of $2.4 million, common stock earned by participants in the employee stock ownership plan of $343,000, the reissuance of treasury stock for exercised stock options of $261,000, amortization of stock awards and options under our stock compensation plans of $168,000, and the reissuance of treasury stock under the Bank’s 401(k) Plan of $100,000. These increases were partially offset by dividends paid of $1.0 million, noncontrolling interest distribution of $279,000, the purchase of treasury stock of $49,000, and other comprehensive loss, net of $47,000.

Comparison of Operating Results for the Years Ended December 31, 2022 and 2021

General. Net income amounted to $7.9 million for the year ended December 31, 2022 compared to $6.4 million for the year ended December 31, 2021, an increase of $1.5 million, or 22.8%. The increase in net income on a comparative year-end basis was primarily the result of an increase in non-interest income of $7.4 million, and an increase in net interest income of $3.1 million, partially offset by an increase in non-interest expense of $6.2 million, an increase in net income attributable to noncontrolling interest of $2.0 million, an increase in the provision for income taxes of $562,000, and an increase in the provision for loan losses of $274,000.

Net Interest Income. Net interest income increased $3.1 million, or 14.9%, to $23.7 million for the year ended December 31, 2022 from $20.6 million for the year ended December 31, 2021. The increase in net interest income was driven by a $7.5 million, or 29.8%, increase in interest income, partially offset by a $4.4 million, or 100.6%, increase in interest expense.

Interest Income. Interest income increased $7.5 million, or 29.8%, to $32.5 million for the year ended December 31, 2022 from $25.0 million for the year ended December 31, 2021. The increase in interest income was primarily due to a $142.3 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $483.7 million for the year ended December 31, 2021 to an average balance of $626.0 million for the year ended December 31, 2022, and had the effect of increasing interest income $7.2 million. Also contributing to the increase in interest income was a 108 basis point increase in the yield on average due from banks – interest earning, which increased from 0.12% for the year ended December 31, 2021 to 1.20% for the year ended December 31, 2022, and had the effect of increasing interest income $258,000. Contributing to the increase in average balance of loans receivable, net was the purchase of a $55.5 million commercial real estate loan portfolio by the Bank’s wholly-owned subsidiary, Oakmont Commercial, LLC, in April, 2022.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Interest Expense. Interest expense increased $4.4 million, or 100.6%, to $8.8 million for the year ended December 31, 2022 from $4.4 million for the year ended December 31, 2021. The increase in interest expense was primarily attributable to a 91 basis point increase in the rate on average money market accounts, which increased from 0.60% for the year ended December 31, 2021 to 1.51% for the year ended December 31, 2022, and had the effect of increasing interest expense by $2.4 million. Also contributing to the increase in interest expense was an $85.8 million increase in average money market accounts which increased from an average balance of $174.1 million for the year ended December 31, 2021 to an average balance of $259.9 million for the year ended December 31, 2022, and had the effect of increasing interest expense by $515,000. The increase in money market average balance was impacted by a $150.0 million deposit in May, 2022 through a deposit placement agreement with a third party bank. Also contributing to the increase in interest expense is a $40.2 million increase in average FHLB long-term borrowings which increased from $25.6 million for the year ended December 31, 2021 to $65.8 million for the year ended December 31, 2022, and had the effect of increasing interest expense by $810,000. Also contributing to the increase in interest expense is a 204 basis point increase in the rate on FHLB short-term borrowings, which increased from 0.30% for the year ended December 31, 2021 to 2.34% for the year ended December 31, 2022 and had the effect of increasing interest expense by $643,000. The average interest rate spread decreased from 3.75% for the year ended December 31, 2021 to 3.30% for the year ended December 31, 2022, while the net interest margin decreased from 3.93% for the year ended December 31, 2021 to 3.56% for the year ended December 31, 2022.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances.

				Year Ended December 31,
		2022						2021
					Average						Average
		Average			Yield/			Average			Yield/
		Balance		Interest	Rate			Balance		Interest	Rate
					(Dollars in thousands)
Interest-earning assets:
Due from banks, interest-bearing	$	24,759	$	298	1.20	%	$	25,076	$	30	0.12	%
Investment in interest-earning time deposits		6,802		128	1.88			8,090		197	2.43
Investment securities available for sale		3,519		63	1.79			5,966		99	1.66
Loans receivable, net (1) (2)		626,041		31,781	5.08			483,733		24,592	5.10
Investment in FHLB stock		4,204		196	4.66			1,652		77	4.67
Total interest-earning assets		665,325		32,466	4.88	%		524,517		24,995	4.78	%
Non-interest-earning assets		20,078						17,815
Total assets	$	685,403						542,332
Interest-bearing liabilities:
Savings accounts		1,673	$	3	0.18	%		1,666	$	3	0.18	%
---	---	---	---	---	---	---	---	---	---	---	---	---
Money market accounts		259,886		3,924	1.51			174,126		1,048	0.60
Certificate of deposit accounts		185,202		2,116	1.14			178,721		2,012	1.13
Total deposits		446,761		6,043	1.35			354,513		3,063	0.86
FHLB short-term borrowings		31,505		737	2.34			10,405		31	0.30
FHLB long-term borrowings		65,755		1,355	2.06			25,648		518	2.02
FRB borrowings		1,556		15	0.97			23,266		81	0.35
Other short-term borrowings		1,601		107	6.68			1,300		162	12.46
Subordinated debt		7,949		520	6.54			7,915		520	6.57
Total interest-bearing liabilities		555,127		8,777	1.58	%		423,047		4,375	1.03	%
Non-interest-bearing liabilities		91,335						88,315
Total liabilities		646,462						511,362
Stockholders’ Equity		38,941						30,970
Total liabilities and Stockholders’ Equity	$	685,403						542,332
Net interest-earning assets	$	110,198					$	101,470
Net interest income; average interest rate<br> <br>spread			$	23,689	3.30	%			$	20,620	3.75	%
Net interest margin (3)					3.56	%					3.93	%
Average interest-earning assets to average<br> <br>interest-bearing liabilities					119.85	%					123.99	%

___________________

(1) Includes loans held for sale.

(2) Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for loan losses.

(3) Equals net interest income divided by average interest-earning assets.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Rate/Volume Analysis. The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, (2) changes in volume, which is the change in volume multiplied by prior year rate, and (3) changes in rate/volume, which is the change in rate multiplied by the change in volume.

		2022 vs. 2021												2021 vs. 2020
		Increase (Decrease) Due to									Total			Increase (Decrease) Due to									Total
								Rate/			Increase									Rate/			Increase
		Rate			Volume			Volume			(Decrease)			Rate			Volume			Volume			(Decrease)
Interest income:											(In Thousands)
Due from banks, interest-bearing	$	272		$	-		$	(4	)	$	268		$	(52	)	$	32		$	(23	)	$	(43	)
Investment in interest-earning time<br> <br>deposits		(45	)		(31	)		7			(69	)		(6	)		(42	)		1			(47	)
Investment securities available for<br> <br>sale		7			(41	)		(2	)		(36	)		(105	)		(95	)		38			(162	)
Loans receivable, net (1) (2)		(35	)		7,235			(11	)		7,189			1,229			7,145			561			8,935
Investment in FHLB stock		-			119			-			119			(22	)		14			(3	)		(11	)
Total interest-earning assets		199			7,282			(10	)		7,471			1,044			7,054			574			8,672
Interest expense:
Savings accounts		--			--			--			--			--			--			--			--
Money market accounts		1,583			516			779			2,878			(108	)		1,051			(289	)		654
Certificate of deposit accounts		29			72			1			102			(1,619	)		(326	)		138			(1,807	)
Total deposits		1,612			588			780			2,980			(1,727	)		725			(151	)		(1,153	)
FHLB short-term borrowings		212			63			431			706			(27	)		80			(59	)		(6	)
FHLB long-term borrowings		10			810			17			837			(22	)		(70	)		3			(89	)
FRB long-term borrowings		145			(75	)		(136	)		(66	)		(2	)		(26	)		1			(27	)
Subordinated debt		(2	)		2			--			--			(2	)		2			--			--
Other short-term borrowings		(76	)		38			(17	)		(55	)		--			--			162			162
Total interest-bearing liabilities		1,901			1,426			1,075			4,402			(1,780	)		711			(44	)		(1,113	)
Increase (decrease) in net interest<br> <br>income	$	(1,702	)	$	5,856		$	(1,085	)	$	3,069		$	2,824		$	6,343		$	618		$	9,785

_______________________

(1) Includes loans held for sale.

(2) Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for loan losses.

Provision for Loan Losses. The Company increased its provision for loan losses by $274,000, or 12.4%, from $2.2 million for the year ended December 31, 2021 to $2.5 million for the year ended December 31, 2022, based on an evaluation of the allowance relative to such factors as volume of the loan portfolio, concentrations of credit risk, prevailing economic conditions, prior loan loss experience and amount of non-performing loans at December 31, 2022.

Non-performing loans at December 31, 2022 amounted to $2.0 million, or 0.32%, of net loans receivable at December 31, 2022, consisting of six loans, three of which are on non-accrual status and three of which are 90 days or more past due and accruing interest. Comparably, non-performing loans amounted to $9,000 at December 31, 2021, consisting of one one-to-four family residential non-owner occupied loan. The non-performing loans at December 31, 2022 consisted of one multi-family residential, and one commercial real estate loan, and four commercial business loans and are generally well-collateralized or adequately reserved for. The allowance for loan losses as a percent of total loans receivable, net was 1.22% at December 31, 2022 and 1.29% at December 31, 2021. There was no other real estate owned (OREO) at December 31, 2022, or December 31, 2021. Non-performing assets amounted to $2.0 million, or 0.25% of total assets at December 31, 2022 compared to $9,000 at December 31, 2021. There was no other real estate owned (OREO) at December 31, 2022, or December 31, 2021. Non-performing assets amounted to $2.0 million at December 31, 2022 compared to $9,000, or 0.19% of total assets at December 31, 2021.

Non-Interest Income. Non-interest income increased $7.4 million, or 62.0%, from $12.0 million for the year ended December 31, 2021 to $19.4 million for the year ended December 31, 2022. The increase was primarily attributable to a $5.6 million, or 81.7%, increase in net gain on loans held for sale, a $1.7 million, or 1,153.7%, increase in loan servicing income, a $604,000, or 24.2%, increase in mortgage banking, equipment lending, and title abstract fees, a $395,000, or 154.9%, increase in other fees and service charges, a $128,000, or 75.3%, increase in real estate commissions, net, and an $84,000, or 16.5%, increase in insurance commissions. The increase in net gain on loans held for sale was primarily due to the sale of $363.4 million of equipment loans during the year ended December 31, 2022. These increases were partially offset by an $837,000, or 73.0%, decrease in gain on sale of SBA loans, and a $362,000, or 100.0%, decrease in gain on sale of investment securities available for sale.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Non-Interest Expense. Non-interest expense increased $6.2 million, or 29.3%, from $21.1 million for the year ended December 31, 2021 to $27.3 million for the year ended December 31, 2022. Salaries and employee benefits expense accounted for $4.6 million of the change as this expense increased 29.6%, from $15.5 million for the year ended December 31, 2021 to $20.1 million for the year ended December 31, 2022 due to expanding and improving the level of staff at the Bank and its subsidiary companies, including Oakmont. The number of full time employees at the Bank and its subsidiary companies, excluding Oakmont increased from 114 at December 31, 2021 to 129 as of December 31, 2022. The number of full-time employees at Oakmont increased from 45 at December 31, 2021 to 63 at December 31, 2022. Other expense accounted for $835,000 of the change as this expense increased 60.3%, from $1.4 million for the year ended December 31, 2021 to $2.2 million for the year ended December 31, 2022. FDIC deposit insurance assessment increased $327,000, from $331,000 for the year ended December 31, 2021 to $658,000 for the year ended December 31, 2022. Occupancy and equipment expense accounted for $283,000 of the change as this expense increased 17.5%, from $1.6 million for the year ended December 31, 2021 to $1.9 million for the year ended December 31, 2022. Advertising expense increased $217,000, or 61.8%, from $351,000 for the year ended December 31, 2021 to $568,000 for the year ended December 31, 2022. Professional fees accounted for $89,000 of the change as this expense increased 13.5%, from $659,000 for the year ended December 31, 2021 to $748,000 for the year ended December 31, 2022, due primarily to increased audit and compliance costs. Directors’ fees and expenses accounted for $34,000 of the change as this expense increased 13.5%, from $252,000 for the year ended December 2021 to $286,000 for the year ended December 31, 2022. Partially offsetting these increases was data processing costs which accounted for a $211,000 decrease, as this expense decreased 23.4%, from $901,000 for the year ended December 31, 2021 to $690,000 for the year ended December 31, 2022. The decrease in data processing costs was directly related to the decrease in loan production at Quaint Oak Mortgage, LLC.

Provision for Income Tax. The provision for income tax increased $562,000, or 22.6%, from $2.5 million for the year ended December 31, 2021 to $3.1 million for the year ended December 31, 2022 due primarily to an increase in pre-tax income for the year ended December 31, 2022.

Operating Segments

The Company’s operations consist of two reportable operating segments: Banking and Oakmont Capital Holdings, LLC. Our Banking Segment generates revenues primarily from its lending, deposit gathering and fee business activities. The Oakmont Capital Holdings, LLC Segment originates equipment loans which are generally sold to third party institutions with the loans’ servicing rights retained. The profitability of this segment’s operations depends primarily on the gains realized from the sale of loans, processing fees, and service fees. The Oakmont Capital Holdings, LLC Segment is also subject to an extensive system of laws and regulations that are intended primarily for the protection of commercial customers. Detailed segment information appears in Note 20 in the Notes to Consolidated Financial Statements.

Our Banking Segment reported a pre-tax segment profit (“PTSP”) for the year ended December 31, 2022 of $8.4 million, a $93,000, or 1.1%, decrease from the year ended December 31, 2021. This decrease in PTSP was due to a $3.1 million, or 19.4%, increase in non-interest expense, a $1.8 million decrease in non-interest income and a $274,000 increase in the provision for loan losses, partially offset by a $4.8 million increase in net interest income. The increase in non-interest expense was due primarily to a $2.6 million, or 23.7%, increase in salaries and employee benefits expense, a $327,000, or 98.8%, increase in FDIC deposit insurance assessment, a $157,000, or 30.7%, increase in professional fees, a $65,000, or 5.3%, increase in other expense, a $37,000, or 3.0%, increase in occupancy and equipment, and a $25,000, or 15.5%, increase in advertising expense, partially offset by a $211,000, or 23.4%, decrease in data processing expense. The decrease in non-interest income was primarily due to an $837,000, or 73.0%, decrease in gain on the sale of SBA loans, a $653,000, or 46.3%, decrease in mortgage banking and title abstract fees, a $362,000, or 100.0%, decrease in gain on sale of investment securities available for sale, a $214,000, or 6.1%, decrease in net gain on loans held for sale, and a $136,000, or 91.3%, decrease in loan servicing income, partially offset by a $131,000, or 65.8%, increase in other fees and service charges, a $128,000, or 75.3% increase in real estate sales commissions, net, and a $73,000, or 100.0%, increase in the loss on sales and write-downs of other real estate owned.

Our Oakmont Capital Holdings, LLC Segment reported a PTSP for the year ended December 31, 2022 of $5.0 million, a $4.1 million, or 486.4%, increase from the year ended December 31, 2021. The increase in PTSP was primarily due to a $9.2 million, or 123.8%, increase in non-interest income, partially offset by a $3.1, or 59.0%, increase in non-interest expense. The increase in non-interest income was primarily due to a $5.8 million, or 171.7%, increase in net gain on loans held for sale, and a $1.3 million, or 115.4%, increase in equipment lending fees. The increase in non-interest expense was primarily due to a $2.0 million, or 44.8%, increase in salaries and employee benefits expense, a $770,000, or 484.3%, increase in other expense, a $246,000, or 64.1%, increase in occupancy and equipment expense, and a $192,000 increase in advertising expense.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Exposure to Changes in Interest Rates

The Company’s ability to maintain net interest income depends upon its ability to earn a higher yield on assets than the rates it pays on deposits and borrowings. The Company’s interest-earning assets consist primarily of loans collateralized by real estate which have longer maturities than our liabilities, consisting primarily of certificates of deposit, money market accounts and to a lesser extent borrowings. Consequently, the Company’s ability to maintain a positive spread between the interest earned on assets and the interest paid on deposits and borrowings can be adversely affected when market rates of interest rise. At December 31, 2022 and 2021, certificates of deposit amounted to $198.0 million and $179.9 million, respectively, or 36.0% and 32.5%, respectively, of total assets at such dates.

Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring a bank’s interest rate sensitivity “gap.” An asset and liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to affect adversely net interest income. Our current interest rate risk management policy provides that our one-year interest rate gap as a percentage of total assets should not exceed positive or negative 20%. This policy was adopted by our management and Board of Directors based upon their judgment that it established an appropriate benchmark for the level of interest-rate risk, expressed in terms of the one-year gap, for the Company. If our one-year gap position approaches or exceeds the 20% policy limit, management will obtain simulation results in order to determine what steps might appropriately be taken, in order to maintain our one-year gap in accordance with the policy. Alternatively, depending on the then-current economic scenario, we could determine to make an exception to our policy or we could determine to revise our policy. Our one-year cumulative gap was a positive 3.7% at December 31, 2022, compared to a positive 2.6% at December 31, 2021.

The following table sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2022, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown. Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2022, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. The Company’s annual historical prepayment rates are applied to loans. Money market and savings accounts are both assumed to have annual rates of withdrawal, or “decay rates,” of 40%.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

	3 Months<br> <br>or Less			More than<br> <br>3 Months<br> <br>to 1 Year			More than<br> <br>1 Year<br> <br>to 3 Years			More than<br> <br>3 Years<br> <br>to 5 Years			More than<br> <br>5 Years			Total<br> <br>Amount
	(Dollars In Thousands)
Interest-earning assets (1):
Due from banks, interest-bearing	$	3,472		$	--		$	--		$	--		$	--		$	3,472
Investment in interest-earning time deposits		1,790			750			1,000			293			--			3,833
Investment securities available for sale		2,970			--			--			--			--			2,970
Loans held for sale		133,222			--			--			--			--			133,222
Loans receivable (2)		212,832			33,524			210,469			104,576			67,785			629,186
Investment in Federal Home Loan Bank<br> <br>stock		--			--			--			--			6,601			6,601
Total interest-earning assets	$	354,286		$	34,274		$	211,469		$	104,869		$	74,386		$	779,284
Interest-bearing liabilities:
Savings accounts	$	319		$	319		$	639		$	160		$	160			1,597
Money market accounts		52,194			52,194			104,389			26,097			26,098			260,972
Certificate accounts		20,868			70,438			78,454			28,191			--			197,951
FHLB borrowings		113,200			37,000			9,022			--			--			159,222
FRB borrowings		7,000			--			--			--			--			7,000
Other short-term borrowings		--			5,489			--			--			--			5,489
Subordinated debt		--			--			--			--			7,966			7,966
Total interest-bearing liabilities	$	193,581		$	165,440		$	192,504		$	54,448		$	34,224		$	640,197
Interest-earning assets less interest-bearing liabilities	$	160,705		$	(131,166	)	$	18,965		$	50,421		$	40,162
Cumulative interest-rate sensitivity gap (3)	$	160,705		$	29,539		$	48,504		$	98,925		$	139,087
Cumulative interest-rate gap as a<br> <br>percentage of total assets at<br> <br>December 31, 2022		20.3	%		3.7	%		6.1	%		12.5	%		17.6	%
Cumulative interest-earning assets<br> <br>as a percentage of cumulative interest-<br> <br>bearing liabilities at December 31, 2022		183.0	%		108.2	%		108.8	%		116.3	%		121.7	%

_____________________

(1) Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments,

scheduled rate adjustments and contractual maturities.

(2) For purposes of the gap analysis, loans receivable includes non-performing loans gross of the allowance for loan losses and deferred loan fees.

(3) Interest-rate sensitivity gap represents the difference between net interest-earning assets and interest-bearing liabilities.

Qualitative Analysis. Our ability to maintain a positive “spread” between the interest earned on assets and the interest paid on deposits and borrowings is affected by changes in interest rates. The Company’s fixed-rate loans generally are profitable if interest rates are stable or declining since these loans have yields that exceed its cost of funds. If interest rates increase, however, the Company would have to pay more on its deposits and new borrowings, which would adversely affect its interest rate spread. In order to counter the potential effects of dramatic increases in market rates of interest, the Company intends to continue to originate more variable rate loans and increase core deposits. The Company also intends to place a greater emphasis on shorter-term home equity loans and commercial business loans.

Liquidity and Capital Resources

The Company’s primary sources of funds are deposits, amortization and prepayment of loans and to a lesser extent, loan sales and other funds provided from operations. While scheduled principal and interest payments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company sets the interest rates on its deposits to maintain a desired level of total deposits. In addition, the Company invests excess funds in short-term interest-earning assets that provide additional liquidity. At December 31, 2022, the Company’s cash and cash equivalents amounted to $3.9 million. At such date, the Company also had $2.5 million invested in interest-earning time deposits maturing in one year or less.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company uses its liquidity to fund existing and future loan commitments, to fund deposit outflows, to invest in other interest-earning assets, and to meet operating expenses. At December 31, 2022, Quaint Oak Bank had outstanding commitments to originate loans of $36.1 million, commitments under unused lines of credit of $52.2 million, and $2.6 million under standby letters of credit.

At December 31, 2022, certificates of deposit scheduled to mature in one year or less totaled $91.3 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case.

In addition to cash flow from loan payments and prepayments and deposits, the Company has significant borrowing capacity available to fund liquidity needs. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Pittsburgh (FHLB), which provide an additional source of funds. As of December 31, 2022, we had $159.2 million of borrowings from the FHLB and had $353.4 million in borrowing capacity. Under terms of the collateral agreement with the FHLB of Pittsburgh, we pledge residential mortgage loans as well as Quaint Oak Bank’s FHLB stock as collateral for such advances. In addition, as of December 31, 2022 Quaint Oak Bank had $8.1 million in borrowing capacity with the Federal Reserve Bank of Philadelphia. Quaint Oak Bank borrowed $7.0 million from the FRB discount window as of December 31, 2022.

Total stockholders’ equity increased $12.2 million, or 33.0%, to $49.1 million at December 31, 2022 from $36.9 million at December 31, 2021. Contributing to the increase was net income for the year ended December 31, 2022 of $7.9 million, net income attributable to noncontrolling interest of $2.4 million, issuance of treasury stock for capital raise of $2.4 million, common stock earned by participants in the employee stock ownership plan of $343,000, the reissuance of treasury stock for exercised stock options of $261,000, amortization of stock awards and options under our stock compensation plans of $168,000, and the reissuance of treasury stock under the Bank’s 401(k) Plan of $100,000. These increases were partially offset by dividends paid of $1.0 million, noncontrolling interest distribution of $279,000, the purchase of treasury stock of $49,000, and other comprehensive loss, net of $47,000.For further discussion of the stock compensation plans, see Note 14 in the Notes to Consolidated Financial Statements contained elsewhere herein.

Quaint Oak Bank is required to maintain regulatory capital sufficient to meet tier 1 leverage, common equity tier 1 capital, tier 1 risk-based and total risk-based capital ratios of at least 4.00%, 4.50%, 6.00%, and 8.00%, respectively. At December 31, 2022, Quaint Oak Bank exceeded each of its capital requirements with ratios of 7.07%, 7.41%, 7.41% and 8.49%, respectively. As a small savings and loan holding company, the Company is not currently subject to any regulatory capital requirements. For further discussion of the Bank’s regulatory capital requirements, see Note 18 in the Notes to Consolidated Financial Statements contained elsewhere herein.

Quaint Oak Bancorp, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. Our exposure to credit loss from non-performance by the other party to the above-mentioned financial instruments is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. In general, we do not require collateral or other security to support financial instruments with off–balance sheet credit risk.

Commitments. At December 31, 2022, we had unfunded commitments under lines of credit of $49.9 million, $36.1 million of commitments to originate loans, and $2.6 million under standby letters of credit. We had no commitments to advance additional amounts pursuant to outstanding lines of credit or undisbursed construction loans.

Contractual Cash Obligations

The following table summarizes our contractual cash obligations at December 31, 2022. The balances in the table do not reflect interest due on these obligations.

	****	****	Payments Due By Period
	Total		To<br> <br>1 Year		1-3<br> <br>Years		4-5<br> <br>Years		After 5<br> <br>Years
	(In Thousands)
Operating leases	$	1,479	$	236		446	$	291	$	506
Certificates of deposit		197,951		91,306		87,662		18,983		-
FHLB borrowings		159,222		150,200		9,022		-		-
FRB borrowings		7,000		7,000		-		-		-
Total contractual obligations	$	365,652	$	248,742	$	97,130	$	19,274	$	506

Impact of Inflation and Changing Prices

The consolidated financial statements and related financial data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the Company’s assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on the Company’s performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.

Quaint Oak Bancorp, Inc.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Quaint Oak Bancorp, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Quaint Oak Bancorp, Inc. and subsidiary (the “Company”) as of December 31, 2022 and 2021; the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended; and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involve our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

PITTSBURGH, PA	PHILADELPHIA, PA	WHEELING, WV	STEUBENVILLE, OH
2009 Mackenzie Way • Suite 340	2100 Renaissance Blvd. • Suite 110	980 National Road	511 N. Fourth Street
Cranberry Township, PA 16066	King of Prussia, PA 19406	Wheeling, WV 26003	Steubenville, OH 43952
(724) 934-0344	(610) 278-9800	(304) 233-5030	(304) 233-5030

S.R. Snodgrass, P.C. d/b/a S.R. Snodgrass, A.C. in West Virginia

Quaint Oak Bancorp, Inc.

Allowance for Loan Losses (ALL) – Qualitative Factors

Description of the Matter

The Company’s loan portfolio totaled $629.5 million as of December 31, 2022, and the associated ALL was $7.7 million. As discussed in Note 7 to the consolidated financial statements, determining the amount of the ALL requires significant judgment about the collectability of loans, which includes an assessment of quantitative factors such as historical loss experience within each risk category of loans and testing of certain commercial loans for impairment. Management applies additional qualitative adjustments to reflect the inherent losses that exist in the loan portfolio at the balance sheet date that are not reflected in the historical loss experience. Qualitative adjustments are made based upon changes in trends in delinquencies and non-accruals, trends in volume and terms of loans, credit concentrations, risk rating, collateral values, experience, ability and depth of lending staff and management, national and local economic trends and conditions, COVID-19 pandemic, quality of loan review system, and lending policies.

We identified these qualitative adjustments within the ALL as critical audit matters because they involve a high degree of subjectivity. In turn, auditing management’s judgments regarding the qualitative factors applied in the ALL calculation involved a high degree of subjectivity.

How We Addressed the Matter in Our Audit

We gained an understanding of the Company’s process for establishing the ALL, including the qualitative adjustments made to the ALL. We evaluated the design and tested the operating effectiveness of controls over the Company’s ALL process, which included, among others, management’s review and approval controls designed to assess the need and level of qualitative adjustments to the ALL, as well as the reliability of the data utilized to support management’s assessment.

To test the qualitative adjustments, we evaluated the appropriateness of management’s methodology and assessed whether all relevant risks were reflected in the ALL.

Regarding the measurement of the qualitative adjustments, we evaluated the completeness, accuracy, and relevance of the data and inputs utilized in management’s estimate. For example, we compared the inputs and data to the Company’s historical loan performance data, third-party macroeconomic data, and considered the existence of new or contrary information. Furthermore, we analyzed the changes in the components of the qualitative reserves relative to changes in external market factors, the Company’s loan portfolio, and asset quality trends.

Allowance for Loan Losses (ALL) – Qualitative Factors (Continued)

We also utilized internal credit review specialists with knowledge to evaluate the appropriateness of management’s risk-rating processes, to ensure that the risk ratings applied to the commercial loan portfolio were reasonable.

We have served as the Company’s auditor since 2013.

Cranberry Township, Pennsylvania

March 30, 2023

Quaint Oak Bancorp, Inc.

Consolidated Balance Sheets

			At December 31,
			2021

Assets	****	****	****	****	****
Due from banks, non-interest-bearing	421		$	854
Due from banks, interest-bearing	3,472			9,851
Cash and cash equivalents	3,893			10,705
Investment in interest-earning time deposits	3,833			7,924
Investment securities available for sale	2,970			4,033
Loans held for sale	133,222			107,823
Loans receivable, net of allowance for loan losses
(2022 7,678; 2021 5,262)	621,864			403,966
Accrued interest receivable	3,462			3,139
Investment in Federal Home Loan Bank stock, at cost	6,601			2,178
Bank-owned life insurance	4,226			4,137
Premises and equipment, net	2,775			2,653
Goodwill	2,573			2,573
Other intangible, net of accumulated amortization	174			222
Other real estate owned, net	--			--
Prepaid expenses and other assets	6,757			4,762
Total Assets	792,350		$	554,115
Liabilities and Stockholders’ Equity
Liabilities	****	****	****	****	****
Deposits:
Non-interest bearing	88,728		$	64,731
Interest-bearing	460,520			382,435
Total deposits	549,248			447,166
Federal Home Loan Bank short-term borrowings	93,200			26,000
Federal Home Loan Bank long-term borrowings	66,022			23,193
Federal Reserve Bank long-term borrowings	7,000			3,895
Other short-term borrowings	5,489			-
Subordinated debt	7,966			7,933
Accrued interest payable	584			174
Advances from borrowers for taxes and insurance	4,186			2,856
Accrued expenses and other liabilities	9,573			5,989
Total Liabilities	743,268			517,206
Stockholders’ Equity	****	****	****	****	****
Preferred stock – 0.01 par value, 1,000,000 shares authorized; none issued or outstanding	--			--
Common stock – 0.01 par value; 9,000,000 shares authorized; 2,777,250 issued; 2,167,613 and 2,011,313 outstanding at December 31, 2022 and 2021, respectively	28			28
Additional paid-in capital	17,906			15,685
Treasury stock, at cost: 609,637 and 765,937 shares at December 31, 2022 and 2021, respectively	(3,992	)		(4,977	)
Accumulated other comprehensive (loss) income	(24	)		23
Retained earnings	30,875			24,030
Total Quaint Oak Bancorp, Inc. Stockholders’ Equity	44,793			34,789
Noncontrolling Interest	4,289			2,120
Total Stockholders’ Equity	49,082			36,909
Total Liabilities and Stockholders’ Equity	792,350		$	554,115

All values are in US Dollars.

See accompanying notes to consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Income

	Years Ended December 31,
	2022		2021
	(In thousands, except share
	and per share data)
Interest Income	****	****	****	****
Interest on loans, including fees	$	31,781	$	24,592
Interest and dividends on investment securities, interest-bearing deposits with others, and Federal Home Loan<br> <br>Bank stock	****	685		403
Total Interest Income	****	32,466		24,995
Interest Expense	****	****
---	---	---
Interest on deposits	6,043	3,063
Interest on Federal Home Loan Bank short-term borrowings	737	31
Interest on Federal Home Loan Bank long-term borrowings	1,355	518
Interest on Federal Reserve Bank borrowings	15	81
Interest on other short-term borrowings	107	162
Interest on subordinated debt	520	520
Total Interest Expense	8,777	4,375
Net Interest Income	23,689	20,620
---	---	---
Provision for Loan Losses	2,475	2,201
---	---	---
Net Interest Income after Provision for Loan Losses	21,214	18,419
---	---	---
Non-Interest Income	****	****	****
---	---	---	---
Mortgage banking and title abstract fees	3,103	2,499
Real estate sales commissions, net	298	170
Insurance commissions	593	509
Other fees and services charges	650	255
Loan servicing income	1,868	149
Income from bank-owned life insurance	89	83
Net gain on loans held for sale	12,500	6,881
Gain on the sale of SBA loans	310	1,147
Gain on sale of investment securities available for sale	-	362
Loss on sales and write-downs of other real estate owned	-	(73	)
Total Non-Interest Income, net	19,411	11,982
Non-Interest Expense	****	****	****	****
---	---	---	---	---
Salaries and employee benefits	****	20,137		15,538
Directors’ fees and expenses	****	286		252
Occupancy and equipment	****	1,904		1,621
Data processing	****	690		901
Professional fees	****	748		659
FDIC deposit insurance assessment	****	658		331
Advertising	****	568		351
Amortization of other intangible	****	49		49
Other	****	2,220		1,385
Total Non-Interest Expense	****	27,260		21,087
Income before Income Taxes	****	13,365		9,314
Income Taxes	****	3,054		2,492
Net Income	$	10,311	$	6,822
Net Income Attributable to Noncontrolling Interest	$	2,448	$	418
Net Income Attributable to Quaint Oak Bancorp, Inc.	$	7,863	$	6,404
Consolidated Statements of Income	****	****	****	****

See accompanying notes to consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Income

Earnings per share – basic	$	3.85	$	3.21
Average shares outstanding - basic	****	2,042,740		1,995,468
Earnings per share - diluted	$	3.65	$	3.06
Average shares outstanding - diluted	****	2,152,889		2,093,108
See accompanying notes to consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Comprehensive Income

	Years Ended December 31,
	2022			2021
	(In Thousands)
Net Income	$	10,311		$	6,822
Other Comprehensive Loss:	****	****	****	****	****	****
Unrealized (losses) gains on investment securities available for sale	****	(59	)		242
Income tax effect	****	12			(51	)
Reclassification adjustment for gain on sale of investment securities included in net income	****	-			(362	)
Income tax effect	****	-			76
Net other comprehensive loss	****	(47	)		(95	)
Total Comprehensive Income	$	10,264		$	6,727
Comprehensive Income Attributable to Noncontrolling Interest	$	2,448		$	418
Comprehensive Income Attributable to Quaint Oak Bancorp, Inc.	$	7,816		$	6,309

See accompanying notes to consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity

			Amount		Additional <br>Paid-in<br> <br>Capital			Treasury Stock			Unallocated Common Stock Held by Benefit Plans			Accumulated Other Comprehensive Income (Loss)			Retained<br> <br>Earnings				Total<br> <br>Stockholders’<br> <br>Equity
BALANCE – DECEMBER 31, 2020	1,986,528		$	28	$	15,282		$	(5,114	)	$	(51	)	$	118		$	18,465			$	28,728
Common stock allocated by ESOP (10,821 shares)						134						51										185
Contribution of shares to ESOP from Treasury	4,000					56			24													80
Treasury stock purchased	(1,398	)							(25	)												(25	)
Reissuance of treasury stock under 401(k) Plan	5,262					63			33													96
Reissuance of treasury stock under stock incentive plan	9,421					(58	)		58													-
Reissuance of treasury stock for exercised stock options	7,500					40			47													87
Stock based compensation expense						168																168
Noncontrolling interest initial contribution																						1,702
Cash dividends declared (0.42 per share)																		(839	)			(839	)
Net income																		6,404				6,822
Other comprehensive income, net															(95	)						(95	)
BALANCE – DECEMBER 31, 2021	2,011,313		$	28	$	15,685		$	(4,977	)	$	-		$	23		$	24,030			$	36,909
Contribution of shares to ESOP from Treasury	16,000				****	244		****	99												****	343
Reissuance of treasury stock for capital raise	105,904				****	1,724		****	659												****	2,383
Treasury stock purchased	(2,147	)			****	-		****	(49	)											****	(49	)
Reissuance of treasury stock under 401(k) Plan	4,420				****	73		****	27		****			****			****				****	100
Reissuance of treasury stock under stock incentive plan	9,123				****	(57	)	****	57		****			****			****				****	--
Reissuance of treasury stock for exercised stock options	23,000				****	69		****	192		****			****			****				****	261
Stock based compensation expense					****	168		****			****			****			****				****	168
Net income attributable to noncontrolling interest														****			****				****	2,448
Cash dividends declared (0.50 per share)														****			****	(1,018	)		****	(1,018	)
Noncontrolling interest distribution														****			****	****	****	)	****	(279	)
Net income			****		****			****			****			****			****	7,863			****	7,863
Other comprehensive loss, net			****		****			****			****			****	(47	)	****				****	(47	)
BALANCE –DECEMBER 31, 2022	2,167,613		$	28	$	17,906		$	(3,992	)	$	-		$	(24	)	$	30,875			$	49,082

All values are in US Dollars.

See accompanying notes to consolidated financial statements.

Quaint Oak Bancorp, Inc.
Consolidated Statements of Cash Flows	****	****	****	****	****	****
---	---	---	---	---	---	---
	Years Ended December 31,
	2022			2021
	(In Thousands)
Cash Flows from Operating Activities	****	****	****	****	****	****
Net income	$	10,311		$	6,822
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses	****	2,475			2,201
Depreciation expense	****	437			344
Amortization of operating right-of-use assets	****	325			164
Amortization of subordinated debt issuance costs	****	34			34
Amortization of other intangible	****	49			49
Net amortization of securities premiums	****	-			6
Accretion of deferred loan fees and costs, net	****	(1,944	)		(4,988	)
Deferred income taxes	****	(222	)		(336	)
Stock-based compensation expense	****	511			433
Net realized loss on sale of foreclosed real estate	****	-			73
Gain on sale of investment securities available for sale	****	-			(362	)
Net gain on loans held for sale	****	(12,500	)		(6,881	)
Loans held for sale-originations	****	(521,710	)		(406,216	)
Loans held for sale-proceeds	****	508,811			369,379
Gain on the sale of SBA loans	****	(310	)		(1,147	)
Increase in the cash surrender value of bank-owned life insurance	****	(89	)		(83	)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable	****	(323	)		(85	)
Prepaid expenses and other assets	****	(2,085	)		1,603
Accrued interest payable	****	410			(262	)
Accrued expenses and other liabilities	****	3,582			1,891
Net Cash Used in Operating Activities	****	(12,238	)		(37,361	)
Cash Flows from Investing Activities	****	****	****	****	****	****
Purchase of interest-earning time deposits	****	(2,133	)		(2,467	)
Redemption of interest-earning time deposits	****	6,224			4,006
Principal repayments on investment securities available for sale	****	1,004			1,066
Proceeds from the sales of investment securities available for sale	****	-			5,862
Net increase in loans receivable	****	(218,119	)		(42,536	)
Purchase of Federal Home Loan Bank stock	****	(10,980	)		(1,113	)
Redemption of Federal Home Loan Bank stock	****	6,557			600
Proceeds from the sale of foreclosed real estate	****	-			563
Acquisition, net of cash acquired	****	-			1,259
Capitalized expenditures on other real estate owned	****	-			(350	)
Purchase of premises and equipment	****	(560	)		(619	)
Net Cash Used in Investing Activities	****	(218,007	)		(33,729	)
Cash Flows from Financing Activities	****	****	****	****	****	****
Net increase in demand deposits, money markets, and savings accounts	****	84,041			111,838
Net (decrease) increase in certificate accounts	****	18,041			(19,517	)
Increase (decrease) in advances from borrowers for taxes and insurance	****	1,330			370
Proceeds from Federal Home Loan Bank short-term borrowings	****	198,500			26,000
Repayment of Federal Home Loan Bank short-term borrowings	****	(131,300	)		(10,000	)
Proceeds from Federal Home Loan Bank long-term borrowings	****	79,000			-
Repayment of Federal Home Loan Bank long-term borrowings	****	(36,171	)		(5,000	)
Proceeds from Federal Reserve Bank borrowings	****	60,200			-
Repayment of Federal Reserve Bank borrowings	****	(57,095	)		(44,239	)
Proceeds from other short-term borrowings	****	5,489			-
Repayment of other short-term borrowings	****	-			(10,889	)
Dividends paid	****	(1,018	)		(839	)
Noncontrolling interest capital distribution	****	(279	)		-
Proceeds from issuance of treasury stock for capital raise	****	2,383			-
Purchase of treasury stock	****	(49	)		(25	)
Proceeds from the reissuance of treasury stock	****	100			96
Proceeds from the exercise of stock options	****	261			87
Net Cash Provided by Financing Activities	****	223,433			47,882
Net Decrease in Cash and Cash Equivalents	****	(6,812	)		(23,208	)
Cash and Cash Equivalents – Beginning of Year	****	10,705			33,913
Cash and Cash Equivalents – End of Year	$	3,893		$	10,705
See accompanying notes to consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2022		2021
	(In Thousands)
Supplementary Disclosure of Cash Flow and Non-Cash Information:
Cash payments for interest	$	8,367	$	4,563
Cash payments for income taxes	$	2,900	$	2,293
Initial recognition of operating lease right-of use assets	$	1,050	$	670
Initial recognition of operating lease obligations	$	1,050	$	670

See accompanying notes to consolidated financial statements.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 1 - Nature of Operations

The consolidated financial statements include the accounts of Quaint Oak Bancorp, Inc., a Pennsylvania chartered corporation (the “Company” or “Quaint Oak Bancorp”) and its wholly owned subsidiary, Quaint Oak Bank, a Pennsylvania chartered stock savings bank (the “Bank”), along with its wholly owned subsidiaries. At December 31, 2022, the Bank has six wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, Quaint Oak Insurance Agency, LLC, and Oakmont Commercial, LLC, each a Pennsylvania limited liability company. The mortgage company offers mortgage banking in the Lehigh Valley, Delaware Valley and Philadelphia County regions of Pennsylvania. The real estate and abstract companies offer real estate sales and title abstract services, respectively, primarily in the Lehigh Valley region of Pennsylvania. These companies began operation in July 2009. In February, 2019, Quaint Oak Mortgage opened a mortgage banking office in Philadelphia, Pennsylvania. QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. Quaint Oak Insurance Agency, LLC began operations in August 2016 and provides a broad range of personal and commercial insurance coverage solutions. Oakmont Commercial, LLC was formed in October 2021 and operates as a multi-state specialty commercial real estate financing company. As of January 4, 2021, the Bank holds a majority equity position in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota. All significant intercompany balances and transactions have been eliminated.

The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation. Pursuant to the Bank’s election under Section 10(l) of the Home Owners’ Loan Act, the Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. The market area served by the Bank is principally Bucks, Montgomery and Philadelphia Counties in Pennsylvania and the Lehigh Valley area in Pennsylvania. The Bank has three regional offices located in the Delaware Valley, Lehigh Valley and Philadelphia markets. The principal deposit products offered by the Bank are money market accounts, certificates of deposit, non-interest bearing checking accounts for businesses and consumers, and savings accounts. The principal loan products offered by the Bank are fixed and adjustable rate residential and commercial mortgages, construction loans, commercial business loans, home equity loans, and lines of credit.

Note 2 - Summary of Significant Accounting Policies

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Company’s most significant estimates are the determination of the allowance for loan losses and valuation of deferred tax assets.

Significant Group Concentrations of Credit Risk

The Bank has a significant concentration of loans in Philadelphia County, Pennsylvania. The concentration of credit by type of loan is set forth in Note 7. Although the Bank has a diversified loan portfolio, its debtors’ ability to honor their contracts is influenced by the region’s economy. During the year ended December 31, 2022, one investor purchased a total of 38% of all loans sold by the Bank from its mortgage loans held for sale, and the sales to this investor accounted for approximately 35% of the gain on mortgage loans sold during the year. During the year ended December 31, 2022, one investor purchased a total of 51% of all loans sold by the Bank from its equipment loans held for sale, and the sales to this investor accounted for approximately 60% of the gain on equipment loans sold during the year.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include non-interest earning and interest-earning demand deposits and money market accounts with various financial institutions, all of which mature within ninety days of acquisition.

Investment Securities

Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date.

Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital requirements, and other similar factors. Securities available for sale are carried at fair value. Unrealized gains and losses are reported in other comprehensive income, net of related deferred tax effects. Realized gains and losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities.

Securities classified as held to maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of the changes in market conditions, liquidity needs, or changes in general economic conditions. These securities are carried at cost adjusted for amortization of premium and accretion of discount, which are recognized in interest income using the interest method over the terms of the securities.

The Company follows the accounting guidance related to recognition and presentation of other-than-temporary impairment. This accounting guidance specifies that (a) if a company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment should be amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security. The Company recognized no other-than-temporary impairment charges during the years ended December 31, 2022 and 2021.

Federal Home Loan Bank Stock

Federal law requires a member institution of the Federal Home Loan Bank (FHLB) system to hold restricted stock of its district Federal Home Loan Bank according to a predetermined formula. FHLB stock is carried at cost and evaluated for impairment. When evaluating FHLB stock for impairment, its value is determined based on the ultimate recoverability of the par value of the stock. We evaluate our holdings of FHLB stock for impairment each reporting period. No impairment charges were recognized on FHLB stock during the years ended December 31, 2022 and 2021.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees. Interest income is accrued on the unpaid principal balance. Loan origination fees and costs are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Bank is generally amortizing these amounts over the contractual life of the loan.

The loans receivable portfolio is segmented into residential loans, commercial real estate loans, construction loans, commercial business, and consumer loans. The residential loan segment has two classes: one-to-four family residential owner occupied loans and one-to-four family residential non-owner occupied loans. The commercial real estate loan segment consists of the following classes: multi-family (five or more) residential, commercial real estate and commercial lines of credit. Construction loans are generally granted for the purpose of building a single residential home. Commercial business loans are loans to businesses primarily for purchase of business essential equipment. Business essential equipment is equipment necessary for a business to support or assist with the day-to-day operation or profitability of the business. The consumer loan segment consists of the following classes: home equity loans and other consumer loans. Included in the home equity class are home equity loans and home equity lines of credit. Included in the other consumer are loans secured by saving accounts.

The accrual of interest is generally discontinued when principal or interest has become 90 days past due unless the loan is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses (Continued)

discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These significant factors may include changes in lending policies and procedures, changes in

existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are re-evaluated quarterly to ensure their relevance in the current economic environment. Residential mortgage lending generally entails a lower risk of default than other types of lending. Consumer loans and commercial real estate loans generally involve more risk of collectability because of the type and nature of the collateral and, in certain cases, the absence of collateral. It is the Company’s policy to establish a specific reserve for loss on any delinquent loan when it determines that a loss is probable. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral.

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

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

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses (Continued)

substandard, doubtful and loss. Loans criticized as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Loans Held for Sale

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

Bank Owned Life Insurance (“BOLl”)

The Company purchases bank owned life insurance as a mechanism for funding various employee benefit costs. The Company is the beneficiary of these policies that insure the lives of certain officers of its subsidiaries. The Company has recognized the cash surrender value under the insurance policies as an asset in the Consolidated Balance Sheets. Changes in the cash surrender value are recorded in non-interest income in the Consolidated Statements of Income.

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the expected useful lives of the related assets that range from three to thirty-nine years. The costs of maintenance and repairs are expensed as incurred. Costs of major additions and improvements are capitalized.

Intangible Assets

Intangible assets on the consolidated balance sheets represent the acquisition by Quaint Oak Insurance Agency of the renewal rights to a book of business on August 1, 2016 at a total cost of $1.0 million. Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed an other intangible asset. The renewal rights are being amortized over a ten year period based upon the annual retention rate of the book of business. Also included in goodwill is $2.1 million recognized as part of the acquisition of Oakmont Capital Holdings, LLC.

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

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Other Real Estate Owned

Other real estate owned or foreclosed assets are comprised of property acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure and loans classified as in-substance foreclosures. A loan is classified as in-substance foreclosure when the Bank has taken possession of the collateral regardless of whether formal foreclosure proceedings take place. Other real estate properties are initially recorded at fair value, net of estimated selling costs at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value less estimated costs to sell. Net revenue and expenses from operations and additions to the valuation allowance are included in other expenses.

The Company held no other real estate owned (OREO) at December 31, 2022 or December 31, 2021.

Mortgage Servicing Rights

Included in other assets are mortgage servicing rights recognized as separate assets when mortgage loans are sold and the servicing rights are retained. These capitalized mortgage servicing rights are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing period of the underlying mortgage loans. Mortgage servicing rights totaled $330,000 and $323,000 at December 31, 2022 and 2021, respectively. During the year ended December 31, 2022 and 2021, approximately $58,000 and $33,000 in amortization was recognized, respectively.

Advertising Costs

The Company expenses all advertising costs as incurred. Advertising costs are included in non-interest expense on the Consolidated Statements of Income.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Income Taxes

Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Income Taxes (Continued)

The Company follows guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination presumed to occur. The amount recognized is the largest amount of tax benefit that has more than 50 percent likelihood of being realized upon examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded. The Company had no material uncertain tax positions or accrued interest and penalties as of December 31, 2022 and 2021. The Company’s policy is to account for interest as a component of interest expense and penalties as components of other expense. The Company is no longer subject to examination by taxing authorities for the years before January 1, 2019.

Comprehensive Income

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the stockholders’ equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

Treasury Stock and Unallocated Common Stock

The acquisition of treasury stock by the Company, including unallocated stock held by certain benefit plans, is recorded under the cost method. At the date of subsequent reissue, treasury stock is reduced by the cost of such stock based on an average cost method with any excess proceeds credited to additional paid-in capital.

Share-Based Compensation

Stock compensation accounting guidance requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost is measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock option and restricted share plans.

The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options, while the closing price of the Company’s common stock on the grant date is used for restricted stock awards.

At December 31, 2022, the Company has outstanding equity awards under three share-based plans: the 2008 Stock Option Plan, the 2013 Stock Incentive Plan and the 2018 Stock Incentive Plan. Awards under these plans were made in May 2013 and 2018. These plans are more fully described in Note 14.

The Company also has an employee stock ownership plan (“ESOP”). This plan is more fully described in Note 14. As ESOP shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares over the period earned.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Earnings Per Share

Amounts reported in earnings per share reflect earnings available to common stockholders for the period divided by the weighted average number of shares of common stock outstanding during the period, exclusive of unearned ESOP shares, unvested restricted stock (RRP) shares and treasury shares. Stock options and unvested restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would have a dilutive effect if converted to common stock, computed using the “treasury stock” method.

Revenue from Contracts with Customers

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. In certain circumstances, noninterest income is reported net of associated expenses.

The Company’s primary sources of revenue are derived from interest and dividends earned on loans and investment securities, mortgage banking revenue, including gains on the sale of mortgage loans, income from bank-owned life insurance, and other financial instruments that are not within the scope of Topic 606. The main types of non-interest income within the scope of the standard are as follows:

Other Fees and Service Charges: The Bank has contracts with its commercial checking deposit customers where fees are charged if the account balance falls below predetermined levels defined as compensating balances. These agreements can be cancelled at any time by either the Bank or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Bank has an unconditional right to the fee consideration. The Bank also has transaction fees related to specific transactions or activities resulting from customer request or activity that include overdraft fees, wire fees, and other transaction fees. All of these fees are attributable to specific performance obligations of the Bank where the revenue is recognized at a defined point in time, completion of the requested service/transaction.

Abstract Title Fees: The Bank provides abstract title services through its wholly owned subsidiary, Quaint Oak Abstract, LLC. Fees for these services are recognized as revenue immediately after the completion of the real estate settlement.

Real Estate Sales Commissions, Net: The Bank provides real estate sales services through its wholly owned subsidiary, Quaint Oak Real Estate, LLC. Commission income is earned for these services and recognized as revenue immediately after the completion of the real estate settlement.

Insurance Commissions**:** Insurance income generally consist of commissions from the sale of insurance policies and performance-based commissions from insurance companies. The Bank recognizes commission income from the sale of insurance policies when its wholly owned subsidiary, Quaint Oak Insurance Agency, LLC, acts as an agent between the insurance carrier and policyholder, arranging for the insurance carrier to provide policies to policyholders, and acts on behalf of the insurance carrier by providing customer service to the policyholder during the policy period. Commission income is recognized over time, using the output method of time elapsed, which corresponds with the underlying insurance policy period, for which the Bank is obligated to perform under contract with the insurance carrier. Commission income is variable, as it is comprised of a certain percentage of

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Revenue from Contracts with Customers (Continued)

the underlying policy premium. The Bank estimates the variable consideration based upon the “most likely amount” method, and does not expect or anticipate a significant reversal of revenue in future periods, based upon historical experience. Payment is due from the insurance carrier for commission income once the insurance policy has been sold. The Bank has elected to apply a practical expedient related to capitalizable costs, which are the commissions paid to insurance producers, and will expense these commissions paid to insurance producers as incurred, as these costs are related to the commission income and would have been amortized within one year or less if they had been capitalized, the same period over which the commission income was earned. Performance-based commissions from insurance companies are recognized at a point in time, when received, and no contingencies remain.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the consolidated balance sheet when they are funded.

Reclassifications

Certain items in the 2021 consolidated financial statements have been reclassified to conform to the presentation in the 2022 consolidated financial statements. Such reclassifications did not have a material impact on the overall consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2022, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We expect to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

As a result of adopting this standard, effective January 1, 2023, the Company expects the increase in our allowance for loan losses and our reserves for unfunded commitments combined to be less than 5%. These estimates are subject to further refinements based on ongoing evaluations of our model, methodologies, and judgments, as well as prevailing economic conditions and forecasts as of the adoption date. The adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Recent Accounting Pronouncements Not Yet Adopted (Continued)

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date for ASC 350, Intangibles – Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. This update is not expected to have a significant impact on the Company’s financial statements.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. In November, 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date for ASC 944 , Financial Services – Insurance, for public business entities that are SEC filers, except for smaller reporting companies, to fiscal years beginning after December 15, 2021, and interim periods within those fiscal years and for all other entities, including smaller reporting companies, to fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. This Update is not expected to have a significant impact on the Company’s financial statements.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Recent Accounting Pronouncements Not Yet Adopted (Continued)

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance e calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to re-measure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary guidance for entities transitioning away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions within Topic 848. ASU 2021-01 clarifies that the derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective immediately for all entities. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The amendments in this update do not apply to contract modifications made, as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for effectiveness for periods after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross writeoffs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. This Update is not expected to have a significant impact on the Company’s financial statements.

Note 3 – Earnings Per Share

Earnings per share (“EPS”) consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed based on the weighted average number of shares of common stock outstanding for each period presented. Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents (“CSEs”). CSEs consist of shares that are assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested restricted stock (RRP) shares. Common stock equivalents which are considered antidilutive are not included for the purposes of this calculation. For the years ended December 31, 2022and 2021, all unvested restricted stock program awards and outstanding stock options representing shares were dilutive.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 3 – Earnings Per Share (Continued)

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

	For the Year Ended December 31,
	2022		2021
Net Income	$	7,863,000	$	6,404,000
Weighted average shares outstanding – basic	****	2,042,740		1,995,468
Effect of dilutive common stock equivalents	****	110,149		97,639
Adjusted weighted average shares outstanding – diluted	****	2,152,889		2,093,108
Basic earnings per share	$	3.85	$	3.21
Diluted earnings per share	$	3.65	$	3.06

Note 4 – Accumulated Other Comprehensive (Loss) Income

The following table presents the changes in accumulated other comprehensive (loss) income by component, net of tax, for the years ended December 31, 2022 and 2021 (in thousands):

	Unrealized Losses on Investment Securities Available for Sale (1)
	2022			2021
Balance beginning of the year	$	23		$	118
Other comprehensive (loss) income before reclassifications	****	(47	)		191
Amount reclassified from accumulated other comprehensive (loss) income		-			(286	)
Total other comprehensive loss	****	(47	)		(95	)
Balance end of the year	$	(24	)	$	23

_______________________

(1)	All amounts are net of tax. Amounts in parentheses indicate debits.

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income for the years ended December 32, 2022 and 2021 (in thousands):

Details About Other Comprehensive Loss	Amount Reclassified from Accumulated<br> <br>Other Comprehensive (Loss) Income(1)					Affected Line Item in the Statement of<br> <br>Income
	For the Year Ended December 31,
	2022		2021
Sale of securities available for sale	$	-	$	362		Gain on sales of investment securities
Tax effect	****	-	****	(76	)	Income taxes
Total reclassification for the period	$	-	$	286

_______________________

(1) Amounts in parentheses indicate debits.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 5 – Investment in Interest-Earning Time Deposits

The investment in interest-earning time deposits as of December 31, 2022 and 2021, by contractual maturity, is shown below (in thousands):

	2022		2021
Due in one year or less	$	2,541	$	4,487
Due after one year through five years	****	1,292		3,437
Total	$	3,833	$	7,924

Note 6 – Investment Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale at December 31, 2022 and 2021 are summarized below (in thousands):

	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Available for Sale:
Mortgage-backed securities:
Government National Mortgage Association securities	$	2,902	$	--	$	(31	)	$	2,871
Federal National Mortgage Association securities	****	98	****	1	****	--		****	99
Total available-for-sale-securities	$	3,000	$	1	$	(31	)	$	2,970
	December 31, 2021
---	---	---	---	---	---	---	---	---
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
Available for Sale:
Mortgage-backed securities:
Government National Mortgage Association securities	$	3,860	$	22	$	--	$	3,882
Federal National Mortgage Association securities		144		7		--		151
Total available-for-sale-securities	$	4,004	$	29	$	--	$	4,033

The amortized cost and fair value of mortgage-backed and debt securities at December 31, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

	Available for Sale
	Amortized Cost		Fair Value
Due after ten years	$	3,000	$	2,970
Total	$	3,000	$	2,970

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 6 – Investment Securities Available for Sale (Continued)

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at *December 31, 2022 (*in thousands):

December 31, 2022
	****	Less than Twelve Months					Twelve Months or Greater				Total
	Number of <br> Securities	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Government National Mortgage Association securities	11	$	2,871	$	(31	)	$	--	$	--	$	2,871	$	(31	)

At December 31, 2022, there were no securities in an unrealized loss position. Management believes that the estimated fair value of the securities disclosed above is primarily dependent on the movement of market interest rates. Management evaluated the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer. The Company has the ability and intent to hold the securities until the anticipated recovery of fair value occurs. There were no impairment charges recognized during the year ended December 31, 2022 or 2021.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 7 - Loans Receivable, Net and Allowance for Loan Losses

The composition of net loans receivable is as follows (in thousands):

	December 31,<br> <br>2022			December 31,<br> <br>2021
Real estate loans:
One-to-four family residential:
Owner occupied	$	18,070		$	9,779
Non-owner occupied	****	39,315			38,752
Total one-to-four family residential	****	57,385			48,531
Multi-family (five or more) residential	****	46,909			29,344
Commercial real estate	****	333,540			183,822
Construction	****	28,938			15,843
Home equity	****	4,918			4,706
Total real estate loans	****	471,690			282,246
Commercial business	****	159,069			129,608
Other consumer	****	2			12
Total Loans	****	630,761			411,866
Deferred loan fees and costs	****	(1,219	)		(2,638	)
Allowance for loan losses	****	(7,678	)		(5,262	)
Net Loans	$	621,864		$	403,966

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of December 31, 2022 and 2021 (in thousands):

	December 31, 2022
	Pass		Special Mention		Substandard		Doubtful		Total
One-to-four family residential owner occupied	$	17,663	$	407	$	-	$	-	$	18,070
One-to-four family residential non-owner occupied	****	39,315	****	-	****	-	****	-	****	39,315
Multi-family residential	****	45,201	****	-	****	1,708	****	-	****	46,909
Commercial real estate	****	333,406	****	-	****	134	****	-	****	333,540
Construction	****	28,938	****	-	****	-	****	-	****	28,938
Home equity	****	4,918	****	-	****	-	****	-	****	4,918
Commercial business	****	153,746	****	2,908	****	2,415	****	-	****	159,069
Other consumer	****	2	****	-	****	-	****	-	****	2
Total	$	623,189	$	3,315	$	4,257	$	-	$	630,761

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

	December 31, 2021
	Pass		Special Mention		Substandard		Doubtful		Total
One-to-four family residential owner occupied	$	9,365	$	414	$	--	$	--	$	9,779
One-to-four family residential non-owner occupied		38,743		--		9		--		38,752
Multi-family residential		27,621		1,723		--		--		29,344
Commercial real estate		181,914		--		1,908		--		183,822
Construction		15,843		--		--		--		15,843
Home equity		4,706		--		--		--		4,706
Commercial business		125,725		--		3,883		--		129,608
Other consumer		12		--		--		--		12
Total	$	403,929	$	2,137	$	5,800	$	--	$	411,866

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2022 as well as the average recorded investment and related interest income for the year then ended (in thousands):

	December 31, 2022
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	--	$	--	$	--
One-to-four family residential non-owner occupied	****	7	****	9	****	--	****	7	****	--
Multi-family residential	****	1,708	****	1,722	****	--	****	1,708	****	--
Commercial real estate	****	129	****	129	****	--	****	130	****	12
Construction	****	--	****	--	****	--	****	--	****	--
Home equity	****	--	****	--	****	--	****	--	****	--
Commercial business	****	--	****	--	****	--	****	--	****	--
Other consumer	****	--	****	--	****	--	****	--	****	--
With an allowance recorded:
One-to-four family residential owner occupied	$	--	$	--	$	--	$	--	$	--
One-to-four family residential non-owner occupied	****	--	****	--	****	--	****	--	****	--
Multi-family residential	****	--	****	--	****	--	****	--	****	--
Commercial real estate	****	134	****	134	****	118	****	136	****	9
Construction	****	--	****	--	****	--	****	--	****	--
Home equity	****	--	****	--	****	--	****	--	****	--
Commercial business	****	97	****	97	****	97	****	102	****	6
Other consumer	****	--	****	--	****	--	****	--	****	--
Total:
One-to-four family residential owner occupied	$	-	$	-	$	--	$	--	$	--
One-to-four family residential non-owner occupied	****	7	****	9	****	--	****	7	****	--
Multi-family residential	****	1,708	****	1,722	****	--	****	1,708	****	--
Commercial real estate	****	263	****	263	****	118	****	266	****	21
Construction	****	--	****	--	****	--	****	--	****	--
Home equity	****	--	****	--	****	--	****	--	****	--
Commercial business	****	97	****	97	****	97	****	102	****	6
Other consumer	****	--	****	--	****	--	****	--	****	--
Total	$	2,075	$	2,091	$	215	$	2,083	$	27

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2021 as well as the average recorded investment and related interest income for the year then ended (in thousands):

	December 31, 2021
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	--	$	66	$	--
One-to-four family residential non-owner occupied		9		9		--		9		--
Multi-family residential		--		--		--		--		--
Commercial real estate		131		131		--		131		12
Construction		--		--		--		--		--
Home equity		--		--		--		--		--
Commercial business		--		--		--		18		--
Other consumer		--		--		--		--		--
With an allowance recorded:
One-to-four family residential owner occupied	$	--	$	--	$	--	$	--	$	--
One-to-four family residential non-owner occupied		--		--		--		--		--
Multi-family residential		--		--		--		--		--
Commercial real estate		--		--		--		--		--
Construction		--		--		--		--		--
Home equity		--		--		--		--		--
Commercial business		--		--		--		--		--
Other consumer		--		--		--		--		--
Total:
One-to-four family residential owner occupied	$	-	$	-	$	--	$	66	$	--
One-to-four family residential non-owner occupied		9		9		--		9		--
Multi-family residential		--		--		--		--		--
Commercial real estate		131		131		--		131		12
Construction		--		--		--		--		--
Home equity		--		--		--		--		--
Commercial business		--		--		--		18		--
Other consumer		--		--		--		--		--
Total	$	140	$	140	$	--	$	224	$	12

The loan portfolio also includes certain loans that have been modified in a troubled debt restructuring, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forbearance, or other actions. At December 31, 2022, the Company had two loans totaling $136,000 that were identified as troubled debt restructurings. Both of these loans were performing in accordance with their modified terms as of December 31, 2022. During the year ended December 31, 2022, no new loans were identified as TDRs. At December 31, 2021, the Company had two loans totaling $140,000 that were identified as troubled debt restructurings. One of these loans was performing in accordance with its modified terms and one was on non-accrual as of December 31, 2021. If a TDR is placed on non-accrual it is not reverted back to accruing status until the borrower makes timely payments as contracted for at least six months and future collection under the revised terms is probable.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

Any reserve for an impaired TDR loan is based upon the present value of the future expected cash flows discounted at the loan’s original effective rate or upon the fair value of the collateral less costs to sell, if the loan is deemed collateral dependent. At December 31, 2022 there were no commitments to lend additional funds to debtors whose loan terms have been modified as TDRs.

The general practice of the Bank is to work with borrowers so that they are able to pay back their loan in full. If a borrower continues to be delinquent or cannot meet the terms of a TDR modification and the loan is determined to be uncollectible, the loan will be charged off.

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the year ended December 31, 2022 and recorded investment in loans receivable based on impairment evaluation as of *December 31, 2022 (*in thousands):

	December 31, 2022
	1-4 Family<br> <br>Residential<br> <br>Owner<br> <br>Occupied		1-4 Family<br> <br>Residential<br> <br>Non-<br> <br>Owner<br> <br>Occupied		Multi-Family<br> <br>Residential		Commercial<br> <br>Real Estate		Construction		Home<br> <br>Equity		Commercial<br> <br>Business<br> <br>and Other<br> <br>Consumer			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	73	$	292	$	249	$	2,475	$	119	$	29	$	1,625		$	400		$	5,262
Charge-offs	****	-	****	-	****	-	****	-	****	-	****	-	****	(59	)	****	-		****	(59	)
Recoveries	****	-	****	-	****	-	****	-	****	-	****	-	****	-		****	-		****	-
Provision	****	50	****	3	****	202	****	1,275	****	185	****	4	****	856		****	(100	)	****	2,475
Ending balance	$	123	$	295	$	451	$	3,750	$	304	$	33	$	2,325		$	300		$	7,678
Ending balance evaluated
for impairment:
Individually	$	-	$	-	$	-	$	118	$	-	$	-	$	97		$	-		$	215
Collectively	$	123	$	295	$	451	$	3,632	$	304	$	33	****	2,325		$	300		$	7,463
Loans receivable:
Ending balance	$	18,070	$	39,315	$	46,909	$	333,540	$	28,938	$	4,918	$	159,071		****		****	$	630,761
Ending balance evaluated
for impairment:
Individually	$	-	$	7	$	1,708	$	263	$	-	$	-	$	97		****	****	****	$	2,075
Collectively	$	18,070	$	39,308	$	45,201	$	333,277	$	28,938	$	4,918	$	158,974		****	****	****	$	628,686

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The Bank allocated increased allowance for loan loss provisions to the commercial real estate loan portfolio class for the year ended December 31, 2022, due primarily to changes in qualitative and quantitative factors in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the commercial business loan portfolio class for the year ended December 31, 2022, due primarily to changes in quantitative factors in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the multi-family loan portfolio class for the year ended December 31, 2022, due primarily to changes in qualitative and quantitative factors in this portfolio class.

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the year ended December 31, 2021 and recorded investment in loans receivable based on impairment evaluation as of *December 31, 2021 (*in thousands):

	December 31, 2021
	1-4 Family<br> <br>Residential<br> <br>Owner Occupied			1-4 Family<br> <br>Residential<br> <br>Non-Owner<br> <br>Occupied			Multi-<br> <br>Family<br> <br>Residential		Commercial<br> <br>Real Estate		Construction		Home<br> <br>Equity		Commercial<br> <br>Business and<br> <br>Other<br> <br>Consumer			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	88		$	362		$	229	$	1,287	$	62	$	20	$	763		$	250	$	3,061
Charge-offs		--			--			--		--		--		--		(17	)		--		(17	)
Recoveries		--			--			--		--		--		--		17			--		17
Provision		(15	)		(70	)		20		1,188		57		9		862			150		2,201
Ending balance	$	73		$	292		$	249	$	2,475	$	119	$	29	$	1,625		$	400	$	5,262
Ending balance evaluated
for impairment:
Individually	$	--		$	--		$	--	$	--	$	--	$	--	$	--		$	--	$	-
Collectively	$	73		$	292		$	249	$	2,475	$	119	$	29		1,625		$	400	$	5,262
Loans receivable:
Ending balance	$	9,779		$	38,752		$	29,344	$	183,822	$	15,843	$	4,706	$	129,620				$	411,866
Ending balance evaluated
for impairment:
Individually	$	-		$	9		$	--	$	131	$	--	$	--	$	--				$	140
Collectively	$	9,779		$	38,743		$	29,344	$	183,691	$	15,843	$	4,706	$	129,620				$	411,726

The Bank allocated increased allowance for loan loss provisions to the commercial real estate loan portfolio class for the year ended December 31, 2021, due primarily to changes in volume and qualitative factors in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the commercial business loan portfolio class for the year ended December 31, 2021, due primarily to changes in qualitative factors in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the multi-family loan portfolio class for the year ended December 31, 2021, due primarily to changes in qualitative factors in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the construction loan portfolio class for the year ended December 31, 2021, due primarily to changes in quantitative and qualitative factors in this portfolio class. In general, the primary driver of the increase in qualitative factors was the economic trends factor associated with the COVID-19 pandemic. In this regard, the Bank increased the unallocated component of the allowance for the year ended December 31, 2021 to cover uncertainties that could affect management’s estimate of probable losses primarily associated with the COVID-19 pandemic.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following table presents non-accrual loans by classes of the loan portfolio as of December 31, 2022 and 2021 (in thousands):

	December 31,<br> <br>2022		December 31,<br> <br>2021
One-to-four family residential owner occupied	$	-	$	-
One-to-four family residential non-owner occupied	****	-		9
Multi-family residential	****	1,708		-
Commercial real estate	****	134		-
Construction	****	-		-
Home equity	****	-		-
Commercial business	****	97		-
Other consumer	****	-		-
Total	$	1,939	$	9

Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, amounted to $2.0 million and $9,000 at December 31, 2022 and 2021, respectively. For the delinquent loans in our portfolio, we have considered our ability to collect the past due interest, as well as the principal balance of the loan, in order to determine whether specific loans should be placed on non-accrual status. In cases where our evaluations have determined that the principal and interest balances are collectible, we have continued to accrue interest.

For the years ended December 31, 2022 and 2021 there was no interest income recognized on non-accrual loans on a cash basis. Interest income foregone on non-accrual loans was approximately $167,000 for the year ended December 31, 2022 and $1,000 for the year ended December 31, 2021.

The performance and credit quality of the loan portfolio are also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of December 31, 2022 and 2021 (in thousands):

	December 31, 2022
	30-89<br> <br>Days Past<br> <br>Due		90 Days<br> <br>or More<br> <br>Past Due		Total<br> <br>Past Due		Current		Total Loans<br> <br>Receivable		Loans<br> <br>Receivable<br> <br>90 Days or<br> <br>More Past<br> <br>Due and<br> <br>Accruing
One-to-four family residential owner occupied	$	407	$	-	$	407	$	17,663	$	18,070	$	--
One-to-four family residential non-owner occupied	****	23	****	--	****	23	****	39,292	****	39,315	****	--
Multi-family residential	****	--	****	1,708	****	1,708	****	45,201	****	46,909	****	--
Commercial real estate	****	2,895	****	134	****	3,029	****	330,511	****	333,540	****	--
Construction	****	2,062	****	--	****	2,062	****	26,876	****	28,938	****	--
Home equity	****	39	****	--	****	39	****	4,879	****	4,918	****	--
Commercial business	****	10	****	97	****	107	****	158,962	****	159,069	****	51
Other consumer	****	--	****	--	****	--	****	2	****	2	****	--
Total	$	5,436	$	1,939	$	7,375	$	623,386	$	630,761	$	51

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

	December 31, 2021
	30-89<br> <br>Days Past<br> <br>Due		90 Days<br> <br>or More<br> <br>Past Due		Total<br> <br>Past Due		Current		Total Loans<br> <br>Receivable		Loans<br> <br>Receivable<br> <br>90 Days or<br> <br>More Past<br> <br>Due and<br> <br>Accruing
One-to-four family residential owner occupied	$	809	$	-	$	809	$	8,970	$	9,779	$	--
One-to-four family residential non-owner<br> <br>occupied		285		9		294		38,458		38,752		--
Multi-family residential		--		--		--		29,344		29,344		--
Commercial real estate		--		--		--		183,822		183,822		--
Construction		--		--		--		15,843		15,843		--
Home equity		--		--		--		4,706		4,706		--
Commercial business		367		--		367		129,241		129,608		--
Other consumer		--		--		--		12		12		--
Total	$	1,461	$	9	$	1,470	$	410,396	$	411,866	$	--

Note 8 - Premises and Equipment

The components of premises and equipment at December 31, 2021 and 2021 are as follows (in thousands):

	2022			2021
Land and land improvements	$	292		$	292
Buildings	****	1,619			1,568
Leasehold improvements	****	649			584
Furniture, fixtures and equipment	****	2,892			2,417
	****	5,452			4,861
Accumulated depreciation	****	(2,677	)		(2,208	)
Premises and equipment, net	$	2,775		$	2,653

Depreciation expense for the years ended December 31, 2022 and 2021 amounted to approximately $437,000 and $344,000, respectively.

Note 9 – Goodwill and Other Intangible, Net

On January 4, 2021, the Bank acquired a majority ownership interest in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota. The Bank recognized $2.1 million of goodwill as part of the acquisition of Oakmont Capital Holdings, LLC. On August 1, 2016, Quaint Oak Insurance Agency, LLC began operations by acquiring the renewal rights to a book of business produced and serviced by an independent insurance agency located in New Britain, Pennsylvania, that provides a broad range of personal and commercial insurance coverage solutions. The Company paid $1.0 million for these rights. Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed to be an other intangible asset. This other intangible asset is being amortized over a ten year period based upon the annual retention rate of the book of business. The balance of other intangible asset at December 31, 2022 was $174,000, net of accumulated amortization of $311,000. Amortization expense for both years ended December 31, 2022 and 2021 amounted to approximately $49,000.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 9 – Goodwill and Other Intangible, Net (Continued)

Estimated amortization expense of other intangible for the remaining four years is as follows (in thousands):

2023	$	49
2024	****	49
2025	****	49
Thereafter	****	27
Total	$	174

Note 10 - Deposits

Deposits and the weighted average interest rate at December 31, 2022 and 2021 consist of the following (in thousands):

	2022					2021
	Amount		Weighted<br> <br>Average<br> <br>Interest Rate			Amount		Weighted<br> <br>Average<br> <br>Interest<br> Rate
Non-interest bearing checking accounts	$	88,728	****	--	%	$	64,730		--	%
Savings accounts	****	1,597	****	0.20			1,838		0.20
Money market accounts	****	260,972	****	1.15			200,688		0.56
Certificate of deposit accounts	****	197,951	****	2.15			179,910		0.94
Total	$	549,248	****	1.28	%	$	447,166		0.61	%

A summary of certificates of deposit by maturity at December 31, 2022 is as follows (in thousands):

Years ending December 31:
2023	$	91,306
2024	****	48,294
2025	****	30,159
2026	****	9,208
2027	****	18,984
Total	$	197,951

The aggregate amount of certificates of deposit with a minimum denomination of $250,000 was $30.4 million and $24.7 million at December 31, 2022 and 2021, respectively.

Note 11 - Borrowings

As of December 31, 2022, Quaint Oak Bank has a maximum borrowing capacity with the Federal Home Loan Bank of approximately $353.4 million. Quaint Oak Bank’s Federal Home Loan Bank advances outstanding were $159.2 million and $49.2 million at December 31, 2022 and 2021, respectively. As of December 31, 2022, Quaint Oak Bank has $8.1 million in borrowing capacity with the Federal Reserve Bank of Philadelphia under the discount window program. Quaint Oak Bank borrowed $7.0 million from the FRB discount window as of December 31, 2022. There were no borrowings under this discount window as of *December 31, 2021.*As of December 31, 2022, Quaint Oak Bank had no outstanding advances with the FRB under the PPPLF program.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 11 – Borrowings (Continued)

As of December 31, 2022, there was $5.5 million of other short-term borrowings representing balances on two lines of credit that Oakmont Capital Holdings, LLC has with a credit union. Borrowing capacity on the two lines of credit total $15.0 million at December 31, 2022.

Short-term borrowings and the weighted interest rates consist of the following at December 31, 2022 and 2021 (dollars in thousands):

	FHLB Short-Term Borrowings<br> <br>At or For the Year<br> <br>Ended December 31,						FRB Short-Term Borrowings<br> <br>At or For the Year<br> <br>Ended December 31,					Other Short-Term Borrowings<br> <br>At or For the Year<br> <br>Ended December 31,
	2022			2021			2022			2021		2022			2021
	(Dollars in Thousands)
Average balance outstanding	$	31,505		$	10,405		$	583		$	-	$	1,601		$	1,300
Maximum amount outstanding at any month-<br> <br>end during the period		93,200			26,000			7,000			-		5,489			6,986
Balance outstanding at end of period		93,200			26,000			7,000			-		5,489			-
Average interest rate during the period		2.34	%		0.30	%		1.65	%		-		6.68	%		12.46	%
Weighted average interest rate at end of period		4.45	%		0.28	%		4.50	%		-		7.11	%		-	%

Federal Home Loan Bank long-term borrowings and the weighted interest rate consist of the following at December 31, 2022 and 2021 (in thousands):

	December 31, 2022					December 31, 2021
Fixed rate borrowings maturing:	Amount		Weighted<br> <br>Interest Rate			Amount		Weighted<br> <br>Interest Rate
2022	$	--	****	--	%	$	7,171		2.10	%
2023	****	57,000	****	2.22			7,000		2.16	%
2024	****	6,167	****	2.05			6,167		2.05
2025	****	2,855	****	1.25			2,855		1.25
Total FHLB long-term debt	$	66,022	****	2.16	%	$	23,193		2.00	%

Federal Reserve Bank long-term borrowings increased to $7.0 million at December 31, 2022 compared to $3.9 million at December 31, 2021 as the Company paid off $3.9 million of first round PPP loans pledged as collateral under the FRB’s Paycheck Protection Program Liquidity Facility (PPPLF) and borrowed $7.0 million from the FRB discount window. Under the PPPLF the Company pledged certain PPP loans as collateral and borrowed from the Federal Reserve at a rate of 0.35% that is fixed for two years. These borrowings are paid off as the PPP loans pledged as collateral are forgiven through the SBA PPP loan forgiveness program.

Note 12 – Subordinated Debt

On December 27, 2018, the Quaint Oak Bancorp, Inc. issued $8.0 million in subordinated notes. These notes have a maturity date of December 31, 2028, and bear interest at a fixed rate of 6.50% for the first five years of their term and a floating rate for the remaining five years. The Company may, at its option, at any time on an interest payment date on or after December 31, 2023, redeem the notes, in whole or in part, at par plus accrued interest to the date of redemption.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 12 – Subordinated Debt (Continued)

The balance and unamortized issuance costs of subordinated debt at December 31, 2022 are as follows (in thousands):

	Principal		Unamortized<br> <br>Debt Issuance<br> <br>Costs		Net
6.5% subordinated notes, due December 31, 2028	$	8,000	$	34	$	7,966

All subordinated notes are not subject to repayment at the option of the noteholders. These notes are all unsecured and rank junior in right of payment to the Company’s obligations to its general creditors.

Note 13 - Income Taxes

The components of income tax expense for the years ended December 31, 2022 and 2021 are as follows (in thousands):

	2022			2021
Federal:
Current	$	2,263		$	2,045
Deferred	****	(221	)		(336	)
Total federal	****	2,042			1,709
State, current	****	1,012			783
Total	$	3,054		$	2,492

The following table presents the reconciliation between the reported income tax expense and the income tax expense which would be computed by applying the normal federal income tax rate of 21% to income before taxes for the years ended December 31, 2022 and 2021, respectively, as follows (in thousands):

	2022						2021
	Amount			Rate			Amount			Rate
Federal income tax at statutory rate	$	2,292		****	21.0	%	$	1,868			21.0	%
State tax, net of federal benefit	****	800		****	7.4			618			7.0
Stock compensation expense	****	(22	)	****	(0.2	)		20			0.2
Other	****	(16	)	****	(0.2	)		(14	)		(0.2	)
Total	$	3,054		****	28.0	%	$	2,492			28.0	%

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 13 - Income Taxes (Continued)

The components of the net deferred tax asset at December 31, 2022 and 2021 are as follows (in thousands):

	2022		2021
Deferred tax assets:
Allowance for loan losses	$	1,612	$	1,105
Deferred loan fees	****	256		554
Stock-based compensation	****	7		6
Unrealized loss on investment securities available for sale	****	6		--
Interest on non-accrual loans	****	35		--
Total deferred tax assets	****	1,916		1,665
Deferred tax liabilities:
---	---	---	---	---	---	---
Bank premises and equipment	****	(219	)		(199	)
Unrealized gain on investment securities available for sale	****	--			(6	)
Intangible	****	(24	)		(21	)
Total deferred tax liabilities	****	(243	)		(226	)
Net Deferred Tax Asset	$	1,673		$	1,439

The net deferred tax asset at December 31, 2022 and 2021 of $1.7 million and $1.4 million, respectively, is included in other assets. No valuation allowance was established at December 31, 2022 and 2021, in view of the Company’s tax strategies and anticipated future taxable income as evidenced by the Company’s earnings potential.

Note 14 – Stock Compensation Plans

Employee Stock Ownership Plan ****

The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of employees who meet the eligibility requirements of the plan. Using proceeds from a loan from the Company, the ESOP purchased 8%, or 222,180 shares of the Company’s then outstanding common stock in the open market during 2007. The Bank made cash contributions to the ESOP on a quarterly basis sufficient to enable the ESOP to make the required loan payments to the Company until the loan was repaid in full as of September 30, 2021. The loan bore an interest rate of 7.75% per annum, with principal and interest paid quarterly in equal installments over 15 years pursuant to the terms of the original note. The loan was secured by the unallocated shares of common stock held by the ESOP. As of September 30, 2021, there were no additional quarterly payments remaining on the 2007 loan.

During the year ended December 31, 2022, the Company made four discretionary contributions totaling 16,000 shares to the ESOP. These shares were released from Treasury Stock at a cost of approximately $99,000. During the fourth quarter of 2021, the Company made a discretionary contribution of 4,000 shares to the ESOP. These shares were released from Treasury Stock at a cost of approximately $77,000. During the years ended December 31, 2022 and 2021, the Company recognized $343,000 and $265,000 of ESOP expense, respectively.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 14 – Stock Compensation Plans (Continued)

Stock Incentive Plans – Share Awards

In May 2013, the shareholders of Quaint Oak Bancorp approved the adoption of the 2013 Stock Incentive Plan (the “2013 Stock Incentive Plan”). The 2013 Stock Incentive Plan approved by shareholders in May 2013 covered a total of 195,000 shares, of which 48,750, or 25%, may be restricted stock awards, for a balance of 146,250 stock options assuming all the restricted shares are awarded. In May 2018, the shareholders of Quaint Oak Bancorp approved the adoption of the 2018 Stock Incentive Plan (the “2018 Stock Incentive Plan”). The 2018 Stock Incentive Plan approved by shareholders in May 2018 covered a total of 155,000 shares, of which 38,750, or 25%, may be restricted stock awards, for a balance of 116,250 stock options assuming all the restricted shares are awarded.

As of December 31, 2022 a total of 9,122 share awards were unvested under the 2013 and 2018 Stock Incentive Plans and up to 11,750 share awards were available for future grant under the 2018 Stock Incentive Plan and 1,800 share awards under the 2013 Stock Incentive Plan. The 2013 and 2018 Stock Incentive Plan share awards have vesting periods of five years.

A summary of option activity under the Company’s Option Plan and 2013 and 2018 Stock Incentive Plans as of December 31, 2022 and 2021 and changes during the year ended December 31, 2022 and 2021 is as follows:

	2022				2021
				Weighted				Weighted
	Number of			Average Grant	Number of			Average Grant
	Shares			Date Fair Value	Shares			Date Fair Value
Unvested at the beginning of the year	18,845		$	13.30	28,266		$	13.30
Granted	--		****	--	--			--
Vested	(9,123	)	****	13.30	(9,421	)		13.30
Forfeited	(600	)	****	13.30	--			--
Unvested at the end of the year	9,122		$	13.30	18,845		$	13.30

Compensation expense on the restricted stock awards is recognized ratably over the five year vesting period in an amount which is equal to the fair value of the common stock at the date of grant. During both the years ended December 31, 2022 and 2021, the Company recognized approximately $124,000 of compensation expense. During both the years ended December 31, 2022 and 2021, the Company recognized a tax benefit of approximately $26,000. As of December 31, 2022, approximately $43,000 in additional compensation expense will be recognized over the remaining service period of approximately 0.4 years.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 14 – Stock Compensation Plans (Continued)

Stock Option and Stock Incentive Plans – Stock Options

In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Stock Option Plan (the “Option Plan”). The Option Plan authorized the grant of stock options to officers, employees and directors of the Company to acquire 277,726 shares of common stock with an exercise price no less than the fair market value on the date of the grant. The Option Plan expired February 13, 2018, however, outstanding options granted in 2013 remain valid and existing for the remainder of their 10 year terms. As described above under “Stock Incentive Plans – Share Awards”, the 2013 Stock Incentive Plan approved by shareholders in May 2013 covered a total of 195,000 shares, of which 146,250 may be stock options assuming all the restricted shares are awarded. The 2018 Stock Incentive Plan approved by shareholders in May 2018 covered a total of 155,000 shares, of which 116,250 may be stock options assuming all the restricted shares are awarded.

All incentive stock options issued under the Option Plan and the 2013 and 2018 Stock Incentive Plans are intended to comply with the requirements of Section 422 of the Internal Revenue Code. Options will become vested and exercisable over a five year period and are generally exercisable for a period of ten years after the grant date.

As of December 31, 2022, a total of 195,396 grants of stock options were outstanding under the Option Plan and 2013 and 2018 Stock Incentive Plans and 37,250 stock options were available for future grant under the 2018 Stock Incentive Plan, 7,000 stock options under the 2013 Stock Incentive Plan and none under the Option Plan. Options will become vested and exercisable over a five year period and are generally exercisable for a period of ten years after the grant date.

A summary of option activity under the Company’s Option Plan and Stock Incentive Plan for the years ended December 31, 2022 and 2021 and changes during the years ended December 31, 2022 and 2021 is as follows:

	2022							2021
	Number of<br> <br>Shares			Weighted<br> <br>Average Exercise Price		Weighted<br> <br>Average Remaining Contractual Life (in years)		Number of<br> <br>Shares			Weighted<br> <br>Average Exercise Price		Weighted<br> <br>Average Remaining Contractual Life (in years)
Outstanding at the beginning of the year	****	233,136		$	10.96	****	4.2		240,636		$	10.98		5.2
Granted	****	--		****	--	****	--		--			--		--
Exercised	****	(23,000	)	****	8.55	****	--		(7,500	)		11.57		--
Forfeited	****	(14,200	)	****	10.96	****	--		--			--		--
Outstanding at the end of the period	****	195,396		$	11.24	****	3.5		233,136		$	10.96		4.2
Exercisable at the end of the period	****	170,009		$	10.90	****	6.4		180,081		$	10.28		5.6

The estimated fair value of the options granted in May 2018 was $1.75 per share. The fair value was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Expected dividend yield 2.11%

Risk-free interest rate 2.96%

Expected life of options 6.5 years

Expected stock-price volatility 12.42%

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 14 – Stock Compensation Plans (Continued)

Stock Options (Continued)

The dividend yield was calculated on the dividend amount and stock price existing at the grant date. The risk free interest rate used was based on the rates of United States Treasury securities with maturities equal to the expected lives of the options. Although the contractual term of the options granted is ten years, the expected term of the options is less. Management estimated the expected term of the stock options to be the average of the vesting period and the contractual term. The expected stock-price volatility was estimated by considering the Company’s own stock volatility. The actual future volatility may differ from our historical volatility.

At December 31, 2022, the aggregate intrinsic value of options outstanding was $2.1 million and options exercisable was $1.9 million. At December 31, 2021, the aggregate intrinsic value of the options outstanding was $2.0 million on and options exercisable was $1.5 million. The aggregate intrinsic value of a stock option represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holder had all option holders exercised their options on December 31, 2022 and December 31, 2021. This amount changes based on changes in the market value of the Company’s common stock.

During both the years ended December 31, 2022 and 2021, approximately $44,000 in compensation expense on stock options was recognized. A tax benefit of approximately $2,000, was recognized during each of these periods. As of December 31, 2022, approximately $18,000 in additional compensation expense will be recognized over the remaining service period of approximately 0.4 years.

Note 15 - Transactions with Executive Officers and Directors

Certain directors and executive officers of the Company, their families and their affiliates are customers of the Bank. Any transactions with such parties, including loans and commitments, are in the ordinary course of business at normal terms, including interest rate and collateralization, prevailing at the time and do not represent more than normal risks of collectability. None of these individuals were indebted to the Company for loans at December 31, 2022 and 2021, respectively.

Note 16 - Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

A summary of the Company’s financial instrument commitments at December 31, 2022 and 2021 is as follows (in thousands):

	2022		2021
Commitments to originate loans	$	36,087	$	27,871
Unfunded commitments under lines of credit	****	49,881		38,732
Standby letters of credit	****	2,601		4,804

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 16 - Financial Instruments with Off-Balance Sheet Risk (Continued)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies, but includes principally residential and commercial real estate.

Note 17 - Leases

The Company leases its office at 501 Knowles Avenue in Southampton, Pennsylvania as well as other office facilities and equipment. Due to the adoption of ASU 2016-02, Leases (Topic 842), the Company completed a comprehensive review and analysis of all its property contracts. As a result of this review, it was determined that the Company leases three office locations under operating leases. Several assumptions and judgments were made when applying the requirements of Topic 842 to the Company's existing lease commitments, including the allocation of consideration in the contracts between lease and nonlease components, determination of the lease term, and determination of the discount rate used in calculating the present value of the lease payments.

The Company has elected to account for the variable nonlease components, such as common area maintenance charges, utilities, real estate taxes, and insurance, separately from the lease component. Such variable nonlease components are reported in net occupancy expense on the Consolidated Statements of Income when paid. These variable nonlease components were excluded from the calculation of the present value of the remaining lease payments, therefore, they are not included in the right-of-use assets and lease liabilities reported on the Consolidated Balance Sheets. The lease cost associated with the operating leases was $184,000 for the year ending December 31, 2022 and $249,000 for the year ending December 31, 2021.

Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company's historical pattern of exercising renewal options on leases and the positive performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal option, it is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease. The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at December 31, 2022.

	Operating
Weighted average remaining term (years)	13.2
Weighted average discount rate	2.58	%

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 17 – Leases (Continued)

The following table presents the undiscounted cash flows due related to operating leases as of December 31, 2022, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets:

Undiscounted cash flows due (In thousands):	Operating
2023	$	332
2024	****	324
2025	****	323
2026	****	332
2027	****	282
2028 and thereafter	****	2,163
Total undiscounted cash flows	****	3,756
Discount on cash flows	****	(593	)
Total lease liabilities	$	3,163

Under Topic 842, the lessee can elect to not record on the Consolidated Balance Sheets a lease whose term is twelve months or less and does not include a purchase option that the lessee is reasonably certain to exercise. As of December 31, 2022, the Company had no leases that had a term of twelve months or less.

Rental expense under operating leases totaled approximately $362,000 in 2022 and $297,000 in 2021.

Note 18 - Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth below) of total, Tier 1, and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2022, that the Bank meets all capital adequacy requirements to which it is subject.

In July of 2013 the respective U.S. federal banking agencies issued final rules implementing Basel III and the Dodd-Frank Act capital requirements to be fully-phased in on a global basis on January 1, 2019. The new regulations established a new tangible common equity capital requirement, increase the minimum requirement for the current Tier 1 risk-weighted asset (“RWA”) ratio, phase out certain kinds of tangibles treated as capital and certain types of instruments and change the risk weightings of certain assets used to determine requirement capital ratios. Provisions of the Dodd-Frank Act generally require these capital rules to apply to bank holding companies and their subsidiaries. The new common equity Tier 1 capital component requires capital of the highest quality-predominantly composed of retained earnings and common stock instruments. For community banks, such as Quaint Oak Bank, a common equity Tier 1 capital ratio of 4.5% became effective on January 1, 2015. The new capital rules also increased the current minimum of Tier 1 capital ratio from 4.0% to 6.0% beginning on January 1, 2015. In addition, in order to make capital distributions and pay discretionary bonuses to executive officers without restriction, an institution must also maintain greater than 2.5% in common equity attributable to a capital conservation buffer to be phased in from January 1, 2016 until January 1, 2019. The new rules also increase the risk weights for several categories of assets, including an

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 18 - Regulatory Matters (Continued)

increase from 100% to 150% for certain acquisition, development and construction loans and more than 90-day past due exposures. The new capital rules maintain the general structure of the prompt corrective action rules, but incorporate the new common equity Tier 1 capital requirement and the increased Tier 1 RWA requirement into the prompt corrective action framework.

Bank holding companies are generally subject to statutory capital requirements, which were implemented by certain of the new capital regulations described above that became effective on January 1, 2015. However, the Small Banking Holding Company Policy Statement exempts certain small bank holding companies like the Company from those requirements provided that they meet certain conditions.

On December 27, 2018, Quaint Oak Bancorp, Inc. issued $8.0 million in subordinated notes (see Note 12) and infused $6.5 million to the Bank as Tier 1 capital. As of December 31, 2022 the Bank was adequately capitalized under the regulatory framework for prompt corrective action. The Company’s ratios do not differ significantly from the Bank’s ratios presented below.

The Bank’s actual capital amounts and ratios at December 31, 2022 and 2021 and the minimum amounts and ratios required for capital adequacy purposes and to be well capitalized under the prompt corrective action provisions are as follows (dollars in thousands):

	Actual					For Capital Adequacy<br> <br>Purposes					To be Well Capitalized<br> <br>Under Prompt<br> <br>Corrective Action<br> <br>Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2022:	****	****	****	****	****	****	****	****	****	****	****	****	****	****	****
Total capital (to risk-weighted assets)	$	60,820	****	8.49	%	$	≥57,313	****	≥8.00	%	$	≥71,642	****	≥10.00	%
Tier 1 capital (to risk-weighted assets)	****	53,115	****	7.41		****	≥42,985	****	≥6.00		****	≥57,313	****	≥8.00
Common Equity Tier 1 capital (to risk-weighted<br> <br>assets)	****	53,115	****	7.41		****	≥32,239	****	≥4.50		****	≥46,567	****	≥6.50
Tier 1 capital (to average assets)	****	53,115	****	7.07		****	≥30,032	****	≥4.00		****	≥37,540	****	≥5.00
	Actual					For Capital Adequacy<br> <br>Purposes					To be Well Capitalized<br> <br>Under Prompt<br> <br>Corrective Action<br> <br>Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2021:
Total capital (to risk-weighted assets)	$	45,765		10.69	%	$	≥34,247		≥8.00	%	$	≥42,809		≥10.00	%
Tier 1 capital (to risk-weighted assets)		40,438		9.45			≥25,685		≥6.00			≥32,247		≥8.00
Common Equity Tier 1 capital (to risk-weighted<br> <br>assets)		40,438		9.45		****	≥19,264		≥4.50			≥27,826		≥6.50
Tier 1 capital (to average assets)		40,438		7.41		****	≥21,822		≥4.00			≥27,277		≥5.00

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 18 - Regulatory Matters (Continued)

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act the Board of Governors of the Federal Reserve System as the primary regulator for the Company is authorized to extend leverage capital requirements and risk based capital requirements applicable to depository institutions and bank holding companies to thrift holding companies. Legislation adopted in late 2014 generally exempts small savings and loan holding companies like Quaint Oak Bancorp from these capital requirements if certain conditions are met.

Banking regulations place certain restrictions on dividends paid by the Bank to the Company. The Company is dependent upon dividends from the Bank to provide funds for the payment of dividends to the Company’s shareholders, interest payments on the subordinated debt and other general corporate purposes. The Bank’s ability to pay cash dividends directly or indirectly to the Company is governed by federal law, regulations and related guidance. These include the requirement that the Bank must receive approval to declare a dividend if the total amount of all dividends, including the proposed dividend, declared by the Bank in any current year exceeds the total of the Bank’s net income for the current year to date, combined with its retained net income for the previous two years. The term “retained net income” as defined by federal regulations means the Bank’s net income for a specified period less the total amount of all dividends declared in that period.

The Bank may not pay dividends to the Company if, after paying those dividends, it would fail to meet the required minimum levels under risk-based capital guidelines or if the bank regulators have notified the Bank that it is in need of more than normal supervision. Under the Federal Deposit Insurance Act, an insured depository institution such as the Bank is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is used in the Federal Deposit Insurance Act). Payment of dividends by the Bank also may be restricted at any time at the discretion of the appropriate regulator if it deems the payment to constitute an unsafe and unsound banking practice.

In 2022, the Bank did not pay any cash dividends to the Company. In 2021, the Bank paid a total of $1.0 million in cash dividends to the Company. At December 31, 2022, the Bank’s retained net income for the years ended December 31, 2022 and 2021 less the dividends declared and paid during those periods, totaled $14.0 million.

Note 19 – Fair Value Measurements and Fair Values of Financial Instruments

Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions, and risk assumptions used. Therefore, fair values estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.

Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels of pricing are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 19 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

Level III: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the use of observable market data when available.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 18 of the Company’s 2022 Form 10-K, as the fair value of loans, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and non-performance risk. Loans are considered a Level 3 classification.

The following is a discussion of assets and liabilities measured at fair value on a recurring and non-recurring basis and valuation techniques applied:

Investment Securities Available For Sale: The fair value of securities available for sale are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

We may be required from time to time to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.

Impaired Loans: Impaired loans are carried at the lower of cost or the fair value of the collateral for collateral-dependent loans less estimated costs to sell. Collateral is primarily in the form of real estate. The use of independent appraisals, discounted cash flow models and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within Level 3 of the fair value hierarchy.

Other Real Estate Owned: Other real estate owned is carried at the lower of the investment in the real estate or the fair value of the real estate less estimated selling costs. The use of independent appraisals and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and therefore other real estate owned is classified within Level 3 of the fair value hierarchy.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 19 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

The table below sets forth the financial assets and liabilities that were accounted for on a recurring and nonrecurring basis by level within the fair value hierarchy as of *December 31, 2022 (*in thousands):

	December 31, 2022
	Fair Value Measurements Using:
	Total Fair<br> <br>Value		Quoted<br> <br>Prices in<br> <br>Active<br> <br>Markets for<br> <br>Identical<br> <br>Assets<br> <br>(Level 1)		Significant Other<br> <br>Observable<br> <br>Inputs<br> <br>(Level 2)		Unobservable<br> <br>Inputs<br> <br>(Level 3)
Recurring fair value measurements:	****	****	****	****	****	****	****	****
Investment securities available for sale
Government National Mortgage Association mortgage-backed securities	$	2,871	$	--	$	2,871	$	--
Federal National Mortgage Association mortgage- backed securities	****	99	****	--	****	99	****	--
Total investment securities available for sale	$	2,970	$	--	$	2,970	$	--
Total recurring fair value measurements	$	2,970	$	--	$	2,970	$	--
Nonrecurring fair value measurements	****	****	****	****	****	****	****	****
Impaired loans	$	1,860	$	--	$	--	$	1,860
Total nonrecurring fair value measurements	$	1,860	$	--	$	--	$	1,860

	December 31, 2021
	Fair Value Measurements Using:
	Total Fair<br> <br>Value		Quoted<br> <br>Prices in<br> <br>Active<br> <br>Markets for<br> <br>Identical<br> <br>Assets<br> <br>(Level 1)		Significant Other<br> <br>Observable<br> <br>Inputs<br> <br>(Level 2)		Unobservable<br> <br>Inputs<br> <br>(Level 3)
Recurring fair value measurements:
Investment securities available for sale
Government National Mortgage Association mortgage-backed securities	$	3,882	$	--	$	3,882	$	--
Federal National Mortgage Association mortgage- backed securities		151		--		151		--
Total investment securities available for sale	$	4,033	$	--	$	4,033	$	--
Total recurring fair value measurements	$	4,033	$	--	$	4,033	$	--
Nonrecurring fair value measurements
Impaired loans	$	140	$	--	$	--	$	140
Total nonrecurring fair value measurements	$	140	$	--	$	--	$	140

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 19 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has used Level 3 inputs to determine fair value as of December 31, 2022 and 2021 (dollars in thousands):

	December 31, 2022
	Quantitative Information About Level 3 Fair Value Measurements
	Total Fair Value		Valuation Techniques		Unobservable Input	Range (Weighted Average)
Impaired loans	$	1,860	Appraisal of collateral (1)	Appraisal adjustments (2)		****	10%	(10%)
	December 31, 2021
	Quantitative Information About Level 3 Fair Value Measurements
	Total Fair Value		Valuation Techniques		Unobservable Input	Range (Weighted Average)
Impaired loans	$	140	Appraisal of collateral (1)	Appraisal adjustments (2)			8%	(8%)

_______________

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are

identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted

average of liquidation expenses and other appraisal adjustments are presented as a percentage of the appraisal.

The estimated fair values of the Company’s financial instruments that are not required to be measured or reported at fair value were as follows at December 31, 2022 and 2021 (in thousands):

	****	****	****	****	Fair Value Measurements at
	****	****	****	****	December 31, 2022
	Carrying Amount		Fair Value Estimate		Quoted Prices in Active Markets for Identical Assets<br> <br>(Level 1)		Significant Other Observable Inputs<br> <br>(Level 2)		Unobservable Inputs<br> <br>(Level 3)
Financial Assets	****	****	****	****	****	****	****	****	****	****
Investment in interest-earning time deposits	$	3,833	$	3,907	$	--	$	--	$	3,907
Loans held for sale	****	133,222	****	137,253	****	--	****	137,253	****	--
Loans receivable, net	****	621,864	****	600,186	****	--	****	--	****	600,186
Financial Liabilities	****	****	****	****	****	****	****	****	****	****
Deposits	****	549,248	****	551,157	****	351,297	****	--	****	199,860
FHLB long-term borrowings	****	66,022	****	65,846	****	--	****	--	****	65,846
FRB long-term borrowings	****	7,000	****	6,981	****	-	****	-	****	6,981
Subordinated debt	****	7,966	****	7,886	****	-	****	-	****	7,886

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 19 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

	****	****	****	****	Fair Value Measurements at
					December 31, 2021
	Carrying Amount		Fair Value Estimate		Quoted Prices in Active Markets for Identical Assets<br> <br>(Level 1)		Significant Other Observable Inputs<br> <br>(Level 2)		Unobservable Inputs<br> <br>(Level 3)
Financial Assets
Investment in interest-earning time deposits	$	7,924	$	8,091	$	--	$	--	$	8,091
Loans held for sale		107,823		112,843		--		112,843		--
Loans receivable, net		403,966		409,203		--		--		409,203
Financial Liabilities
Deposits		447,166		446,576		267,255		--		179,321
FHLB long-term borrowings		23,193		23,231		--		--		23,231
FRB long-term borrowings		3,895		3,895		-		-		3,895
Subordinated debt		7,933		8,312		-		-		8,312

For cash and cash equivalents, accrued interest receivable, investment in FHLB stock, bank-owned life insurance, FHLB short-term borrowings, accrued interest payable, and advances from borrowers for taxes and insurance, the carrying value is a reasonable estimate of the fair value and are considered Level 1 measurements.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 20 – Operating Segments

The Company's operations currently consist of two reportable operating segments: Banking and Oakmont Capital Holdings, LLC. The Company offers different products and services through its two segments. The accounting policies of the segments are generally the same as those of the consolidated company.

The Banking Segment generates its revenues primarily from its lending, deposit gathering and fee business activities. The profitability of this segment's operations depends primarily on its net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for credit losses. The provision for credit losses is almost entirely dependent on changes in the Banking Segment's loan portfolio and management’s assessment of the collectability of the loan portfolio as well as prevailing economic and market conditions. The profitability of this segment’s operations also depends on the generation of non-interest income which includes fees and commissions generated by Quaint Oak Bank and its wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, Quaint Oak Insurance Agency, LLC, and Oakmont Commercial, LLC, which are included in the Banking Segment for segment reporting purposes. The Banking Segment is also subject to an extensive system of laws and regulations that are intended primarily for the protection of depositors and other customers, federal deposit insurance funds and the banking system as a whole. These laws and regulations govern such areas as capital, permissible activities, allowance for loan and lease losses, loans and investments, and rates of interest that can be charged on loans. For segment reporting purposes, Quaint Oak Bancorp, Inc. is included as part of the Company’s Banking segment.

The Oakmont Capital Holdings, LLC Segment originates equipment loans which are generally sold to third party institutions with the loans’ servicing rights retained. The profitability of this segment’s operations depends primarily on the gains realized from the sale of loans, processing fees, and service fees. The Oakmont Capital Holdings, LLC Segment is also subject to an extensive system of laws and regulations that are intended primarily for the protection of commercial customers.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 20 – Operating Segments (Continued)

The following table present summary financial information for the reportable segments (in thousands):

	As of or for the Year Ended December 31,
	2022							2021
	Quaint Oak Bank(1)		Oakmont Capital Holdings, LLC			Consolidated		Quaint Oak Bank(1)			Oakmont Capital Holdings, LLC		Consolidated
Net Interest Income (Loss)	$	24,114	$	(425	)	$	23,689	$	19,072		$	1,548	$	20,620
Provision for Loan Losses		2,475		-			2,475	****	2,201		****	-	****	2,201
Net Interest Income (Loss) after Provision for Loan Losses		21,639		(425	)		21,214	****	16,871		****	1,548	****	18,419
Non-Interest Income	****	****	****	****	****	****	****	****	****	****	****	****	****	****	****
Mortgage banking, equipment lending and title<br> <br>abstract fees		757		2,346			3,103		1,410			1,089		2,499
Real estate sales commissions, net		298		-			298		170			-		170
Insurance commissions		593		-			593		509			-		509
Other fees and services charges		330		320			650		199			56		255
Net loan servicing income		13		1,855			1,868		149			-		149
Income from bank-owned life insurance		89		-			89		83			-		83
Net gain on loans held for sale		3,270		9,230			12,500		3,484			3,397		6,881
Gain on the sale of SBA loans		310		-			310		1,147			-		1,147
Loss on sale of investment securities available<br> <br>for sale		-		-			-		362			-		362
Loss on sales and write-downs of other real<br> <br>estate owned		-		-			-		(73	)		-		(73	)
Total Non-Interest Income		5,660		13,751			19,411		7,440			4,542		11,982
Non-Interest Expense	****	****	****	****	****	****	****	****	****	****	****	****	****	****	****
Salaries and employee benefits		13,828		6,309			20,137		11,181			4,357		15,538
Directors’ fees and expenses		286		-			286		252			-		252
Occupancy and equipment		1,274		630			1,904		1,237			384		1,621
Data processing		690		-			690		901			-		901
Professional fees		668		80			748		511			148		659
FDIC deposit insurance assessment		658		-			658		331			-		331
Advertising		186		382			568		161			190		351
Amortization of other intangible		49		-			49		49			-		49
Other		1,291		929			2,220		1,226			159		1,385
Total Non-Interest Expense		18,930		8,330			27,260		15,849			5,238		21,087
Pretax Segment Profit	$	8,369	$	4,996		$	13,365	$	8,462		$	852	$	9,314
Net Income Attributable to
Noncontrolling Interest	$	2,448	$	-		$	2,448	$	418		$	-	$	418
Segment Assets	$	757,688	$	34,662		$	792,350	$	537,276		$	16,839	$	554,115

__________________

(1)	Includes Quaint Oak Bancorp, Inc. and the Bank’s subsidiaries, Quaint Oak Mortgage, Quaint Oak Real Estate, Quaint Oak Abstract, Quaint Oak Insurance Agency, QOB Properties, and Oakmont Commercial.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 21– Quaint Oak Bancorp, Inc. (Parent Company Only)

Condensed financial statements of Quaint Oak Bancorp, Inc. are as follows (in thousands):

Balance Sheets

	December 31,
	2022		2021
Assets
Cash and cash equivalents	$	284	$	676
Investment in Quaint Oak Bank	****	50,966		40,556
Premises and equipment, net	****	1,432		1,474
Other assets	****	77		16
Total Assets	$	52,759	$	42,722
Liabilities and Stockholders’ Equity
Subordinated debt	$	7,966	$	7,933
Stockholders’ equity	****	44,793		34,789
Total Liabilities and Stockholders’ Equity	$	52,759	$	42,722

Statements of Income

	For the Year Ended December 31,
	2022			2021
Income
Dividends from subsidiary	$	-		$	1,000
Interest income	****	-			-
Rental income	****	365			314
Total Income	****	365			1,314
Expenses
Occupancy and equipment expense	****	122			110
Interest on subordinated debt	****	520			520
Other expenses	****	158			156
Total Expenses	****	800			786
Net Income Before Income Taxes	****	(435	)		528
Equity in Undistributed Net Income of Subsidiary	****	8,207			5,777
Income (Loss) Tax Benefit	****	91			99
Net Income	$	7,863		$	6,404
Comprehensive Income	$	7,816		$	6,309

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 21 – Quaint Oak Bancorp, Inc. (Parent Company Only) (Continued)

Statements of Cash Flows

	For the Year Ended December 31,
	2022			2021
Operating Activities
Net income	$	7,863		$	6,404
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Undistributed net income in subsidiary	****	(8,207	)		(5,777	)
Depreciation expense	****	53			54
Amortization of subordinated debt issuance costs	****	34			34
Stock-based compensation expense	****	511			324
(Increase) decrease in other assets	****	(62	)		-
Net cash provided by operating activities	****	192			1,039
Investing Activities
Purchase of property and equipment	****	(12	)		(15	)
Net cash used in investing activities	****	(12	)		(15	)
Financing Activities
Dividends paid	****	(1,018	)		(839	)
Proceeds from the reissuance of treasury stock for capital raise	****	2,383			-
Additional Paid-in Capital	****	(2,250	)		-
Purchase of treasury stock	****	(49	)		(25	)
Proceeds from the reissuance of treasury stock for 401(k) Plan	****	100			96
Proceeds from the exercise of stock options	****	262			87
Net cash used in financing activities	****	(572	)		(681	)
Net Increase (Decrease) in Cash and Cash Equivalents	****	(392	)		343
Cash and Cash Equivalents-Beginning of Year	****	676			333
Cash and Cash Equivalents-End of Year	$	284		$	676

Note 22 – Subsequent Event

On March 2, 2023, the Company announced the completion of a private offering of $12.0 million in aggregate principal amount of fixed rate subordinated notes due *March 15, 2025 (*the “Notes”) to certain qualified institutional buyers. On March 16, 2023, the Company completed an additional $2.0 million in aggregate private offering of subordinated debt to accredited investors under the same terms. The Company intends to use the net proceeds of the offerings for general corporate purposes.

The Notes bear interest at a fixed annual rate of 8.50%, payable semi-annually in arrears on March 15 and September 15 of each year, beginning September 15, 2023. The Notes’ maturity date is March 15, 2025. The Company is entitled to redeem the Notes, in whole or in part, on or after March 15, 2024, and to redeem the Notes at any time in whole upon certain other events, at a redemption price equal to 100% of the outstanding principal amount of the Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date.

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Exhibit 21

Subsidiaries of Registrant

As of December 31, 2022 (100% direct or indirect ownership by Quaint Oak Bancorp, Inc.)

Name	Parent Company	State of Incorporation
Quaint Oak Bank	Quaint Oak Bancorp, Inc.	Pennsylvania
Quaint Oak Mortgage, LLC	Quaint Oak Bank	Pennsylvania
Quaint Oak Real Estate, LLC	Quaint Oak Bank	Pennsylvania
Quaint Oak Abstract, LLC	Quaint Oak Bank	Pennsylvania
QOB Properties, LLC	Quaint Oak Bank	Pennsylvania
Quaint Oak Insurance Agency, LLC	Quaint Oak Bank	Pennsylvania
Oakmont Commercial, LLC	Quaint Oak Bank	Pennsylvania

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EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements File No. 333-159130, File No. 333-197329, File No. 333-196128, and File No. 333-232352 on Form S-8 of Quaint Oak Bancorp, Inc. of our report dated March 30, 2023, relating to our audit of the consolidated financial statements, which appears in the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K of Quaint Oak Bancorp, Inc. for the year ended December 31, 2022.

Cranberry Township, Pennsylvania

March 30, 2023

PITTSBURGH, PA	PHILADELPHIA, PA	WHEELING, WV	STEUBENVILLE, OH
2009 Mackenzie Way • Suite 340	2100 Renaissance Blvd. • Suite 110	980 National Road	511 N. Fourth Street
Cranberry Township, PA 16066	King of Prussia, PA 19406	Wheeling, WV 26003	Steubenville, OH 43952
(724) 934-0344	(610) 278-9800	(304) 233-5030	(304) 233-5030

S.R. Snodgrass, P.C. d/b/a S.R. Snodgrass, A.C. in West Virginia

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EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Robert T. Strong, certify that:

1. I have reviewed this annual report on Form 10-K of Quaint Oak Bancorp, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))

for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/Robert T. Strong
Date: March 31, 2023	Robert T. Strong
	President and Chief Executive Officer

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EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, John J. Augustine, certify that:

1. I have reviewed this annual report on Form 10-K of Quaint Oak Bancorp, Inc. (the “registrant”);

for the registrant and have:

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/John J. Augustine
Date: March 31, 2023	John J. Augustine
	Executive Vice President and Chief Financial Officer

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EXHIBIT 32.0

SECTION 1350 CERTIFICATION OF THE

CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

Each of Robert T. Strong, President and Chief Executive Officer and John J. Augustine, Executive Vice President and Chief Financial Officer of Quaint Oak Bancorp, Inc. (the “Company”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1) The Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m(a) or 78o(d); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:	/s/Robert T. Strong
Date: March 31, 2023		Robert T. Strong<br><br> <br>President and Chief Executive Officer
Date: March 31, 2023	By:	/s/John J. Augustine
		John J. Augustine<br><br> <br>Executive Vice President and Chief Financial Officer

Note: A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to Quaint Oak Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.