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, 2023

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

For the transition period from ______ to ______

Commission File Number: 000-52694

QUAINT OAK BANCORP, INC.

(Exact name of Registrant as specified in its charter)

Pennsylvania	35-2293957
(State or Other Jurisdiction of	(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 executive 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 $17.00 on June 30, 2023, the last day of the Registrant’s second quarter was $24.4 million (2,236,422 shares outstanding less 798,212 shares held by affiliates at $17.00 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 26, 2024: 2,493,154

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, 2023 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 2024 Annual Meeting of Shareholders are incorporated by reference into Part III, Items 10-14 of this Form 10-K.

QUAINT OAK BANCORP, INC.

2023 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	28
Item 1B.	Unresolved Staff Comments	28
Item 1C.	Cybersecurity	29
Item 2.	Properties	30
Item 3.	Legal Proceedings	30
Item 4.	Mine Safety Disclosures	30
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6.	[Reserved]	31
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 8.	Financial Statements and Supplementary Data	32
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	32
Item 9A.	Controls and Procedures	32
Item 9B.	Other Information	33
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	33
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	33
Item 11.	Executive Compensation	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13.	Certain Relationships and Related Transactions, and Director Independence	34
Item 14.	Principal Accountant Fees and Services	34
PART IV
Item 15.	Exhibits and Financial Statement Schedules	34
Item 16.	Form 10-K Summary	35
SIGNATURES		36

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 credit 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; or (7) 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

Genera

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, multi-state equipment financing, real estate sales, title abstract and insurance businesses.

As of December 31, 2023, 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, 2023, Quaint Oak Bancorp had $754.1 million of total assets, $631.7 million of total deposits and $51.6 million of stockholders’ equity. Quaint Oak Bancorp’s stockholders’ equity constituted 6.4% of total assets as of December 31, 2023.

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, one-to-four family residential non-owner occupied loans, 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, multi-state specialty commercial real estate financing and equipment financing, 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.

As of January 1, 2023, the Company adopted ASU 326 using the weighted average maturity method (WARM) for all financial assets measured at amortized cost, net of investments in leases and off balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASU 326, while prior period results are reported in accordance with the previously applicable incurred loss methodology. The Company recorded no change to retained earnings as of January 1, 2023 for the cumulative effect of adopting ASC 326.

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 11 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.

Quaint Oak Bank’s Lending Activities

General. At December 31, 2023, the net loan portfolio of Quaint Oak Bank amounted to $603.3 million, representing approximately 80.0% 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, multi-family residential loans, construction loans, one-to-four family residential owner occupied loans, and home equity loans. At December 31, 2023, commercial real estate loans amounted to $331.2 million, or 54.2% of its total loan portfolio. Commercial business loans totaled $127.9 million, or 20.9%, of the total loan portfolio at December 31, 2023. At December 31, 2023, one-to-four family residential loans amounted to $63.3 million or 10.4% of its total loan portfolio of which $40.5 million, or 6.7%, of the total loan portfolio consisted of non-owner occupied properties and $22.9 million, or 3.7%, of the total loan portfolio consisted of owner occupied properties. Multi-family residential loans totaled $46.7 million, or 7.7%, of the total loan portfolio at December 31, 2023. Construction loans totaled $35.6 million, or 5.8%, of the total loan portfolio at December 31, 2023. Home equity loans totaled $6.2 million, or 1.0%, of the total loan portfolio at December 31, 2023.

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 $10.3 million at December 31, 2023. At December 31, 2023, Quaint Oak Bank’s five largest loans or groups of loans-to-one borrower, including related entities, were $7.6 million, $7.4 million, $6.6 million, $6.5 million, and $6.4 million. The loans consisted of three commercial real estate loans, and two construction loans. Each of Quaint Oak Bank’s five largest loans or groups of loans was performing in accordance with its terms at December 31, 2023.

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

	December 31,
	2023						2022
	Amount			%			Amount			%
	(Dollars in Thousands)
Real estate loans:
One-to-four family residential (1):
Owner occupied	$	22,885			3.7	%	$	18,070			2.9	%
Non-owner occupied		40,455			6.7			39,315			6.2
Total one-to-four family residential loans		63,340			10.4			57,385			9.1
Multi-family (five or more) residential		46,680			7.7			46,909			7.4
Commercial real estate		331,174			54.2			333,540			52.9
Construction		35,585			5.8			28,938			4.6
Home equity loans		6,162			1.0			4,918			0.8
Total real estate loans		482,941			79.1			471,690			65.7
Commercial business (2)		127,868			20.9			159,069			25.2
Other consumer		69			-			2			-
Total loans		610,878			100.0	%		630,761			100.0	%
Less:
Deferred loan fees and costs		(771	)					(1,219	)
Allowance for credit losses		(6,758	)					(7,678	)
Net loans	$	603,349					$	621,864

____________________

(1)	Does not include mortgage loans held for sale of $3.5 million and $2.9 million at December 31, 2023 and 2022, respectively.
(2)	Does not include equipment loans held for sale of $56.9 million and $130.3 million at December 31, 2023 and December 31, 2022, 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 $2.0 million, or loan requests that would increase the relationship over $2.0 million, must be approved by our President and Chief Executive Officer and Chief Operating Officer.

The following table shows our total loans and loans held for sale 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 2023.

	Year Ended December 31,
	2023			2022
	(In Thousands)
Loan balance, beginning of period:	$	755,086		$	511,789
Loan originations:
One-to-four family residential owner occupied (1)		83,453			128,075
One-to-four family residential non-owner occupied		2,200			7,456
Multi-family residential		2,475			18,311
Commercial real estate (2)		82,551			178,251
Construction		17,994			17,651
Home equity		4,736			1,154
Commercial business (3)		386,553			611,831
Other consumer		74			-
Total loan originations		580,036			962,729
Loans sold		(414,002	)		(496,311	)
Loan principal repayments		(249,862	)		(214,224	)
Total loans sold and principal repayments		(663,864	)		(710,535	)
Decreases due to other items, net (4)		(7,529	)		(8,897	)
Net decrease in loan portfolio	$	(91,357	)	$	243,297
Loan balance, end of period:	$	663,729		$	755,086

____________________

(1)	Includes $77.4 million and $118.4 million of loans originated for sale in 2023 and 2022, respectively.
(2)	Includes a $55.5 million loan portfolio purchased by the Bank’s wholly-owned subsidiary, Oakmont Commercial, in April 2022.
---	---
(3)	Includes $263.8 million and $403.2 million of equipment loans originated for sale in 2023 and 2022, respectively.
---	---
(4)	Other items consist of deferred fees and the allowance for credit 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, 2023, 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>Residential		Commercial Real Estate		Construction		Home Equity		Commercial Business and Other Consumer		Total
	(In Thousands)
Amounts due in:
One year or less	$	383	$	3,865	$	2,194	$	24,470	$	10,491	$	56	$	7,523	$	48,982
After one year through three years		19		10,785		6,900		66,394		7,342		91		34,124		125,655
After three years through five years		72		13,328		13,225		88,882		7,672		158		57,700		181,037
After five years through 15 years		1,433		8,769		20,407		104,761		7,172		5,208		28,570		176,320
After 15 years		20,978		3,708		3,954		46,667		2,908		649		20		78,884
Total	$	22,885	$	40,455	$	46,680	$	331,174	$	35,585	$	6,162	$	127,937	$	610,878

The following table shows the dollar amount of our loans at December 31, 2023 due after December 31, 2024 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>Adjustable-Rate		Total
	(In Thousands)
One-to-four family residential owner occupied	$	4,591	$	17,911	$	22,502
One-to-four family residential non-owner occupied		22,520		14,070		36,590
Multi-family residential		25,430		19,056		44,486
Commercial real estate		189,937		116,767		306,704
Construction		6,392		18,702		25,094
Home equity		1,300		4,806		6,106
Commercial business and other consumer		13,434		106,980		120,414
Total	$	263,604	$	298,292	$	561,896

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, 2023, $22.9 million, or 3.7%, 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. 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 to be held in our loan portfolio. At December 31, 2023, $40.5 million, or 6.7%, 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-year 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, 2023, Quaint Oak Mortgage LLC originated $77.4 million of owner and non-owner occupied residential loans for sale and sold $76.8 million of these loans in the secondary market, realizing gains of $1.3 million. 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.

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, 2023, $46.7 million, or 7.7%, of our total loan portfolio, before net items, consisted of multi-family residential loans.

Commercial Real Estate Loans. A significant part of **** Quaint Oak Bank’s lending activity is the origination of loans secured by commercial real estate. At December 31, 2023, $331.2 million, or 54.2% 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, 2023, approximately 57% of total commercial real estate loans were owner occupied.

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 non-owner occupied residential loans, and 80%, or less, of owner occupied residential loans, 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. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or the overall economy and accordingly, conservative loan to value ratios are required at origination.

Construction Loans. Our construction loans are generally originated for the purpose of building or providing funds for leasehold improvements to a business’s primary place of operation. On occasion the Bank may provide funds for 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, 2023, $35.6 million, or 5.8% 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, 2023, $6.2 million, or 1.0% 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, 2023, $127.9 million, or 20.9% of Quaint Oak Bank’s total loan portfolio, before net items, consisted of commercial business loans. At December 31, 2023, commercial business loans include $156,000 of SBA PPP loans. During the year ended December 31, 2023 the Bank originated $263.8 million in equipment loans held for sale and sold $287.1 million of equipment loans. Also contributing to the decrease in equipment loans held for sale at December 31, 2023 is $50.1 million of loan amortization and prepayments.

Other Consumer Loans. Quaint Oak Bank originates loans secured by savings accounts in order to accommodate its existing customers. At December 31, 2023, $69,000 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 $51,000 and $1.9 million of non-accrual loans at December 31, 2023 and 2022, 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, 2023 or December 31, 2022.

Delinquent Loans. The following table shows the delinquencies in our loan portfolio as of December 31, 2023.

	December 31, 2023
	30-89<br> <br>Days Overdue					90 or More Days<br> <br>Overdue
	Number<br> <br>of Loans		Principal<br> <br>Balance			Number<br> <br>of Loans		Principal<br> <br>Balance
	(Dollars in Thousands)
One-to-four family residential-owner occupied		1	$	136			1	$	401
One-to-four family residential-non-owner occupied		4		256			-		-
Multi-family residential		2		175			-		-
Commercial real estate		6		3,944			-		-
Home equity		2		403			-		-
Total delinquent loans		15	$	4,914			1	$	401
Delinquent loans to total net loans				0.81	%				0.07	%
Delinquent loans to total loans				0.80	%				0.07	%

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,
	2023			2022
	(Dollars in Thousands)
Total non-accruing loans	$	51		$	1,939
Total accruing loans 90 days or more past due		401			51
Total non-performing loans (1)		452			1,990
Other real estate owned, net		-			-
Total non-performing assets		452			1,990
Troubled debt restructurings (2)		-			136
Total non-performing assets and troubled debt restructurings	$	452		$	2,126
Total non-performing loans as a percentage of loans, net		0.06	%		0.32	%
Total non-performing loans as a percentage of total assets		0.06	%		0.25	%
Total non-performing assets as a percentage of total assets		0.08	%		0.27	%
Total non-performing assets and troubled debt restructurings as a percentage of total assets		0.08	%		0.27	%

__________________

(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 as of December 31, 2022. Prior to the adoption of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, the Company had granted a variety of concessions to borrowers in the form of loan modifications that were considered TDRs.
---	---

(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 as of December 31, 2022. Prior to the adoption of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, the Company had granted a variety of concessions to borrowers in the form of loan modifications that were considered TDRs.

---

Prior to the adoption of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, the Company had granted a variety of concessions to borrowers in the form of loan modifications that were considered TDRs. 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.

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 credit losses. If an asset or portion thereof is classified as a loss, the insured institution must either establish specific allowances for credit 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 credit losses do not qualify as regulatory capital. Federal examiners may disagree with an insured institution’s classifications and amounts reserved.

Allowance for Credit Losses. At December 31, 2023, Quaint Oak Bank’s allowance for credit losses amounted to $6.8 million. The Company adopted ASU 2016-13 using the weighted average maturity method (WARM) for all financial assets measured at amortized cost, net of investments in leases and off balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326, while prior period results are reported in accordance with the previously applicable incurred loss methodology. The Company recorded no change to retained earnings as of January 1, 2023 for the cumulative effect of implementing ASC 326.

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

	December 31,
	2023			2022
	(Dollars in Thousands)
Total loans outstanding at end of period, net	$	603,349		$	621,864
Average loans outstanding (1)	$	638,376		$	531,912
Allowance for credit losses, beginning of period	$	7,678		$	5,262
(Recovery of) Provision for credit losses		(45	)		2,475
Charge-offs:
Multi-family residential		(2	)		-
Commercial real estate		(134	)		-
Commercial business		(739	)		(59	)
Total charge-offs		(875	)		(59	)
Recoveries on loans previously charged-off		-			-
Allowance for credit losses, end of period	$	6,758		$	7,678
Allowance for credit losses as a percent of non-performing loans		1,494.57	%		386.01	%
Allowance for credit losses as a percent of total loans receivable, net		1.11	%		1.22	%
Non-performing loans as a percent of total loans receivable, net		0.07	%		0.32	%
Ratio of net charge-offs during the period to average loans outstanding during the period:
Multi-family residential		n/m			-
Commercial real estate		0.02	%		-
Commercial business		0.12	%		0.01	%
Total charge-offs		0.14	%		0.01	%
Non-accrual loans to total loans outstanding, net		0.01	%		0.31	%
Allowance for credit losses to non-accrual loans		13,232.1	%		396.1	%

____________________

(1)	Excludes loans held for sale.
*n/m	Not meaningful
---	---

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

	December 31,
	2023					2022
	Amount of Allowance		Loan<br> <br>Category<br> <br>as a % of<br> <br>Total Loans			Amount of Allowance		Loan<br> <br>Category<br> <br>as a % of<br> <br>Total Loans
	(Dollars in Thousands)
One-to-four family residential owner occupied	$	153		2.3	%	$	123		2.9	%
One-to-four family residential non-owner occupied		219		3.2			295		6.2
Multi-family residential		420		6.2			451		7.4
Commercial real estate		2,784		41.2			3,750		52.9
Construction		583		8.6			304		4.6
Home equity		61		0.9			33		0.8
Commercial business and other consumer		2,538		37.6			2,422		25.2
Unallocated		-		-			300		-
Total	$	6,758		100.0	%	$	7,678		100.0	%

Investment Activities

General. We invest in securities pursuant to our investment policy, which has been approved by our Board of Directors. Our investment policy is reviewed annually by our Asset-Liability Committee (ALCO). All policy changes recommended by ALCO must be approved by the Board of Directors. ALCO is authorized by the Board to make investments consistent with the investment policy. While general investment strategies are developed and authorized by ALCO, the execution of specific actions rests with the Chief Financial Officer, Chief Operating 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, 2023, we had $2.3 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, 2023, the Company held $1.9 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 2023 and 2022.

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

	December 31,
	2023		2022
	(In Thousands)
Interest-earning time deposits with other financial institutions	$	1,912	$	3,833
Mortgage-backed securities:
Government National Mortgage Association		2,268		2,871
Federal National Mortgage Association		73		99
Investment in FHLB stock		1,474		6,601
Total	$	5,727	$	13,404

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, 2023. The weighted average yield is calculated by dividing income within each contractual maturity range by the outstanding amount of the related investment.

	Amounts at December 31, 2023 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 with other financial institutions	$	1,000		3.46	%	$	912		4.00	%	$	-		-	%	$	-		-	%
Mortgage-backed securities:
Government National Mortgage Association		-		-			-		-			-		-			2,268		5.97
Federal National Mortgage Association		-		-			-		-			-		-			73		5.69
	$	1,000		3.46	%	$	912		4.00	%	$	-		-	%	$	2,341		5.96	%

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 interest-bearing business checking accounts, and 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, has a deposit placement agreement with a third party bank for money market accounts and has a correspondent relationship with a third party bank for non-interest and interest bearing checking accounts. At December 31, 2023, approximately 41.8% 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,
****	2023					2022
****	Amount		%			Amount		%
	(Dollars in Thousands)
Certificate accounts:
0.00% - 0.99%	$	20,533		3.3	%	$	74,703		13.6	%
1.00% - 1.99%		10,078		1.6			16,698		3.0
2.00% - 2.99%		14,539		2.3			37,606		6.8
3.00% - 3.99%		41,124		6.5			50,376		9.2
4.00% - 4.99%		93,044		14.7			18,568		3.4
5.00% - 5.99%		36,525		5.8			-		-
Total certificate accounts		215,843		34.2			197,951		36.0
Transaction accounts:
Interest bearing checking accounts		104,274		16.5			-		-
Non-interest bearing checking accounts		92,216		14.6			88,728		16.2
Savings accounts		841		0.1			1,597		0.3
Money market accounts		218,525		34.6			260,972		47.5
Total transaction accounts		415,856		65.8			351,297		64.0
Total deposits	$	631,699		100.0	%	$	549,248		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.

	2023							2022
	Average Balance		Interest Expense		Average Rate Paid			Average Balance		Interest Expense		Average Rate Paid
	(Dollars in Thousands)
Savings accounts	$	1,298	$	3		0.23	%	$	1,673	$	3		0.18	%
Money market accounts		232,666		9,670		4.16			259,886		3,924		1.51
Business checking accounts		49,709		2,496		5.02			-		-		-
Certificates of deposit		215,264		6,642		3.09			185,202		2,116		1.14
Total interest-bearing deposits	$	498,937	$	18,811		3.77	%	$	446,761	$	6,043		1.35	%
Non-interest bearing deposits	$	84,841	$	-		-	%	$	73,137	$	-		-	%
Total deposits	$	583,778	$	18,811		3.77	%	$	519,898	$	6,043		1.35	%

Uninsured deposits as of December 31, 2023 and 2022 are estimated based on regulatory reporting requirements to be $294.5 million and $255.3 million, respectively.

The following table presents, by various interest rate categories and maturities, the amount of certificates of deposit at December 31, 2023.

****	Balance at December 31, 2023<br> <br>Maturing in the Twelve Months Ending December 31,
Certificates of Deposit	2024		2025		2026		Thereafter		Total
	(In Thousands)
0.00% - 0.99%	$	13,379	$	3,971	$	2,909	$	274	$	20,533
1.00% - 1.99%		3,531		5,176		306		1,065		10,078
2.00% - 2.99%		8,980		3,621		1,196		742		14,539
3.00% - 3.99%		16,722		13,028		2,691		8,683		41,124
4.00% - 4.99%		34,595		10,597		5,054		42,798		93,044
5.00% - 5.99%		36,525		-		-		-		36,525
Total certificate accounts	$	113,732	$	36,393	$	12,156	$	53,562	$	215,843

The following table shows the maturities of our certificates of deposit of more than $250,000 at December 31, 2023 by time remaining to maturity.

Quarter Ending:	Amount
	(Dollars in Thousands)
3 months or less	$	5,086	4.67	%
3 to 6 months		5,679	4.34
6 to 9 months		4,348	4.58
9 to 12 months		4,162	4.85
After 12 months		9,496	4.01
Total certificates of deposit with balances of more than $250,000	$	28,771	4.40	%

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, 2023, Quaint Oak Bank has a maximum borrowing capacity with the Federal Home Loan Bank of approximately $316.8 million. Quaint Oak Bank’s Federal Home Loan Bank advances outstanding were $29.0 million and $159.2 million at December 31, 2023 and 2022, respectively. As of December 31, 2023, Quaint Oak Bank has $12.0 million in borrowing capacity with the Federal Reserve Bank (FRB) of Philadelphia under the discount window program. There were no borrowings with the FRB as of December 31, 2023. Quaint Oak Bank borrowed $7.0 million from the FRB discount window as of December 31, 2022.

As of December 31, 2023, 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 totaled $15.0 million at December 31, 2023.

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

	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,
	2023			2022			2023			2022
Average balance outstanding	$	72,566		$	31,505		$	711		$	1,556
Maximum amount outstanding at any month-end during the period	****	116,200			93,200		****	7,000			7,000
Balance outstanding at end of period	****	-			93,200		****	-			7,000
Average interest rate during the period	****	5.38	%		2.34	%	****	4.78	%		0.97	%
Weighted average interest rate at end of period	****	-	%		4.45	%	****	-	%		4.50	%
	Other Short-Term Borrowings<br> <br>At or For the Year<br> <br>Ended December 31,
---	---	---	---	---	---	---
	2023			2022
Average balance outstanding	$	9,291		$	1,601
Maximum amount outstanding at any month-end during the period	****	14,508			5,489
Balance outstanding at end of period	****	5,549			5,489
Average interest rate during the period	****	8.40	%		6.68	%
Weighted average interest rate at end of period	****	8.46	%		7.11	%

Federal Home Loan Bank long-term borrowings and the weighted interest rate consist of the following at December 31, 2023 and 2022 (in thousands):

	December 31, 2023					December 31, 2022
Fixed rate borrowings maturing:	Amount		Weighted Interest Rate			Amount		Weighted Interest Rate
2023	****	-	****	-		$	57,000		2.22	%
2024	****	21,167	****	4.25			6,167		2.05
2025	****	7,855	****	3.40			2,855		1.25
Total FHLB long-term debt	$	29,022	****	4.02	%	$	66,022		2.16	%

Federal Reserve Bank (FRB) borrowings decreased $7.0 million to none at December 31, 2023 as the Company paid off the $7.0 million of FRB borrowings outstanding at December 31, 2022.

Total Employees

There were 124 full-time employees and one part-time employee at the Bank and its subsidiary companies, excluding Oakmont, at December 31, 2023. 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, 2023, 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 loans and 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. 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.

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 commercial banks, mortgage banking companies, 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;
---	---
●	holding, managing, or liquidating assets owned or acquired from a subsidiary savings institution;
---	---
●	holding or managing properties used or occupied by a subsidiary savings institution;
---	---

●	acting as trustee under a deed of trust;
●	any other activity (i) that the Federal Reserve Board, by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the 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;
---	---
●	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
---	---
●	any activity permissible for financial holding companies under section 4(k) of the Bank Holding Company Act.
---	---

Permissible activities which are deemed to be financial in nature or incidental thereto under section 4(k) of the Bank Holding Company Act include:

●	lending, exchanging, transferring, investing for others, or safeguarding money or securities;
●	insurance activities or providing and issuing annuities, and acting as principal, agent, or broker;
---	---
●	financial, investment, or economic advisory services;
---	---
●	issuing or selling instruments representing interests in pools of assets that a bank is permitted to hold directly;
---	---
●	underwriting, dealing in, or making a market in securities;
---	---
●	activities previously determined by the Federal Reserve Board to be closely related to banking;
---	---
●	activities that bank holding companies are permitted to engage in outside of the U.S.; and
---	---
●	portfolio investments made by an insurance company.
---	---

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, 2023 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 are restricted to those of a national bank; and
---	---
●	payment of dividends by the institution are 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, 2023, 70% 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.” However, as of December 31, 2023, 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, 2023, 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 per separately insured deposit ownership right or category. 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 5to 32 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 2.5%) 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.

The Federal Deposit Insurance Corporation adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023. The FDIC may increase or decrease the range of assessments uniformly, except that no adjustment can deviate more than two basis points from the base assessment rate without notice and comment rulemaking.

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, 2023, 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.

In September 2019, the regulatory agencies, including the Federal Deposit Insurance Corporation and the Federal Reserve Board adopted a final rule, effective January 1, 2020, creating a community bank leverage ratio (“CBLR”) of between 8% and 10% for institutions with total consolidated assets of less than $10 billion, and that meet other qualifying criteria related to off-balance sheet exposures and trading assets and liabilities. The CBLR provides for a simple measure of capital adequacy for qualifying 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, 2023, Quaint Oak Bank’s tier 1 leverage ratio and total risk-based capital were well-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, 2023, Quaint Oak Bank was deemed a well-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
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●	acquiring or retaining the voting shares of a depository institution if certain requirements are met.
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The Federal Deposit Insurance Corporation has adopted regulations pertaining to the other activity restrictions imposed upon insured state banks and their subsidiaries. Pursuant to such regulations, insured state banks engaging in impermissible activities may seek approval from the Federal Deposit Insurance Corporation to continue such activities. State banks not engaging in such activities but that desire to engage in otherwise impermissible activities either directly or through a subsidiary may apply for approval from the Federal Deposit Insurance Corporation to do so; however, if such bank fails to meet the minimum capital requirements or the activities present a significant risk to the Deposit Insurance Fund, such application will not be approved by the Federal Deposit Insurance Corporation. Pursuant to this authority, the Federal Deposit Insurance Corporation has determined that investments in certain majority-owned subsidiaries of insured state banks do not represent a significant risk to the deposit insurance funds. Investments permitted under that authority include real estate activities and securities activities.

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 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, 2023, the balance of these real estate loans represented 642.3% of Quaint Oak Bank’s total capital and our commercial real estate loan portfolio increased by 251.2% 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 and Cyber Security. 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. In addition, on November 18, 2021, the federal banking agencies announced the adoption of a final rule providing for new notification requirements for banking organizations and their service providers for significant cybersecurity incidents. Specifically, the new rule requires a banking organization to notify its primary federal regulator as soon as possible, and no later than 36 hours after, the banking organization determines that a “computer-security incident” rising to the level of a “notification incident” has occurred. Notification is required for incidents that have materially affected or are reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector. Service providers are required under the rule to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect the banking organization’s customers for four or more hours. Compliance with the new rule was required by May 1, 2022. Non-compliance with federal or similar state privacy and cybersecurity laws and regulations could lead to substantial regulatory imposed fines and penalties, damages from private causes of action and/or reputational harm.

In July 2023, the Securities and Exchange Commission adopted rules requiring registrants to disclose material cybersecurity incidents they experience and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance. The new rules require registrants to disclose on the new Item 1.05 of Form 8-K any cybersecurity incident they determine to be material and to describe the material aspects of the incident's nature, scope, and timing, as well as its material impact or reasonably likely material impact on the registrant. An Item 1.05 Form 8-K will generally be due four business days after a registrant determines that a cybersecurity incident is material. See Item 1C. Cybersecurity for annual disclosures.

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.

On October 24, 2023, the federal banking agencies, including the FDIC issued a final rule designed to strengthen and modernize regulations implementing the CRA. The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to changes in the banking industry including mobile and internet banking, provide greater clarity and consistency in the application of the CRA regulations and tailor CRA evaluations and data collection to bank size and type. Quaint Oak Bank cannot predict the impact the changes to the CRA will have on its operations at this time.

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, 2023, 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, 2023, 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, 2023, 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, 2020.

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 2023 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 marketing for 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 marketing the Bank’s interest in Oakmont Capital for sale 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 marketing Oakmont Capital for sale, we may not complete the transaction if we are unable to receive favorable terms for the acquisition. 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 1C. Cybersecurity.

Overview. Our Board of Directors and management consider information security and cybersecurity as high priorities in our strategic and operational plans. We understand the critical nature of the confidentiality, integrity, and availability of customer and bank sensitive information. Any loss of confidentiality, integrity, or availability introduces operational, compliance, strategic, transactional, reputational, legal, and capital risks which we actively seek to avoid. It is understood that any one of these risks, if realized, will have a negative impact upon Quant Oak Bancorp and Quaint Oak Bank. Our approach to information and cybersecurity is proactive and strives to avoid incidents where possible through the use technical, administrative, and physical controls.

Governance. Our efforts for increased information and cybersecurity readiness are driven from the top of the organization. The Board of Directors reviews and approves an Information Technology and Information Security Risk Appetite Statement which guides the actions of the management team, staff members, and supporting third-party service providers. In addition, the Board is active in the review and approval of all policies concerning information technology and information security. The Board further reviews reports provided by the management team regarding the status of Quaint Oak Bank’s GLBA compliance, risk management program, vendor management program, and the results of tests and exercises conducted for business continuity, disaster recovery, cybersecurity incident response, and pandemic response. Lastly, the Board of Directors reviews and approves the budget for information and cybersecurity, ensuring that we have sufficient resources to properly address all current and foreseeable information and cybersecurity threats.

Management and Strategy. Senior management takes the guidance provided by the Board of Directors and transforms this guidance into operational priorities which are implemented and maintained by the staff members and third-party service providers. In addition, the senior management team ensures that budgeted resources are allocated in a timely manner to support the various security initiatives.

Operational Information Technology and Information Security staff members, and third-party service providers utilize the direction and resources provided by the senior management team to develop procedures, standards, and guidelines to achieve the strategic goals defined by the Board of Directors. Operational and security health is reported monthly to Operating Risk and Executive Committees and the Board of Directors. Recommendations for improvements are shared between operational staff and the senior management team as part of a continuous improvement program for information security and cybersecurity.

Operational staff members actively maintain, review, update, and exercise plans and procedures designed to enhance our overall business resiliency. All staff members are trained annually on current information and cybersecurity trends, techniques, and their responsibilities to keep our information confidential, accurate, and available.

We also utilize the services of third-party providers to conduct an IT audit, external and internal vulnerability testing, external and internal penetration testing, and social engineering testing on at least an annual basis. The results of these independent audits and tests are sent to the Board of Directors for review.

Finally, Quaint Oak Bank complies with its regulatory requirements by having Federal and State safety and security examinations performed on a schedule dictated by the regulatory agencies. The results of these examinations are reviewed and approved by the Board of Directors. Additionally, all findings from these examinations are recorded and prioritized for remediation.

Conclusion. Our Board of Directors and management take very seriously the information security and cybersecurity obligations Quaint Oak Bancorp and Quaint Oak Bank have to their respective customers, shareholders, staff members, and regulatory agencies. In support of these obligations, we have and actively maintain a robust information security and cybersecurity program based upon industry best practices, regulatory requirements, and the expertise of staff members and supporting third-party vendors.

To our knowledge, we have not had a cybersecurity incident that has materially affected Quaint Oak Bancorp, its business strategy, financial condition, or results of operation.

Item 2. Properties

The following table provides certain information as of December 31, 2023 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 Expiration	Net Book Value of Property	Amount of Deposits
			(In Thousands)
501-503 Knowles Avenue<br> <br>Southampton, Pennsylvania 18966	Leased	03/31/2027	$ 41	$390,620
1710 Union Boulevard<br> <br>Allentown, Pennsylvania 18019	Owned	NA	1,388	90,457
117-21 Spring Garden Street (Suite A)<br> <br>Philadelphia, Pennsylvania 19123	Leased	2/28/2040	83	28,339
4275 County Line Road (Suite #14)<br> <br>Chalfont, Pennsylvania 18914	Leased	5/31/2027(1)	40	Not applicable
100 Spring Garden Street<br> <br>Philadelphia, Pennsylvania 19123	Leased	8/31/2038(2)	-	Not applicable

_________________

(1)	Such lease has a five year renewal option which would commence on June 1, 2027 and end on May 31, 2032.
(2)	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 19, 2024 Quaint Oak Bancorp had 2,493,154 common shares outstanding held of record by 147 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.

Quaint Oak Bancorp’s repurchases of its common stock during the quarter ended December 31, 2023, including stock for stock option exercises of outstanding stock options, are set forth in the table below:

Period		Average Price<br> <br>Paid per Share
October 1, 2023 – October 31, 2023	-	$	-	-	24,375
November 1, 2023 – November 30, 2023	-		-	-	24,375
December 1, 2023 – December 31, 2023	-		-	-	24,375
Total	-	$	-	-	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 1 to 16 of the Annual Report attached hereto as Exhibit 13.0 (“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 19 to 62 of the 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, 2023. 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, 2023. 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 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Previously Disclosed Material Weakness in Internal Control Over Financial Reporting

The Company previously disclosed in Part I, Item 4 - Controls and Procedures in its Quarterly Report on Form 10-Q/A for the quarters ended June 30, 2023 and September 30, 2023 (together, the “Restated Periods”), that it had identified a reclassification related to expenses on deposit accounts obtained from a correspondent banking relationship that resulted in material misstatements of interest expense and other non-interest expense for the Restated Periods. The audit committee of our board of directors determined that the Company accounted for the expense related to checking account deposits received from the correspondent banking relationship as other non-interest expense rather than interest expense on deposits. The deposits which were reported as non-interest bearing deposits on our consolidated balance sheets were reclassified, in part, as interest-bearing deposits for the Restated Periods. A portion of the deposits related to the correspondent banking relationship remained classified as non-interest bearing deposits. As a result of the reclassification, interest expense for the Restated Periods increased resulting in a decrease in net interest income for the Restated Periods. Other non-interest expense and total non-interest expense decreased for the Restated Period as a result of the reclassification. In addition, as a result of the restatement, the Company’s interest rate spread and net interest margin decreased for the Restated Periods. The Company determined that this error constituted a "material weakness" in its internal control over financial reporting.

In response to the identified material weakness, our management, with the oversight of the audit committee of our board of directors, commenced the redesign of specific processes and controls associated with the review of contracts for correspondent banking relationships to ensure that the relevant accounting implications are identified and considered. We believe that with the implementation of these redesigned and enhanced controls, the identified material weakness has been remediated as of December 31, 2023, thereby strengthening 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 8, 2024 (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, 2023 with respect to shares of common stock that may be issued under our existing equity compensation plans, which consist of the 2018 and 2023 Stock Incentive Plans. Both of these plans were approved by our shareholders.

Plan Category			Weighted-average exercise price of outstanding options,<br> <br>warrants and rights<br> <br>(b)
Equity compensation plans approved by security holders	224,033	(1)	$	15.98	(1)	46,500
Equity compensation plans not approved by security holders	-			-		-
Total	224,033		$	15.98		46,500

___________________

(1) Includes 45,000 shares subject to restricted stock grants which were not vested as of December 31, 2023. 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. Exhibit 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, 2023 and 2022
Consolidated Statements of Income for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022
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)
10.10	Quaint Oak Bancorp, Inc. 2023 Stock Incentive Plan	(12)
10.11	Stock Purchase Agreement between Quaint Oak Bancorp, Inc. and ItalBank International Inc., dated November 2, 2023	(13)
10.12	Stock Purchase Agreement between Quaint Oak Bancorp, Inc. and Fintech Holdings LLC, dated February 14, 2024	(14)
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
(Footnotes on following page)
---

___________________

* 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.
---	---
(12)	Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on May 10, 2023 (Commission File No. 000-526341) filed with the Commission on April 5, 2023.
---	---
(13)	Incorporated by reference from the Company’s Current Report on Form 8-K, filed on November 3, 2023 (File No. 000-52694).
---	---
(14)	Incorporated by reference from the Company’s Current Report on Form 8-K, filed on February 15, 2024 (File No. 000-52694).
---	---
(b)	Exhibits
---	---
	The exhibits listed under (a)(3) of this Item 15 are filed herewith.
(c)	Reference is made to (a)(2) of this Item 15.
---	---

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.
March 28, 2024	By:	/s/Robert T. Strong
		Robert T. Strong
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Name	Title	Date
/s/Robert T. Strong	President and Chief Executive	March 28, 2024
Robert T. Strong	Officer
/s/John J. Augustine	Executive Vice President and	March 28, 2024
John J. Augustine	Chief Financial Officer
/s/Robert J. Phillips	Chairman	March 28, 2024
Robert J. Phillips
/s/George M. Ager, Jr.	Director	March 28, 2024
George M. Ager, Jr.
/s/James J. Clarke	Director	March 28, 2024
James J. Clarke
/s/Andrew E. DiPiero, Jr.	Director	March 28, 2024
Andrew E. DiPiero, Jr.
/s/Kenneth R. Gant	Director	March 28, 2024
Kenneth R. Gant
/s/Bora Ozkan	Director	March 28, 2024
Bora Ozkan
/s/Susan M. Vettori	Director	March 28, 2024
Susan M. Vettori

ex_639720.htm

EXHIBIT 13.0

Quaint Oak Bancorp, Inc.

Fueling the Growth of Business

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 2023 Annual Report to Shareholders.

Subsequent to the historic action of the Federal Reserve Bank, enacting the rapid rise in interest rates over a considerably short time frame, it appears that we have generally regained stability in the Banking sector. We at the Company have successfully improved our Capital position by $2.5 million and increased our liquidity by $58.2 million at year end 2023 when compared to year end 2022.

We have reduced high-cost leverage borrowings by $137.2 million at 2023 year-end when compared to the same period of 2022. Having improved our balance sheet, accordingly, we are now poised to improve our earnings as we move through 2024. Our endeavor to launch our new Business Line for serving International Correspondent Banking has taken hold. The volume of transactions processed monthly on behalf of our initial group of Banks has become significant and provides us with deposit balances at significantly lower cost. Additionally, our intention is to reduce our investment in two subsidiary companies that have become less productive as a result of the severe increase in market rates. This redirection will allow us to refocus our energies on the core Business Lines of the Company.

As recently announced, the Company declared a quarterly cash dividend of $0.13 per share on the common stock of the Company since paid on February 5, 2024. We are very pleased to have continued our dividend payments during this challenging period. Additionally, as mentioned above, stockholders’ equity increased year over year ending December 31, 2023, by $2.5 million or 5.1%. As always, our current and continued business strategy focuses on long term profitability and maintaining healthy capital ratios, both of which reflect 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

Quaint Oak Insurance Agency, LLC

Oakmont Capital Holdings, LLC I Oakmont Commercial, LLC

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	21
Consolidated Statements of Stockholders’ Equity	22
Consolidated Statements of Cash Flows	23
Notes to Consolidated Financial Statements	24
General Information	64
Locations	65

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, 2023, 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. The Bank’s 51% ownership interest in Oakmont Capital is currently being marketed for sale in order to reduce the Bank’s asset size and increase its capital ratios. While Oakmont Capital is currently being marketed for sale, there can be no assurances that the transaction will be completed.

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 credit 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 commercial real estate loans, commercial business loans, and one-to-four family residential non-owner occupied loans, multi-family residential loans, construction loans, one-to-four family residential owner occupied loans, and home equity loans generally within its market area. At December 31, 2023, commercial real estate loans and commercial business loans comprise the largest percentage of Quaint Oak Bank’s loan portfolio, before net items, at 54.2% and 20.9%, respectively. Quaint Oak Bank’s loans are primarily funded by certificates of deposit, money market accounts and business checking. At December 31, 2023, money market accounts amounted to 34.6% of total deposits compared to 47.5% of total deposits at December 31, 2022. At December 31, 2023, certificates of deposit amounted to 34.2% of total deposits compared to 36.0% of total deposits at December 31, 2022. At December 31, 2023, interest bearing checking accounts amounted to 16.5% of total deposits compared to none at December 31, 2022. At December 31, 2023, non-interest bearing checking accounts amounted to 14.6% of total deposits compared to 16.2% of total deposits at December 31, 2022. Management anticipates that certificates of deposit, money market accounts and business checking will continue to 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 Credit Losses. As of January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments,” which replaced the current loss impairment methodology under U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13, commonly referred to as Current Expected Credit Losses (“CECL”), requires a financial asset (or a group of financial assets) to be measured at an amortized cost basis and presented at the net amount expected to be collected. The amendments in this update affect financial assets and net investment in leases that are not accounted for at fair value through net income, including such financial assets as loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company recorded no change to retained earnings as of January 1, 2023 for the cumulative effect of adopting ASC 326.

Quaint Oak Bancorp, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management evaluates the credit quality of the Company’s loan portfolio on an ongoing basis and performs a formal review of the adequacy of the ACL on a quarterly basis. The ACL is established through a provision for credit losses charged to earnings and is maintained at a level that management considers to be an estimate of the lifetime expected credit losses of the portfolio as of the evaluation date. Loans, or portions of loans, determined by management to be uncollectible are charged off against the ACL, while recoveries of amounts previously charged off are credited to the ACL.

Determining the amount of the ACL is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows, estimated losses on pools of homogeneous loans based on historical loss experience and reasonable and supportable forecasts, as well as consideration of current economic trends and conditions, all of which may be susceptible to significant change. Banking regulators, as an integral part of their examination of the Company, also review the ACL, and may require, based on information available to them at the time of their examination, that management make the necessary adjustments to bring to the ACL balance to an appropriate level. Additionally, the ACL is determined, in part, by the composition and size of the loan portfolio.

The ACL consists of two components, a specific component and a general component. The specific component relates to loans that are individually analyzed for impairment. For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the loan is lower than the carrying value of that loan. The general component covers all other loans and is based on historical loss experience adjusted. The general reserve component of the ACL is based on pools of performing loans segregated by loan segment. Historical loss factors are applied based on historical losses in each risk rating category to determine the appropriate reserve related to those loans.

Although the Company’s management uses the best information available, the level of the ACL remains an estimate which is subject to significant judgment and short-term change which could have a significant impact on the Company’s financial condition or results of operations. The Company’s ACL is highly sensitive to the methods, assumptions and estimates underlying its calculation. See Note 2, “Summary of Significant Accounting Policies” and Note 7 “Loans Receivable, Net and Allowance for Credit Losses” within the Company’s Notes to the Consolidated Financial Statements which are included in Part II of this Annual Report on Form 10-K for additional qualitative and quantitative information about the Company’s ACL.

Loans are stated at their principal amount outstanding, except for loans held for sale, which are carried at fair value. Interest income on loans is accrued as earned.

In general, loans are placed on non-accrual status once they become 90 days delinquent as to principal or interest. In certain cases, a loan may be placed on nonaccrual status prior to being 90 days delinquent if there is an indication that the borrower is having difficulty making payments, or the Company believes it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. When interest accruals are discontinued, unpaid interest previously credited to income is reversed. Non-accrual loans may be restored to accrual status when all delinquent principal and interest has been paid currently for six consecutive months or the loan is considered secured and in the process of collection. The Company generally applies payments received on non-accruing loans to principal until such time as the principal is paid off, after which time any payments received are recognized as interest income. If the Company believes that all amounts outstanding on a non-accrual loan will ultimately be collected, payments received subsequent to its classification as a non-accrual loan are allocated between interest income and principal.

A loan that is 90 days delinquent may continue to accrue interest if the loan is both adequately secured and is in the process of collection. Past due status is determined based on contractual due dates for loan payments. An adequately secured loan is one that has collateral with a supported fair value that is sufficient to discharge the debt, and/or has an enforceable guarantee from a financially responsible party. A loan is considered to be in the process of collection if collection is proceeding through legal action or through other activities that are reasonably expected to result in repayment of the debt or restoration to current status in the near future.

Quaint Oak Bancorp, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Loans deemed to be a loss are written off through a charge against the allowance for credit losses (ACL). All loans are evaluated for possible charge-off when it is probable that the balance will not be collected, based on the ability of the borrower to pay and the value of the underlying collateral, if any. Principal recoveries of loans previously charged off are recorded as increases to the ACL.

Loan Origination Fees and Costs. Loan origination fees and the related direct origination costs are deferred and amortized over the life of the loan as an adjustment to interest income.

Allowance for Credit Losses. The discussion that follows describes the methodology for determining the ACL under the ASU 326 model that was adopted effective January 1, 2023. The allowance methodology for prior periods is disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The Company has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.

The ACL for loans is an estimate of the expected losses to be realized over the life of the loans in the portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses and 2) loans evaluated individually for expected credit losses. The ACL also includes certain qualitative adjustments.

Loans Evaluated Collectively*.* Homogeneous loans are evaluated collectively for expected credit losses.

Loans Evaluated Individually. Loans evaluated individually for expected credit losses could include loans on non-accrual status.

Loans evaluated individually may have specific allocations assigned if the measured value of the loan using one of the noted techniques is less than its current carrying value. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assigned to those loans. Collateral could be in the form of real estate or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate.

Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification. For all loans, an internal risk rating process is used. The Company believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk rating categories is a significant component of the ACL methodology for these loans, which bases the probability of default on this migration. Assigning risk ratings involves judgment. Risk ratings may be changed based on ongoing monitoring procedures, or if specific loan review assessments identify a deterioration or an improvement in the loan.

The following is a summary of the Company's internal risk rating categories:

•	Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.
•	Special Mention: These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in this category are currently acceptable but are nevertheless potentially weak.
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•	Substandard: These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.
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•	Doubtful: These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
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Quaint Oak Bancorp, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Qualitative and Other Adjustments to Allowance for Credit Losses: In addition to the quantitative credit loss estimates for loans evaluated collectively, qualitative factors that may not be fully captured in the quantitative results are also evaluated. For example, the Company considers the impact of current environmental factors at the reporting date that did not exist over the period from which historical experience was used. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), economic trends and conditions, changes in underwriting standards, experience and depth of lending staff, trends in delinquencies, and the level of criticized loans. Qualitative adjustments are judgmental and are based on management’s knowledge of the portfolio and the markets in which the Company operates. Qualitative adjustments are evaluated and approved on a quarterly basis. Additionally, the ACL includes other allowance categories that are not directly incorporated in the quantitative results. These include but are not limited to loans-in-process, trade acceptances and overdrafts. The ACL utilizes 36-month economic forecasts which include housing starts, real estate prices, loan delinquency trends, and US GDP changes.

Quaint Oak Bancorp, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

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,
	2023			2022
	(Dollars in Thousands)
Selected Financial and Other Data:	****	****	****	****	****	****
Total assets	$	754,118		$	792,350
Cash and cash equivalents		62,127			3,893
Investment in interest-earning time deposits		1,912			3,833
Investment securities available for sale at fair value		2,341			2,970
Loans held for sale		60,380			133,222
Loans receivable, net		603,349			621,864
Federal Home Loan Bank stock, at cost		1,474			6,601
Premises and equipment, net		2,933			2,775
Deposits		631,699			549,248
Federal Home Loan Bank borrowings		29,022			159,222
Subordinated debt		21,957			7,966
Total Quaint Oak Bancorp, Inc. Stockholders’ Equity		48,491			44,793
Noncontrolling Interest		3,074			4,289
Total Stockholders’ Equity		51,565			49,082
Selected Operating Data:	****	****	****	****	****	****
Total interest income	$	44,470		$	32,466
Total interest expense		26,307			8,777
Net interest income		18,163			23,689
Provision for credit losses		157			2,475
Net interest income after provision for credit losses		18,006			21,214
Total non-interest income		15,332			19,411
Total non-interest expense		30,440			27,260
Income before income taxes		2,898			13,365
Income taxes		1,228			3,054
Net income	$	1,670		$	10,311
Net income attributable to noncontrolling interest	$	(350	)	$	2,448
Net income attributable to Quaint Oak Bancorp, Inc.	$	2,020		$	7,863
Selected Operating Ratios (1):	****	****	****	****	****	****
Average yield on interest-earning assets		5.80	%		4.88	%
Average rate on interest-bearing liabilities		4.09			1.58
Average interest rate spread(2)		1.71			3.30
Net interest margin(2)		2.37			3.56
Average interest-earning assets to average interest-bearing liabilities		119.09			119.85
Net interest income after provision for credit losses to non-interest expense		59.15			77.82
Total non-interest expense to average assets		3.83			3.98
Efficiency ratio(3)		90.88			63.25
Return on average assets		0.34			1.53
Return on average equity		5.81			26.92
Asset Quality Ratios(4):	****	****	****	****	****	****
Non-performing loans as a percent of loans receivable, net(5)		0.06	%		0.32	%
Non-performing assets as a percent of total assets(5)		0.06			0.25
Non-performing assets and troubled debt restructurings as a percent of total assets		0.08			0.27
Allowance for credit losses as a percent of non-performing loans		1,494.57			386.01
Allowance for credit losses as a percent of total loans receivable		1.11			1.22
Net charge-offs to average loans receivable		0.12			0.01

Quaint Oak Bancorp, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
	At or For the Years Ended
---	---	---	---	---	---	---
	December 31,
	2023			2022
Capital Ratios(4):	****	****	****	****	****	****
Tier 1 leverage ratio		9.11	%		7.07	%
Common Tier 1 capital ratio		11.17			7.41
Tier 1 risk-based capital ratio		11.17			7.41
Total risk-based capital ratio		12.30			8.49

___________________

(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.
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(3)	The efficiency ratio represents the ratio of non-interest expense divided by the sum of net interest income and non-interest income.
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(4)	Asset quality ratios and capital ratios are end of period ratios, except for net charge-offs to average loans receivable.
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(5)	Non-performing assets consist of non-performing loans at December 31, 2023 and 2022. Non-performing loans consist of non-accruing loans plus accruing loans 90 days or more past due.
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Comparison of Financial Condition at December 31, 2023 and December 31, 2022

General. The Company’s total assets at December 31, 2023 were $754.1 million, a decrease of $38.2 million, or 4.8%, from $792.4 million at December 31, 2022. This decrease in total assets was primarily due to a $72.8 million, or 54.7%, decrease in loans held for sale, an $18.5 million, or 3.0%, decrease in loans receivable, net of allowance for credit losses, a $5.1 million, or 77.7%, decrease in investment in Federal Home Loan Bank stock, at cost, a $1.9 million, or 50.1%, decrease in investment in interest-earning time deposits, and a $629,000, or 21.2%, decrease in investment securities available for sale. Partially offsetting this decrease was a $58.2 million, or 1,495.9%, increase in cash and cash equivalents, and a $2.3 million, or 34.3%, increase in prepaid expenses and other assets.

Cash and Cash Equivalents. Cash and cash equivalents increased $58.2 million, or 1,495.9%, from $3.9 million at December 31, 2022 to $62.1 million at December 31, 2023. Contributing to the increase in cash and cash equivalents was the proceeds from the sale of loans held for sale combined with an increase in deposits.

Investment Securities Available for Sale. Investment securities available for sale decreased $629,000, or 21.2%, from $3.0 million at December 31, 2022 to $2.3 million at December 31, 2023 due primarily to the principal repayments on these securities during the year ended December 31, 2023.

Loans Held for Sale. Loans held for sale decreased $72.8 million, or 54.7%, from $133.2 million at December 31, 2022 to $60.4 million at December 31, 2023 as the Bank’s equipment financing subsidiary, Oakmont Capital Holdings, LLC, originated $263.8 million in equipment loans held for sale and sold $287.1 million of equipment loans during the year ended December 31, 2023, realizing gains of $4.6 million. Partially offsetting the increase in loans held for sale is $50.1 million of equipment loan amortization and prepayments. Additionally, the Bank’s mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $77.4 million of one-to-four family residential loans during the year ended December 31, 2023 and sold $76.8 million of loans in the secondary market during this same period, realizing gains of $1.3 million.

Quaint Oak Bancorp, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Loans Receivable, Net. Loans receivable, net, decreased $18.5 million, or 3.0%. Decreases within the portfolio consisted of commercial business loans which decreased $31.2 million, or 19.6%, and commercial real estate loans which decreased $2.4 million, or 0.7%, and multi-family residential loans which decreased $229,000, or 0.5%. Partially offsetting these decreases were construction loans which increased $6.6 million, or 23.0%, one-to-four family owner occupied loans which increased $4.8 million, or 26.6%, home equity loans which increased $1.2 million, or 25.3%, one-to-four family non-owner occupied loans which increased $1.1 million, or 2.9%, and other consumer loans which increased $67,000. The Company continues its strategy of diversifying its loan portfolio with higher yielding and shorter-term loan products and selling substantially all its newly originated one-to-four family owner-occupied loans into the secondary market.

Federal Home Loan Bank Stock. Federal Home Loan Bank stock decreased $5.1 million, or 77.7%, from $6.6 million at December 31, 2022 to $1.5 million at December 31, 2023 as the Bank decreased 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 $4.3 million and $4.2 million at December 31, 2023 and 2022, respectively.

Premises and Equipment, Net. Premises and equipment, net, increased $158,000, or 5.7%, to $2.9 million at December 31, 2023 from $2.8 million at December 31, 2022. 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 a majority ownership interest in 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, 2023 was $125,000, net of accumulated amortization of $360,000.

Prepaid Expenses and Other Assets. Prepaid expenses and other assets increased $2.3 million, or 34.3%, to $9.1 million at December 31, 2023 from $6.8 million at December 31, 2022, due primarily to a $1.0 million net increase in the right-of-use asset driven by the capitalization of leases for Oakmont Capital. Also contributing to the increase is a reclass of $1.1 million of prepaid taxes into prepaid expenses.

Deposits. Total deposits increased $82.5 million, or 15.0%, to $631.7 million at December 31, 2023 from $549.3 million at December 31, 2022. This increase in deposits was primarily attributable to an increase of $104.3 million, or 100.0%, in interest bearing checking accounts, an increase of $17.9 million, or 9.0%, in certificates of deposit, and an increase of $3.5 million, or 4.0%, in non-interest bearing checking accounts. The increase in total deposits was partially offset by a $42.4 million, or 16.3%, decrease in money market accounts, and a $756,000, or 47.3%, decrease in savings accounts. The increase in interest bearing checking accounts was primarily due to correspondent banking relationships.

Borrowings. Total Federal Home Loan Bank (FHLB) borrowings decreased $130.2 million, or 81.8%, to $29.0 million at December 31, 2023 from $159.2 million at December 31, 2022. During the year ended December 31, 2023, the Company borrowed $101.5 million of FHLB short-term borrowings and $20.0 million of FHLB long-term borrowings. During the year ended December 31, 2023, the Company paid down $194.7 million of FHLB short-term borrowings and $57.0 million of FHLB long-term borrowings. Federal Reserve Bank (FRB) borrowings decreased $7.0 million to none at December 31, 2023 as the Company paid off the $7.0 million of FRB borrowings outstanding at December 31, 2022. Other borrowings were $5.5 million at both December 31, 2023 and December 31, 2022.

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 Company completed a private offering of $12.0 million in aggregate principal amount of fixed rate subordinated notes to certain qualified institutional buyers on March 2, 2023. On March 16, 2023, the Company completed an additional private offering of $2.0 million in aggregate principal amount of fixed rate subordinated notes to certain accredited investors. The subordinated notes from both offerings are due March 15, 2025. The balance of subordinated debt, net of unamortized debt issuance costs, was $22.0 million at December 31, 2023 and $8.0 million at December 31, 2022.

Stockholders’ Equity. Total stockholders’ equity increased $2.5 million, or 5.1%, to $51.6 million at December 31, 2023 from $49.1 million at December 31, 2022. Contributing to the increase was net income for the year ended December 31, 2023 of $2.0 million, shares issued from authorized and unissued of $1.6 million, the reissuance of treasury stock for exercised stock options of $932,000, the reissuance of treasury stock under the Bank’s 401(k) Plan of $289,000, amortization of stock awards and options under our stock compensation plans of $225,000, contribution of shares to the employee stock ownership plan of $150,000, and other comprehensive income, net of $14,000. The increase in stockholders’ equity was partially offset by dividends paid of $1.2 million, the noncontrolling interest distribution of $865,000, purchase of treasury stock of $433,000, and net loss attributable to noncontrolling interest of $350,000.

Comparison of Operating Results for the Years Ended December 31, 2023 and 2022

General. Net income amounted to $2.0 million for the year ended December 31, 2023, a decrease of $5.8 million, or 74.3%, compared to net income of $7.9 million for the year ended December 31, 2022. The decrease in net income on a comparative year-end basis was primarily the result of a decrease in net interest income of $5.5 million, a decrease in non-interest income of $4.1 million, and an increase in non-interest expense of $3.2 million. These changes were partially offset by a decrease in net income attributable to noncontrolling interest of $2.8 million, a decrease in the provision for credit losses of $2.3 million, and a decrease in the provision for income taxes of $1.8 million.

Net Interest Income. Net interest income decreased $5.5 million, or 23.3%, to $18.2 million for the year ended December 31, 2023 from $23.7 million for the year ended December 31, 2022. The decrease in net interest income was driven by a $17.5 million, or 199.7%, increase in interest expense, partially offset by a $12.0 million, or 37.0%, increase in interest income.

Interest Expense. Interest expense increased $17.5 million, or 199.7%, to $26.3 million for the year ended December 31, 2023 from $8.8 million for the year ended December 31, 2022. The increase in interest expense was primarily attributable to a 265 basis point increase in the rate on average money market accounts which increased from 1.51% for the year ended December 31, 2022 to 4.16% for the year ended December 31, 2023 and had the effect of increasing interest expense by $6.2 million. Also contributing to the increase in interest expense was a 195 basis point increase in average rate of certificates of deposit, which increased from 1.14% for the year ended December 31, 2022 to 3.09% for the year ended December 31, 2023, and had the effect of increasing interest expense by $4.2 million. An increase in rate on interest-bearing checking accounts from correspondent banking relationships to 5.02% had the effect of increasing interest expense by $2.5 million. Also contributing to the increase in interest expense was a 304 basis point increase in the rate on average FHLB short-term borrowings which increased from 2.34% for the year ended December 31, 2022 to 5.38% for the year ended December 31, 2023 and had the effect of increasing interest expense by $2.2 million. The increase in rates in general is reflective of the steep rise in the federal funds rate on a year-over-year basis. The average interest rate spread decreased from 3.30% for the year ended December 31, 2022 to 1.71% for the year ended December 31, 2023 while the net interest margin decreased from 3.56% for the year ended December 31, 2022 to 2.37% for the year ended December 31, 2023.

Quaint Oak Bancorp, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Interest Income. Interest income increased $12.0 million, or 37.0%, to $44.5 million for the year ended December 31, 2023 from $32.5 million for the year ended December 31, 2022. The increase in interest income was primarily due to a $113.9 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $626.0 million for the year ended December 31, 2022 to an average balance of $746.3 million for the year ended December 31, 2023, and had the effect of increasing interest income $5.8 million. Also contributing to the increase in interest income was a 73 basis point increase in the yield on average loans receivable, net, including loans held for sale, which increased from 5.08% for the year ended December 31, 2022 to 5.81% for the year ended December 31, 2023, and had the effect of increasing interest income $5.8 million.

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,
	2023							2022
	Average<br> <br>Balance		Interest		Average<br> <br>Yield/<br> <br>Rate			Average<br> <br>Balance		Interest		Average<br> <br>Yield/<br> <br>Rate
	(Dollars in thousands)
Interest-earning assets:
Due from banks, interest-bearing	$	10,108	$	407		4.03	%	$	24,759	$	298		1.20	%
Investment in interest-earning time deposits		2,546		99		3.89			6,802		128		1.88
Investment securities available for sale		2,681		152		5.67			3,519		63		1.79
Loans receivable, net (1) (2)		746,304		43,361		5.81			626,041		31,781		5.08
Investment in FHLB stock		5,011		451		9.00			4,204		196		4.66
Total interest-earning assets		766,650		44,470		5.80	%		665,325		32,466		4.88	%
Non-interest-earning assets		20,743							20,078
Total assets	$	787,393						$	685,403
Interest-bearing liabilities:
Savings accounts	$	1,298	$	3		0.23	%	$	1,673	$	3		0.18	%
Money market accounts		232,666		9,670		4.16			259,886		3,924		1.51
Business checking accounts		49,709		2,496		5.02			-		-		-
Certificate of deposit accounts		215,264		6,642		3.09			185,202		2,116		1.14
Total deposits		498,937		18,811		3.77			446,761		6,043		1.35
FHLB short-term borrowings		72,566		3,907		5.38			31,505		737		2.34
FHLB long-term borrowings		42,754		1,326		3.10			65,755		1,355		2.06
FRB borrowings		711		34		4.78			1,556		15		0.97
Other short-term borrowings		9,291		780		8.40			1,601		107		6.68
Subordinated debt		19,479		1,449		7.44			7,949		520		6.54
Total interest-bearing liabilities		643,738		26,307		4.09	%		555,127		8,777		1.58	%
Non-interest-bearing liabilities		97,272							91,335
Total liabilities		741,010							646,462
Stockholders’ Equity		46,383							38,941
Total liabilities and Stockholders’ Equity	$	787,393						$	685,403
Net interest-earning assets	$	122,912						$	110,198
Net interest income; average interest rate spread			$	18,163		1.71	%			$	23,689		3.30	%
Net interest margin (3)						2.37	%						3.56	%
Average interest-earning assets to average interest-bearing liabilities						119.09	%						119.85	%

___________________

(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 credit 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.

	2023 vs. 2022												2022 vs. 2021
	Increase (Decrease) Due to										Total		Increase (Decrease) Due to										Total
								Rate/			Increase									Rate/			Increase
		Rate			Volume			Volume			(Decrease)			Rate			Volume			Volume			(Decrease)
		(In Thousands)
Interest income:
Due from banks, interest-bearing	$	699		$	(414	)	$	(176	)	$	109		$	272		$	-		$	(4	)	$	268
Investment in interest-earning time deposits		136			(85	)		(80	)		(29	)		(45	)		(31	)		7			(69	)
Investment securities available for sale		136			(32	)		(15	)		89			7			(41	)		(2	)		(36	)
Loans receivable, net (1) (2)		4,904			893			5,783			11,580			(35	)		7,235			(11	)		7,189
Investment in FHLB stock		183			34			38			255			-			119			-			119
Total interest-earning assets		6,058			396			5,550			12,004			199			7,282			(10	)		7,471
Interest expense:
Money market accounts		6,876			(411	)		(720	)		5,745			1,583			516			779			2,878
Business checking accounts		-			-			2,496			2,496			-			-			-			-
Certificate of deposit accounts		3,599			344			584			4,527			29			72			1			102
Total deposits		10,475			(67	)		2,360			12,768			1,612			588			780			2,980
FHLB short-term borrowings		959			961			1,250			3,170			212			63			431			706
FHLB long-term borrowings		683			(474	)		(238	)		(29	)		10			810			17			837
FRB short-term borrowings		60			(8	)		(33	)		19			145			(75	)		(136	)		(66	)
Subordinated debt		72			754			103			929			(2	)		2			-			-
Other short-term borrowings		316			90			267			673			(76	)		38			(17	)		(55	)
Total interest-bearing liabilities		12,565			1,256			3,709			17,530			1,901			1,426			1,075			4,402
Increase (decrease) in net interest income	$	(6,507	)	$	(860	)	$	1,841		$	(5,526	)	$	(1,702	)	$	5,856		$	(1,085	)	$	3,069

_______________________

(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 credit losses.
---	---

Provision for Credit Losses. The Company decreased its provision for credit losses by $2.3 million, or 93.7%, from $2.5 million for the year ended December 31, 2022 to $157,000 for the year ended December 31, 2023, based on a decrease in loan balances and a change in methodology due to the implementation of ASU 2016-13, Financial Instruments – Credit Losses, which became effective for the Company as of January 1, 2023. More specifically, under the Company’s current Allowance for Credit Losses accounting model, certain qualitative factors used prior to the adoption of ASU 2016-13 were evaluated and adjusted in accordance with the model criteria and the general reserve which was used in the past to cover uncertainties that could affect management’s estimate of probable losses was eliminated.

Non-performing loans at December 31, 2023 consisted of one SBA loan on non-accrual status in the amount of $51,000 and one one-to-four family owner occupied loan that is 90 days or more past due but still accruing in the amount of $401,000. The non-performing loans at December 31, 2023 are generally well-collateralized or adequately reserved for. During the year ended December 31, 2023, two commercial business loans, one SBA loan, one multi-family residential loan, and two equipment loans totaling $272,000 that were previously on non-accrual were charged-off through the allowance for credit losses. In addition, there was one commercial business loan in the amount of $652,000 that was written down by $603,000. The allowance for credit losses as a percent of total loans receivable, net of allowance for credit losses was 1.11% at December 31, 2023 and 1.22% at December 31, 2022. Non-performing assets amounted to $452,000, or 0.06% of total assets at December 31, 2023 compared to $2.0 million, or 0.25%, of total net assets at December 31, 2022.

Quaint Oak Bancorp, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Non-Interest Income. Non-interest income decreased $4.1 million, or 21.0%, from $19.4 million for the year ended December 31, 2022 to $15.3 million for the year ended December 31, 2023. The decrease was primarily attributable to a $5.8 million, or 46.4%, decrease in net gain on sale of loans as the total amount of loans sold decreased from $496.3 million for the year ended December 31, 2022 to $399.6 million for the year ended December 31, 2023. Also contributing to the decrease in non-interest income was a $765,000, or 24.7%, decrease in mortgage banking, equipment lending, and title abstract fees, and a $204,000, or 68.5%, decrease in real estate sales commissions, net. These decreases reflected the general economic conditions driven by the current interest rate environment. These decreases were partially offset by a $1.9 million, or 99.0%, increase in loan servicing income, a $603,000, or 92.8%, increase in other fees and service charges, a $158,000, or 51.0%, increase in gain on sale of SBA loans, and a $70,000, or 11.8%, increase in insurance commissions. The $1.9 million increase in loan servicing fee income was primarily due to an increase in the balance of loans serviced by Oakmont Capital.

Non-Interest Expense. Non-interest expense increased $3.2 million, or 11.7%, from $27.3 million for the year ended December 31, 2022 to $30.4 million for the year ended December 31, 2023. Salaries and employee benefits expense accounted for $836,000 of the change as this expense increased 4.2%, from $20.1 million for the year ended December 31, 2022 to $21.0 million for the year ended December 31, 2023 due to improving the level of staff at the Bank and its subsidiary companies, including Oakmont Capital. The number of full-time employees at the Bank and its subsidiary companies, excluding Oakmont Capital, decreased from 129 at December 31, 2022 to 124 as of December 31, 2023. The number of full-time employees at Oakmont Capital remained at 63 from December 31, 2022 and December 31, 2023. Other expense accounted for $782,000 of the change as this expense increased 35.2%, from $2.2 million for the year ended December 31, 2022 to $3.0 million for the year ended December 31, 2023. Occupancy and equipment expense accounted for $577,000 of the change as this expense increased 30.3%, from $1.9 million for the year ended December 31, 2022 to $2.5 million for the year ended December 31, 2023. Data processing costs accounted for a $361,000 increase, as this expense increased 52.3%, from $690,000 for the year ended December 31, 2022 to $1.1 million for the year ended December 31, 2023. Professional fees accounted for $310,000 of the change as this expense increased 41.4%, from $748,000 for the year ended December 31, 2022 to $1.1 million for the year ended December 31, 2023, due primarily to increased audit and compliance costs. FDIC deposit insurance assessment increased $209,000, from $658,000 for the year ended December 31, 2022 to $867,000 for the year ended December 31, 2023. Advertising expense increased $75,000, or 13.2%, from $568,000 for the year ended December 31, 2022 to $643,000 for the year ended December 31, 2023. Directors’ fees and expenses accounted for $30,000 of the change as this expense increased 10.5%, from $286,000 for the year ended December 2022 to $316,000 for the year ended December 31, 2023.

Provision for Income Tax. The provision for income tax decreased $1.8 million, or 59.8%, from $3.1 million for the year ended December 31, 2022 to $1.2 million for the year ended December 31, 2023 due primarily to the decrease in pre-tax income. The effective tax rate increased from 28.0% to 37.8% as a result of the increase in state taxes related to subsidiary activity in additional states.

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, 2023 of $3.6 million, a $4.8 million, or 56.8%, decrease from the year ended December 31, 2022. This decrease in PTSP was due to a $4.7 million, or 19.6%, decrease in net interest income, a $2.0 million, or 10.5%, increase in non-interest expense, and a $368,000, or 6.5%, decrease in non-interest income, partially offset by a $2.3 million, or 93.7%, decrease in the provision for credit losses. The increase in non-interest expense was due primarily to a $621,000, or 48.1%, increase in other expense, a $382,000, or 30.0%, increase in occupancy and equipment, a $361,000, or 52.3%, increase in data processing expense, a $264,000, or 39.5%, increase in professional fees, a $209,000, or 31.8%, increase in FDIC deposit insurance assessment, and a $98,000, or 52.7%, increase in advertising expense. The decrease in non-interest income was primarily due to a $650,000, or 19.9%, decrease in net gain on loans held for sale, a $204,000, or 68.5% increase in real estate sales commissions, net, a $158,000, or 20.9%, decrease in mortgage banking and title abstract fees, partially offset by a $222,000 increase in loan servicing income, a $181,000, or 54.8%, increase in other fees and service charges, a $158,000, or 51.0%, increase in gain on the sale of SBA loans, a $70,000, or 11.8%, increase in insurance commissions, and a $13,000, or 14.6%, increase in income from bank-owned life insurance.

Quaint Oak Bancorp, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Oakmont Capital Holdings, LLC Segment reported a pre-tax segment loss (“ PTSL”) for the year ended December 31, 2023 of $714,000, a $5.7 million, or 114.3%, decrease from the year ended December 31, 2022. The PTSL was primarily due to a $3.7 million, or 27.0%, decrease in non-interest income, a $1.2 million, or 14.3%, increase in non-interest expense, and an $806,000, or 189.6% increase in net interest loss. The decrease in non-interest income was primarily due to a $5.2 million, or 55.8%, decrease in net gain on loans held for sale, and a $607,000, or 25.9%, decrease in equipment lending fees, partially offset by a $1.6 million, or 87.8%, increase in loan servicing income. The increase in non-interest expense was primarily due to an $814,000, or $12.9%, increase in salaries and employee benefits expense, a $195,000, or 31.0%, increase in occupancy and equipment expense, a $161,000, or 17.3%, increase in other expense, and a $46,000, or 57.5%, increase in professional fees, partially offset by a $23,000, or 6.0%, decrease in professional fees.

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, checking 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 by the movement of market rates of interest.

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 the Bank’s interest rate sensitivity “gap.” An asset or 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 affect adversely 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.

Quaint Oak Bancorp, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The table below sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2023, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the "Gap Table"). Except as stated below, the amounts 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, 2023, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments 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.

Certain shortcomings are inherent in the method of analysis presented in the following table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase.

	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	$	61,360		$	-		$	-		$	-		$	-		$	61,360
Investment in interest-earning time deposits		1,000			-			292			620			-			1,912
Investment securities available for sale		2,341			-			-			-			-			2,341
Loans held for sale		60,380			-			-			-			-			60,380
Loans receivable (2)		197,413			88,626			183,986			74,032			67,398			611,455
Investment in Federal Home Loan Bank stock		-			-			-			-			1,474			1,474
Total interest-earning assets	$	322,494		$	88,626		$	184,278		$	74,652		$	68,872		$	738,922
Interest-bearing liabilities:
Checking accounts	$	104,274		$	-		$	-		$	-		$	-		$	104,274
Money market and savings accounts		154,168			-			65,198						-			219,366
Certificate accounts		27,808			85,924			48,549			53,563			-			215,844
FHLB borrowings		6,067			15,100			7,855			-			-			29,022
Other short-term borrowings		-			5,549			-			-			-			5,549
Subordinated debt		-			-			13,957			8,000			-			21,957
Total interest-bearing liabilities	$	292,317		$	106,573		$	135,559		$	61,563		$	-		$	596, 012
Interest-earning assets less interest-bearing liabilities	$	30,177		$	(17,947	)	$	48,719		$	13,089		$	68,872
Cumulative interest-rate sensitivity gap (3)	$	30,177		$	12,230		$	60,949		$	77,038		$	142,910
Cumulative interest-rate gap as a percentage of total assets at December 31, 2023		4.0	%		1.6	%		8.1	%		9.8	%		19.0	%
Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at December 31, 2023		110.3	%		103.1	%		111.4	%		112.4	%		124.0	%

_____________________

(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 credit 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 continue to place a greater emphasis on commercial business loans.

Quaint Oak Bancorp, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 2023, the Company’s cash and cash equivalents amounted to $62.1 million. At such date, the Company also had $1.0 million invested in interest-earning time deposits maturing in one year or less.

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, 2023, Quaint Oak Bank had outstanding commitments to originate loans of $30.3 million, commitments under unused lines of credit of $54.2 million, and $455,000 under standby letters of credit.

At December 31, 2023, certificates of deposit scheduled to mature in one year or less totaled $113.7 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, 2023, we had $29.0 million of borrowings from the FHLB and had $316.8 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, 2023 Quaint Oak Bank had $12.0 million in borrowing capacity with the Federal Reserve Bank of Philadelphia (FRB). The Company had no outstanding FRB borrowings as of December 31, 2023.

Total stockholders’ equity increased $2.5 million, or 5.1%, to $51.6 million at December 31, 2023 from $49.1 million at December 31, 2022. Contributing to the increase was net income for the year ended December 31, 2023 of $2.0 million, shares issued from authorized and unissued of $1.6 million, the reissuance of treasury stock for exercised stock options of $932,000, the reissuance of treasury stock under the Bank’s 401(k) Plan of $289,000, amortization of stock awards and options under our stock compensation plans of $225,000, contribution of shares to the employee stock ownership plan of $150,000, and other comprehensive income, net of $14,000. The increase in stockholders’ equity was partially offset by dividends paid of $1.2 million, the noncontrolling interest distribution of $865,000, purchase of treasury stock of $433,000, and net loss attributable to noncontrolling interest of $350,000. 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, 2023, Quaint Oak Bank exceeded each of its capital requirements with ratios of 9.11%, 11.17%, 11.17% and 12.30%, 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, 2023, we had unfunded commitments under lines of credit of $54.2 million, $30.3 million of commitments to originate loans, and $455,000 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, 2023. 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	$	3,360	$	414	$	827	$	560	$	1,559
Certificates of deposit		215,843		113,732		72,399		29,712		-
FHLB borrowings		29,022		21,167		7,855		-		-
Total contractual obligations	$	248,225	$	135,313	$	81,081	$	30,272	$	1,559

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, 2023 and 2022; 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, 2023 and 2022, 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.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Accounting Standards Codification (ASC) Topic 326, Financial Instruments – Credit Losses.

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.

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.

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.

Allowance for Credit Losses (ACL) – Loans

The Company’s loan portfolio totaled $610.9 million as of December 31, 2023, and the associated ACL was $6.8 million. As described in Notes 2 and 7 to the consolidated financial statements, the determination of the ACL requires significant judgement about the expected future losses, which is based on lifetime loss rates using the weighted-average remaining maturity methodology, and then adjusted as applicable for current qualitative conditions and the forecasted environment, based upon both internal and external factors that are different from the conditions that existed during the historical loss calculation period. The Company implemented the new methodology in accordance with the adoption of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) on January 1, 2023, and adjustments to historical loss factors require a significant amount of judgement by management and involve a high degree of estimation.

We identified the implementation of the CECL methodology and the adjustments to the historical loss factor components of the allowance for credit losses as a critical audit matter, as auditing the implementation of a new methodology, as well as the underlying adjustments, required significant auditor judgment, as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.

The primary procedures we performed to address this critical audit matter included:

●	Testing the design, implementation, and operating effectiveness of internal controls over the calculation of the allowance for credit losses
●	Testing the completeness and accuracy of the significant data points that management uses in their modeling of the ACL
---	---
●	Evaluating the directional consistency and reasonableness of management’s conclusions regarding assessment of qualitative factors based on the trends identified in the underlying supporting data
---	---

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

Cranberry Township, Pennsylvania

March 28, 2024

Quaint Oak Bancorp, Inc.

Consolidated Balance Sheets


			2022

Assets
Due from banks, non-interest-bearing	767		$	421
Due from banks, interest-bearing	61,360			3,472
Cash and cash equivalents	62,127			3,893
Investment in interest-earning time deposits	1,912			3,833
Investment securities available for sale	2,341			2,970
Loans held for sale	60,380			133,222
Loans receivable, net of allowance for credit losses (2023 6,758; 2022 7,678)	603,349			621,864
Accrued interest receivable	3,502			3,462
Investment in Federal Home Loan Bank stock, at cost	1,474			6,601
Bank-owned life insurance	4,329			4,226
Premises and equipment, net	2,933			2,775
Goodwill	2,573			2,573
Other intangible, net of accumulated amortization	125			174
Prepaid expenses and other assets	9,073			6,757
Total Assets	754,118		$	792,350
Liabilities and Stockholders’ Equity
Liabilities	****	****	****	****	****
Deposits:
Non-interest bearing	92,215		$	88,728
Interest-bearing	539,484			460,520
Total deposits	631,699			549,248
Federal Home Loan Bank short-term borrowings	-			93,200
Federal Home Loan Bank short-term borrowings	29,022			66,022
Federal Reserve Bank short-term borrowings	-			7,000
Other short-term borrowings	5,549			5,489
Subordinated debt	21,957			7,966
Accrued interest payable	1,106			584
Advances from borrowers for taxes and insurance	3,730			4,186
Accrued expenses and other liabilities	9,490			9,573
Total Liabilities	702,553			743,268
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; 2,895,675 and 2,777,250 issued as of December 31, 2023, and December 31, 2022, respectively; 2,407,048 and 2,167,613 outstanding at December 31, 2023 and 2022, respectively	29			28
Additional paid-in capital	20,299			17,906
Treasury stock, at cost: 488,627 and 609,637 shares at December 31, 2023 and 2022, respectively	(3,568	)		(3,992	)
Accumulated other comprehensive loss	(10	)		(24	)
Retained earnings	31,741			30,875
Total Quaint Oak Bancorp, Inc. Stockholders’ Equity	48,491			44,793
Noncontrolling Interest	3,074			4,289
Total Stockholders’ Equity	51,565			49,082
Total Liabilities and Stockholders’ Equity	754,118		$	792,350

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,
	2023			2022
	(In thousands, except share
	and per share data)
Interest and Dividend Income	****	****	****	****	****
Interest on loans, including fees	$	43,361		$	31,781
Interest and dividends on investment securities, interest-bearing deposits with others, and Federal Home Loan Bank stock	****	1,109			685
Total Interest and Dividend Income	****	44,470			32,466
Interest Expense	****	****	****	****	****
Interest on deposits	****	18,811			6,043
Interest on Federal Home Loan Bank short-term borrowings	****	3,907			737
Interest on Federal Home Loan Bank long-term borrowings	****	1,326			1,355
Interest on Federal Reserve Bank borrowings	****	34			15
Interest on other short-term borrowings	****	780			107
Interest on subordinated debt	****	1,449			520
Total Interest Expense	****	26,307			8,777
Net Interest Income	****	18,163			23,689
Recovery of Provision for Credit Losses	****	(45	)		2,475
Provision for Off Balance Sheet Credit Exposures		202			-
Net Interest Income after Provision for Credit Losses	****	18,006			21,214
Non-Interest Income	****	****	****	****	****
Mortgage banking, equipment lending and title abstract fees	****	2,338			3,103
Real estate sales commissions, net	****	94			298
Insurance commissions	****	663			593
Other fees and services charges	****	1,253			650
Loan servicing income	****	3,718			1,868
Income from bank-owned life insurance	****	102			89
Net gain on loans held for sale	****	6,696			12,500
Gain on the sale of SBA loans	****	468			310
Total Non-Interest Income, net	****	15,332			19,411
Non-Interest Expense	****	****	****	****	****
Salaries and employee benefits	****	20,973			20,137
Directors’ fees and expenses	****	316			286
Occupancy and equipment	****	2,481			1,904
Data processing	****	1,051			690
Professional fees	****	1,058			748
FDIC deposit insurance assessment	****	867			658
Advertising	****	643			568
Amortization of other intangible	****	49			49
Other	****	3,002			2,220
Total Non-Interest Expense	****	30,440			27,260
Income before Income Taxes	****	2,898			13,365
Income Taxes	****	1,228			3,054
Net Income	$	1,670		$	10,311
Net Income Attributable to Noncontrolling Interest	$	(350	)	$	2,448
Net Income Attributable to Quaint Oak Bancorp, Inc.	$	2,020		$	7,863
Earnings per share – basic	$	0.90		$	3.85
Average shares outstanding - basic	****	2,254,444			2,042,740
Earnings per share - diluted	$	0.89		$	3.65
Average shares outstanding - diluted	****	2,275,034			2,152,889
See accompanying notes to consolidated financial statements.
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Quaint Oak Bancorp, Inc.

Consolidated Statements of Comprehensive Income

	Years Ended December 31,
	2023			2022
	(In Thousands)
Net Income	$	1,670		$	10,311
Other Comprehensive Income (Loss):	****	****	****	****	****	****
Unrealized gains (losses) on investment securities available for sale	****	17			(59	)
Income tax effect	****	(3	)		12
Net other comprehensive income (loss)	****	14			(47	)
Total Comprehensive Income	$	1,684		$	10,264
Comprehensive (Loss) Income Attributable to Noncontrolling Interest	$	(350	)	$	2,448
Comprehensive Income Attributable to Quaint Oak Bancorp, Inc.	$	2,034		$	7,816
See accompanying notes to consolidated financial statements.
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Quaint Oak Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity

	****	****	****	****	****	****	****	****	****	****	Accumulated			****	****	****	****	****	****	****	****	****
			****	****	Additional			****	****	****	Other			****	****	****	****	****	****	Total
			****	****	Paid-in			Treasury			Comprehensive			Retained			Noncontrolling			Stockholders
			Amount		Capital			Stock			Income (Loss)			Earnings			Interest			Equity
BALANCE – DECEMBER 31, 2021	2,011,313		$	28	$	15,685		$	(4,977	)	$	23		$	24,030		$	2,120		$	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			2,448
Cash dividends declared (0.50 per share)															(1,018	)					(1,018	)
Noncontrolling interest distribution																		(279	)		(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		$	4,289		$	49,082
Contribution of shares to ESOP from Treasury	11,320		****		****	77		****	73		****		****	****		****	****		****	****	150
Issuance of stock for capital raise	118,425		****	1	****	1,644		****		****	****		****	****		****	****		****	****	1,645
Treasury stock purchased	(22,327	)	****		****		****	****	(433	)	****		****	****		****	****		****	****	(433	)
Reissuance of treasury stock under 401(k) Plan	18,492		****		****	169		****	120		****		****	****		****	****		****	****	289
Reissuance of treasury stock under stock incentive plan	9,122		****		****	57		****	57		****		****	****		****	****		****	****	-
Reissuance of treasury stock for exercised stock options	104,403		****		****	335		****	607		****		****	****		****	****		****	****	942
Stock based compensation expense	****	****	****		****	225		****		****	****		****	****		****	****		****	****	225
Net loss attributable to noncontrolling interest	****	****	****		****		****	****		****	****		****	****		****	****	(350	)	****	(350	)
Cash dividends declared (0.52 per share)	****	****	****		****		****	****		****	****		****	****	(1,154	)	****		****	****	(1,154	)
Noncontrolling interest distribution	****	****	****		****		****	****		****	****		****	****		****	****	(865	)	****	(865	)
Net income	****	****	****		****		****	****		****	****		****	****	2,020		****		****	****	2,020
Other comprehensive income, net	****	****	****	****	****	****	****	****	****	****	****	14		****	****	****	****	****	****	****	14
BALANCE –DECEMBER 31, 2023	2,407,048		$	29	$	20,299		$	(3,568	)	$	(10	)	$	31,741		$	3,074		$	51,565

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,
---	---	---	---	---	---	---
	2023			2022
	(In Thousands)
Cash Flows from Operating Activities	****	****	****	****	****	****
Net income	$	1,670		$	10,311
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses	****	157			2,475
Depreciation expense	****	530			437
Amortization, net	****	461			408
Accretion of deferred loan fees and costs, net	****	(564	)		(1,944	)
Deferred income taxes	****	351			(222	)
Stock-based compensation expense	****	225			511
Net gain on loans sold	****	(6,696	)		(12,500	)
Loans held for sale-originations	****	(341,160	)		(521,710	)
Loans held for sale-proceeds	****	420,698			508,811
Gain on the sale of SBA loans	****	(468	)		(310	)
Increase in the cash surrender value of bank-owned life insurance	****	(103	)		(89	)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable	****	(40	)		(323	)
Prepaid expenses and other assets	****	(2,835	)		(2,085	)
Accrued interest payable	****	522			410
Accrued expenses and other liabilities	****	(84	)		3,582
Net Cash Provided by (Used in) Operating Activities	****	73,130			(12,238	)
Cash Flows from Investing Activities	****	****	****	****	****	****
Purchase of interest-earning time deposits	****	(1,780	)		(2,133	)
Redemption of interest-earning time deposits	****	3,701			6,224
Principal repayments on investment securities available for sale	****	647			1,004
Net decrease (increase) in loans receivable	****	18,926			(218,119	)
Purchase of Federal Home Loan Bank stock	****	(2,980	)		(10,980	)
Redemption of Federal Home Loan Bank stock	****	8,107			6,557
Purchase of premises and equipment	****	(688	)		(560	)
Net Cash Provided by (Used in) Investing Activities	****	25,933			(218,007	)
Cash Flows from Financing Activities	****	****	****	****	****	****
Net increase in demand deposits, money markets, and savings accounts	****	64,559			84,041
Net increase in certificate accounts	****	17,892			18,041
(Decrease) increase in advances from borrowers for taxes and insurance	****	(456	)		1,330
Proceed from (repayment of) Federal Home Loan Bank short-term borrowings	****	(93,140	)		72,689
Proceeds from Federal Home Loan Bank long-term borrowings	****	20,000			79,000
Repayment of Federal Home Loan Bank long-term borrowings	****	(57,000	)		(36,171	)
(Repayment of) proceeds from Federal Reserve Bank short-term borrowings	****	(7,000	)		3,105
Net proceeds from subordinated debt	****	13,742			-
Contribution of shares to ESOP	****	150			-
Proceeds from issuance unallocated shares from authorized shares	****	1,645			2,383
Purchase of treasury stock	****	(433	)		(49	)
Proceeds from the reissuance of treasury stock under 401(k) Plan	****	289			100
Proceeds from the exercise of stock options	****	932			261
Dividends paid	****	(1,154	)		(1,018	)
Noncontrolling interest capital distribution	****	(865	)		(279	)
Net Cash (Used in) Provided by Financing Activities	****	(40,829	)		223,433
Net Increase (Decrease) in Cash and Cash Equivalents	****	58,234			(6,812	)
Cash and Cash Equivalents – Beginning of Year	****	3,893			10,705
Cash and Cash Equivalents – End of Year	$	62,127		$	3,893
Supplementary Disclosure of Cash Flow and Non-Cash Information:
Cash payments for interest	$	25,785		$	8,367
Cash payments for income taxes	$	2,659		$	2,900
Initial recognition of operating lease right-of use assets	$	1,510		$	1,050
Initial recognition of operating lease obligations	$	1,510		$	1,050
See accompanying notes to consolidated financial statements.
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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, 2023, 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. The Bank’s 51% ownership interest in Oakmont Capital is currently being marketed for sale in order to reduce the Bank’s asset size and increase its capital ratios. While Oakmont Capital is currently being marketed for sale, there can be no assurances that the transaction will be completed. 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 credit 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, 2023, one investor purchased a total of 33% of all loans sold by the Bank from its mortgage loans held for sale, and the sales to this investor accounted for approximately 30% of the gain on mortgage loans sold during the year. During the year ended December 31, 2023, one investor purchased a total of 48% of all loans sold by the Bank from its equipment loans held for sale, and the sales to this investor accounted for approximately 45% 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 Bank measures expected credit losses on available-for-sale debt securities when the Bank does not intend to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Bank evaluates whether the decline in fair value has resulted from credit losses or other factors. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

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. The Company recognized no other-than-temporary impairment charges during the years ended December 31, 2023 and 2022.

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, 2023 and 2022.

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 credit 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.

Allowance for Credit Losses

The Company adopted Accounting Standards Update (ASU) 2016-13 using the weighted average maturity method (WARM) for all financial assets measured at amortized cost, net of investments in leases and off balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under Accounting Standards Codification (ASC) 326, while prior period results are reported in accordance with the previously applicable incurred loss methodology. The Company recorded no change to retained earnings as of January 1, 2023 for the cumulative effect of implementing ASC 326.

Loans are stated at their principal amount outstanding, except for loans held for sale, which are carried at fair value. Interest income on loans is accrued as earned.

In general, loans are placed on non-accrual status once they become 90 days delinquent as to principal or interest. In certain cases, a loan may be placed on nonaccrual status prior to being 90 days delinquent if there is an indication that the borrower is having difficulty making payments, or the Company believes it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. When interest accruals are discontinued, unpaid interest previously credited to income is reversed. Non-accrual loans may be restored to accrual status when all delinquent principal and interest has been paid currently for six consecutive months or the loan is considered secured and in the process of collection. The Company generally applies payments received on non-accruing loans to principal until such time as the principal is paid off, after which time any payments received are recognized as interest income. If the Company believes that all amounts outstanding on a non-accrual loan will ultimately be collected, payments received subsequent to its classification as a non-accrual loan are allocated between interest income and principal.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Allowance for Credit Losses (Continued)

A loan that is 90 days delinquent may continue to accrue interest if the loan is both adequately secured and is in the process of collection. Past due status is determined based on contractual due dates for loan payments. An adequately secured loan is one that has collateral with a supported fair value that is sufficient to discharge the debt, and/or has an enforceable guarantee from a financially responsible party. A loan is considered to be in the process of collection if collection is proceeding through legal action or through other activities that are reasonably expected to result in repayment of the debt or restoration to current status in the near future.

Loans deemed to be a loss are written off through a charge against the allowance for credit losses (ACL). All loans are evaluated for possible charge-off when it is probable that the balance will not be collected, based on the ability of the borrower to pay and the value of the underlying collateral, if any. Principal recoveries of loans previously charged off are recorded as increases to the ACL.

Loan Origination Fees and Costs. Loan origination fees and the related direct origination costs are deferred and amortized over the life of the loan as an adjustment to interest income.

Allowance for Credit Losses. The discussion that follows describes the methodology for determining the ACL under the ASC 326 model that was adopted effective January 1, 2023. The allowance methodology for prior periods is disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The ACL for loans is an estimate of the expected losses to be realized over the life of the loans in the portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses and 2) loans evaluated individually for expected credit losses. The ACL also includes certain qualitative adjustments.

Loans Evaluated Collectively. Homogeneous loans are evaluated collectively for expected credit losses.

Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its ACL. The Company has designated eight portfolio segments, which are 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, and consumer. These portfolio segments are further disaggregated into classes, which represent loans and leases of similar type, risk characteristics, and methods for monitoring and assessing credit risk.

Loans Evaluated Individually. Certain loans may be evaluated individually for expected credit losses. There were no individually evaluated loans during the year ended December 31, 2023.

Loans evaluated individually may have specific allocations assigned if the measured value of the loan using one of the noted techniques is less than its current carrying value. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assigned to those loans. Collateral could be in the form of real estate or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate.

Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification. For all loans, an internal risk rating process is used. The Company believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk rating categories is a significant component of the ACL methodology for these loans, which bases the probability of default on this migration. Assigning risk ratings involves judgment. Risk ratings may be changed based on ongoing monitoring procedures, or if specific loan review assessments identify a deterioration or an improvement in the loan.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Allowance for Credit Losses (Continued)

The following is a summary of the Company's internal risk rating categories:

•	Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.
•	Special Mention: These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in this category are currently acceptable but are nevertheless potentially weak.
---	---
•	Substandard: These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.
---	---
•	Doubtful: These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
---	---

The allocation of the ACL is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Company considers risk factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type.

Qualitative and Other Adjustments to Allowance for Credit Losses: In addition to the quantitative credit loss estimates for loans evaluated collectively, qualitative factors that may not be fully captured in the quantitative results are also evaluated. For example, the Company considers the impact of current environmental factors at the reporting date that did not exist over the period from which historical experience was used. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), economic trends and conditions, changes in underwriting standards, experience and depth of lending staff, trends in delinquencies, and the level of criticized loans. Qualitative adjustments are judgmental and are based on management’s knowledge of the portfolio and the markets in which the Company operates. Qualitative adjustments are evaluated and approved on a quarterly basis. Additionally, the ACL includes other allowance categories that are not directly incorporated in the quantitative results. These include but are not limited to loans-in-process, trade acceptances and overdrafts. The ACL model utilizes 36-month economic forecasts which include housing starts, real estate prices, loan delinquency trends, and US GDP changes.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

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 and these are also classified as loans held for sale.

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.

Goodwill and Other 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 in January 2021.

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

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, 2023 or December 31, 2022.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

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 $382,000 and $330,000 at December 31, 2023 and 2022, respectively. During the years ended December 31, 2023 and 2022, approximately $62,000 and $58,000 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.

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, 2023 and 2022. 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, 2020.

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.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

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, 2023, the Company has outstanding equity awards under three share-based plans: the 2013 Stock Incentive Plan, the 2018 Stock Incentive Plan, and the 2023 Stock Incentive Plan. Outstanding awards under these plans were made in May 2018 and May 2023. 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 shares are contributed to the ESOP and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares.

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:

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Revenue from Contracts with Customers (Continued)

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 consists 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 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 2022 consolidated financial statements have been reclassified to conform to the presentation in the 2023 consolidated financial statements. Such reclassifications did not have a material impact on the overall consolidated financial statements.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Accounting Pronouncements 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.

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 write-offs 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.

As of January 1, 2023, the Company adopted ASU 326 using the weighted average maturity method (WARM) for all financial assets measured at amortized cost, net of investments in leases and off balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASU 326, while prior period results are reported in accordance with the previously applicable incurred loss methodology. The Company recorded no change to retained earnings as of January 1, 2023 for the cumulative effect of adopting ASC 326.

In January 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 the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure 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. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the sunset (or expiration) date of Accounting Standards Codification (ASC) Topic 848 to December 31, 2024. This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform. ASU 2022-06 is effective for all reporting entities immediately upon issuance and must be applied on a prospective basis. 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.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 2 - Summary of Significant Accounting Policies (Continued)

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (TOPIC 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Public entities are required to adopt the changes retrospectively, recasting each prior-period disclosure for which a comparative income statement is presented in the period of adoption. 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 December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides for improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This guidance is effective for public business entities for annual period beginning after December 15, 2024. The Company is currently evaluating the impact the impact of this new guidance on its 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 year ended December 31, 2022, all unvested restricted stock program awards and outstanding stock options representing shares were dilutive. For the year ended December 31, 2023, all outstanding stock options granted under the 2023 Stock Incentive Plan were anti-dilutive. For the year ended December 31, 2023, all outstanding stock options granted under the 2018 Stock Incentive Plan 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,
	2023		2022
Net Income	$	2,020,000	$	7,863,000
Weighted average shares outstanding – basic	****	2,254,444		2,042,740
Effect of dilutive common stock equivalents	****	20,590		110,149
Adjusted weighted average shares outstanding – diluted	****	2,275,034		2,152,889
Basic earnings per share	$	0.90	$	3.85
Diluted earnings per share	$	0.89	$	3.65

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, 2023 and 2022 (in thousands):

	Unrealized Losses on Investment Securities Available for Sale (1)
	2023			2022
Balance beginning of the year	$	(24	)	$	23
Other comprehensive income (loss) before reclassifications	****	14			(47	)
Amount reclassified from accumulated other comprehensive income (loss)	****	-			-
Total other comprehensive income (loss)	****	14			(47	)
Balance end of the year	$	(10	)	$	(24	)

_______________________

(1)	All amounts are net of tax. 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, 2023 and 2022, by contractual maturity, is shown below (in thousands):

	2023		2022
Due in one year or less	$	1,000	$	2,541
Due after one year through five years	****	912		1,292
Total	$	1,912	$	3,833

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, 2023 and 2022 are summarized below (in thousands):

	December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Available for Sale:	****	****	****	****	****	****	****	****	****
Mortgage-backed securities:
Government National Mortgage Association securities	$	2,281	$	-	$	(13	)	$	2,268
Federal National Mortgage Association securities	****	73	****	-	****	-		****	73
Total available-for-sale-securities	$	2,354	$	-	$	(13	)	$	2,341
	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

The amortized cost and fair value of mortgage-backed and debt securities at December 31, 2023, 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	$	2,354	$	2,341
Total	$	2,354	$	2,341

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, 2023 and 2022 (in thousands):

	December 31, 2023
	****	****	Less than Twelve Months					Twelve Months or Greater				Total
	Number of Securities		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Government National Mortgage Association securities	****	11	$	2,268	$	(13	)	$	-	$	-	$	2,268	$	(13	)
	December 31, 2022
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
			Less than Twelve Months					Twelve Months or Greater				Total
	Number of<br> Securities		Fair Value		Gross<br> Unrealized<br> Losses			Fair Value		Gross<br> Unrealized<br> Losses		Fair Value		Gross<br> Unrealized<br> Losses
Government National Mortgage Association securities		11	$	2,871	$	(31	)	$	-	$	-	$	2,871	$	(31	)

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 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 was no allowance for credit losses at December 31, 2023.

Note 7 – Loans Receivable, Net and Allowance for Credit Losses

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

	December 31,
	2023			2022
Real estate loans:
One-to-four family residential:
Owner occupied	$	22,885		$	18,070
Non-owner occupied	****	40,455			39,315
Total one-to-four family residential	****	63,340			57,385
Multi-family (five or more) residential	****	46,680			46,909
Commercial real estate	****	331,174			333,540
Construction	****	35,585			28,938
Home equity	****	6,162			4,918
Total real estate loans	****	482,941			471,690
Commercial business	****	127,868			159,069
Other consumer	****	69			2
Total Loans	****	610,878			630,761
Deferred loan fees and costs	****	(771	)		(1,219	)
Allowance for credit losses	****	(6,758	)		(7,678	)
Net Loans	$	603,349		$	621,864

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 7 – Loans Receivable, Net and Allowance for Credit Losses (Continued)

The following table summarizes designated internal risk categories by portfolio segment and loan class, by origination year, as of *December 31, 2023 (*in thousands):

	Term Loans Amortized Cost by Origination Year
As of December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
One-to-four family residential owner occupied<br> <br>Risk rating
Pass	$	6,044	$	8,574	$	3,840	$	1,850	$	571	$	2,006	$	-	$	22,885
Special mention	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Substandard	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Doubtful	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Total one-to-four family residential owner occupied	$	6,044	$	8,574	$	3,840	$	1,850	$	571	$	2,006	$	-	$	22,885
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non- owner occupied<br> <br>Risk rating
Pass	$	2,195	$	7,153	$	12,362	$	3,268	$	1,026	$	14,451	$	-	$	40,455
Special mention	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Substandard	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Doubtful	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Total one-to-four family residential non-owner occupied	$	2,195	$	7,153	$	12,362	$	3,268	$	1,026	$	14,451	$	-	$	40,455
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Multi-family residential<br> <br>Risk rating
Pass	$	1,566	$	15,542	$	13,853	$	4,483	$	2,386	$	8,850	$	-	$	46,680
Special mention	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Substandard	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Doubtful	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Total multi-family residential	$	1,566	$	15,542	$	13,853	$	4,483	$	2,386	$	8,850	$	-	$	46,680
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	2	$	-	$	2
Commercial real estate<br> <br>Risk rating
Pass	$	61,338	$	121,006	$	64,684	$	26,631	$	16,571	$	38,897	$	1,996	$	331,123
Special mention	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Substandard	****	-	****	-	****	-	****	-	****	51	****	-	****	-	****	51
Doubtful	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Total commercial real estate	$	61,338	$	121,006	$	64,684	$	26,631	$	16,622	$	38,897	$	1,996	$	331,174
Current period gross charge-offs	$	-	$	-	$	-	$	134	$	-	$	-	$	-	$	134
Construction<br> <br>Risk rating
Pass	$	14,777	$	11,244	$	7,417	$	-	$	-	$	-	$	-	$	33,438
Special mention	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Substandard	****	-	****	-	****	-	****	-	****	-	****	2,147	****	-	****	2,147
Doubtful	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Total construction	$	14,777	$	11,244	$	7,417	$	-	$	-	$	2,147	$	-	$	35,585
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 7 – Loans Receivable, Net and Allowance for Credit Losses (Continued)

	Term Loans Amortized Cost by Origination Year
As of December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Home equity<br> <br>Risk rating
Pass	$	1,062	$	35	$	122	$	-	$	-	$	205	$	4,738	$	6,162
Special mention	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Substandard	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Doubtful	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Total home equity	$	1,062	$	35	$	122	$	-	$	-	$	205	$	4,738	$	6,162
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial business<br> <br>Risk rating
Pass	$	6,441	$	69,913	$	27,022	$	4,324	$	1,955	$	1,109	$	13,593	$	124,357
Special mention	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Substandard	****	-	****	-	****	1,946	****	-	****	1,242	****	323	****	-	****	3,511
Doubtful	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Total commercial business	$	6,441	$	69,913	$	28,967	$	4,324	$	3,197	$	1,433	$	13,593	$	127,868
Current period gross charge-offs	$	-	$	29	$	613	$	97	$	-	$	-	$	-	$	739
Other consumer<br> <br>Risk rating
Pass	$	69	$	-	$	-	$	-	$	-	$	-	$	-	$	69
Special mention	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Substandard	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Doubtful	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Total other consumer	$	69	$	-	$	-	$	-	$	-	$	-	$	-	$	69
Current period gross charge-offs<br> <br>Total	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Pass	$	93,492	$	233,467	$	129,300	$	40,556	$	22,509	$	65,518	$	20,327	$	605,169
Special mention	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Substandard	****	-	****	-	****	1,946	****	-	****	1,293	****	2,470	****	-	****	5,709
Doubtful	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-
Total	$	93,492	$	233,467	$	131,246	$	40,556	$	23,802	$	67,988	$	20,327	$	610,878
Current period gross charge-offs	$	-	$	29	$	613	$	231	$	-	$	2	$	-	$	875

The information presented in the table above is not required for periods prior to the adoption of ASU 326. The following table presents the most comparable required information for the prior period, internal credit risk ratings for the indicated loan class segments as of *December 31, 2022 (*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 Credit Losses (Continued)

The following table presents non-accrual loans by classes of the loan portfolio as of December 31, 2023 and *December 31, 2022 (*in thousands):

	December 31, 2023										December 31, 2022
	Non-accrual loans
	With a<br> <br>Related<br> <br>Allowance		Without a<br> <br>Related<br> <br>Allowance		Total		90 Days or<br> <br>More Past Due and Accruing		Total <br>Non-Performing		Total <br>Non-Accrual Loans
One-to-four family residential owner occupied	$	-	$	-	$	-	$	401	$	401	$	-
Multi-family residential	****	-	****	-	****	-	****	-	****	-	****	1,708
Commercial real estate	****	-	****	51	****	51	****	-	****	51	****	134
Commercial business	****	-	****	-	****	-	****	-	****	-	****	97
Total	$	-	$	51	$	51	$	401	$	452	$	1,939

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 7 – Loans Receivable, Net and Allowance for Credit 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, 2022 as well as the average recorded investment and related interest income for the year then ended (in thousands):

	December 31, 2022
With no related allowance recorded:	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
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

Prior to the adoption of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, the Company had granted a variety of concessions to borrowers in the form of loan modifications that were considered troubled debt restructuring (TDR)s. 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, 2023, no new loans were identified as TDRs. 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.

As of December 31, 2023, there were no loans whose terms were modified for borrowers who may be experiencing financial difficulties.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

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

Following is a summary, by loan portfolio class, of changes in the allowance for credit losses for the year ended *December 31, 2023 (*in thousands):

	December 31, 2023
	1-4 Family<br> <br>Residential Owner Occupied		1-4 Family<br> <br>Residential Non-Owner Occupied			Multi-Family<br> <br>Residential			Commercial Real Estate			Construction		Home Equity		Commercial Business and Other Consumer			Unallocated			Total
Allowance for credit losses:
Beginning balance	$	123	$	295		$	451		$	3,750		$	304	$	33	$	2,422		$	300		$	7,678
Impact of ASU 326	****	-	****	-		****	-		****	-		****	-	****	-	****	-		****	-		****	-
Charge-offs	****	-	****	-		****	(2	)	****	(134	)	****	-	****	-	****	(739	)	****	-		****	(875	)
Recoveries	****	-	****	-		****	-		****	-		****	-	****	-	****	-		****	-		****	-
Provision^(1)^	****	30	****	(76	)	****	(29	)	****	(832	)	****	279	****	28	****	855		****	(300	)	****	(45	)
Ending balance	$	153	$	219		$	420		$	2,784		$	583	$	61	$	2,538		$	-		$	6,758
(1)	Provision included in the table only includes the portion related to loans receivable. For the year ended December 31, 2023, the total recovery of credit losses of $157,000 includes a recovery of $202,000 for off balance sheet credit exposure, which is reflected in other liabilities on the Consolidated Balance Sheet.
---	---

The Bank allocated decreased allowance for credit loss provisions to the commercial real estate loan portfolio class for the year ended December 31, 2023, due primarily to changes in qualitative factors in this portfolio class. The Bank allocated increased allowance for credit loss provisions to the commercial business loan portfolio class for the year ended December 31, 2023, due primarily to changes in qualitative factors in this portfolio class. The Bank allocated increased allowance for credit loss provisions to the construction loan portfolio class for the year ended December 31, 2023, 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, 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-Owner<br> <br>Occupied		Multi-Family<br> <br>Residential		Commercial<br> <br>Real Estate		Construction		Home Equity		Commercial Business and Other 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	$	2,422		$	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

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.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

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

The performance and credit quality of the loan portfolio is 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 table presents the classes of the loan portfolio summarized by the past due status as of December 31, 2023 and *December 31, 2022 (*in thousands):

	December 31, 2023
	30-89 Days Past Due		90 Days or More Past Due		Current		Total Loans Receivable
One-to-four family residential owner occupied	$	136	$	401	$	22,348	$	22,885
One-to-four family residential non-owner occupied	****	256	****	-	****	40,199	****	40,455
Multi-family residential	****	175	****	-	****	46,505	****	46,680
Commercial real estate	****	3,944	****	-	****	327,230	****	331,174
Construction	****	-	****	-	****	35,585	****	35,585
Home equity	****	403	****	-	****	5,759	****	6,162
Commercial business	****	-	****	-	****	127,868	****	127,868
Other consumer	****	-	****	-	****	69	****	69
Total	$	4,914	$	401	$	605,562	$	610,878
	December 31, 2022
---	---	---	---	---	---	---	---	---	---	---	---	---
	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable 90 Days or More Past Due and 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

Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, amounted to $452,000 and $2.0 million at December 31, 2023 and 2022, 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, 2023 and 2022 there was no interest income recognized on non-accrual loans on a cash basis. Interest income foregone on non-accrual loans was approximately $9,000 for the year ended December 31, 2023 and $167,000 for the year ended December 31, 2022.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 8 - Premises and Equipment

The components of premises and equipment at December 31, 2023 and 2022 are as follows (in thousands):

	2023			2022
Land and land improvements	$	292		$	292
Buildings	****	1,581			1,619
Leasehold improvements	****	699			649
Furniture, fixtures and equipment	****	3,568			2,892
	****	6,140			5,452
Accumulated depreciation	****	(3,207	)		(2,677	)
Premises and equipment, net	$	2,933		$	2,775

Depreciation expense for the years ended December 31, 2023 and 2022 amounted to approximately $530,000 and $437,000, 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 assets at December 31, 2023 was $125,000, net of accumulated amortization of $360,000. Amortization expense for both years ended December 31, 2023 and 2022 amounted to approximately $49,000.

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

2024	$	49
2025	****	49
2026	****	27
Total	$	125

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 10 - Deposits

Deposits at December 31, 2023 and 2022 consist of the following (in thousands):

	2023		2022
Non-interest bearing checking accounts	$	92,216	$	88,728
Interest bearing checking accounts	****	104,274		-
Savings accounts	****	841		1,597
Money market accounts	****	218,525		260,972
Certificate of deposit accounts	****	215,843		197,951
Total	$	631,699	$	549,248

A summary of certificates of deposit by maturity at December 31, 2023 is as follows (in thousands):

Years ending December 31:
2024	$	113,732
2025	****	36,393
2026	****	12,156
2027	****	23,850
2028	****	29,712
Total	$	215,843

The aggregate amount of certificates of deposit with a minimum denomination of $250,000 was $40.8 million and $30.4 million at December 31, 2023 and 2022, respectively.

Note 11 - Borrowings

As of December 31, 2023, Quaint Oak Bank has a maximum borrowing capacity with the Federal Home Loan Bank of approximately $316.8 million. Quaint Oak Bank’s Federal Home Loan Bank advances outstanding were $29.0 million and $159.2 million at December 31, 2023 and 2022, respectively. As of December 31, 2023, Quaint Oak Bank has $12.0 million in borrowing capacity with the Federal Reserve Bank of Philadelphia (FRB) under the discount window program. Quaint Oak Bank borrowed $7.0 million from the FRB discount window as of December 31, 2022. As of December 31, 2023, Quaint Oak Bank had no outstanding advances with the FRB.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 11 – Borrowings (Continued)

As of December 31, 2023, 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, 2023.

Short-term borrowings and the weighted interest rates consist of the following at December 31, 2023 and 2022 (dollars in thousands):

	FHLB Short-Term Borrowings						FRB Short-Term Borrowings
	At or For the Year						At or For the Year
	Ended December 31,						Ended December 31,
	2023			2022			2023			2022
Average balance outstanding	$	72,566		$	31,505		$	711		$	1,556
Maximum amount outstanding at any month-end during the period	****	116,200			93,200		****	7,000			7,000
Balance outstanding at end of period	****	-			93,200		****	-			7,000
Average interest rate during the period	****	5.38	%		2.34	%	****	4.78	%		0.97	%
Weighted average interest rate at end of period	****	-	%		4.45	%	****	-	%		4.45	%
	Other Short-Term Borrowings<br> <br>At or For the Year<br> <br>Ended December 31,
---	---	---	---	---	---	---
	2023			2022
Average balance outstanding	$	9,291		$	1,601
Maximum amount outstanding at any month-end during the period	****	14,508			5,489
Balance outstanding at end of period	****	5,549			5,489
Average interest rate during the period	****	8.40	%		6.68	%
Weighted average interest rate at end of period	****	8.46	%		7.11	%

Federal Home Loan Bank long-term borrowings and the weighted interest rate consist of the following at December 31, 2023 and 2022 (in thousands):

	December 31, 2023						December 31, 2022
Fixed rate borrowings maturing:	Amount		Weighted Interest Rate			Amount		Weighted Interest Rate
2023	$	-	****	-	%	$	57,000		2.22	%
2024	****	21,167	****	4.25			6,167		2.05
2025	****	7,855	****	3.40			2,855		1.25
Total FHLB long-term debt	$	29,022	****	4.02	%	$	66,022		2.16	%

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

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.

On March 2, 2023, the Company issued $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 issued an additional $2.0 million in aggregate principal amount of subordinated debt to certain accredited investors under the same terms. 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.

The balance and unamortized issuance costs of subordinated debt at December 31, 2023 are as follows (in thousands):

	Principal		Unamortized Debt Issuance Costs		Net
6.5% subordinated notes, due December 31, 2028	$	8,000	$	-	$	8,000
8.5% subordinated notes, due March 15, 2025	$	12,000	$	37	$	11,963
8.5% subordinated notes, due March 15, 2025	$	2,000	$	6	$	1,994

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, 2023 and 2022 are as follows (in thousands):

	2023		2022
Federal:
Current	$	128	$	2,263
Deferred	****	351		(221	)
Total federal	****	479		2,042
State, current	****	749		1,012
Total	$	1,228	$	3,054

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 13 - Income Taxes (Continued)

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, 2023 and 2022, respectively, as follows (in thousands):

	2023						2022
	Amount			Rate			Amount			Rate
Federal income tax at statutory rate	$	682		****	21.0	%	$	2,292			21.0	%
State tax, net of federal benefit	****	592		****	18.2			800			7.4
Stock compensation expense	****	(28	)	****	(0.9	)		(22	)		(0.2	)
Other	****	(18	)	****	(0.5	)		(16	)		(0.2	)
Total	$	1,228		****	37.8	%	$	3,054			28.0	%

The components of the net deferred tax asset at December 31, 2023 and 2022 are as follows (in thousands):

	2023		2022
Deferred tax assets:
Allowance for credit losses	$	1,419	$	1,612
Deferred loan fees	****	162		256
Stock-based compensation	****	11		7
Unrealized loss on investment securities available for sale	****	3		6
Interest on non-accrual loans	****	1		35
Total deferred tax assets	****	1,596		1,916
Deferred tax liabilities:
---	---	---	---	---	---	---
Bank premises and equipment	****	(249	)		(219	)
Intangible	****	(28	)		(24	)
Total deferred tax liabilities	****	(277	)		(243	)
Net Deferred Tax Asset	$	1,319		$	1,673

The net deferred tax asset at December 31, 2023 and 2022 of $1.3 million and $1.7 million, respectively, is included in other assets. No valuation allowance was established at December 31, 2023 and 2022, 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.

During the year ended December 31, 2023, the Company made a discretionary contribution totaling 11,320 shares to the ESOP. These shares were released from Treasury Stock at a cost of approximately $73,000. 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 years ended December 31, 2023 and 2022, the Company recognized $150,000 and $343,000 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 terminated on March 13, 2023, however the outstanding unvested shares awards as of such date remained outstanding for the remainder of their original five-year vesting term which ended May 9, 2023.

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.

In May 2023, the shareholders of Quaint Oak Bancorp approved the adoption of the 2023 Stock Incentive Plan (the “2023 Stock Incentive Plan”). The 2023 Stock Incentive Plan approved by shareholders in May 2023 covered a total of 175,000 shares, of which 43,750, or 25%, may be restricted stock awards, for a balance of 131,250 stock options assuming all the restricted shares are awarded.

As of December 31, 2023 a total of 45,000 share awards were unvested under the 2018 and 2023 Stock Incentive Plan and up to 10,500 share awards were available for future grant under the 2023 Stock Incentive Plan and none under the 2018 Stock Incentive Plan. The 2018 and 2023 Stock Incentive Plan share awards have vesting periods of five years.

A summary of share award activity under the Company’s 2018 and 2023 Stock Incentive Plans as of December 31, 2023 and changes during the year ended December 31, 2023 is as follows:

	2023
	Number of<br> <br>Shares			Weighted<br> <br>Average Grant Date Fair Value
Unvested at the beginning of the year	****	9,122		$	13.30
Granted	****	45,000		****	18.00
Vested	****	(9,122	)	****	13.30
Forfeited	****	-		****	-
Unvested at the end of the year	****	45,000		$	18.00

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 the years ended

December 31, 2023 and 2022, the Company recognized approximately $155,000 and $124,000 of compensation expense, respectively. During the years ended December 31, 2023 and 2022, the Company recognized a tax benefit of approximately $33,000 and $26,000, respectively. As of December 31, 2023, approximately $709,000 in additional compensation expense will be recognized over the remaining service period of approximately 4.4 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 expired February 13, 2018, however, outstanding options granted in 2013 remained valid and existing for the remainder of their 10 year terms, until May 2023. As described above under “Stock Incentive Plans – Share Awards”, the 2013 Stock Incentive Plan approved by shareholders in May 2013 terminated March 13, 2023, however, the outstanding options granted in 2018 remain exercisable until May 2028, to the extent still outstanding. 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. In May 2023, the shareholders of Quaint Oak Bancorp approved the adoption of the 2023 Stock Incentive Plan. The 2023 Stock Incentive Plan approved by shareholders in May 2023 covered a total of 175,000 shares, of which 131,250 may be stock options assuming all the restricted shares are awarded.

All incentive stock options issued under the Option Plan and the 2013, 2018 and 2023 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, 2023, a total of 224,033 grants of stock options were outstanding under the 2013, 2018 and 2023 Stock Incentive Plans and 36,000 stock options were available for future grant under the 2023 Stock Incentive Plan, and none under the 2018 Stock Incentive 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 2013, 2018 and 2023 Stock Incentive Plans for the year ended December 31, 2023and changes during the year ended December 31, 2023 is as follows:

	2023
	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	****	195,936		$	11.24	****	3.5
Granted	****	132,500		****	18.00	****	9.3
Exercised	****	(104,403	)	****	9.65	****	-
Forfeited	****	-		****	-	****	-
Outstanding at the end of the period	****	224,033		$	15.98	****	8.6
Exercisable at the end of the period	****	91,533		$	13.30	****	4.4

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 14 – Stock Compensation Plans (Continued)

Stock Option and Stock Incentive Plans – Stock Options (Continued)

The estimated fair value of the options granted in May 2023 was $3.26 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 2.89%

Risk-free interest rate 3.42%

Expected life of options 6.5 years

Expected stock-price volatility 20.35%

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, 2023, the aggregate intrinsic value of options outstanding and options exercisable was zero. At December 31, 2022, the aggregate intrinsic value of the options outstanding was $2.1 million and options exercisable was $1.9 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, 2023 and December 31, 2022. This amount changes based on changes in the market value of the Company’s common stock.

During the years ended December 31, 2023 and 2022, approximately $70,000 and $44,000 in compensation expense was recognized, respectively. During the years ended December 31, 2023 and December 31, 2022, the Company recognized a tax benefit of $5,000 and $2,000, respectively. As of December 31, 2023, approximately $352,000 in additional compensation expense will be recognized over the remaining service period of approximately 4.4 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, 2023 and 2022, 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.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

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

A summary of the Company’s financial instrument commitments at December 31, 2023 and 2022 is as follows (in thousands):

	2023		2022
Commitments to originate loans	$	30,346	$	36,087
Unfunded commitments under lines of credit	****	54,163		49,881
Standby letters of credit	****	455		2,601

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.

The ACL for off balance sheet credit exposures is recorded in other liabilities on the Consolidated Balance Sheet. This ACL represents management’s estimate of expected losses in its unfunded loan commitments and other off balance sheet credit exposures, such as letters of credit and credit recourse on sold residential mortgage loans. The allowance for credit losses specific to unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). The ACL for off balance sheet credit exposures is increased or decreased by charges or reductions to expense, through the provision for credit losses. The balance of off balance sheet credit exposures is $202,000 at December 31, 2023.

Note 17 - Leases

The Company leases its office at 501 Knowles Avenue in Southampton, Pennsylvania as well as other office facilities and equipment. The Company leases four 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 $274,000 for the year ending December 31, 2023 and $184,000 for the year ending December 31, 2022.

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, 2023.

	Operating
Weighted average remaining term (years)	****	11.9
Weighted average discount rate	****	3.36	%

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, 2023, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets:

Undiscounted cash flows due (In thousands):	Operating
2024	$	473
2025	****	481
2026	****	489
2027	****	443
2028	****	431
2029 and thereafter	****	3,059
Total undiscounted cash flows	****	5,376
Discount on cash flows	****	(964	)
Total lease liabilities	$	4,412

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, 2023, the Company had no leases that had a term of twelve months or less.

Rental expense under operating leases totaled approximately $531,000 in 2023 and $438,000 in 2022.

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, 2023, 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 March 2, 2023, Quaint Oak Bancorp, Inc. completed a private offering of $12.0 in aggregate principal amount of fixed rate subordinated notes (see Note 12) to certain qualified buyers. On March 16, 2023, Quaint Oak Bancorp, Inc. completed an additional private offering of $2.0 million in aggregate principal amount of fixed rate subordinated notes subordinated notes (see Note 12) to certain accredited investors. In March, 2023, Quaint Oak Bancorp, Inc. infused $13.5 million to the Bank as Tier 1 capital. On November 2, 2023, the Company sold to an accredited investor 117,125 shares of common stock at a purchase price of $13.87 per share for aggregate proceeds of $1.6 million. The Company retained all of the net proceeds for general corporate purposes. As of December 31, 2023, the Bank was well 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, 2023 and 2022 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 Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2023:	****	****	****	****	****	****	****	****	****	****	****	****	****	****	****
Total capital (to risk-weighted assets)	$	75,800	****	12.30	%	$	≥49,285	****	≥8.00	%	$	≥61,606	****	≥10.00	%
Tier 1 capital (to risk-weighted assets)	****	68,813	****	11.17		****	≥36,964	****	≥6.00		****	≥49,285	****	≥8.00
Common Equity Tier 1 capital (to risk-weighted assets)	****	68,813	****	11.17		****	≥27,723	****	≥4.50		****	≥40,044	****	≥6.50
Tier 1 capital (to average assets)	****	68,813	****	9.11		****	≥30,205	****	≥4.00		****	≥37,756	****	≥5.00
	Actual					For Capital Adequacy Purposes					To be Well Capitalized Under Prompt Corrective Action 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		≥0.00	%
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 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

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.

The Bank did not pay any cash dividends to the Company in 2023 or 2022. At December 31, 2023, the Bank’s retained net income for the years ended December 31, 2023 and 2022 totaled $11.6 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.
---	---
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.

Quaint Oak Bancorp, Inc.

Notes to Consolidated Financial Statements (Continued)

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

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 19 of the Company’s Form 10-K for the fiscal year ended December 31, 2022, 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.

Individually Evaluated Loans: Individually evaluated 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.

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, 2023 (*in thousands):

	December 31, 2023
	Fair Value Measurements Using:
	Total Fair Value		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)
Recurring fair value measurements:	****	****	****	****	****	****	****	****
Investment securities available for sale
Government National Mortgage Association mortgage-backed securities	$	2,268	$	-	$	2,268	$	-
Federal National Mortgage Association mortgage- backed securities	****	73	****	-	****	73	****	-
Total investment securities available for sale	$	2,341	$	-	$	2,341	$	-
Total recurring fair value measurements	$	2,341	$	-	$	2,341	$	-

	December 31, 2022
	Fair Value Measurements Using:
	Total Fair Value		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)
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

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 (*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%)

_______________

(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, 2023 and 2022 (in thousands):

	****	****	****	****	Fair Value Measurements at
	****	****	****	****	December 31, 2023
	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	$	1,912	$	1,981	$	-	$	-	$	1,981
Loans held for sale	****	60,380	****	62,072	****	-	****	62,072	****	-
Loans receivable, net	****	603,349	****	584,842	****	-	****	-	****	584,842
Financial Liabilities	****	****	****	****	****	****	****	****	****	****
Deposits	****	631,699	****	636,946	****	415,855	****	-	****	221,091
FHLB long-term borrowings	****	29,022	****	29,001	****	-	****	-	****	29,001
Subordinated debt	****	21,957	****	20,666	****	-	****	-	****	20,666
	****	****	****	****	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

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.

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. The Bank’s 51% ownership interest in Oakmont Capital is currently being marketed for sale in order to reduce the Bank’s asset size and increase its capital ratios. While Oakmont Capital is currently being marketed for sale, there can be no assurances that the transaction will be completed.

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,
	2023									2022
	Quaint Oak Bank(1)			Oakmont Capital Holdings, LLC			Consolidated			Quaint Oak Bank(1)		Oakmont Capital Holdings, LLC			Consolidated
Net Interest Income (Loss)	$	19,394		$	(1,231	)	$	18,163		$	24,114	$	(425	)	$	23,689
Provision for Credit Losses		157			-			157			2,475		-			2,475
Net Interest Income (Loss) after Provision for Credit Losses		19,237			(1,231	)		18,006			21,639		(425	)		21,214
Non-Interest Income	****	****	****	****	****	****	****	****	****	****	****	****	****	****	****	****
Mortgage banking, equipment lending and title abstract fees		599			1,739			2,338			757		2,346			3,103
Real estate sales commissions, net		94			-			94			298		-			298
Insurance commissions		663			-			663			593		-			593
Other fees and services charges		510			743			1,253			330		320			650
Net loan servicing income		235			3,483			3,718			13		1,855			1,868
Income from bank-owned life insurance		102			-			102			89		-			89
Net gain on loans held for sale		2,620			4,076			6,696			3,270		9,230			12,500
Gain on the sale of SBA loans		468			-			468			310		-			310
Total Non-Interest Income		5,291			10,041			15,332			5,660		13,751			19,411
Non-Interest Expense	****	****	****	****	****	****	****	****	****	****	****	****	****	****	****	****
Salaries and employee benefits		13,850			7,123			20,973			13,828		6,309			20,137
Directors’ fees and expenses		316			-			316			286		-			286
Occupancy and equipment		1,656			825			2,481			1,274		630			1,904
Data processing		1,051			-			1,051			690		-			690
Professional fees		932			126			1,058			668		80			748
FDIC deposit insurance assessment		867			-			867			658		-			658
Advertising		284			359			643			186		382			568
Amortization of other intangible		49			-			49			49		-			49
Other		1,911			1,091			3,002			1,291		929			2,220
Total Non-Interest Expense		20,916			9,524			30,440			18,930		8,330			27,260
Pretax Segment Profit (Loss)	$	3,612		$	(714	)	$	2,898		$	8,369	$	4,996		$	13,365
Net (Loss) Income Attributable to Noncontrolling Interest	$	(350	)	$	-		$	(350	)	$	2,448	$	-		$	2,448
Segment Assets	$	719,791		$	34,327		$	754,118		$	757,688	$	34,662		$	792,350

___________________

(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,
	2023		2022
Assets
Cash and cash equivalents	$	1,436	$	284
Investment in Quaint Oak Bank	****	67,859		50,966
Premises and equipment, net	****	1,388		1,432
Other assets	****	-		77
Total Assets	$	70,683	$	52,759
Liabilities and Stockholders’ Equity
Subordinated debt	$	21,957	$	7,966
Other liabilities		235		-
Stockholders’ equity	****	48,491		44,793
Total Liabilities and Stockholders’ Equity	$	70,683	$	52,759

Statements of Income

	For the Year Ended December 31,
	2023			2022
Income
Rental income	$	399		$	-
Total Income	****	399			365
Expenses
Occupancy and equipment expense	****	115			122
Interest on subordinated debt	****	1,449			520
Other expenses	****	556			158
Total Expenses	****	2,120			800
Net Income Before Income Taxes	****	(1,721	)		(435	)
Equity in Undistributed Net Income of Subsidiary	****	3,380			8,207
Income Tax Benefit	****	361			91
Net Income	$	2,020		$	7,863
Comprehensive Income	$	2,034		$	7,816

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,
	2023			2022
Operating Activities
Net income	$	2,020		$	7,863
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Undistributed net income in subsidiary	****	(3,380	)		(8,207	)
Depreciation expense	****	50			53
Amortization of subordinated debt issuance costs	****	249			34
Stock-based compensation expense	****	225			511
Decrease (increase) in other assets	****	313			(62	)
Net cash (used in) provided by operating activities	****	(523	)		192
Investing Activities
Investment in Quaint Oak Bank	****	(13,500	)		-
Purchase of property and equipment	****	(6	)		(12	)
Net cash used in investing activities	****	(13,506	)		(12	)
Financing Activities
Dividends paid	****	(1,154	)		(1,018	)
Proceeds from the issuance of Subordinate Debt	****	13,742			-
Proceeds from the reissuance of treasury stock for capital raise	****	-			2,383
Additional Paid-in Capital	****	-			(2,250	)
Contribution of shares to ESOP	****	150			-
Proceeds from issuance of unallocated shares from authorized shares	****	1,645			-
Purchase of treasury stock	****	(433	)		(49	)
Proceeds from the reissuance of treasury stock under401(k) plan	****	289			100
Proceeds from the exercise of stock options	****	932			262
Net cash provided by (used in) financing activities	****	15,181			(572	)
Net Increase (Decrease) in Cash and Cash Equivalents	****	1,152			(392	)
Cash and Cash Equivalents-Beginning of Year	****	284			676
Cash and Cash Equivalents-End of Year	$	1,436		$	284

Quaint Oak Bancorp, Inc.

Quaint Oak Bancorp, Inc.

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Exhibit 21

Subsidiaries of Registrant

As of December 31, 2023 (100% direct or indirect ownership by Quaint Oak Bancorp, Inc., with the exception of a 51% indirect ownership of Oakmont Capital Holdings, LLC)

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
Oakmont Capital Holdings, 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, File No. 333-232352, and File No. 333-276075 on Form S-8 of Quaint Oak Bancorp, Inc. of our report dated March 28, 2024, 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, 2023.

Cranberry Township, Pennsylvania

March 28, 2024

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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.

Date: March 28, 2024	/s/Robert T. Strong
	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.

Date: March 28, 2024	/s/John J. Augustine
	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, 2023 (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.

Date: March 28, 2024	By:	/s/Robert T. Strong
		Robert T. Strong
		President and Chief Executive Officer
Date: March 28, 2024	By:	/s/John J. Augustine
		John J. Augustine
		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.