qnto20220630b

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

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 Incorporation or Organization)		(I.R.S. Employer Identification No.)

501 Knowles Avenue, Southampton, Pennsylvania		18966
(Address of Principal Executive Offices)		(Zip Code)

(215) 364-4059

(Registrant’s Telephone Number, Including Area Code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Title of each Class	Trading Symbol(s)	Name of each exchange on which registered

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, 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 10, 2022, 2,049,987 shares of the Registrant’s common stock were issued and outstanding.

INDEX

PART I - FINANCIAL INFORMATION		Page

Item 1 -	Financial Statements

	Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (Unaudited)	1

	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	2

	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	4

	Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited)	8

	Notes to the Unaudited Consolidated Financial Statements	10

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	49

Item 4 -	Controls and Procedures	49

PART II - OTHER INFORMATION

Item 1 -	Legal Proceedings	49

Item 1A -	Risk Factors	50

Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3 -	Defaults Upon Senior Securities	50

Item 4 -	Mine Safety Disclosures	51

Item 5 -	Other Information	51

Item 6 -	Exhibits	51

SIGNATURES

ITEM 1. FINANCIAL STATEMENTS

Quaint Oak Bancorp, Inc.

Consolidated Balance Sheets (Unaudited)

	At June 30,			At December 31,
	2022			2021
	(In thousands, except share data)
Assets
Due from banks, non-interest-bearing	$	726		$	854
Due from banks, interest-bearing		78,163			9,851
Cash and cash equivalents		78,889			10,705
Investment in interest-earning time deposits		8,211			7,924
Investment securities available for sale		3,455			4,033
Loans held for sale		90,327			107,823
Loans receivable, net of allowance for loan losses (2022 $6,540; 2021 $5,262)		547,426			403,966
Accrued interest receivable		3,654			3,139
Investment in Federal Home Loan Bank stock, at cost		4,200			2,178
Bank-owned life insurance		4,179			4,137
Premises and equipment, net		2,754			2,653
Goodwill		2,573			2,573
Other intangible, net of accumulated amortization		198			222
Prepaid expenses and other assets		6,056			4,762
Total Assets	$	751,922		$	554,115
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Non-interest bearing	$	73,534		$	64,731
Interest-bearing		516,231			382,435
Total deposits		589,765			447,166
Federal Home Loan Bank short-term borrowings		-			26,000
Federal Home Loan Bank long-term borrowings		99,193			23,193
Federal Reserve Bank long-term borrowings		-			3,895
Subordinated debt		7,949			7,933
Accrued interest payable		428			174
Advances from borrowers for taxes and insurance		4,156			2,856
Accrued expenses and other liabilities		8,252			5,989
Total Liabilities		709,743			517,206
Stockholders’ Equity
Preferred stock – $0.01 par value, 1,000,000 shares authorized; none issued or outstanding		-			-
Common stock – $0.01 par value; 9,000,000 shares authorized; 2,777,250 issued; 2,045,721 and 2,011,313 outstanding at June 30, 2022 and December 31, 2021, respectively		28			28
Additional paid-in capital		15,904			15,685
Treasury stock, at cost: 731,529 and 765,937 shares at June 30, 2022 and December 31, 2021, respectively		(4,784	)		(4,977	)
Accumulated other comprehensive (loss) income		(18	)		23
Retained earnings		27,564			24,030
Total Quaint Oak Bancorp, Inc. Stockholders' Equity		38,694			34,789
Noncontrolling Interest		3,485			2,120
Total Stockholders' Equity	$	42,179		$	36,909
Total Liabilities and Stockholders’ Equity	$	751,922		$	554,115

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Income (Unaudited)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(In thousands, except for share data)
Interest Income
Interest on loans, including fees	$	7,200	$	5,735	$	13,500	$	10,478
Interest and dividends on time deposits, investment securities, interest-bearing deposits with others, and Federal Home Loan Bank stock		108		108		181		254
Total Interest Income		7,308		5,843		13,681		10,732

Interest Expense
Interest on deposits		907		792		1,527		1,668
Interest on Federal Home Loan Bank short-term borrowings		53		-		75		6
Interest on Federal Home Loan Bank long-term borrowings		389		129		501		268
Interest on Federal Reserve Bank long-term borrowings		1		29		4		69
Interest on subordinated debt		130		130		260		260
Interest on other short-term borrowings		18		26		27		96
Total Interest Expense		1,498		1,106		2,394		2,367
Net Interest Income		5,810		4,737		11,287		8,365
Provision for Loan Losses		599		448		1,278		702
Net Interest Income after Provision for Loan Losses		5,211		4,289		10,009		7,663

Non-Interest Income
Mortgage banking, equipment lending and title abstract fees		824		522		1,461		1,053
Real estate sales commissions, net		64		33		125		64
Insurance commissions		139		133		255		240
Other fees and services charges		82		51		248		173
Net loan servicing income		308		328		474		551
Income from bank-owned life insurance		22		21		43		40
Net gain on loans held for sale		2,858		1,335		7,068		2,550
Gain on the sale of SBA loans		34		66		167		267
Gain on the sale of investment securities available for sale		-		45		-		362
Total Non-Interest Income		4,331		2,534		9,841		5,300

Non-Interest Expense
Salaries and employee benefits		4,891		3,439		9,482		6,839
Directors' fees and expenses		72		60		143		128
Occupancy and equipment		466		387		886		764
Data processing		163		202		360		407
Professional fees		228		218		412		381
FDIC deposit insurance assessment		113		73		229		124
Other real estate owned expenses		-		3		-		12
Advertising		154		122		362		227
Amortization of other intangible		12		12		24		24
Other		490		319		873		648
Total Non-Interest Expense		6,589		4,835		12,771		9,554

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Income (Unaudited)

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2022		2021			2022		2021
	(In thousands, except for share data)
Income before Income Taxes	$	2,953	$	1,988		$	7,079	$	3,409
Income Taxes		658		567			1,519		991
Net Income	$	2,295	$	1,421		$	5,560	$	2,418
Net Income (Loss) Attributable to Noncontrolling Interest	$	525	$	(88	)	$	1,541	$	(121	)
Net Income Attributable to Quaint Oak Bancorp, Inc.	$	1,770	$	1,509		$	4,019	$	2,539

Earnings per share - basic	$	0.87	$	0.76		$	1.99	$	1.28
Average shares outstanding - basic		2,038,479		1,991,617			2,023,511		1,985,844
Earnings per share - diluted	$	0.82	$	0.72		$	1.88	$	1.22
Average shares outstanding - diluted		2,161,277		2,091,490			2,142,169		2,078,980

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(In thousands)
Net Income	$	2,295		$	1,421		$	5,560		$	2,418

Other Comprehensive Income (Loss):
Unrealized gains (losses) on investment securities available-for-sale		(26	)		13			(53	)		257
Income tax effect		6			(3	)		12			(55	)
Reclassification adjustment for gain on sale of investment securities included in net income		-			(45	)		-			(362	)
Income tax effect		-			9			-			76
Other comprehensive loss		(20	)		(26	)		(41	)		(84	)

Total Comprehensive Income	$	2,275		$	1,395		$	5,519		$	2,334
Comprehensive Income (Loss) Attributable to Noncontrolling Interest	$	525		$	(88	)	$	1,541		$	(121	)
Comprehensive Income Attributable to Quaint Oak Bancorp, Inc.	$	1,750		$	1,483		$	3,978		$	2,455

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Stockholders' Equity (Unaudited)

For the Three Months Ended June 30, 2022

	Common Stock											Accumulated
	Number of					Additional						Other									Total
	Shares					Paid-in			Treasury			Comprehensive			Retained			Noncontrolling			Stockholders'
	Outstanding			Amount		Capital			Stock			Income (Loss)			Earnings			Interest			Equity
	(In thousands, except share and per share data)
BALANCE - MARCH 31, 2022	2,016,517		$	28	$	15,813		$	(4,955	)	$	2		$	26,057		$	3,019		$	39,964

Common stock allocated by ESOP (4,000 shares)	4,000					59			25												84

Treasury stock purchase	(571	)							(14	)											(14	)

Reissuance of treasury stock under stock incentive plan	9,123					(57	)		57												-

Reissuance of treasury stock under 401(k) Plan	652					11			4												15

Reissuance of treasury stock for exercised stock options	16,000					36			99												135

Stock based compensation expense						42															42

Cash dividends declared ($0.13 per share)															(263	)					(263	)

Noncontrolling interest member distribution																		(59	)		(59	)

Net income															1,770			525			2,295

Other comprehensive loss, net												(20	)								(20	)
BALANCE – JUNE 30, 2022	2,045,721		$	28	$	15,904		$	(4,784	)	$	(18	)	$	27,564		$	3,485		$	42,179

For the Three Months Ended June 30, 2021

												Unallocated
	Common Stock											Common			Accumulated
	*Number of*					*Additional*						*Stock Held*			*Other*									*Total*
	*Shares*					*Paid-in*			*Treasury*			*by Benefit*			*Comprehensive*			*Retained*			*Noncontrolling*			*Stockholders'*
	*Outstanding*			*Amount*		*Capital*			*Stock*			*Plans*			*Income (Loss)*			*Earnings*			*Interest*			*Equity*
	(In thousands, except share and per share data)
BALANCE - MARCH 31, 2021	1,989,483		$	28	$	15,382		$	(5,099	)	$	(33	)	$	60		$	19,316		$	2,203		$	31,857

Common Stock allocated
by ESOP (3,607) shares)						47						16												63

Treasury stock purchase	(1,122	)							(20	)														(20	)

Reissuance of treasury stock under 401(k) Plan	733					9			4															13

Reissuance of treasury stock under stock incentive plan	9,421					(58	)		58															-

Reissuance of treasury stock for exercised stock options	5,500					36			35															71

Stock based compensation expense						41																		41

Cash dividends declared ($0.11 per share)																		(219	)					(219	)

Net income																		1,509			(88	)		1,421

Other comprehensive loss, net															(26	)								(26	)
BALANCE – JUNE 30, 2021	2,004,015		$	28	$	15,457		$	(5,022	)	$	(17	)	$	34		$	20,606		$	2,115		$	33,201

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Stockholders' Equity (Unaudited)

For the Six Months Ended June 30, 2022

	Common Stock											Accumulated
	Number of					Additional						Other									Total
	Shares					Paid-in			Treasury			Comprehensive			Retained			Noncontrolling			Stockholders'
	Outstanding			Amount		Capital			Stock			Income (Loss)			Earnings			Interest			Equity
	(In thousands, except share and per share data)
BALANCE - DECEMBER 31, 2021	2,011,313		$	28	$	15,685		$	(4,977	)	$	23		$	24,030		$	2,120		$	36,909

Common stock allocated by ESOP (8,000 shares)	8,000					125			50												175

Treasury stock purchase	(1,209	)							(28	)											(28	)

Reissuance of treasury stock under stock incentive plan	9,123					(57	)		57												-

Reissuance of treasury stock under 401(k) Plan	1,494					24			9												33

Reissuance of treasury stock for exercised stock options	17,000					43			105												148

Stock based compensation expense						84															84

Cash dividends declared ($0.24 per share)															(485	)					(485	)

Noncontrolling interest member distribution																		(176	)		(176	)

Net income															4,019			1,541			5,560

Other comprehensive loss, net												(41	)								(41	)
BALANCE – JUNE 30, 2022	2,045,721		$	28	$	15,904		$	(4,784	)	$	(18	)	$	27,564		$	3,485		$	42,179

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Stockholders' Equity (Unaudited)

For the Six Months Ended June 30, 2021

												Unallocated
												Common			Accumulated
	*Number of*					*Additional*						*Stock Held*			*Other*									*Total*
	*Shares*					*Paid-in*			*Treasury*			*by Benefit*			*Comprehensive*			*Retained*			*Noncontrolling*			*Stockholders'*
	*Outstanding*			*Amount*		*Capital*			*Stock*			*Plans*			*Income (Loss)*			*Earnings*			*Interest*			*Equity*
	(In thousands, except share and per share data)
BALANCE – DECEMBER 31, 2020	1,986,528		$	28	$	15,282		$	(5,114	)	$	(51	)	$	118		$	18,465		$	-		$	28,728

Common stock allocated by *ESOP (7,214* shares)**						88						34												122

Treasury stock purchase	(1,398	)							(25	)														(25	)

Reissuance of treasury under 401(k) Plan	1,964					21			12															33

Reissuance of treasury stock under stock incentive plan	9,421					(58	)		58															-

Reissuance of treasury stock for exercised stock options	7,500					40			47															87

Stock based compensation expense						84																		84

Noncontrolling interest initial contribution																					2,236			2,236

Cash dividends declared ($0.20 per share)																		(398	)					(398	)

Net income																		2,539			(121	)		2,418

Other comprehensive loss, net															(84	)								(84	)
BALANCE – JUNE 30, 2021	2,004,015		$	28	$	15,457		$	(5,022	)	$	(17	)	$	34		$	20,606		$	2,115		$	33,201

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

	For the Six Months
	Ended June 30,
	2022			2021
	(In Thousands)
Cash Flows from Operating Activities
Net income	$	5,560		$	2,418
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses		1,278			702
Depreciation of premises and equipment		177			148
Amortization of operating right-of-use assets		111			80
Amortization of subordinated debt issuance costs		16			17
Amortization of other intangible		24			24
Net amortization of securities premiums		-			6
Accretion of deferred loan fees and costs, net		(296	)		(2,196	)
Stock-based compensation expense		259			206
Gain on the sale of investment securities available for sale		-			(362	)
Net gain on loans held for sale		(7,068	)		(2,550	)
Loans held for sale-originations		(247,162	)		(157,831	)
Loans held for sale-proceeds		271,726			125,103
Gain on the sale of SBA loans		(167	)		(267	)
Increase in the cash surrender value of bank-owned life insurance		(42	)		(40	)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		(515	)		(304	)
Prepaid expenses and other assets		(1,395	)		1,493
Accrued interest payable		254			(44	)
Accrued expenses and other liabilities		2,262			136
Net Cash Provided by (Used in) Operating Activities		25,022			(33,261	)
Cash Flows from Investing Activities
Purchase of interest-earning time deposits		(1,840	)		(294	)
Redemption of interest-earning time deposits		1,553			1,778
Principal repayments on investment securities available for sale		-			532
Proceeds from the sale of investment securities available for sale		527			5,862
Net increase in loans receivable		(144,275	)		(17,082	)
Purchase of Federal Home Loan Bank stock		(5,652	)		(473	)
Redemption of Federal Home Loan Bank stock		3,630			560
Acquisition, net of cash acquired		-			1,259
Capitalized expenditures on other real estate owned		-			(56	)
Purchase of premises and equipment		(277	)		(182	)
Net Cash Used in Investing Activities		(146,334	)		(8,096	)
Cash Flows from Financing Activities
Net increase in demand deposits, money markets, and savings accounts		135,828			104,399
Net increase (decrease) in certificate accounts		6,771			(33,715	)
Increase (decrease) in advances from borrowers for taxes and insurance		1,300			(51	)
Repayments of Federal Home Loan Bank short-term borrowings		(89,300	)		(10,000	)
Proceeds from Federal Home Loan Bank short-term borrowings		63,300			10,000
Repayments of Federal Home Loan Bank long-term borrowings		(4,000	)		(4,000	)
Proceeds from Federal Home Loan Bank long-term borrowings		80,000			-
Repayments of Federal Reserve Bank long-term borrowings		(3,895	)		(30,267	)
Repayments of other borrowings		-			(9,680	)
Dividends paid		(485	)		(398	)
Noncontrolling interest capital distribution		(176	)		-
Purchase of treasury stock		(28	)		(25	)
Proceeds from the reissuance of treasury stock		33			33
Proceeds from the exercise of stock options		148			87
Net Cash Provided by Financing Activities		189,496			26,383
Net Increase (Decrease) in Cash and Cash Equivalents		68,184			(14,974	)
Cash and Cash Equivalents – Beginning of Year		10,705			33,913
Cash and Cash Equivalents – End of Year	$	78,889		$	18,939

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

	For the Six Months
	Ended June 30,
	2022		2021
	(In Thousands)
Supplementary Disclosure of Cash Flow and Non-Cash Information:
Cash payments for interest	$	2,140	$	2,337
Cash payments for income taxes	$	2,267	$	1,620
Initial recognition of operating lease right-of use assets	$	560	$	670
Initial recognition of operating lease obligations	$	502	$	670

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies

Basis of Financial Presentation. 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 June 30, 2022, the Bank has six wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, Quaint Oak Insurance Agency, LLC, and Oakmont Commercial, LLC, each a Pennsylvania limited liability company. The mortgage company offers mortgage banking primarily 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. On April 29, 2022, Oakmont Commercial, LLC, a wholly owned subsidiary of Quaint Oak Bank, purchased all the stock of KCMI Capital, Inc., a Pennsylvania corporation and subsidiary of Wilmington Savings Fund Society, FSB. The purchase price for the shares totaled approximately $55.5 million, which represented the unpaid principal balance of the loan portfolio, the primary asset of KCMI Capital, Inc. As of January 4, 2021, the Bank holds a majority equity position in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota. All significant intercompany balances and transactions have been eliminated.

The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation. Pursuant to the Bank’s election under Section 10(l) of the Home Owners’ Loan Act, the Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. The market area served by the Bank is principally Bucks, Montgomery and Philadelphia Counties and the Lehigh Valley area in Pennsylvania. The Bank has three banking locations: the main office location in Southampton, Pennsylvania and regional banking offices in the Lehigh Valley and Philadelphia. The Bank also has a mortgage office in Philadelphia and an insurance agency office in New Britain Township, Pennsylvania. The principal deposit products offered by the Bank are certificates of deposit, money market accounts, 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.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) for interim information and with the instructions to Form 10-Q, as applicable to a smaller reporting company. Accordingly, they do not include all the information and footnotes required by US GAAP for complete financial statements.

The foregoing consolidated financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of December 31, 2021 have been derived from the audited financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in Quaint Oak Bancorp’s 2021 Annual Report on Form 10-K. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

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

Critical Accounting Policies. The Company’s critical accounting policies involving significant judgments and assumptions used in the preparation of the consolidated financial statements as of June 30, 2022 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K.

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

The Company has contracted with a third-party software vendor to assist with the implementation of CECL. The Company is actively working on preliminary test calculations, data validation, as well as process and procedural documentation. The Company is currently conducting runs of the CECL model and the incurred-loss model in parallel, and it is expected that a third-party vendor will perform validation of the model in the third quarter of 2022. The new model will include additional assumptions used to calculate credit losses over the estimated life of financial assets and will include the impact of forecasted economic conditions. While the total impact of CECL to the Company’s financial statements is unknown at this time, the Company recognizes it may be material.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

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

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. This Update is not expected to have a significant impact on the Company’s financial statements.

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

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

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. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

Reclassifications. Certain items in the 2021 consolidated financial statements have been reclassified to conform to the presentation in the 2022 consolidated financial statements. Such reclassifications did not have a material impact on the presentation of the overall financial statements. The reclassifications had no effect on net income or stockholders’ equity.

Note 2 – 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 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 awards. Common stock equivalents which are considered antidilutive are not included for the purposes of this calculation. For the three and six months ended June 30, 2022 and 2021, all outstanding stock options granted under the 2008 Stock Option Plan, the 2013 Stock Incentive Plan and the 2018 Stock Incentive Plan representing shares were dilutive.

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 Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Net Income Attributable to Quaint Oak Bancorp, Inc.	$	1,770,000	$	1,509,000	$	4,019,000	$	2,539,000

Weighted average shares outstanding – basic		2,038,479		1,991,617		2,023,511		1,985,844
Effect of dilutive common stock equivalents		122,797		99,874		118,658		93,136
Adjusted weighted average shares outstanding – diluted		2,161,277		2,091,490		2,142,169		2,078,980

Basic earnings per share	$	0.87	$	0.76	$	1.99	$	1.28
Diluted earnings per share	$	0.82	$	0.72	$	1.88	$	1.22

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 2 – Earnings Per Share (Continued)

The following table presents the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and six months ended June 30, 2022 and 2021 (in thousands):

	Unrealized Gains (Losses) on Investment Securities Available for Sale (1)
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2022			2021			2022			2021
Balance at the beginning of the period	$	2		$	60		$	23		$	118
Other comprehensive income (loss) before classifications		(20	)		10			(41	)		202
Amount reclassified from accumulated other comprehensive income (loss)		-			(36	)		-			(286	)
Total other comprehensive income (loss)		(20	)		(26	)		(41	)		(84	)
Balance at the end of the period	$	(18	)	$	34		$	(18	)	$	34

_________________

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

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive (loss) income for the three and six months ended June 30, 2022 and 2021 (in thousands):

Details About Other Comprehensive Loss	Amount Reclassified from Accumulated Other Comprehensive (Loss) Income (1)										Affected Line Item in the Statement of Income
	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2022		2021			2022		2021
Unrealized losses on investment securities available for sale	$	--	$	45		$	--	$	362		Gain on sales of investment securities available for sale
		-		(9	)		-		(76	)	Income taxes
	$	-	$	36		$	-	$	286

(1) Amounts in parentheses indicate debits to net income.

Note 4 – Investment in Interest-Earning Time Deposits

The investment in interest-earning time deposits as of June 30, 2022 and December 31, 2021, by contractual maturity, are shown below (in thousands):

	June 30, 2022		December 31, 2021
Due in one year or less	$	5,768	$	4,487
Due after one year through five years		2,443		3,437
Total	$	8,211	$	7,924

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 5 – Investment Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale at June 30, 2022 and December 31, 2021 are summarized below (in thousands):

	June 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Available for Sale:
Mortgage-backed securities:
Government National Mortgage Association securities	$	3,359	$	-	$	(26	)	$	3,333
Federal National Mortgage Association securities		118		4		-			122
Total available-for-sale-securities	$	3,477	$	4	$	(26	)	$	3,455

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

The amortized cost and fair value of mortgage-backed securities at June 30, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

	Available for Sale
	Amortized Cost		Fair Value
Due after five years through ten years	$	-	$	-
Due after ten years	$	3,477	$	3,455
Total	$	3,477	$	3,455

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 June 30, 2022 (in thousands):

	June 30, 2022
			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		10	$	3,333	$	(26	)	$	-	$	-	$	3,333	$	(26	)

At December 31, 2021, there were no securities in an unrealized loss position. There were no impairment charges recognized during the three or six months ended June 30, 2022 or 2021.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses

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

	June 30, 2022			December 31, 2021
Real estate loans:
One-to-four family residential:
Owner occupied	$	15,652		$	9,779
Non-owner occupied		39,385			38,752
Total one-to-four family residential		55,037			48,531
Multi-family (five or more) residential		43,540			29,344
Commercial real estate		298,340			183,822
Construction		25,695			15,843
Home equity		4,883			4,706
Total real estate loans		427,495			282,246

Commercial business⁽¹⁾		128,239			129,608
Other consumer		4			12
Total Loans		555,738			411,866

Deferred loan fees and costs		(1,772	)		(2,638	)
Allowance for loan losses		(6,540	)		(5,262	)
Net Loans	$	547,426		$	403,966

⁽¹⁾Includes $13.1 million and $42.6 million of PPP loans at June 30, 2022 and December 31, 2021, respectively.

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of June 30, 2022 and December 31, 2021 (in thousands):

	June 30, 2022
	Pass		Special Mention		Substandard		Doubtful		Total
One-to-four family residential owner occupied	$	15,652	$	-	$	-	$	-	$	15,652
One-to-four family residential non-owner occupied		39,376		-		9		-		39,385
Multi-family residential		41,817		-		1,723		-		43,540
Commercial real estate		296,572		-		1,768		-		298,340
Construction		25,695		-		-		-		25,695
Home equity		4,883		-		-		-		4,883
Commercial business		126,005		-		2,234		-		128,239
Other consumer		4		-		-		-		4
Total	$	550,004	$	-	$	5,734	$	-	$	555,738

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of June 30, 2022 as well as the average recorded investment and related interest income for the period then ended (in thousands):

	June 30, 2022
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		9		9		-		9		-
Multi-family residential		1,723		1,723		-		1,723		-
Commercial real estate		131		131		-		131		6
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		-		-		-		-		-
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-

Total:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		9		9		-		9		-
Multi-family residential		1,723		1,723		-		1,723		-
Commercial real estate		131		131		-		131		6
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total	$	1,863	$	1,863	$	-	$	1,863	$	6

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

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

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

With an allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		-		-		-		-		-
Multi-family residential		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-

Total:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	66	$	-
One-to-four family residential non-owner occupied		9		9		-		9		-
Multi-family residential		-		-		-		-		-
Commercial real estate		131		131		-		131		12
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		18		-
Other consumer		-		-		-		-		-
Total	$	140	$	140	$	-	$	224	$	12

The loan portfolio also includes certain loans that have been modified in a troubled debt restructuring, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forbearance, or other actions. At both June 30, 2022, and December 31, 2021, the Company had two loans totaling $140,000 that were identified as troubled debt restructurings. One of these loans was performing in accordance with its modified terms and one was on non-accrual as of June 30, 2022. During the period ended June 30, 2022, no new loans were identified as TDRs. If a TDR is placed on non-accrual it is not reverted back to accruing status until the borrower makes timely payments as contracted for at least six months and future collection under the revised terms is probable.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following tables present the Company’s TDR loans as of June 30, 2022 and December 31, 2021 (dollar amounts in thousands):

	June 30, 2022
	Number of Contracts		Recorded Investment		Non- Accrual		Accruing		Related Allowance
One-to-four family residential owner occupied		-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		1		9		9		-		-
Multi-family residential		-		-		-		-		-
Commercial real estate		1		131		-		131		-
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total		2	$	140	$	9	$	131	$	-

	December 31, 2021
	Number of Contracts		Recorded Investment		Non- Accrual		Accruing		Related Allowance
One-to-four family residential owner occupied		-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		1		9		9		-		-
Multi-family residential		-		-		-		-		-
Commercial real estate		1		131		-		131		-
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total		2	$	140	$	9	$	131	$	-

The contractual aging of the TDRs in the table above as of June 30, 2022 and December 31, 2021 is as follows (in thousands):

		June 30, 2022
		Current		Past Due 30-89 Days		90 Days or More Past Due		Non- Accrual		Total
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		-		-		-		9		9
Multi-family residential		-		-		-		-		-
Commercial real estate		131		-		-		-		131
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total	$	131	$	-	$	-	$	9	$	140

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

		December 31, 2021
		Current		Past Due 30-89 Days		90 Days or More Past Due		Non- Accrual		Total
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		-		-		-		9		9
Multi-family residential		-		-		-		-		-
Commercial real estate		131		-		-		-		131
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total	$	131	$	-	$	-	$	9	$	140

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 June 30, 2022 there were no commitments to lend additional funds to debtors whose loan terms have been modified as TDRs.

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the three and six months ended June 30, 2022 and recorded investment in loans receivable as of June 30, 2022 (in thousands):

	June 30, 2022
	1-4 Family Residential Owner Occupied		1-4 Family Residential Non-Owner Occupied			Multi-Family Residential			Commercial Real Estate		Construction		Home Equity		Commercial Business and Other Consumer			Unallocated			Total
*For the Three Months Ended June 30, 2022*
*Allowance for loan losses:*
Beginning balance	$	99	$	305		$	464		$	2,637	$	132	$	28	$	1,876		$	400		$	5,941
Charge-offs		-		-			-			-		-		-		-			-			-
Recoveries		-		-			-			-		-		-		-			-			-
Provision		5		(29	)		(87	)		746		151		4		(141	)		(50	)		599
Ending balance	$	104	$	276		$	377		$	3,383	$	283	$	32	$	1,735		$	350		$	6,540

*For the Six Months Ended June 30, 2022*
*Allowance for loan losses:*
Beginning balance	$	73	$	292		$	249		$	2,475	$	119	$	29	$	1,625		$	400		$	5,262
Charge-offs		-		-			-			-		-		-		-			-			-
Recoveries		-		-			-			-		-		-		-			-			-
Provision		31		(16	)		128			908		164		3		110			(50	)		1,278
Ending balance	$	104	$	276		$	377		$	3,383	$	283	$	32	$	1,735		$	350		$	6,540

*Ending balance evaluated*
*for impairment:*
Individually	$	-	$	-		$	-		$	-	$	-	$	-	$	-		$	-		$	-
Collectively	$	104	$	276		$	377		$	3,383	$	283	$	32	$	1,735		$	350		$	6,540

*Loans receivable:*
Ending balance:	$	15,652	$	39,385		$	43,540		$	298,340	$	25,695	$	4,883	$	128,243					$	555,738

*Ending balance evaluated*
for impairment:
Individually	$	-	$	9		$	1,723		$	131	$	-	$	-	$	-					$	1,863
Collectively	$	15,652	$	39,376		$	41,817		$	298,209	$	25,695	$	4,883	$	128,243					$	553,875

The Bank allocated increased allowance for loan loss provisions to the commercial real estate loan portfolio class for the three and six months ended June 30, 2022, due primarily to changes in quantitative factors in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the construction loan portfolio class for the three and six months ended June 30, 2022 due primarily to 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 six months ended June 30, 2022, due primarily to changes in quantitative factors in this portfolio class. The Bank allocated decreased allowance for loan loss provisions to the multi-family residential loan portfolio class for the three and six months ended June 30, 2022 due primarily to qualitative factors in this portfolio class. The Bank allocated decreased allowance for loan loss provisions to the commercial business loan portfolio class for the three months ended June 30, 2022, due primarily to changes in qualitative and quantitative factors in this portfolio class.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the three and six months ended June 30, 2021 and recorded investment in loans receivable as of June 30, 2021 (in thousands):

	June 30, 2021
	1-4 Family Residential Owner Occupied			1-4 Family Residential Non-Owner Occupied			Multi-Family Residential		Commercial Real Estate		Construction		Home Equity			Commercial Business and Other Consumer			Unallocated		Total
*For the Three Months Ended June 30, 2021*
*Allowance for loan losses:*
Beginning balance	$	107		$	376		$	232	$	1,379	$	57	$	27		$	887		$	250	$	3,315
Charge-offs		-			-			-		-		-		-			(17	)		-		(17	)
Recoveries		-			-			-		-		-		-			-			-		-
Provision		(35	)		(20	)		10		238		106		(1	)		100			50		448
Ending balance	$	72		$	356		$	242	$	1,617	$	163	$	26		$	970		$	300	$	3,746

*For the Six Months Ended June 30, 2021*
*Allowance for loan losses:*
Beginning balance	$	88		$	362		$	229	$	1,287	$	62	$	20		$	763		$	250	$	3,061
Charge-offs		-			-			-		-		-		-			(17	)		-		(17	)
Recoveries		-			-			-		-		-		-			-			-		-
Provision		(16	)		(6	)		13		330		101		6			224			50		702
Ending balance	$	72		$	356		$	242	$	1,617	$	163	$	26		$	970		$	300	$	3,746
*Ending balance evaluated*
*for impairment:*
Individually	$	-		$	-		$	-	$	-	$	-	$	-		$	-		$	-	$	-
Collectively	$	72		$	356		$	242	$	1,617	$	163	$	26		$	970		$	300	$	3,746

The Bank allocated increased allowance for loan loss provisions to the commercial business loan portfolio class for the three months ended June 30, 2021, 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 real estate loan portfolio class for the three months ended June 30, 2021, due primarily to changes in qualitative factors in this portfolio class. In general, the primary driver of the increase in qualitative factors was the economic trends factor associated with the COVID-19 pandemic.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

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

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

*Ending balance evaluated*
*for impairment:*
Individually	$	-		$	9		$	-	$	131	$	-	$	-	$	-				$	140
Collectively	$	9,779		$	38,743		$	29,344	$	183,691	$	15,843	$	4,706	$	129,620				$	411,726

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

The following table presents non-accrual loans by classes of the loan portfolio as of June 30, 2022 and December 31, 2021 (in thousands):

	June 30, 2022		December 31, 2021
One-to-four family residential owner occupied	$	-	$	-
One-to-four family residential non-owner occupied		9		9
Multi-family residential		1,723		-
Commercial real estate		-		-
Construction		-		-
Home equity		-		-
Commercial business		-		-
Other consumer		-		-
Total	$	1,732	$	9

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan 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 tables present the classes of the loan portfolio summarized by the past due status as of June 30, 2022 and December 31, 2021 (in thousands):

	June 30, 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	$	411	$	-	$	411	$	15,241	$	15,652	$	-
One-to-four family residential non-owner occupied		40		9		49		39,336		39,385		-
Multi-family residential		-		1,723		1,723		41,817		43,540		-
Commercial real estate		1,384		-		1,384		296,956		298,340		-
Construction		-		-		-		25,695		25,695		-
Home equity		54		-		54		4,829		4,883		-
Commercial business		169		-		169		128,070		128,239		-
Other consumer		-		-		-		4		4		-
Total	$	2,058	$	1,732	$	3,790	$	551,948	$	555,738	$	-

	*December 31, 2021*
	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	$	809	$	-	$	809	$	8,970	$	9,779	$	-
One-to-four family residential non-owner occupied		285		9		294		38,458		38,752		-
Multi-family residential		-		-		-		29,344		29,344		-
Commercial real estate		-		-		-		183,822		183,822		-
Construction		-		-		-		15,843		15,843		-
Home equity		-		-		-		4,706		4,706		-
Commercial business		367		-		367		129,241		129,608		-
Other consumer		-		-		-		12		12		-
Total	$	1,461	$	9	$	1,470	$	410,396	$	411,866	$	-

Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, amounted to $1.7 million at June 30, 2022 and $9,000 at December 31, 2021. 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 three months ended June 30, 2022 and 2021 there was no interest income recognized on non-accrual loans on a cash basis. There was $79,000 of interest income foregone on non-accrual loans for both the three and six months ended June 30, 2022 and $1,000 for both the three and six months ended June 30, 2021.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 – Goodwill and Other Intangible, Net

On January 4, 2021, the Bank acquired a majority ownership interest in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota. The Bank recognized $2.1 million of goodwill as part of the acquisition of Oakmont Capital Holdings, LLC. On August 1, 2016, Quaint Oak Insurance Agency, LLC began operations by acquiring the renewal rights to a book of business produced and serviced by an independent insurance agency located in New Britain, Pennsylvania, that provides a broad range of personal and commercial insurance coverage solutions. The Company paid $1.0 million for these rights. Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed to be an other intangible asset. This other intangible asset is being amortized over a ten year period based upon the annual retention rate of the book of business. The balance of other intangible asset at June 30, 2022 was $198,000, which is net of accumulated amortization of $287,000. Amortization expense for the three and six months ended June 30, 2022 and 2021 amounted to approximately $12,000 and $24,000, respectively.

Note 8 – Deposits

Deposits consist of the following classifications (in thousands):

	June 30, 2022		December 31, 2021
Non-interest bearing checking accounts	$	73,534	$	64,730
Passbook accounts		5		10
Savings accounts		1,533		1,828
Money market accounts		328,012		200,688
Certificates of deposit		186,681		179,910
Total deposits	$	589,765	$	447,166

Note 9 – Borrowings

Federal Home Loan Bank advances consist of the following at June 30, 2022 and December 31, 2021 (in thousands):

	June 30, 2022					December 31, 2021
	Amount		Weighted Interest Rate			Amount		Weighted Interest Rate
Short-term borrowings	$	-		-	%	$	26,000		0.28	%

Fixed rate borrowings maturing:
2022		33,171		1.48			7,171		2.10
2023		57,000		2.22			7,000		2.16
2024		6,167		2.05			6,167		2.05
2025		2,855		1.25			2,855		1.25
Total FHLB long-term debt	$	99,193		1.93	%	$	23,193		2.00	%

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 9 – Borrowings (Continued)

Federal Reserve Bank long-term borrowings decreased $3.9 million, or 100.0%, to none at June 30, 2022 from $3.9 million at December 31, 2021 as the Company paid off first round PPP loans pledged as collateral under the FRB’s Paycheck Protection Program Liquidity Facility (PPPLF). The Company did not utilize the FRB’s PPPLF to fund second round PPP loans. Under the PPPLF the Company pledged certain PPP loans as collateral and borrowed from the Federal Reserve at a rate of 0.35% that is fixed for two years.

There were no other short-term borrowings representing outstanding balances on two lines of credit that Oakmont Capital Holdings, LLC has with a credit union which are used to fund equipment loans. Borrowing capacity on the two lines of credit total $11.0 million at June 30, 2022.

Note 10 – Stock Compensation Plans

Employee Stock Ownership Plan

The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of employees who meet the eligibility requirements of the plan. Using proceeds from a loan from the Company, the ESOP purchased 8%, or 222,180 shares of the Company’s then outstanding common stock in the open market during 2007. The Bank made cash contributions to the ESOP on a quarterly basis sufficient to enable the ESOP to make the required loan payments to the Company until the loan was repaid in full as of September 30, 2021. The loan bore an interest rate of 7.75% per annum, with principal and interest paid quarterly in equal installments over 15 years pursuant to the terms of the original note. The loan was secured by the unallocated shares of common stock held by the ESOP. The Bank made cash contributions to the ESOP on a quarterly basis sufficient to enable the ESOP to make the required loan payments to the Company until the loan was repaid in full as of September 30, 2021.

During the second quarter of 2022, the Company made a discretionary contribution of 4,000 shares to the ESOP. These shares were released from Treasury Stock at a cost of approximately $84,000. During the three and six months ended June 30, 2022, the Company recognized $84,000 and $175,000 of ESOP expense, respectively. During the three and six months ended June 30, 2021, the Company recognized $63,000 and $122,000 of ESOP expense, respectively.

Stock Incentive Plans – Share Awards

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

As of June 30, 2022 a total of 18,845 share awards were unvested under the 2013 and 2018 Stock Incentive Plans and up to 11,750 share awards were available for future grant under the 2018 Stock Incentive Plan and 1,800 share awards under the 2013 Stock Incentive Plan. The 2013 and 2018 Stock Incentive Plan share awards have vesting periods of five years.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10 – Stock Compensation Plans (Continued)

Stock Incentive Plans – Share Awards (Continued)

A summary of the status of the share awards under the 2013 and 2018 Stock Incentive Plans as of June 30, 2022 and 2021 and changes during the six months ended June 30, 2022 and 2021 is as follows:

	June 30, 2022					June 30, 2021
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Unvested at the beginning of the period		18,845		$	13.30		28,266		$	13.30
Granted		-			-		-			-
Vested		(9,123	)		13.30		(9,421	)		13.30
Forfeited		(600	)		13.30		-			-
Unvested at the end of the period		9,122		$	13.30		18,845		$	13.30

Compensation expense on the restricted stock awards is recognized ratably over the five year vesting period in an amount which is equal to the fair value of the common stock at the date of grant. During the three months ended June 30, 2022 and 2021, the Company recognized approximately $31,000 and $30,000 of compensation expense, respectively. A tax benefit of approximately $7,000 and $6,000 was recognized during the three months ended June 30, 2022 and 2021, respectively. During both the six months ended June 30, 2022 and 2021, the Company recognized approximately $62,000 of compensation expense. A tax benefit of approximately $13,000 was recognized during both the six months ended June 30, 2022 and 2021. As of June 30, 2022, approximately $106,000 in additional compensation expense will be recognized over the remaining service period of approximately 0.9 years.

Stock Option and Stock Incentive Plans – Stock Options

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

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

As of June 30, 2022, a total of 214,136 grants of stock options were outstanding under the Option Plan and 2013 and 2018 Stock Incentive Plans and 37,250 stock options were available for future grant under the 2018 Stock Incentive Plan, 6,200 stock options under the 2013 Stock Incentive Plan and none under the Option Plan. Options will become vested and exercisable over a five year period and are generally exercisable for a period of ten years after the grant date.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10 – Stock Compensation Plans (Continued)

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

A summary of option activity under the Company’s Option Plan and 2013 and 2018 Stock Incentive Plans as of June 30, 2022 and 2021 and changes during the three months ended June 30, 2022 and 2021 is as follows:

	2022							2021
	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at the beginning of the period		233,136		$	10.96		4.2		240,636		$	10.98		5.2
Granted		-			-		-		-			-		-
Exercised		(17,000	)		8.71		-		(7,500	)		11.57		-
Forfeited		(2,000	)		13.30		-		-			-		-
Outstanding at end of period		214,136		$	11.12		3.9		233,136		$	10.96		4.7
Exercisable at end of period		183,209		$	10.79		6.0		180,081		$	10.28		5.6

During both the three months ended June 30, 2022 and 2021, approximately $11,000 in compensation expense on stock options was recognized. A tax benefit of approximately $1,000, was recognized during each of these periods. During both the six months ended June 30, 2022 and 2021, approximately $22,000 in compensation expense on stock options was recognized. A tax benefit of approximately $1,000, was recognized during each of these periods. As of June 30, 2022, approximately $39,000 in additional compensation expense will be recognized over the remaining service period of approximately 0.9 years.

Note 11 – 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.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

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.

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 2021 Form 10-K, as the fair value of loans, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and non-performance risk. Loans are considered a Level 3 classification.

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

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

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

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

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11 – 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 June 30, 2022 (in thousands):

	June 30, 2022
	Fair Value Measurements Using:
	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Recurring fair value measurements:
Investment securities available for sale
Government National Mortgage Association mortgage-backed securities	$	3,333	$	-	$	3,333	$	-
Federal National Mortgage Association mortgage- backed securities		122		-		122		-
Total investment securities available for sale	$	3,455	$	-	$	3,455	$	-
Total recurring fair value measurements	$	3,455	$	-	$	3,455	$	-

Nonrecurring fair value measurements
Impaired loans	$	1,863	$	-	$	-	$	1,863
Total nonrecurring fair value measurements	$	1,863	$	-	$	-	$	1,863

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, 2021 (in thousands):

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

Nonrecurring fair value measurements
Impaired loans	$	140	$	-	$	-	$	140
Total nonrecurring fair value measurements	$	140	$	-	$	-	$	140

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11 – 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 June 30, 2022 and December 31, 2021 (in thousands):

	June 30, 2022
	Quantitative Information About Level 3 Fair Value Measurements
	Total Fair Value		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$	1,863	Appraisal of collateral (1)	Appraisal adjustments (2)		8%	(8%)

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

________________

(1)

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

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percentage of the appraisal.

The estimated fair values of the Company’s financial instruments that are not required to be measured or reported at fair value were as follows at June 30, 2022 and December 31, 2021 (in thousands):

					Fair Value Measurements at
					June 30, 2022
	Carrying Amount		Fair Value Estimate		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Financial Assets
Investment in interest-earning time deposits	$	8,211	$	8,325	$	-	$	-	$	8,325
Loans held for sale		90,327		95,437		-		95,437		-
Loans receivable, net		547,426		553,379		-		-		553,379

Financial Liabilities
Deposits		589,765		582,625		394,464		-		188,161
FHLB long-term borrowings		99,193		98,969		-		-		98,969
Subordinated debt		7,949		7,978		-		-		7,978

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

					Fair Value Measurements at
					December 31, 2021
	Carrying Amount		Fair Value Estimate		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Financial Assets
Investment in interest-earning time deposits	$	7,924	$	8,091	$	-	$	-	$	8,091
Loans held for sale		107,823		112,843		-		112,843		-
Loans receivable, net		403,966		409,203		-		-		409,203

Financial Liabilities
Deposits		447,166		446,576		267,255		-		179,321
FHLB long-term borrowings		23,193		23,231		-		-		23,231
FRB long-term borrowings		3,895		3,895		-		-		3,895
Subordinated debt		7,933		8,312		-		-		8,312

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

Note 12 – Operating Segments

The Company's operations currently consist of two reportable operating segments: Banking and Mortgage Banking. 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 Real Estate, LLC, Quaint Oak Abstract, LLC, Quaint Oak Insurance Agency, LLC, Oakmont Capital Holdings, 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 Mortgage Banking Segment originates residential mortgage loans which are sold into the secondary market along with the loans’ servicing rights. The profitability of this segment’s operations depends primarily on the gains realized from the sale of loans and processing fees. The Mortgage Banking Segment is also subject to an extensive system of laws and regulations that are intended primarily for the protection of consumers.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 12 – Operating Segments (Continued)

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

	As of or for the Three Months Ended June 30,
	2022							2021
	Quaint Oak Bank(1)		Quaint Oak Mortgage			Consolidated		Quaint Oak Bank(1)		Quaint Oak Mortgage			Consolidated
Net Interest Income (Loss)	$	5,807	$	3		$	5,810	$	4,799	$	(62	)	$	4,737
Provision for Loan Losses		599		-			599		448		-			448
Net Interest Income (Loss) after Provision for Loan Losses		5,208		3			5,211		4,351		(62	)		4,289

Non-Interest Income
Mortgage banking, equipment lending and title abstract fees		805		19			824		402		120			522
Real estate sales commissions, net		64		-			64		33		-			33
Insurance commissions		139		-			139		133		-			133
Other fees and services charges		82		-			82		51		-			51
Net loan servicing income		308		-			308		328		-			328
Income from bank-owned life insurance		22		-			22		21		-			21
Net gain on loans held for sale		2,222		636			2,858		421		914			1,335
Gain on sale of investment securities available for sale		-		-			-		45		-			45
Gain on the sale of SBA loans		34		-			34		66		-			66
Total Non-Interest Income		3,676		655			4,331		1,500		1,034			2,534

Non-Interest Expense
Salaries and employee benefits		4,389		502			4,891		2,935		504			3,439
Directors’ fees and expenses		72		-			72		60		-			60
Occupancy and equipment		391		75			466		312		75			387
Data processing		131		32			163		127		75			202
Professional fees		203		25			228		200		18			218
FDIC deposit insurance assessment		113		-			113		73		-			73
Other real estate owned expenses		-		-			-		3		-			3
Advertising		121		33			154		109		13			122
Amortization of other intangible		12		-			12		12		-			12
Other		450		40			490		294		25			319
Total Non-Interest Expense		5,882		707			6,589		4,125		710			4,835
Pretax Segment Profit (Loss)	$	3,002	$	(49	)	$	2,953	$	1,726	$	262		$	1,988
Segment Assets	$	734,104	$	17,818		$	751,922	$	486,776	$	40,200		$	526,976

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

Commercial and Oakmont Capital Holdings, LLC.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 12 – Operating Segments (Continued)

	As of or for the Six Months Ended June 30,
	2022							2021
	Quaint Oak Bank(1)		Quaint Oak Mortgage			Consolidated		Quaint Oak Bank(1)		Quaint Oak Mortgage			Consolidated
Net Interest Income (Loss)	$	11,310	$	(23	)	$	11,287	$	8,541	$	(176	)	$	8,365
Provision for Loan Losses		1,278		-			1,278		702		-			702
Net Interest Income (Loss) after Provision for Loan Losses		10,032		(23	)		10,009		7,839		(176	)		7,663

Non-Interest Income
Mortgage banking, equipment lending and title abstract fees		790		671			1,461		838		215			1,053
Real estate sales commissions, net		125		-			125		64		-			64
Insurance commissions		255		-			255		240		-			240
Other fees and services charges		248		-			248		173		-			173
Net loan servicing income		474		-			474		551		-			551
Income from bank-owned life insurance		43		-			43		40		-			40
Net gain on loans held for sale		6,546		522			7,068		1,045		1,505			2,550
Gain on sale of investment securities available for sale		-		-			-		362		-			362
Gain on the sale of SBA loans		167		-			167		267		-			267
Total Non-Interest Income		8,648		1,193			9,841		3,580		1,720			5,300

Non-Interest Expense
Salaries and employee benefits		8,477		1,005			9,482		5,863		976			6,839
Directors’ fees and expenses		143		-			143		128		-			128
Occupancy and equipment		743		143			886		610		154			764
Data processing		289		71			360		257		150			407
Professional fees		361		51			412		346		35			381
FDIC deposit insurance assessment		229		-			229		124		-			124
Other real estate owned expenses		-		-			-		12		-			12
Advertising		297		65			362		200		27			227
Amortization of other intangible		24		-			24		24		-			24
Other		815		58			873		603		45			648
Total Non-Interest Expense		11,378		1,393			12,771		8,167		1,387			9,554
Pretax Segment Profit (Loss)	$	7,302	$	(223	)	$	7,079	$	3,252	$	157		$	3,409
Segment Assets	$	734,104	$	17,818		$	751,922	$	486,776	$	40,200		$	526,976

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

Commercial and Oakmont Capital Holdings, LLC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements Are Subject to Change

This Quarterly Report contains certain forward-looking statements (as defined in the Securities Exchange Act of 1934 and the regulations thereunder). Forward-looking statements are not historical facts but instead represent only the beliefs, expectations or opinions of the Company and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward-looking statements may be identified by the use of such words as: “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or words of similar meaning, or future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly.” Forward-looking statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks, uncertainties and assumptions, many of which are difficult to predict and generally are beyond the control of and its management, that could cause actual results to differ materially from those expressed in, or implied or projected by, forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) economic and competitive conditions which could affect the volume of loan originations, deposit flows and real estate values; (2) the levels of non-interest income and expense and the amount of loan losses; (3) competitive pressure among depository institutions increasing significantly; (4) changes in the interest rate environment causing reduced interest margins; (5) general economic conditions, either nationally or in the markets in which the Company is or will be doing business, being less favorable than expected;(6) political and social unrest, including acts of war or terrorism; (7) the impact of the current outbreak of the novel coronavirus (COVID-19) or (8) legislation or changes in regulatory requirements adversely affecting the business in which the Company is or will be engaged. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

General

The Company was formed in connection with the Bank’s conversion to a stock savings bank completed on July 3, 2007. The Company’s results of operations are dependent primarily on the results of the Bank, which is a wholly owned subsidiary of the Company, along with the Bank’s wholly owned subsidiaries. The Bank’s results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by provisions for loan losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation, directors’ fees and expenses, office occupancy and equipment expense, data processing expense, professional fees, advertising expense, FDIC deposit insurance assessment, and other expenses. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial condition and results of operations.

At June 30, 2022, the Bank has six wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, Quaint Oak Insurance Agency, LLC, and Oakmont Commercial, LLC, each a Pennsylvania limited liability company. The mortgage company offers mortgage banking primarily in the Lehigh Valley, Delaware Valley and Philadelphia County regions of Pennsylvania. The real estate and abstract companies offer real estate sales and title abstract services, respectively, primarily in the Lehigh Valley region of Pennsylvania. These companies began operation in July 2009. In February, 2019, Quaint Oak Mortgage opened a mortgage banking office in Philadelphia, Pennsylvania. QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. Quaint Oak Insurance Agency, LLC began operations in August 2016 and provides a broad range of personal and commercial insurance coverage solutions. Oakmont Commercial, LLC was formed in October 2021 and operates as a multi-state specialty commercial real estate financing company. As of January 4, 2021, the Bank holds a majority equity position in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota. All significant intercompany balances and transactions have been eliminated.

COVID-19

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The effects of COVID-19 did not have a material impact on the financial results of the Company as of June 30, 2022. Due to orders issued by the governor of Pennsylvania and for the health of our customers and employees, the Bank closed lobbies to all three branch offices but remained fully operational. Other immediate responses to the pandemic included some of the following actions by the Company:

• Moved more than 92% of its employees to remote work-from-home status.

• Waived fees on deposit accounts and cash management services.

In response to the COVID-19 crisis, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law on March 27, 2020. The CARES Act provides an estimated $2.2 trillion of economy-wide financial stimulus to combat the pandemic and stimulate the economy in the form of financial aid to individuals, businesses, nonprofits, states, and municipalities through loans, grants, tax changes, and other types of relief.

The following describes some of our responses to COVID-19 relative to the CARES Act, and other effects of the pandemic on our business.

Paycheck Protection Program. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, we were automatically authorized to originate PPP loans and chose to participate. Since March 2020, the Company has continued to work diligently to help support its existing and new customers through the SBA Paycheck Protection Program (“PPP”), loan modifications, loan deferrals and fee waivers. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”) became law. The Economic Aid Act opened a new PPP loan period for first loans and implemented a second loan draw for certain PPP borrowers, each through May 31, 2021. Under the first round, the Company funded 854 PPP loans totaling $95.1 million. As of June 30, 2022, 853 of these first round PPP loans totaling $94.6 million were forgiven under the SBA forgiveness program. Under the second round of PPP the Company funded 985 PPP loans totaling $88.4 million. As of June 30, 2022, 882 of the second round PPP loans totaling $75.1 million have been forgiven under the SBA forgiveness program. The Company recognized approximately $882,000 and $4.4 million of deferred loan fees amortization related to PPP loans for the six months ended June 30, 2022 and the year ended December 31, 2021, respectively.

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

In April 2020, the Bank received approval to borrow from the FRB under the PPPLF program to assist in funding PPP loans. Through June 30, 2022, the Bank used the FRB program to fund $52.1 million of PPP loans. The Bank paid all PPP loans pledged as collateral under the PPPLF program and had no outstanding advances with the FRB at June 30, 2022. Through June 30, 2022 the Bank has not used the PPPLF program to fund any round two PPP loans.

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

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

The Bank addresses loan payment modification requests on a case-by-case basis considering the effects of the COVID-19 pandemic, related economic slow-down and stay-at-home orders on our customer and their current and projected cash flows through the term of the loan. Through June 30, 2022, the Bank modified 231 loans with principal balances totaling $90.6 million representing approximately 16.4% of our June 30, 2022 loan balances. A majority of deferrals are two-month payment deferrals of principal and interest, with payments after deferral increased to collect amounts deferred. In some cases, certain loans were granted additional deferrals. As of June 30, 2022 there are no loans that are still on deferral.

Critical Accounting Policies

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. Critical 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.

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the consolidated financial statements as of June 30, 2022 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K.

Comparison of Financial Condition at June 30, 2022 and December 31, 2021

General. The Company’s total assets at June 30, 2022 were $751.9 million, an increase of $197.8 million, or 35.7%, from $554.1 million at December 31, 2021. This growth in total assets was primarily due to a $143.5 million, or 35.5%, increase in loans receivable, net, and a $68.2 million, or 636.9%, increase in cash and cash equivalents. These increases were partially offset by a $17.5 million, or 16.2%, decrease in loans held for sale, and a $578,000, or 14.3%, decrease in investment securities available for sale. The largest increases within the loan portfolio occurred in commercial real estate loans which increased $114.5 million, or 62.3%, multi-family residential loans which increased $14.2 million, or 48.4%, one-to-four family owner occupied loans which increased $5.9 million, or 60.1%, and construction loans which increased $9.9 million, or 62.2%. The increase in commercial real estate loans was primarily due to the purchase of a $55.5 million loan portfolio by Oakmont Commercial, LLC in April, 2022.

Cash and Cash Equivalents. Cash and cash equivalents increased $68.2 million, or 636.9%, from $10.7 million at December 31, 2021 to $78.9 million at June 30, 2022, with the expectation that excess liquidity will be used to fund loans. The increase in cash and cash equivalents was primarily due to the proceeds from the sale of a large pool of equipment loans at the end of June 2022.

Investment in Interest-Earning Time Deposits. Investment in interest-earning time deposits increased $287,000, or 3.6%, from $7.9 million at December 31, 2021 to $8.2 million at June 30, 2022 as four interest-earning time deposits matured and were not renewed and five interest-earning time deposits were purchased during the three months ended June 30, 2022.

Investment Securities Available for Sale. Investment securities available for sale decreased $578,000, or 14.3%, from $4.0 million at December 31, 2021 to $3.5 million at June 30, 2022, due primarily to the principal repayments on these securities during the six months ended June 30, 2022.

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

Loans Receivable, Net. Loans receivable, net, increased $143.5 million, or 35.5%, to $547.4 million at June 30, 2022 from $404.0 million December 31, 2021. This increase was funded primarily from deposits. Increases within the portfolio occurred in commercial real estate which increased $114.5 million, or 62.3%, multi-family residential loans which increased $14.2 million, or 48.4%, one-to-four family owner occupied loans which increased $5.9 million, or 60.1%, and construction loans which increased $9.9 million, or 62.2%. The increase in loans receivable, net was partially offset by a $1.4 million, or 1.1%, decrease in commercial business loans. However, by excluding PPP loans from this category, the balance of commercial business loans increased $26.2 million, or 19.9%. The increase in commercial real estate loans was primarily due to the purchase of a $55.5 million loan portfolio by Oakmont Commercial, LLC in April, 2022. The Company continues its strategy of diversifying its loan portfolio with higher yielding and shorter-term loan products and selling substantially all of its newly originated one-to-four family owner-occupied loans into the secondary market.

Deposits. Total deposits increased $142.6 million, or 31.9%, to $589.8 million at June 30, 2022 from $447.2 million at December 31, 2021. This increase in deposits was primarily attributable to increases of $127.3 million, or 63.4%, in money market accounts, $8.8 million, or 13.6%, in non-interest bearing checking accounts, and $6.8 million, or 3.8%, in certificates of deposit. The increase in deposits was partially offset by a $295,000, or 16.1%, decrease in savings accounts and a $5,000, or 50.0%, decrease in passbook accounts. The increase in money market accounts was primarily due to a $150.0 million deposit in May, 2022 through a deposit placement agreement with a third party bank.

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

Accrued Expenses and Other Liabilities. Accrued expenses and other liabilities increased $2.3 million, or 37.8%, to $8.3 million at June 30, 2022 from $6.0 million at December 31, 2021, due primarily to an increase in tax and other expense accruals.

Stockholders’ Equity. Total stockholders’ equity increased $5.3 million, or 14.3%, to $42.2 million at June 30, 2022 from $36.9 million at December 31, 2021. Contributing to the increase was net income for the six months ended June 30, 2022 of $4.0 million, net income attributable to noncontrolling interest of $1.5 million, common stock earned by participants in the employee stock ownership plan of $175,000, amortization of stock awards and options under our stock compensation plans of $84,000, the reissuance of treasury stock under the Bank’s 401(k) Plan of $33,000 and the reissuance of treasury stock for exercised stock options of $148,000. These increases were partially offset by dividends paid of $485,000, noncontrolling interest distribution of $176,000, other comprehensive loss, net of $41,000, and the purchase of treasury stock of $28,000.

Comparison of Operating Results for the Three Months Ended June 30, 2022 and 2021

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

Net Interest Income. Net interest income increased $1.1 million, or 22.7% to $5.8 million for the three months ended June 30, 2022 from $4.7 million for the three months ended June 30, 2021. The increase was driven by a $1.5 million, or 25.1%, increase in interest income. This increase in net interest income was partially offset by a $392,000, or 35.4%, increase in interest expense.

Interest Income. The $1.5 million, or 25.1%, increase in interest income for the three months ended June 30, 2022 over the comparable period in 2021 was primarily due to a $104.6 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $485.8 million for the three months ended June 30, 2021 to an average balance of $590.4 million for the three months ended June 30, 2022, and had the effect of increasing interest income $1.2 million. Also contributing to the increase in interest income was a 16 basis point increase in the yield on average loans receivable, net, including loans held for sale, which increased from 4.72% for the three months ended June 30, 2021 to 4.88% for the three months ended June 30, 2022, and had the effect of increasing interest income $230,000. Contributing to both the increase in average balance of loans receivable, net and yield was the purchase of a $55.5 million commercial real estate loan portfolio by Oakmont Commercial, LLC in April, 2022.

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

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.

	Three Months Ended June 30,
	2022							2021
	Average Balance		Interest		Average Yield/ Rate			Average Balance		Interest		Average Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Due from banks, interest-bearing	$	50,148	$	42		0.33	%	$	40,420	$	8		0.08	%
Investment in interest-earning time deposits		7,071		28		1.58			7,965		51		2.56
Investment securities available for sale		3,682		8		0.76			6,075		30		1.98
Loans receivable, net (1) (2)		590,403		7,200		4.88			485,787		5,735		4.72
Investment in FHLB stock		4,442		30		2.70			1,274		19		5.97
Total interest-earning assets		655,746		7,308		4.46	%		541,521		5,843		4.32	%
Non-interest-earning assets		20,231							15,234
Total assets	$	675,977						$	556,755

Interest-bearing liabilities:
Passbook accounts	$	5	$	-	*	%	$	11	$	-	*	%
Savings accounts		1,548		1	0.26			1,536		1	0.26
Money market accounts		255,129		476	0.75			178,052		289	0.65
Certificate of deposit accounts		185,086		430	0.93			174,909		502	1.15
Total deposits		441,768		907	0.82			354,508		792	0.89

FHLB short-term borrowings		19,722		53	1.07			-		-	-
FHLB long-term borrowings		79,061		389	1.97			26,424		129	1.95
FRB long-term borrowings		1,656		1	0.24			34,245		29	0.34
Subordinated debt		7,944		130	6.55			7,910		130	6.57
Other short-term borrowings		458		18	15.72			2,133		26	4.88
Total interest-bearing liabilities		550,609		1,498	1.09	%		425,220		1,106	1.04	%
Non-interest-bearing liabilities		86,895						104,345
Total liabilities		637,504						529,565
Stockholders’ Equity		38,473						27,190
Total liabilities and Stockholders’ Equity	$	675,977					$	556,755
Net interest-earning assets	$	105,137					$	116,301
Net interest income; average interest rate spread			$	5,810	3.37	%			$	4,737	3.28	%
Net interest margin(3)					3.54	%					3.50	%
Average interest0earning assets to average
interest-bearing liabilities					119.09	%					127.35	%

________________________

* Not meaningful.

(1) Includes loans held for sale.

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

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

Provision for Loan Losses. The Company’s provision for loan losses increased $151,000, or 33.7%, to $599,000 for the three months ended June 30, 2022 from $448,000 for the three months ended June 30, 2021. The increase in the provision for loan losses for the three months ended June 30, 2022 over the three months ended June 30, 2021 was based on an evaluation of the allowance relative to such factors as volume of the loan portfolio, concentrations of credit risk, prevailing economic conditions, prior loan loss experience and amount of non-performing loans at June 30, 2022.

Non-performing loans amounted to $1.7 million, or 0.32%, of net loans receivable at June 30, 2022, consisting of two loans on non-accrual status. Comparably, non-performing loans amounted to $9,000 at December 31, 2021 consisting of one loan on non-accrual status. The non-performing loan at December 31, 2021 consisted of one one-to-four family residential non-owner occupied loan, and is generally well-collateralized or adequately reserved for. The non-performing loans at June 30, 2022 include one one-to-four family residential non-owner occupied loan and one multi-family residential loan, and both are generally well-collateralized or adequately reserved for. The allowance for loan losses as a percent of total loans receivable, net was 1.18% at June 30, 2022 and 1.29% at December 31, 2021.

Non-Interest Income. Non-interest income increased $1.8 million, or 71.0%, from $2.5 million for the three months ended June 30, 2021 to $4.3 million for the three months ended June 30, 2022. The increase was primarily attributable to a $1.5 million, or 114.1%, increase in net gain on loans held for sale, a $302,000, or 57.9%, increase in mortgage banking, equipment lending, and title abstract fees, a $31,000, or 60.8%, increase in other fees and service charges, and a $31,000, or 93.9%, increase in real estate commissions, net. The increase in net gain on loans held for sale was primarily due to the sale of $75.3 million of equipment loans during the three months ended June 30, 2022. These increases were partially offset by a $45,000, or 100.0%, decrease in gain on sale of investment securities available for sale, a $32,000, or 48.5%, decrease in gain on sale of SBA loans, and a $20,000, or 6.1%, decrease in net loan servicing income.

Non-Interest Expense. Total non-interest expense increased $1.8 million, or 36.3%, from $4.8 million for the three months ended June 30, 2021 to $6.6 million for the three months ended June 30, 2022, primarily due to a $1.5 million, or 42.2%, increase in salaries and employee benefits expense, a $171,000, or 53.6%, increase in other expense, a $79,000, or 20.4%, increase in occupancy and equipment expense, a $40,000, or 54.8%, increase in FDIC deposit insurance assessment, a $32,000, or 26.2%, increase in advertising expense, a $12,000, or 20.0%, increase in Directors’ fees and expenses, and a $10,000, or 4.6%, increase in professional fees. The increase in salaries and employee benefits is primarily due to expanding and improving the level of staff at the Bank and its subsidiary companies, including Oakmont. Oakmont’s results for the three months ended June 30, 2022 also contributed to the increases in occupancy and equipment expense, professional fees, advertising expense, and other expense. The increase in non-interest expense was partially offset by a $39,000, or 19.3%, decrease in data processing expense, and a $3,000, or 100.0%, decrease in other real estate owned expenses.

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

Comparison of Operating Results for the Six Months Ended June 30, 2022 and 2021

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

Net Interest Income. Net interest income increased $2.9 million, or 34.9% to $11.3 million for the six months ended June 30, 2022 from $8.4 million for the six months ended June 30, 2021. The increase was driven by a $2.9 million, or 27.5%, increase in interest income, partially offset by a $27,000, or 1.1%, decrease in interest expense.

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

Interest Expense. The $27,000, or 1.1%, increase in interest expense was primarily attributable to a $26.2 million increase in average FHLB short-term borrowings which increased from $1.5 million for the six months ended June 30, 2021 to $27.7 million for the six months ended June 30, 2022, and had the effect of increasing interest expense by $113,000. Also contributing to the increase in interest expense was a $73.0 million increase in average money market accounts which increased from an average balance of $153.7 million for the six months ended June 30, 2021 to an average balance of $226.7 million for the six months ended June 30, 2022, and had the effect of increasing interest expense by $251,000. The increase in money market average balance was impacted by a $150.0 million deposit in May, 2022 through a deposit placement agreement with a third party bank. This increase in money market interest expense was partially offset by a nine basis point decrease in the rate on average money market accounts, which decreased from 0.69% for the six months ended June 30, 2021 to 0.60% for the six months ended June 30, 2022, and had the effect of decreasing interest expense by $97,000. This increase in interest expense was partially offset by a 31 basis point decrease in the rate on average certificate of deposit accounts, which decreased from 1.23% for the six months ended June 30, 2021 to 0.92% for the six months ended June 30, 2022, and had the effect of decreasing interest expense by $287,000. The average interest rate spread increased from 2.96% for the six months ended June 30, 2021 to 3.57% for the six months ended June 30, 2022 while the net interest margin increased from 3.18% for the six months ended June 30, 2021 to 3.73% for the six months ended June 30, 2022.

	Six Months Ended June 30,
	2022							2021
					Average							Average
	Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate
	(Dollars in thousands)
Interest-earning assets:
Due from banks, interest-bearing	$	31,363	$	44		0.28	%	$	35,766	$	19		0.11	%
Investment in interest-earning time deposits		7,255		62		1.71			8,275		109		2.63
Investment securities available for sale		3,808		17		0.89			7,604		84		2.21
Loans receivable, net (1) (2)		559,307		13,500		4.83			473,487		10,478		4.43
Investment in FHLB stock		3,448		58		3.36			1,398		42		6.01
Total interest-earning assets		605,181		13,681		4.52	%		526,530		10,732		4.08	%
Non-interest-earning assets		17,865							15,171
Total assets	$	623,046						$	541,701
Interest-bearing liabilities:
Passbook accounts	$	7	$	-		*	%	$	10	$	-		*	%
Savings accounts		1,702		2		0.24			1,524		2		0.26
Money market accounts		226,724		681		0.60			153,717		528		0.69
Certificate of deposit accounts		184,112		844		0.92			185,376		1,138		1.23
Total deposits		412,545		1,527		0.74			340,627		1,668		0.98

FHLB short-term borrowings		27,656		75	0.54			1,492		6	0.80
FHLB long-term borrowings		51,281		501	1.95			27,303		268	1.96
FRB long-term borrowings		2,613		4	0.31			40,284		69	0.34
Subordinated debt		7,940		260	6.55			7,906		260	6.58
Other short-term borrowings		229		27	23.58			5,052		96	3.80
Total interest-bearing liabilities		502,264		2,394	0.95	%		422,664		2,367	1.12	%
Non-interest-bearing liabilities		83,323						92,642
Total liabilities		585,587						515,306
Stockholders’ Equity		37,459						26,395
Total liabilities and Stockholders’ Equity	$	623,046					$	541,701
Net interest-earning assets	$	102,917					$	103,866
Net interest income; average interest rate spread			$	11,287	3.57	%			$	8,365	2.96	%
Net interest margin (3)					3.73	%					3.18	%
Average interest-earning assets to
average interest-bearing liabilities					120.49	%					124.57	%

________________________

* Not meaningful.

(1) Includes loans held for sale.

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

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

Provision for Loan Losses. The Company’s provision for loan losses increased $576,000, or 82.1%, to $1.3 million for the six months ended June 30, 2022 from $702,000 for the six months ended June 30, 2021. The increase in the provision for loan losses for the six months ended June 30, 2022 over the six months ended June 30, 2021 was based on an evaluation of the allowance relative to such factors as volume of the loan portfolio, concentrations of credit risk, prevailing economic conditions, prior loan loss experience and amount of non-performing loans at June 30, 2022.

Non-Interest Income. Non-interest income increased $4.5 million, or 85.7%, from $5.3 million for the six months ended June 30, 2021 to $9.8 million for the six months ended June 30, 2022. The increase was primarily attributable to a $4.5 million, or 177.2%, increase in net gain on loans held for sale, a $408,000, or 38.7%, increase in mortgage banking, equipment lending, and title abstract fees, a $75,000, or 43.4%, increase in other fees and service charges, a $61,000, or 95.3%, increase in real estate commissions, net, and a $15,000, or 6.3%, increase in insurance commissions. The increase in net gain on loans held for sale was primarily due to the sale of $183.2 million of equipment loans during the six months ended June 30, 2022. These increases were partially offset by a $362,000, or 100.0%, decrease in gain on sale of investment securities available for sale, a $100,000, or 37.5%, decrease in gain on sale of SBA loans, and a $77,000, or 14.0%, decrease in net loan servicing income.

Non-Interest Expense. Total non-interest expense increased $3.2 million, or 33.7%, from $9.6 million for the six months ended June 30, 2021 to $12.8 million for the six months ended June 30, 2022, primarily due to a $2.6 million, or 38.6%, increase in salaries and employee benefits expense, a $225,000, or 34.7%, increase in other expense, a $135,000, or 59.5%, increase in advertising expense, a $122,000, or 16.0%, increase in occupancy and equipment expense, a $105,000, or 84.7%, increase in FDIC deposit insurance assessment, a $31,000, or 8.1%, increase in professional fees, and a $15,000, or 11.7%, increase in Directors’ fees and expenses. The increase in salaries and employee benefits is primarily due to expanding and improving the level of staff at the Bank and its subsidiary companies, including Oakmont. Oakmont’s results for the six months ended June 30, 2022 also contributed to the increases in occupancy and equipment expense, professional fees, advertising expense, and other expense. The increase in non-interest expense was partially offset by a $47,000, or 11.5%, decrease in data processing expense, and a $12,000, or 100.0%, decrease in other real estate owned expenses.

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

Operating Segments

The Company's operations consist of two reportable operating segments: Banking and Mortgage Banking. Our Banking Segment generates revenues primarily from its lending, deposit gathering and fee business activities. Our Mortgage Banking Segment originates residential mortgage loans which are sold into the secondary market along with the loans’ servicing rights. Detailed segment information appears in Note 12 in the Notes to Unaudited Consolidated Financial Statements.

Our Banking Segment reported a pre-tax segment profit (“PTSP”) for the three months ended June 30, 2022 of $3.0 million, a $1.3 million, or 73.9%, increase from the same period in 2021. This increase in PTSP was primarily due to a $2.2 million, or 145.1%, increase in non-interest income, and a $1.0 million or 21.0%, increase in net interest income. These increases were partially offset by a $1.8 million, or 42.6%, increase in non-interest expense, and a $151,000, or 33.7% increase in the provision for loan losses. The increase in non-interest income was primarily due to a $1.8 million increase in the gain on the sale of equipment loans, and a $403,000, or 100.2%, increase in equipment lending and title abstract fees, partially offset by a $45,000, or 100.0%, decrease in gain on sale of investment securities available for sale. The increase in non-interest expense was primarily due to a $1.5 million, or 49.5%, increase in salaries and employee benefits expense, a $156,000, or 53.1% increase in other expenses, a $79,000, or 25.3%, increase in occupancy and equipment expense, and a $40,000, or 54.8%, increase in FDIC deposit insurance assessment expense.

Our Mortgage Banking Segment reported a pre-tax segment loss (“PTSL”) for the three months ended June 30, 2022 of $49,000, a $311,000, or 118.7%, decrease from the same period in 2021. The decrease in PTSL was primarily due to a $379,000, or 36.7%, decrease in non-interest income partially offset by a $65,000, or 104.8%, increase in net interest income, and a $3,000, or 0.4%, decrease in non-interest expense. The decrease in non-interest income was primarily due to a $278,000, or 30.4%, decrease net gain on loans held for sale, and a $101,000, or 84.2%, decrease in mortgage banking fees. The decrease in non-interest expense was primarily due to a $43,000, 57.3%, decrease in data processing, partially offset by a $20,000, or 153.8%, increase in advertising expense, and a $15,000, or 60.0%, increase in other non-interest expenses.

Our Banking Segment reported a pre-tax segment profit (“PTSP”) for the six months ended June 30, 2022 of $7.3 million, a $4.0 million, or 124.5%, increase from the same period in 2021. This increase in PTSP was primarily due to a $5.1 million, or 141.6%, increase in non-interest income, and a $2.8 million, or 32.4%, increase in net interest income. These increases were partially offset by a $3.2 million, or 39.3%, increase in non-interest expense, and a $576,000, or 82.1% increase in the provision for loan losses. The increase in non-interest income was primarily due to a $5.5 million, or 526.4%, increase in gain on the sale of equipment loans, a $75,000, or 43.4%, increase in other fees and service charges, and a $61,000, or 95.3%, increase in real estate sales commissions, net, partially offset by a $362,000, or 100.0%, decrease in gain on sale of investment securities available for sale, a $100,000, or 37.5% decrease in gain on sale of SBA loans, a $77,000, or 14.0%, decrease in net loan servicing income, and a $48,000, or 5.7%, decrease in equipment lending and title abstract fees. The increase in non-interest expense was primarily due to a $2.6 million, or 44.6%, increase in salaries and employee benefits expense, a $212,000 or 35.2%, increase in other expenses, a $133,000, or 21.8%, increase in occupancy and equipment expense, a $105,000, or 84.7% increase in FDIC deposit insurance assessment, and a $97,000, or 48.5%, increase in advertising expense.

Our Mortgage Banking Segment reported a pre-tax segment loss (“PTSL”) for the six months ended June 30, 2022 of $223,000, a $380,000, or 242.0%, decrease from the same period in 2021. The decrease in PTSL was primarily due to a $527,000, or 30.6%, decrease in non-interest income, partially offset by a $153,000, or 86.9%, increase in net interest income, and a $6,000, or 0.4%, increase in non-interest expense. The decrease in non-interest income was primarily due to a $983,000, 65.3%, decrease in net gain on loans held for sale, partially offset by a $456,000, or 212.1%, increase in mortgage banking and title abstract fees. The increase in non-interest expense was primarily due to a $38,000, or 140.7%, increase in advertising expense, a $29,000, or 3.0%, increase in salaries and employee benefits, a $16,000, or 45.7%, increase in professional fees and a $13,000, or 28.9%, increase in other non-interest expense, partially offset by a $79,000, 52.7%, decrease in data processing and an $11,000, or 7.1%, decrease in occupancy and equipment expense.

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 June 30, 2022, the Company's cash and cash equivalents amounted to $78.9 million. At such date, the Company also had $5.8 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 June 30, 2022, Quaint Oak Bank had outstanding commitments to originate loans of $25.3 million, commitments under unused lines of credit of $51.3 million, and $3.3 million under standby letters of credit.

At June 30, 2022, certificates of deposit scheduled to mature in one year or less totaled $79.3 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case.

In addition to cash flow from loan payments and prepayments and deposits, the Company has significant borrowing capacity available to fund liquidity needs. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Pittsburgh (FHLB), which provide an additional source of funds. As of June 30, 2022, we had $99.2 million of borrowings from the FHLB and had $283.5 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 June 30, 2022 Quaint Oak Bank had $461,000 in borrowing capacity with the Federal Reserve Bank of Philadelphia. There were no borrowings under this facility at June 30, 2022. Oakmont Capital Holdings, LLC has two lines of credit with a credit union which are used to fund equipment loans totaling $11.0 million at June 30, 2022. As of June 30, 2022, there were no outstanding balances on these two lines of credit.

Total stockholders’ equity increased $5.3 million, or 14.3%, to $42.2 million at June 30, 2022 from $36.9 million at December 31, 2021. Contributing to the increase was net income for the six months ended June 30, 2022 of $4.0 million, net income attributable to noncontrolling interest of $1.5 million, common stock earned by participants in the employee stock ownership plan of $175,000, amortization of stock awards and options under our stock compensation plans of $84,000, the reissuance of treasury stock under the Bank’s 401(k) Plan of $33,000 and the reissuance of treasury stock for exercised stock options of $148,000. These increases were partially offset by dividends paid of $485,000, noncontrolling interest distribution of $176,000, other comprehensive loss, net of $41,000, and the purchase of treasury stock of $28,000. For further discussion of the stock compensation plans, see Note 10 in the Notes to Unaudited 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 June 30, 2022, Quaint Oak Bank exceeded each of its capital requirements with ratios of 6.38%, 8.18%, 8.18% and 9.35%, respectively. As a small savings and loan holding company eligible for exemption, the Company is not currently subject to any regulatory capital requirements.

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 June 30, 2022, we had unfunded commitments under lines of credit of $51.3 million, $25.3 million of commitments to originate loans, and $3.3 million under standby letters of credit. We had no commitments to advance additional amounts pursuant to outstanding lines of credit or undisbursed construction loans.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES

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 June 30, 2022. Based on their evaluation of the Company’s disclosure controls and procedures, the Company’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 the Company 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.

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 second fiscal quarter of fiscal 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1.

LEGAL PROCEEDINGS

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition and operating results of the Company.

ITEM 1A.

RISK FACTORS

Not applicable.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Not applicable.

(b) Not applicable.

The Company’s repurchases of its common stock made during the quarter ended June 30, 2022 including stock-for-stock option exercises of outstanding stock options, are set forth in the table below:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1, 2022 – April 30, 2022		-	$	-		-		24,375
May 1, 2022 – May 31, 2022		414		23.90		-		24,375
June 1, 2022 – June 30, 2022		157		24.10		-		24,375
Total		571	$	23.97		-		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 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS

No.		Description
31.1		Rule 13a-14(d) and 15d-14(d) Certification of the Chief Executive Officer.
31.2		Rule 13a-14(d) and 15d-14(d) Certification of the Chief Financial Officer.
32.0		Section 1350 Certification.
101.INS		Inline XBRL Instance Document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definitions Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements 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.

Date: August 12, 2022	By:	/s/Robert T. Strong
		Robert T. Strong
		President and Chief Executive Officer


		/s/John J. Augustine
Date: August 12, 2022	By:	John J. Augustine Executive Vice President and Chief Financial Officer

ex_407360.htm

EXHIBIT 31.1

I, Robert T. Strong, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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: August 12, 2022

/s/Robert T. Strong

Robert T. Strong

President and Chief Executive Officer

ex_407361.htm

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, John J. Augustine certify that:

1. I have reviewed this quarterly report on Form 10-Q of Quaint Oak Bancorp, Inc. (the "registrant");

(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: August 12, 2022

/s/John J. Augustine

John J. Augustine

Executive Vice President and Chief Financial Officer

ex_407362.htm

EXHIBIT 32.0

SECTION 1350 CERTIFICATION

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 quarterly report on Form 10-Q of the Company for the period ended June 30, 2022 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m(a) or 78o(d); and

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

Date: August 12, 2022		/s/Robert T. Strong
	By:	Robert T. Strong President and Chief Executive Officer


Date: August 12, 2022		/s/John J. Augustine
	By:	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.

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