QUAINT OAK BANCORP INC - Quarter Report: 2022 March (Form 10-Q)

qnto20220331_10q.htm

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

March 31, 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 May 6, 2022, 2,031,646 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 March 31, 2022 and December 31, 2021 (Unaudited)	1

	Consolidated Statements of Income for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	2

	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	4

	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	6

	Notes to the Unaudited Consolidated Financial Statements	8

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4 -	Controls and Procedures	42

PART II - OTHER INFORMATION

Item 1 -	Legal Proceedings	43

Item 1A -	Risk Factors	43

Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3 -	Defaults Upon Senior Securities	45

Item 4 -	Mine Safety Disclosures	45

Item 5 -	Other Information	45

Item 6 -	Exhibits	45

SIGNATURES		46

ITEM 1. FINANCIAL STATEMENTS

Quaint Oak Bancorp, Inc.

Consolidated Balance Sheets (Unaudited)

	At March 31,			At December 31,
	2022			2021
Assets	*(In thousands, except share data)*
Due from banks, non-interest-bearing	$	427		$	854
Due from banks, interest-bearing		43,587			9,851
Cash and cash equivalents		44,014			10,705
Investment in interest-earning time deposits		6,961			7,924
Investment securities available for sale		3,774			4,033
Loans held for sale		56,867			107,823
Loans receivable, net of allowance for loan losses (2022 $5,941; 2021 $5,262)		437,307			403,966
Accrued interest receivable		2,776			3,139
Investment in Federal Home Loan Bank stock, at cost		3,098			2,178
Bank-owned life insurance		4,158			4,137
Premises and equipment, net		2,703			2,653
Goodwill		2,573			2,573
Other intangible, net of accumulated amortization		210			222
Prepaid expenses and other assets		3,694			4,762
Total Assets	$	568,135		$	554,115
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Non-interest bearing	$	76,309		$	64,731
Interest-bearing		382,326			382,435
Total deposits		458,635			447,166
Federal Home Loan Bank short-term borrowings		23,000			26,000
Federal Home Loan Bank long-term borrowings		23,193			23,193
Federal Reserve Bank long-term borrowings		3,349			3,895
Subordinated debt		7,941			7,933
Other short-term borrowings		916			-
Accrued interest payable		298			174
Advances from borrowers for taxes and insurance		2,497			2,856
Accrued expenses and other liabilities		8,342			5,989
Total Liabilities		528,171			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; 2,016,517 and 2,011,313 outstanding at March 31, 2022 and December 31, 2021, respectively		28			28
Additional paid-in capital		15,813			15,685
Treasury stock, at cost: 760,733 and 765,937 shares at March 31, 2022 and December 31, 2021, respectively		(4,955	)		(4,977	)
Accumulated other comprehensive income		2			23
Retained earnings		26,057			24,030
Total Quaint Oak Bancorp, Inc. Stockholders' Equity		36,945			34,789
Noncontrolling Interest		3,019			2,120
Total Stockholders' Equity	$	39,964		$	36,909
Total Liabilities and Stockholders’ Equity	$	568,135		$	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
	March 31,
	2022		2021
	(In thousands)
Interest Income
Interest on loans, including fees	$	6,570	$	4,743
Interest and dividends on time deposits, investment securities, interest-bearing deposits with others, and Federal Home Loan Bank stock		73		146
Total Interest Income		6,643		4,889

Interest Expense
Interest on deposits		620		876
Interest on Federal Home Loan Bank short-term borrowings		22		6
Interest on Federal Home Loan Bank long-term borrowings		112		139
Interest on Federal Reserve Bank long-term borrowings		3		40
Interest on subordinated debt		130		130
Interest on other short-term borrowings		9		70
Total Interest Expense		896		1,261
Net Interest Income		5,747		3,628
Provision for Loan Losses		679		254
Net Interest Income after Provision for Loan Losses		5,068		3,374

Non-Interest Income
Mortgage banking, equipment lending and title abstract fees		637		531
Real estate sales commissions, net		61		31
Insurance commissions		116		107
Other fees and services charges		171		345
Income from bank-owned life insurance		21		19
Net gain on loans held for sale		4,101		1,215
Gain on the sale of SBA loans		133		201
Gain on the sale of investment securities available for sale		-		317
Total Non-Interest Income		5,240		2,766

Non-Interest Expense
Salaries and employee benefits		4,591		3,400
Directors' fees and expenses		71		68
Occupancy and equipment		420		377
Data processing		197		205
Professional fees		184		163
FDIC deposit insurance assessment		116		51
Other real estate owned expenses		-		9
Advertising		208		105
Amortization of other intangible		12		12
Other		384		329
Total Non-Interest Expense		6,183		4,719

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Income (Unaudited)

	For the Three Months Ended
	March 31,
	2022		2021
	(In thousands, except for share data)
Income before Income Taxes	$	4,125	$	1,421
Income Taxes		861		424
Net Income	$	3,264	$	997
Net Income (Loss) Attributable to Noncontrolling Interest	$	1,016	$	(33	)
Net Income Attributable to Quaint Oak Bancorp, Inc.	$	2,248	$	1,030

Earnings per share - basic	$	1.12	$	0.52
Average shares outstanding - basic		2,013,638		1,980,007
Earnings per share - diluted	$	1.05	$	0.50
Average shares outstanding - diluted		2,137,122		2,066,411

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

	Three Months Ended
	March 31,
	2022			2021
	(In thousands)
Net Income	$	3,264		$	997

Other Comprehensive Income (Loss):
Unrealized (losses) gains on investment securities available-for-sale		(27	)		244
Income tax effect		6			(52	)
Reclassification adjustment for gain on sale of investment securities included in net income		-			(317	)
Income tax effect		-			67
Other comprehensive loss		(21	)		(58	)

Total Comprehensive Income	$	3,243		$	939
Comprehensive Income (Loss) Attributable to Noncontrolling Interest	$	1,016		$	(33	)
Comprehensive Income Attributable to Quaint Oak Bancorp, Inc.	$	2,227		$	972

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Stockholders' Equity (Unaudited)

For the Three Months Ended March 31, 2021

											Unallocated			Accumulated
	Common Stock										Common			Other
	Number of					Additional					Stock Held			Compre-						Non-			Total
	Shares					Paid-in		Treasury			by Benefit			hensive			Retained			controlling			Stockholders'
	Outstanding			Amount		Capital		Stock			Plans			Income			Earnings			Interest			Equity
	(In thousands, except 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 (3,607 shares)						41					18												59

Treasury stock purchase	(276	)						(5	)														(5	)

Reissuance of treasury
stock under 401(k) Plan	1,231					12		8															20

Reissuance of treasury
stock for exercised stock
options	2,000					4		12															16
Stock based compensation
expense						43																	43

Noncontrolling interest
initial contribution																				2,236			2,236

Cash dividends declared
($0.09 per share)																	(179	)					(179	)

Net income attributable
to Quaint Oak Bancorp,
Inc.																	1,030			(33	)		997

Other comprehensive loss, net														(58	)								(58	)

BALANCE – MARCH 31, 2021	1,989,483		$	28	$	15,382	$	(5,099	)	$	(33	)	$	60		$	19,316		$	2,203		$	31,857

For the Three Months Ended March 31, 2022

		Common Stock										Accumulated
		Number of					Additional					Other									Total
		Shares					Paid-in		Treasury			Comprehensive			Retained			Noncontrolling			Stockholders'
		Outstanding			Amount		Capital		Stock			Income			Earnings			Interest			Equity
	(In thousands, except 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
(4,000 shares)		4,000					66		25												91

Treasury stock purchase		(638	)						(14	)											(14	)

Reissuance of treasury stock under
401(k) Plan		842					13		5												18

Reissuance of treasury stock for
exercised stock options		1,000					7		6												13

Stock based compensation expense							42														42

Cash dividends declared ($0.11 per
share)															(221	)					(221	)

Noncontrolling interest member
distribution																		(117	)		(117	)

Net income															2,248			1,016			3,264

Other comprehensive loss, net												(21	)								(21	)

BALANCE -
MARCH 31, 2022		2,016,517		$	28	$	15,813	$	(4,955	)	$	2		$	26,057		$	3,019		$	39,964

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

	For the Three Months
	Ended March 31,
	2022			2021
	(In Thousands)
Cash Flows from Operating Activities
Net income	$	3,264		$	997
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses		679			254
Depreciation of premises and equipment		89			111
Amortization of operating right-of-use assets		71			38
Amortization of subordinated debt issuance costs		8			8
Amortization of other intangible		12			12
Net amortization of securities premiums		(2	)		5
Accretion of deferred loan fees and costs, net		(832	)		(793	)
Stock-based compensation expense		133			102
Gain on the sale of investment securities available for sale		-			(317	)
Net gain on loans held for sale		(4,101	)		(1,215	)
Loans held for sale-originations		(102,252	)		(84,893	)
Loans held for sale-proceeds		157,309			76,471
Gain on the sale of SBA loans		(133	)		(201	)
Increase in the cash surrender value of bank-owned life insurance		(21	)		(19	)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		362			(523	)
Prepaid expenses and other assets		1,002			808
Accrued interest payable		124			133
Accrued expenses and other liabilities		2,354			285
Net Cash Provided by (Used in) Operating Activities		58,066			(8,737	)
Cash Flows from Investing Activities
Purchase of interest-earning time deposits		(590	)		-
Redemption of interest-earning time deposits		1,553			1,499
Principal repayments on investment securities available for sale		-			250
Proceeds from the sale of investment securities available for sale		236			4,323
Net increase in loans receivable		(33,056	)		(51,645	)
Purchase of Federal Home Loan Bank stock		(920	)		-
Redemption of Federal Home Loan Bank stock		-			400
Acquisition, net of cash acquired		-			1,259
Capitalized expenditures on other real estate owned		-			(30	)
Purchase of premises and equipment		(139	)		(147	)
Net Cash Used in Investing Activities		(32,916	)		(44,091	)
Cash Flows from Financing Activities
Net increase in demand deposits, money markets, and savings accounts		6,507			95,064
Net increase (decrease) in certificate accounts		4,962			(10,192	)
Decrease in advances from borrowers for taxes and insurance		(359	)		(706	)
Repayments of Federal Home Loan Bank short-term borrowings		(26,000	)		(10,000	)
Proceeds from Federal Home Loan Bank short-term borrowings		23,000			-
Repayments of Federal Reserve Bank long-term borrowings		(546	)		(4,608	)
Proceeds from other borrowings		916			-
Repayments of other borrowings		-			(7,832	)
Dividends paid		(221	)		(179	)
Noncontrolling interest capital distribution		(117	)		-
Purchase of treasury stock		(14	)		(5	)
Proceeds from the reissuance of treasury stock		18			20
Proceeds from the exercise of stock options		13			16
Net Cash Provided by Financing Activities		8,159			61,578
Net Increase in Cash and Cash Equivalents		33,309			8,750
Cash and Cash Equivalents – Beginning of Year		10,705			33,913
Cash and Cash Equivalents – End of Year	$	44,014		$	42,663


See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

	For the Three Months
	Ended March 31,
	2022		2021
	(In Thousands)
Supplementary Disclosure of Cash Flow and Non-Cash Information:
Cash payments for interest	$	771	$	1,054
Cash payments for income taxes	$	107	$	85
Initial recognition of operating lease right-of use assets	$	-	$	670
Initial recognition of operating lease obligations	$	-	$	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 March 31, 2022, the Bank has six wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, Quaint Oak Insurance Agency, LLC, and Oakmont Commercial, LLC, each a Pennsylvania limited liability company. The mortgage company offers mortgage banking in the Lehigh Valley, Delaware Valley and Philadelphia County regions of Pennsylvania. The real estate and abstract companies offer real estate sales and title abstract services, respectively, primarily in the Lehigh Valley region of Pennsylvania. These companies began operation in July 2009. In February, 2019, Quaint Oak Mortgage opened a mortgage banking office in Philadelphia, Pennsylvania. QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. Quaint Oak Insurance Agency, LLC began operations in August 2016 and provides a broad range of personal and commercial insurance coverage solutions. Oakmont Commercial, LLC was formed in October 2021 and operates as a multi-state specialty commercial real estate financing company. As of January 4, 2021, the Bank holds a majority equity position in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota. All significant intercompany balances and transactions have been eliminated.

The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation. Pursuant to the Bank’s election under Section 10(l) of the Home Owners’ Loan Act, the Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. The market area served by the Bank is principally Bucks, Montgomery and Philadelphia Counties 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 three months ended March 31, 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 March 31, 2022 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K, except for the following:

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

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

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

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.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross writeoffs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. 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)

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 months ended March 31, 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 March 31,
	2022		2021
Net Income Attributable to Quaint Oak Bancorp, Inc.	$	2,248,000	$	1,030,000

Weighted average shares outstanding – basic		2,013,638		1,980,007
Effect of dilutive common stock equivalents		123,484		86,403
Adjusted weighted average shares outstanding – diluted		2,137,122		2,066,411

Basic earnings per share	$	1.12	$	0.52
Diluted earnings per share	$	1.05	$	0.50

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3 – Accumulated Other Comprehensive Income (Loss)

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

	Unrealized Gains (Losses) on Investment Securities Available for Sale (1)
	For the Three Months Ended March 31,
	2022			2021
Balance at the beginning of the period	$	23		$	118
Other comprehensive income (loss) before classifications		(21	)		192
Amount reclassified from accumulated other comprehensive income (loss)		-			(250	)
Total other comprehensive loss		(21	)		(58	)
Balance at the end of the period	$	2		$	60

_________________

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

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income for the three months ended March 31, 2022 and 2021 (in thousands):

Details About Other Comprehensive Income	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (1)					Affected Line Item in the Statement of Income
	For the Three Months Ended March 31,
	2022		2021
Sale of securities available for sale	$	-	$	317		Gain on sales of investment securities
Tax effect		-		(67	)	Income taxes
Total reclassification for the period	$	-	$	250

_______________________

(1) Amounts in parentheses indicate debits.

Note 4 – Investment in Interest-Earning Time Deposits

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

	March 31, 2022		December 31, 2021
Due in one year or less	$	4,474	$	4,487
Due after one year through five years		2,487		3,437
Total	$	6,961	$	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 March 31, 2022 and December 31, 2021 are summarized below (in thousands):

	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Available for Sale:
Mortgage-backed securities:
Government National Mortgage Association securities	$	3,631	$	4	$	(6	)	$	3,629
Federal National Mortgage Association securities		140		5		-			145
Total available-for-sale-securities	$	3,771	$	9	$	(6	)	$	3,774

	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 March 31, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

	Available for Sale
	Amortized Cost		Fair Value
Due after five years through ten years	$	-	$	-
Due after ten years	$	3,771	$	3,774
Total	$	3,771	$	3,774

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 March 31, 2022 (in thousands):

	March 31, 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	7	$	2,220	$	(6	)	$	-	$	-	$	2,220	$	(6	)

At December 31, 2021, there were no securities in an unrealized loss position. There were no impairment charges recognized during the three months ended March 31, 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):

	March 31, 2022			December 31, 2021
Real estate loans:
One-to-four family residential:
Owner occupied	$	12,319		$	9,779
Non-owner occupied		38,035			38,752
Total one-to-four family residential		50,354			48,531
Multi-family (five or more) residential		41,331			29,344
Commercial real estate		197,761			183,822
Construction		17,617			15,843
Home equity		4,581			4,706
Total real estate loans		311,644			282,246

Commercial business⁽¹⁾		133,429			129,608
Other consumer		10			12
Total Loans		445,083			411,866

Deferred loan fees and costs		(1,835	)		(2,638	)
Allowance for loan losses		(5,941	)		(5,262	)
Net Loans	$	437,307		$	403,966

⁽¹⁾Includes $23.0 million and $42.6 million of PPP loans at March 31, 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 March 31, 2022 and December 31, 2021 (in thousands):

	March 31, 2022
	Pass		Special Mention		Substandard		Doubtful		Total
One-to-four family residential owner occupied	$	12,319	$	-	$	-	$	-	$	12,319
One-to-four family residential non-owner occupied		38,026		-		9		-		38,035
Multi-family residential		39,608		1,723		-		-		41,331
Commercial real estate		195,853		-		1,908		-		197,761
Construction		17,617		-		-		-		17,617
Home equity		4,581		-		-		-		4,581
Commercial business		131,682		-		1,747		-		133,429
Other consumer		10		-		-		-		10
Total	$	439,696	$	1,723	$	3,664	$	-	$	445,083

	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 March 31, 2022 as well as the average recorded investment and related interest income for the period then ended (in thousands):

	March 31, 2022
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		9		9		-		9		-
Multi-family residential		1,723		1,723		-		1,723		36
Commercial real estate		131		131		-		131		3
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		36
Commercial real estate		131		131		-		131		3
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total	$	1,863	$	1,863	$	-	$	1,863	$	39

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 March 31, 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 March 31, 2022. During the period ended March 31, 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 March 31, 2022 and December 31, 2021 (dollar amounts in thousands):

	March 31, 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 March 31, 2022 and December 31, 2021 is as follows (in thousands):

	March 31, 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 March 31, 2022 there were no commitments to lend additional funds to debtors whose loan terms have been modified as TDRs.

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

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 months ended March 31, 2022 and recorded investment in loans receivable as of March 31, 2022 (in thousands):

	March 31, 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

Allowance for loan losses:
Beginning balance	$	73	$	292	$	249	$	2,475	$	119	$	29		$	1,625	$	400	$	5,262
Charge-offs		-		-		-		-		-		-			-		-		-
Recoveries		-		-		-		-		-		-			-		-		-
Provision		26		13		215		162		13		(1	)		251		-		679
Ending balance	$	99	$	305	$	464	$	2,637	$	132	$	28		$	1,876	$	400	$	5,941

Ending balance evaluated for impairment:
Individually	$	-	$	-	$	-	$	-	$	-	$	-		$	-	$	-	$	-
Collectively	$	99	$	305	$	464	$	2,637	$	132	$	28		$	1,876	$	400	$	5,941

Loans receivable:
Ending balance:	$	12,319	$	38,035	$	41,331	$	197,761	$	17,617	$	4,581		$	133,439			$	445,083

Ending balance evaluated for impairment:

Individually	$	-	$	9	$	1,723	$	131	$	-	$	-		$	-			$	1,863
Collectively	$	12,319	$	38,026	$	39,608	$	197,630	$	17,617	$	4,581		$	133,439			$	443,220

The Bank allocated increased allowance for loan loss provisions to the commercial business loan portfolio class for the three months ended March 31, 2022, due primarily to changes in qualitative and quantitative factors in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the multi-family residential loan portfolio class for the three months ended March 31, 2022 due primarily to qualitative and quantitative factors in this portfolio class. The Bank also allocated increased allowance for loan loss provisions to the commercial real estate loan portfolio class for the three months ended March 31, 2022, due primarily to changes in 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 months ended March 31, 2021 and recorded investment in loans receivable as of March 31, 2021 (in thousands):

	March 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		-		-		-		-		-			-		-		-		-
Recoveries		-		-		-		-		-			-		-		-		-
Provision		19		14		3		92		(5	)		7		124		-		254
Ending balance	$	107	$	376	$	232	$	1,379	$	57		$	27	$	887	$	250	$	3,315

*Ending balance evaluated for impairment:*
Individually	$	-	$	-	$	-	$	-	$	-		$	-	$	-	$	-	$	-
Collectively	$	107	$	376	$	232	$	1,379	$	57		$	27	$	887	$	250	$	3,315

The Bank allocated increased allowance for loan loss provisions to the commercial business loan portfolio class for the three months ended March 31, 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 March 31, 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.

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

The Bank allocated increased allowance for loan loss provisions to the commercial real estate loan portfolio class for the year ended December 31, 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 March 31, 2022 and December 31, 2021 (in thousands):

	March 31, 2022		December 31, 2021
One-to-four family residential owner occupied	$	-	$	-
One-to-four family residential non-owner occupied		9		9
Multi-family residential		-		-
Commercial real estate		-		-
Construction		-		-
Home equity		-		-
Commercial business		-		-
Other consumer		-		-
Total	$	9	$	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 March 31, 2022 and December 31, 2021 (in thousands):

	March 31, 2022
	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable 90 Days or More Past Due and Accruing
One-to-four family residential owner occupied	$	564	$	-	$	564	$	11,755	$	12,319	$	-
One-to-four family residential non-owner occupied		1,245		9		1,254		36,781		38,035		-
Multi-family residential		-		1,723		1,723		39,608		41,331		1,723
Commercial real estate		339		-		339		197,422		197,761		-
Construction		-		-		-		17,617		17,617		-
Home equity		39		-		39		4,542		4,581		-
Commercial business		1,660		-		1,660		131,769		133,429		-
Other consumer		-		-		-		10		10		-
Total	$	3,847	$	1,732	$	5,579	$	439,504	$	445,083	$	1,723

	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 March 31, 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 March 31, 2022 and 2021 there was no interest income recognized on non-accrual loans on a cash basis. There was no interest income foregone on non-accrual loans for the three months ended March 31, 2022 and $3,000 for the three months ended March 31, 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 March 31, 2022 was $210,000, which is net of accumulated amortization of $275,000. Amortization expense for the three months ended March 31, 2022 and 2021 amounted to approximately $12,000, respectively.

Note 8 – Deposits

Deposits consist of the following classifications (in thousands):

	March 31, 2022		December 31, 2021
Non-interest bearing checking accounts	$	76,309	$	64,730
Passbook accounts		5		10
Savings accounts		1,880		1,828
Money market accounts		195,568		200,688
Certificates of deposit		184,873		179,910
Total deposits	$	458,635	$	447,166

Note 9 – Borrowings

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

	March 31, 2022					December 31, 2021
	Amount		Weighted Interest Rate			Amount		Weighted Interest Rate
Short-term borrowings	$	23,000		0.45	%	$	26,000		0.28	%

Fixed rate borrowings maturing:
2022		7,171		2.10			7,171		2.10
2023		7,000		2.16			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	$	23,193		2.01	%	$	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 $546,000, or 14.0%, to $3.3 million at March 31, 2022 from $3.9 million at December 31, 2021 as the Company paid off 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.

Other short-term borrowings of $916,000 represents 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 March 31, 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 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 first 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 months ended March 31, 2022 and 2021, the Company recognized $91,000 and $59,000 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 March 31, 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 1,200 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 March 31, 2022 and 2021 and changes during the three months ended March 31, 2022 and 2021 is as follows:

	March 31, 2022				March 31, 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		-		-		-		-
Forfeited		-		-		-		-
Unvested at the end of the period		18,845	$	13.30		28,266	$	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 March 31, 2022 and 2021, the Company recognized approximately $31,000 and $32,000 of compensation expense, respectively. A tax benefit of approximately $7,000 was recognized during both the three months ended March 31, 2022 and 2021. As of March 31, 2022, approximately $137,000 in additional compensation expense will be recognized over the remaining service period of approximately 1.2 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 March 31, 2022, a total of 232,136 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, 3,200 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 March 31, 2022 and 2021 and changes during the three months ended March 31, 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		(1,000	)		13.30		-		(2,000	)		8.10		-
Forfeited		-					-		-			-		-
Outstanding at end of period		232,136		$	10.95		4.1		238,636		$	11.00		5.0
Exercisable at end of period		179,081		$	10.26		5.6		159,054		$	9.86		5.5

During both the three months ended March 31, 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. As of March 31, 2022, approximately $50,000 in additional compensation expense will be recognized over the remaining service period of approximately 1.1 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.

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

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

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 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 March 31, 2022 (in thousands):

	March 31, 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	$	3,629	$	-	$	3,629	$	-
Federal National Mortgage Association mortgage- backed securities		145		-		145		-
Total investment securities available for sale	$	3,774	$	-	$	3,774	$	-
Total recurring fair value measurements	$	3,774	$	-	$	3,774	$	-

Nonrecurring fair value measurements
Impaired loans	$	1,863	$	-	$	-	$	1,863
Total nonrecurring fair value measurements	$	1,863	$	-	$	-	$	1,833

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 March 31, 2022 and December 31, 2021 (in thousands):

	March 31, 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 March 31, 2022 and December 31, 2021 (in thousands):

					Fair Value Measurements at
					March 31, 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	$	6,961	$	7,076	$	-	$	-	$	7,076
Loans held for sale		56,867		59,517		-		59,517		-
Loans receivable, net		437,307		443,068		-		-		443,068

Financial Liabilities
Deposits		458,635		460,275		273,762		-		186,513
FHLB long-term borrowings		23,193		23,160		-		-		23,160
FRB long-term borrowings		3,349		3,349		-		-		3,349
Subordinated debt		7,941		8,207		-		-		8,207

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 March 31,
	2022							2021
	Quaint Oak Bank(1)		Quaint Oak Mortgage			Consolidated		Quaint Oak Bank(1)		Quaint Oak Mortgage			Consolidated
Net Interest Income (Loss)	$	5,773	$	(26	)	$	5,747	$	3,742	$	(114	)	$	3,628
Provision for Loan Losses		679		-			679		254		-			254
Net Interest Income after Provision for Loan Losses		5,094		(26	)		5,068		3,488		(114	)		3,374

Non-Interest Income
Mortgage banking, equipment lending and title abstract fees		621		16			637		436		95			531
Real estate sales commissions, net		61		-			61		31		-			31
Insurance commissions		116		-			116		107		-			107
Other fees and services charges		171		-			171		345		-			345
Income from bank-owned life insurance		21		-			21		19		-			19
Net gain on loans held for sale		3,579		522			4,101		624		591			1,215
Gain on sale of investment securities available for sale		-		-			-		317		-			317
Gain on the sale of SBA loans		133		-			133		201		-			201
Total Non-Interest Income		4,702		538			5,240		2,080		686			2,766

Non-Interest Expense
Salaries and employee benefits		4,088		503			4,591		2,928		472			3,400
Directors’ fees and expenses		71		-			71		68		-			68
Occupancy and equipment		352		68			420		298		79			377
Data processing		158		39			197		130		75			205
Professional fees		158		26			184		146		17			163
FDIC deposit insurance assessment		116		-			116		51		-			51
Other real estate owned expenses		-		-			-		9		-			9
Advertising		176		32			208		91		14			105
Amortization of other intangible		12		-			12		12		-			12
Other		366		18			384		309		20			329
Total Non-Interest Expense		5,497		686			6,183		4,042		677			4,719

Pretax Segment Profit	$	4,299	$	(174	)	$	4,125	$	1,526	$	(105	)	$	1,421

Segment Assets	$	549,967	$	18,168		$	568,135	$	530,047	$	30,943		$	560,990

(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.

Note 13 - Subsequent Event

On April 29, 2022, Quaint Oak 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.

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

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 March 31, 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 March 31, 2022, 850 of these first round PPP loans totaling $91.3 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 March 31, 2022, 831 of the second round PPP loans totaling $69.2 million have been forgiven under the SBA forgiveness program. For the year ended December 31, 2021, the Company recognized approximately $661,000 and $4.4 million of deferred loan fees amortization related to PPP loans for the three months ended March 31, 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 March 31, 2022, the Bank used the FRB program to fund $52.1 million of PPP loans. The Bank paid off approximately $48.8 million of PPP loans pledged as collateral under the PPPLF program and had $3.3 million of outstanding advances with the FRB at March 31, 2022. Through March 31, 2022 the Bank has not used the PPPLF program to fund any round two PPP loans.

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

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

The Bank addresses loan payment modification requests on a case-by-case basis considering the effects of the COVID-19 pandemic, related economic slow-down and stay-at-home orders on our customer and their current and projected cash flows through the term of the loan. Through March 31, 2022, the Bank modified 231 loans with principal balances totaling $90.6 million representing approximately 20.4% of our March 31, 2022 loan balances. A majority of deferrals are two-month payment deferrals of principal and interest, with payments after deferral increased to collect amounts deferred. In some cases, certain loans were granted additional deferrals. None of the loans granted loan payment deferrals through March 31, 2022 are still on deferral as of March 31, 2022.

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 March 31, 2022 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K.

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

General. The Company’s total assets at March 31, 2022 were $568.1 million, an increase of $14.0 million, or 2.5%, from $554.1 million at December 31, 2021. This growth in total assets was primarily due to a $33.3 million, or 8.3%, increase in loans receivable, net, a $33.3 million, or 311.2%, increase in cash and cash equivalents, and a $920,000, or 42.2%, increase in investment in Federal Home Loan Bank stock, at cost. These increases were partially offset by a $51.0 million, or 47.3%, decrease in loans held for sale, a $963,000, or 12.2%, decrease in investment in interest-earning time deposits, and a $259,000, or 6.4%, decrease in investment securities available for sale at fair value. The largest increases within the loan portfolio occurred in commercial real estate which increased $13.9 million, or 7.6%, and multi-family residential loans which increased $12.0 million, or 40.9%.

Cash and Cash Equivalents. Cash and cash equivalents increased $33.3 million, or 311.2%, from $10.7 million at December 31, 2021 to $44.0 million at March 31, 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 March 2022.

Investment in Interest-Earning Time Deposits. Investment in interest-earning time deposits decreased $963,000, or 12.2%, from $7.9 million at December 31, 2021 to $7.0 million at March 31, 2022 as four interest-earning time deposits matured and were not renewed during the three months ended March 31, 2022.

Investment Securities Available for Sale. Investment securities available for sale decreased $259,000, or 6.4%, from $4.0 million at December 31, 2021 to $3.8 million at March 31, 2022, due primarily to the principal repayments on these securities during the three months ended March 31, 2022.

Loans Held for Sale. Loans held for sale decreased $51.0 million, or 47.3%, from $107.8 million at December 31, 2021 to $56.9 million at March 31, 2022 as Oakmont Capital Holdings, LLC originated $67.8 million in equipment loans held for sale during the period ended March 31, 2022. During the period ended March 31, 2022 Oakmont Capital Holdings, LLC sold $107.9 million of equipment loans. Additionally, the Bank’s mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $34.5 million of one-to-four family residential loans during the period ended March 31, 2022 and sold $45.3 million of loans in the secondary market during this same period.

Loans Receivable, Net. Loans receivable, net, increased $33.3 million, or 8.3%, to $437.3 million at March 31, 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 $13.9 million, or 7.6%, multi-family residential loans which increased $12.0 million, or 40.9%, commercial business loans which increased $3.8 million, or 2.9%, one-to-four family owner occupied loans which increased $2.5 million, of 26.0%, and construction loans which increased $1.8 million, or 11.2%. The increases within the loan portfolio were partially offset by decreases in one-to-four family non-owner occupied loans, which decreased $717,000, or 1.9%, and home equity loans which decreased $125,000, or 2.7%. 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 $11.5 million, or 2.6%, to $458.6 million at March 31, 2022 from $447.2 million at December 31, 2021. This increase in deposits was primarily attributable to increases of $11.6 million, or 17.9%, in non-interest bearing checking accounts, and $5.0 million, or 2.8%, in certificates of deposit. The increase in deposits was partially offset by a $5.1 million, or 2.6%, decrease in money market accounts.

Borrowings. Total Federal Home Loan Bank (FHLB) borrowings decreased $3.0 million, or 6.1%, to $46.2 million at March 31, 2022 from $49.2 million at December 31, 2021. During the three months ended March 31, 2022, the Company borrowed $23.0 million of FHLB short-term borrowings and paid down $26.0 million of FHLB short-term borrowings. Federal Reserve Bank (FRB) long-term borrowings decreased $546,000, or 14.0%, to $3.3 million at March 31, 2022 from $3.9 million at December 31, 2021 as the Company paid off 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. Other short-term borrowings increased to $916,000 at March 31, 2022 from none at December 31, 2021, 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.

Accrued Expenses and Other Liabilities. Accrued expenses and other liabilities increased $2.4 million, or 39.3%, to $8.3 million at March 31, 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 $3.1 million, or 8.3%, to $40.0 million at March 31, 2022 from $36.9 million at December 31, 2021. Contributing to the increase was net income for the three months ended March 31, 2022 of $2.2 million, net income attributable to noncontrolling interest of $1.0 million, common stock earned by participants in the employee stock ownership plan of $91,000, amortization of stock awards and options under our stock compensation plans of $42,000, the reissuance of treasury stock under the Bank’s 401(k) Plan of $18,000 and the reissuance of treasury stock for exercised stock options of $13,000. These increases were partially offset by dividends paid of $221,000, noncontrolling interest distribution of $117,000, other comprehensive loss, net of $21,000, and the purchase of treasury stock of $14,000.

Comparison of Operating Results for the Three Months Ended March 31, 2022 and 2021

General. Net income amounted to $2.2 million for the three months ended March 31, 2022, an increase of $1.2 million, or 118.3%, compared to net income of $1.0 million for the three months ended March 31, 2021. The increase in net income on a comparative quarterly basis was primarily the result of an increase in net interest income of $2.1 million and an increase in non-interest income of $2.5 million, partially offset by an increase in non-interest expense of $1.5 million, an increase in the provision for income taxes of $437,000, and an increase in the provision for loan losses of $425,000.

Net Interest Income. Net interest income increased $2.1 million, or 58.4 to $5.7 million for the three months ended March 31, 2022 from $3.6 million for the three months ended March 31, 2021. The increase was driven by a $1.8 million, or 35.9%, increase in interest income and a $365,000, or 29.0%, decrease in interest expense.

Interest Income. The $1.8 million, or 35.9%, increase in interest income for the three months ended March 31, 2022 over the comparable period in 2021 was primarily due to an 85 basis point increase in the yield on average loans receivable, net, including loans held for sale, which increased from 4.12% for the three months ended March 31, 2021 to 4.97% for the three months ended March 31, 2022, and had the effect of increasing interest income $1.1 million. Also contributing to the increase in interest income was a $68.3 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $460.0 million for the three months ended March 31, 2021 to an average balance of $528.3 million for the three months ended March 31, 2022, and had the effect of increasing interest income $704,000.

Interest Expense. The $365,000, or 28.9%, decrease in interest expense was primarily attributable to a 40 basis point decrease in the rate on average certificate of deposit accounts, which decreased from 1.30% for the three months ended March 31, 2021 to 0.90% for the three months ended March 31, 2022, and had the effect of decreasing interest expense by $180,000. Interest expense on deposits continues to be actively managed to lower our cost of funds. This decrease was also partially attributable to a $12.8 million decrease in average certificate of deposit accounts which decreased from an average balance of $196.0 million for the three months ended March 31, 2021 to an average balance of $183.1 million for the three months ended March 31, 2022, and had the effect of decreasing interest expense $42,000. This decrease in interest expense was partially offset by a $68.9 million increase in average money market accounts which increased from an average balance of $129.1 million for the three months ended March 31, 2021 to an average balance of $198.0 million for the three months ended March 31, 2022, and had the effect of increasing interest expense by $128,000. This increase in money market interest expense was partially offset by a 33 basis point decrease in the rate on average money market accounts, which decreased from 0.74% for the three months ended March 31, 2021 to 0.41% for the three months ended March 31, 2022, and had the effect of decreasing interest expense by $161,000. The average interest rate spread increased from 2.55% for the three months ended March 31, 2021 to 4.00% for the three months ended March 31, 2022, while the net interest margin increased from 2.78% for the three months ended March 31, 2021 to 4.15% for the three months ended March 31, 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 March 31,
	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	$	12,319	$	3		0.10	%	$	42,675	$	11		0.10	%
Investment in interest-earning time deposits		7,441		34		1.83			8,588		59		2.75
Investment securities available for sale		3,935		10		1.02			9,152		53		2.32
Loans receivable, net (1) (2)		528,325		6,570		4.97			460,010		4,743		4.12
Investment in FHLB stock		2,443		26		4.26			1,523		23		6.04
Total interest-earning assets		554,463		6,643		4.79	%		521,948		4,889		3.75	%
Non-interest-earning assets		15,932							15,210
Total assets	$	570,395						$	537,158
Interest-bearing liabilities:
Passbook accounts	$	9	$	-		*	%	$	9	$	-		*	%
Savings accounts		1,858		1		0.22			1,511		1		0.26
Money market accounts		198,003		205		0.41			129,111		239		0.74
Certificate of deposit accounts		183,127		414		0.90			195,959		636		1.30
Total deposits		382,997		620		0.65			326,590		876		1.07
FHLB short-term borrowings		35,678		22		0.25			3,000		6		0.80
FHLB long-term borrowings		23,193		112		1.93			28,193		139		1.97
FRB long-term borrowings		3,580		3		0.34			46,390		40		0.34
Subordinated debt		7,936		130		6.55			7,902		130		6.58
Other short-term borrowings		458		9		7.86			6,973		70		4.02
Total interest-bearing liabilities		453,842		896		0.79	%		419,048		1,261		1.20	%
Non-interest-bearing liabilities		80,761							92,958
Total liabilities		534,603							512,006
Stockholders' Equity		35,792							25,152
Total liabilities and Stockholders' Equity	$	570,395							537,158
Net interest-earning assets	$	100,621						$	102,900
Net interest income; average interest rate spread			$	5,747		4.00	%			$	3,628		2.55	%
Net interest margin (3)						4.15	%						2.78	%
Average interest-earning assets to average interest-earning liabilities						122.17	%						124.56	%

______________________

* 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 $425,000, or 167.3%, to $679,000 for the three months ended March 31, 2022 from $254,000 for the three months ended March 31, 2021. The increase in the provision for loan losses for the three months ended March 31, 2022 over the three months ended March 31, 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 March 31, 2022.

Non-performing loans amounted to $1.7 million, or 0.45%, of net loans receivable at March 31, 2022, one loan of which was on non-accrual status and one loan was 90 days or more past due and accruing interest. 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 non-owner occupied residential loan, and is generally well-collateralized or adequately reserved for. The non-performing loans at March 31, 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 1.30% at March 31, 2022 and 1.29% at December 31, 2021.

Non-Interest Income. Non-interest income increased $2.5 million, or 89.4%, from $2.8 million for the three months ended March 31, 2021 to $5.2 million for the three months ended March 31, 2022. The increase was primarily attributable to a $2.9 million, or 237.5%, increase in net gain on loans held for sale, a $106,000, or 20.0%, increase in mortgage banking, equipment lending, and title abstract fees, and a $30,000, or 96.8%, increase in real estate commissions, net. The increase in net gain on loans held for sale was primarily due to the sale of $107.9 million of equipment loans during the three months ended March 31, 2022. These increases were partially offset by a $317,000, or 100.0%, decrease in gain on sale of investment securities available for sale, a $174,000, or 50.4%, decrease in other fees and service charges, and a $68,000, or 33.8%, decrease in gain on sale of SBA loans.

Non-Interest Expense. Total non-interest expense increased $1.5 million, or 31.0%, from $4.7 million for the three months ended March 31, 2021 to $6.2 million for the three months ended March 31, 2022, primarily due to a $1.2 million, or 35.0%, increase in salaries and employee benefits expense, a $103,000, or 98.1% increase in advertising expense, a $65,000, or 127.5%, increase in FDIC deposit insurance assessment, a $55,000, or 16.7%, increase in other expense, a $43,000, or 11.4%, increase in occupancy and equipment expense, a $21,000, or 12.9%, increase in professional fees, and a $3,000, or 4.4%, increase in Directors’ fees and expenses. The increase in salaries and employee benefits is primarily due to generally expanding and improving the level of staff at the Bank and its subsidiary companies, including Oakmont. Oakmont’s results for the three months ended March 31, 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 $9,000, or 100.0%, decrease in other real estate owned expense, and an $8,000, or 3.9%, increase in data processing expense.

Provision for Income Tax. The provision for income tax increased $437,000, or 103.1%, from $424,000 for the three months ended March 31, 2021 to $861,000 for the three months ended March 31, 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 March 31, 2022 of $4.3 million, a $2.8 million, or 181.7%, increase from the same period in 2021. This increase in PTSP was primarily due to a $2.6 million, or 126.1%, increase in non-interest income, and a $2.0 million, or 54.3%, increase in net interest income. These increases were partially offset by a $1.5 million, or 36.0%, increase in non-interest expense, and a $425,000, or 167.3% increase in the provision for loan losses. The increase in non-interest income was primarily due to a $3.0 million gain on the sale of equipment loans, and a $185,000, or 42.4%, increase in equipment lending and title abstract fees, partially offset by a $174,000, or 50.4%, decrease in other fees and service charges. The increase in non-interest expense was primarily due to a $1.2 million, or 39.6%, increase in salaries and employee benefits expense, an $85,000, or 93.4%, increase in advertising expense, a $57,000, or 18.4% increase in other expenses, and a $54,000, or 18.1%, increase in occupancy and equipment expense.

Our Mortgage Banking Segment reported a pre-tax segment loss (“PTSL”) for the three months ended March 31, 2022 of $174,000, a $69,000, or 65.7%, increase from the same period in 2021. The increase in PTSL was primarily due to a $148,000, or 21.6%, decrease in non-interest income and a $9,000, or 1.3%, increase in non-interest expense, partially offset by an $88,000, or 77.2%, increase in net interest income . The decrease in non-interest income was primarily due to a $79,000, or 83.2%, decrease in mortgage banking fees and a $69,000, or 11.7% decrease net gain on loans held for sale. The increase in non-interest expense was primarily due to a $31,000, 6.6%, increase in salaries and employee benefits, and an $18,000, or 128.6%, increase in advertising 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 March 31, 2022, the Company's cash and cash equivalents amounted to $44.0 million. At such date, the Company also had $4.5 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 March 31, 2022, Quaint Oak Bank had outstanding commitments to originate loans of $21.7 million, commitments under unused lines of credit of $44.9 million, and $4.9 million under standby letters of credit.

At March 31, 2022, certificates of deposit scheduled to mature in one year or less totaled $72.1 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 March 31, 2022, we had $46.2 million of borrowings from the FHLB and had $276.9 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 March 31, 2022 Quaint Oak Bank had $458,000 in borrowing capacity with the Federal Reserve Bank of Philadelphia. There were no borrowings under this facility at March 31, 2022. The Bank also has borrowing capacity with the FRB under the PPPLF program in the amount of the outstanding pledged PPP loans that totaled $23.0 million at March 31, 2022. Quaint Oak Bank’s outstanding advances with the FRB under the PPPLF program were $3.3 million as of March 31, 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 March 31, 2022. As of March 31, 2022, there were $916,000 of outstanding balances on these two lines of credit.

Total stockholders’ equity increased $3.1 million, or 8.3%, to $40.0 million at March 31, 2022 from $36.9 million at December 31, 2021. Contributing to the increase was net income for the three months ended March 31, 2022 of $2.2 million, net income attributable to noncontrolling interest of $1.0 million, common stock earned by participants in the employee stock ownership plan of $91,000, amortization of stock awards and options under our stock compensation plans of $42,000, the reissuance of treasury stock under the Bank’s 401(k) Plan of $18,000 and the reissuance of treasury stock for exercised stock options of $13,000. These increases were partially offset by dividends paid of $221,000, noncontrolling interest distribution of $117,000, other comprehensive loss, net of $21,000, and the purchase of treasury stock of $14,000. 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 March 31, 2022, Quaint Oak Bank exceeded each of its capital requirements with ratios of 7.71%, 10.18%, 10.18% and 11.44%, 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 March 31, 2022, we had unfunded commitments under lines of credit of $44.9 million, $21.7 million of commitments to originate loans, and $4.9 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 March 31, 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 first 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

The COVID-19 pandemic has adversely impacted our ability to conduct business and is expected to adversely impact our financial results and those of our customers. The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has significantly adversely affected our operations and the way we provide banking services to businesses and individuals, most of whom are currently under government issued stay-at-home orders. As an essential business, we continue to provide banking and financial services to our customers in an environment compliant with federal and state COVID-19 guidelines. In addition, we continue to provide access to banking and financial services through online banking, ATMs and by telephone. If the COVID-19 pandemic worsens it could limit or disrupt our ability to provide banking and financial services to our customers.

In response to the stay-at-home orders, the majority of our employees currently are working remotely to enable us to continue to provide banking services to our customers. Heightened cybersecurity, information security and operational risks may result from these remote work-from-home arrangements. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of the COVID-19 pandemic. We also rely upon our third-party vendors to conduct business and to process, record and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our customers. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.

There is pervasive uncertainty surrounding the future economic conditions that will emerge in the months and years following the start of the pandemic. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values. To date, the COVID-19 pandemic has resulted in declines in loan demand and loan originations, other than through government sponsored programs such as the Paycheck Protection Program, deposit availability, market interest rates and negatively impacted many of our business and consumer borrower’s ability to make their loan payments. Because the length of the pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, including recent reductions in the targeted federal funds rate, until the pandemic subsides, we expect our net interest income and net interest margin will be adversely affected. Many of our borrowers have become unemployed or may face unemployment, and certain businesses are at risk of insolvency as their revenues decline precipitously, especially in businesses related to travel, hospitality, leisure and physical personal services. Businesses may ultimately not reopen as there is a significant level of uncertainty regarding the level of economic activity that will return to our markets over time, the impact of governmental assistance, the speed of economic recovery, the resurgence of COVID-19 in subsequent seasons and changes to demographic and social norms that will take place.

The impact of the pandemic is expected to continue to adversely affect us during 2020 and possibly longer as the ability of many of our customers to make loan payments has been significantly affected. Although the Company makes estimates of loan losses related to the pandemic as part of its evaluation of the allowance for loan losses, such estimates involve significant judgment and are made in the context of significant uncertainty as to the impact the pandemic will have on the credit quality of our loan portfolio. It is likely that increased loan delinquencies, adversely classified loans and loan charge-offs will increase in the future as a result of the pandemic. Consistent with guidance provided by banking regulators, we have modified loans by providing various loan payment deferral options to our borrowers affected by the COVID-19 pandemic. Notwithstanding these modifications, these borrowers may not be able to resume making full payments on their loans once the COVID-19 pandemic is resolved. Any increases in the allowance for credit losses will result in a decrease in net income and, most likely, capital, and may have a material negative effect on our financial condition and results of operations.

Even after the COVID-19 pandemic subsides, the U.S. economy will likely require some time to recover from its effects, the length of which is unknown, and during which we may experience a recession. As a result, we anticipate our business may be materially and adversely affected during this recovery.

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 March 31, 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)
January 1, 2022 – January 31, 2022		357	$	22.00		-		24,375
February 1, 2022 – February 28, 2022		-		-		-		24,375
March 1, 2022 – March 31, 2022		281		22.00		-		24,375
Total		638	$	22.00		-		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: May 12, 2022	By:	/s/Robert T. Strong
		Robert T. Strong
		President and Chief Executive Officer

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