UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒     Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2022
or
☐     Transition report pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934
For the transition period from ______ to ______
 
Commission File Number: 000-52694
(Mark One)
☒    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended:  December 31, 2020
or
☐    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______
Commission File Number: 000-52694

QUAINT OAK BANCORP, INC.
(Exact name of Registrant as specified in its charter)
(Exact name of Registrant as specified in its charter)
--12-31FY2022

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

Registrant’s telephone number, including area code:         (215) (215) 364-4059

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

Securities registered pursuant to Section 12(g) of the Act:

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.            YESYes  ☐        NONo  ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.         YESYes  ☐        NONo  ☒
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. YESYes ☒         NONo ☐
 
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). YESYes ☒    NONo ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ☐Accelerated filer  ☐
Non-accelerated filer☒Smaller reporting company☒

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).YES         Yes  ☐        NONo ☒

The aggregate market value of the Common Stock held by non-affiliates of the Registrant based on a closing price of $11.00$24.65 on June 30, 2020,2022, the last day of the Registrant’s second quarter was $14,458,851 (2,001,614$32.3 million (2,045,721 shares outstanding less 687,173736,786 shares held by affiliates at $11.00$24.65 per share). Shares of Common Stock held by each executive officer and director and certain employee stock ownership plans have been excluded from the calculation since such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Number of shares of Common Stock outstanding as of March 23, 2021: 1,989,519
21, 2023: 2,191,450

DOCUMENTS INCORPORATED BY REFERENCE

Set forth below are the documents incorporated by reference and the part of the Form 10-K into which the document is incorporated:


(1)
Portions of the Annual Report to Shareholders for the year ended December 31, 2020(1)         Portions of the Annual Report to Shareholders for the year ended December 31, 2022 are incorporated by reference into Part II, Items 6-8 and Part IV, Item 15 of this Form 10-K.

(2)
Portions of the definitive Proxy Statement for the 2021              this Form 10-K.
(2)         Portions of the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders are incorporated by reference into Part III, Items 10-14 of this Form 10-K.
 
QUAINT OAK BANCORP, INC.
20202022 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS


  Page
Page
PART I
PART I
Item 1.
Business 
Business         1
Item 1A.
Risk Factors         
31
Item 1B.
Unresolved Staff Comments         
32
Item 2.
Properties         
32
Item 3.
Legal Proceedings         33
Item 3.
Legal Proceedings 4.
32
Item 4.
Mine Safety Disclosures         
3233
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities         
33
Item 6.
[Reserved]         34
Item 6.
Selected Financial Data 7.
33
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3334
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk         
3334
Item 8.
Financial Statements and Supplementary Data         
34
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
34
Item 9A
Controls and Procedures 
34
Item 9A.
Item 9B.
Other Information 
Controls and Procedures         		34
PART III
Item 9B.
Other Information         35
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections         35
PART III
Item 10.
Directors, Executive Officers and Corporate Governance         
35
Item 11.
Executive Compensation         
35
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
35
Item 13.
Certain Relationships and Related Transactions, and Director Independence
3536
Item 14.
Principal AccountingAccountant Fees and Services         
36
PART IV
Item 15.
Exhibits and Financial Statement Schedules         
36
Item 16.
Form 10-K Summary         
37
SIGNATURES
38
SIGNATURES
38


i
i
Forward-Looking Statements

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

As used in this report the terms “we,” “us,” and “our” refer to Quaint Oak Bancorp, a Pennsylvania corporation, or Quaint Oak Bank, a Pennsylvania chartered savings bank and wholly owned subsidiary of Quaint Oak Bancorp, as the context requires. In addition, unless the context otherwise requires, references to the operations of Quaint Oak Bancorp include the operations of Quaint Oak Bank and its subsidiary companies.

PART I

Item 1. Business.

General

Quaint Oak Bancorp, Inc., a Pennsylvania corporation headquartered in Southampton, Pennsylvania, was organized in 2007 as the holding company for Quaint Oak Bank. Quaint Oak Bank, originally incorporated in 1926, converted from a Pennsylvania chartered building and loan association to a Pennsylvania chartered mutual savings bank named Quaint Oak Savings Bank in January 2000 and converted to a stock savings bank in July 2007. Quaint Oak Bank is headquartered in Southampton in Bucks County, Pennsylvania and operates through three banking locations: the main office location in Southampton, Pennsylvania and regional banking offices in Allentown, located in the Lehigh Valley area of Pennsylvania, and a Philadelphia, Pennsylvania location. The Bank also has a mortgage office in Philadelphia and an insurance agency and real estate sales office in New Britain Township, Pennsylvania. Quaint Oak Bank, through its subsidiary companies, conducts mortgage banking, multi-state specialty commercial real estate financing, real estate sales, title abstract and insurance businesses. As of January 4, 2021, the Bank holds a majority ownership interest in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota.

1

As of December 31, 2020,2022, Quaint Oak Bank’s primary market area includes Bucks, Montgomery and Philadelphia Counties, Pennsylvania, and the Lehigh Valley area of Pennsylvania. As of December 31, 2020,2022, Quaint Oak Bancorp had $484.1$792.4 million of total assets, $354.8$549.2 million of total deposits and $28.7$49.1 million of stockholders’ equity. Quaint Oak Bancorp’s stockholders’ equity constituted 5.9%6.2% of total assets as of December 31, 2020.2022.

Quaint Oak Bank’s primary business consists of attracting deposits from the general public through a variety of deposit programs and investing such deposits principally in commercial real estate residential, multi-family, construction, and home equity loans, secured by property in our market area.   The Bank also invests in commercial business loans, and one-to-four family residential non-owner occupied loans, and to a lesser extent, other consumermulti-family residential loans, construction loans, one-to-four family residential owner occupied loans, and home equity loans. In addition, Quaint Oak Bank offers mortgage banking, real estate sales, title abstract and insurance services through its subsidiary companies. Quaint Oak Bank serves its customers through its offices as well as through correspondence, telephone and on-line banking.

Deposits with Quaint Oak Bank are insured to the maximum extent provided by law through the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (“FDIC”). Quaint Oak Bank is subject to examination and comprehensive regulation by the FDIC and the Pennsylvania Department of Banking and Securities. Quaint Oak Bancorp, which elected to be treated as a savings and loan holding company, is subject to examination and regulation by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”). Quaint Oak Bank is also a member of the Federal Home Loan Bank of Pittsburgh (“FHLB of Pittsburgh” or “FHLB”), which is one of the 12 regional banks comprising the Federal Home Loan Bank System (“FHLB System”). Quaint Oak Bank is also subject to regulations of the Federal Reserve Board governing reserves required to be maintained against deposits and certain other matters.

Quaint Oak Bancorp’s principal executive offices are located at 501 Knowles Avenue, Southampton, Pennsylvania 18966, its telephone number is (215) 364-4059 and Internet address is www.quaintoak.com.

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 December 31, 2020.  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. For the year ended December 31,Since March 2020, the Bank funded 854 SBA PPP loans totaling approximately $95.1 millionCompany has continued to work diligently to help support its existing and new customers located primarily in our market area. Through March 22, 2021, the Bank has processed 161 PPP loans totaling approximately $11.7 million for forgiveness underthrough the SBA forgiveness program.


2

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 extendsopened 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 authority to make SBAfirst round, the Company funded 854 PPP loans through Marchtotaling $95.1 million. As of December 31, 2021.  In addition to modifying certain existing2022, 854 of these first round PPP requirements,loans totaling $95.1 million were forgiven under the Economic Aid Act adds a second temporary program toSBA forgiveness program.  Under the SBA’s 7(a) Loan Program which allows certain eligible borrowers to receive a second draw PPP loan.

On January 6, 2021, the U.S. Small Business Administration and the Department of Treasury released interim final rules related to the expansion and extension of the original Paycheck Protection Program (PPP) and the authorization of a second round of PPP loans pursuant to the $900 billion COVID-19 relief package (the Consolidated Appropriations Act, 2021 (the “Act”)) enacted on December 27, 2020.  Through March 22, 2021, the Bank hasCompany funded 515985 PPP loans totaling approximately $68.9 million under this$88.4 million. As of December 31, 2022, 981 of the second round PPP loans totaling $88.2 million have been forgiven under the SBA forgiveness program. The Company recognized approximately $1.1 million and $4.4 million of deferred loan fees amortization related to PPP lending to customers located primarily in our market area.loans for the year ended December 31, 2022 and December 31, 2021, respectively.

2
Paycheck Protection Program Liquidity Facility. The CARES Act also allocated a limited amount of funds to the Federal Reserve Board (FRB) with a broad mandate to provide liquidity to eligible businesses, states or municipalities in light of COVID-19. On April 9, 2020, the U.S. Department of the Treasury announced several new or expanded lending programs to provide relief for businesses and governments. One of these programs was the Paycheck Protection Program Liquidity Facility (PPPLF). Under the PPPLF, all depository institutions that originate PPP loans are eligible to borrow on a non-recourse basis from their regional Federal Reserve Bank using SBA PPP loans as collateral. The principal amount of loans will be equal to the PPP loans pledged as collateral. There are no fees associated with these loans and the interest rate is 35 basis points. The maturity date of PPPLF loans will be the same as the maturity date of the PPP loans pledged as collateral. The PPPLF loan maturity date will be accelerated if the underlying PPP loan goes into default and the lender sells the PPP loan to the SBA under the SBA guarantee. The PPPLF loan maturity date also will be accelerated for any loan forgiveness reimbursement received by the lender from the SBA.

In April 2020, the Bank received approval to borrow from the FRB under the PPPLF program to assist in funding PPP loans. Through December 31, 2020,2021, the Bank used the FRB program to fund $52.1 million of PPP loans. Through March 22, 2021, theThe Bank has paid off approximately $8.5$48.2 million of PPP loans pledged as collateral under the PPPLF program.program and had no outstanding advances with the FRB at December 31, 2022. Through March 22, 2021December 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.


3
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.

3
The Bank addresses loan payment modification requests on a case-by-case basis considering the effects of the COVID-19 pandemic, related economic slow-down and stay-at-home orders on our customer and their current and projected cash flows through the term of the loan. Through December 31, 2020,2022, the Bank modified 231 loans with principal balances totaling $90.6 million representing approximately 25.8%21.9% of our December 31, 20202022 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.

Details with respect to total loan payment modifications made through As of December 31, 20202022, there are as follows:

  
Number of
Covid-19
Deferments
  
Balance
(in thousands)
  
Percent of
Total Loans at
December 31,
2020
 
One-to-four family residential owner occupied  
5
  
$
2,070
   
27.5
%
One-to-four family residential non-owner occupied  
50
   
8,566
   
22.0
 
Multi-family residential  
12
   
9,042
   
37.6
 
Commercial real estate  
97
   
55,274
   
41.9
 
Construction  
1
   
702
   
14.7
 
Home equity  
4
   
254
   
6.7
 
Commercial business  
62
   
14,685
   
9.5
 
 Total  
231
  
$
90,593
��  
25.8
%
             

Of the 231no loans granted loan payment deferrals through December 31, 2020, 13 loansthat are still on deferral as of March 15, 2021.deferral.

Details with respect to loan payment deferrals still on deferral as of March 15, 2021 are as follows:

  
As of March 15, 2021
    
  
Number of
Covid-19
Deferments
  
Balance
(in thousands)
  
Percent of
Total Loans at
December 31,
2020
 
One-to-four family residential owner occupied  
1
  
$
415
   
5.5
%
Commercial real estate  
8
   
10,287
   
7.8
 
Commercial business  
4
   
6,561
   
4.2
 
 Total  
13
  
$
17,263
   
4.9
%
             
It is too early to determine if current active modified loans will perform in accordance with their modified terms.

Quaint Oak Bank’sBank’s Lending Activities

General. At December 31, 2020,2022, the net loan portfolio of Quaint Oak Bank amounted to $359.1$621.9 million, representing approximately 74.2%78.4% of its total assets at that date. The principal lending activity of Quaint Oak Bank is the origination of commercial real estate loans, commercial business loans, and one-to-four family residential non-owner occupied loans, and to a lesser extent, multi-family residential loans, construction loans, one-to-four family residential owner occupied loans, and home equity loans. At December 31, 2020,2022, commercial real estate loans amounted to $131.8$333.5 million, or 36.1%52.9% of its total loan portfolio. Commercial business loans totaled $159.1 million, or 25.2%, of the total loan portfolio at December 31, 2022. At December 31, 2020,2022, one-to-four family residential loans amounted to $46.4$57.4 million or 12.7%9.1% of its total loan portfolio of which $38.9$39.3 million, or 10.6%6.2%, of the total loan portfolio consisted of non-owner occupied properties and $7.5$18.1 million, or 2.1%2.9%, of the total loan portfolio consisted of owner occupied properties. Commercial businessMulti-family residential loans totaled $154.4$46.9 million, or 42.3%7.4%, of the total loan portfolio at December 31, 2020.  Multi-family residential2022. Construction loans totaled $24.0$28.9 million, or 6.6%4.6%, of the total loan portfolio at December 31, 2020.  Construction2022. Home equity loans totaled $4.8$4.9 million, or 1.3%0.8%, of the total loan portfolio at December 31, 2020.  Home equity loans totaled $3.8 million, or 1.0%, of the total loan portfolio at December 31, 2020.
2022.

4
The types of loans that Quaint Oak Bank may originate are subject to federal and state laws and regulations. Interest rates charged on loans are affected principally by the demand for such loans, the supply of money available for lending purposes and the rates offered by our competitors. These factors are, in turn, affected by general and economic conditions, the monetary policy of the federal government, including the Federal Reserve Board, legislative and tax policies, and governmental budgetary matters.

Quaint Oak Bank is subject to a regulatory loans to one borrower limit of 15% of the Bank’s capital which amounts to $5.2$6.6 million at December 31, 2020.2022. At December 31, 2020,2022, Quaint Oak Bank’s five largest loans or groups of loans-to-one borrower, including related entities, were $4.5$6.4 million, $4.5$6.3 million, $3.8$6.0 million, $3.7$6.0 million, and $3.4$5.8 million. The loans consisted of threeone commercial business loan, two construction loans, and two commercial real estate loans. Each of Quaint Oak Bank’s five largest loans or groups of loans was performing in accordance with its terms at December 31, 2020.2022.

4
Loan Portfolio Composition. The following table shows the composition of our loan portfolio by type of loan at the dates indicated.

 
December 31,
  
December 31,
 
 
2020
 
2019
  
2018
  
2017
  
2016
  
2022
 
2021
 
 
Amount
 
%
 
Amount
 
%
  
Amount
  
%
  
Amount
  
%
  
Amount
  
%
  
Amount
 
%
 
Amount
 
%
 
 (Dollars in Thousands)  (Dollars in Thousands) 
Real estate loans:                              
One-to-four family residential (1):                            
Owner occupied $7,528 2.1% $6,298 2.5% $6,603  3.0% $5,681  2.8% $5,389  3.0% $18,070  2.9% $9,779  2.4%
Non-owner occupied  38,884  10.6  39,897  16.0   47,361   21.6   51,833   25.4   51,893   29.0   39,315   6.2   38,752   9.4 
Total one-to-four family residential loans
 46,412 12.7 46,195 18.5  53,964  24.6  57,514  28.2  57,282  32.0  57,385  9.1  48,531  11.8 
                            
Multi-family (five or more) residential 24,043 6.6 22,233 8.9  23,967  10.9  21,715  10.6  14,641  8.2  46,909  7.4  29,344  7.1 
Commercial real estate 131,820 36.1 119,323 47.8  103,819  47.2  92,234  45.1  77,730  43.4  333,540  52.9  183,822  44.6 
Construction 4,775 1.3 12,523 5.0  9,998  4.6  15,632  7.6  15,355  8.6  28,938  4.6  15,843  3.9 
Home equity loans  3,788  1.0  3,726  1.5   4,347   2.0   5,129   2.5   4,775   2.6   4,918   0.8   4,706   1.1 
Total real estate loans 210,838 57.7 204,000 81.7  196,095  89.3  192,224  94.0  169,783  94.8  471,690  65.7  282,246  56.7 
                            
Commercial business (2) 154,387 42.3 45,745 18.3  23,616  10.7  11,954  5.9  9,295  5.2  159,069  25.2  129,608  31.5 
Other consumer  17  --  22  --   19   --   138   0.1   26   --   2   --   12   -- 
Total loans  365,242  100.0%  249,767  100.0%  219,730   100.0%  204,316   100.0%  179,104   100.0%  630,761   100.0%  411,866   100.0%
Less:                            
Deferred loan fees and costs (3,059)   (844)    (867)    (837)    (692)    (1,219)  (2,638) 
Allowance for loan losses  (3,061)    (2,231)     (1,965)     (1,812)     (1,605)     (7,678)     (5,262)   
Net loans $359,122   $246,692    $216,898     $201,667     $176,807     $621,864     $403,966    
____________________
(1)Does not include mortgage loans held for sale of $2.9 million and $17.4 million at December 31, 2022 and 2021, respectively.
(2)Does not include equipment loans held for sale of $130.3 million and $90.4 million at December 31, 2022 and December 31, 2021, respectively.
(1)    Does not include mortgage loans held for sale of $53.2 million, $8.9 million, $4.8 million, $6.0 million, and $4.7 million at December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(2)    Does not include equipment loans held for sale of $258,000 and $963,000 at December 31, 2018 and 2017, respectively.


5
         Origination of Loans. The lending activities of Quaint Oak Bank are subject to the written underwriting standards and loan origination procedures established by the board of directors and management. New loans are generated primarily through the efforts of Quaint Oak Bank’s loan officers, referrals from brokers and existing customers. Loan applications are underwritten and processed by Quaint Oak Bank’s credit administration department.

All loans are presented to the loan committee for review. Quaint Oak Bank’s loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan and the value of the collateral that will secure the loan. Individual loan requests over $1.5 million, or loan requests that would increase the relationship over $1.5 million, must be approved by our President and Chief Executive Officer, Senior Vice President Business Development, and one outside loan committee member.

The following table shows our total loans originated and repaid during the periods indicated. Included in the loan originations for commercial real estate loans was the purchase of a $55.5 million loan portfolio by the Bank’s wholly-owned subsidiary, Oakmont Commercial, LLC, in April, 2022. We did not purchase any loans in 2020 or 2019.2021.

  
Year Ended December 31,
 
  
2020
  
2019
  
2018
 
  (In Thousands) 
Loan originations:         
     One-to-four family residential owner occupied (1) $203,948  $132,983  $94,448 
     One-to-four family residential non-owner occupied (2)  11,758   4,787   8,739 
     Multi-family residential  4,919   --   3,125 
     Commercial real estate  33,423   31,433   24,464 
     Construction  3,587   7,445   6,886 
     Home equity  1,176   1,263   739 
     Commercial business (3) (4)  121,281   30,948   17,675 
     Other consumer  23   20   -- 
Total loan originations  380,115   208,879   156,076 
Loans sold  (162,797)  (131,485)  (102,327)
Loan principal repayments  (57,580)  (45,532)  (38,697)
Total loans sold and principal repayments  (220,377)  (175,017)  (141,024)
Decreases due to other items, net (5)  (3,045)  (243)  (1,724)
Net increase in loan portfolio $156,693  $33,619  $13,328 
5
  
Year Ended December 31,
 
  
2022
  
2021
 
  (In Thousands) 
Loan originations:        
One-to-four family residential owner occupied (1) $128,075  $211,850 
One-to-four family residential non-owner occupied (2)  7,456   29,471 
Multi-family residential  18,311   10,151 
Commercial real estate (3)  178,251   79,636 
Construction  17,651   8,935 
Home equity  1,154   -- 
Commercial business (4)  611,831   342,455 
Other consumer  --   -- 
Total loan originations  962,729   682,498 
Loans sold  (496,311)  (362,498)
Loan principal repayments  (214,224)  (212,624)
Total loans sold and principal repayments  (710,535)  (575,122)
Decreases due to other items, net (5)  (8,897)  (7,900)
Net increase in loan portfolio $243,297  $99,476 
____________________
(1)         Includes $200.6 million, $131.9$118.4 million and $92.0$208.2 million of loans originated for sale in 2020, 20192022 and 2018,2021, respectively.
(2)         Includes $6.5 million, $3.4 million, and $5.4$17.5 million of loans originated for sale in 2020, 2019 and 2018, respectively.2021.
(3)         Includes $2.8$55.5 million of loans originated for saleloan portfolio purchased by the Bank’s wholly-owned subsidiary, Oakmont Commercial, in 2018.April 2022.
(4)         Includes $95.1$6.8 and $88.4 million of SBA PPP loans originated in 2020.2022 and 2021, respectively. Includes $403.2 and $164.3 million of equipment loans originated for
              sale in 2022 and 2021, respectively.
(5)         Other items consist of loans transferred to other real estate owned, deferred fees and the allowance for loan losses.

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

Contractual Terms to Final Maturities. The following table shows the scheduled contractual maturities of our loans as of December 31, 2020,2022, before giving effect to net items, and excluding loans held for sale. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The amounts shown below do not take into account loan prepayments.

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

6

  
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
  
Total
 
  (In Thousands) 
Amounts due in:                        
    One year or less $--  $3,605  $832  $4,285  $2,390  $4  $5,566  $16,682 
    After one year through three years  --   4,548   6,160   24,550   --   136   105,585   140,979 
    After three years through five years  70   12,306   5,252   35,423   87   229   33,439   86,806 
    After five years through ten years  128   5,098   3,543   45,858   516   1,291   9,728   66,162 
    After ten years through 15 years  774   5,795   4,273   6,859   --   2,124   --   19,825 
    After 15 years  6,556   7,532   3,983   14,845   1,782   4   86   34,788 
        Total $7,528  $38,884  $24,043  $131,820  $4,775  $3,788  $154,404  $365,242 


The following table shows the dollar amount of our loans at December 31, 20202022 due after December 31, 20212023 as shown in the preceding table, which have fixed interest rates or which have floating or adjustable interest rates.

  
Fixed-Rate
  
Floating or
Adjustable-Rate
  
Total
 
  (In Thousands) 
One-to-four family residential owner occupied $311  $7,217  $7,528 
One-to-four family residential non-owner occupied  14,339   20,940   35,279 
Multi-family residential  15,386   7,825   23,211 
Commercial real estate  74,908��  52,627   127,535 
Construction  --   2,385   2,385 
Home equity  471   3,313   3,784 
Commercial business  136,412   12,409   148,821 
Other consumer  17   --   17 
      Total $241,844  $106,716  $348,560 


6
  
Fixed-Rate
  
Floating or
Adjustable-Rate
  
Total
 
  (In Thousands) 
One-to-four family residential owner occupied $4,819  $13,251  $18,070 
One-to-four family residential non-owner occupied  23,098   13,940   37,038 
Multi-family residential  26,407   18,794   45,201 
Commercial real estate  225,206   95,885   321,091 
Construction  7,110   11,850   18,960 
Home equity  320   4,598   4,918 
Commercial business and other consumer  49,477   104,012   153,489 
Total $336,437  $262,330  $598,767 
Scheduled contractual maturities of loans do not necessarily reflect the actual expected term of the loan portfolio. The average life of mortgage loans is substantially less than their average contractual terms because of prepayments. The average life of mortgage loans tends to increase when current mortgage loan rates are higher than rates on existing mortgage loans and, conversely, decrease when rates on current mortgage loans are lower than existing mortgage loan rates (due to refinancing of adjustable-rate and fixed-rate loans at lower rates). Under the latter circumstance, the weighted average yield on loans decreases as higher yielding loans are repaid or refinanced at lower rates.

One-to-Four Family Residential Owner Occupied Real Estate Loans. As part of our strategy of diversifying our loan portfolio with higher yielding and shorter-term loan products, Quaint Oak Bank does not actively market the origination of one-to-four family owner occupied residential loans to be held in our loan portfolio. At December 31, 2020, $7.52022, $18.1 million, or 2.1%2.9%, of our total loan portfolio, before net items, consisted of one-to-four family owner occupied residential loans.

One-to-Four Family Residential Non-Owner Occupied Real Estate Loans. A significant part of Quaint Oak Bank’s lending activity is the origination of loans secured by single-family residences for non-owner occupied properties. As part of our strategy of diversifying our loan portfolio with higher yielding and shorter-term loan products, Quaint Oak Bank does not actively market the origination of one-to-four family residential non-owner occupied real estate loans. At December 31, 2020, $38.92022, $39.3 million, or 10.6%6.2%, of our total loan portfolio, before net items, consisted of one-to-four family residential non-owner occupied loans.

7
It is our policy to lend in a first lien position on non-owner occupied residential property with fixed and variable rates and terms generally up to 15 years or longer amortizations. Generally, such loans are originated with a three or five year maturity. Such loans are generally limited to 75%, or less, of the appraised value, or sales price plus improvement costs of the secured real estate property.

One-to-Four Family Residential Loans Originated for Sale. Quaint Oak Bank through its subsidiary, Quaint Oak Mortgage LLC, originates one-to-four family residential fixed and variable rate first mortgages with amortizing terms less than or equal to 30 years in accordance with secondary market standards. Loans originated by Quaint Oak Mortgage LLC are sold into the secondary market along with the loans’ servicing rights. For the year ended December 31, 2020,2022, Quaint Oak Mortgage LLC originated $207.1$118.4 million of owner and non-owner occupied residential loans for sale and sold $162.8$132.9 million of these loans in the secondary market. For the year ended December 31, 2019,2021, loans originated for sale through Quaint Oak Mortgage LLC totaled $135.3$225.7 million and $131.2$261.5 million of these loans were sold in the secondary market.

Multi-Family Residential Loans. Quaint Oak Bank originates loans for multi-unit (five or more) residential properties. These loans are offered with fixed and adjustable interest rates and amortizations not to exceed 25 years. Generally, the loan-to-value ratio does not exceed 75%. These loans are underwritten with the same criteria and procedures as commercial real estate loans. At December 31, 2020, $24.02022, $46.9 million, or 6.6%7.4%, of our total loan portfolio, before net items, consisted of multi-family residential loans.

7
Commercial Real Estate Loans. Quaint Oak Bank also originates loans secured by commercial real estate. At December 31, 2020, $131.82022, $333.5 million, or 36.1%52.9% of our total loan portfolio, before net items, consisted of commercial real estate loans. Although commercial real estate loans are generally considered to have greater credit risk than other certain types of loans, we intend to continue to originate such loans in our market area. At December 31, 2020,2022, approximately 46%36% of total commercial real estate loans were owner occupied. Contributing to the increase in commercial real estate loans was the purchase of a $55.5 million loan portfolio by the Bank’s wholly-owned subsidiary, Oakmont Commercial, LLC, in April, 2022.

It is generally our policy to lend in a first lien position on real property occupied as a commercial business property or mixed use properties. However, in rare instances, we may take a second lien position if approved by the loan committee. Quaint Oak Bank offers fixed and variable rate mortgage loans with amortization not to exceed 25 years. Commercial real estate loans are limited to 70%, or less, of the appraised value, or sales price plus improvement costs of the secured real estate property. Commercial real estate loans are presented to the loan committee for review and approval, including analysis of the creditworthiness of the borrower. The loan committee reviews the cash flows from the property to determine if the proceeds will adequately cover debt service. Quaint Oak Bank uses a Debt Service Coverage Ratio (DSCR) of 1.20. We require the collection of various documents to verify income, including personal tax returns, business tax returns, and copies of current leases. Assignments of rents and leases as well as the requirement to provide annual updates of financial information and rent rolls are included in the loan documentation.

Construction Loans. Our construction loans are generally originated for the purpose of building or renovating a single family residential home. Generally, we do not make construction loans for speculative development. Funds are advanced incrementally as work is completed. The borrower is required to make monthly interest payments. When the construction is finished, the amount of the outstanding loan is generally less than 70% of the completed value of the property. Quaint Oak Bank is paid in full when the borrower seeks permanent financing or the property is sold. At December 31, 2020, $4.82022, $28.9 million, or 1.3%4.6% of Quaint Oak Bank’s total loan portfolio, before net items, consisted of construction loans.


8
Home Equity Loans. Quaint Oak Bank is authorized to make loans for a wide variety of personal or consumer purposes. Quaint Oak Bank originates home equity lines of credit in order to accommodate its customers and because such loans generally have shorter terms than residential mortgage loans. At December 31, 2020, $3.82022, $4.9 million, or 1.0%0.8% of Quaint Oak Bank’s total loan portfolio, before net items, consisted of home equity loans.

Commercial Business Loans. Quaint Oak Bank originates loans to businesses for working capital, purchase of a business, tenant improvements, receivables, purchase of inventory, and for the purchase of business essential equipment. Business essential equipment is equipment necessary for a business to support or assist with the day-to-day operation or profitability of the business. At December 31, 2020, $154.42022, $159.1 million, or 42.3%25.2% of Quaint Oak Bank’s total loan portfolio, before net items, consisted of commercial business loans. At December 31, 2020,2022, commercial business loans include $93.3 million$213,000 of SBA PPP loans. During the year ended December 31, 20202022 the Bank did not originate or sell anyoriginated $403.2 million in equipment loans held for sale.sale and sold $343.9 million of equipment loans. Also contributing to the decrease in loans held for sale at December 31, 2022 is $19.4 million of loan amortization and prepayments. Additionally, the Bank’s mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $118.4 million of one-to-four family residential loans during the year ended December 31, 2022 and sold $132.9 million of loans in the secondary market during this same period.

8
Other Consumer Loans. Quaint Oak Bank originates loans secured by savings accounts in order to accommodate its existing customers. At December 31, 2020, $17,0002022, $2,000 of Quaint Oak Bank’s total loan portfolio, before net items, consisted of other consumer loans.

Loan Origination and Other Fees. In addition to interest earned on loans, Quaint Oak Bank generally receives loan origination fees or “points”“points” for originating loans. Loan points are a percentage of the principal amount of the mortgage loan and are charged to the borrower in connection with the origination of the loan. Such origination fees, net of certain direct loan origination costs, are deferred and recognized as an adjustment to the yield (interest income) of the related loans over the contractual life of the loans.

Asset Quality

General. Quaint Oak Bank’s collection procedures provide that when a loan is 17 days past due, a telephone call is made to the borrower by our collections specialist to determine the reason for the delinquency and to work out a possible solution. Late charges will be assessed based on the number of days specified in the note beyond the due date. The Board of Directors is notified of all delinquencies 30 days past due. In most cases, deficiencies are cured promptly. While we generally prefer to work with borrowers to resolve such problems, we will institute foreclosure or other collection proceedings when necessary to minimize any potential loss.

Loans are placed on non-accrual status when management believes the probability of collection of interest is doubtful. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income. Quaint Oak Bank generally discontinues the accrual of interest income when the loan becomes 90 days past due as to principal or interest unless the credit is well secured and we believe we will fully collect. There were $190,000$1.9 million and $172,000$9,000 of non-accrual loans at December 31, 20202022 and 2019,2021, respectively.

Real estate and other assets acquired by Quaint Oak Bank as a result of foreclosure or by deed-in-lieu of foreclosure are classified as real estate owned until sold. There was $286,000 and $1.8 million ofno other real estate owned atas of December 31, 2020 and 2019, respectively.2022 or December 31, 2021.

9
Delinquent Loans. The following table shows the delinquencies in our loan portfolio as of December 31, 2020.2022.

 
December 31, 2020
  
December 31, 2022
 
 
30-89
Days Overdue
  
90 or More Days
Overdue
  
30-89
Days Overdue
 
90 or More Days
Overdue
 
 
Number
of Loans
  
Principal
Balance
  
Number
of Loans
  
Principal
Balance
  
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 
 (Dollars in Thousands)  (Dollars in Thousands) 
One-to-four family residential-owner occupied 3  $822  1  $171  1  $407  -  $- 
One-to-four family residential-non-owner occupied 3  189  3  85  1  23  -  - 
Multi-family residential 3  1,947  --  --  1  -  1  1,708 
Commercial real estate 1  569  1  387  6  2,895  1  134 
Construction 1  1,783  --  --  1  2,062  -  - 
Home equity --  --  --  --  1  39  -    - 
Commercial business and other consumer  3   574   --   --   1   10   4   148 
Total delinquent loans  14  $5,884   5  $643   11  $5,436   6  $1,990 
Delinquent loans to total net loans     1.64%     0.18%     0.86%     0.32%
Delinquent loans to total loans     1.61%     0.18%     0.86%     0.01%

Non-Performing Assets. The following table shows the amounts of our non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due and other real estate owned) and troubled debt restructurings at the dates indicated.

                
  
December 31,
 
  
2020
  
2019
  
2018
  
2017
  
2016
 
  (Dollars in Thousands) 
Non-accruing loans:               
      One-to-four family residential-owner occupied $171  $172  $182  $--  $-- 
      One-to-four family residential-non-owner occupied  19   --   68   120   541 
      Multi-family residential  --   --   --   --   -- 
      Commercial real estate  --   --   --   --   660 
      Construction  --   --   --   2,069   -- 
      Home equity  --   --   --   --   -- 
      Commercial business loans and other consumer  --   --   --   --   -- 
Total non-accruing loans  190   172   250   2,189   1,201 
Accruing loans 90 days or more past due:                    
      One-to-four family residential-owner occupied  66   --   --   423   9 
      One-to-four family residential-non-owner occupied  --   --   --   217   237 
      Multi-family residential  --   --   --   --   -- 
      Commercial real estate  387   190   548   241   117 
      Construction  --   --   --   --   308 
      Home equity  --   --   --   --   -- 
      Commercial business loans and other consumer  --   --   380   --   -- 
Total accruing loans 90 days or more past due  453   190   928   881   671 
      Total non-performing loans (1)  643   362   1,178   3,070   1,872 
Other real estate owned, net  286   1,824   1,650   --   435 
      Total non-performing assets  929   2,186   2,828   3,070   2,307 
Troubled debt restructurings (2)  150   151   398   714   733 
 Total non-performing assets and troubled debt restructurings $1,079  $2,337  $3,226  $3,784  $3,040 
Total non-performing loans as a percentage of loans, net  0.18%  0.15%  0.54%  1.52%  1.06%
Total non-performing loans as a percentage of total assets  0.13%  0.12%  0.43%  1.28%  0.87%
Total non-performing assets as a percentage of total assets  0.19%  0.72%  1.04%  1.28%  1.07%
Total non-performing assets and troubled debt restructurings as a percentage of total assets  0.22%  0.77%  1.19%  1.58%  1.41%
9
   December 31, 
   2022   2021 
   (Dollars in Thousands) 
Non-accruing loans:        
One-to-four family residential-owner occupied $-  $-- 
One-to-four family residential-non-owner occupied  -   9 
Multi-family residential  1,708   -- 
Commercial real estate  134   -- 
Construction  -   -- 
Home equity  -   -- 
Commercial business loans and other consumer  97   -- 
Total non-accruing loans  1,939   9 
Accruing loans 90 days or more past due:        
One-to-four family residential-owner occupied  -   -- 
One-to-four family residential-non-owner occupied  -   -- 
Multi-family residential  -   -- 
Commercial real estate  -   -- 
Construction  -   -- 
Home equity  -   -- 
Commercial business loans and other consumer  51   -- 
Total accruing loans 90 days or more past due  -   -- 
Total non-performing loans (1)  1,990   9 
Other real estate owned, net  -   -- 
Total non-performing assets  1,990   9 
Troubled debt restructurings (2)  136   131 
Total non-performing assets and troubled debt restructurings $2,126  $140 
Total non-performing loans as a percentage of loans, net  0.32%  *n/m  
Total non-performing loans as a percentage of total assets  0.25%  *n/m  
Total non-performing assets as a percentage of total assets  0.27%  *n/m  
Total non-performing assets and troubled debt restructurings as a percentage of total assets  0.27%  *n/m  
__________________
(1)Non-performing loans consist of non-accruing loans plus accruing loans 90 days or more past due.
(2)Troubled debt restructurings not included in non-accruing loans plusand accruing loans 90 days or more past due.
*n/m Not Meaningful
(2) Troubled debt restructurings not included in non-accruing loans and accruing loans 90 days or more past due.


10
At December 31, 2020,2022, we had two loans totaling $150,000$136,000 that were identified as troubled debt restructurings (“TDR”) and, both of which were performing in accordance with their modified terms. If a TDR is placed on non-accrual it is not reverted back to accruing status until the borrower makes timely payments as contracted for at least six months and future collection under the revised terms is probable.

Classified Assets. Federal regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,“substandard,” “doubtful”“doubtful” and “loss.“loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a higher possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Another category designated “special mention”“special mention” also must be established and maintained for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or loss. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified as loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. General loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution’s regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital. Federal examiners may disagree with an insured institution’s classifications and amounts reserved.

10
Allowance for Loan Losses. At December 31, 2020,2022, Quaint Oak Bank’s allowance for loan losses amounted to $3.1$7.7 million. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

While management believes that it determines the amount of the allowance based on the best information available at the time, the allowance will need to be adjusted as circumstances change and assumptions are updated. Future adjustments to the allowance could significantly affect net income.







11
The following table shows changes in our allowance for loan losses during the periods presented.

 
December 31,
  
December 31,
 
 
2020
 
2019
  
2018
  
2017
  
2016
  
2022
 
2021
 
 (Dollars in Thousands)  (Dollars in Thousands) 
Total loans outstanding at end of period, net $359,122 $246,692  $216,898  $201,667  $176,807  $621,864  $403,966 
               
Average loans outstanding (1) $307,448 $228,569  $209,501  $187,728  $155,649  $531,912  $379,896 
               
Allowance for loan losses, beginning of period $2,231 $1,965  $1,812  $1,605  $1,313  $5,262  $3,061 
Provision for loan losses  830  303   415   284   292   2,475   2,201 
Charge-offs:               
One-to-four family residential owner occupied -- --  --  --  -- 
One-to-four family residential non-owner occupied -- (37) (47) (56) -- 
Commercial real estate -- --  --  (24) -- 
Construction -- --  (215) --  -- 
Home Equity  --  --   --   --   -- 
Commercial business  (59)  (17)
Total charge-offs  --   (37)  (262)  (80)  --   (59)  (17)
Recoveries on loans previously charged-off:               
Commercial real estate  --  --   --   3   -- 
Commercial business  -   17 
Total recoveries  --  --   --   3   --   -   17 
Allowance for loan losses, end of period $3,061 $2,231  $1,965  $1,812  $1,605  $7,678  $5,262 
               
Allowance for loan losses as a percent of non-performing loans  475.8%  616.3%  166.81%  59.02%  85.74%  386.01% n/m%* 
              
Allowance for loan losses as a percent of total loans  1.22%  1.29%
Non-performing loans as a percent of total loans  0.32%      -%
Ratio of net charge-offs during the period to average loans outstanding during
the period
  --%  0.02%  0.13%  0.04%  --%  0.01%  -%
____________________
(1)Excludes loans held for sale.
(1)Excludes loans held for sale.*n/m Not meaningful

11
The following table shows how our allowance for loan losses is allocated by loan class at each of the dates indicated.

 
December 31,
  
December 31,
 
 
2020
 
2019
  
2018
  
2017
  
2016
  
2022
 
2021
 
 
Amount of Allowance
 
Loan
Category
as a % of
Total Loans
 
Amount of Allowance
 
Loan
Category
as a % of
Total Loans
  
Amount of Allowance
  
Loan
Category
as a % of
Total Loans
  
Amount of Allowance
  
Loan
Category
as a % of
Total Loans
  
Amount of Allowance
  
Loan
Category
as a % of
Total Loans
  
Amount of Allowance
 
Loan
Category
as a % of
Total Loans
 
Amount of Allowance
 
Loan
Category
as a % of
Total Loans
 
 (Dollars in Thousands)  (Dollars in Thousands) 
One-to-four family residential owner occupied $88 3.1% $52 2.5% $51  3.0% $48  2.8% $41  3.0% $123  2.9% $73  2.4%
One-to-four family residential non- owner occupied 362 12.9 351 16.0  435  21.6  540  25.4  503  29.0  295  6.2  292  9.4 
Multi-family residential 229 8.2 145 8.9  156  10.9  152  10.6  103  8.2  451  7.4  249  7.1 
Commercial real estate 1,287 45.8 854 47.8  839  47.2  687  45.1  616  43.4  3,750  52.9  2,475  44.6 
Construction 62 2.2 250 5.0  175  4.6  136  7.6  138  8.6  304  4.6  119  3.9 
Home equity 20 0.7 19 1.5  21  2.0  27  2.5  37  2.6  33  0.8  29  1.1 
Commercial business and other consumer 763 27.1 500 18.3  247  10.7  140  5.9  87  5.2  2,422  25.2  1,625  31.5 
Unallocated  250  --  60  --   41   --   82   0.1   80   --   300   --   400   -- 
Total $3,061   100.0% $2,231   100.0% $1,965   100.0% $1,812   100.0% $1,605   100.0% $7,678   100.0% $5,262   100.0%

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

12
Investment Activities

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

Our investment policy is designed primarily to manage the interest rate sensitivity of our assets and liabilities, to generate a favorable return without incurring undue interest rate and credit risk, to complement our lending activities and to provide and maintain liquidity.

Our securities are classified as available for sale, held to maturity, or trading, at the time of acquisition. Securities classified as held to maturity must be purchased with the intent and ability to hold that security until its final maturity and can be sold prior to maturity only under rare circumstances. Held to maturity securities are accounted for based upon the amortized cost of the security. Available for sale securities can be sold at any time based upon our needs or market conditions. Available for sale securities are accounted for at fair value, with unrealized gains and losses on these securities, net of income tax provisions, reflected in stockholders’ equity as accumulated other comprehensive income. At December 31, 2020,2022, we had $10.7$3.0 million of securities classified as available for sale and no securities classified as held to maturity or trading.

The Company also invests excess liquidity in interest-earning time deposits with other banks, laddering the maturities. As of December 31, 2020,2022, the Company held $9.5$3.8 million in interest-earning time deposits.

Federal Home Loan Bank (FHLB) stock is a restricted investment security, carried at cost. The purchase of FHLB stock provides banks with the right to be a member of the FHLB and to receive the products and services that the FHLB provides to member banking institutions. Unlike other types of stock, FHLB stock is acquired primarily for the right to receive advances from the FHLB, rather than for the purpose of maximizing dividends or stock growth. FHLB stock is an activity-based stock that is directly proportional to the volume of advances taken by a member institution. The FHLB will repurchase capital stock at $1.00 per share from Quaint Oak Bank. The FHLB has paid dividends on the capital stock in each quarter of 20192022 and 2020.
2021.

13
The following table sets forth our investment portfolio at carrying value as of the dates indicated.

 
December 31,
  
December 31,
 
 
2020
  
2019
  
2018
  
2022
 
2021
 
 (In Thousands)  (In Thousands) 
Interest-earning time deposits with other financial institutions $9,463  $10,172  $4,927  $3,833  $7,924 
Mortgage-backed securities:          
Government National Mortgage Association 4,913  5,853  4,873  2,871  3,882 
Federal Home Loan Mortgage Corporation --  --  1,082 
Federal National Mortgage Association 189  260  367  99  151 
Debt securities:         
U.S. government agency --  --  358 
Corporate notes 5,623  1,510  -- 
Investment in FHLB stock  1,665   1,580   1,086   6,601   2,178 
Total $21,853  $19,375  $12,693  $13,404  $14,135 


13
The following table sets forth the amount of investment securities which mature during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2020.2022.

  
Amounts at December 31, 2020 Which Mature In
 
  
One Year
or Less
  
Weighted
Average
Yield
  
Over One
Year
Through
Five Years
  
Weighted
Average
Yield
  
Over Five
Years
Through
Ten Years
  
Weighted
Average
Yield
  
Over
Ten
Years
  
Weighted
Average
Yield
 
  (Dollars in Thousands)       
Interest-earning time deposits with other financial institutions $4,006   2.51% $5,457   2.64% $--   --% $--   --%
Mortgage-backed securities:                                
     Government National Mortgage Association  --   --   --   --   --   --   4,887   0.78 
     Federal National Mortgage Association  --   --   --   --   --   --   183   2.24 
Debt securities, Corporate Notes  --   --   --   --   5,506   4.82%  --   -- 
  $4,006   2.51% $5,457   2.64% $5,506   4.82% $5,070   0.83%
                                 
  
Amounts at December 31, 2022 Which Mature In
 
  
One Year or Less
  
Weighted Average Yield
  
Over One Year Through Five Years
  
Weighted Average Yield
  
Over Five Years Through Ten Years
  
Weighted Average Yield
  
Over Ten Years
  
Weighted Average Yield
 
  (Dollars in Thousands) 
Interest-earning time deposits
  with other financial
  institutions
 $2,541   2.98% $1,292   3.31% $-   -% $-   -%
Mortgage-backed securities:                                
Government National
  Mortgage Association
  -   -   -   -   -   -   2,871   3.98 
Federal National Mortgage
  Association
  -   -   -   -   -   -%  99   3.69 
  $2,541   2.98% $1,292   3.31% $-   -% $2,970   3.97%

Sources of Funds

General. Deposits are the primary source of Quaint Oak Bank’s funds for lending and other investment purposes. In addition to deposits, principal and interest payments on loans are a source of funds. Loan payments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. Borrowings may also be used on a short-term basis to compensate for reductions in the availability of funds from other sources and on a longer-term basis for general business purposes.

Deposits. Deposits are attracted by Quaint Oak Bank principally from Bucks, Montgomery and Philadelphia Counties, Pennsylvania, and the Lehigh Valley area of Pennsylvania, although we also attract deposits from outside our market area and the Commonwealth of Pennsylvania. Deposit account terms vary, with the principal differences being the minimum balance required, the time periods the funds must remain on deposit, and the interest rate. Quaint Oak Bank offers a variety of deposit accounts with a range of rates and terms. Our deposit accounts consist of certificates of deposit, money market and other savings products, including non-interest bearing business and consumer checking accounts. Quaint Oak Bank generally does not solicitedsolicit deposits from outside Pennsylvania or pay fees to brokers to solicit funds for deposit.deposit, however the Bank does use a listing service for certificates of deposit, and has a deposit placement agreement with a third party bank for money market accounts. At December 31, 2020,2022, approximately 29.4%50.8% of Quaint Oak Bank’s total deposits were held by customers outside the Commonwealth of Pennsylvania.

Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Management determines the rates and terms based on rates paid by competitors, the need for funds or liquidity, growth goals and federal regulations. Management attempts to control the flow of deposits by pricing the accounts to remain generally competitive with other financial institutions in our market area.

14
The following table shows the distribution of, and certain other information relating to, our deposits by type of deposit, as of the dates indicated.

 
December 31,
  
December 31,
 
 
2020
 
2019
  
2018
  
2022
 
2021
 
 
Amount
 
%
 
Amount
 
%
  
Amount
  
%
  
Amount
 
%
 
Amount
 
%
 
 (Dollars in Thousands)  (Dollars in Thousands) 
Certificate accounts:Certificate accounts:                
0.00% - 0.99% $84,894 23.9% $-- --% $--  --%
1.00% - 1.99% 37,771 10.6 51,180 22.5  60,568  28.6 
2.00% - 2.99% 69,026 19.5 125,566 55.2  102,539  48.4 
3.00% - 3.99%  7,736  2.2  7,706  3.4   3,109   1.4 
0.00% - 0.99% $74,703  13.6% $131,614  29.4%
1.00% - 1.99% 16,698  3.0  15,245  3.4 
2.00% - 2.99% 37,606  6.8  25,267  5.7 
3.00% - 3.99% 50,376  9.2  7,784  1.7 
4.00% - 4.99%  18,568   3.4   -   - 
Total certificate accountsTotal certificate accounts  199,427  56.2  184,452  81.1   166,216   78.4   197,951   36.0   179,910   40.2 
Transaction accounts:Transaction accounts:                
Non-interest bearing checking accountsNon-interest bearing checking accounts 54,202 15.3 15,775 6.9  17,542  8.3  88,728  16.2  64,730  14.5 
Passbook accountsPassbook accounts 8 -- 5 --  192  0.1  3  -  10  -- 
Savings accountsSavings accounts 1,570 0.4 1,722 0.8  1,120  0.5  1,594  0.3  1,828  0.4 
Money market accountsMoney market accounts  99,638  28.1  25,504  11.2   26,841   12.7   260,972   47.5   200,688   44.9 
Total transaction accountsTotal transaction accounts  155,418  43.8  43,006  18.9   45,695   21.6   351,297   64.0   267,256   59.8 
Total depositsTotal deposits $354,845  100.0% $227,458  100.0% $211,911   100.0% $549,248   100.0% $447,166   100.0%

The following table shows the average balance of each type of deposit and the average rate paid on each type of deposit for the periods indicated.

 
Year Ended December 31,
 
 
2020
 
2019
  
2018
  
2022
 
2021
 
 
Average
Balance
  
Interest
Expense
  
Average
Rate Paid
 
Average
Balance
  
Interest
Expense
  
Average
Rate Paid
  
Average
Balance
  
Interest
Expense
  
Average
Rate Paid
  
Average Balance
 
Interest Expense
 
Average Rate Paid
 
Average Balance
 
Interest Expense
 
Average Rate Paid
 
 (Dollars in Thousands)  (Dollars in Thousands) 
Passbook accounts $6 $-- --% $53 $-- --% $310  $--  --% $5  $--  --% $11  $--  --%
Savings accounts 1,826 4 0.20 1,629 3 0.18  1,906  4  0.21  1,668  3  0.18  1,655  3  0.20 
Money market accounts 47,351 392 0.83 27,550 221 0.80  29,982  239  0.80  259,886  3,924  1.51  174,126  1,048  0.60 
Certificates of deposit  195,401  3,820 1.95  177,000  4,063 2.30   156,696   3,021  1.93   185,202   2,116   1.14   178,721   2,012   1.13 
Total interest-bearing deposits $244,584 $4,216  1.74% $206,232 $4,287  2.08% $188,894  $3,264   1.73% $446,761  $6,043   1.35% $354,513  $3,063   0.86%
Non-interest bearing deposits $37,218 $--  --% $16,148 $--  --% $11,645  $--   --% $73,137  $--   --% $75,918  $--   --%
Total deposits $281,802 $4,216  1.50% $222,380 $4,287  1.93% $200,539  $3,264   1.63% $519,898  $6,043   1.35% $430,431  $3,063   0.86%

The following table sets forth the net deposit flows          Uninsured deposits as of the Company during the periods indicated.December 31, 2022 and 2021 are estimated based on regulatory reporting requirements to be $255.3 million and $153.1 million, respectively.

  
Year Ended December 31,
 
  
2020
  
2019
  
2018
 
  (In Thousands) 
Increase before interest credited $123,109  $11,303  $22,455 
Interest credited  4,278   4,244   3,235 
  Total increase in deposits $127,387  $15,547  $25,690 


15
15

The following table presents, by various interest rate categories and maturities, the amount of certificates of deposit at December 31, 2020.2022.

 
Balance at December 31, 2020
Maturing in the Twelve Months Ending December 31,
   
Balance at December 31, 2022
Maturing in the Twelve Months Ending December 31,
 
Certificates of Deposit
Certificates of Deposit
 
2021
  
2022
  
2023
  
Thereafter
  
Total
  
2023
 
2024
 
2025
 
Thereafter
 
Total
 
 (In Thousands)  (In Thousands) 
0.00% - 0.99% $35,352  $18,979  $20,807  $9,756  $84,894 
1.00% - 1.99% 22,394  8,957  2,380  4,040  37,771 
2.00% - 2.99% 43,371  9,752  10,728  5,175  69,026 
3.00% - 3.99%  53   --   3,220   4,463   7,736 
0.00% - 0.99% $44,565  $19,955  $5,590  $4,593  $74,703 
1.00% - 1.99% 5,200  4,135  5,835  1,528  16,698 
2.00% - 2.99% 22,636  8,962  4,070  1,938  37,606 
3.00% - 3.99% 13,920  12,379  12,734  11,343  50,376 
4.00% - 4.99%  4,985   2,863   1,930   8,790   18,568 
Total certificate accountsTotal certificate accounts $101,170  $37,688  $37,135  $23,434  $199,427   $91,306  $48,294  $30,159  $28,192  $197,951 

The following table shows the maturities of our certificates of deposit of $100,000 or more than $250,000 at December 31, 20202022 by time remaining to maturity.

Quarter Ending:
 
Amount
  
Weighted
Average Rate
 
  (Dollars in Thousands) 
March 31, 2021 $23,850   2.20%
June 30, 2021  21,737   1.21 
September 30, 2021  8,996   1.16 
December 31, 2021  12,636   0.81 
After December 31, 2021  70,904   1.18 
  Total certificates of deposit with balances of $100,000 or more $138,123   1.33%
Quarter Ending:
 
Amount
  
Weighted
Average Rate
 
  (Dollars in Thousands) 
March 31, 2023 $2,138   1.22%
December 31, 2023  5,133   3.00 
After December 31, 2023  6,155   3.52 
Total certificates of deposit with balances of more than $250,000 $13,426   2.91%

Borrowings. Quaint Oak Bank may obtain advances from the Federal Home Loan Bank of Pittsburgh upon the security of the common stock it owns in that bank and certain of its residential mortgage loans and mortgage-backed and other investment securities, provided certain standards related to creditworthiness have been met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Federal Home Loan Bank advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending.

As of December 31, 2020,2022, Quaint Oak Bank has a maximum borrowing capacity with the Federal Home Loan Bank of approximately $159.7$353.4 million. Quaint Oak Bank’s Federal Home Loan Bank advances outstanding were $38.2$159.2 million and $36.3$49.2 million at December 31, 20202022 and 2019,2021, respectively. As of December 31, 2020,2022, Quaint Oak Bank has $613,000$8.1 million in borrowing capacity with the Federal Reserve Bank of Philadelphia under the discount window program. Quaint Oak Bank borrowed $7.0 million from the FRB discount window as of December 31, 2022. There were no borrowings under this facility atthe discount window as of December 31, 2020 or 2019.  The Bank also2021. 
As of December 31, 2022, there was $5.5 million of other short-term borrowings representing balances on two lines of credit that Oakmont Capital Holdings, LLC has borrowingwith a credit union. Borrowing capacity withon the FRB under the Federal Reserve’s Paycheck Protection Program Liquidity Facility (PPPLF) program in the amounttwo lines of the outstanding pledged PPP loans that totaled $93.3credit total $15.0 million at December 31, 2020. Quaint Oak Bank’s outstanding advances with the FRB under the PPPLF program were $48.1 million as of December 31, 2020.2022.

16
The following table shows certain information regarding our short-term borrowings at or for the dates indicated:

  
At or For the Year
Ended December 31,
 
  
2020
  
2019
  
2018
 
  (Dollars in Thousands) 
FHLB short-term borrowings:         
Average balance outstanding $3,292  $5,585  $9,745 
Maximum amount outstanding at any month-end during the period  20,000   11,000   10,000 
Balance outstanding at end of period  10,000   10,000   9,000 
Average interest rate during the period  1.12%  2.52%  2.02%
Weighted average interest rate at end of period  0.41%  1.81%  2.62%
  
FHLB Short-Term Borrowings
At or For the Year
Ended December 31,
  
FRB Short-Term Borrowings
At or For the Year
Ended December 31,
  
Other Short-Term Borrowings
At or For the Year
Ended December 31,
 
  
2022
  
2021
  2022  2021  2022  2021 
  (Dollars in Thousands) 
                         
Average balance outstanding $31,505  $10,405  $583  $-  $1,601  $1,300 
Maximum amount outstanding at any month-
  end during the period
  93,200   26,000   7,000   -   5,489   6,986 
Balance outstanding at end of period  93,200   26,000   7,000   -   5,489   - 
Average interest rate during the period  2.34%  0.30%  1.65%  -   6.68%  12.46%
Weighted average interest rate at end of period  4.45%  0.28%  4.50%  -   7.11%  -%


16
Federal Home Loan Bank long-term borrowings and the weighted interest rate consist of the following at December 31, 20202022 and 20192021 (in thousands):

    December 31, 2020  
  December 31, 2019     
 
       Weighted        Weighted 
       Interest        Interest  December 31, 2022 December 31, 2021 
Fixed rate borrowings maturing:
  Amount
   Rate
   Amount
  Rate
  
Amount
 
Weighted
Interest
Rate
 
Amount
 
Weighted
Interest
Rate
 
2020 $--  --% $2,000  2.00%
2021 5,000  2.20  5,000  2.20 
2022 7,171  2.10  7,171  2.10  $-   -% $7,171  2.10%
2023 7,000  2.16  7,000  2.16   57,000   2.22  7,000  2.16 
2024 6,167  2.05  5,100  2.28   6,167   2.05  6,167  2.05 
2025  2,855  1.25   --  --   2,855   1.25   2,855   1.25 
Total FHLB long-term debt $28,193   2.03% $26,271   2.16% $66,022   2.16% $23,193   2.00%

Federal Reserve Bank long-term(FRB) borrowings increased to $48.1$7.0 million at December 31, 2020 compared to zero2022 from $3.9 million at December 31, 20192021 as the Company borrowed this amount to fundpaid off $3.9 million of first round PPP loans pledged as collateral under the Federal Reserve’sFRB’s Paycheck Protection Program Liquidity Facility (PPPLF). and borrowed $7.0 million from the FRB discount window. Under the PPPLF the Company pledged certain PPP loans as collateral and borrowed from the Federal Reserve at a rate of 0.35% that is fixed for two years. These borrowings are paid off as the PPP loans pledged as collateral are forgiven through the SBA PPP loan forgiveness program.

Total Employees

We had 96129 full-time employees and no part-time employees at December 31, 2020.2022. None of these employees are represented by a collective bargaining agreement, and we believe that the Company enjoys good relations with its personnel.

Market Area

As of December 31, 2020,2022, our primary market area for loans and deposits is in Bucks, Montgomery and Philadelphia Counties, Pennsylvania, and the Lehigh Valley area of Pennsylvania, although we also attract deposits from outside our market area and the Commonwealth of Pennsylvania. Our operating strategy is based on strong personal service and operating efficiency.

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




17
Competition

Competition
Quaint Oak Bank faces significant competition both in attracting deposits and in making loans. Its most direct competition for deposits has come historically from commercial banks, credit unions and other savings institutions located in its primary market area, including many large financial institutions which have greater financial and marketing resources available to them. In addition, Quaint Oak Bank faces significant competition for investors’ funds from short-term money market securities, mutual funds and other corporate and government securities. Also, given Quaint Oak Bank’s operating strategies and reliance on savings accounts and certificates of deposit, Quaint Oak Bank also faces intense competition from money market mutual funds and national savings products. Quaint Oak Bank does not rely upon any individual group or entity for a material portion of its deposits.deposits, with the exception of using a listing agent for certificates of deposit. The ability of Quaint Oak Bank to attract and retain deposits depends on its ability to generally provide a rate of return, liquidity and risk comparable to that offered by competing investment opportunities.

Quaint Oak Bank’s competition for loans comes principally from mortgage banking companies, commercial banks, other savings institutions and credit unions. Quaint Oak Bank competes for loan originations primarily through the interest rates and loan fees it charges, and the efficiency and quality of services it provides borrowers. Factors that affect competition include general and local economic conditions, current interest rate levels and volatility in the mortgage markets.

REGULATION

Regulation of Quaint Oak Bancorp

General. Quaint Oak Bancorp is subject to regulation as a savings and loan holding company under the Home Owners’ Loan Act, as amended, because we made an election under Section 10(l) of the Home Owners’ Loan Act to be treated as a “savings association” for purposes of Section 10 of the Home Owners’ Loan Act. As a result, Quaint Oak Bancorp is currently regulated by the Federal Reserve Board and is subject to the regulations, examinations, supervision and reporting requirements relating to savings and loan holding companies. Quaint Oak Bancorp is also required to file certain reports with, and otherwise comply with the rules and regulations of, the Pennsylvania Department of Banking and Securities and the Securities and Exchange Commission. As a subsidiary of a savings and loan holding company, Quaint Oak Bank is subject to certain restrictions in its dealings with Quaint Oak Bancorp and affiliates thereof, including the Federal Reserve Board’s Qualified Thrift Lender test, dividend restrictions and transactions with affiliates regulations.

In the last several years, Quaint Oak Bancorp has experienced heightened regulatory requirements and scrutiny following the global financial crisis and as a result of the enactment in 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Resulting reforms have caused Quaint Oak Bancorp’s compliance and risk management processes, and the costs thereof, to increase. The legislation enacted in 2018 and summarized below may reduce some of the burdens associated with implementation of the Dodd-Frank Act, but the actual impact of this administration’s policies regarding the Dodd-Frank Act reforms is impossible to predict with any certainty.

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


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

It is difficult at this time to predict when or how any new standards under the Act will ultimately be applied to us or what specific impact the Act and the implementing rules and regulations will have on community banks.

Restrictions Applicable to Quaint Oak Bancorp. As a non-grandfathered savings and loan holding company, Quaint Oak Bancorp is permitted to engage only in the following activities:

●furnishing or performing management services for a subsidiary savings institution;
●conducting an insurance agency or escrow business;
furnishing or performing management services for a subsidiary savings institution;
●holding, managing, or liquidating assets owned or acquired from a subsidiary savings institution;
●holding or managing properties used or occupied by a subsidiary savings institution;

●acting as trustee under a deed of trust;
●any other activity (i) that the Federal Reserve Board, by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the Federal Reserve Board, by regulation, prohibits or limits any such activity for savings and loan holding companies, or (ii) in which multiple savings and loan holding companies were authorized by regulation to directly engage in on March 5, 1987;
conducting an insurance agency or escrow business;
●purchasing, holding, or disposing of stock acquired in connection with a qualified stock issuance if the purchase of such stock by such holding company is approved by the Federal Reserve Board; and
●any activity permissible for financial holding companies under section 4(k) of the Bank Holding Company Act.

holding, managing, or liquidating assets owned or acquired from a subsidiary savings institution;

holding or managing properties used or occupied by a subsidiary savings institution;

acting as trustee under a deed of trust;

any other activity (i) that the Federal Reserve Board, by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the Federal Reserve Board, by regulation, prohibits or limits any such activity for savings and loan holding companies, or (ii) in which multiple savings and loan holding companies were authorized by regulation to directly engage in on March 5, 1987;

purchasing, holding, or disposing of stock acquired in connection with a qualified stock issuance if the purchase of such stock by such holding company is approved by the Federal Reserve Board; and

any activity permissible for financial holding companies under section 4(k) of the Bank Holding Company Act.


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

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

insurance activities or providing and issuing annuities, and acting as principal, agent, or broker;

financial, investment, or economic advisory services;

issuing or selling instruments representing interests in pools of assets that a bank is permitted to hold directly;

underwriting, dealing in, or making a market in securities;

activities previously determined by the Federal Reserve Board to be closely related to banking;

activities that bank holding companies are permitted to engage in outside of the U.S.; and

portfolio investments made by an insurance company.


In addition, Quaint Oak Bancorp cannot be acquired unless the acquirer is engaged solely in financial activities or acquire a company unless the company is engaged solely in financial activities.

If a savings and loan holding company acquires or merges with another holding company, the holding company acquired or the holding company resulting from such merger or acquisition may only invest in assets and engage in the activities listed above, and it has a period of two years to cease any non-conforming activities and divest any non-conforming investments. As of December 31, 2020,2022, Quaint Oak Bancorp was not engaged in any non-conforming activities and it did not have any non-conforming investments.

If the subsidiary savings association fails to meet the Qualified Thrift Lender test set forth in Section 10(m) of the Home Owners’ Loan Act, as discussed below, then the savings and loan holding company must register with the Federal Reserve Board as a bank holding company, unless the savings institution requalifies as a Qualified Thrift Lender within one year thereafter.

Qualified Thrift Lender Test. A savings association can comply with the Qualified Thrift Lender test by either meeting the Qualified Thrift Lender test set forth in the Home Owners’ Loan Act and implementing regulations or qualifying as a domestic building and loan association as defined in Section 7701(a)(19) of the Internal Revenue Code of 1986, as amended. Currently the Qualified Thrift Lender test in the Home Owners’ Loan Act requires that 65% of an institution’s portfolio assets (as defined) consist of certain housing and consumer-related assets on a monthly average basis in nine out of every twelve months. To be a Qualified Thrift Lender under the IRS test, the savings institution must meet the “business operations test” and a “60 percent assets test”, each defined in the Internal Revenue Code. A savings association subsidiary of a savings and loan holding company that does not comply with the Qualified Thrift Lender test is immediately subject to the following restrictions on its operations:

●the institution may not engage in any new activity or make any new investment, directly or indirectly, unless such activity or investment is permissible for both a national bank and a savings association;
the institution may not engage in any new activity or make any new investment, directly or indirectly, unless such activity or investment is permissible for both a national bank and a savings association;

the branching powers of the institution shall be restricted to those of a national bank; and

payment of dividends by the institution shall be subject to the rules regarding payment of dividends by a national bank and must be necessary to meet the obligations of its holding company.20

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

Quaint Oak Bank believes that it meets the provisions of the Qualified Thrift Lender test and for the year ended December 31, 2020, 77%2022, 67% of its portfolio assets meet the requirements.

Regulatory Capital Requirements. The Federal Reserve Board has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a savings and loan holding company and in analyzing applications to it under the Savings and Loan Holding Company Act. The Federal Reserve Board’s capital adequacy guidelines for Quaint Oak Bancorp, on a consolidated basis, are similar to those imposed on Quaint Oak Bank by the Federal Deposit Insurance Corporation. See “-Regulation of Quaint Oak Bank - Capital Requirements.” Moreover, certain of the savings and loan holding company capital requirements promulgated by the Federal Reserve Board in 2013 became effective as of January 1, 2015. Those requirements establish four minimum capital ratios that Quaint Oak Bancorp had to comply with as of that date. However, in May 2015, amendments to the Federal Reserve Board’s small bank holding company policy statement (the “SBHC Policy”) (which also applies to small savings and loan holding companies) became effective which increased the asset threshold to qualify to utilize the provisions of the SBHC Policy from $500 million to $1.0 billion. In 2018, the Act increased the asset threshold to $3.0 billion. Savings and loan holding companies which are subject to the SBHC Policy are not subject to compliance with the regulatory capital requirements set forth in the table below until they exceed $3.0 billion in assets. As a consequence, as of December 31, 2020,2022, Quaint Oak Bancorp was not required to comply with the requirements until such time that its consolidated total assets exceed $3.0 billion or the Federal Reserve Board determines that Quaint Oak Bancorp is no longer deemed to be a small savings and loan holding company. However, if Quaint Oak Bancorp had been subject to the requirements, it would have been in compliance with such requirements.

Limitations on Transactions with Affiliates. Transactions between savings associations and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act as made applicable to savings associations by Section 11 of the Home Owners’ Loan Act. An affiliate of a savings association includes any company or entity which controls the savings association or that is controlled by a company that controls the savings association. In a holding company context, the holding company of a savings association (such as Quaint Oak Bancorp) and any companies which are controlled by such holding company are affiliates of the savings association. Generally, Section 23A limits the extent to which the savings association or its subsidiaries may engage in “covered transactions”“covered transactions” with any one affiliate to an amount equal to 10% of such association’s capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. Section 23B applies to “covered transactions”“covered transactions” as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least as favorable, to the savings association as those provided to a non-affiliate. The term “covered transaction”“covered transaction” includes the making of loans to, purchase of assets from and issuance of a guarantee to an affiliate and similar transactions. Section 23B transactions also include the provision of services and the sale of assets by a savings association to an affiliate. In addition to the restrictions imposed by Sections 23A and 23B, Section 11 of the Home Owners’ Loan Act prohibits a savings association from (i) making a loan or other extension of credit to an affiliate, except for any affiliate which engages only in certain activities which are permissible for bank holding companies, or (ii) purchasing or investing in any stocks, bonds, debentures, notes or similar obligations of any affiliate, except for affiliates which are subsidiaries of the savings association.

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In addition, Sections 22(g) and (h) of the Federal Reserve Act as made applicable to savings associations by Section 11 of the Home Owners’ Loan Act, place restrictions on loans to executive officers, directors and principal stockholders of the savings association and its affiliates. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% stockholder of a savings association, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings association’s loans to one borrower limit (generally equal to 15% of the association’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the association and (ii) does not give preference to any director, executive officer or principal stockholder, or certain affiliated interests of either, over other employees of the savings association. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings association to all insiders cannot exceed the association’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. As an insured state-chartered savings bank, Quaint Oak Bank currently is subject to Sections 22(g) and (h) of the Federal Reserve Act and at December 31, 2020,2022, was in compliance with the above restrictions.

Restrictions on Acquisitions.Except under limited circumstances, savings and loan holding companies are prohibited from acquiring, without prior approval of the Federal Reserve Board, (i) control of any other savings association or savings and loan holding company or substantially all the assets thereof or (ii) more than 5% of the voting shares of a savings association or holding company thereof which is not a subsidiary. Except with the prior approval of the Federal Reserve Board, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company’s stock, may acquire control of any savings association, other than a subsidiary savings association, or of any other savings and loan holding company.

The Federal Reserve Board may only approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings associations in more than one state if (i) the multiple savings and loan holding company involved controls a savings association which operated a home or branch office located in the state of the association to be acquired as of March 5, 1987; (ii) the acquirer is authorized to acquire control of the savings association pursuant to the emergency acquisition provisions of the Federal Deposit Insurance Act; or (iii) the statutes of the state in which the association to be acquired is located specifically permit associations to be acquired by the state-chartered associations or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings associations).

Federal Securities Laws. Quaint Oak Bancorp’s common stock is registered with the Securities and Exchange Commission under Section 12(g) of the Securities Exchange Act of 1934, as amended. Quaint Oak Bancorp is subject to information, proxy solicitation, insider trading restrictions, and other requirements under the Securities Exchange Act of 1934.

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

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

Regulation of Quaint Oak Bank

Pennsylvania Banking Law. The Pennsylvania Banking Code contains detailed provisions governing the organization, location of offices, rights and responsibilities of directors, officers and employees, as well as corporate powers, savings and investment operations and other aspects of Quaint Oak Bank and its affairs. The Pennsylvania Banking Code delegates extensive rulemaking power and administrative discretion to the Pennsylvania Department of Banking and Securities so that the supervision and regulation of state-chartered savings banks may be flexible and readily responsive to changes in economic conditions and in savings and lending practices.

One of the purposes of the Pennsylvania Banking Code is to provide savings banks with the opportunity to be competitive with each other and with other financial institutions existing under other Pennsylvania laws and other state, federal and foreign laws. A Pennsylvania savings bank may locate or change the location of its principal place of business and establish an office anywhere in the Commonwealth, with the prior approval of the Pennsylvania Department of Banking and Securities.

The Pennsylvania Department of Banking and Securities generally examines each savings bank not less frequently than once every two years. Although the Pennsylvania Department of Banking and Securities may accept the examinations and reports of the Federal Deposit Insurance Corporation in lieu of its own examination, the present practice is for the Pennsylvania Department of Banking and Securities to conduct individual examinations. The Pennsylvania Department of Banking and Securities may order any savings bank to discontinue any violation of law or unsafe or unsound business practice and may direct any director, trustee, officer, attorney or employee of a savings bank engaged in an objectionable activity, after the Pennsylvania Department of Banking and Securities has ordered the activity to be terminated, to show cause at a hearing before the Pennsylvania Department of Banking and Securities why such person should not be removed.

Insurance of Accounts. The deposits of Quaint Oak Bank are insured to the maximum extent permitted by the Deposit Insurance Fund, administered by the Federal Deposit Insurance Corporation, and are backed by the full faith and credit of the U.S. Government. The 2010 financial institution reform legislation permanently increased deposit insurance on most accounts to $250,000. As insurer, the Federal Deposit Insurance Corporation is authorized to conduct examinations of, and to require reporting by, insured institutions. It also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious threat to the Federal Deposit Insurance Corporation.

The Dodd Frank Act raises the minimum reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% and requires the FDIC to offset the effect of this increase on insured institutions with assets of less than $10 billion (small institutions).  In March 2016, the FDIC adopted a rule to accomplish this by imposing a surcharge on larger institutions commencing when the reserve ratio reaches 1.15% and ending when it reaches 1.35%.  The reserve ratio reached 1.15% effective as of June 30, 2016 and exceeded 1.35% effective as of September 30, 2018.  Small institutions received credits for the portion of their regular assessments that contributed to growth in the reserve ratio between 1.15% and 1.35%.  The FDIC applied credits of $7,000 to Quaint Oak Bank’s assessments due in 2020.  In 2020, the FDIC announced that all credits have been remitted and the credit program has ended.

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Effective July 1, 2016, the FDIC adopted changes that eliminated its risk-based premium system.  Under the new premium system, the
          The FDIC assesses deposit insurance premiums on the assessment base of a depository institution, which is its average total assets reduced by the amount of its average tangible equity. For a small institution (one with assets of less than $10 billion) that has been federally insured for at least five years, effective July 1, 2016, the initial base assessment rate ranges from 3 to 30 basis points, based on the institution’s CAMELS composite and component ratings and certain financial ratios; its leverage ratio; its ratio of net income before taxes to total assets; its ratio of nonperforming loans and leases to gross assets; its ratio of other real estate owned to gross assets; its brokered deposits ratio (excluding reciprocal deposits if the institution is well capitalized and has a CAMELS composite rating of 1 or 2); its one year asset growth ratio (which penalizes growth adjusted for mergers in excess of 10%); and its loan mix index (which penalizes higher risk loans based on historical industry charge off rates).  The initial base assessment rate is subject to downward adjustment (not below 1.5%) based on the ratio of unsecured debt the institution has issued to its assessment base, and to upward adjustment (which can cause the rate to exceed 30 basis points) based on its holdings of unsecured debt issued by other insured institutions. Institutions with assets of $10 billion or more are assessed using a scorecard method.

In addition, all institutions with deposits insured by the Federal Deposit Insurance Corporation were required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government corporation established to recapitalize a predecessor to the Deposit Insurance Fund. The Financing Corporation bonds matured in 2019.

The Federal Deposit Insurance Corporation may terminate the deposit insurance of any insured depository institution, including Quaint Oak Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the Federal Deposit Insurance Corporation. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the Federal Deposit Insurance Corporation. Management is aware of no existing circumstances which would result in termination of Quaint Oak Bank’s deposit insurance.

Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the Deposit Insurance Fund reserve ratio to decline below the statutory minimum of 1.35 percent as of June 30, 2020. In September 2020, the Federal Deposit Insurance Corporation Board of Directors adopted a Restoration Plan to restore the reserve ratio to at least 1.35 percent within eight years, absent extraordinary circumstances, as required by the Federal Deposit Insurance Act. The Restoration Plan maintained the assessment rate schedules in place at the time and required the Federal Deposit Insurance Corporation to update its analysis and projections for the deposit insurance fund balance and reserve ratio at least semiannually.
          In the semiannual update for the Restoration Plan in June 2022, the Federal Deposit Insurance Corporation projected that the reserve ratio was at risk of not reaching the statutory minimum of 1.35 percent by September 30, 2028, the statutory deadline to restore the reserve ratio. Based on this update, the Federal Deposit Insurance Corporation Board approved an Amended Restoration Plan, and concurrently proposed an increase in initial base deposit insurance assessment rate schedules uniformly by 2 basis points, applicable to all insured depository institutions.
          In October 2022, the Federal Deposit Insurance Corporation Board finalized the increase with an effective date of January 1, 2023, applicable to the first quarterly assessment period of 2023. The revised assessment rate schedules are intended to increase the likelihood that the reserve ratio of the Deposit Insurance Fund reaches the statutory minimum level of 1.35 percent by September 30, 2028.
Capital Requirements. Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.

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At December 31, 2020,2022, Quaint Oak Bank’s capital exceeded all applicable capital requirements. See Note 18 to the notes to our financial statements included in Exhibit 13.0 hereto.

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

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

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

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

CARES Act and CAA, 2021. In response to the COVID-19 pandemic, Congress, through the enactment of the CARES Act, and the federal banking agencies, though rulemaking, interpretive guidance and modifications to agency policies and procedures, have taken a series of actions to provide national emergency economic relief measures including, among others, the following:

The CARES Act allows banks to elect to suspend requirements under GAAP for loan modifications related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a TDR, including impairment for accounting purposes, until the earlier of 60 days after the termination date of the national emergency or December 31, 2020. The suspension of GAAP is applicable for the entire term of the modification. The federal banking agencies also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 by providing that short-term modifications made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification is implemented is not a TDR. Quaint Oak Bank is applying this guidance to qualifying COVID-19 Modifications.


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The CARES Act amended the SBA’s loan program to create a guaranteed, unsecured loan program, the PPP, to fund payroll and operational costs of eligible businesses, organizations and self-employed persons during the COVID-19 pandemic. The loans are provided through participating financial institutions, such as Quaint Oak Bank, that process loan applications and service the loans and are eligible for SBA repayment and loan forgiveness if the borrower meets the PPP conditions. The application period for a SBA PPP loan closed on August 8, 2020. The SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders on October 2, 2020. The CAA, 2021 which was signed into law on December 27, 2020, renews and extends the PPP until March 31, 2021. As a result, as a participating lender, Quaint Oak Bank began originating PPP loans again in January 2021 and will continue to monitor legislative, regulatory, and supervisory developments related to the PPP.

As the on-going COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation. We continue to assess the impact of the CARES Act and other statues, regulations and supervisory guidance related to the COVID-19 pandemic. For additional information regarding actions taken by regulatory agencies to provide relief to consumers who have been adversely impacted by the COVID-19 pandemic, see the discussion below under “Risk Factors—Risks Related to our Business-Risks Related to the COVID-19 Pandemic and the Associated Economic Shutdown.”

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

Pennsylvania Department of Banking and Securities Capital Requirements. Quaint Oak Bank is also subject to more stringent Pennsylvania Department of Banking and Securities capital guidelines. Although not adopted in regulation form, the Pennsylvania Department of Banking and Securities utilizes capital standards requiring a minimum of 6% leverage capital and 10% risk-based capital. The components of leverage and risk-based capital are substantially the same as those defined by the Federal Deposit Insurance Corporation. At December 31, 2020,2022, Quaint Oak Bank’s tier 1 leverage ratio was well capitalized and total risk-based capital ratios exceeded each of its capital requirements.was adequately capitalized.

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

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

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

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

At December 31, 2020,2022, Quaint Oak Bank was deemed a well-capitalizedan adequately-capitalized institution for purposes of the prompt corrective regulations and as such is not subject to the above mentioned restrictions.

Activities and Investments of Insured State-Chartered Savings Banks. The activities and equity investments of Federal Deposit Insurance Corporation-insured, state-chartered savings banks are generally limited to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things:

●acquiring or retaining a majority interest in a subsidiary;
●investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank’s total assets;
acquiring or retaining a majority interest in a subsidiary;
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●acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors’, trustees’ and officers’ liability insurance coverage or bankers’ blanket bond group insurance coverage for insured depository institutions; and
●acquiring or retaining the voting shares of a depository institution if certain requirements are met.
investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank’s total assets;

acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors’, trustees’ and officers’ liability insurance coverage or bankers’ blanket bond group insurance coverage for insured depository institutions; and

acquiring or retaining the voting shares of a depository institution if certain requirements are met.

The Federal Deposit Insurance Corporation has adopted regulations pertaining to the other activity restrictions imposed upon insured state banks and their subsidiaries. Pursuant to such regulations, insured state banks engaging in impermissible activities may seek approval from the Federal Deposit Insurance Corporation to continue such activities. State banks not engaging in such activities but that desire to engage in otherwise impermissible activities either directly or through a subsidiary may apply for approval from the Federal Deposit Insurance Corporation to do so; however, if such bank fails to meet the minimum capital requirements or the activities present a significant risk to the Deposit Insurance Fund, such application will not be approved by the Federal Deposit Insurance Corporation. Pursuant to this authority, the Federal Deposit Insurance Corporation has determined that investments in certain majority-owned subsidiaries of insured state banks do not represent a significant risk to the deposit insurance funds. Investments permitted under that authority include real estate activities and securities activities.

Brokered Deposits. A "brokered deposit" is any deposit that is obtained from or through the mediation or assistance of a deposit broker. Deposit brokers may attract deposits from individuals and companies throughout the United States and internationally whose deposit decisions are based primarily on obtaining the highest interest rates. Federal Deposit Insurance Corporation regulations limit the ability of an insured depository institution, such as Quaint Oak Bank, to accept, renew or roll over brokered deposits unless the institution is well-capitalized under the prompt corrective action framework described above, or unless it is adequately capitalized and obtains a waiver from the Federal Deposit Insurance Corporation. In addition, less than well-capitalized banks are subject to restrictions on the interest rates they may pay on deposits. The characterization of deposits as "brokered" may result in the imposition of higher deposit assessments on such deposits. As mandated by the Economic Growth Act, the Federal Deposit Insurance Corporation adopted a final rule in February 2019 to include a limited exception for reciprocal deposits for Federal Deposit Insurance Corporation insured depository institutions that are well-rated and well-capitalized (or adequately capitalized and for which the insured depository institution has obtained a waiver from the Federal Deposit Insurance Corporation.). Certain reciprocal deposits of up to the lesser of $5 billion or 20% of an insured depository institution’s deposits are excluded from the definition of brokered deposits, where the insured depository institution is "well-capitalized" and has a composite rating of 1 or 2.
          In December 2020, the Federal Deposit Insurance Corporation issued a final rule amending its brokered deposits regulation. The rule sought to clarify and modernize the Federal Deposit Insurance Corporation’s regulatory framework for brokered deposits. Notable aspects of the rule included (i) the establishment of bright-line standards for determining whether an entity meets the statutory definition of "deposit broker;" (ii) the identification of a number of business relationships in which the agent or nominee is automatically not deemed to be a "deposit broker" because their primary purpose is not the placement of funds with depository institutions (the "primary purpose exception"); (iii) the establishment of a "more transparent" application process for entities that seek to rely upon the "primary purpose exception", but do not qualify for one of the identified business relationships to which the exception is automatically applicable; and (iv) the clarification that third parties that have an exclusive deposit-placement arrangement with one insured depository institution are not considered a "deposit broker." The final rule took effect on April 1, 2021, and full compliance was required by January 1, 2022.
27
Restrictions on Capital Distributions. Federal Reserve Board and Federal Deposit Insurance Corporation regulations govern capital distributions by savings institutions, which include cash dividends, stock repurchases and other transactions charged to the capital account of a savings institution to make capital distributions. These regulations apply to Quaint Oak Bancorp because Quaint Oak Bank is considered a savings association for certain purposes under Home Owners’ Loan Act, as amended. Under applicable regulations, a savings association must file an application for Federal Deposit Insurance Corporation approval of the capital distribution if:

●the total capital distributions for the applicable calendar year exceed the sum of the institution’s net income for that year to date plus the institution’s retained net income for the preceding two years;
●the institution would not be at least adequately capitalized following the distribution;
●the distribution would violate any applicable statute, regulation, agreement or Federal Deposit Insurance Corporation-imposed condition; or
●the institution is not eligible for expedited treatment of its filings with the Federal Deposit Insurance Corporation.
the total capital distributions for the applicable calendar year exceed the sum of the institution’s net income for that year to date plus the institution’s retained net income for the preceding two years;

the institution would not be at least adequately capitalized following the distribution;

the distribution would violate any applicable statute, regulation, agreement or Federal Deposit Insurance Corporation-imposed condition; or

the institution is not eligible for expedited treatment of its filings with the Federal Deposit Insurance Corporation.

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

A savings association that either before or after a proposed capital distribution fails to meet its then applicable minimum capital requirement or that has been notified that it needs more than normal supervision may not make any capital distributions without the prior written approval of the Federal Deposit Insurance Corporation. In addition, the Federal Deposit Insurance Corporation may prohibit a proposed capital distribution, which would otherwise be permitted by Federal Deposit Insurance Corporation regulations, if the Federal Deposit Insurance Corporation determines that such distribution would constitute an unsafe or unsound practice.

The Federal Deposit Insurance Corporation prohibits an insured depository institution from paying dividends on its capital stock or interest on its capital notes or debentures (if such interest is required to be paid only out of net profits) or distributing any of its capital assets while it remains in default in the payment of any assessment due the Federal Deposit Insurance Corporation. Quaint Oak Bank is currently not in default in any assessment payment to the Federal Deposit Insurance Corporation.

          Commercial Real Estate Lending Concentration Guidance. Under guidance issued by the federal banking agencies, the agencies have expressed concerns with institutions that ease commercial real estate underwriting standards and have directed financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks. The agencies have also issued guidance that requires a financial institution to employ enhanced risk management practices if the institution is exposed to significant concentration risk in its commercial real estate portfolio. Under that guidance, an institution is potentially exposed to significant concentration risk if: (i) total reported loans for construction, land development, and other land represent 100% or more of total risk-based capital or (ii) total reported loans secured by multi-family and non-farm residential properties, loans for construction, land development, and other land loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital, and the outstanding balance of the institution's commercial real estate loan portfolio has increased by 50% or more during the prior 36 months. At December 31, 2022, the balance of these real estate loans represented 679.6% of Quaint Oak Bank’s total capital and our commercial real estate loan portfolio increased by 179.5% during the preceding 36 months. Institutions, which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital.
28
Privacy Requirements of the Gramm-Leach-Bliley Act.Federal law places limitations on financial institutions like Quaint Oak Bank regarding the sharing of consumer financial information with unaffiliated third parties. Specifically, these provisions require all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of personal financial information with unaffiliated third parties. Quaint Oak Bank currently has a privacy protection policy in place and believes such policy is in compliance with the regulations.

28
Consumer Financial Services. The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly with the establishment of the Consumer Financial Protection Bureau (“CFPB”) as part of the Dodd-Frank Act reforms. The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including Quaint Oak Bank, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets. FDIC-insured institutions with $10 billion or less in assets, like Quaint Oak Bank, continue to be examined by their applicable bank regulators.

Anti-Money Laundering.Federal anti-money laundering rules impose various requirements on financial institutions intended to prevent the use of the U.S. financial system to fund terrorist activities. These provisions include a requirement that financial institutions operating in the United States have anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such compliance programs supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations. Quaint Oak Bank has established policies and procedures to ensure compliance with the federal anti-laundering provisions.

Regulatory Enforcement Authority. The federal banking laws provide substantial enforcement powers available to federal banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.

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

29
Federal Home Loan Bank System.Quaint Oak Bank is a member of the Federal Home Loan Bank of Pittsburgh, which is one of 11 regional Federal Home Loan Banks. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds from the sale of consolidated obligations of the Federal Home Loan Bank System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the Federal Home Loan Bank.

As a member, Quaint Oak Bank is required to purchase and maintain stock in the Federal Home Loan Bank of Pittsburgh in an amount in accordance with the Federal Home Loan Bank’s capital plan and sufficient to ensure that the Federal Home Loan Bank remains in compliance with its minimum capital requirements. At December 31, 2020,2022, Quaint Oak Bank was in compliance with this requirement.

Federal Reserve Board System.The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts, which are primarily checking and NOW accounts, and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy the liquidity requirements that are imposed by the Pennsylvania Department of Banking and Securities. At December 31, 2020,2022, Quaint Oak Bank was in compliance with these reserve requirements.

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TAXATION
TAXATION

Federal Taxation

General. Quaint Oak Bancorp and Quaint Oak Bank are subject to federal income tax provisions of the Internal Revenue Code of 1986, as amended, in the same general manner as other corporations with some exceptions listed below. For federal income tax purposes, Quaint Oak Bancorp files a consolidated federal income tax return with its wholly owned subsidiaries on a fiscal year basis. The applicable federal income tax expense or benefit will be properly allocated to each entity based upon taxable income or loss calculated on a separate company basis.

Method of Accounting. For federal income tax purposes, income and expenses are reported on the accrual method of accounting and Quaint Oak Bancorp files its federal income tax return using a December 31 fiscal year end.

Taxable Distributions and Recapture. Prior to the Small Business Job Protection Act, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income if a savings bank failed to meet certain thrift asset and definitional tests. New federal legislation eliminated these thrift related recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should a savings bank make certain non-dividend distributions or cease to maintain a savings bank charter. At December 31, 2020,2022, Quaint Oak Bank did not have federal pre-1988 reserves subject to recapture.

Corporate Dividends Received Deduction. Quaint Oak Bancorp may exclude from income 100% of dividends received from a member of the same affiliated group of corporations. The corporate dividends received deduction is 80% in the case of dividends received from corporations, which a corporate recipient owns less than 80%, but at least 20% of the distribution corporation. Corporations that own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received.

30
Other Matters. The Company is no longer subject to examination by taxing authorities for the years before January 1, 2017.2019.

State and Local Taxation

Pennsylvania Taxation. Quaint Oak Bancorp is subject to the Pennsylvania Corporate Net Income Tax. The Corporation Net Income Tax rate for 20202022 is 9.99% and is imposed on unconsolidated taxable income for federal purposes with certain adjustments.

Quaint Oak Bank is subject to tax under the Pennsylvania Mutual Thrift Institutions Tax Act (the “MTIT”), as amended to include thrift institutions having capital stock. Pursuant to the MTIT, the tax rate is 11.5%. The MTIT exempts Quaint Oak Bank from other taxes imposed by the Commonwealth of Pennsylvania for state income tax purposes and from all local taxation imposed by political subdivisions, except taxes on real estate and real estate transfers. The MTIT is a tax upon net earnings, determined in accordance with U.S. generally accepted accounting principles with certain adjustments. The MTIT, in computing income under U.S. generally accepted accounting principles, allows for the deduction of interest earned on state and federal obligations, while disallowing a percentage of thrift’s interest expense deduction in the proportion of interest income on those securities to the overall interest income of Quaint Oak Bank. Net operating losses, if any, thereafter can be carried forward three years for MTIT purposes.



30
Item 1A. Risk Factors.

We are exploring a potential sale of our 51% stake in Oakmont Capital Holdings, LLC, primarily to reduce our asset size and increase our capital ratios.
The COVID-19 pandemicBank maintains a 51% ownership interest in Oakmont Capital Holdings, LLC (“Oakmont Capital”), a multi-state equipment finance company based in West Chester, Pennsylvania with a second significant facility located in Albany, Minnesota.  We are currently exploring the sale of the Bank’s interest in Oakmont Capital in order to reduce our asset size and increase the Bank’s capital ratios.  In recent periods, Oakmont Capital has adversely impactedmaterially contributed to our growth in assets and our non-interest income.  While we are currently exploring a sale, we may not complete the transaction if we are unable to receive favorable terms for the acquisition of Oakmont Capital.  If we complete a sale, we anticipate that our non-interest income will decrease.  If we do not complete a sale, we may be required to raise additional capital to support the growth attributable to continued ownership interest in Oakmont Capital. Our ability to conduct businessraise additional capital, when and is expected to adversely impact our financial results and those of our customers. The ultimate impactif needed, will depend on future developments,conditions in the capital markets, economic conditions and a number of other factors, including investor preferences regarding the banking industry, market conditions and governmental activities, many of which are 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 majorityoutside of our employees currently are working remotely to enable us to continue to provide banking services to our customers.  Heightened cybersecurity, information securitycontrol, 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.performance.

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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 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

The following table provides certain information as of December 31, 20202022 with respect to our main office located in Southampton, Pennsylvania, our regional offices located in Allentown and Philadelphia, Pennsylvania, mortgage banking, real estate sales and title abstract property in Allentown, Pennsylvania, our insurance agency office in Chalfont, Pennsylvania, and a mortgage loan production office in Philadelphia.

Description/Address
 
Leased/Owned
 
Date of Lease
Expiration
 
Net Book Value of
Property
 
Amount of
Deposits
 
 
Leased/Owned
 
Date of Lease
Expiration
  
Net Book Value of
Property
   
Amount of 
Deposits
 
       (In Thousands)      (In Thousands) 
      
501-503 Knowles Avenue
Southampton, Pennsylvania 18966
 Leased 11/30/2021(1) $     56 $240,784
01-503 Knowles Avenue
Southampton, Pennsylvania 18966
 
Leased
 
 
03/01/2022(1)
 
 
$
 
39
 
  
$
 
423,674
 
 
1710 Union Boulevard
Allentown, Pennsylvania 18019
 Owned NA 1,503 99,737 
Owned
 
 
NA
 
 
1,432
 
  
96,950
 
 
117-21 Spring Garden Street (Suite A)
Philadelphia, Pennsylvania 19123
  Leased 2/28/2030(2) 113
 14,324
 
Leased
 
 
2/28/2040
 
 
93
 
  
25,382
 
 
4275 County Line Road (Suite #14)
Chalfont, Pennsylvania 18914
 Leased 5/31/2027(3) 35 Not applicable 
Leased
 
 
5/31/2027(2)
 
 
48
 
  
Not applicable
 
 
100 Spring Garden Street
Philadelphia, Pennsylvania 19123
 Leased 8/31/2023(4) -- Not applicable 
Leased
 
 
8/31/2038(3)
 
 
--
 
  
Not applicable
 
 
1244 Hamilton Street (Suite 200 & 201)
Allentown, Pennsylvania 18102
 Leased 9/30/2021(5) -- Not applicable
_________________
(1)Such lease has a five year renewal option which would commence on DecemberApril 1, 20212022 and end on November 30, 2026.March 31, 2027.
(2)
(3)
Such lease has two consecutive five year renewal options which would commence on March 1, 2030 and end on February 28, 2040.
(2)
Such lease has a five year renewal option which would commence on June 1, 2027 and end on May 31, 2032.
(4)(3)Such lease has three consecutivea five year renewal options which would commence on September 1, 20232039 and end on August 31, 2038.2044.
(5)Such lease was executed on October 1, 2020 and commenced on October 1, 2020. Such lease has a one year renewal option which would commence on October 1, 2021 and end on September 30, 2022.
32



Item 3.  Legal Proceedings.

Quaint Oak Bancorp is not involved in any legal proceedings except nonmaterial litigation incidental to the ordinary course of business.

Item 4.  Mine Safety Disclosures.

Not applicable.

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PART II

Item 5.5.Market for Registrant’sRegistrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities.

(a)         Quaint Oak Bancorp’s common shares trade on the OTCQB, the OTC market tier for companies that report to the SEC or a U.S. banking or insurance regulator, under the symbol “QNTO.” As of March 23, 202121, 2023 Quaint Oak Bancorp had 1,989,5192,191,450 common shares outstanding held of record by 158145 shareholders. The number of shareholders does not reflect the number of persons or entities who may hold stock in nominee or “street” name through brokerage firms or others.

(b)Not applicable.

(c)Purchases of Equity Securities

Quaint Oak Bancorp’s repurchases of its common stock made during the quarter ended December 31, 2020,2022, 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)
 
October 1, 2022 – October 31, 2022  178  $22.26   --   24,375 
November 1, 2022 – November 30, 2022  --   --   --   24,375 
December 1, 2022 – December 31, 2022  --   --   --   24,375 
Total  178  $22.26   --   24,375 

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)
 
October 1, 2020 – October 31, 2020  13,130  $12.81   4,500   24,375 
November 1, 2020 – November 30, 2020  --   --   --   24,375 
December 1, 2020 – December 31, 2020  --   --   --   24,375 
Total  13,130  $12.81   4,500   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 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 fifthon Form 8-K filed on December 13, 2018. The repurchase program on Form 8-K filed on December 13, 2018.  The repurchase program does not have an expiration date.

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Item 6. Selected Financial Data.[Reserved]

The information required herein is incorporated by reference from page 1 of the Annual Report attached hereto as Exhibit 13.0 (“Annual Report”).


Item 7. Management’sManagement’s Discussion and Analysis of Financial Condition and Results ofOperations.
 Operations.

The information required herein is incorporated by reference from pages 2 to 2019 of the Annual Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company (as defined) we are not required to provide this information.

33
Item 8. Financial Statements and Supplementary Data.

The information required herein is incorporated by reference from pages 21 to 6971 of the Annual Report.Report attached hereto as Exhibit 13.0 (“Annual Report”).

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

Not Applicable.

Item 9A. Controls and Procedures.

(a) Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of December 31, 2020.2022. Based on their evaluation of Quaint Oak Bancorp’s disclosure controls and procedures, Quaint Oak Bancorp’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by Quaint Oak Bancorp in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

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

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

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

Prepare financial statements and footnote disclosures in accordance with GAAP that can be relied upon by external users;

Prevent and detect unauthorized acquisition, use or disposition of Quaint Oak Bancorp’s assets that could have a material effect of the financial statements.

Management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of Quaint Oak Bancorp’s controls over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on our evaluation under the framework in Internal Control – Integrated Framework, management concluded that Quaint Oak Bancorp’s internal control over financial reporting was effective as of December 31, 2020.2022. Furthermore, during the conduct of its assessment, management identified no material weakness in its financial reporting control system.

(c) No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the fourth fiscal quarter of fiscal 20202022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Item 9B. Other Information.

Not applicable.

34Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections.
               Not applicable.
PART III

Item 10. Directors and Executive Officers and Corporate Governance.

The information required herein is incorporated by reference from the information contained in the sections captioned “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers” and “Beneficial Ownership of Common Stock by Certain Owners and Management – Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” in Quaint Oak Bancorp’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 12, 202110, 2023 (the “Proxy Statement”), a copy of which will be filed with the Securities and Exchange Commission.

Quaint Oak Bancorp has adopted a Code of Conduct and Ethics that applies to its principal executive officer and principal financial officer, as well as other officers and employees of Quaint Oak Bancorp and Quaint Oak Bank. A copy of the Code of Ethics is available on the Company’s website at www.quaintoak.com.

Item 11. Executive Compensation.

The information required herein is incorporated by reference from the information contained in the sections captioned “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers – Director Compensation” and “Executive Compensation” in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required herein is incorporated by reference from the information contained in the section captioned “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management” in the Proxy Statement.

Equity Compensation Plan Information. The following table provides information as of December 31, 20202022 with respect to shares of common stock that may be issued under our existing equity compensation plans, which consist of the 2013 and 2018 Stock Incentive Plans. Both of these plans were approved by our shareholders.

Plan Category
 
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
(a)
  
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
  
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))
(c)
  
Number of securities to be issued upon exercise of outstanding options, warrants
and rights
(a)
 
Weighted-average exercise price of outstanding options,
warrants and rights
(b)
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
 
Equity compensation plans approved by security holders 268,902(1) $11.22(1) 53,400  207,080(1) $11.22(1) 57,800 
Equity compensation plans not approved by security holders  
--
  --   --   --   --   -- 
Total  268,902  $11.22   53,400   207,080  $11.22   57,800 
___________________
(1)Includes 28,266 shares subject to restricted stock grants which were not vested as of December 31, 2020.
(1)         Includes 9,112 shares subject to restricted stock grants which were not vested as of December 31, 2022. The weighted-average exercise price excludes such restricted stock grants.

35
Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required herein is incorporated by reference from the information contained in the section captioned “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers – Transactions with Certain Related Persons” in the Proxy Statement.

35
Item 14. Principal AccountingAccountant Fees and Services.

The information required herein is incorporated by reference from the information contained in the section captioned “Ratification of Appointment of Independent Registered Public Accounting Firm – Audit Fees” in the Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a)(1)         The following financial statements are incorporated by reference from Item 8 hereof (see Exhibit 13.0):

Report of Independent Registered Public Accounting Firm (S.R. Snodgrass, P.C., Cranberry Township, Pennsylvania, PCAOB Firm ID 74)
Consolidated Balance Sheets as of December 31, 20202022 and 20192021
Consolidated Statements of Income for the Years Ended December 31, 20202022 and 20192021
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 20202022 and 20192021
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 20202022 and 20192021
Consolidated Statements of Cash Flows for the Years Ended December 31, 20202022 and 20192021
Notes to Consolidated Financial Statements

(2)All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.

(3)Exhibits

36
    (3)         Exhibits
The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.

No.
 
Exhibits
 
Location
 
Exhibits
 
Location
3.1 
Articles of Incorporation of Quaint Oak Bancorp, Inc.
 (1) 
Articles of Incorporation of Quaint Oak Bancorp, Inc.
 (1)
3.2 
Bylaws of Quaint Oak Bancorp, Inc.
 (1) 
Bylaws of Quaint Oak Bancorp, Inc.
 (1)
4.1 
Form of Stock Certificate of Quaint Oak Bancorp, Inc.
 (1) 
Form of Stock Certificate of Quaint Oak Bancorp, Inc.
 (1)
4.2 
Form of Subordinated Note
 (2) 
Form of Subordinated Note due December 31, 2028
 (2)
4.3 
Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934
 (3) Form of Global Subordinated Note due March 15, 2025 (3)
4.4 Form of Subordinated Note due March 15, 2025 (4)
4.5 
Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934
 (5)
10.1 
Amended and Restated Employment Agreement by and between Robert T. Strong and Quaint Oak Bank*
 (4) 
Amended and Restated Employment Agreement by and between Robert T. Strong and Quaint Oak Bank*
 (6)
10.2 
Quaint Oak Bancorp, Inc. 2008 Stock Option Plan*
 (5) 
Quaint Oak Bancorp, Inc. 2008 Stock Option Plan*
 (7)
10.3 
Employment Agreement between Quaint Oak Bank and John J. Augustine*
 (6) 
Employment Agreement between Quaint Oak Bank and John J. Augustine*
 (8)
10.4 
Quaint Oak Bancorp, Inc. 2013 Stock Incentive Plan*
 (7) 
Quaint Oak Bancorp, Inc. 2013 Stock Incentive Plan*
 (9)
10.5 
Employment Agreement between  Quaint Oak Mortgage, LLC,  Quaint Oak Real Estate, LLC,  and Quaint Oak Abstract, LLC,  and William R. Gonzalez, as amended*
 (8) 
Employment Agreement between Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, and Quaint Oak Abstract, LLC, and William R. Gonzalez, as amended*
 (10)
10.6 
Quaint Oak Bancorp, Inc. 2018 Stock Incentive Plan*
 (9) 
Quaint Oak Bancorp, Inc. 2018 Stock Incentive Plan*
 (11)
10.7 
Form of Subordinated Note Purchase Agreement
 (2) 
Form of Subordinated Note Purchase Agreement dated December 27, 2018
 (2)
10.8 Form of Subordinated Note Purchase Agreement dated March 2, 2023 (3)
10.9 Form of Subscription Agreement dated March 15, 2023 (4)
13.0 Annual Report to Shareholders Filed herewith 
Annual Report to Shareholders
 Filed herewith
21.0 Subsidiaries of the Registrant Filed herewith 
Subsidiaries of the Registrant
 Filed herewith
23.1 Consent of S.R. Snodgrass, P.C. Filed herewith 
Consent of S.R. Snodgrass, P.C.
 Filed herewith
31.1 Certification of Chief Executive Officer Filed herewith 
Certification of Chief Executive Officer
 Filed herewith
31.2 Certification of Chief Financial Officer Filed herewith 
Certification of Chief Financial Officer
 Filed herewith
32.0 Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer Filed herewith 
Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer
 Filed herewith
101.INS XBRL Instance Document Filed herewith Inline XBRL Instance Document Filed herewith
101.SCH XBRL Taxonomy Extension Schema Document Filed herewith Inline XBRL Taxonomy Extension Schema Document Filed herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed herewith Inline XBRL Taxonomy Extension Label Linkbase Document Filed herewith
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith
101.DEF XBRL Taxonomy Extension Definitions Linkbase Document Filed herewith Inline XBRL Taxonomy Extension Definitions Linkbase Document Filed herewith
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 10) Filed herewith
_______________________________________
*            Denotes management compensation plan or arrangement.
(1)         Incorporated by reference from the Company’s Registration Statement on Form SB-2, filed on March 21, 2007, as amended, and declared effective on
              May 14, 2007 (File No. 333-141474).





(2)         Incorporated by reference from the Company’s Current Report on Form 8-K, filed on December 28, 2018 (File No. 000-52694).
(Footnotes continued(3)         Incorporated by reference from the Company's Current Report on following page)Form 8-K, filed on March 2, 2023 (File No. 000-52694).

(4)         Incorporated by reference from the Company's Current Report on Form 8-K, filed on March 21, 2023 (File No. 000-52694).
36(5)         Incorporated by reference from the Company’s Annual Report on Form 10-K, filed with the Commission on March 27, 2020 (File No. 000-52694).
(6)         Incorporated by reference from the Company’s Current Report on Form 8-K, filed on December 16, 2008 (File No. 000-52694).

(7)         Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on May 14, 2008 (Commission
_____________________
              File No. 000-52694) filed with the Commission on April 11, 2008.
(2)Incorporated by reference from the Company’s Current Report on Form 8-K, filed on December 28, 2018 (File No. 000-52694).
(3)Incorporated by reference from the Company’s Annual Report on Form 10-K, filed with the Commission on March 27, 2020 (File No. 000-52694).
(4)Incorporated by reference from the Company’s Current Report on Form 8-K, filed on December 16, 2008 (File No. 000-52694).
(5)Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on May 14, 2008 (Commission File No. 000-52694) filed with the Commission on April 11, 2008.
(6)Incorporated by reference from the Company’s Current Report on Form 8-K, filed on September 18, 2012 (File No. 000-52694).
(7)Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on May 8, 2013 (Commission File No. 000-526341) filed with the Commission on April 8, 2013.
(8)Incorporated by reference from the Company’s Annual Report on Form 10-K, filed with the Commission on March 26, 2015 (File No. 000-52694).
(9)Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on May 9, 2018 (Commission File No. 000-526341) filed with the Commission on April 6, 2018.

(8)         Incorporated by reference from the Company’s Current Report on Form 8-K, filed on September 18, 2012 (File No. 000-52694).
(b)Exhibits
(9)         Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on May 8, 2013 (Commission
              File No. 000-526341) filed with the Commission on April 8, 2013.
(10)       Incorporated by reference from the Company’s Annual Report on Form 10-K, filed with the Commission on March 26, 2015 (File No. 000-52694).
(11)       Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on May 9, 2018 (Commission
              File No. 000-526341) filed with the Commission on April 6, 2018.
(b)         Exhibits
The exhibits listed under (a)(3) of this Item 15 are filed herewith.

(c)Reference is made to (a)(2) of this Item 15.

(c)         Reference is made to (a)(2) of this Item 15.
Item 16. Form 10-K Summary.

None.







37
SIGNATURES

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  
QUAINT OAK BANCORP, INC.INC.
   
 
March 30, 2021By:/s/Robert T. Strong
March 31, 2023 
Robert T. Strong
President and Chief Executive Officer

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

Name
 
Title
 
Date
     
     
/s/Robert T. Strong
 President and Chief Executive Officer
 March 30, 202131, 2023
Robert T. Strong 
Officer		  
     
     
/s/John J. Augustine
 Executive Vice President and Chief Financial Officer March 30, 202131, 2023
John J. Augustine 
Chief Financial Officer		  
     
     
/s/Robert J. Phillips
 Chairman March 30, 202131, 2023
Robert J. Phillips    
     
     
/s/George M. Ager, Jr.
 Director March 30, 202131, 2023
George M. Ager, Jr.    
     
     
/s/James J. Clarke
 Director March 30, 202131, 2023
James J. Clarke    
     
     
/s/Andrew E. DiPiero, Jr.
 Director March 30, 202131, 2023
Andrew E. DiPiero, Jr.    
     
     
/s/Kenneth R. Gant
 Director March 30, 202131, 2023
Kenneth R. Gant    




 
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