QUAINT OAK BANCORP INC

Consolidated Balance Sheets (Unaudited)

Consolidated Statements of Operations (Unaudited)

Consolidated Statements of Operations (Unaudited)

Consolidated Statements of Comprehensive Income (Unaudited)

Consolidated Statements of Stockholders’** Equity (Unaudited)**

Consolidated Statements of Cash Flows (Unaudited)

Consolidated Statements of Cash Flows (Unaudited)

Note1 – Financial Statement Presentation and Significant Accounting Policies

Basis of Financial Presentation. The consolidated financial statements include the accounts of Quaint Oak Bancorp, Inc., a Pennsylvania chartered corporation (the “Company” or “Quaint Oak Bancorp”) and its wholly owned subsidiary, Quaint Oak Bank, a Pennsylvania chartered stock savings bank (the “Bank”), along with its wholly owned subsidiaries. At* March 31, 2024,the Bank hassix wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, Quaint Oak Insurance Agency, LLC, and Oakmont Commercial, LLC, each a Pennsylvania limited liability company. The mortgage company offers mortgage banking in the Lehigh Valley, Delaware Valley and Philadelphia County regions of Pennsylvania. The abstract company offers title abstract services, primarily in the Lehigh Valley region of Pennsylvania. These companies began operation in July 2009.As of March 31, 2024,the real estate company was inactive. In February, 2019,Quaint Oak Mortgage opened a mortgage banking office in Philadelphia, Pennsylvania. QOB Properties, LLC began operations in July 2012and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. Quaint Oak Insurance Agency, LLC began operations in August 2016and provides a broad range of personal and commercial insurance coverage solutions. Oakmont Commercial, LLC was formed in October 2021and operates as a multi-state specialty commercial real estate financing company. As of January 4, 2021,the Bank held a majority equity position in Oakmont Capital Holdings, LLC (“OCH”), a multi-state equipment finance company based in West Chester, Pennsylvania with asecond* significant facility located in Albany, Minnesota. On* March 29, 2024,*Quaint Oak Bank sold its 51% interest in OCH. All significant intercompany balances and transactions have been eliminated.

The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation. Pursuant to the Bank’s election under Section10(l) of the Home Owners’ Loan Act, the Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. The market area served by the Bank is principally Bucks, Montgomery and Philadelphia Counties in Pennsylvania and the Lehigh Valley area in Pennsylvania. The Bank hasthree regional offices located in the Delaware Valley, Lehigh Valley and Philadelphia markets. The principal deposit products offered by the Bank are money market accounts, certificates of deposit, non-interest bearing checking accounts for businesses and consumers, and savings accounts. The principal loan products offered by the Bank are fixed and adjustable rate residential and commercial mortgages, construction loans, commercial business loans, home equity loans, and lines of credit.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) for interim information and with the instructions to Form10-Q, as applicable to a smaller reporting company. Accordingly, they donot include all the information and footnotes required by US GAAP for complete financial statements.

The foregoing consolidated financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of* December 31, 2023have been derived from the audited financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in Quaint Oak Bancorp’s2023* Annual Report on Form10-K. The results of operations for thethree months ended* March 31, 2024arenot* necessarily indicative of the results that* maybe expected for the year ending December 31, 2024.*

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

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Note1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

**Critical Accounting Policies.The Company’s critical accounting policies involving significant judgments and assumptions used in the preparation of the consolidated financial statements as of March 31, 2024have remained unchanged from the disclosures presented in our Annual Report on Form10-K.

Accounting PronouncementsNot Yet Adopted**. In* November 2023,the Financial Accounting Standards Board ("FASB") issuedAccounting Standards Update ("ASU")**** ASU2023-07, Segment Reporting (TOPIC280): Improvements to Reportable Segment Disclosures*, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. This ASU is effective for fiscal years beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024.*Early adoption is permitted. Public entities are required to adopt the changes retrospectively, recasting each prior-period disclosure for which a comparative income statement is presented in the period of adoption. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In* December 2023,the FASB issuedASU2023-09, Income Taxes (Topic740): Improvements to Income Tax Disclosures*, which provides for improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This guidance is effective for public business entities for annual period beginning after* December 15, 2024.*The Company is currently evaluating the impact the impact of this new guidance on its financial statements.

In* March 2024,the FASB issued ASU2024*-01,* Compensation*–* Stock Compensation (Topic718), amended the guidance in ASC718* to add an example showing how to apply the scope guidance to determine whether profits interest and similar awards should be accounted for as share-based payment arrangements. For public business entities, the guidance is effective for fiscal years beginning after* December 15, 2024,and interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2025,*and interim periods within those fiscal years. The Company is currently evaluating the impact the impact of this new guidance on its financial statements.

In* March 2024,the FASB issued ASU2024*-02, Codification Improvements—Amendments to Remove References to the Concepts Statements. This ASU removes various references to the FASB’s Concepts Statements from the FASB’s Accounting Standards Codification. The FASB doesnot expect these updates to have a significant effect on current accounting practice. That is because in most cases the amendments to the Codification remove references to Concept Statements that are extraneous andnot required to understand or apply the guidance. However, the FASB has provided transition guidance if applying the updated guidance results in accounting changes for some entities. The amendments in ASU2024-02 are effective for public business entities for fiscal years beginning after* December 15, 2024.For all other entities, the amendments are effective for fiscal years beginning after December 15, 2025.*The Company is currently evaluating the impact the impact of this new guidance on its financial statements.

Reclassifications.Certain items in the2023 consolidated financial statements have been reclassified to conform to the presentation in the2024 consolidated financial statements. Such reclassifications didnot have a material impact on the presentation of the overall financial statements. The reclassifications hadno effect on net income or stockholders’ equity.

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Note2 – Discontinued Operations

On* March 29, 2024,Quaint Oak Bank sold its 51% interest in OCH. The decision was based on a number of strategic priorities and other factors. As a result of this action, the Company classified the operations of OCH as discontinued operations under ASC205*-20. The Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows present discontinued operations for the current period and retrospectively for prior periods.

No assets or liabilities were held at* March 31, 2024.The following is a summary of the assets and liabilities of the discontinued operations of OCH at December 31, 2023 (*in thousands):

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Note2 – Discontinued Operations (Continued)

The following presents operating results of the discontinued operations OCH for thethree months ended* March 31, 2024and March 31, 2023 (*in thousands):

Note3 – Earnings Per Share

Earnings per share (“EPS”) consists oftwo separate components, basic EPS and diluted EPS. Basic EPS is computed based on the weighted average number of shares of common stock outstanding for each period presented. Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents (“CSEs”). CSEs consist of shares that are assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested restricted stock (RRP) shares. Common stock equivalents which are considered antidilutive arenot included for the purposes of this calculation. For thethree months ended* March 31, 2024,all unvested restricted stock program awards and outstanding stock options representing shares were anti-dilutive. For thethree* months ended* March 31, 2023,*all unvested restricted stock program awards and outstanding stock options representing shares were dilutive.

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Note3 – Earnings Per Share (Continued)

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

Note4 – Accumulated Other Comprehensive Loss

The following table presents the changes in accumulated other comprehensive loss by component, net of tax, for thethree months ended* March 31, 2024and2023* (in thousands):

There wereno reclassifications from accumulated other comprehensive loss by component for thethree months ended* March 31, 2024and2023.*

Note5 – Investment Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale at* March 31, 2024and December 31, 2023*are summarized below (in thousands):

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Note5 – Investment Securities Available for Sale (Continued)

The amortized cost and fair value of mortgage-backed securities at* March 31, 2024,by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may*have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at* March 31, 2024and December 31, 2023 (*in thousands):

The Company’s mortgage-backed securities have contractual terms that generally donot permit the issuer to settle the securities at a price less than the amortized cost of the investment. The change in fair value of these securities is attributable to changes in interest rates andnot credit quality, and the Company doesnot have the intent to sell and doesnot believe it will more likely thannot be required to sell any of these securities prior to a recovery of their fair value to amortized cost. Therefore, the Company doesnot have an allowance for credit losses for these investments as of* March 31, 2024and2023.*

There wereno credit losses recognized during thethree months ended* March 31, 2024and2023.* There wereno sales during thethree months ended* March 31, 2024and2023.*

Note6 - Loans Receivable, Net and Allowance for Credit Losses

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

The following table summarizes designated internal risk categories by portfolio segment and loan class, by origination year, as of* March 31, 2024 (*in thousands):

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

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The following table presents non-performing loans by classes of the loan portfolio as of* March 31, 2024and December 31, 2023 (*in thousands):

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For thethree months ended* March 31, 2024and March 31, 2023there wasno interest income recognized on non-accrual loans on a cash basis. There was $4,000 of interest income foregone on non-accrual loans for thethree* months ended* March 31, 2024and $59,000 for thethree* months ended* March 31, 2023.*

As of* March 31, 2024,there wereno* loans whose terms were modified for borrowers who* may*be experiencing financial difficulties.

Following is a summary, by loan portfolio class, of changes in the allowance for credit losses for the year ended* March 31, 2024 (*in thousands):

The Bank allocated increased allowance for credit loss provisions to the commercial real estate and commercial business loan portfolio classes for thethree months ended* March 31, 2024,due primarily to changes in qualitative factors in these portfolio classes. The Bank allocated increased allowance for credit loss provisions to the construction loan portfolio class for thethree* months ended* March 31, 2024,*due primarily to changes in qualitative and quantitative factors in this portfolio class.

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The following table presents the balance of collateral-dependent loans individually evaluated with the ACL by collateral type at* March 31, 2024 (*in thousands):

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

There wereno collateral-dependent loans individually evaluated with the ACL by collateral type at* December 31, 2023.*

As of* December 31, 2023,there wereno* loans whose terms were modified for borrowers who* may*be experiencing financial difficulties.

The Bank allocated decreased allowance for credit loss provisions to the commercial real estate loan portfolio class for the year ended* December 31, 2023,due primarily to changes in qualitative factors in this portfolio class. The Bank allocated increased allowance for credit loss provisions to the commercial business loan portfolio class for the year ended December 31, 2023,due primarily to changes in qualitative factors in this portfolio class. The Bank allocated increased allowance for credit loss provisions to the construction loan portfolio class for the year ended December 31, 2023,*due primarily to changes in qualitative and quantitative factors in this portfolio class.

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The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of* March 31, 2024and December 31, 2023 (*in thousands):

Non-performing loans, which consist of non-accruing loans plus accruing loans90 days or more past due, amounted to $7.7 million at* March 31, 2024and $452,000 at December 31, 2023.*For the delinquent loans in our portfolio, we have considered our ability to collect the past due interest, as well as the principal balance of the loan, in order to determine whether specific loans should be placed on non-accrual status. In cases where our evaluations have determined that the principal and interest balances are collectible, we have continued to accrue interest.

Note7 – Goodwill and Other Intangible, Net

On* January 4, 2021,the Bank acquired a majority ownership interest in Oakmont Capital Holdings, LLC, a multi-state equipment finance company based in West Chester, Pennsylvania with asecond* significant facility located in Albany, Minnesota. The Bank sold its 51% interest in OCH on* March 29, 2024.See Note2* – Discontinued Operations. The Bank recognized $2.1 million of goodwill as part of the acquisition of Oakmont Capital Holdings, LLC.

On* August 1, 2016,Quaint Oak Insurance Agency, LLC began operations by acquiring the renewal rights to a book of business produced and serviced by an independent insurance agency located in New Britain, Pennsylvania, that provides a broad range of personal and commercial insurance coverage solutions. The Company paid $1.0 million for these rights. Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed to be an other intangible asset. This other intangible asset is being amortized over aten year period based upon the annual retention rate of the book of business. The balance of other intangible asset at March 31, 2024and2023* was $113,000, and $125,000, respectively, which is net of accumulated amortization of $372,000 and $360,000, respectively. Amortization expense for both thethree months ended* March 31, 2024and2023* amounted to approximately $12,000.

Note8 – Deposits

Deposits consist of the following classifications (in thousands):

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Note9 – Borrowings

Federal Home Loan Bank (“FHLB”) advances consist of the following at* March 31, 2024and December 31, 2023 (*in thousands):

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

On* March 2, 2023,the Company issued $12.0 million in aggregate principal amount of fixed rate subordinated notes due March 15, 2025 (the “Notes”) to certain qualified institutional buyers. On March 16, 2023,the Company issued an additional $2.0 million in aggregate principal amount of subordinated debt to certain accredited investors under the same terms. The Notes bear interest at a fixed annual rate of 8.50%, payable semi-annually in arrears on March 15and September 15of each year, beginning September 15, 2023.The Notes’ maturity date is March 15, 2025.The Company is entitled to redeem the Notes, in whole or in part, on or after March 15, 2024,and to redeem the Notes at any time in whole upon certain other events, at a redemption price equal to100%* of the outstanding principal amount of the Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date.

The balance of subordinated debt, net of unamortized debt issuance costs, was $22.0 million at both* March 31, 2024and December 31, 2023.*

Note10 – Stock Compensation Plans

Employee Stock Ownership Plan** **

The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of employees who meet the eligibility requirements of the plan. The Bank* may*make cash contributions to the ESOP on a quarterly basis which are allocated to participant accounts on an annual basis.

During thethree months ended* March 31, 2024and March 31, 2023,*the Company didnot make a discretionary contribution of shares to the ESOP andno expense was recognized.

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Note10 – Stock Compensation Plans (Continued)

Stock Incentive Plans–** Share Awards**** **

In* May 2013,the shareholders of Quaint Oak Bancorp approved the adoption of the2013* Stock Incentive Plan (the*“2013* Stock Incentive Plan”). The2013 Stock Incentive Plan terminated on* March 13, 2023,however the outstanding unvested shares awards as of such date remained outstanding for the remainder of their original five-year vesting term which ended May 9, 2023.*

In* May 2018,the shareholders of Quaint Oak Bancorp approved the adoption of the2018* Stock Incentive Plan (the*“2018* Stock Incentive Plan”). The2018 Stock Incentive Plan approved by shareholders in* May 2018covered a total of 155,000 shares, of which 38,750, or 25%, may*be restricted stock awards, for a balance of 116,250 stock options assuming all the restricted shares are awarded.

In* May 2023,the shareholders of Quaint Oak Bancorp approved the adoption of the2023* Stock Incentive Plan (the*“2023* Stock Incentive Plan”). The2023 Stock Incentive Plan approved by shareholders in* May 2023covered a total of 175,000 shares, of which 43,750, or 25%, may*be restricted stock awards, for a balance of 131,250 stock options assuming all the restricted shares are awarded.

As of* March 31, 2024a total of 45,000 share awards were unvested under the2018* and2023 Stock Incentive Plan and up to 10,500 share awards were available for future grant under the2023 Stock Incentive Plan andnone under the2018 Stock Incentive Plan. The2018 and2023 Stock Incentive Plan share awards have vesting periods offive years.

A summary of share award activity under the Company’s2018 and2023 Stock Incentive Plans as of* March 31, 2024and changes during thethree* months ended* March 31, 2024*is as follows:

Compensation expense on the restricted stock awards is recognized ratably over thefive year vesting period in an amount which is equal to the fair value of the common stock at the date of grant. During thethree months ended* March 31, 2024and2023,* the Company recognized approximately $41,000 and $31,000 of compensation expense, respectively. During thethree months ended* March 31, 2024and2023,* the Company recognized a tax benefit of approximately $9,000 and $7,000, respectively. As of* March 31, 2024,*approximately $668,000 in additional compensation expense will be recognized over the remaining service period of approximately 4.1 years.

Stock Option and Stock Incentive Plans–** Stock Options**** **

In* May 2008,the shareholders of Quaint Oak Bancorp approved the adoption of the2008* Stock Option Plan (the “Option Plan”). The Option Plan expired* February 13, 2018,however, outstanding options granted in2013* remained valid and existing for the remainder of their10 year terms, until* May 2023.As described above under “Stock Incentive Plans – Share Awards”, the2013* Stock Incentive Plan approved by shareholders in* May 2013terminated March 13, 2023,however, the outstanding options granted in2018* remain exercisable until* May 2028,to the extent still outstanding. The2018* Stock Incentive Plan approved by shareholders in* May 2018covered a total of 155,000 shares, of which 116,250 * maybe stock options assuming all the restricted shares are awarded. In* May 2023,the shareholders of Quaint Oak Bancorp approved the adoption of the2023* Stock Incentive Plan. The2023 Stock Incentive Plan approved by shareholders in* May 2023covered a total of 175,000 shares, of which 131,250 * maybe stock options assuming all the restricted shares are awarded.

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Note10 – Stock Compensation Plans (Continued)

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

All incentive stock options issued under the Option Plan and the2013, 2018 and2023 Stock Incentive Plans are intended to comply with the requirements of Section422 of the Internal Revenue Code. Options will become vested and exercisable over afive year period and are generally exercisable for a period often years after the grant date.

As of* March 31, 2024,a total of 224,033 grants of stock options were outstanding under the Option Plan and2018* and2023 Stock Incentive Plans and 36,000 stock options were available for future grant under the2023 Stock Incentive Plan. Options will become vested and exercisable over afive year period and are generally exercisable for a period often years after the grant date.

During thethree months ended* March 31, 2024and2023,* the Company recognized approximately $20,000 and $11,000 of compensation expense, respectively. During both thethree months ended* March 31, 2024and2023,* the Company recognized a tax benefit of approximately $1,000. As of* March 31, 2024,*approximately $332,000 in additional compensation expense will be recognized over the remaining service period of approximately 4.1 years.

A summary of option activity under the Company’s Option Plan and2013, 2018 and2023 Stock Incentive Plans as of* March 31, 2024and changes during thethree* months ended* March 31, 2024*is as follows:

Note11 – Fair Value Measurements and Fair Values of Financial Instruments

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

Fair value is determined atone point in time and isnot representative of future value. These amounts donot reflect the total value of a going concern organization. Management doesnot have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses shouldnot be interpreted as a forecast of future earnings and cash flows.

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

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

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note19 of the Company’s2023 Form10-K, as the fair value of loans, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and non-performance risk. Loans are considered a Level3 classification.

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

Investment Securities Available For Sale: The fair value of securities available for sale are determined by using matrix pricing (Level2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

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

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Individually Evaluated Loans: Individually evaluated loans are carried at the lower of cost or the fair value of the collateral for collateral-dependent loans less estimated costs to sell. Collateral is primarily in the form of real estate. The use of independent appraisals, discounted cash flow models and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within Level3 of the fair value hierarchy.

The table below sets forth the financial assets and liabilities that were accounted for on a recurring and nonrecurring basis by level within the fair value hierarchy as of* March 31, 2024 (*in thousands):

The table below sets forth the financial assets and liabilities that were accounted for on a recurring and nonrecurring basis by level within the fair value hierarchy as of* December 31, 2023 (*in thousands):

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The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has used Level3 inputs to determine fair value as of* March 31, 2024 (*in thousands):

The fair values of the Company’s financial instruments that arenot required to be measured or reported at fair value were as follows at* March 31, 2024and December**31,* 2023 (in thousands):

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For cash and cash equivalents, accrued interest receivable, investment in FHLB stock, bank-owned life insurance, accrued interest payable, and advances from borrowers for taxes and insurance, the carrying value is a reasonable estimate of the fair value and are considered Level1 measurements.