QUAINT OAK BANCORP, INC.

Previous wording

Liquidity is essential to the Company’s business. The Company’s primary funding source is consumer deposits, a substantial portion of which consist of certificates of deposit. As of December 31, 2024, approximately 51.1% of our total deposits were comprised of certificates of deposit. As noted above, the Company has identified one major interest-bearing checking account deposit customer located in Puerto Rico and one major money market deposit customer located in Memphis, Tennessee, that accounted for approximately 8.6% and 18.1%, respectively, of total deposits at December 31, 2024. The combined outstanding balances of the two major deposit customers totaled approximately $147.8 million at December 31, 2024. The amount of uninsured deposits (deposits greater than $250,000) was approximately $156.3 million, or 28.3% of total deposits at December 31, 2024. If these deposits were to be withdrawn in whole or in part, replacement of the funds may require us to pay higher interest rates on retail deposits or brokered deposits which would have an adverse effect on our net interest income and net income. If the Bank is less than well capitalized, the Federal Deposit Insurance Act restricts the Bank from accepting brokered deposits absent a waiver from the FDIC. The replacement of these deposits with other sources of funding, such as borrowings, could also increase our overall cost of funds and would negatively impact our results of operations. The Company has significant borrowing capacity available to fund liquidity needs, including borrowing agreements with the Federal Home Loan Bank of Pittsburgh (the “FHLB”) and the Federal Reserve Bank of Philadelphia. As of December 31, 2024, we had $266.6 million in borrowing capacity from the FHLB and $15.8 million in borrowing capacity with the Federal Reserve Bank of Philadelphia.

Current wording

Liquidity is essential to the Company’s business. The Company’s primary funding source is consumer deposits, a substantial portion of which consist of certificates of deposit. As of December 31, 2025, approximately 61.3% of our total deposits were comprised of certificates of deposit. As noted above, the Company has identified one major interest-bearing checking account deposit customer that accounted for approximately 5.9% of total deposits at December 31, 2025. The outstanding balances of the major deposit customer totaled approximately $35.0 million at December 31, 2025. The amount of uninsured deposits (deposits greater than $250,000) was approximately $244.3 million, or 40.9% of total deposits at December 31, 2025. If these deposits were to be withdrawn in whole or in part, replacement of the funds may require us to pay higher interest rates on retail deposits or brokered deposits which would have an adverse effect on our net interest income and net income. If the Bank is less than well capitalized, the Federal Deposit Insurance Act restricts the Bank from accepting brokered deposits absent a waiver from the FDIC. The replacement of these deposits with other sources of funding, such as borrowings, could also increase our overall cost of funds and would negatively impact our results of operations. The Company has significant borrowing capacity available to fund liquidity needs, including borrowing agreements with the Federal Home Loan Bank of Pittsburgh (the “FHLB”) and the Federal Reserve Bank of Philadelphia. As of December 31, 2025, we had $269.3 million in borrowing capacity from the FHLB and $24.2 million in borrowing capacity with the Federal Reserve Bank of Philadelphia.

Previous wording

As of December 31, 2024, approximately $282.9 million of total deposits consisted of certificates of deposit, approximately $171.8 million of which, or approximately 31.0% of our total deposits, are due to mature within one year. Certificates of deposit obtained through a national listing service totaled $64.5 million, or approximately 22.8% of our certificates of deposit at December 31, 2024. These customers and in particular, those in the listing service, are interest-rate conscious and may be willing to move funds into higher-yielding investment alternatives. Historically, a majority of our certificates of deposit are renewed upon maturity as long as we pay competitive interest rates. Our ability to attract and maintain deposits, as well as our cost of funds, has been, and will continue to be significantly affected by financial markets and general economic conditions. Given recent economic challenges, if we have to increase interest rates paid to retain deposits, our earnings may be adversely affected.

Current wording

As of December 31, 2025, approximately $354.7 million of total deposits consisted of certificates of deposit, approximately $245.4 million of which, or approximately 41.1% of our total deposits, are due to mature within one year. Certificates of deposit obtained through a national listing service totaled $62.3 million, or approximately 17.6% of our certificates of deposit at December 31, 2025. These customers and in particular, those in the listing service, are interest-rate conscious and may be willing to move funds into higher-yielding investment alternatives. Historically, a majority of our certificates of deposit are renewed upon maturity as long as we pay competitive interest rates. Our ability to attract and maintain deposits, as well as our cost of funds, has been, and will continue to be significantly affected by financial markets and general economic conditions. Given recent economic challenges, if we have to increase interest rates paid to retain deposits, our earnings may be adversely affected.

Previous wording

The Bank must meet regulatory capital requirements and maintain sufficient liquidity, and its regulators may modify and adjust such requirements in the future. Pursuant to FDIC regulations, all state nonmember banks, such as the Bank, must maintain certain minimum capital ratios to be deemed adequately capitalized (common equity Tier 1 capital of at least 4.5%, Tier 1 risk-weighted capital of at least 6.0%, total risk-weighted capital of at least 8.0%, and Tier 1 leverage ratio of at least 4.0%). Notwithstanding the minimum requirements, all FDIC-supervised institutions are required to maintain capital commensurate with the level and nature of all risks to which they are exposed. As of December 31, 2024, the Bank’s common equity Tier 1 capital ratio was 13.09%, its Tier 1 risk-weighted capital ratio was 13.09%, its total risk-weighted capital ratio was 14.34% and its Tier 1 leverage ratio was 10.80% and it was deemed to be “well-capitalized.”

Current wording

The Bank must meet regulatory capital requirements and maintain sufficient liquidity, and its regulators may modify and adjust such requirements in the future. Pursuant to FDIC regulations, all state nonmember banks, such as the Bank, must maintain certain minimum capital ratios to be deemed adequately capitalized (common equity Tier 1 capital of at least 4.5%, Tier 1 risk-weighted capital of at least 6.0%, total risk-weighted capital of at least 8.0%, and Tier 1 leverage ratio of at least 4.0%). Notwithstanding the minimum requirements, all FDIC-supervised institutions are required to maintain capital commensurate with the level and nature of all risks to which they are exposed. As of December 31, 2025, the Bank’s common equity Tier 1 capital ratio was 12.36%, its Tier 1 risk-weighted capital ratio was 12.36%, its total risk-weighted capital ratio was 13.55% and its Tier 1 leverage ratio was 10.26% and it was deemed to be “well-capitalized.”

Previous wording

We provide correspondent banking services to our international correspondent bank partners, which includes facilitating U.S. dollar payments and providing other financial services infrastructure. Recently, federal bank regulators have increasingly focused on the risks related to international correspondent banking partnerships, raising concerns regarding risk management, oversight, internal controls, information security, change management, and information technology operational resilience. We could be subject to additional regulatory scrutiny with respect to our correspondent banking business that could have a material adverse effect on the business, financial condition, results of operations and growth prospects of the Company.

Current wording

We provide correspondent banking services to our international correspondent bank partners, which may include facilitating U.S. dollar payments and providing other financial services infrastructure. Recently, federal bank regulators have increasingly focused on the risks related to international correspondent banking partnerships, raising concerns regarding risk management, oversight, internal controls, information security, change management, and information technology operational resilience. We could be subject to additional regulatory scrutiny with respect to our correspondent banking business that could have a material adverse effect on the business, financial condition, results of operations and growth prospects of the Company.

Previous wording

Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. The inflationary outlook in the United States remains uncertain. The consumer price index increased 2.9% for the twelve (12) months ended December 31, 2024. While this is a significant reduction to the rate of inflation experienced in the past year, it is still above the FRB’s targeted rate. The risks to our business from inflation depend on the durability of the inflationary pressures in our markets. Although the FRB has reduced the federal fund rate twice in 2024, no assurance can be given that it will continue to do so. The resurgence of elevated levels of inflation could lead the FRB to cease reducing its benchmark rate or potentially starting to increase it again which could, in turn, increase the borrowings costs of our customers, making it more difficult for them to repay their loans or other obligations. Elevated interest rates may be needed to tame inflationary price pressures, which could also push down asset prices, including collateral values, and weaken economic activity.

Current wording

Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. The inflationary outlook in the United States remains uncertain. The consumer price index increased 2.7% for the twelve (12) months ended December 31, 2025. While this is a significant reduction to the rate of inflation experienced in the past year, it is still above the FRB’s targeted rate. The risks to our business from inflation depend on the durability of the inflationary pressures in our markets. Although the FRB has reduced the federal fund rate three times in 2025, no assurance can be given that it will continue to do so. The resurgence of elevated levels of inflation could lead the FRB to cease reducing its benchmark rate or potentially starting to increase it again which could, in turn, increase the borrowings costs of our customers, making it more difficult for them to repay their loans or other obligations. Elevated interest rates may be needed to tame inflationary price pressures, which could also push down asset prices, including collateral values, and weaken economic activity.

Previous wording

At December 31, 2024, the Bank’s nonperforming loans represented approximately 1.07% of our total loans. However, the economic outlook in the United States continues to remain uncertain. The Bank’s level of nonperforming assets could increase if industry or economic conditions deteriorate. Nonperforming asset levels could also increase due to a change in lending strategy, underwriting errors, a deterioration in our ability to effectively collect our loans, or due to other factors. Going forward, as the amount of nonperforming assets, classified assets, and special mention assets increase, the Bank’s losses, and the costs and expenses to maintain collateral likewise may increase as well. Any additional increase in losses related to such assets may have material adverse effects on the Bank’s business, financial condition, and results of operations.

Current wording

At December 31, 2025, the Bank’s nonperforming loans represented approximately 1.36% of our total loans. However, the economic outlook in the United States continues to remain uncertain. The Bank’s level of nonperforming assets could increase if industry or economic conditions deteriorate. Nonperforming asset levels could also increase due to a change in lending strategy, underwriting errors, a deterioration in our ability to effectively collect our loans, or due to other factors. Going forward, as the amount of nonperforming assets, classified assets, and special mention assets increase, the Bank’s losses, and the costs and expenses to maintain collateral likewise may increase as well. Any additional increase in losses related to such assets may have material adverse effects on the Bank’s business, financial condition, and results of operations.

Previous wording

Like all financial institutions, we maintain an allowance for credit losses, which is a reserve established through a provision for credit losses charged to expense, that we believe is appropriate to provide for lifetime expected credit losses on loans in our loan portfolio. The allowance is evaluated on a regular basis by management. Management’s determination of the adequacy of the allowance for credit losses is based on the assessment of the expected credit losses on loans over the expected life of the loans (using the weighted average maturity method). Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change. At December 31, 2024, the ratio of the allowance for credit losses to total loans and total nonperforming loans were 1.20% and 102.45%, respectively.

Current wording

Like all financial institutions, we maintain an allowance for credit losses, which is a reserve established through a provision for credit losses charged to expense, that we believe is appropriate to provide for lifetime expected credit losses on loans in our loan portfolio. The allowance is evaluated on a regular basis by management. Management’s determination of the adequacy of the allowance for credit losses is based on the assessment of the expected credit losses on loans over the expected life of the loans (using the weighted average maturity method). Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change. At December 31, 2025, the ratio of the allowance for credit losses to total loans and total nonperforming loans were 1.13% and 84.01%, respectively.

Previous wording

At December 31, 2024, commercial real estate loans totaled $297.6 million, or 55.0% of our total loan portfolio. Commercial real estate loans consisted of $181.2 million, or 60.9%, of owner occupied loans and $116.4 million or 39.1% of non-owner occupied loans at December 31, 2024. Given their larger balances and the complexity of the underlying collateral, commercial real estate loans generally have more risk than the owner-occupied one- to four-family residential real estate loans we originate. Because the repayment of commercial real estate loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the local real estate market or economy. If we foreclose on these loans, our holding period for the collateral typically is longer than for a one- to four-family residential property because there are fewer potential purchasers of the collateral. In addition, commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential loans. Accordingly, charge-offs on commercial real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.

Current wording

At December 31, 2025, commercial real estate loans totaled $309.7 million, or 56.7% of our total loan portfolio. Commercial real estate loans consisted of $200.6 million, or 64.8%, of owner occupied loans and $109.1 million or 35.2% of non-owner occupied loans at December 31, 2025. Given their larger balances and the complexity of the underlying collateral, commercial real estate loans generally have more risk than the owner-occupied one- to four-family residential real estate loans we originate. Because the repayment of commercial real estate loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the local real estate market or economy. If we foreclose on these loans, our holding period for the collateral typically is longer than for a one- to four-family residential property because there are fewer potential purchasers of the collateral. In addition, commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential loans. Accordingly, charge-offs on commercial real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.

Previous wording

At December 31, 2024, approximately $424.9 million, or 78.7%, of our total loan portfolio, was secured by real estate, most of which is located in our primary lending market area of Bucks, Montgomery and Philadelphia counties and the Lehigh Valley area of Pennsylvania and surrounding areas. Future declines in the real estate values in our primary lending market and surrounding markets could significantly impair the value of the particular real estate collateral securing our loans and our ability to sell the collateral upon foreclosure for an amount necessary to satisfy the borrower’s obligations to us. This could require increasing our allowance for credit losses to address the decrease in the value of the real estate securing our loans, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Current wording

At December 31, 2025, approximately $449.8 million, or 82.4%, of our total loan portfolio, was secured by real estate, most of which is located in our primary lending market area of Bucks, Montgomery and Philadelphia counties and the Lehigh Valley area of Pennsylvania and surrounding areas. Future declines in the real estate values in our primary lending market and surrounding markets could significantly impair the value of the particular real estate collateral securing our loans and our ability to sell the collateral upon foreclosure for an amount necessary to satisfy the borrower’s obligations to us. This could require increasing our allowance for credit losses to address the decrease in the value of the real estate securing our loans, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Previous wording

As of December 31, 2024, our total commercial investor real estate loans, including loans secured by apartment buildings, commercial real estate, and construction and land loans represented 241.9% of the Bank’s total risk-based capital and the growth in the commercial real estate portfolio exceeded 50% over the preceding 36 months. The particular focus of the guidance is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is to guide institutions in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. Management has established a commercial real estate lending framework to monitor specific exposures and limits by types within the commercial real estate portfolio and takes appropriate actions, as necessary. While we believe we have implemented policies and procedures with respect to our commercial real estate loan portfolio consistent with this guidance, the FDIC, the Bank’s primary federal regulator, could require us to implement additional policies and procedures pursuant to their interpretation of the guidance that may result in additional costs to us. In addition, if the FDIC were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, our earnings would be adversely affected.

Current wording

As of December 31, 2025, our total commercial investor real estate loans, including loans secured by apartment buildings, commercial real estate, and construction and land loans represented 235.9% of the Bank’s total risk-based capital. The particular focus of the guidance is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is to guide institutions in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. Management has established a commercial real estate lending framework to monitor specific exposures and limits by types within the commercial real estate portfolio and takes appropriate actions, as necessary. While we believe we have implemented policies and procedures with respect to our commercial real estate loan portfolio consistent with this guidance, the FDIC, the Bank’s primary federal regulator, could require us to implement additional policies and procedures pursuant to their interpretation of the guidance that may result in additional costs to us. In addition, if the FDIC were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, our earnings would be adversely affected.

Previous wording

As of December 31, 2024, the Bank’s total risk-based capital ratio was 14.34%, and the Bank was therefore considered “well-capitalized” under the regulatory framework for prompt corrective action. However, the FDIC and the Pennsylvania Department have the authority to classify any bank as not “well- capitalized” based on unsafe and unsound practices discovered during an examination. If additional regulatory restrictions were imposed as a result of such reclassification, they could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects.

Current wording

As of December 31, 2025, the Bank’s total risk-based capital ratio was 13.55%, and the Bank was therefore considered “well-capitalized” under the regulatory framework for prompt corrective action. However, the FDIC and the Pennsylvania Department have the authority to classify any bank as not “well- capitalized” based on unsafe and unsound practices discovered during an examination. If additional regulatory restrictions were imposed as a result of such reclassification, they could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects.

Previous wording

As of December 31, 2024, the Company’s double leverage ratio was 134.8%. The double leverage ratio reflects the extent to which equity in subsidiaries is financed by debt at the savings and loan holding company level and is calculated by dividing the Company’s equity investments in its subsidiaries by the Company’s equity. The FRB uses the double leverage ratio as an indicator of a savings and loan holding company’s exposure to risk related to high levels of debt. The FRB may take supervisory action to require the Company to reduce its debt, and therefore its double leverage ratio, if it believes the Company is unable to manage such risk.

Current wording

As of December 31, 2025, the Company’s double leverage ratio was 128.4%. The double leverage ratio reflects the extent to which equity in subsidiaries is financed by debt at the savings and loan holding company level and is calculated by dividing the Company’s equity investments in its subsidiaries by the Company’s equity. The FRB uses the double leverage ratio as an indicator of a savings and loan holding company’s exposure to risk related to high levels of debt. The FRB may take supervisory action to require the Company to reduce its debt, and therefore its double leverage ratio, if it believes the Company is unable to manage such risk.