Quaint Oak: Better margins and loan-sale gains, but thin core earnings and deposit risk

Snapshot - Quaint Oak Bancorp, Inc. (OTCMKTS: QNTO)

Quick take: the bank is generating positive quarterly earnings from continuing operations but earnings for the six-month period are down materially versus 2024 because last year included a reclassified gain on the sale of OCH (discontinued). Management is shrinking expensive deposit costs, increasing loan-sale activity (Oakmont Commercial), and using borrowings to manage liquidity - but deposit concentration, higher non-interest expense and elevated loan charge-offs pressure results.

Key facts & figures (from Form 10‑Q, amounts in thousands unless noted)
- Total assets: $670,760
- Loans receivable, net: $541,690
- Loans held for sale: $56,013
- Allowance for credit losses: $6,326
- Total deposits: $532,176 (uninsured deposits $239,500 - 45.0% of deposits)
- Cash & cash equivalents: $48,891 (down from $62,989 at 12/31/24)
- FHLB borrowings: $60,000 (up from $47,855)
- Senior debt (net): $9,531; subordinated debt: $8,000 (down from $22,000)
- Total stockholders' equity: $52,257; book value per share: $19.83; shares outstanding: 2,635,866
- Q2 2025 net income: $272 (continuing ops); six months 2025 net income: $189 vs $973 for six months 2024 (includes discontinued gain in 2024)
- Q2 2025 net interest income: $4,505; six months: $8,649
- Q2 2025 non-interest income: $1,947 (driven by net gain on sale of loans $1,046 and SBA loan gains $511)
- Q2 2025 non-interest expense: $5,533; six months expense: $11,077
- Allowance dynamics: provision for credit losses Q2 2025 (loans) $464; total provision Q2 $437; six months provision $878
- Credit quality: total non-accrual loans (June 30, 2025) - total non-accrual reported $4,756; combined past-due activity shows elevated 30-89 day delinquencies ($14,023)

Positive aspects of the income statement
- Net interest margin improved: Q2 NIM 2.85% vs 2.28% in prior-year quarter (interest rate spread widened to 2.19%).
- Net interest income increased quarter-over-quarter: Q2 NII $4.505M (up $431K vs Q2 2024) driven by loan yields rising (loan yield up ~42 bps YoY for the quarter).
- Growth in non-interest income from loan-sale activity - net gain on sale of loans and SBA loan sales materially boosted fee income in both quarter and six-month periods (Q2 loan-sale gains $1,046K; SBA gains $511K).
- Capital remains solid at the bank: CET1 12.49%, Tier 1 leverage 10.41% - well above regulatory minima.

Negative aspects / risks from the income statement and notes
- Six-month profitability collapsed: net income six months 2025 $189K vs $973K in 2024 (2024 benefited from reclassified gain on sale of OCH = nonrecurring).
- Non-interest expense is high and rising: six‑month non-interest expense $11.077M (up $716K YoY) and exceeded non‑interest income after provisions, pressuring pre-tax profit.
- Credit pressure and charge-offs: charge-offs in six months $1,022K (commercial business), driving higher provisions this year; allowance ~ $6.326M.
- Deposit outflows and concentration: total deposits down $21.1M since year-end; one money-market customer = ~11.3% of deposits (~$60M) and one brokered checking ~$25M (4.7%) - concentration risk if customers withdraw.
- Liquidity shifts to borrowings: FHLB borrowings up to $60M; new senior notes issued ($9.75M principal) and subordinated debt paid down - increases interest expense on certain debt (senior notes carry 11% fixed).
- Net income volatility tied to loan-sales/gains and discontinued items - recurring core earnings are thin.

What's happening inside the company - blunt summary
- Management is pivoting funding away from some correspondent/brokered deposits (reducing expensive deposit balances) and using FHLB / market debt to maintain liquidity; that lowered deposit interest expense but added reliance on wholesale funding.
- Oakmont Commercial is a profit driver via originating and selling commercial loans; gains on loan sales (and SBA loan sales) are a meaningful and variable source of non-interest income.
- The sale of OCH in 2024 created a one-time gain that inflated prior‑year results; 2025 operating earnings are more muted without that item.
- Credit monitoring is active - the bank increased provisions in select portfolios (construction, commercial business) and recorded charge-offs; non-accrual and 30-89 day delinquencies rose in some cohorts.
- Capital position remains solid, share repurchases continue modestly and dividends were paid ($0.26 YTD per share), but equity decreased slightly due to dividends and treasury purchases.

Bottom line: Quaint Oak (OTCMKTS: QNTO) shows improved margins and strong fee gains from loan sales, but core earnings are thin and volatile, non-interest expense and credit activity have increased, and deposit concentration plus reliance on FHLB/market borrowings are key risks to watch. If you follow the name, monitor deposit trends, loan sale volumes and charge-off/provision activity for the next quarters.