SOUTHAMPTON, PA — Quaint Oak Bancorp Inc. (OTCQB: QNTO) returned to profitability in the third quarter of 2026 as lower funding costs and increased lending fees strengthened earnings, even as the Pennsylvania bank’s nonperforming loans climbed and its deposit base contracted.
The parent company of Quaint Oak Bank reported net income of $635,000, or 24 cents per diluted share, for the quarter ended September 30, compared with a loss of $41,000, or 2 cents per share, a year earlier.
The turnaround was driven primarily by a $951,000 reduction in interest expense, a $750,000 increase in noninterest income and a $381,000 decrease in provisions for credit losses.
Those improvements offset a $531,000 decline in interest and dividend income and a $630,000 increase in noninterest expenses.
Quaint Oak’s net interest margin, a measure of lending profitability, increased to 3.17% from 2.77% a year earlier as the bank reduced deposit costs and eliminated Federal Home Loan Bank borrowings.
The company had no average FHLB borrowings during the quarter, compared with $41.1 million in the prior-year period, reducing quarterly interest expense by $536,000.
Average certificate of deposit rates declined to 3.96% from 4.27%, while money market deposit rates fell to 2.22% from 3.25%.
“Reducing our cost of funds has been a key driver of that progress,” Chief Executive Officer Robert T. Strong stated. “With our FHLB borrowings fully repaid and deposit costs declining, our net interest margin has strengthened meaningfully.”
The improvement came despite a smaller lending portfolio. Average loans receivable declined to $561.3 million from $599.3 million, contributing to a 5.2% reduction in interest and dividend income.
Noninterest income increased 40.5%, supported by higher loan servicing revenue, fees and gains from Small Business Administration loan sales.
Net loan servicing income increased $412,000, while gains on SBA loan sales rose $113,000, or 42.5%. Other fees and service charges more than doubled, increasing $154,000.
The bank’s expansion of SBA lending and loan originations through Oakmont Commercial LLC contributed to the growth in fee-based revenue.
Operating expenses rose 10.8%, reflecting higher professional fees and costs associated with SBA loan servicing and closings.
Professional fees increased $336,000, primarily because of legal expenses related to delinquent loans, collection activity and other proceedings.
Credit quality remained a significant concern despite the earnings improvement.
Nonperforming loans increased to $11.4 million at September 30 from $7.3 million at the end of 2025, rising to 2.27% of net loans receivable from 1.36%.
The September total included $9.9 million in nonaccrual loans and $1.5 million in loans at least 90 days delinquent but still accruing interest.
Nonaccrual loans included 22 commercial real estate loans and 18 commercial business loans, along with two owner-occupied residential mortgages.
During the first nine months of 2026, the bank charged off 13 commercial business loans totaling $1.2 million.
“While we are not satisfied with the current level of non-performing loans, these loans are either well-collateralized or adequately reserved,” Strong stated.
The company is increasing staffing resources to support the resolution of troubled credits.
Nonperforming assets, including foreclosed real estate, increased to $11.5 million, or 1.82% of total assets, from $7.7 million, or 1.20%, at year-end 2025.
The deterioration in credit quality accompanied a contraction in the company’s balance sheet.
Total assets declined 6.2% to $634.1 million from $675.9 million at December 31, 2025, primarily reflecting a $39.7 million reduction in net loans receivable.
Commercial business loans declined $20.4 million, or 21.2%, while commercial real estate loans fell $18.1 million, or 5.8%.
Construction loans increased $4.2 million, and owner-occupied residential mortgages rose $3.6 million, partially offsetting those declines.
Total deposits fell $43.3 million, or 7.3%, to $554 million.
Certificates of deposit declined $51.2 million, while interest-bearing checking balances decreased $43.7 million. The bank attributed the reduction in interest-bearing checking deposits primarily to increased competition.
Noninterest-bearing checking deposits increased $34.4 million, or 52.3%, and money market balances rose $16.7 million.
For the first nine months of 2026, Quaint Oak earned $1.3 million, or 48 cents per diluted share, compared with $148,000, or 6 cents per share, a year earlier.
Nine-month net interest margin increased to 3.08% from 2.75%, while noninterest income grew 26.6%, supported by gains on loan sales and servicing revenue.
The bank originated $18.6 million in SBA loans during the period and sold $20 million in the secondary market.
Oakmont Commercial originated $52 million in commercial real estate loans and sold $58.1 million, while Quaint Oak Mortgage originated $84.4 million in residential mortgages and sold $80.1 million.
The loan sales contributed to fee income while allowing the company to reduce assets held on its balance sheet.
Stockholders’ equity increased 2.4% to $53.6 million from $52.3 million at year-end 2025, reflecting retained earnings and other equity-related activity, partially offset by dividends and share repurchases.
Quaint Oak Bank operates through regional offices serving the Delaware Valley, Lehigh Valley and Philadelphia markets, with subsidiaries providing mortgage banking, commercial real estate financing, insurance and title-related services.
The latest results reflect stronger profitability from lower funding costs and loan sales, alongside continued pressure from declining deposits, a smaller loan portfolio and rising problem loans.
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