UNITED
      STATESSECURITIES
      AND EXCHANGE COMMISSIONWashington,
      D.C. 20549FORM
      10-K




(Mark
      One)x
                Annual
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the fiscal year ended: December 31, 2008oro
                Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period from ______ to ______Commission
      File Number: 0-52964





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




Pennsylvania
              
              35-2293957(State
      or Other Jurisdiction of
                Incorporation
      or Organization)
              
              (I.R.S.
      Employer
                Identification
      Number)607
      Lakeside Drive, Southampton, Pennsylvania
              
              18966(Address
      of Principal Executive Offices)
              
              (Zip
      Code)




Registrant’s
telephone number, including area code: (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 sharesTitle
      of Class




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act.YES
      o NO xIndicate
      by check mark if the registrant is not required to file reports pursuant
      to Section 13 or Section 15(d) of the Act.YES
      o NO x




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. YES x     NO
o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant’s knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large
      accelerated filer
              o
              Accelerated
      filer
              oNon-accelerated
      filer
              o
              Smaller
      reporting company
              x(Do
      not check if a smaller reporting company)




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the
Act).          YES o NO x




The
aggregate market value of the Common Stock held by non-affiliates of the
Registrant based on a closing price of $9.35 on June 30, 2008, the last day of
the Registrant’s second quarter was $10,591,867 (1,388,625 shares outstanding
less 255,805 shares held by affiliates at $9.35 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 25, 2009: 1,333,089




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 Stockholders for the year ended December 31, 2008
      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 2009 Annual Meeting of
      Stockholders are incorporated by reference into Part III, Items 10-14 of
      this Form 10-K.













QUAINT
      OAK BANCORP, INC.2008
      ANNUAL REPORT ON FORM 10-K




TABLE
OF CONTENTS


PagePART
      IItem
      1.
            Business
            
            1Item
      1A.
            Risk
      Factors
            
            25Item
      1B.
            Unresolved
      Staff Comments
            
            25Item
      2.
            Properties
            
            25Item
      3.
            Legal
      Proceedings
            
            26Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            
            26PART
      IIItem
      5.
            Market
      for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            
            26Item
      6.
            Selected
      Financial Data
            
            27Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            27Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            27Item
      8.
            Financial
      Statements and Supplementary Data
            
            27Item
      9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            
            27Item
      9A(T).
            Controls
      and Procedures
            
            27Item
      9B.
            Other
      Information
            
            28PART
      IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance
            
            29Item
      11.
            Executive
      Compensation
            
            29Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            
            29Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            
            30Item
      14.
            Principal
      Accounting Fees and Services
            
            30PART
      IVItem
      15.
            Exhibits,
      Financial Statement Schedules
            
            30SIGNATURES







Forward-Looking
Statements




This
Annual Report on Form 10-K 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 Quaint Oak Bancorp 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”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or words of
similar meaning, or future or conditional terms such as “will”, “would”,
“should”, “could”, “may”, “likely”, “probably”, or “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 assumption, many of which are difficult to predict and
generally are beyond the control of Quaint Oak Bancorp 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 Quaint
Oak Bancorp is or will be doing business, being less favorable than expected;(6)
political and social unrest, including acts of war or terrorism; or (7)
legislation or changes in regulatory requirements adversely affecting the
business in which Quaint Oak Bancorp will be engaged. Quaint Oak Bancorp
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.




PART
I




Item 1.
Business.




General




Quaint
Oak Bancorp is a Pennsylvania corporation headquartered in Southampton,
Pennsylvania. Quaint Oak Bancorp became the holding company for Quaint Oak Bank
in connection with the conversion of Quaint Oak Bank in July 2007 from a
Pennsylvania chartered mutual savings bank to a stock savings bank. Quaint Oak
Bank, whose predecessor was 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. Quaint Oak
Bank operates from its main office located in Bucks County, Pennsylvania. Quaint
Oak Bank’s primary market area includes Bucks County, and, to a lesser extent,
Montgomery County. As of December 31, 2008, Quaint Oak Bancorp had $88.4 million
of total assets, $59.0 million of deposits and $17.3 million of stockholders’
equity. Quaint Oak Bancorp’s stockholders’ equity constituted 19.5% of total
assets as of December 31, 2008.







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 residential, multi-family and commercial real estate loans
secured by property in our primary market area. Quaint Oak Bank also originates
home equity loans and lines of credit also secured by residential properties in
our primary lending area. Quaint Oak Bank serves its customers through its main
office as well as through correspondence and telephone 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.
Quaint Oak Bancorp, which elected to be treated as a savings and loan holding
company, is subject to examination and regulation by the Office of Thrift
Supervision. 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 Board of Governors of the Federal
Reserve System (“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 607 Lakeside Drive,
Southampton, Pennsylvania 18966 and its telephone number is (215)
364-4059.




Quaint
Oak Bank’s Lending Activities




General. At December 31, 2008,
the net loan portfolio of Quaint Oak Bank amounted to $69.3 million,
representing approximately 78.4% of its total assets at that date. The principal
lending activity of Quaint Oak Bank is the origination of one-to-four family
residential loans and commercial real estate loans, and to a lesser extent,
multi-family residential loans, home equity loans and construction loans. At
December 31, 2008, one-to-four family residential loans amounted to $38.9
million, or 55.7% of its total loan portfolio of which $17.5 million or 25.0%
consisted of owner occupied properties and $21.5 million or 30.7% consisted of
non-owner occupied properties. At December 31, 2008, commercial real estate
loans totaled $19.1 million, or 27.3% of its total loan portfolio. Multi-family
residential loans totaled $3.5 million, or 5.0% of the total loan portfolio at
December 31, 2008. Home equity loans totaled $4.6 million, or 6.6% of the total
loan portfolio at December 31, 2008. Construction loans totaled $2.8 million, or
3.9% of the total loan portfolio at December 31, 2008. As part of our desire to
diversify the loan portfolio, Quaint Oak Bank also offers commercial lines of
credit, which amounted to $813,000 million, or 1.2% of the total loan portfolio
at December 31, 2008.




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.




As
a Pennsylvania-chartered savings bank, Quaint Oak Bank is not subject to a
regulatory loan to one borrower limit. Our lending policy limits our loans to
one borrower to an aggregate of 15% of Bank capital which amounts to $1.9
million at December 31, 2008. At December 31, 2008, Quaint Oak Bank’s five
largest loans or groups of loans-to-one borrower, including related entities,
aggregated $1.6 million, $1.5 million, $1.3 million, $1.2 million and $1.2
million. Each of Quaint Oak Bank’s five largest loans or groups of loans was
performing in accordance with its terms at December 31, 2008.


2




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


December
      31,2008
                    
                    
                    2007Amount
                    
                    
                    %
                    
                    
                    Amount
                    
                    
                    %(Dollars
      in Thousands)Real
      estate loans:One-to-four
      family residential:Owner
      occupied
                    
                    $
                    17,460
                    
                    
                    
                    25.0
                    %
                    
                    $
                    17,248
                    
                    
                    
                    27.7
                    %Non-owner
      occupied
                    
                    
                    21,489
                    
                    
                    
                    30.7
                    
                    
                    
                    15,757
                    
                    
                    
                    25.3Total
      one-to-four family residential loans
                    
                    
                    38,949
                    
                    
                    
                    55.7
                    
                    
                    
                    33,005
                    
                    
                    
                    53.0Multi-family
      residential
                    
                    
                    3,526
                    
                    
                    
                    5.0
                    
                    
                    
                    4,385
                    
                    
                    
                    7.1Commercial
      real estate
                    
                    
                    19,096
                    
                    
                    
                    27.3
                    
                    
                    
                    17,481
                    
                    
                    
                    28.1Construction
                    
                    
                    2,752
                    
                    
                    
                    3.9
                    
                    
                    
                    1,677
                    
                    
                    
                    2.7Commercial
      lines of credit
                    
                    
                    813
                    
                    
                    
                    1.2
                    
                    
                    
                    1,206
                    
                    
                    
                    1.9Home
      equity loans
                    
                    
                    4,585
                    
                    
                    
                    6.6
                    
                    
                    
                    4,431
                    
                    
                    
                    7.1Total
      real estate loans
                    
                    
                    69,721
                    
                    
                    
                    99.7
                    
                    
                    
                    62,185
                    
                    
                    
                    99.9Auto
      loans
                    
                    
                    103
                    
                    
                    
                    .1
                    
                    
                    
                    —
                    
                    
                    
                    —Loans
      secured by deposits
                    
                    
                    109
                    
                    
                    
                    .2
                    
                    
                    
                    36
                    
                    
                    
                    .1Total
      loans
                    
                    
                    69,933
                    
                    
                    
                    100.0
                    %
                    
                    
                    62,221
                    
                    
                    
                    100.0
                    %Plus
      (less):Deferred
      loan fees and costs
                    
                    
                    66
                    
                    
                    
                    
                    
                    
                    
                    102Allowance
      for loan losses
                    
                    
                    (689
                    )
                    
                    
                    
                    
                    
                    
                    (667
                    )Net
      loans
                    
                    $
                    69,310
                    
                    
                    
                    
                    
                    
                    $
                    61,656




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. Loan originations are obtained through a variety of sources,
primarily consisting of referrals from brokers and existing customers. Written
loan applications are taken by one of Quaint Oak Bank’s loan officers. The loan
officer also supervises the procurement of credit reports, appraisals and other
documentation involved with a loan. To ensure independence, loan officers with
the responsibility for ordering appraisals and evaluations do not have the sole
approval authority for granting a loan request. As a matter of practice, Quaint
Oak Bank obtains independent outside appraisals on substantially all of its
loans which must conform to Quaint Oak Bank’s appraisal requirements. We may
make an exception for loans submitted by licensed mortgage brokers or mortgage
bankers placing loan applications. Quaint Oak Bank also requires hazard
insurance in order to protect the properties securing its real estate loans.
Borrowers must also obtain flood insurance policies when the property is in a
flood hazard area. An environmental questionnaire may be required on any
property where an environmental issue is suspected.




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 property that will secure the
loan. Loans over $750,000 must be approved by Quaint Oak Bank’s loan committee,
which currently consists of Messrs. Ager, Spink, Strong, Schulmeister and
Phillips, who is Chairman.


3




The
following table shows our total loans originated, purchased, sold and repaid
during the periods indicated.


Year
      Ended December 31,2008
                    
                    
                    2007(In
      thousands)Loan
      originations:One-to-four
      family residential (owner occupied and non-owner occupied)
                    
                    $
                    12,681
                    
                    
                    $
                    8,569Multi-family
      residential, commercial real estate construction and commercial lines of
      credit
                    
                    
                    6,112
                    
                    
                    
                    7,261Construction
                    
                    
                    3,807
                    
                    
                    
                    2,623Home
      equity and other
                    
                    
                    2,842
                    
                    
                    
                    3,441Total
      loan originations
                    
                    
                    25,442
                    
                    
                    
                    21,894Loan
      principal repayments
                    
                    
                    (16,917
                    )
                    
                    
                    (14,638
                    )Decreases
      due to other items, net (1)
                    
                    
                    (871
                    )
                    
                    
                    (153
                    )Net
      increase in loan portfolio
                    
                    $
                    7,654
                    
                    
                    $
                    7,103




(1)
                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 and purchase
loans secured by real estate located throughout the United States, Quaint Oak
Bank concentrates its lending activity to its primary market area in Bucks and
Montgomery Counties, Pennsylvania, northeast Philadelphia and the surrounding
area.




Contractual Terms to Final
Maturities. The following table shows the scheduled contractual
maturities of our loans as of December 31, 2008, before giving effect to net
items. 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.


One-to-Four
              Family
              Residential
            
            Multi-
              family
              Residential,
      Commercial
              Real
      Estate
            
            Construction
            
            Home
              Equity
      and
              Other
            
            Total(In
      Thousands)Amounts
      due after December 31, 2008 in:One
      year or less
            
            
            $
            2,573
            
            
            
            $
            1,139
            
            
            
            $
            2,578
            
            
            
            $
            1,009
            
            
            
            $
            7,299After
      one year through three years
            
            
            
            6,464
            
            
            
            
            6,639
            
            
            
            
            135
            
            
            
            
            73
            
            
            
            
            13,311After
      three years through five years
            
            
            
            11,988
            
            
            
            
            10,794
            
            
            
            
            —
            
            
            
            
            311
            
            
            
            
            23,093After
      five years through ten years
            
            
            
            4,931
            
            
            
            
            3,578
            
            
            
            
            39
            
            
            
            
            1,185
            
            
            
            
            9,733After
      ten years through 15 years
            
            
            
            3,146
            
            
            
            
            1,224
            
            
            
            
            —
            
            
            
            
            2,134
            
            
            
            
            6,504After
      15 years
            
            
            
            9,847
            
            
            
            
            61
            
            
            
            
            —
            
            
            
            
            85
            
            
            
            
            9,993Total
            
            
            $
            38,949
            
            
            
            $
            23,435
            
            
            
            $
            2,752
            
            
            
            $
            4,797
            
            
            
            $
            69,933


4




The
following table shows the dollar amount of our loans at December 31, 2008 due
after December 31, 2009 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
                
                
                $
                24,426
                
                
                
                $
                11,950
                
                
                
                $
                36,376Multi-family
      residential, commercial real estate, and commercial lines of
      credit
                
                
                
                13,074
                
                
                
                
                9,223
                
                
                
                
                3,646Construction
                
                
                
                174
                
                
                
                
                —
                
                
                
                
                174Home
      equity and other
                
                
                
                3,782
                
                
                
                
                5
                
                
                
                
                3,788Total
                
                
                $
                41,456
                
                
                
                $
                1,807
                
                
                
                $
                62,634




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 Real
Estate Loans. The principal lending activity of Quaint Oak Bank is the
origination of loans secured by single-family residences. At December 31, 2008,
$38.9 million, or 55.7%, of our total loan portfolio, before net items,
consisted of one-to-four family residential loans including both owner occupied
and non-owner occupied properties.




It
is our policy to lend in a first lien position on owner occupied residences with
fixed and variable rates and terms up to 30 years. Mortgages are limited to 80%
of the appraised value, or sale price, of the secured real estate property,
whichever is lower. It is our policy to lend in a first lien position on
non-owner occupied residential property with fixed and variable rates and terms
up to 15 years or longer amortizations. Primarily such loans are originated at a
fixed rate with a five year maturity. Such loans are generally limited to 80%,
or less, of the appraised value, or sales price plus improvement costs of the
secured real estate property.




Our
guidelines for credit quality generally parallel the Federal National Mortgage
Corporation, commonly called Fannie Mae, and the Federal Home Loan Mortgage
Corporation, commonly called Freddie Mac, secondary market guidelines including
income ratios and credit scores.




We
originate both fixed rate and adjustable rate residential real estate loans.
Fixed rate loans do not have the same risks associated with a borrower’s ability
to repay as adjustable rate loans in a rising interest rate environment;
however, the costs of funding such loans are adversely affected by rising
interest rates.




Commercial Real Estate Loans.
Quaint Oak Bank also originates loans secured by commercial real estate. At
December 31, 2008, $19.1 million, or 27.3% of our loan portfolio consisted of
commercial real estate loans and $813,000 or 1.2% of our loan portfolio
consisted of commercial lines of credit. We also originate construction loans,
which at December 31, 2008, amounted to $2.8 million or 3.9% of our loan
portfolio. 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.


5




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
terms up to 15 years with longer amortizations. Commercial real estate loans are
limited to 80%, 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. A Debt Service Coverage Ratio (DSCR) is calculated using gross income
minus operating expenses vs. debt service. Quaint Oak Bank uses a DSCR of 1.10.
We obtain copies of leases to document income. 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. Construction loans are generally granted for the purpose of
building or renovating a single residential home. Funds are advanced
incrementally as work is completed. The borrower is required to make monthly
interest payments. The bank does not fund an interest reserve. When the
construction is finished, the amount of the outstanding loan is less than 80% of
the completed value of the property. The bank is paid in full when the borrower
seeks permanent financing or the property is sold. At December 31, 2008, $2.8
million, or 3.9% of Quaint Oak Bank’s total loan portfolio consisted of
construction loans.
  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
loans in order to accommodate its customers and because such loans generally
have shorter terms and higher interest rates than residential mortgage loans. As
part of our lending strategy, we intend to focus on increasing home equity
loans, including home equity lines of credit. At December 31, 2008, $4.6
million, or 6.6% of Quaint Oak Bank’s total loan portfolio consisted of home
equity loans.
  Loan
Origination and Other Fees. In addition to interest earned on loans,
Quaint Oak Bank generally receives loan origination fees or “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 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 a mortgage clerk. If the
borrower misses a second payment date, an executive officer will contact the
borrower 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 thirty 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.
  6
  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. Real estate owned totaled $732,000 and $-0- at December 31, 2008 and 2007,
respectively.
 Delinquent
Loans. The following table shows the delinquencies in our loan portfolio
as of December 31, 2008.
 December
      31, 200830-89
                              Days
      Overdue
                            
                            90
      or More Days
                              OverdueNumber
                              of
      Loans
                            
                            Principal
                              Balance
                            
                            Number
                              of
      Loans
                            
                            Principal
                              Balance(Dollars
      in Thousands)One-to-four
      family residential
                            
                            
                            12
                            
                            $
                            2,058
                            
                            
                            —
                            
                            $
                            —Multi-family
      residential, commercial real estate, construction and commercial lines of
      credit
                            
                            
                            6
                            
                            
                            1,077
                            
                            
                            —
                            
                            
                            —Home
      equity and other
                            
                            
                            —
                            
                            
                            —
                            
                            
                            —
                            
                            
                            —Total
      delinquent loans
                            
                            
                            18
                            
                            $
                            3,135
                            
                            
                            —
                            
                            $
                            —Delinquent
      loans to total net loans
                            
                            
                            
                            
                            
                            4.52
                            %
                            
                            
                            
                            
                            —
                            %Delinquent
      loans to total loans
                            
                            
                            
                            
                            
                            4.48
                            %
                            
                            
                            
                            
                            —
                            %
  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) at the dates indicated.
 December
      31,2008
                    
                    
                    2007(Dollars
      in Thousands)Non-accruing
      loans:One-to-four
      family residential
                    
                    $
                    121
                    
                    
                    $
                    1,275Multi-family
      residential, commercial real estate, construction and commercial lines of
      credit
                    
                    
                    318
                    
                    
                    
                    82Home
      equity and other
                    
                    
                    —
                    
                    
                    
                    44Total
      non-accruing loans
                    
                    
                    439
                    
                    
                    
                    1,401Accruing
      loans 90 days or more past due:One-to-four
      family residential
                    
                    
                    —
                    
                    
                    
                    8Multi-family
      residential, commercial real estate, construction and commercial lines of
      credit
                    
                    
                    —
                    
                    
                    
                    141Home
      equity and other
                    
                    
                    —
                    
                    
                    
                    —Total
      accruing loans 90 days or more past due
                    
                    
                    —
                    
                    
                    
                    149Total
      non-performing loans (1)
                    
                    
                    439
                    
                    
                    
                    1,550Other
      real estate owned, net
                    
                    
                    732
                    
                    
                    
                    —Total
      non-performing assets
                    
                    
                    1,171
                    
                    
                    
                    1,550Troubled
      debt restructurings
                    
                    
                    921
                    
                    
                    
                    —Total
      non-performing assets and troubled debt restructurings
                    
                    $
                    2,092
                    
                    
                    $
                    1,550Total
      non-performing loans as a percentage of loans, net
                    
                    
                    0.63
                    %
                    
                    
                    2.51
                    %Total
      non-performing loans as a percentage of total assets
                    
                    
                    0.50
                    %
                    
                    
                    2.11
                    %Total
      non-performing assets as a percentage of total assets
                    
                    
                    1.32
                    %
                    
                    
                    2.11
                    %Total
      non-performing assets and troubled debt restructurings as a percentage of
      total assets
                    
                    
                    2.37
                    %
                    
                    
                    2.11
                    %
  (1)
      Non-performing loans consist of non-accruing loans plus accruing loans 90
      days or more past
due.
  7
  During
the first quarter of 2009, three loans totaling $650,000, that were
approximately 30 days past due at December 31, 2008, became 90 days past due. If
the delinquency exists at the end of the first quarter of 2009, these loans may
be placed on non-accrual status. All three loans are well
collateralized.
  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,” “doubtful” and “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” 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.
  Allowance
for Loan Losses. At December 31, 2008, Quaint Oak Bank’s allowance for
loan losses amounted to $689,000. The allowance for loan losses is maintained at
a level believed, to the best of management’s knowledge, to cover all known and
inherent losses in the portfolio both probable and reasonable to estimate at
each reporting date. The level of allowance for loan losses is based on
management’s periodic review of the collectibility of the loans in light of
historical experience, the nature and volume of the loan portfolio, adverse
situations that may affect the borrower’s ability to repay, estimated value of
any underlying collateral and prevailing conditions. Quaint Oak Bank is
primarily engaged in originating single-family residential loans secured by
owner occupied and non-owner occupied properties as well as commercial real
estate loans. The management of Quaint Oak Bank considers the deficiencies of
all classified loans in determining the amount of allowance for loan losses
required at each reporting date. Management analyzes the probability of the
correction of the classified loans’ weaknesses and the extent of any known or
inherent losses that Quaint Oak Bank might sustain on them.
  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.
  8
  The
following table shows changes in our allowance for loan losses during the
periods presented.
 December
      31,2008
                                
                                
                                2007(Dollars
      in Thousands)Total
      loans outstanding at end of period, net
                                
                                $
                                69,310
                                
                                
                                $
                                61,656Average
      loans outstanding
                                
                                $
                                63,931
                                
                                
                                $
                                56,001Allowance
      for loan losses, beginning of period
                                
                                $
                                667
                                
                                
                                $
                                575Provision
      for loan losses
                                
                                
                                142
                                
                                
                                
                                93Charge-offs:One-to-four
      family residential
                                
                                
                                (100
                                )
                                
                                
                                (1
                                )Multi-family
      residential, commercial real estate, construction and commercial lines of
      credit
                                
                                
                                —
                                
                                
                                
                                —Home
      equity and other
                                
                                
                                (20
                                )
                                
                                
                                —Total
      charge-offs
                                
                                
                                (120
                                )
                                
                                
                                (1
                                )Recoveries
      on loans previously charged off
                                
                                
                                —
                                
                                
                                
                                —Allowance
      for loan losses, end of period
                                
                                $
                                689
                                
                                
                                $
                                667Allowance
      for loan losses as a percent of non-performing loans
                                
                                
                                156.95
                                %
                                
                                
                                43.03
                                %Ratio
      of net charge-offs during the period to average loans outstanding during
      the period
                                
                                
                                0.19
                                %
                                
                                
                                —
                                %
  The
following table shows how our allowance for loan losses is allocated by type of
loan at each of the dates indicated.
 December
      31,2008
                      
                      2007Amount
      of
                        Allowance
                      
                      Loan
                        Category
                        as
      a % of
                        Total
      Loans
                      
                      Amount
      of
                        Allowance
                      
                      Loan
                        Category
                        as
      a % of
                        Total
      Loans(Dollars
      in Thousands)One-to-four
      family residential
                      
                      $
                      207
                      
                      
                      55.7
                      %
                      $
                      231
                      
                      
                      53.0
                      %Multi-family
      residential, commercial real estate, construction and commercial lines of
      credit
                      
                      
                      265
                      
                      
                      37.4
                      
                      
                      243
                      
                      
                      39.8Home
      equity and other
                      
                      
                      24
                      
                      
                      6.9
                      
                      
                      26
                      
                      
                      7.2Unallocated
                      
                      
                      193
                      
                      
                      —
                      
                      
                      167
                      
                      
                      —Total
                      
                      $
                      689
                      
                      
                      100.0
                      %
                      $
                      667
                      
                      
                      100.0
                      %
  The
allowance consists of specific and general components. The specific component
relates to loans that are classified as either doubtful, substandard or special
mention. The general component covers non-classified loans and is based on
historical loss experience adjusted for qualitative factors. An unallocated
component of the allowance is maintained to cover uncertainties that could
affect management’s 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.
  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 President and Chief Executive Officer.
  9
  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.
  Pursuant
to Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments
in Debt and Equity Securities, 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 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, 2008, we had
no securities classified as available for sale, $12.0 million of securities
classified as held to maturity and no securities classified as
trading.
  Federal
Home Loan Bank stock is a restricted investment security, carried at cost. The
purchase of Federal Home Loan Bank stock provides banks with the right to be a
member of the Federal Home Loan Bank and to receive the products and services
that the Federal Home Loan Bank provides to member banking institutions. Unlike
other types of stock, Federal Home Loan Bank stock is acquired primarily for the
right to receive advances from the Federal Home Loan Bank, rather than for the
purpose of maximizing dividends or stock growth. Federal Home Loan Bank stock is
an activity based stock that is directly proportional to the volume of advances
taken by a member institution. During the fourth quarter of 2008, the Federal
Home Loan Bank announced a decision to suspend the dividend on, and restrict the
repurchase of, Federal Home Loan Bank stock. As a result, we must continue to
hold these securities, although we are not currently receiving a return for this
investment.
  The
following table sets forth our investment portfolio at carrying value as of the
dates indicated.
 December
      31,2008
                      
                      
                      2007(In
      Thousands)Interest-earning
      time deposits with other financial institutions
                      
                      $
                      3,735
                      
                      
                      $
                      1,835Mortgage
      securities portfolio mutual fund
                      
                      
                      —
                      
                      
                      
                      501Auction
      market securities
                      
                      
                      —
                      
                      
                      
                      1,500U.S.
      Government agency obligations
                      
                      
                      2,250
                      
                      
                      
                      2,253Mortgage-backed
      securities
                      
                      
                      9,777
                      
                      
                      
                      —FHLB
      of Pittsburgh stock
                      
                      
                      797
                      
                      
                      
                      237Total
                      
                      $
                      16,559
                      
                      
                      $
                      6,326
  10
  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, 2008.
 Amounts
      at December 31, 2008 Which Mature InOne
      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
                
                $
                3,735
                
                
                3.79
                %
                $
                —
                
                
                —
                %
                $
                —
                
                
                —
                %
                $
                —
                
                
                —
                %U.S.
      Government agency obligations
                
                
                1,000
                
                
                3.83
                
                
                1,250
                
                
                3.65
                
                
                —
                
                
                —
                
                
                —
                
                
                —Mortgage-backed
      securities
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                9,777
                
                
                4.79Total
                
                $
                4,735
                
                
                3.80
                %
                $
                1,250
                
                
                3.65
                %
                $
                —
                
                
                —
                %
                $
                9,777
                
                
                4.79
                %
  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 repayments 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 southwestern Bucks
and southeastern Montgomery Counties, Pennsylvania and northeast
Philadelphia. 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 does not offer transactional deposit accounts such as
demand deposit or NOW accounts. In the fourth quarter of 2007, Quaint Oak Bank
introduced an e-savings deposit account product. This account allows customers
to earn money market rates on their funds. Withdrawals from this account are
processed by electronic funds transfer through the Automatic Clearing House
(ACH) to the customer’s pre-authorized checking account. At December 31, 2008,
the e-savings account deposits totaled $429,000.
  Quaint
Oak Bank has not solicited deposits from outside Pennsylvania or paid fees to
brokers to solicit funds for deposit.
  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.
  11
  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
      31,2008
                      
                      2007Amount
                      
                      %
                      
                      Amount
                      
                      %(Dollars
      in Thousands)Certificate
      accounts:2.00%
      - 2.99%
                      
                      $
                      1,364
                      
                      
                      2.3
                      %
                      $
                      —
                      
                      
                      —
                      %3.00%
      - 3.99%
                      
                      
                      30,556
                      
                      
                      51.8
                      
                      
                      2,214
                      
                      
                      4.04.00%
      - 4.99%
                      
                      
                      17,888
                      
                      
                      30.3
                      
                      
                      27,957
                      
                      
                      50.65.00%
      - 5.99%
                      
                      
                      295
                      
                      
                      0.5
                      
                      
                      15,801
                      
                      
                      28.6Total
      certificate accounts
                      
                      
                      50,103
                      
                      
                      84.9
                      
                      
                      45,972
                      
                      
                      83.2Transaction
      accounts:Passbook
                      
                      
                      3,356
                      
                      
                      5.7
                      
                      
                      3,659
                      
                      
                      6.6Statement
      and e-savings accounts
                      
                      
                      5,522
                      
                      
                      9.4
                      
                      
                      5,630
                      
                      
                      10.2Total
      transaction accounts
                      
                      
                      8,878
                      
                      
                      15.1
                      
                      
                      9,289
                      
                      
                      16.8Total
      deposits
                      
                      $
                      58,981
                      
                      
                      100.0
                      %
                      $
                      55,261
                      
                      
                      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 31,2008
                    
                    2007Average
                      Balance
                    
                    Interest
                      Expense
                    
                    Average
                      Rate
      Paid
                    
                    Average
                      Balance
                    
                    Interest
                      Expense
                    
                    Average
                      Rate
      Paid(Dollars
      in Thousands)Passbook
                    
                    $
                    3,460
                    
                    $
                    45
                    
                    
                    1.30
                    %
                    $
                    4,267
                    
                    $
                    59
                    
                    
                    1.38
                    %Statement
      and e-savings accounts
                    
                    
                    5,537
                    
                    
                    134
                    
                    
                    2.42
                    
                    
                    6,235
                    
                    
                    173
                    
                    
                    2.77Certificates
      of deposit
                    
                    
                    47,929
                    
                    
                    2,113
                    
                    
                    4.41
                    
                    
                    44,158
                    
                    
                    2,128
                    
                    
                    4.82Total
      interest-bearing deposits
                    
                    
                    56,926
                    
                    
                    2,292
                    
                    
                    4.03
                    
                    
                    54,660
                    
                    
                    2,360
                    
                    
                    4.32Total
      deposits
                    
                    $
                    56,926
                    
                    $
                    2,292
                    
                    
                    4.03
                    %
                    $
                    54,660
                    
                    $
                    2,360
                    
                    
                    4.32
                    %
  The
following table shows our savings flows during the periods
indicated.
 Year
      Ended December 31,2008
                                        
                                        
                                        2007(In
      Thousands)Total
      deposits
                                        
                                        $
                                        17,869
                                        
                                        
                                        $
                                        16,083Total
      withdrawals
                                        
                                        
                                        (16,442
                                        )
                                        
                                        
                                        (18,939
                                        )Interest
      credited
                                        
                                        
                                        2,293
                                        
                                        
                                        
                                        2,367Total
      increase (decrease) in deposits
                                        
                                        $
                                        3,720
                                        
                                        
                                        $
                                        (489
                                        )
  12
  The
following table presents, by various interest rate categories and maturities,
the amount of certificates of deposit at December 31, 2008.
 Balance
      at December 31, 2008
                          Maturing
      in the Twelve Months Ending December 31,Certificates
      of Deposit
                        
                        2009
                        
                        2010
                        
                        2011
                        
                        Thereafter
                        
                        Total(In
      Thousands)2.00%
      - 2.99%
                        
                        $
                        1,364
                        
                        $
                        —
                        
                        $
                        —
                        
                        $
                        —
                        
                        $
                        1,3643.00%
      - 3.99%
                        
                        
                        26,663
                        
                        
                        3,294
                        
                        
                        183
                        
                        
                        416
                        
                        
                        30,5564.00%
      - 4.99%
                        
                        
                        8,330
                        
                        
                        4,579
                        
                        
                        956
                        
                        
                        4,023
                        
                        
                        17,8885.00%
      - 5.99%
                        
                        
                        65
                        
                        
                        6
                        
                        
                        183
                        
                        
                        41
                        
                        
                        295Total
      certificate accounts
                        
                        $
                        36,422
                        
                        $
                        7,879
                        
                        $
                        1,322
                        
                        $
                        4,480
                        
                        $
                        50,103
 The
following table shows the maturities of our certificates of deposit of $100,000
or more at December 31, 2008 by time remaining to maturity.
 Quarter
      Ending:
                                                  
                                                  Amount
                                                  
                                                  
                                                  Weighted
                                                    Average
      Rate(Dollars
      in Thousands)March
      31, 2009
                                                  
                                                  $
                                                  1,373
                                                  
                                                  
                                                  
                                                  3.82
                                                  %June
      30, 2009
                                                  
                                                  
                                                  1,815
                                                  
                                                  
                                                  
                                                  3.49September
      30, 2009
                                                  
                                                  
                                                  1,820
                                                  
                                                  
                                                  
                                                  3.80December
      31, 2009
                                                  
                                                  
                                                  4,159
                                                  
                                                  
                                                  
                                                  3.90After
      December 31, 2009
                                                  
                                                  
                                                  4,500
                                                  
                                                  
                                                  
                                                  4.42Total
      certificates of deposit with balances of $100,000 or more
                                                  
                                                  $
                                                  13,667
                                                  
                                                  
                                                  
                                                  4.00
                                                  %
  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, 2008, Quaint Oak Bank was permitted to borrow up to an aggregate
total of $46.8 million from the Federal Home Loan Bank of Pittsburgh. Quaint Oak
Bank’s Federal Home Loan Bank advances outstanding were $11.2 million and $-0-
at December 31, 2008 and 2007, respectively. At present, however, we are
reviewing our continued utilization of advances from the Federal Home Loan Bank
as a source of funding based on recent decisions by the Federal Home Loan Bank
to suspend the dividend on, and restrict the repurchase of, Federal Home Loan
Bank stock. The amount of Federal Home Loan Bank stock that a member institution
is required to hold is directly proportional to the volume of advances taken by
that institution. Should we decide to utilize sources of funding other than
advances from the Federal Home Loan Bank, we believe that additional funding is
available in the form of advances or repurchase agreements through various other
sources.
  13
  The
following table shows certain information regarding our borrowings at or for the
dates indicated:
 
 At
      or For the Year
                                            Ended
      December 31,2008
                                          
                                          
                                          2007(Dollars
      in Thousands)FHLB
      advances:Average
      balance outstanding
                                          
                                          $
                                          4,925
                                          
                                          
                                          $
                                          —Maximum
      amount outstanding at any month-end during the period
                                          
                                          
                                          11,150
                                          
                                          
                                          
                                          —Balance
      outstanding at end of period
                                          
                                          
                                          11,150
                                          
                                          
                                          
                                          —Average
      interest rate during the period
                                          
                                          
                                          3.49
                                          %
                                          
                                          
                                          —
                                          %Weighted
      average interest rate at end of period
                                          
                                          
                                          2.93
                                          %
                                          
                                          
                                          —
                                          %
  Total
Employees
  Quaint
Oak Bank had nine full-time employees at December 31, 2008. None of these
employees are represented by a collective bargaining agreement, and Quaint Oak
Bank believes that it enjoys good relations with its personnel.
  Market
Area
  Quaint
Oak Bank’s primary market area for loans and deposits is in Southampton,
Pennsylvania, particularly southwestern Bucks County, southeastern Montgomery
County and northeast Philadelphia. Quaint Oak Bank’s operating strategy is based
on strong personal service and operating efficiency.
  Quaint
Oak Bank is headquartered in Southampton in Bucks County, Pennsylvania. 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 in our market area are
also above both national and Pennsylvania averages.
  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. Currently, Quaint Oak Bank must compete against a number of small
community banks, three regional banks and three national banks in Bucks County.
Also, given Quaint Oak Bank’s operating strategies and reliance on savings
accounts and certificates, Quaint Oak Bank also faces intense competition from
the 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. 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 real estate 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.
  14
  At
June 30, 2008, the latest date for which information is available, the size of
the market in Bucks County, Pennsylvania, as defined by total Federal Deposit
Insurance Corporation insured deposits, was $12.2 billion, populated by 262
branch offices. Based on information available on the Federal Deposit Insurance
Corporation’s website at www.fdic.gov, commercial banks
accounted for $8.0 billion of such deposits, served by 176 of the 262 branches.
Savings institutions had the remaining 86 branches totaling $4.2 billion in
deposits, or 34.0% of the market.
  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 has
registered with the Office of Thrift Supervision and is subject to Office of
Thrift Supervision 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 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 Office of
Thrift Supervision’s qualified thrift lender requirement, dividend restrictions
and transactions with affiliates regulations.
  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;●
                  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 Director of the Office
      of Thrift Supervision, 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 Director of the Office of Thrift Supervision;
      and                   15
  ●
                  any
      activity permissible for financial holding companies under section 4(k) of
      the Bank Holding Company Act.
    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;●
                    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 to 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, 2008,
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.Under Section 2303 of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996, 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. A savings association subsidiary of a
savings and loan holding company that does not comply with the Qualified Thrift
Lender test must comply with the following restrictions on its
operations:
  16
  ●
                  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 a national bank;●
                  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.
  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 a national bank (subject to safety and soundness
considerations).
  Quaint
Oak Bank believes that it meets the provisions of the Qualified Thrift Lender
test.
  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 is any company
or entity which controls, is controlled by or is under common control with 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” with any one affiliate to an
amount equal to 10% of such association’s capital stock and surplus, and contain
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” 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” 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.
  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, 2006, was in compliance with the
above restrictions.
  17
  Restrictions on Acquisitions.
Except under limited circumstances, savings and loan holding companies are
prohibited from acquiring, without prior approval of the Director of the Office
of Thrift Supervision, (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 Director, 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
Director of the Office of Thrift Supervision 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. Quaint Oak Bancorp is subject to the Sarbanes-Oxley
Act of 2002, which implements a broad range of corporate governance and
accounting measures for public companies designed to promote honesty and
transparency in corporate America and better protect investors from corporate
wrongdoing. The Sarbanes-Oxley Act’s principal legislation and the derivative
regulation and rule-making promulgated by the Securities and Exchange Commission
include:
 ●
                  the
      creation of an independent accounting oversight board;●
                  auditor
      independence provisions that restrict non-audit services that accountants
      may provide to their audit clients;●
                  additional
      corporate governance and responsibility measures, including the
      requirement that the chief executive officer and chief financial officer
      certify financial statements;●
                  a
      requirement that companies establish and maintain a system of internal
      control over financial reporting and that a company’s management provide
      an annual report regarding its assessment of the effectiveness of such
      internal control over financial reporting. At December 31, 2008,
      management’s report was not subject to attestation by the Company’s
      registered public accounting firm pursuant to a temporary rule of the
      Securities and Exchange Commission that permits the Company to provide
      only management’s report in this annual report;              18
  ●
                    the
      forfeiture of bonuses or other incentive-based compensation and profits
      from the sale of an issuer’s securities by directors and senior officers
      in the twelve month period following initial publication of any financial
      statements that later require restatement;●
                    an
      increase in the oversight of, and enhancement of certain requirements
      relating to audit committees of public companies and how they interact
      with the company’s independent auditors;●
                    the
      requirement that audit committee members must be independent and are
      absolutely barred from accepting consulting, advisory or other
      compensatory fees from the issuer;
 ●
                    the
      requirement that companies disclose whether at least one member of the
      committee is a “financial expert” (as such term is defined by the
      Securities and Exchange Commission) and if not, why
not;●
                    expanded
      disclosure requirements for corporate insiders, including accelerated
      reporting of stock transactions by insiders and a prohibition on insider
      trading during pension blackout periods;●
                    a
      prohibition on personal loans to directors and officers, except certain
      loans made by insured financial institutions;●
                    disclosure
      of a code of ethics and the requirement of filing of a Form 8-K for a
      change or waiver of such code;●
                    mandatory
      disclosure by analysts of potential conflicts of interest;
    and●
                    a
      range of enhanced penalties for fraud and other
  violations.
  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, employees and members, 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 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.
  The
Pennsylvania Department of Banking generally examines each savings bank not less
frequently than once every two years. Although the Pennsylvania Department of
Banking 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 to conduct individual examinations. The
Pennsylvania Department of Banking may order any savings bank to discontinue any
violation of law or unsafe or unsound business practice and may direct any
trustee, officer, attorney or employee of a savings bank engaged in an
objectionable activity, after the Pennsylvania Department of Banking has ordered
the activity to be terminated, to show cause at a hearing before the
Pennsylvania Department of Banking why such person should not be
removed.
  19
  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. 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.
  Under
regulations effective January 1, 2007, the FDIC adopted a new risk-based premium
system that provides for quarterly assessments based on an insured institution’s
ranking in one of four risk categories based upon supervisory and capital
evaluations. Well-capitalized institutions (generally those with CAMELS
composite ratings of 1 or 2) are grouped in Risk Category I and assessed for
deposit insurance at an annual rate of between five and seven basis points. The
assessment rate for an individual institution is determined according to a
formula based on a weighted average of the institution’s individual CAMEL
component ratings plus either five financial ratios or, in the case of an
institution with assets of $10.0 billion or more, the average ratings of its
long-term debt. Institutions in Risk Categories II, III and IV are assessed at
annual rates of 10, 28 and 43 basis points, respectively.
  In
addition, all institutions with deposits insured by the Federal Deposit
Insurance Corporation are 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 assessment rate for the first quarter of 2009 is 0.0114% of insured
deposits and is adjusted quarterly. These assessments will continue until the
Financing Corporation bonds mature 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.
  On
February 27, 2009, the Federal Deposit Insurance Corporation adopted a
restoration plan designed to replenish the Deposit Insurance Fund over a period
of seven years and to increase the deposit insurance reserve ratio, which
decreased to 0.40% of insured deposits on December 31, 2008, to the statutory
minimum of 1.15% of insured deposits by December 31, 2015. In order to implement
the restoration plan, the Federal Deposit Insurance Corporation proposes to
change both its risk-based assessment system and its base assessment rates.
Assessment rates would increase by seven basis points across the range of risk
weightings of depository institutions. Changes to the risk-based assessment
system would include increasing premiums for institutions that rely
significantly on excessive amounts of brokered deposits, including CDARS,
increasing premiums for excessive use of secured liabilities, including Federal
Home Loan Bank advances, lowering premiums for smaller institutions with very
high capital levels, and adding financial ratios and debt issuer ratings to the
premium calculations for banks with over $10 billion in assets, while providing
a reduction for their unsecured debt. Higher assessments for well-managed and
well-capitalized institutions that rely significantly on brokered deposits will
apply only when accompanied by rapid asset growth.
  20
  On
February 27, 2009, the FDIC also adopted an interim rule with request for
comments imposing a 20 basis point emergency special assessment on insured
institutions on June 30, 2009, payable on September 30, 2009. The interim rule
also permits the FDIC to impose an additional special assessment after June 30,
2009, of up to 10 basis points if necessary to maintain public confidence in
federal deposit insurance. However, FDIC Chairman Bair has indicated in a letter
to Senate Banking Committee Chairman Dodd that, if the U.S. Congress passes a
bill increasing the FDIC’s authority to borrow from the U.S. Department of
Treasury, the FDIC would reduce the proposed special assessment from 20 to 10
basis points. The U.S. Congress is currently considering legislation on such an
increase in borrowing authority.
  Capital Requirements. The
Federal Deposit Insurance Corporation has promulgated regulations and adopted a
statement of policy regarding the capital adequacy of state-chartered savings
banks which, like Quaint Oak Bank, are not members of the Federal Reserve
System. These requirements are substantially similar to those adopted by the
Federal Reserve Board regarding bank holding companies.
  The
Federal Deposit Insurance Corporation’s capital regulations establish a minimum
3.0% Tier I leverage capital requirement for the most highly-rated
state-chartered, non-member banks, with an additional cushion of at least 100 to
200 basis points for all other state-chartered, non-member banks, which
effectively will increase the minimum Tier I leverage ratio for such other banks
to 4.0% to 5.0% or more. Under the Federal Deposit Insurance Corporation’s
regulation, highest-rated banks are those that the Federal Deposit Insurance
Corporation determines are not anticipating or experiencing significant growth
and have well diversified risk, including no undue interest rate risk exposure,
excellent asset quality, high liquidity, good earnings and, in general, which
are considered a strong banking organization and are rated composite 1 under the
Uniform Financial Institutions Rating System. Leverage or core capital is
defined as the sum of common stockholders’ equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, and minority
interests in consolidated subsidiaries, minus all intangible assets other than
certain qualifying supervisory goodwill and certain purchased mortgage servicing
rights.
  The
Federal Deposit Insurance Corporation also requires that savings banks meet a
risk-based capital standard. The risk-based capital standard for savings banks
requires the maintenance of total capital (which is defined as Tier I capital
and supplementary (Tier 2) capital) to risk weighted assets of 8%. In
determining the amount of risk-weighted assets, all assets, plus certain off
balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on
the risks the Federal Deposit Insurance Corporation believes are inherent in the
type of asset or item. The components of Tier I capital are equivalent to those
discussed above under the 3% leverage capital standard. The components of
supplementary capital include certain perpetual preferred stock, certain
mandatory convertible securities, certain subordinated debt and intermediate
preferred stock and general allowances for loan and lease losses. Allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted
toward supplementary capital cannot exceed 100% of core capital.
  Quaint
Oak Bank is also subject to more stringent Pennsylvania Department of Banking
capital guidelines. Although not adopted in regulation form, the Pennsylvania
Department of Banking 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.
  21
  At
December 31, 2008, Quaint Oak Bank’s capital ratios exceeded each of its capital
requirements. See Note 14 to the notes to our financial statements included in
Exhibit 13.0 hereto.
  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
      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.
  Restrictions
on Capital Distributions.Office of Thrift Supervision 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 Office of Thrift Supervision regulations. Under
applicable regulations, a savings association must file an application for
Office of Thrift Supervision 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;       22
  ●
                  the
      distribution would violate any applicable statute, regulation, agreement
      or Office of Thrift Supervision-imposed condition; or●
                  the
      institution is not eligible for expedited treatment of its filings with
      the Office of Thrift
Supervision.
     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 and which are a
subsidiary of a holding company (as well as certain other institutions) must
still file a notice with the Office of Thrift Supervision at least 30 days
before the board of directors declares a dividend or approves a capital
distribution.
  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 Office of Thrift
Supervision. In addition, the Office of Thrift Supervision may prohibit a
proposed capital distribution, which would otherwise be permitted by Office of
Thrift Supervision regulations, if the Office of Thrift Supervision 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.
  Privacy
Requirements of the Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act of
1999 provided for sweeping financial modernization for commercial banks, savings
banks, securities firms, insurance companies, and other financial institutions
operating in the United States. Among other provisions, the Gramm-Leach-Bliley
Act places limitations on the sharing of consumer financial information with
unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires
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 Gramm-Leach-Bliley Act and its implementing
regulations.
  Anti-Money
Laundering. On October 26, 2001, in response to the events of September
11, 2001, the President of the United States signed into law the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (referred to as the USA PATRIOT Act). The USA
PATRIOT Act amended the Bank Secrecy Act to significantly expand the
responsibilities of financial institutions, including insured state savings
banks such as Quaint Oak Bank, in preventing the use of the U.S. financial
system to fund terrorist activities. Title III of the USA PATRIOT Act provides
for a significant overhaul of the U.S. anti-money laundering regime. Among other
provisions, it requires financial institutions operating in the United States to
develop new anti-money laundering compliance programs, due diligence policies
and controls to ensure the detection and reporting of money laundering. Such
compliance programs are intended to 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 USA PATRIOT Act’s
provisions.
  23
  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.
  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 intends to file 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.
  Bad
Debt Reserves. The Small Business Job Protection Act of 1996 eliminated
the use of the reserve method of accounting for bad debt reserves by savings
institutions, effective for taxable years beginning after 1995. Prior to that
time, Quaint Oak Bank was permitted to establish a reserve for bad debts and to
make additions to the reserve. These additions could, within specified formula
limits, be deducted in arriving at taxable income. As a result of the Small
Business Job Protection Act, savings associations must use the specific
charge-off method in computing their bad debt deduction beginning with their
1996 federal tax return.
  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, 2007,
Quaint Oak Bank did not have federal pre-1988 reserves subject to
recapture.
  Minimum
Tax. The Internal Revenue Code imposes an alternative minimum tax (“AMT”)
at a rate of 20% on a base of regular taxable income plus certain tax
preferences (“alternative minimum taxable income” or “AMTI”). The AMT is payable
to the extent such AMTI is in excess of an exemption amount. Net operating
losses can offset no more than 90% of AMTI. Certain payments of alternative
minimum tax may be used as credits against regular tax liabilities in future
years. Quaint Oak Bancorp has not been subject to the AMT nor does it have any
such amounts available as credits for carryover.
  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.
  24
  Other
Matters.Quaint Oak Bank has not been audited by the IRS during the last
five years.
  State
and Local Taxation
  Pennsylvania
Taxation. Quaint Oak Bancorp is subject to the Pennsylvania Corporate Net
Income Tax and Capital Stock and Franchise Tax. The Corporation Net Income Tax
rate for 2007 is 9.99% and is imposed on unconsolidated taxable income for
federal purposes with certain adjustments. In general, the Capital Stock and
Franchise Tax is a property tax imposed on a corporation’s capital stock value
at a statutorily defined rate, such value being determined in accordance with a
fixed formula based upon average net income and net worth.
  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 a 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.
 Item
      1A.Risk
      Factors.
  Not
applicable.
 Item
      1B.Unresolved
      Staff Comments.
  Not
applicable.
 Item
      2.Properties.
  As
of December 31, 2008, Quaint Oak Bancorp conducted its business from its main
office in Southampton, Pennsylvania. The following table sets forth the net book
value of the leasehold improvements and certain other information with respect
to our main office at December 31, 2008.
 Description/Address
                                    
                                    Leased/Owned
                                    
                                    Date
      of Lease
                                      Expiration
                                    
                                    Net
      Book Value ofProperty
                                    
                                    Amount
      ofDeposits(In
      Thousands)607
      Lakeside Drive Southampton, Pennsylvania 18966
                                    
                                    
                                    Leased
                                    
                                    
                                    —
                                    (1)
                                    $
                                    —
                                    
                                    $
                                    58,981609
      Lakeside Drive Southampton, Pennsylvania 18966
                                    
                                    
                                    Leased
                                    
                                    
                                    11/30/09
                                    (2)
                                    
                                    8
                                    
                                    
                                    —
  
 (1)
                  Such
      lease is month to month, with 120 days’ notice required for
      termination.(2)
                  Such
      lease is renewable for one year, with 90 days’ notice
      required.
  25
  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.Submission
      of Matters to a Vote of Security
  Holders.
  Not
Applicable.
  PART
II
  Item
      5.Market
      for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity
Securities.
  (a)          Quaint
Oak Bancorp’s common shares have been quoted on the OTC Bulletin Board (“OTCBB”)
since July 2007, under the symbol “QNTO.” Presented below are the quarterly high
and low sales prices for Quaint Oak Bancorp’s common shares for 2008 and 2007.
Such prices do not include retail financial markups, markdowns or commissions.
Information relating to prices has been obtained from the OTCBB.
 Quarter
      ended:
                          
                          High
                          
                          
                          Low
                          
                          
                          Cash
      dividends
                            per
      shareDecember
      31, 2008
                          
                          $
                          9.24
                          
                          
                          $
                          7.47
                          
                          
                          $
                          0.025September
      30, 2008
                          
                          $
                          9.65
                          
                          
                          $
                          8.51
                          
                          
                          $
                          0.025June
      30, 2008
                          
                          $
                          9.65
                          
                          
                          $
                          9.03
                          
                          
                          $
                          0.025March
      31, 2008
                          
                          $
                          9.47
                          
                          
                          $
                          9.00
                          
                          
                          $
                          —
 
 Quarter
      ended:
                                
                                High
                                
                                
                                Low
                                
                                
                                Cash
      dividends
                                  per
      shareDecember
      31, 2007
                                
                                $
                                9.85
                                
                                
                                $
                                8.58
                                
                                
                                $
                                —September
      30, 2007
                                
                                $
                                9.90
                                
                                
                                $
                                8.70
                                
                                
                                
                                —
  As
of December 31,2008, Quaint Oak Bancorp
had 1,352,021 common shares outstanding held of record by 218 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.    26
  (c)
                  Purchases
      of Equity SecuritiesThe
      Company’s repurchases of its common stock made during the quarter ended
      December 31, 2008 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)Month
      #1 October 1, 2008 – October 31, 2008
                                      
                                      
                                      1,000
                                      
                                      
                                      $
                                      9.05
                                      
                                      
                                      
                                      1,000
                                      
                                      
                                      
                                      127,862Month
      #2 November 1, 2008 – November 30, 2008
                                      
                                      
                                      11,504
                                      
                                      
                                      
                                      8.47
                                      
                                      
                                      
                                      11,504
                                      
                                      
                                      
                                      116,358Month
      #3 December 1, 2008 – December 31, 2008
                                      
                                      
                                      14,100
                                      
                                      
                                      
                                      8.05
                                      
                                      
                                      
                                      14,100
                                      
                                      
                                      
                                      102,258Total
                                      
                                      
                                      26,604
                                      
                                      
                                      $
                                      8.27
                                      
                                      
                                      
                                      26,604
                                      
                                      
                                      
                                      102,258
  Notes
to this table:
 (1)
                    On
      June 12, 2008 the Company announced by press release its first stock
      repurchase program to repurchase 138,862 shares, or 10% of its outstanding
      common stock over a two-year period. The program became effective July 5,
      2008.
  Item 6.Selected Financial
      Data.
  The
information required herein is incorporated by reference from page 2 of the
Annual Report.
 Item 7.Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
  The
information required herein is incorporated by reference from pages 3 to 12 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.
 Item 8.Financial Statements
      and Supplementary
Data.
  The
information required herein is incorporated by reference from pages 13 to 38 of
the Annual Report.
 Item 9.Changes in and
      Disagreements With Accountants on Accounting and Financial
      Disclosure.
  Not
Applicable.
 Item 9A (T).Controls and
      Procedures.
  Our
management, with the participation of our principal executive officer and
principal 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, 2008.
Based on their evaluation of the Company’s disclosure controls and procedures,
the Company’s principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures are designed to ensure
that information required to be disclosed by the Company 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.
  27
  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 2008 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
  Management’s
Annual Report on Internal Control over Financial Reporting
  Management
of the Company 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 the Company’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 the Company’s
      assets that could have a material effect of the financial
      statements.
  Management,
including the chief executive officer and principal financial officer, conducted
an evaluation of the effectiveness of the Company’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). Based on our evaluation under the framework in Internal Control –
Integrated Framework, management concluded that the Company’s internal control
over financial reporting was effective as of December 31, 2008. Furthermore,
during the conduct of its assessment, management identified no material weakness
in its financial reporting control system.
  This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to a temporary rule of the Securities and
Exchange Commission that permits the Company to provide only management’s report
in this annual report.
 Item 9B.Other
      Information.
  Not
applicable.
  28
  PART
III
 Item 10.Directors
      and Executive Officers of the Registrant.
  The
information required herein is incorporated by reference from the information
contained in the sections captioned “Information with Respect to Nominees for
Director, Directors Whose Terms Continue and Executive Officers” and “Beneficial
Ownership of Common Stock by Certain Owners and Management – Section 16(a)
Beneficial Ownership Reporting Compliance” in Quaint Oak Bancorp’s definitive
Proxy Statement for the Annual Meeting of Shareholders to be held May 13, 2009
(the “Proxy Statement”), a copy of which will be filed with the Securities and
Exchange Commission before the meeting date.
  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’s 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, 2008 with respect to shares of common stock that may be
issued under our existing equity compensation plans, which consist of the 2008
Stock Option Plan and 2008 Recognition and Retention Plan, both of which were
approved by our shareholders.
 Plan
      Category
                                                        
                                                        Number
      of securities to be
                                                          issued
      upon exercise of outstanding
      options, warrants and
      rights
                                                          (a)
                                                        
                                                        
                                                        Weighted-averageexercise
      price ofoutstanding
      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
                                                        
                                                        
                                                        194,408
                                                        (1)
                                                        
                                                        $
                                                        10.00
                                                        (1)
                                                        
                                                        
                                                        42,773Equity
      compensation plans not approved by security holders
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —Total
                                                        
                                                        
                                                        194,108
                                                        
                                                        
                                                        $
                                                        10.00
                                                        
                                                        
                                                        
                                                        42,773
  
 (1)
                      Includes
      55,545 shares subject to restricted stock grants which were not vested as
      of December 31, 2008. The weighted-average exercise price excludes such
      restricted stock
grants.
  29
  Item 13.Certain Relationships
      and Related
Transactions.
  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.
 Item 14.Principal Accounting
      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,
      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 FirmConsolidated
      Balance Sheets as of December 31, 2008 and 2007Consolidated
      Statements of Income for the Years Ended December 31, 2008 and
      2007Consolidated
      Statements of Stockholders’ Equity for the Years Ended December 31, 2008
      and 2007Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008 and
      2007Notes
      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
  The
following exhibits are filed as part of this Form 10-K and this list includes
the Exhibit Index.
 No.
                    
                    Exhibits
                    
                    Location3.1
                    
                    Articles
      of Incorporation of Quaint Oak Bancorp, Inc.
                    
                    (1)3.2
                    
                    Bylaws
      of Quaint Oak Bancorp, Inc.
                    
                    (1)4.1
                    
                    Form
      of Stock Certificate of Quaint Oak Bancorp, Inc.
                    
                    (1)10.1
                    
                    Amended
      and Retstated Employment Agreement by and between Robert T. Strong and
      Quaint Oak Bank *
                    
                    (2)13.0
                    
                    Annual
      Report to Shareholders
                    
                    Filed
      herewith22.0
                    
                    Subsidiaries
      of the Registrant – Reference is made to “Item 1. Business  -
      Subsidiaries” of this Form 10-K for the required
    information
                    
                    —31.1
                    
                    Certification
      of Chief Executive Officer
                    
                    Filed
      herewith31.2
                    
                    Certification
      of Chief Financial Officer
                    
                    Filed
      herewith32.0
                    
                    Section
      1350 Certification of the Chief Executive Officer and Chief Financial
      Officer
                    
                    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 16, 2008 (File No.
0000-52694)
  (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.
 30
  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.March
      30, 2009
                    By:
                    /s/
      Robert T. StrongRobert
      T. StrongPresident
      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, 2009Robert
      T. Strong/s/
      Diane
      J. Colyer
                    
                    
                    Operations
      Officer (principal financial
      and accounting officer)
                    
                    March
      30, 2009Diane
      J. Colyer/s/
      Robert
      J. Phillips
                    
                    
                    Chairman
                    
                    March
      30, 2009Robert
      J. Phillips/s/
      George
      M. Ager, Jr.
                    
                    
                    Director
                    
                    March
      30, 2009George
      M. Ager, Jr./s/
      John
      J. Augustine
                    
                    
                    Director
                    
                    March
      30, 2009John
      J. Augustine/s/
      James
      J. Clarke
                    
                    
                    Director
                    
                    March
      30, 2009James
      J. Clarke, Ph.D./s/
      Andrew
      E. DiPiero, Jr.
                    
                    
                    Director
                    
                    March
      30, 2009Andrew
      E. DiPiero, Jr./s/
      Kenneth
      R. Gant
                    
                    
                    Director
                    
                    March
      30, 2009Kenneth
      R. Gant/s/
      Marsh
      B. Spink
                    
                    
                    Director
                    
                    March
      30, 2009Marsh
      B. Spink