EXHIBIT
13.0




LOGO OF QUAINT OAK BANCORP INC
  2008 Annual
Report
  to Shareholders
  
  TABLE
      OF CONTENTS
  PagePresident’s
      Letter to Shareholders
                      
                      1Selected
      Consolidated Financial and Other Data
                      
                      2Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      
                      3Report
      of Independent Registered Public Accounting Firm
                      
                      13Consolidated
      Balance Sheets
                      
                      14Consolidated
      Statements of Income
                      
                      15Consolidated
      Statements of Stockholders’ Equity
                      
                      16Consolidated
      Statements of Cash Flows
                      
                      17Notes
      to Consolidated Financial Statements
                      
                      18Directors
      and Executive Officers
                      
                      39Banking
      Locations
                      
                      39Transfer
      Agent/Registrar
                      
                      39
  
  Quaint
      Oak Bancorp, Inc.
  To
our Shareholders: A Message from the President and CEO:
 On behalf
of the Board of Directors, Senior Management and Employees of Quaint Oak Bancorp
and Quaint Oak Bank, I am pleased to present the accompanying Annual Report for
fiscal 2008.  As you are well aware, 2008 was a very challenging year
for the economy and financial institutions in particular.  The market
area in which Quaint Oak Bank operates faced many of the same difficult
conditions affecting our peers – rising unemployment and declining home
values.  Nonetheless, Quaint Oak Bancorp reported net income of
$511,000 for 2008, an increase of 4.3% over 2007.  Our loans
receivable, net, increased $7.7 million, or 12.4% and our total assets at
December 31, 2008 increased $14.8 million, or 20.2% over 2007.
 
 In 2008,
we continued to focus our strategic initiatives on our core business –
residential mortgage lending, commercial real estate lending, primarily in our
local market area, and continued development of new deposit products
and services.  By offering our customers improved and highly
competitive products and convenient services we have capitalized on our areas of
strength.
 
 Our asset
quality remains strong and we have not had to record on our income statement any
impairment losses on our investment securities portfolio.  Our total
non-performing loans at year end decreased to 0.6% of our total net loans, a
testament, we believe, to our strong underwriting practices.  When our
borrowers experience extraordinary personal financial difficulties we are
committed to working with them in the administration and oversight of their
loans.  If the circumstances warrant, we may restructure loans to
assist our borrowers in retaining their property, as we did with respect to
certain loans in 2008.
 
 Our motto
has been a “Keep to
basics” approach to business that is more applicable than ever in today’s
economic environment.  This approach of maintaining strong
fundamentals is what we believe separates Quaint Oak Bank from other
banks.  By managing credit quality and providing smaller average size
loans, we continue to spread risk and at the same time benefit from an improved
interest rate margin.  While not immune to current economic pressures,
we have largely avoided the pitfalls affecting the financial
sector.  We are proud to say that we have not required nor requested
taxpayer assistance to survive this economic downturn.
 
 Quaint
Oak Bank's business model differs from the traditional retail model and over
time has demonstrated its effectiveness with lower cost overhead, higher returns
to consumers on their deposits and broader market
penetration.  Additionally, its performance during this devastating
economic period speaks for itself.  We are committed to this course
and believe that as the economy bottoms, selected market growth opportunities
will become available.  We also believe that improvement in non
interest income will be found in alternative strategies.  While others
are preoccupied with challenges to their financial condition we are positioned
for growth.
 
 As
always, our focus on long-term profitability, payment of dividends, along with
an active stock repurchase program, continue to reflect the Company’s strong
commitment to shareholder value.
   graphicRobert
      T. StrongPresident
      and Chief Executive Officer
 1
  Quaint
      Oak Bancorp, Inc.SELECTED
      CONSOLIDATED FINANCIAL AND OTHER
DATA
  Set
forth below is selected financial and other data of Quaint Oak Bancorp, Inc..
You should read the financial statements and related notes contained in this
Annual Report which provide more detailed information.
 At
      or For the Years Ended December 31,2008
                                            
                                            
                                            2007(Dollars
      in Thousands, except per share data)Selected
      Financial and Other Data:Total
      assets
                                            
                                            $
                                            88,381
                                            
                                            
                                            $
                                            73,545Cash
      and cash equivalents
                                            
                                            
                                            1,035
                                            
                                            
                                            
                                            4,987Investment
      in interest-earning time deposits
                                            
                                            
                                            3,735
                                            
                                            
                                            
                                            1,835Investment
      securities available for sale (cost-2007 $2,001)
                                            
                                            
                                            —
                                            
                                            
                                            
                                            2,001Investment
      securities held to maturity (fair value-2008 $2,263; 2007
      $2,265)
                                            
                                            
                                            2,250
                                            
                                            
                                            
                                            2,253Mortgage-backed
      securities held to maturity (fair value-2008 $10,132)
                                            
                                            
                                            9,777
                                            
                                            
                                            
                                            —Loans
      receivable, net
                                            
                                            
                                            69,310
                                            
                                            
                                            
                                            61,656Federal
      Home Loan Bank stock, at cost
                                            
                                            
                                            797
                                            
                                            
                                            
                                            237Bank
      premises and equipment, net
                                            
                                            
                                            67
                                            
                                            
                                            
                                            59Deposits
                                            
                                            
                                            58,981
                                            
                                            
                                            
                                            55,261Federal
      Home Loan Bank advances
                                            
                                            
                                            11,150
                                            
                                            
                                            
                                            —Stockholders’
      Equity
                                            
                                            
                                            17,273
                                            
                                            
                                            
                                            17,557Selected
      Operating Data:Total
      interest income
                                            
                                            $
                                            5,015
                                            
                                            
                                            $
                                            4,420Total
      interest expense
                                            
                                            
                                            2,464
                                            
                                            
                                            
                                            2,360Net
      interest income
                                            
                                            
                                            2,551
                                            
                                            
                                            
                                            2,060Provision
      for loan losses
                                            
                                            
                                            142
                                            
                                            
                                            
                                            93Net
      interest income after provision for loan losses
                                            
                                            
                                            2,409
                                            
                                            
                                            
                                            1,967Total
      non-interest income
                                            
                                            
                                            29
                                            
                                            
                                            
                                            55Total
      non-interest expense
                                            
                                            
                                            1,584
                                            
                                            
                                            
                                            1,219Income
      before income taxes
                                            
                                            
                                            854
                                            
                                            
                                            
                                            803Income
      taxes
                                            
                                            
                                            343
                                            
                                            
                                            
                                            313Net
      income
                                            
                                            $
                                            511
                                            
                                            
                                            $
                                            490Selected
      Operating Ratios(1):Average
      yield on interest-earning assets
                                            
                                            
                                            6.38
                                            %
                                            
                                            
                                            6.80
                                            %Average
      rate on interest-bearing liabilities
                                            
                                            
                                            3.98
                                            
                                            
                                            
                                            4.32Average
      interest rate spread(2)
                                            
                                            
                                            2.40
                                            
                                            
                                            
                                            2.48Net
      interest margin(2)
                                            
                                            
                                            3.25
                                            
                                            
                                            
                                            3.17Average
      interest-earning assets to average interest-bearing
      liabilities
                                            
                                            
                                            127.01
                                            
                                            
                                            
                                            118.93Net
      interest income after provision for loan losses to non-interest
      expense
                                            
                                            
                                            152.00
                                            
                                            
                                            
                                            161.00Total
      non-interest expense to average assets
                                            
                                            
                                            1.98
                                            
                                            
                                            
                                            1.84Efficiency
      ratio(3)
                                            
                                            
                                            61.40
                                            
                                            
                                            
                                            57.64Return
      on average assets
                                            
                                            
                                            0.64
                                            
                                            
                                            
                                            0.74Return
      on average equity
                                            
                                            
                                            2.92
                                            
                                            
                                            
                                            4.75Average
      equity to average assets
                                            
                                            
                                            21.84
                                            
                                            
                                            
                                            15.54Asset
      Quality Ratios(4):Non-performing
      loans as a percent of total loans receivable, net(5)
                                            
                                            
                                            0.63
                                            %
                                            
                                            
                                            2.51
                                            %Non-performing
      assets as a percent of total assets(5)
                                            
                                            
                                            1.32
                                            
                                            
                                            
                                            2.11Non-performing
      assets and troubled debt restructurings as a percent of total
      assets
                                            
                                            
                                            2.37
                                            
                                            
                                            
                                            —Allowance
      for loan losses as a percent of non-performing loans
                                            
                                            
                                            156.95
                                            
                                            
                                            
                                            43.03Allowance
      for loan losses as a percent of total loans receivable
                                            
                                            
                                            0.98
                                            
                                            
                                            
                                            1.07Net
      charge-offs to average loans receivable
                                            
                                            
                                            0.19
                                            
                                            
                                            
                                            —Capital
      Ratios(4):Tier
      1 leverage ratio
                                            
                                            
                                            15.44
                                            %
                                            
                                            
                                            18.31
                                            %Tier
      1 risk-based capital ratio
                                            
                                            
                                            20.04
                                            
                                            
                                            
                                            25.27Total
      risk-based capital ratio
                                            
                                            
                                            21.14
                                            
                                            
                                            
                                            26.54
  
 (1)
                    With
      the exception of end of period ratios, all ratios are based on average
      daily balances during the indicated periods.(2)
                    Average
      interest rate spread represents the difference between the average yield
      on interest-earning assets and the average rate paid on interest-bearing
      liabilities, and net interest margin represents net interest income as a
      percentage of average interest-earning assets.(3)
                    The
      efficiency ratio represents the ratio of non-interest expense divided by
      the sum of net interest income and non-interest income.(4)
                    Asset
      quality ratios and capital ratios are end of period ratios, except for net
      charge-offs to average loans receivable.(5)
                    Non-performing
      assets consist of non-performing loans and other real estate owned at
      December 31, 2008 and 2007. Non-performing loans consist of non-accruing
      loans plus accruing loans 90 days or more past
due.
  2
  Quaint
      Oak Bancorp, Inc.Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
  General
  Quaint
Oak Bancorp, Inc. (the “Company”) was formed in connection with Quaint Oak
Bank’s conversion to a stock savings bank completed on July 3, 2007. The
Company’s results of operations are dependent primarily on the results of Quaint
Oak Bank, a wholly owned subsidiary of the Company.
  Quaint
Oak Bank’s profitability depends primarily on its net interest income, which is
the difference between interest income earned on interest-earning assets,
principally loans, and interest expense paid on interest-bearing liabilities,
principally deposits. Net interest income is dependent upon the level of
interest rates and the extent to which such rates are changing. Quaint Oak
Bank’s profitability also depends, to a lesser extent, on investments in
interest-earning deposits in other institutions and investment securities,
non-interest income, borrowings from the Federal Home Loan Bank of Pittsburgh,
provision for loan losses, non-interest expenses and federal and state income
taxes.
  Quaint
Oak Bank’s business consists primarily of originating residential, multi-family
and commercial real estate loans secured by property in its market area.
Typically, single-family loans involve a lower degree of risk and carry a lower
yield than commercial real estate, construction, commercial business and
consumer loans. Primarily since fiscal 2004, commercial real estate loans have
increased as a percentage of Quaint Oak Bank’s loan portfolio to 27.3% at
December 31, 2008. Quaint Oak Bank’s loans are primarily funded by certificates
of deposit, which typically have a higher interest rate than passbook,
statements and e-savings accounts. At December 31, 2008, certificates of deposit
amounted to 56.7% of total assets compared to 62.5% of total assets at December
31, 2007. Quaint Oak Bank does not offer transactional deposit products such as
NOW, money market demand accounts or checking accounts. Management anticipates
that certificates of deposit will continue to be a primary source of funding for
Quaint Oak Bank’s assets.
  Our
results of operations are significantly affected by general economic and
competitive conditions, particularly with respect to changes in interest rates,
government policies and actions of regulatory authorities as well as other
factors beyond our control. Future changes in applicable law, regulations or
government policies may materially affect our financial condition and results of
operations.
  Forward-Looking
Statements Are Subject to Change
  We
make certain statements in this document as to what we expect may happen in the
future. These statements usually contain the words “believe,” “estimate,”
“project,” “expect,” “anticipate,” “intend” or similar expressions. Because
these statements look to the future, they are based on our current expectations
and beliefs. Actual results or events may differ materially from those reflected
in the forward-looking statements. You should be aware that our current
expectations and beliefs as to future events are subject to change at any time,
and we can give you no assurances that the future events will actually
occur.
  Critical
Accounting Policies
  In
reviewing and understanding financial information for the Company, you are
encouraged to read and understand the significant accounting policies used in
preparing our financial statements. These policies are described in Note 2 of
the notes to our financial statements. The accounting and financial reporting
policies of the Company conform to accounting principles generally accepted in
the United States of America and to general practices within the banking
industry. Accordingly, the consolidated financial statements require certain
estimates, judgments, and assumptions, which are believed to be reasonable,
based upon the information available. These estimates and assumptions affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the periods
presented. The following accounting policies comprise those that management
believes are the most critical to aid in fully understanding and evaluating our
reported financial results. These policies require numerous estimates or
economic assumptions that may prove inaccurate or may be subject to variations
which may significantly affect our reported results and financial condition for
the period or in future periods.
  3
  Quaint
      Oak Bancorp, Inc.Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
  Allowance
for Loan Losses. The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely. Subsequent recoveries are added to the allowance. The
allowance is an amount that management believes will cover known and inherent
losses in the loan portfolio, based on evaluations of the collectibility of
loans. The evaluations take into consideration such factors as changes in the
types and amount of loans in the loan portfolio, historical loss experience,
adverse situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral, estimated losses relating to specifically
identified loans, and current economic conditions. This evaluation is inherently
subjective as it requires material estimates including, among others, exposure
at default, the amount and timing of expected future cash flows on impaired
loans, value of collateral, estimated losses on our commercial and residential
loan portfolios and general amounts for historical loss experience. All of these
estimates may be susceptible to significant change.
  While
management uses the best information available to make loan loss allowance
evaluations, adjustments to the allowance may be necessary based on changes in
economic and other conditions or changes in accounting guidance. Historically,
our estimates of the allowance for loan loss have not required significant
adjustments from management’s initial estimates. In addition, the Pennsylvania
Department of Banking and the Federal Deposit Insurance Corporation, as an
integral part of their examination processes, periodically review our allowance
for loan losses. The Pennsylvania Department of Banking and the Federal Deposit
Insurance Corporation may require the recognition of adjustments to the
allowance for loan losses based on their judgment of information available to
them at the time of their examinations. To the extent that actual outcomes
differ from management’s estimates, additional provisions to the allowance for
loan losses may be required that would adversely impact earnings in future
periods.
  Other-Than-Temporary
Impairment of Securities. Securities are evaluated on at least a
quarterly basis, and more frequently when market conditions warrant such an
evaluation, to determine whether a decline in their value is
other-than-temporary. To determine whether a loss in value is
other-than-temporary, management utilizes criteria such as the reasons
underlying the decline, the magnitude and duration of the decline and the intent
and ability of the Company to retain its investment in the security for the
period of time sufficient to allow for an anticipated recovery in the fair
value. The term “other-than-temporary” is not intended to indicate that the
decline is permanent, but indicates that the prospects for a near-term recovery
of value is not necessarily favorable, or that there is a lack of evidence to
support a realizable value equal to or greater than the carrying value of the
investment. Once a decline in value is determined to be other-than-temporary,
the value of the security is reduced and a corresponding charge to earnings is
recognized.
  Income
Taxes. Deferred income tax assets and liabilities are determined using
the liability (or balance sheet) method. Under this method, the net deferred tax
asset or liability is determined based on the tax effects of the temporary
differences between the book and tax bases of the various assets and liabilities
and gives current recognition to changes in tax rates and laws. Realizing our
deferred tax assets principally depends upon our achieving projected future
taxable income. We may change our judgments regarding future profitability due
to future market conditions and other factors. We may adjust our deferred tax
asset balances if our judgments change.
  Comparison
of Financial Condition at December 31, 2008 and December 31, 2007
  Total
Assets.The Company’s total assets at December 31, 2008 were $88.4
million, an increase of $14.8 million, or 20.2%, from $73.5 million at December
31, 2007. This increase was primarily due to an increase in mortgage-backed
securities of $9.8 million from none at December 31, 2007, growth in loans
receivable, net of the allowance for loan losses of $7.7 million, investment in
interest-earning time deposits of $1.9 million, investment in Federal Home Loan
Bank stock of $560,000, and a $732,000 increase in other real estate owned which
is included in other assets on the balance sheet. Offsetting these increases was
a decline in cash and cash equivalents of $4.0 million and a decrease in
investment securities of $2.0 million. Asset growth for the year ended December
31, 2008 was primarily funded by an increase in Federal Home Loan Bank advances
of $11.2 million from none at December 31, 2007 and a $3.7 million increase in
deposits.
  4
  Quaint
      Oak Bancorp, Inc.Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
  Cash
and Cash Equivalents. Cash and
cash equivalents decreased $4.0 million, or 79.2%, from $5.0 million at December
31, 2007 to $1.0 million at December 31, 2008 as these funds were used primarily
to fund loan and investment growth and to repurchase the Company’s common stock
for the Company’s Recognition and Retention Plan approved by the Company’s
shareholders at the annual meeting in May 2008 and publicly announced stock
repurchase program in the amount of $520,000 and $312,000,
respectively.
  Investment
in Interest-Earning Time Deposits.
Investment in interest earning time deposits increased $1.9 million, or 103.5%,
from $1.8 million at December 31, 2007 to $3.7 million at December 31, 2008 as
the Company invested excess cash in these investment vehicles at various times
during the year as an alternative to investment securities.
  Investment
Securities. Available for sale
investment securities decreased $2.0 million from $2.0 million at December 31,
2007 to none at December 31, 2008 as purchases of $500,000 of auction rate
securities and $9,000 of equity securities during 2008, were offset by the
redemption of $2.0 million of auction rate securities at par and the sale of
$510,000 of equity securities at a loss of $22,000. During this same period,
mortgage-backed securities held to maturity increased to $9.8 million from none
at December 31, 2007 as the Company invested funds borrowed from the Federal
Home Loan Bank into these securities.
  Loans
Receivable, Net. Loans receivable, net, increased $7.7 million, or 12.4%,
to $69.3 million at December 31, 2008 from $61.7 million at December 31, 2007.
This increase was funded primarily by the increase in deposits and decrease in
cash and cash equivalents. Increases within the portfolio occurred in the
residential mortgage one-to-four family non-owner occupied category, which grew
$5.7 million or 36.4%, commercial real estate loans which increased $1.6 million
or 9.2%, construction loans which grew $1.1 million or 64.1%, residential
mortgage one-to-four family owner occupied loans which increased $212,000 or
1.2%, and home equity loans which grew $154,000 or 3.5%, as the Company
continues its strategy of diversifying its loan portfolio with higher yielding
and shorter-term loan products. These increases were partially offset by
decreases of $859,000 or 19.6% in multi-family residential loans, and $393,000
or 32.6% in commercial lines of credit. Decreases in these loan categories are
attributable to normal amortization and pay-offs.
  Deposits. Total interest-bearing deposits increased
$3.7 million, or 6.7%, to $59.0 million at December 31, 2008 compared to $55.3
million at December 31, 2007. This increase was attributable to a $4.1 million
growth in certificates of deposit and $362,000 increase in e-savings accounts,
offset by decreases of $470,000 in statement savings accounts and $303,000 in
passbook savings accounts. The increase in certificates of deposit was primarily
due to the competitive interest rates offer by the Bank and investors seeking
the safety of insured bank deposits.
  Federal
Home Loan Bank Advances. Federal Home Loan Bank advances increased to
$11.2 million at December 31, 2008 from none at December 31, 2007 as the Company
invested the funds borrowed into mortgage-backed securities and loans because of
the favorable rate differential. 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.
  Stockholders’
Equity. Total stockholders’ equity
decreased $284,000, or 1.6%, to $17.3 million at December 31, 2008. This
decrease from December 31, 2007 was the result of the purchase of 55,545 shares
of the Company’s common stock in the open-market to fund our Recognition and
Retention Plan Trust for an aggregate purchase price of $520,000, the purchase
of 36,604 shares of the Company’s common stock in the open-market as part of the
Company’s publicly announced stock repurchase program for an aggregate purchase
price of $312,000 and dividends paid of $104,000, offset by net income for the
year ended December 31, 2008 of $511,000, a decrease in unallocated shares held
by the ESOP of $69,000 and $72,000 of compensation expense related to the new
stock compensation plans adopted in 2008. For further discussion of the plans,
see Note 11 in the Notes to Consolidated Financial Statements contained
elsewhere herein.
  5
  Quaint
      Oak Bancorp, Inc.Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
  Comparison
of Operating Results for the Years Ended December 31, 2008 and 2007
  Net
Income. Net income amounted to
$511,000 for the year ended December 31, 2008, an increase of $21,000, or 4.3%
compared to net income of $490,000 for 2007. The increase was primarily the
result of the increase in net interest income of $491,000, which was offset by a
decrease in non-interest income of $26,000, and increases in the provision for
loan losses of $49,000, non-interest expense of $365,000 and income tax expense
of $30,000.
  Net
Interest Income. Net interest
income increased $491,000, or 23.8%, to $2.6 million for the year ended December
31, 2008 from $2.1 million in 2007. The increase was driven by an increase in
interest income of $595,000, or 13.5%, which was attributable to an increase in
average interest-earning assets of $13.5 million. The increase in interest
income was offset by a $104,000, or 4.4% increase in interest expense driven by
a $7.2 million increase in average interest-bearing liabilities.
  Interest
Income. Interest income increased
$595,000, or 13.5%, to $5.0 million for the year ended December 31, 2008 from
$4.4 million for the year ended December 31, 2007. The increase resulted
primarily from a $13.5 million increase in average interest-earning assets,
which was partially offset by a 42 basis point decrease in the overall yield on
interest-earning assets to 6.38% for 2008 from 6.80% for 2007. The growth in
average interest-earnings assets between the two periods can be attributed
primarily to the increase in average net loans receivable of $7.9 million and
average mortgage-backed securities of $5.2 million. The increase in average net
loans receivable was driven by the net proceeds received in the stock offering
and the increase in average interest-bearing deposits, while the increase in
mortgage-backed securities was driven by the $4.9 million increase in average
FHLB advances. The average yield on loans decreased slightly to 6.88% for 2008
from 7.01% for 2007. The decrease in yield was the result of the current
interest rate environment in which the Federal Reserve Board’s Open Market
Committee cut the federal funds rate by 425 basis points from December 2007 to
December 2008.
  Interest
Expense. Interest expense
increased by $104,000, or 4.4%, to $2.5 million for the year ended December 31,
2008 compared to $2.4 million for the year ended December 31, 2007. The increase
resulted primarily from a $7.2 million increase in average interest-bearing
liabilities, which was partially offset by a 34 basis point decrease in the
overall cost of interest-bearing liabilities to 3.98% for 2008 from 4.32% for
2007. The increase in the average balance of interest-bearing liabilities was
primarily driven by the growth in certificates of deposit due to customer
interest in higher yielding secure investments and the increase in FHLB
advances. The decrease in rates was consistent with the decrease in market
interest rates during 2008.
  6
  Quaint
      Oak Bancorp, Inc.Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
  Average
Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods
indicated the total dollar amount of interest from average interest-earning
assets and the resulting yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates, and the net
interest margin. All average balances are based on daily balances.
 Year
      Ended December 31,2008
                                                          
                                                          
                                                          2007Average
                                                            Balance
                                                          
                                                          
                                                          Interest
                                                          
                                                          
                                                          Average
                                                            Yield/
                                                            Rate
                                                          
                                                          
                                                          Average
                                                            Balance
                                                          
                                                          
                                                          Interest
                                                          
                                                          
                                                          Average
                                                            Yield/
                                                            RateInterest-earning
      assets:
                                                          
                                                          (Dollars
      in thousands)Short-term
      investments and investment securities
                                                          
                                                          $
                                                          8,971
                                                          
                                                          
                                                          $
                                                          360
                                                          
                                                          
                                                          
                                                          4.01
                                                          %
                                                          
                                                          $
                                                          8,761
                                                          
                                                          
                                                          $
                                                          479
                                                          
                                                          
                                                          
                                                          5.47
                                                          %Mortgage-backed
      securities
                                                          
                                                          
                                                          5,178
                                                          
                                                          
                                                          
                                                          243
                                                          
                                                          
                                                          
                                                          4.69
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —Loans
      receivable, net (1)
                                                          
                                                          
                                                          63,931
                                                          
                                                          
                                                          
                                                          4,400
                                                          
                                                          
                                                          
                                                          6.88
                                                          
                                                          
                                                          
                                                          56,001
                                                          
                                                          
                                                          
                                                          3,926
                                                          
                                                          
                                                          
                                                          7.01Other
      interest-earning assets
                                                          
                                                          
                                                          475
                                                          
                                                          
                                                          
                                                          12
                                                          
                                                          
                                                          
                                                          2.53
                                                          
                                                          
                                                          
                                                          244
                                                          
                                                          
                                                          
                                                          15
                                                          
                                                          
                                                          
                                                          6.15Total
      interest-earning assets
                                                          
                                                          
                                                          78,555
                                                          
                                                          
                                                          
                                                          5,015
                                                          
                                                          
                                                          
                                                          6.38
                                                          %
                                                          
                                                          
                                                          65,006
                                                          
                                                          
                                                          
                                                          4,420
                                                          
                                                          
                                                          
                                                          6.80
                                                          %Non-interest-earning
      assets
                                                          
                                                          
                                                          1,511
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1,333Total
      assets
                                                          
                                                          $
                                                          80,066
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          66,339Interest-bearing
      liabilities:Passbook
      accounts
                                                          
                                                          $
                                                          3,460
                                                          
                                                          
                                                          
                                                          45
                                                          
                                                          
                                                          
                                                          1.30
                                                          %
                                                          
                                                          $
                                                          4,267
                                                          
                                                          
                                                          
                                                          59
                                                          
                                                          
                                                          
                                                          1.38
                                                          %Statement
      and e-savings accounts
                                                          
                                                          
                                                          5,537
                                                          
                                                          
                                                          
                                                          134
                                                          
                                                          
                                                          
                                                          2.42
                                                          
                                                          
                                                          
                                                          6,235
                                                          
                                                          
                                                          
                                                          173
                                                          
                                                          
                                                          
                                                          2.77Certificate
      of deposit accounts
                                                          
                                                          
                                                          47,929
                                                          
                                                          
                                                          
                                                          2,113
                                                          
                                                          
                                                          
                                                          4.41
                                                          
                                                          
                                                          
                                                          44,158
                                                          
                                                          
                                                          
                                                          2,128
                                                          
                                                          
                                                          
                                                          4.82Total
      deposits
                                                          
                                                          
                                                          56,926
                                                          
                                                          
                                                          
                                                          2,292
                                                          
                                                          
                                                          
                                                          4.03
                                                          
                                                          
                                                          
                                                          54,660
                                                          
                                                          
                                                          
                                                          2,360
                                                          
                                                          
                                                          
                                                          4.32FHLB
      advances
                                                          
                                                          
                                                          4,925
                                                          
                                                          
                                                          
                                                          172
                                                          
                                                          
                                                          
                                                          3.49
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —Total
      interest-bearing liabilities
                                                          
                                                          
                                                          61,851
                                                          
                                                          
                                                          
                                                          2,464
                                                          
                                                          
                                                          
                                                          3.98
                                                          %
                                                          
                                                          
                                                          54,660
                                                          
                                                          
                                                          
                                                          2,360
                                                          
                                                          
                                                          
                                                          4.32
                                                          %Non-interest-bearing
      liabilities
                                                          
                                                          
                                                          727
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1,367Total
      liabilities
                                                          
                                                          
                                                          62,578
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          56,027Stockholders’
      equity
                                                          
                                                          
                                                          17,488
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          10,312Total
      liabilities and stockholders’ equity
                                                          
                                                          $
                                                          80,066
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          66,339Net
      interest-earning assets
                                                          
                                                          $
                                                          16,704
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          10,346Net
      interest income; average interest rate spread
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          2,551
                                                          
                                                          
                                                          
                                                          2.40
                                                          %
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          2,060
                                                          
                                                          
                                                          
                                                          2.48
                                                          %Net
      interest margin (2)
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          3.25
                                                          %
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          3.17
                                                          %Average
      interest-earning assets to average interest-bearing
      liabilities
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          127.01
                                                          %
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          118.93
                                                          %
  
 (1)
                      Includes
      non-accrual loans during the respective periods. Calculated net of
      deferred fees and discounts, loans in process and allowance for loan
      losses.(2)
                      Equals
      net interest income divided by average interest-earning
      assets.
  7
  Quaint
      Oak Bancorp, Inc.Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
  Rate/Volume
Analysis. The following table shows the extent to which changes in
interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities affected our interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in rate, which is the change in rate multiplied by prior year
volume, and (2) changes in volume, which is the change in volume multiplied by
prior year rate. The combined effect of changes in both rate and volume has been
allocated proportionately to the change due to rate and the change due to
volume.
 2008
      vs. 2007
                            
                            
                            2007
      vs. 2006Increase
      (Decrease) Due to
                            
                            
                            
                            
                            
                            Increase
      (Decrease) Due toRate
                            
                            
                            Volume
                            
                            
                            Rate/
                              Volume
                            
                            
                            Total
                              Increase
                              (Decrease)
                            
                            
                            Rate
                            
                            
                            Volume
                            
                            
                            Rate/
                              Volume
                            
                            
                            Total
                              Increase
                              (Decrease)(In
      Thousands)Interest
      income:Short-term
      investments and investment securities
                            
                            $
                            (127
                            )
                            
                            $
                            11
                            
                            
                            $
                            (3
                            )
                            
                            $
                            (119
                            )
                            
                            $
                            31
                            
                            
                            $
                            251
                            
                            
                            $
                            53
                            
                            
                            $
                            335Mortgage-backed
      securities
                            
                            
                            —
                            
                            
                            
                            243
                            
                            
                            
                            —
                            
                            
                            
                            243
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Loans
      receivable (1)
                            
                            
                            (72
                            )
                            
                            
                            556
                            
                            
                            
                            (10
                            )
                            
                            
                            474
                            
                            
                            
                            99
                            
                            
                            
                            51
                            
                            
                            
                            1
                            
                            
                            
                            151Other
      interest-earning assets
                            
                            
                            (9
                            )
                            
                            
                            14
                            
                            
                            
                            (8
                            )
                            
                            
                            (3
                            )
                            
                            
                            4
                            
                            
                            
                            (2
                            )
                            
                            
                            (1
                            )
                            
                            
                            1Total
      interest-earning assets
                            
                            
                            (208
                            )
                            
                            
                            824
                            
                            
                            
                            (21
                            )
                            
                            
                            595
                            
                            
                            
                            134
                            
                            
                            
                            300
                            
                            
                            
                            53
                            
                            
                            
                            487Interest
      expense:Passbook
      accounts
                            
                            
                            (4
                            )
                            
                            
                            (11
                            )
                            
                            
                            1
                            
                            
                            
                            (14
                            )
                            
                            
                            —
                            
                            
                            
                            (25
                            )
                            
                            
                            —
                            
                            
                            
                            (25
                            )Statement
      and e-savings accounts
                            
                            
                            (22
                            )
                            
                            
                            (19
                            )
                            
                            
                            2
                            
                            
                            
                            (39
                            )
                            
                            
                            (3
                            )
                            
                            
                            (31
                            )
                            
                            
                            —
                            
                            
                            
                            (34
                            )Certificate
      accounts
                            
                            
                            (181
                            )
                            
                            
                            181
                            
                            
                            
                            (15
                            )
                            
                            
                            (15
                            )
                            
                            
                            164
                            
                            
                            
                            188
                            
                            
                            
                            17
                            
                            
                            
                            369Total
      deposits
                            
                            
                            (207
                            )
                            
                            
                            151
                            
                            
                            
                            (12
                            )
                            
                            
                            (68
                            )
                            
                            
                            161
                            
                            
                            
                            132
                            
                            
                            
                            17
                            
                            
                            
                            310FHLB
      advances
                            
                            
                            —
                            
                            
                            
                            172
                            
                            
                            
                            —
                            
                            
                            
                            172
                            
                            
                            
                            —
                            
                            
                            
                            (48
                            )
                            
                            
                            —
                            
                            
                            
                            (48
                            )Total
      interest-bearing liabilities
                            
                            
                            (207
                            )
                            
                            
                            323
                            
                            
                            
                            (12
                            )
                            
                            
                            104
                            
                            
                            
                            161
                            
                            
                            
                            84
                            
                            
                            
                            17
                            
                            
                            
                            262Increase
      (decrease) in net interest income
                            
                            $
                            (1
                            )
                            
                            $
                            501
                            
                            
                            $
                            (9
                            )
                            
                            $
                            491
                            
                            
                            $
                            (27
                            )
                            
                            $
                            216
                            
                            
                            $
                            36
                            
                            
                            $
                            225
  
 (1)
                  Includes
      non-accrual loans during the respective periods. Calculated net of
      deferred fees and discounts, loans in process and allowance for loan
      losses.
  Provision
for Loan Losses. The Company
increased its provision for loan losses by $49,000 from $93,000 for the year
ended December 31, 2007 to $142,000 for the same period in 2008, based on an
evaluation of the allowance relative to such factors as volume of the loan
portfolio, concentrations of credit risk, prevailing economic conditions, prior
loan loss experience and amount of non-performing loans at December 31, 2008.
Non-performing loans amounted to $439,000, or 0.63% of net loans receivable at
December 31, 2008, consisting of five loans which are on non-accrual status.
There were no loans that were 90 days or more past due and still accruing
interest at December 31, 2008. The non-performing loans include one-to-four
family owner and non-owner occupied residential, multi-family residential and
construction loans and all are generally well-collateralized or adequately
reserved for. In addition, there were two one-to-four family residential loans
totaling $351,000 and two commercial real estate loans totaling $570,000 that
were restructured during the fourth quarter of 2008. Management does not
anticipate any significant losses on either the non-performing or restructured
loans. The allowance for loan losses as a percent of total loans receivable was
0.98% at December 31, 2008 and 1.07% at December 31, 2007.
  In
the second quarter of 2008, a $20,000 home equity loan was charged off against
the allowance for loan losses. In the fourth quarter of 2008, a $100,000 charge
to the allowance was taken on a $500,000 one-to-four family non-owner occupied
residential loan classified as non-accrual. The collateral property underlying
this loan was acquired as real estate owned at a value of approximately $400,000
prior to year-end. Also in the fourth quarter, the collateral property
underlying a second one-to-four family non-owner occupied residential loan in
the amount of $332,000, previously classified as non-accrual, was acquired as
real estate owned at a fair value of approximately $332,000.
  During
the second quarter of 2008 one commercial real estate loan acquired as real
estate owned at a value of approximately $81,000 was sold for $110,000 resulting
in a gain of $29,000. The Bank financed the purchase of
  8
  Quaint
      Oak Bancorp, Inc.Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
  the
property. In accordance with SFAS No. 66, $2,000 was recognized as income for
the year ended December 31, 2008 and $27,000 was deferred and will be taken into
income as payments on the loan are received.
  Non-Interest Income. Non-interest income
decreased $26,000, or 47.3%, from $55,000 for the year ended December 31, 2007
to $29,000 for year ended December 31, 2008 due to a $4,000 decrease in fees and
service charges and a $22,000 loss on the redemption of investment
securities.
  Non-Interest Expense. Non-interest expense
increased $365,000, or 29.9%, from $1.2 million for the year ended December 31,
2007 to $1.6 million for the year ended December 31, 2008. Salaries and employee
benefits expense accounted for $149,000 of the change as this expense increased
20.8% from $716,000 in 2007 to $865,000 in 2008 due to increased staff, annual
salary increases, and the compensation expense associated with the stock
compensation plans. In addition, professional fees accounted for $132,000 of the
change as this expense increased 128.2% from $103,000 in 2007 to $235,000 in
2008 due primarily to the increase in costs associated with being a publicly
held company. Also contributing to the year over year increase in non-interest
expense were increases in directors’ fees and expenses, occupancy and equipment
expenses, regulatory and other expenses of $24,000, $17,000, $25,000 and
$18,000, respectively.
  Provision for Income Tax. The provision for
income tax increased $30,000 from $313,000 for the year ended December 31, 2007
to $343,000 for the year ended December 31, 2008 due primarily to the increase
in pre-tax income. The Company’s effective tax rate, including federal and state
income taxes, was 40.2% and 39.0% for fiscal 2008 and 2007,
respectively.
  Exposure
to Changes in Interest Rates
  The
Company’s ability to maintain net interest income depends upon its ability to
earn a higher yield on assets than the rates it pays on deposits and borrowings.
The Company’s interest-earning assets consist primarily of mortgage loans which
have longer maturities than our liabilities, consisting primarily of
certificates of deposit and to a lesser extent borrowings. Consequently, the
Company’s ability to maintain a positive spread between the interest earned on
assets and the interest paid on deposits and borrowings can be adversely
affected when market rates of interest rise. At December 31, 2008 and 2007,
certificates of deposit amounted to $50.1 million and $46.0 million,
respectively, or 56.7% and 62.5%, respectively, of total assets at such
dates.
  Gap
Analysis. The matching of assets
and liabilities may be analyzed by examining the extent to which such assets and
liabilities are “interest rate sensitive” and by monitoring a bank’s interest
rate sensitivity “gap.” An asset and liability is said to be interest rate
sensitive within a specific time period if it will mature or reprice within that
time period. The interest rate sensitivity gap is defined as the difference
between the amount of interest-earning assets maturing or repricing within a
specific time period and the amount of interest-bearing liabilities maturing or
repricing within that same time period. A gap is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate
sensitive liabilities. A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to affect
adversely net interest income while a positive gap would tend to result in an
increase in net interest income. Conversely, during a period of falling interest
rates, a negative gap would tend to result in an increase in net interest income
while a positive gap would tend to affect adversely net interest income. Our
current interest rate risk management policy provides that our one-year interest
rate gap as a percentage of total assets should not exceed positive or negative
20%. This policy was adopted by our management and Board of Directors based upon
their judgment that it established an appropriate benchmark for the level of
interest-rate risk, expressed in terms of the one-year gap, for the Company. If
our one-year gap position approaches or exceeds the 20% policy limit, management
will obtain simulation results in order to determine what steps might
appropriately be taken, in order to maintain our one-year gap in accordance with
the policy. Alternatively, depending on the then-current economic scenario, we
could determine to make an exception to our policy or we could determine to
revise our policy. Our one-year cumulative gap was a negative 3.6% at December
31, 2008, compared to a negative 7.9% at December 31, 2007. We have become less
liability sensitive in 2008 as a result of increases in our short-term
investments and investment securities and increases in commercial real estate
loans which are more likely to have floating or adjustable rates of
interest.
  9
  Quaint
      Oak Bancorp, Inc.Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
  The
following table sets forth the amounts of our interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2008, which we expect,
based upon certain assumptions, to reprice or mature in each of the future time
periods shown. Except as stated below, the amount of assets and liabilities
shown which reprice or mature during a particular period were determined in
accordance with the earlier of term to repricing or the contractual maturity of
the asset or liability. The table sets forth an approximation of the projected
repricing of assets and liabilities at December 31, 2008, on the basis of
contractual maturities, anticipated prepayments, and scheduled rate adjustments
within a three-month period and subsequent selected time intervals. The loan
amounts in the table reflect principal balances expected to be redeployed and/or
repriced as a result of contractual amortization and anticipated prepayments of
adjustable-rate loans and fixed-rate loans, and as a result of contractual rate
adjustments on adjustable-rate loans. The Office of Thrift Supervision annual
prepayment rates are applied to loans and mortgage-backed securities. Statement
and e-savings accounts and other savings accounts are assumed to have annual
rates of withdrawal, or “decay rates,” of 50% and 20%,
respectively.
 3
      Months
                          or
      Less
                        
                        
                        More
      than
                          3
      Months
                          to
      1 Year
                        
                        
                        More
      than
                          1
      Year
                          to
      3 Years
                        
                        
                        More
      than
                          3
      Years
                          to
      5 Years
                        
                        
                        More
                          than
                          5
      Years
                        
                        
                        Total
                          AmountInterest-earning
      assets (1):Loans
      receivable (2)
                        
                        $
                        11,463
                        
                        
                        $
                        20,833
                        
                        
                        $
                        16,066
                        
                        
                        $
                        7,479
                        
                        
                        $
                        14,158
                        
                        
                        $
                        69,999Short-term
      investments and investment securities
                        
                        
                        2,045
                        
                        
                        
                        4,485
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        6,530Mortgage-backed
      securities
                        
                        
                        717
                        
                        
                        
                        2,168
                        
                        
                        
                        1,191
                        
                        
                        
                        1,364
                        
                        
                        
                        4,337
                        
                        
                        
                        9,777Investment
      in Federal Home Loan Bank stock
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        797
                        
                        
                        
                        797Total
      interest-earning assets
                        
                        $
                        14,225
                        
                        
                        $
                        27,486
                        
                        
                        $
                        17,257
                        
                        
                        $
                        8,843
                        
                        
                        $
                        19,292
                        
                        
                        $
                        87,103Interest-bearing
      liabilities:Passbook
      accounts
                        
                        $
                        336
                        
                        
                        $
                        336
                        
                        
                        $
                        2,012
                        
                        
                        $
                        336
                        
                        
                        $
                        336
                        
                        
                        $
                        3,356Statement
      and e-savings accounts
                        
                        
                        1,381
                        
                        
                        
                        1,381
                        
                        
                        
                        1,380
                        
                        
                        
                        690
                        
                        
                        
                        690
                        
                        
                        
                        5,522Escrow
      accounts
                        
                        
                        243
                        
                        
                        
                        486
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        729Certificate
      accounts
                        
                        
                        9,000
                        
                        
                        
                        27,422
                        
                        
                        
                        9,201
                        
                        
                        
                        4,480
                        
                        
                        
                        —
                        
                        
                        
                        50,103FHLB
      advances
                        
                        
                        2,800
                        
                        
                        
                        1,500
                        
                        
                        
                        3,050
                        
                        
                        
                        3,800
                        
                        
                        
                        —
                        
                        
                        
                        11,150Total
      interest-bearing liabilities
                        
                        $
                        13,760
                        
                        
                        $
                        31,125
                        
                        
                        $
                        15,643
                        
                        
                        $
                        9,306
                        
                        
                        $
                        1,026
                        
                        
                        $
                        70,860Interest-earning
      assets less interest-bearing liabilities
                        
                        $
                        465
                        
                        
                        $
                        (3,639
                        )
                        
                        $
                        1,614
                        
                        
                        $
                        (463
                        )
                        
                        $
                        18,266Cumulative
      interest-rate sensitivity gap (3)
                        
                        $
                        465
                        
                        
                        $
                        (3,174
                        )
                        
                        $
                        (1,560
                        )
                        
                        $
                        (2,023
                        )
                        
                        $
                        16,243Cumulative
      interest-rate gap as a percentage of total assets at December 31,
      2008
                        
                        
                        0.5
                        %
                        
                        
                        (3.6
                        )%
                        
                        
                        (1.8
                        )%
                        
                        
                        (2.3
                        )%
                        
                        
                        18.4
                        %Cumulative
      interest-earning assets as a percentage of cumulative interest-bearing
      liabilities at December 31, 2008
                        
                        
                        103.4
                        %
                        
                        
                        92.9
                        %
                        
                        
                        97.4
                        %
                        
                        
                        97.1
                        %
                        
                        
                        122.9
                        %
  
 (1)
                  Interest-earning
      assets are included in the period in which the balances are expected to be
      redeployed and/or repriced as a result of anticipated prepayments,
      scheduled rate adjustments and contractual maturities.(2)
                  For
      purposes of the gap analysis, loans receivable includes non-performing
      loans gross of the allowance for loan losses, undisbursed loan funds,
      unamortized discounts and deferred loan fees.(3)
                  Interest-rate
      sensitivity gap represents the difference between net interest-earning
      assets and interest-bearing
liabilities.
  Qualitative
Analysis. Our ability to maintain a positive “spread” between the
interest earned on assets and the interest paid on deposits and borrowings is
affected by changes in interest rates. The Company’s fixed-rate loans generally
are profitable if interest rates are stable or declining since these loans have
yields that exceed its cost of funds. If interest rates increase, however, the
Company would have to pay more on its deposits and new borrowings, which would
adversely affect its interest rate spread. In order to counter the potential
effects of dramatic increases in market rates of interest, the Company intends
to continue to originate more variable rate loans and increase core deposits.
The Company also intends to place a greater emphasis on shorter-term home equity
loans and commercial business loans.
  10
  Quaint
      Oak Bancorp, Inc.Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
  Liquidity
and Capital Resources
  The
Company’s primary sources of funds are deposits, amortization and prepayment of
loans and to a lesser extent, loan sales and other funds provided from
operations. While scheduled principal repayments on loans are a relatively
predictable source of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions and competition. The
Company sets the interest rates on its deposits to maintain a desired level of
total deposits. In addition, the Company invests excess funds in short-term
interest-earning assets that provide additional liquidity. At December 31, 2008,
the Company’s cash and cash equivalents amounted to $1.0 million. At such date,
the Company also had $3.7 million invested in interest-earning time deposits
maturing in one year or less.
  The
Company uses its liquidity to fund existing and future loan commitments, to fund
deposit outflows, to invest in other interest-earning assets and to meet
operating expenses. At December 31, 2008, Quaint Oak Bank had outstanding
commitments to originate loans of $365,000 and commitments under unused lines of
credit of $2.3 million.
  At
December 31, 2008, certificates of deposit scheduled to mature in less than one
year totaled $36.4 million. Based on prior experience, management believes that
a significant portion of such deposits will remain with us, although there can
be no assurance that this will be the case.
  In
addition to cash flow from loan payments and prepayments and deposits, the
Company has significant borrowing capacity available to fund liquidity needs. If
the Company requires funds beyond its ability to generate them internally,
borrowing agreements exist with the Federal Home Loan Bank of Pittsburgh, which
provide an additional source of funds. At December 31, 2008, Quaint Oak Bank had
$11.2 million of advances from the Federal Home Loan Bank of Pittsburgh and had
$35.6 million in borrowing capacity. 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. The Bank
currently has a line of credit commitment from another bank for borrowings up to
$1,500,000. There were no borrowings under this line of credit at December 31,
2008.
  Our
stockholders’ equity amounted to $17.3 million at December 31, 2008, a decrease
of $284,000 from December 31, 2007. This decrease was the result of the purchase
of 55,545 shares of the Company’s common stock in the open-market to fund our
Recognition and Retention Plan Trust for an aggregate purchase price of
$520,000, the purchase of 36,604 shares of the Company’s common stock in the
open-market as part of the Company’s publicly announced stock repurchase program
for an aggregate purchase price of $312,000 and dividends paid of $104,000,
offset by net income for the year ended December 31, 2008 of $511,000, a
decrease in unallocated shares held by the ESOP of $69,000 and $72,000 of
compensation expense related to stock compensation plans adopted in 2008. For
further discussion of the plans, see Note 11 in the Notes to Consolidated
Financial Statements contained elsewhere herein.
  Quaint
Oak Bank is required to maintain regulatory capital sufficient to meet tier 1
leverage, tier 1 risk-based and total risk-based capital ratios of at least
4.00%, 4.00% and 8.00%, respectively. At December 31, 2008, Quaint Oak Bank
exceeded each of its capital requirements with ratios of 15.44%, 20.04% and
21.14%, respectively. As a savings and loan holding company, the Company is not
subject to any regulatory capital requirements.
  11
  Quaint
      Oak Bancorp, Inc.Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
  Off-Balance
Sheet Arrangements
  In
the normal course of operations, we engage in a variety of financial
transactions that, in accordance with generally accepted accounting principles
are not recorded in our financial statements. These transactions involve, to
varying degrees, elements of credit, interest rate, and liquidity risk. Such
transactions are used primarily to manage customers’ requests for funding and
take the form of loan commitments and lines of credit. Our exposure to credit
loss from non-performance by the other party to the above-mentioned financial
instruments is represented by the contractual amount of those instruments. We
use the same credit policies in making commitments and conditional obligations
as we do for on-balance sheet instruments. In general, we do not require
collateral or other security to support financial instruments with off–balance
sheet credit risk.
  Commitments.
At December 31, 2008, we had unfunded commitments under lines of credit of $2.3
million and $365,000 of commitments to originate loans. We had no commitments to
advance additional amounts pursuant to outstanding lines of credit or
undisbursed construction loans.
  Contractual
Cash Obligations
  The
following table summarizes our contractual cash obligations at December 31,
2008:
 Payments
      Due By PeriodTotal
                                                                        
                                                                        
                                                                        To
                                                                          1
      Year
                                                                        
                                                                        
                                                                        1-3
                                                                          Years
                                                                        
                                                                        
                                                                        4-5
                                                                          Years
                                                                        
                                                                        
                                                                        After
      5
                                                                          Years(In
      Thousands)Certificates
      of deposit
                                                                        
                                                                        $
                                                                        50,103
                                                                        
                                                                        
                                                                        $
                                                                        36,422
                                                                        
                                                                        
                                                                        $
                                                                        9,201
                                                                        
                                                                        
                                                                        $
                                                                        4,480
                                                                        
                                                                        
                                                                        $
                                                                        —FHLB
      advances
                                                                        
                                                                        
                                                                        11,150
                                                                        
                                                                        
                                                                        
                                                                        4,300
                                                                        
                                                                        
                                                                        
                                                                        3,050
                                                                        
                                                                        
                                                                        
                                                                        3,800
                                                                        
                                                                        
                                                                        
                                                                        —Operating
      lease obligations
                                                                        
                                                                        
                                                                        30
                                                                        
                                                                        
                                                                        
                                                                        30
                                                                        
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        
                                                                        
                                                                        —Total
      contractual obligations
                                                                        
                                                                        $
                                                                        61,283
                                                                        
                                                                        
                                                                        $
                                                                        40,752
                                                                        
                                                                        
                                                                        $
                                                                        12,251
                                                                        
                                                                        
                                                                        $
                                                                        8,280
                                                                        
                                                                        
                                                                        $
                                                                        —
  Impact
of Inflation and Changing Prices
  The
consolidated financial statements and related financial data presented herein
have been prepared in accordance with accounting principles generally accepted
in the United States of America which generally require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the Company’s assets and
liabilities are monetary in nature. As a result, interest rates generally have a
more significant impact on the Company’s performance than does the effect of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates.
  12
  Quaint
      Oak Bancorp, Inc.
  Report
of Independent Registered Public Accounting Firm
  To the
Board of Directors and Stockholders
 Quaint
Oak Bancorp, Inc.
 Southampton,
Pennsylvania
  We
have audited the accompanying consolidated balance sheets of Quaint Oak Bancorp,
Inc. and subsidiary (the Company) as of December 31, 2008 and 2007, and the
related consolidated statements of income, stockholders’ equity and cash flows
for the years then ended. Quaint Oak Bancorp, Inc.’s management is responsible
for these consolidated financial statements. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Quaint Oak Bancorp,
Inc. and its subsidiary as of December 31, 2008 and 2007, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of
America.
 /s/
      Beard Miller Company LLPBeard
      Miller Company LLP
                Allentown,
      Pennsylvania
                March
      27, 2009
  13
  Quaint
      Oak Bancorp, Inc.
  Consolidated
Balance Sheets
 At
      December 31,
                    2008
                  
                  
                  At
      December 31,
                    2007(In
      thousands, except share data)ASSETSDue
      from banks, non-interest-bearing
                  
                  $
                  490
                  
                  
                  $
                  1,220Due
      from banks, interest-bearing
                  
                  
                  545
                  
                  
                  
                  3,767Cash
      and cash equivalents
                  
                  
                  1,035
                  
                  
                  
                  4,987Investment
      in interest-earning time deposits
                  
                  
                  3,735
                  
                  
                  
                  1,835Investment
      securities available for sale (cost-2007 $2,001)
                  
                  
                  —
                  
                  
                  
                  2,001Investment
      securities held to maturity (fair value-2008 $2,263; 2007
      $2,265)
                  
                  
                  2,250
                  
                  
                  
                  2,253Mortgage-backed
      securities held to maturity (fair value-2008 $10,132)
                  
                  
                  9,777
                  
                  
                  
                  —Loans
      receivable, net of allowance for loan losses 2008 $689; 2007
      $667
                  
                  
                  69,310
                  
                  
                  
                  61,656Accrued
      interest receivable
                  
                  
                  355
                  
                  
                  
                  294Investment
      in Federal Home Loan Bank stock, at cost
                  
                  
                  797
                  
                  
                  
                  237Premises
      and equipment, net
                  
                  
                  67
                  
                  
                  
                  59Prepaid
      expenses and other assets
                  
                  
                  1,055
                  
                  
                  
                  223Total
      Assets
                  
                  $
                  88,381
                  
                  
                  $
                  73,545LIABILITIES
      AND STOCKHOLDERS’ EQUITYLIABILITIESDeposits,
      interest-bearing
                  
                  $
                  58,981
                  
                  
                  $
                  55,261Federal
      Home Loan Bank advances
                  
                  
                  11,150
                  
                  
                  
                  —Accrued
      interest payable
                  
                  
                  138
                  
                  
                  
                  101Advances
      from borrowers for taxes and insurance
                  
                  
                  729
                  
                  
                  
                  600Accrued
      expenses and other liabilities
                  
                  
                  110
                  
                  
                  
                  26Total
      Liabilities
                  
                  
                  71,108
                  
                  
                  
                  55,988STOCKHOLDERS’
      EQUITYPreferred
      stock– $0.01 par value, 1,000,000 shares authorized; none issued or
      outstanding
                  
                  
                  —
                  
                  
                  
                  —Common
      stock – $0.01 par value; 9,000,000 shares authorized; 1,388,625 issued and
      1,352,021 and 1,388,625 outstanding at December 31, 2008 and December 31,
      2007, respectively
                  
                  
                  14
                  
                  
                  
                  14Additional
      paid-in capital
                  
                  
                  13,409
                  
                  
                  
                  13,337Treasury
      stock, at cost, 36,604 shares
                  
                  
                  (312
                  )
                  
                  
                  —Unallocated
      common stock held by:Employee
      Stock Ownership Plan (ESOP)
                  
                  
                  (952
                  )
                  
                  
                  (1,021
                  )Recognition
      & Retention Plan Trust (RRP)
                  
                  
                  (520
                  )
                  
                  
                  —Retained
      earnings
                  
                  
                  5,634
                  
                  
                  
                  5,227Total
      Stockholders’ Equity
                  
                  
                  17,273
                  
                  
                  
                  17,557Total
      Liabilities and Stockholders’ Equity
                  
                  $
                  88,381
                  
                  
                  $
                  73,545
  See
      accompanying notes to consolidated financial
  statements.
  14
  Quaint
      Oak Bancorp, Inc.
  Consolidated
Statements of Income
 Years
      Ended December 31,2008
                      
                      
                      2007(In
      thousands, except share data)Interest
      IncomeLoans
      receivable, including fees
                      
                      $
                      4,400
                      
                      
                      $
                      3,926Short-term
      investments and investment securities
                      
                      
                      603
                      
                      
                      
                      479Dividends
                      
                      
                      12
                      
                      
                      
                      15Total
      Interest Income
                      
                      
                      5,015
                      
                      
                      
                      4,420Interest
      ExpenseDeposits
                      
                      
                      2,292
                      
                      
                      
                      2,360Federal
      Home Loan Bank advances
                      
                      
                      172
                      
                      
                      
                      —Total
      Interest Expense
                      
                      
                      2,464
                      
                      
                      
                      2,360Net
      Interest Income
                      
                      
                      2,551
                      
                      
                      
                      2,060Provision
      for Loan Losses
                      
                      
                      142
                      
                      
                      
                      93Net
      Interest Income after Provision for Loan Losses
                      
                      
                      2,409
                      
                      
                      
                      1,967Non-Interest
      IncomeFees
      and services charges
                      
                      
                      51
                      
                      
                      
                      55Investment
      securities losses
                      
                      
                      (22
                      )
                      
                      
                      —Total
      Non-Interest Income, net
                      
                      
                      29
                      
                      
                      
                      55Non-Interest
      ExpenseSalaries
      and employee benefits
                      
                      
                      865
                      
                      
                      
                      716Directors’
      fees and expenses
                      
                      
                      197
                      
                      
                      
                      173Occupancy
      and equipment
                      
                      
                      94
                      
                      
                      
                      77Professional
      fees
                      
                      
                      235
                      
                      
                      
                      103Regulatory
                      
                      
                      68
                      
                      
                      
                      43Other
                      
                      
                      125
                      
                      
                      
                      107Total
      Other Expenses
                      
                      
                      1,584
                      
                      
                      
                      1,219Income
      before Income Taxes
                      
                      
                      854
                      
                      
                      
                      803Income
      Taxes
                      
                      
                      343
                      
                      
                      
                      313Net
      Income
                      
                      $
                      511
                      
                      
                      $
                      490Basic
      earnings per share – basic (1)
                      
                      $
                      0.41
                      
                      
                      $
                      0.24Average
      shares outstanding - basic
                      
                      
                      1,243,912
                      
                      
                      NABasic
      earnings per share - diluted
                      
                      $
                      0.41
                      
                      
                      NAAverage
      shares outstanding - diluted
                      
                      
                      1,245,959
                      
                      
                      NA
  (1) For
2007, reflects earnings since becoming a public company on July 3,
2007.
 See
      accompanying notes to consolidated financial
  statements.
  15
  Quaint
      Oak Bancorp, Inc.Consolidated
      Statements of Stockholders’
Equity
  Common
      Stock
                        
                        
                        Additional
                          Paid-in
                          Capital
                        
                        
                        Treasury
                          Stock
                        
                        
                        Unallocated
                          Common
                          Stock
      Held
                          by
      ESOP
                        
                        
                        Unallocated
                          Common
                          Stock
      Held
                          by
      RRP(In
      thousands, except sharedata)
                        
                        Number
      of
                          Shares
                          Outstanding
                        
                        
                        Amount
                        
                        
                        Retained
                          Earnings
                        
                        
                        Total
                          Stockholders’
                          EquityBALANCE
      – DECEMBER 31, 2006
                        
                        
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        4,737
                        
                        
                        $
                        4,737Issuance
      of common stock at $10 per share for initial public offering, net of
      offering costs of $535
                        
                        
                        1,388,625
                        
                        
                        
                        14
                        
                        
                        
                        13,337
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        13,351Common
      stock acquired by ESOP
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,038
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,038
                        )Common
      stock allocated by ESOP
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        17
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        17Net
      income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        490
                        
                        
                        
                        490BALANCE
      – DECEMBER 31, 2007
                        
                        
                        1,388,625
                        
                        
                        $
                        14
                        
                        
                        $
                        13,337
                        
                        
                        $
                        —
                        
                        
                        $
                        (1,021
                        )
                        
                        $
                        —
                        
                        
                        $
                        5,227
                        
                        
                        $
                        17,557Common
      stock allocated by ESOP
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (3
                        )
                        
                        
                        
                        
                        
                        
                        69
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        66Treasury
      stock purchased
                        
                        
                        (36,604
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (312
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (312
                        )Common
      stock acquired for Recognition and Retention Plan Trust
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (520
                        )
                        
                        
                        
                        
                        
                        
                        (520
                        )Stock
      based compensation expense
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        75
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        75Cash
      dividends declared ($0.075 per share)
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (104
                        )
                        
                        
                        (104
                        )Net
      income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        511
                        
                        
                        
                        511BALANCE
      – DECEMBER 31, 2008
                        
                        
                        1,352,021
                        
                        
                        $
                        14
                        
                        
                        $
                        13,409
                        
                        
                        $
                        (312
                        )
                        
                        $
                        (952
                        )
                        
                        $
                        (520
                        )
                        
                        $
                        5,634
                        
                        
                        $
                        17,273
  See
      accompanying notes to consolidated financial
  statements.
  16
  Quaint
      Oak Bancorp, Inc.Consolidated
      Statements of Cash Flows
  Years
      Ended
                                  December
      31,2008
                                
                                
                                2007Cash
      Flows from Operating Activities
                                
                                (In
      Thousands)Net
      income
                                
                                $
                                511
                                
                                
                                $
                                490Adjustments
      to reconcile net income to net cash provided by operating
      activities:Provision
      for loan losses
                                
                                
                                142
                                
                                
                                
                                93Depreciation
      expense
                                
                                
                                26
                                
                                
                                
                                13Net
      amortization (accretion) of securities premiums and
    discounts
                                
                                
                                (2
                                )
                                
                                
                                1Amortization
      of deferred loan fees and costs
                                
                                
                                (12
                                )
                                
                                
                                3Deferred
      income taxes
                                
                                
                                (24
                                )
                                
                                
                                (54
                                )Stock-based
      compensation expense
                                
                                
                                141
                                
                                
                                
                                17Loss
      on redemption of investment securities
                                
                                
                                22
                                
                                
                                
                                —Gain
      on the sale of other real estate owned
                                
                                
                                (2
                                )
                                
                                
                                —Changes
      in assets and liabilities which provided (used) cash:Accrued
      interest receivable
                                
                                
                                (61
                                )
                                
                                
                                (20
                                )Prepaid
      expenses and other assets
                                
                                
                                (75
                                )
                                
                                
                                (7
                                )Accrued
      interest payable
                                
                                
                                37
                                
                                
                                
                                7Accrued
      expenses and other liabilities
                                
                                
                                56
                                
                                
                                
                                (12
                                )Net
      Cash Provided by Operating Activities
                                
                                
                                759
                                
                                
                                
                                531Cash
      Flows from Investing ActivitiesNet
      increase in investment in interest-earning time deposits
                                
                                
                                (1,900
                                )
                                
                                
                                (124
                                )Purchase
      of investment securities available for sale
                                
                                
                                (509
                                )
                                
                                
                                (501
                                )Purchase
      of investment securities held to maturity
                                
                                
                                (1,000
                                )
                                
                                
                                (3,754
                                )Purchase
      of mortgage-backed securities held to maturity
                                
                                
                                (10,333
                                )
                                
                                
                                —Proceeds
      from the sale or redemption of investment securities available for
      sale
                                
                                
                                2,488
                                
                                
                                
                                —Proceeds
      from calls of investment securities held to maturity
                                
                                
                                1,000
                                
                                
                                
                                —Principal
      payments on mortgage-backed securities
                                
                                
                                561
                                
                                
                                
                                —Net
      increase in loans receivable
                                
                                
                                (8,597
                                )
                                
                                
                                (7,199
                                )Net
      (increase) decrease in Federal Home Loan Bank stock
                                
                                
                                (560
                                )
                                
                                
                                26Proceeds
      from the sale of other real estate owned
                                
                                
                                110
                                
                                
                                
                                —Purchase
      of property and equipment
                                
                                
                                (34
                                )
                                
                                
                                (26
                                )Net
      Cash Used in Investing Activities
                                
                                
                                (18,774
                                )
                                
                                
                                (11,578
                                )Cash
      Flows from Financing ActivitiesNet
      increase (decrease) in deposits
                                
                                
                                3,720
                                
                                
                                
                                (489
                                )Proceeds
      from long-term Federal Home Loan Bank advances
                                
                                
                                6,850
                                
                                
                                
                                —Net
      increase in short-term Federal Home Loan Bank advances
                                
                                
                                4,300
                                
                                
                                
                                —Proceeds
      from issuance of common stock, net
                                
                                
                                —
                                
                                
                                
                                13,351Dividends
      paid
                                
                                
                                (104
                                )
                                
                                
                                —Purchase
      of treasury stock
                                
                                
                                (312
                                )
                                
                                
                                —Purchase
      of common shares for ESOP
                                
                                
                                —
                                
                                
                                
                                (1,038
                                )Purchase
      of common shares for Recognition and Retention Plan Trust
                                
                                
                                (520
                                )
                                
                                
                                —Decrease
      in advances from borrowers for taxes and insurance
                                
                                
                                129
                                
                                
                                
                                13Net
      Cash Provided by Financing Activities
                                
                                
                                14,063
                                
                                
                                
                                11,837Net (Decrease)Increase
      in Cash and Cash Equivalents
                                
                                
                                (3,952
                                )
                                
                                
                                790Cash
      and Cash Equivalents – Beginning of Period
                                
                                
                                4,987
                                
                                
                                
                                4,197Cash
      and Cash Equivalents – End of Period
                                
                                $
                                1,035
                                
                                
                                $
                                4,987Supplementary
      Disclosure of Cash Flow and Non-Cash Information:Cash
      payments for interest
                                
                                $
                                2,427
                                
                                
                                $
                                2,353Cash
      payments for taxes
                                
                                $
                                429
                                
                                
                                $
                                394Transfer
      of loans to other real estate owned
                                
                                $
                                813
                                
                                
                                
                                —
  See
      accompanying notes to consolidated financial
  statements.
  17
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements
  Note
1 - Nature of Operations
  On July
3, 2007, Quaint Oak Savings Bank completed its conversion from a Pennsylvania
chartered mutual savings bank to a Pennsylvania chartered stock savings bank and
changed its name to Quaint Oak Bank (“Bank”). In connection with the conversion,
Quaint Oak Bank formed Quaint Oak Bancorp, Inc., a Pennsylvania chartered
corporation (the “Company” or “Quaint Oak Bancorp”), which offered and sold
1,388,625 shares of its common stock at a price of $10.00 per share to eligible
depositors of the Bank. Upon completion of the conversion and the offering, all
of Quaint Oak Bank’s common stock is owned by Quaint Oak Bancorp, and all of
Quaint Oak Bancorp’s common stock is, in turn, owned by the public. The Company
sold 1,388,625 shares of its common stock, raising $13,886,250 of gross
proceeds. Costs incurred in connection with the conversion and offering totaled
$535,000 and were recorded as a reduction of the proceeds from the offering. The
Company invested approximately $7.1 million or 53.0% of the net proceeds in
Quaint Oak Bank. All remaining proceeds were retained by Quaint Oak Bancorp for
future capital needs. The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, Quaint Oak Bank. All significant
intercompany balances and transactions have been eliminated.
  Prior to
the conversion, Quaint Oak Savings Bank operated under a state bank charter as a
mutual savings bank. Upon completion of the conversion and the offering, the
Bank changed its name to Quaint Oak Bank and began to operate as a stock savings
bank. The Bank is subject to regulation of the Pennsylvania Department of
Banking and the Federal Deposit Insurance Corporation. Pursuant to the Bank’s
election under Section 10(l) of the Home Owners’ Loan Act, the Company is a
savings and loan holding company regulated by the Office of Thrift Supervision.
The market area served by the Bank is principally Bucks County, Pennsylvania.
The principal deposit products offered by the Bank are certificates of deposit,
passbook savings accounts, statement savings accounts and e-savings accounts.
Loan products offered are fixed and adjustable rate residential and commercial
mortgages, construction loans, home equity loans, auto loans, and lines of
credit.
  Note
2 - Summary of Significant Accounting Policies
 EstimatesThe
      preparation of the financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and the reported
      amounts of income and expenses during the reporting period. Actual results
      could differ from those estimates. Material estimates that are
      particularly susceptible to significant change in the near term relate to
      the determination of the allowance for loan losses, the potential for the
      impairment of Federal Home Loan Bank stock and the valuation of deferred
      tax assets.Significant
      Group Concentrations of Credit RiskThe
      Bank operates primarily in Bucks County, Pennsylvania. The concentration
      of credit by type of loan is set forth in Note 6. Although the Bank
      has a diversified loan portfolio, its debtors’ ability to honor their
      contracts is influenced by the region’s economy.Cash
      and Cash EquivalentsFor
      purposes of reporting cash flows, cash and cash equivalents include
      non-interest and interest-earning demand deposits and money market
      accounts with various financial institutions, all of which mature within
      ninety days of acquisition.Investment
      and Mortgaged-Backed SecuritiesManagement
      determines the appropriate classification of debt securities at the time
      of purchase and reevaluates such designation as of each balance sheet
      date.
  18
  Quaint
      Oak Bancorp, Inc.Notes
      to Consolidated Financial Statements (Continued)Note
      2 - Summary of Significant Accounting Policies
  (Continued)Securities
      classified as available for sale are those securities that the Company
      intends to hold for an indefinite period of time but not necessarily to
      maturity. Any decision to sell a security classified as available for sale
      would be based on various factors, including significant movement in
      interest rates, changes in maturity mix of the Company’s assets and
      liabilities, liquidity needs, regulatory capital requirements, and other
      similar factors. Securities available for sale are carried at fair value.
      Unrealized gains and losses are reported in other comprehensive income,
      net of related deferred tax effects. Realized gains and losses, determined
      on the basis of the cost of the specific securities sold, are included in
      earnings. Premiums and discounts are recognized in interest income using
      the interest method over the terms of the securities.Investment
      securities and mortgage-backed securities classified as held to maturity
      are those debt securities the Company has both the intent and ability to
      hold to maturity regardless of the changes in market conditions, liquidity
      needs, or changes in general economic conditions. These securities are
      carried at cost adjusted for amortization for premium and accretion of
      discount, recognized in interest income using the interest method over the
      terms of the securities.Declines
      in the fair value of held-to-maturity and available-for-sale securities
      below their cost that are deemed to be other than temporary are reflected
      in earnings as realized losses. In estimating other-than-temporary
      impairment losses, management considers: (1) the length of time and the
      extent to which the fair value has been less than cost; (2) the financial
      condition and near-term prospects of the issuer; (3) the intent and
      ability of the Company to retain its investment in the issuer for a period
      of time sufficient to allow for any anticipated recovery in fair
      value.Federal
      Home Loan Bank StockFederal
      law requires a member institution of the Federal Home Loan Bank (FHLB)
      system to hold restricted stock of its district Federal Home Loan Bank
      according to a predetermined formula. The restricted stock is carried at
      cost. In December 2008, the FHLB of Pittsburgh notified member banks that
      it was suspending dividend payments and the repurchase of capital stock,
      to preserve capital.Management
      evaluates the FHLB stock for impairment in accordance with Statement of
      Position (SOP) 01-6, Accounting
      by Certain Entities (Including Entities With Trade Receivables) That Lend
      to or Finance the Activities of Others. Management’s determination
      of whether these investments are impaired is based on their assessment of
      the ultimate recoverability of their cost rather than a temporary decline
      in value. The determination of whether a decline affects the ultimate
      recoverability of their cost is influenced by criteria such as (1) the
      significance of the decline in net assets of the FHLB as compared to the
      capital stock amount for the FHLB and the length of time this situation
      has persisted, (2) commitments by the FHLB to make payments required by
      law or regulation and the level of such payments in relation to the
      operating performance of the FHLB, and (3) the impact of legislative and
      regulatory changes on the institutions and, accordingly, on the customer
      base of the FHLB.Management
      believes that no impairment charge is necessary related to the FHLB stock
      as of December 31, 2008.Loans
      ReceivableLoans
      receivable that management has the intent and ability to hold for the
      foreseeable future or until maturity or payoff are stated at their
      outstanding unpaid principal balances, net of an allowance for loan losses
      and any deferred fees. Interest income is accrued on the unpaid principal
      balance. Loan origination fees and costs are deferred and recognized as an
      adjustment of the yield (interest income) of the related loans. The Bank
      is generally amortizing these amounts over the contractual life of the
      loan.
  19
  Quaint
      Oak Bancorp, Inc.Notes
      to Consolidated Financial Statements (Continued)Note
      2 - Summary of Significant Accounting Policies
  (Continued)Loans
      Receivable (Continued)The
      accrual of interest is discontinued when principal or interest has become
      90 days past due. A loan may remain on accrual status if it is in the
      process of collection and is either guaranteed or well secured. When a
      loan is placed on nonaccrual status, unpaid interest credited to income in
      the current year is reversed and unpaid interest accrued in prior years is
      charged against the allowance for loan losses. Interest received on
      nonaccrual loans generally is either applied against principal or reported
      as interest income, according to management’s judgment as to the
      collectibility of principal. Generally, loans are restored to accrual
      status when the obligation is brought current, has performed in accordance
      with the contractual terms for a reasonable period of time and the
      ultimate collectibility of the total contractual principal and interest is
      no longer in doubt.Allowance
      for Loan LossesThe
      allowance for loan losses is established through provisions for loan
      losses charged against income. Loans deemed to be uncollectible are
      charged against the allowance for loan losses, and subsequent recoveries,
      if any, are credited to the allowance.The
      allowance for loan losses is maintained at a level considered adequate to
      provide for losses that can be reasonably anticipated. Management’s
      periodic evaluation of the adequacy of the allowance is based on the
      Bank’s past loan loss experience, known and inherent risks in the
      portfolio, adverse situations that may affect the borrower’s ability to
      repay, the estimated value of any underlying collateral, composition of
      the loan portfolio, current economic conditions and other relevant
      factors. This evaluation is inherently subjective as it requires estimates
      that are susceptible to significant revision as more information becomes
      available.The
      allowance consists of specific, general and unallocated components. The
      specific component relates to loans that are classified as either
      doubtful, substandard or special mention. For such loans that are also
      classified as impaired, an allowance is established when the discounted
      cash flows (or collateral value or observable market price) of the
      impaired loan is lower than the carrying value of that loan. The general
      component covers non-classified loans and is based on historical loss
      experience adjusted for qualitative factors. An unallocated component 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.A
      loan is considered impaired when, based on current information and events,
      it is probable that the Bank will be unable to collect the scheduled
      payments of principal or interest when due according to the contractual
      terms of the loan agreement. Factors considered by management in
      determining impairment include payment status, collateral value and the
      probability of collecting scheduled principal and interest payments when
      due. Loans that experience insignificant payment delays and payment
      shortfalls generally are not classified as impaired. Management determines
      the significance of payment delays and payment shortfalls on a
      case-by-case basis, taking into consideration all of the circumstances
      surrounding the loan and the borrower, including the length of the delay,
      the reasons for the delay, the borrower’s prior payment record and the
      amount of the shortfall in relation to the principal and interest owed.
      Impairment is measured on a loan by loan basis for multi-family and
      non-owner occupied mortgage loans, construction loans and commercial loans
      by either the present value of expected future cash flows discounted at
      the loan’s effective interest rate, the loan’s obtainable market price or
      the fair value of the collateral if the loan is collateral
      dependent.Large
      groups of smaller balance homogeneous loans are collectively evaluated for
      impairment. Accordingly, the Bank does not separately identify individual
      savings accounts and residential loans for impairment disclosures, unless
      such loans are the subject of a restructuring
  agreement.
  20
  Quaint
      Oak Bancorp, Inc.Notes
      to Consolidated Financial Statements (Continued)Note
      2 - Summary of Significant Accounting Policies
  (Continued)Other
      Real Estate OwnedOther
      real estate owned or foreclosed assets are comprised of property acquired
      through a foreclosure proceeding or acceptance of a deed in lieu of
      foreclosure and loans classified as in-substance foreclosures. A loan is
      classified as in-substance foreclosure when the Bank has taken possession
      of the collateral regardless of whether formal foreclosure proceedings
      take place. Other real estate properties are initially recorded at fair
      value, net of estimated selling costs at the date of foreclosure,
      establishing a new cost basis. After foreclosure, valuations are
      periodically performed by management and the real estate is carried at the
      lower of cost or fair value less estimated costs to sell. Net revenue and
      expenses from operations and additions to the valuation allowance are
      included in other expenses. Other real estate owned is included in other
      assets on the balance sheets at December 31, 2008 and 2007 in the amount
      of $732,000 and $-0-, respectively.Premises
      and EquipmentPremises
      and equipment are stated at cost less accumulated depreciation.
      Depreciation is computed on the straight-line method over the expected
      useful lives of the related assets. The costs of maintenance and repairs
      are expensed as incurred. Costs of major additions and improvements are
      capitalized.Advertising
      CostsIn
      accordance with AICPA Statement of Position No. 94-7, Reporting
      on Advertising Costs, the Company expenses all advertising costs as
      incurred. Advertising costs totaled $12,000 and $32,000 for the years
      ended December 31, 2008 and 2007, respectively.Transfers
      of Financial AssetsTransfers
      of financial assets are accounted for as sales, when control over the
      assets has been surrendered. Control over transferred assets is deemed to
      be surrendered when (1) the assets have been isolated from the Company,
      (2) the transferee obtains the right (free of conditions that constrain it
      from taking advantage of that right) to pledge or exchange the transferred
      assets, and (3) the Company does not maintain effective control over the
      transferred assets through an agreement to repurchase them before their
      maturity.Income
      TaxesDeferred
      income taxes are provided on the liability method whereby deferred tax
      assets are recognized for deductible temporary differences and deferred
      tax liabilities are recognized for taxable temporary differences.
      Temporary differences are the differences between the reported amounts of
      assets and liabilities and their tax basis. Deferred tax assets are
      reduced by a valuation allowance when, in the opinion of management, it is
      more likely than not that some portion of the deferred tax assets will not
      be realized. Deferred tax assets and liabilities are adjusted for the
      effects of changes in tax laws and rates on the date of
      enactment.Comprehensive
      Income (Loss)Accounting
      principles generally accepted in the United States of America require that
      recognized revenue, expenses, gains and losses be included in net income.
      Although certain changes in assets and liabilities, such as unrealized
      gains and losses on available for sale securities, are reported as a
      separate component of the equity section of the balance sheet, such items,
      along with net income, are components of comprehensive income. The Company
      had no items of other comprehensive income for the years ended December
      31, 2008 and 2007.
  21
  Quaint
      Oak Bancorp, Inc.Notes
      to Consolidated Financial Statements (Continued)Note
      2 - Summary of Significant Accounting Policies
  (Continued)Treasury
      Stock and Unallocated Common StockThe
      acquisition of treasury stock by the Company, including unallocated stock
      held by certain benefit plans, is recorded under the cost method. At the
      date of subsequent reissue, treasury stock is reduced by the cost of such
      stock on a first-in, first-out basis with any excess proceeds credited to
      additional paid in capital.Share-Based
      CompensationThe
      Company accounts for its share-based compensation awards in accordance
      with Statement of Financial Accounting Standards (“SFAS”) No. 123R
      (revised 2004) Share-Based
      Payment. This statement requires an entity to recognize the cost of
      employee services received in share-based payment transactions and
      measures the cost on the grant-date fair value of the award. That cost is
      recognized over the period during which an employee is required to provide
      service in exchange for the award.At
      December 31, 2008, the Company has two share-based plans; the 2008
      Recognition and Retention Plan and the 2008 Stock Option Plan. Shares were
      awarded under both plans in May 2008. These plans are more fully described
      in Note 11.The
      Company also has an employee stock ownership plan (“ESOP”). This plan is
      more fully described in Note 11. Shares held under the ESOP are accounted
      for in accordance with AICPA Statement of Position (“SOP”) 93-6, Employers’
      Accounting for Employee Stock Ownership Plans. As ESOP shares are
      committed to be released and allocated among participants, the Company
      recognizes compensation expense equal to the average market price of the
      shares over the period earned.Earnings
      Per ShareAmounts
      reported in earnings per share reflect earnings available to common
      stockholders for the period divided by the weighted average number of
      shares of common stock outstanding during the period, exclusive of
      unearned ESOP shares, unvested restricted stock shares and treasury
      shares. Stock options and unvested restricted stock are regarded as
      potential common stock and are considered in the diluted earnings per
      share calculations to the extent they would have a dilutive effect if
      converted to common stock, computed using the “treasury stock” method. For
      the year ended December 31, 2008, all outstanding stock options (108,311
      shares) were antidilutive.The
      Company had no stock options or restricted stock outstanding during the
      year ended December 31, 2007. Basic earnings per share for the year ended
      December 31, 2007, is computed by dividing net income available to common
      stockholders from July 3, 2007 through December 31, 2007, of $318,000 (the
      period during which the common stock was outstanding) by the weighted
      average number of common shares outstanding for the same period of
      1,313,151. The number of shares outstanding for this calculation excludes
      unallocated ESOP shares.Off-Balance
      Sheet Financial InstrumentsIn
      the ordinary course of business, the Bank has entered into off-balance
      sheet financial instruments consisting of commitments to extend credit.
      Such financial instruments are recorded in the balance sheet when they are
      funded.ReclassificationsCertain
      items in the 2007 financial statements have been reclassified to conform
      to the 2008 financial statement presentation format. These
      reclassifications had no effect on net income or stockholders’
      equity.
  22
  Quaint
      Oak Bancorp, Inc.Notes
      to Consolidated Financial Statements (Continued)Note
      2 - Summary of Significant Accounting Policies
  (Continued)Recent
      Accounting PronouncementsIn
      February 2007, the FASB issued Statement No. 159, “The Fair Value Option
      for Financial Assets and Financial Liabilities-Including an amendment of
      FASB Statement No. 115.” Statement No. 159 permits entities to choose to
      measure many financial instruments and certain other items at fair value.
      Unrealized gains and losses on items for which the fair value option has
      been elected will be recognized in earnings at each subsequent reporting
      date. Statement No. 159 is effective for the Company January 1, 2008. The
      Company adopted FASB Statement No. 159 as of January 1, 2008, and has
      elected not to measure any assets or liabilities at fair value under the
      provisions of this statement. The adoption of this statement did not have
      any effect on the Company’s consolidated financial position or results of
      operations.In
      December 2007, the FASB issued Statement No. 141(R) “Business
      Combinations.” This Statement establishes principles and requirements for
      how the acquirer of a business recognizes and measures in its financial
      statements the identifiable assets acquired, the liabilities assumed, and
      any noncontrolling interest in the acquiree. The Statement also provides
      guidance for recognizing and measuring the goodwill acquired in the
      business combination and determines what information to disclose to enable
      users of the financial statements to evaluate the nature and financial
      effects of the business combination. The guidance will become effective as
      of the beginning of a company’s fiscal year beginning after December 15,
      2008. This new pronouncement will impact the Company in its accounting for
      any business combinations beginning January 1, 2009.In
      March 2008, the FASB issued Statement No 161, “Disclosures about
      Derivative Instruments and Hedging Activities-and amendment of FASB
      Statement No. 133” (Statement 161). Statement No. 161 requires entities
      that utilize derivative instruments to provide qualitative disclosures
      about their objectives and strategies for using such instruments, as well
      as any details of credit-risk-related contingent features contained within
      derivatives. Statement 161 also requires entities to disclose additional
      information about the amounts and location of derivatives located within
      the financial statements, how the provisions of SFAS 133 has been applied,
      and the impact that hedges have on an equity’s financial position,
      financial performance, and cash flows. Statement 161 is effective for
      fiscal years and interim periods beginning after November 15, 2008, with
      earlier application encouraged. The Company is currently evaluating the
      potential impact the new pronouncement will have on its consolidated
      financial statements.In
      June 2008, the FASB issued Staff Position (FSP) EITF 03-6-1, “Determining
      Whether Instruments Granted in Share-Based Payment Transactions Are
      Participating Securities.” This FSP clarifies all outstanding unvested
      share-based payment awards that contain rights to nonforfeitable dividends
      participating securities in undistributed earnings with common
      shareholders. Awards of this nature are considered participating
      securities and the two-class method of computing basic and diluted
      earnings per share must be applied. This FSP is effective for fiscal years
      beginning after December 15, 2008. The Company is currently evaluating the
      potential impact the new pronouncement will have on its financial
      statements.In
      September 2008, the FASB issued FSP 133-1 and FIN 45-4, “Disclosures about
      Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement
      No. 133 and FASB Interpretation No. 45; and Clarification of the Effective
      Date of FASB Statement No. 161” (FSP 133-1 and FIN 45-4). FSP 133-1 and
      FIN 45-4 amends and enhances disclosure requirements for sellers of credit
      derivatives and financial guarantees. It also clarifies that the
      disclosure requirements of SFAS No. 161 are effective for quarterly
      periods beginning after November 15, 2008, and fiscal years that include
      those periods. FSP 133-1 and FIN 45-4 is effective for reporting periods
      (annual or interim) ending after November 15, 2008. The implementation of
      this standard did not have an impact on our consolidated financial
      position and results of
operations.
  23
  Quaint
      Oak Bancorp, Inc.Notes
      to Consolidated Financial Statements (Continued)Note
      2 - Summary of Accounting Policies (Continued)Recent
      Accounting Pronouncements (Continued)In
      November 2008, the SEC released a proposed roadmap regarding the potential
      use by the U.S. issuers of financial statements prepared in accordance
      with International Financial Reporting Standards (IFRS). IFRS is a
      comprehensive series of accounting standards published by the
      International Accounting Standards Board (“IASB”). Under the proposed
      roadmap, the Company may be required to prepare financial statements in
      accordance with IFRS as early as 2014. The SEC will make a determination
      in 2011 regarding the mandatory adoption of IFRS. The Company is currently
      assessing the impact that this potential change would have on its
      consolidated financial statements, and will continue to monitor the
      development of the potential implementation of IFRS.Note
      3 – Investment in Interest-Earning Time DepositsThe
      interest-earning time deposits as of December 31, 2008 and 2007, by
      contractual maturity, are shown
below:
  2008
                                  
                                  
                                  2007(In
      Thousands)Due
      in one year or less
                                  
                                  $
                                  3,735
                                  
                                  
                                  $
                                  1,573Due
      after one year through five years
                                  
                                  
                                  —
                                  
                                  
                                  
                                  262$
                                  3,735
                                  
                                  
                                  $
                                  1,835
  Note
4 -– Investment Securities
  The
amortized cost and fair value of investment securities available for sale and
held to maturity at December 31, 2008 and December 31, 2007 are summarized below
(in thousands):
 December
      31, 2008Amortized
                                                Cost
                                              
                                              
                                              Gross
                                                Unrealized
                                                Gains
                                              
                                              
                                              Gross
                                                Unrealized
                                                Losses
                                              
                                              
                                              Estimated
                                                FairValueHeld
      to Maturity:U.S.
      Government agency securities
                                              
                                              $
                                              2,250
                                              
                                              
                                              $
                                              13
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              2,263
  December
      31, 2007Amortized
                                              Cost
                                            
                                            
                                            Gross
                                              Unrealized
                                              Gains
                                            
                                            
                                            Gross
                                              Unrealized
                                              Losses
                                            
                                            
                                            Estimated
                                              FairValueAvailable
      for Sale:Mortgage
      securities portfolio mutual fund
                                            
                                            $
                                            501
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            501Auction
      rate securities
                                            
                                            
                                            1,500
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            1,500$
                                            2,001
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            2,001Held
      to Maturity:U.S.
      Government agency securities
                                            
                                            $
                                            2,253
                                            
                                            
                                            $
                                            12
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            2,265
  24
  Quaint
      Oak Bancorp, Inc.Notes
      to Consolidated Financial Statements (Continued)Note
      4 -– Investment Securities
(Continued)
  During
the year ended December 31, 2008 a gross loss of approximately $22,000 was
recognized on the redemption of the mortgage securities portfolio mutual
fund.
  No
impairment charges were recognized during the years ended December 31, 2008 and
2007.
  The
amortized cost and fair value of held to maturity debt securities at December
31, 2008, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
 Amortized
      Cost
                                          
                                          
                                          Fair
      Value(In
      Thousands)Due
      in one year or less
                                          
                                          $
                                          1,000
                                          
                                          
                                          $
                                          1,000After
      one year through five years
                                          
                                          
                                          1,250
                                          
                                          
                                          
                                          1,263$
                                          2,250
                                          
                                          
                                          $
                                          2,263
  Note
5 – Mortgage-Backed Securities
  The
amortized cost and fair value of mortgage-backed securities held to maturity at
December 31, 2008 are summarized below (in thousands):
  December
      31, 2008Amortized
                                                          Cost
                                                        
                                                        
                                                        Gross
                                                          Unrealized
                                                          Gains
                                                        
                                                        
                                                        Gross
                                                          Unrealized
                                                          Losses
                                                        
                                                        
                                                        Estimated
                                                          Fair
      ValueHeld
      to Maturity:FNMA
      pass-through certificates
                                                        
                                                        $
                                                        5,025
                                                        
                                                        
                                                        $
                                                        202
                                                        
                                                        
                                                        $
                                                        —
                                                        
                                                        
                                                        $
                                                        5,227FHLMC
      pass-through certificates
                                                        
                                                        
                                                        4,752
                                                        
                                                        
                                                        
                                                        153
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        4,905$
                                                        9,
      777
                                                        
                                                        
                                                        $
                                                        355
                                                        
                                                        
                                                        $
                                                        —
                                                        
                                                        
                                                        $
                                                        10,132
  There
were no mortgage-backed securities as of December 31, 2007.
  25
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
6 - Loans Receivable
  The
composition of net loans receivable at December 31, 2008 and 2007 is as
follows:
  2008
                          
                          
                          2007Real
      estate loans:
                          
                          (In
      Thousands)One-to-four
      family residential:Owner
      occupied
                          
                          $
                          17,460
                          
                          
                          $
                          17,248Non-owner
      occupied
                          
                          
                          21,489
                          
                          
                          
                          15,757Total
      one-to-four family residential
                          
                          
                          38,949
                          
                          
                          
                          33,005Multi-family
      (five or more) residential
                          
                          
                          3,526
                          
                          
                          
                          4,385Commercial
      real estate
                          
                          
                          19,096
                          
                          
                          
                          17,481Construction
                          
                          
                          2,752
                          
                          
                          
                          1,677Commercial
      lines of credit
                          
                          
                          813
                          
                          
                          
                          1,206Home
      equity loans
                          
                          
                          4,585
                          
                          
                          
                          4,431Total
      real estate loans
                          
                          
                          69,721
                          
                          
                          
                          62,185Auto
      loans
                          
                          
                          103
                          
                          
                          
                          —Loans
      on savings accounts
                          
                          
                          109
                          
                          
                          
                          36Total
      Loans
                          
                          
                          69,933
                          
                          
                          
                          62,221Deferred
      loan fees and costs
                          
                          
                          66
                          
                          
                          
                          102Allowance
      for loan losses
                          
                          
                          (689
                          )
                          
                          
                          (667
                          )Net
      Loans
                          
                          $
                          69,310
                          
                          
                          $
                          61,656
  The
following is a summary of changes in the allowance for loan losses for the years
ended December 31, 2008 and 2007:
  2008
                  
                  
                  2007(In
      Thousands)Balance,
      beginning
                  
                  $
                  667
                  
                  
                  $
                  575Charge-offs
                  
                  
                  (120
                  )
                  
                  
                  (1
                  )Recoveries
                  
                  
                  —
                  
                  
                  
                  —Net
      charge-offs
                  
                  
                  (120
                  )
                  
                  
                  (1
                  )Provision
      charged to operations
                  
                  
                  142
                  
                  
                  
                  93Balance,
      ending
                  
                  $
                  689
                  
                  
                  $
                  667
  The
recorded investment in impaired loans, not requiring an allowance for loan
losses was $903,000 at December 31, 2008 and $332,000 at December 31,
2007. The recorded investment in impaired loans requiring an allowance for loan
losses was $-0- and $602,000 at December 31, 2008 and 2007, respectively.
At December 31, 2008 and 2007, the related allowance for loan losses
associated with these loans was $-0- and $16,000, respectively. For the years
ended December 31, 2008 and 2007, the average recorded investment in
impaired loans was $995,000 and $263,000, respectively, and the interest income
recognized on impaired loans was $74,000 for 2008 and $19,000 for
2007.
  26
   Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
6 - Loans Receivable (Continued)
  At
December 31, 2008 and 2007, the Bank had nonaccrual loans of $439,000 and
$1.4 million. Additional interest income that would have been recorded under the
original terms of the loan agreements amounted to approximately $29,000 and
$75,000 for the years ended December 31, 2008 and 2007, respectively. There
were $-0- and $149,000 of loans that were past due 90 days or more and still
accruing interest at December 31, 2008 and 2007, respectively.
  Note
7 - Bank Premises and Equipment
  The
components of bank premises and equipment at December 31, 2008 and 2007 are
as follows:
  2008
                  
                  
                  2007(In
      Thousands)Leasehold
      improvements
                  
                  $
                  9
                  
                  
                  $
                  9Furniture,
      fixtures and equipment
                  
                  
                  188
                  
                  
                  
                  154197
                  
                  
                  
                  163Accumulated
      depreciation
                  
                  
                  (130
                  )
                  
                  
                  (104
                  )$
                  67
                  
                  
                  $
                  59
  The Bank
has two operating leases for its banking office. One lease is month to month
with 120 days written notice required for termination and the other expires in
November 2009. The lease expiring in November 2009 is renewable for one year,
with 90 days written notice. Rent expense under the leases for the years ended
December 31, 2008 and 2007 was $34,000 and $33,000, respectively. Future
minimum lease payments under this operating agreement are $30,000.
  Note
8 - Deposits
  Deposits
at December 31, 2008 and 2007 consist of the following:
  2008
                                          
                                          
                                          2007Amount
                                          
                                          
                                          Weighted
                                            Average
                                            Interest
                                            Rate
                                          
                                          
                                          Amount
                                          
                                          
                                          Weighted
                                            Average
                                            Interest
                                            Rate(Dollars
      in Thousands)Passbook
      savings accounts
                                          
                                          $
                                          3,356
                                          
                                          
                                          
                                          1.28
                                          %
                                          
                                          $
                                          3,659
                                          
                                          
                                          
                                          1.39
                                          %Statement
      and e-savings accounts
                                          
                                          
                                          5,522
                                          
                                          
                                          
                                          2.40
                                          
                                          
                                          
                                          5,630
                                          
                                          
                                          
                                          2.76Certificate
      of deposit accounts
                                          
                                          
                                          50,103
                                          
                                          
                                          
                                          3.97
                                          
                                          
                                          
                                          45,972
                                          
                                          
                                          
                                          4.76$
                                          58,981
                                          
                                          
                                          
                                          3.67
                                          %
                                          
                                          $
                                          55,261
                                          
                                          
                                          
                                          4.33
                                          %
  27
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
8 - Deposits (Continued)
  A summary
of certificates of deposit by maturity at December 31, 2008 is as follows:
(In Thousands)
  Year
      ending December 31:2009
                  
                  $
                  36,4222010
                  
                  
                  7,8792011
                  
                  
                  1,3222012
                  
                  
                  1,1652013
                  
                  
                  3,315$
                  50,103
  The
aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $13,667,000 and $11,011,000 at December 31, 2008 and 2007,
respectively.
  A summary
of interest expense for the years ended December 31, 2008 and 2007 is as
follows:
  2008
                  
                  
                  2007(In
      Thousands)Passbook
      savings accounts
                  
                  $
                  45
                  
                  
                  $
                  59Statement
      and e-savings accounts
                  
                  
                  134
                  
                  
                  
                  173Certificate
      of deposit accounts
                  
                  
                  2,113
                  
                  
                  
                  2,128$
                  2,292
                  
                  
                  $
                  2,360
  Note
9 - Borrowings
  The Bank
has a line of credit commitment from another bank for borrowings up to
$1,500,000. This line of credit is a demand facility subject to continued review
and modification or suspension at any time. Advances are secured by certain
qualifying assets of the Bank. There were no borrowings under this line of
credit at December 31, 2008 and 2007.
  The Bank
has a line of credit facility with the Federal Home Loan Bank of $5,000,000. The
Bank has a maximum borrowing capacity with the Federal Home Loan Bank of
approximately $46,781,000. Federal Home Loan Bank advances are secured by
qualifying assets of the Bank.
  Federal
Home Loan Bank advances consist of the following at December 31, 2008 (in
thousands):
  Maturity
      Period
                                
                                
                                Amount
                                
                                
                                Weighted
                                  Interest
                                  Rate1
      to 12 months (1)
                                
                                $
                                4,300
                                
                                
                                
                                1.47
                                %13
      to 24 months
                                
                                
                                1,250
                                
                                
                                
                                3.38
                                %25
      to 36 months
                                
                                
                                1,800
                                
                                
                                
                                3.66
                                %37
      to 48 months
                                
                                
                                1,800
                                
                                
                                
                                3.98
                                %49
      to 60 months
                                
                                
                                2,000
                                
                                
                                
                                4.19
                                %Total
                                
                                $
                                11,150
                                
                                
                                
                                2.93
                                %
  (1)
      Includes $2.8 million of overnight advances on which interest adjusts
      daily. The remaining $8.4 million of advances are fixed rate term
      loans.
  There
were no Federal Home Loan Bank advances at December 31, 2007.
  28
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
10 - Income Taxes
  The
components of income tax expense for the years ended December 31, 2008 and
2007 are as follows:
  2008
                    
                    
                    2007(In
      Thousands)Federal:Current
                    
                    $
                    307
                    
                    
                    $
                    309Deferred
                    
                    
                    (24
                    )
                    
                    
                    (54
                    )283
                    
                    
                    
                    255State,
      current
                    
                    
                    60
                    
                    
                    
                    58$
                    343
                    
                    
                    $
                    313
  A
following table represents reconciliation between the reported income tax
expense and the income tax expense which would be computed by applying the
normal federal income tax rate 34% to income before taxes for the years ended
December 31, 2008 and 2007 is as follows:
  2008
                    
                    
                    2007(In
      Thousands)Federal
      income tax at statutory rate
                    
                    $
                    290
                    
                    
                    $
                    273State
      tax, net of federal benefit
                    
                    
                    40
                    
                    
                    
                    38Stock
      compensation expense
                    
                    
                    3
                    
                    
                    
                    —Other
                    
                    
                    10
                    
                    
                    
                    2$
                    343
                    
                    
                    $
                    313
  The
components of the net deferred tax asset at December 31, 2008 and 2007 are
as follows:
  2008
                    
                    
                    2007(In
      Thousands)Deferred
      tax assets:Allowance
      for loan losses
                    
                    $
                    232
                    
                    
                    $
                    227Stock-based
      compensation
                    
                    
                    22
                    
                    
                    
                    —Total
      deferred tax assets
                    
                    
                    254
                    
                    
                    
                    227Deferred
      tax liabilities:Bank
      premises and equipment
                    
                    
                    (21
                    )
                    
                    
                    (6
                    )Deferred
      loan costs
                    
                    
                    (23
                    )
                    
                    
                    (35
                    )Total
      deferred tax liabilities
                    
                    
                    (44
                    )
                    
                    
                    (41
                    )Net
      Deferred Tax Asset
                    
                    $
                    210
                    
                    
                    $
                    186
  The net
deferred tax asset at December 31, 2008 and 2007 of $210,000 and $186,000,
respectively, is included in other assets.
  29
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
11 – Stock Compensation Plans
  Employee
Stock Ownership Plan
  The
Company adopted an Employee Stock Ownership Plan (ESOP) during fiscal 2007 for
the benefit of employees who meet the eligibility requirements of the plan.
Using proceeds from a loan from the Company,the
ESOP purchased 8%, or 111,090 shares of the Company’s common in the open market
at an average price of $9.35 for a total of $1.0 million. The Bank makes cash
contributions to the ESOP on a quarterly basis sufficient to enable the ESOP to
make the required loan payments to the Company. The loan bears an interest rate
equal to the Prime Rate as published in the Wall Street Journal, with principal
and interest to be paid quarterly in equal installments over 15 years. The loan
is secured by the unallocated shares of common stock held by the
ESOP.
  Shares of
the Company’s common stock purchased by the ESOP are held in a suspense account
and reported as unallocated common stock held by the ESOP in stockholders’
equity until released for allocation to participants. As the debt is repaid,
shares are released from collateral and are allocated to each eligible
participant based on the ratio of each such participant’s base compensation to
the total base compensation of eligible plan participants. As the unearned
shares are committed to be released and allocated among participants, the
Company recognizes compensation expense equal to the average price of the
shares, and the shares become outstanding for earnings per share computations.
During the years ended December 31, 2008 and 2007, the Company recognized
$66,000 and $17,000 of ESOP expense, respectively.
  The
following table represents the components of the ESOP shares at December 31,
2008 and 2007:
 2008
                      
                      
                      2007Allocated
      shares
                      
                      
                      9,258
                      
                      
                      
                      1,852Unreleased
      shares
                      
                      
                      101,832
                      
                      
                      
                      109,238Total
      ESOP shares
                      
                      
                      111,090
                      
                      
                      
                      111,090Fair
      value of unreleased shares (in thousands)
                      
                      $
                      761
                      
                      
                      $
                      994
  Recognition
and Retention Plan
  In May
2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008
Recognition and Retention Plan (the “2008 RRP”) and Trust Agreement. In order to
fund the 2008 RRP, the 2008 Recognition and Retention Plan Trust (the “2008
Trust”) acquired 55,545 shares of the Company’s stock in the open market at an
average price of $9.36 totaling $520,000 as of December 31, 2008. Pursuant to
the 2008 RRP, 43,324 shares acquired by the 2008 Trust were granted to certain
officers, employees and directors of the Company in May 2008 with 12,221 shares
remaining available for future grant. The 2008 RRP shares generally vest at a
rate of 20% per year over five years.
  A summary
of the status of the shares under the 2008 RRP as of December 31, 2008 is a
follows:
 Number
      of
                                  Shares
                                
                                
                                Weighted
                                  Average
      Grant
                                  Date
      Fair ValueUnvested
      at December 31, 2007
                                
                                
                                —
                                
                                
                                $
                                —Granted
      May 14, 2008
                                
                                
                                43,324
                                
                                
                                
                                9.05Vested
                                
                                
                                —
                                
                                
                                
                                —Forfeited
                                
                                
                                —
                                
                                
                                
                                —Unvested
      at December 31, 2008
                                
                                
                                43,324
                                
                                
                                $
                                9.05
  30
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
11 – Stock Compensation Plans (Continued)
  The
weighted average grant date fair value is the last sale price as quoted on the
OTC Bulletin Board on May 14, 2008. Compensation expense on the 2008 RRP shares
granted is recognized ratably over the five year vesting period in an amount
which is equal to the fair value of the common stock at the date of grant.
During the year ended December 31, 2008, $49,000 in compensation expense was
recognized. A tax benefit of approximately $17,000 was recognized during this
period. As of December 31, 2008, approximately $343,000 in additional
compensation expense will be recognized over the remaining service period of
approximately 4.4 years.
  Stock
Options
  In May
2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008
Stock Option Plan (the “2008 Option Plan”). The 2008 Option Plan authorizes the
grant of stock options to officers, employees and directors of the Company to
acquire 138,863 shares of common stock with an exercise price no less than the
fair market value on the date of the grant. The Compensation Committee of the
Board of Directors determined to grant the stock options in May 2008 at an
exercise price equal to $10.00 per share which is higher than the fair market
value of the common stock on the grant date. All incentive stock options issued
under the 2008 Option Plan are intended to comply with the requirements of
Section 422 of the Internal Revenue. Options will generally become vested and
exercisable at the rate of 20% per year over five years and are generally
exercisable for a period of ten years after the grant date. Pursuant to the 2008
Option Plan, 108,311 stock options were granted to certain officers, employees
and directors of the Company in May 2008 with 30,552 stock options remaining
available for future grant.
  A summary
of the status of the Company’s stock options under the 2008 Option Plan as of
December 31, 2008 is a follows:
  Number
      of
                                        Shares
                                      
                                      
                                      Weighted
                                        Average
                                        Exercise
                                        Price
                                      
                                      
                                      Weighted
                                        Average
                                        Remaining
                                        Contractual
                                        Life
      (in years)
                                      
                                      
                                      Aggregate
                                        Intrinsic
                                        ValueOutstanding
      December 31, 2007
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      —Granted
      May 14, 2008
                                      
                                      
                                      108,311
                                      
                                      
                                      
                                      10.00
                                      
                                      
                                      
                                      9.4
                                      
                                      
                                      
                                      —Vested
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —Forfeited
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —Outstanding
      at December 31, 2008
                                      
                                      
                                      108,311
                                      
                                      
                                      $
                                      10.00
                                      
                                      
                                      
                                      9.4
                                      
                                      
                                      $
                                      —Exercisable
      at December 31, 2008
                                      
                                      
                                      —
  The
estimated fair value of the options granted in May 2008 was $2.01 per
share.The
fair value was estimated on the date of grant in accordance with SFAS No. 123R
using the Black-Scholes option pricing model with the following
assumptions:
 Expected
      dividend yield
                              
                              1.10
                              %Risk-free
      interest rate
                              
                              3.5
                              %Expected
      life of options
                              
                              7.5
                              yearsExpected
      stock-price volatility
                              
                              19.45
                              %
  The
dividend yield was calculated on the dividend amount and stock price existing at
the grant date. The risk free interest rate used was based on the rates of
United States Treasury securities with maturities equal to the expected lives of
the options. Although the contractual term of the options granted is ten years,
the expected term of the options is less. As the Company has no history of
granting stock option awards, management estimated the expected term of the
stock options to be the average of the vesting period and the contractual term.
The expected stock-price volatility was estimated by considering the Company’s
own stock volatility for the period since July 5, 2007, the initial trading
date. The actual future volatility may differ from our historical volatility.
The aggregate intrinsic value for outstanding stock options is calculated based
on the difference between the exercise price of the underlying awards and the
market price of our common stock as of the reporting date. There was no
intrinsic value of the options outstanding as of December 31, 2008 as all of the
outstanding options were at exercise prices greater than the December 31, 2008
stock price.
  31
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
11 – Stock Compensation Plans (Continued)
  Stock
Options (Continued)
  During
the year ended December 31, 2008, approximately $26,000 was recognized in
compensation expense for the 2008 Option Plan. A tax benefit of approximately
$5,000 was recognized during this period. At December 31, 2008, approximately
$183,000 in additional compensation expense for awarded options remained
unrecognized. This expense will be recognized over approximately 4.4
years.
  Note
12 - Transactions with Executive Officers and Directors
  Certain
directors and executive officers of the Company, their families and their
affiliates are customers of the Bank. Any transactions with such parties,
including loans and commitments, are in the ordinary course of business at
normal terms, including interest rates and collateralization, prevailing at the
time and do not represent more than normal risks of collectibility. These
persons were indebted to the Company for loans totaling $10,000 and $15,000 at
December 31, 2008 and 2007, respectively. During the year ended
December 31, 2008, $-0- of new loans and $5,000 of repayments were
made.
  Certain
directors of the Company provided outside services to the Bank for $50,000 and
$44,000 for the years ended December 31, 2008 and 2007, respectively. These
outside services included accounting, consulting, property inspection and
business development.
  Note
13 - Financial Instruments with Off-Balance Sheet Risk
  The
Company is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. Those instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet.
  The
Company’s exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments as it does for on-balance sheet
instruments.
  A summary
of the Company’s financial instrument commitments at December 31, 2008 and
2007 is as follows:
 2008
                                    
                                    
                                    2007(In Thousands)Commitments
      to grant loans
                                    
                                    $
                                    365
                                    
                                    
                                    $
                                    229Unfunded
      commitments under lines of credit
                                    
                                    
                                    2,255
                                    
                                    
                                    
                                    920
  32
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
13 - Financial Instruments with Off-Balance Sheet Risk (Continued)
  Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Since the commitments
may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
The Company evaluates each customer’s credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management’s credit evaluation. Collateral held
varies, but includes principally residential and commercial real
estate.
  Note
14 - Regulatory Matters
  The Bank
is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company’s financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank’s assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank’s capital amounts and classification are also
subject to qualitative judgments by the regulators about components,
risk-weightings and other factors.
  Quantitative
measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios (set forth below) of total and
Tier 1 capital (as defined in the regulations) to risk-weighted assets, and
of Tier 1 capital to average assets. Management believes, as of
December 31, 2008, that the Bank meets all capital adequacy requirements to
which it is subject.
  As of
December 31, 2008, the Bank was well capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events since
December 31, 2008 that management believes have changed the Bank’s
category.
  The
Bank’s actual capital amounts and ratios at December 31, 2008 and 2007 and
the minimum amounts and ratios required for capital adequacy purposes and to be
well capitalized under the prompt corrective action provisions are as
follows:
 Actual
                                                                                                                        
                                                                                                                        
                                                                                                                        For
      Capital Adequacy
                                                                                                                          Purposes
                                                                                                                        
                                                                                                                        
                                                                                                                        To
      be Well Capitalized
                                                                                                                          under
      Prompt
                                                                                                                          Corrective
      Action
                                                                                                                          ProvisionsAmount
                                                                                                                        
                                                                                                                        
                                                                                                                        Ratio
                                                                                                                        
                                                                                                                        
                                                                                                                        Amount
                                                                                                                        
                                                                                                                        
                                                                                                                        Ratio
                                                                                                                        
                                                                                                                        
                                                                                                                        Amount
                                                                                                                        
                                                                                                                        
                                                                                                                        Ratio(Dollars
      in Thousands)As
      of December 31, 2008:Total
      capital (to risk-weighted assets)
                                                                                                                        
                                                                                                                        $
                                                                                                                        13,299
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        21.14
                                                                                                                        %
                                                                                                                        
                                                                                                                        $
                                                                                                                        >5,033
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        >8.00
                                                                                                                        %
                                                                                                                        
                                                                                                                        $
                                                                                                                        >6,292
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        >10.00
                                                                                                                        %Tier
      1 capital (to risk-weighted assets)
                                                                                                                        
                                                                                                                        
                                                                                                                        12,611
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        20.04
                                                                                                                        
                                                                                                                        
                                                                                                                        >2,517
                                                                                                                        
                                                                                                                        
                                                                                                                        >4.00
                                                                                                                        
                                                                                                                        
                                                                                                                        >3,775
                                                                                                                        
                                                                                                                        
                                                                                                                        >6.00Tier
      1 capital (to average assets)
                                                                                                                        
                                                                                                                        
                                                                                                                        12,611
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        15.44
                                                                                                                        
                                                                                                                        
                                                                                                                        >3,266
                                                                                                                        
                                                                                                                        
                                                                                                                        >4.00
                                                                                                                        
                                                                                                                        
                                                                                                                        >4,083
                                                                                                                        
                                                                                                                        
                                                                                                                        >5.00As
      of December 31, 2007:Total
      capital (to risk-weighted assets)
                                                                                                                        
                                                                                                                        $
                                                                                                                        12,825
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        26.54
                                                                                                                        %
                                                                                                                        
                                                                                                                        $
                                                                                                                        >3,866
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        >8.00
                                                                                                                        %
                                                                                                                        
                                                                                                                        $
                                                                                                                        >4,833
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        >10.00
                                                                                                                        %Tier
      1 capital (to risk-weighted assets)
                                                                                                                        
                                                                                                                        
                                                                                                                        12,211
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        25.27
                                                                                                                        
                                                                                                                        
                                                                                                                        >1,933
                                                                                                                        
                                                                                                                        
                                                                                                                        >4.00
                                                                                                                        
                                                                                                                        
                                                                                                                        >2,900
                                                                                                                        
                                                                                                                        
                                                                                                                        >6.00Tier
      1 capital (to average assets)
                                                                                                                        
                                                                                                                        
                                                                                                                        12,211
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        18.31
                                                                                                                        
                                                                                                                        
                                                                                                                        >2,667
                                                                                                                        
                                                                                                                        
                                                                                                                        >4.00
                                                                                                                        
                                                                                                                        
                                                                                                                        >3,334
                                                                                                                        
                                                                                                                        
                                                                                                                        >5.00
  33
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
15 – Fair Value Measurements and Fair Values of Financial
Instruments
  Management
uses its best judgment in estimating the fair value of the Company’s financial
instruments; however, there are inherent weaknesses in any estimation technique.
Therefore, for substantially all financial instruments, the fair value estimates
herein are not necessarily indicative of the amounts the Company could have
realized in a sales transaction on the dates indicated. The estimated fair value
amounts have been measured as of their respective year-ends and have not been
re-evaluated or updated for purposes of these financial statements subsequent to
those respective dates. As such, the estimated fair values of these financial
instruments subsequent to the respective reporting dates may be different than
the amounts reported at each year-end.
  In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 157, Fair
Value Measurements (“SFAS 157”), which defines fair value, establishes a
framework for measuring fair value under GAAP, and expands disclosures about
fair value measurements. SFAS 157 applies to other accounting pronouncements
that require or permit fair value measurements. The Company adopted SFAS 157
effective for its fiscal year beginning January 1, 2008.
  In December 2007, the FASB
issued FASB Staff Position 157-2, Effective
Date of FASB Statement No. 157 (“FSP 157-2”). FSP 157-2 delays the
effective date of SFAS 157 for all non-financial assets and liabilities, except
those that are recognized or disclosed at fair value on a recurring basis (at
least annually) to fiscal years beginning after November 15, 2008 and
interim periods within those fiscal years. As such, the Company only partially
adopted the provisions of SFAS 157, and will begin to account and report for
non-financial assets and liabilities in 2009. In October 2008, the FASB issued
FASB Staff Position 157-3,Determining the Fair Value of a Financial Asset When the Market for that Asset
is Not Active (“FSP 157-3”), to clarify the application of the
provisions of SFAS 157 in an inactive market and how an entity would
determine fair value in an inactive market. FSP 157-3 is effective
immediately and applies to the Company’s December 31, 2008 consolidated
financial statements. The adoption of SFAS 157 and FSP 157-3 had no
impact on the amounts reported in the financial statements.
  SFAS 157
establishes a fair value hierarchy that prioritizes the inputs to valuation
methods used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under SFAS 157
are as follows:
 Level
      1:
                Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or liabilities.Level
      2:
                Quoted
      prices in markets that are not active, or inputs that are observable
      either directly or indirectly, for substantially the full term of the
      asset or liability.Level
      3:
                Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (i.e., supported with little
      or no market activity).
  An
asset’s or liability’s level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement.
  The
Company had no financial assets to be measured at fair value on a recurring or
nonrecurring basis at December 31, 2008.
  As
discussed above, the Company has delayed its disclosure requirements of
non-financial assets and liabilities. Certain real estate owned are carried at
fair value at the balance sheet date for which the Company has not yet adopted
the provisions of SFAS 157.
  34
   Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
15 – Fair Value Measurements and Fair Values of Financial Instruments
(Continued)
  The
following information is an estimate of the fair value of a limited portion of
the Company’s assets and liabilities. Due to a wide range of valuation
techniques and the degree of subjectivity used in making the estimates,
comparisons between the Company’s disclosures and those of other companies may
not be meaningful. The following methods and assumptions were used to estimate
the fair value of the Company’s financial instruments at December 31, 2008 and
2007:
 Cash
      and Cash Equivalents (Carried at Cost)The
      carrying amounts reported in the balance sheet for cash and short-term
      instruments approximate those assets’ fair values.Interest
      Earning Time Deposits (Carried at Cost)Fair
      values for interest-earning time deposits are estimated using a discounted
      cash flow calculation that applies interest rates currently being offered
      in the market on certificates to a schedule of aggregated expected monthly
      maturities on time deposits. The Company generally purchases amounts below
      the insured limit, limiting the amount of credit risk on these time
      deposits.Investment
      and Mortgage-Backed SecuritiesThe
      fair value of securities available for sale (carried at fair value) and
      held to maturity (carried at amortized cost) are determined by obtaining
      quoted market prices on nationally recognized securities exchanges (Level
      1), or matrix pricing (Level 2), which is a mathematical technique used
      widely in the industry to value debt securities without relying
      exclusively on quoted market prices for the specific securities but rather
      by relying on the securities’ relationship to other benchmark quoted
      prices. For certain securities which are not traded in active markets or
      are subject to transfer restrictions, valuations are adjusted to reflect
      illiquidity and/or non-transferability, and such adjustments are generally
      based on available market evidence (Level 3). In the absence of such
      evidence, management’s best estimate is used. Management’s best estimate
      consists of both internal and external support on certain Level 3
      investments. Internal cash flow models using a present value formula that
      includes assumptions market participants would use along with indicative
      exit pricing obtained from broker/dealers (where available) were used to
      support fair values of certain Level 3 investments.Loans
      Receivable (Carried at Cost)The
      fair values of loans are estimated using discounted cash flow analyses,
      using market rates at the balance sheet date that reflect the credit and
      interest rate-risk inherent in the loans. Projected future cash flows are
      calculated based upon contractual maturity or call dates, projected
      repayments and prepayments of principal. Generally, for variable rate
      loans that reprice frequently and with no significant change in credit
      risk, fair values are based on carrying values.Federal
      Home Loan Bank Stock (Carried at Cost)The
      carrying amount of restricted investment in Federal Home Loan Bank stock
      approximates fair value, and considers the limited marketability of such
      securities.Accrued
      Interest Receivable and Payable (Carried at Cost)The
      carrying amount of accrued interest receivable and accrued interest
      payable approximates its fair value.Deposit
      Liabilities (Carried at Cost)The
      fair values disclosed for demand deposits (e.g., interest and noninterest
      checking, passbook savings and money market accounts) are, by definition,
      equal to the amount payable on demand at the reporting date (i.e.,
      their carrying amounts). Fair values for fixed-rate certificates of
      deposit are estimated using a discounted cash flow calculation that
      applies interest rates currently being offered in the market on
      certificates to a schedule of aggregated expected monthly maturities on
      time
deposits.
  35
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
15 – Fair Value Measurements and Fair Values of Financial Instruments
(Continued)
  Short-Term
      Borrowings (Carried at Cost)The
      carrying amounts of short-term borrowings approximate their fair
      values.Long-Term
      Debt (Carried at Cost)Fair
      values of FHLB advances are estimated using discounted cash flow analysis,
      based on quoted prices for new FHLB advances with similar credit risk
      characteristics, terms and remaining maturity. These prices obtained from
      this active market represent a market value that is deemed to represent
      the transfer price if the liability were assumed by a third
      party.Off-Balance
      Sheet Financial Instruments (Disclosed at Cost)Fair
      values for the Bank’s off-balance sheet financial instruments (lending
      commitments) are based on fees currently charged in the market to enter
      into similar agreements, taking into account, the remaining terms of the
      agreements and the counterparties’ credit
  standing.
  The
estimated fair values of the Company’s financial instruments were as follows at
December 31, 2008 and 2007.
 2008
                    
                    
                    2007Carrying
                      Amount
                    
                    
                    Fair
      Value
                    
                    
                    Carrying
                      Amount
                    
                    
                    Fair
      Value(In
      Thousands)Assets:Cash
      and cash equivalents
                    
                    $
                    1,035
                    
                    
                    $
                    1,035
                    
                    
                    $
                    4,987
                    
                    
                    $
                    4,987Investment
      in interest-earning time deposits
                    
                    
                    3,735
                    
                    
                    
                    3,747
                    
                    
                    
                    1,835
                    
                    
                    
                    1,840Investment
      securities available for sale
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    2,001
                    
                    
                    
                    2,001Investment
      securities held to maturity
                    
                    
                    2,250
                    
                    
                    
                    2,263
                    
                    
                    
                    2,253
                    
                    
                    
                    2,265Mortgage-backed
      securities held to maturity
                    
                    
                    9,777
                    
                    
                    
                    10,132
                    
                    
                    
                    —
                    
                    
                    
                    —Investment
      in FHLB stock
                    
                    
                    797
                    
                    
                    
                    797
                    
                    
                    
                    237
                    
                    
                    
                    237Loans
      receivable, net
                    
                    
                    69,310
                    
                    
                    
                    71,196
                    
                    
                    
                    61,656
                    
                    
                    
                    61,834Accrued
      interest receivable
                    
                    
                    355
                    
                    
                    
                    355
                    
                    
                    
                    294
                    
                    
                    
                    294Liabilities:Deposits
                    
                    
                    58,981
                    
                    
                    
                    59,229
                    
                    
                    
                    55,261
                    
                    
                    
                    55,229Accrued
      interest payable
                    
                    
                    138
                    
                    
                    
                    138
                    
                    
                    
                    101
                    
                    
                    
                    101FHLB
      advances, long-term
                    
                    
                    6,850
                    
                    
                    
                    7,180
                    
                    
                    
                    —
                    
                    
                    
                    —FHLB
      advances, short-term
                    
                    
                    4,300
                    
                    
                    
                    4,312
                    
                    
                    
                    —
                    
                    
                    
                    —Off-balance
      sheet financial instruments
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
  36
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
16 – Quaint Oak Bancorp, Inc. (Parent Company Only)
  Condensed
financial statements of Quaint Oak Bancorp, Inc. are as follows (in
thousands):
  Balance
Sheets
 December
      31,
                        2008
                      
                      
                      December
      31,
                        2007AssetsCash
      and cash equivalents
                      
                      $
                      546
                      
                      
                      $
                      922Investment
      in interest-earning time deposits
                      
                      
                      1,770
                      
                      
                      
                      194Investments
      securities held to maturity
                      
                      
                      2,250
                      
                      
                      
                      4,254Investment
      in Quaint Oak Bank
                      
                      
                      12,673
                      
                      
                      
                      12,211Other
      assets
                      
                      
                      107
                      
                      
                      
                      38Total
      Assets
                      
                      $
                      17,346
                      
                      
                      $
                      17,619Liabilities
      and Stockholders’ EquityOther
      liabilities
                      
                      $
                      73
                      
                      
                      $
                      62Stockholders’
      equity
                      
                      
                      17,273
                      
                      
                      
                      17,557Total
      Liabilities and Stockholders’ Equity
                      
                      $
                      17,346
                      
                      
                      $
                      17,619
  Statements
of Income
 For
      the Year Ended
                          December
      31, 2008
                        
                        
                        For
      the period of
                          July
      3, 2007 to
                          December
      31, 2007Interest
      and dividend income
                        
                        $
                        205
                        
                        
                        $
                        147Investment
      securities losses
                        
                        
                        22
                        
                        
                        
                        —Expenses
                        
                        
                        89
                        
                        
                        
                        32Net
      Income Before Income Taxes
                        
                        
                        94
                        
                        
                        
                        115Equity
      in Undistributed Net Income of Subsidiary
                        
                        
                        462
                        
                        
                        
                        250Income
      Taxes
                        
                        
                        (45
                        )
                        
                        
                        (47
                        )Net
      Income
                        
                        $
                        511
                        
                        
                        $
                        318
  37
  Quaint
      Oak Bancorp, Inc.
  Notes
to Consolidated Financial Statements (Continued)
  Note
16 – Quaint Oak Bancorp, Inc. (Parent Company Only)
  Statements
of Cash Flows
 For
      the Year Ended
                      December
      31, 2008
                    
                    
                    For
      the period of
                      July
      3, 2007 to
                      December
      31, 2007Operating
      ActivitiesNet
      income
                    
                    $
                    511
                    
                    
                    $
                    318Adjustments
      to reconcile net income to net cash provided byoperating
      activities:Undistributed
      income in subsidiary
                    
                    
                    (462
                    )
                    
                    
                    (250
                    )Stock-based
      compensation expense
                    
                    
                    141
                    
                    
                    
                    17Amortization
      of investment securities premiums
                    
                    
                    3
                    
                    
                    
                    —Increase
      in other assets
                    
                    
                    (69
                    )
                    
                    
                    (38
                    )Increase
      in other liabilities
                    
                    
                    11
                    
                    
                    
                    62Net
      cash provided by operating activities
                    
                    
                    135
                    
                    
                    
                    109Investing
      ActivitiesNet
      increase in investment in interest-earning time deposits
                    
                    
                    (1,576
                    )
                    
                    
                    —Net
      (purchase) sale of investment securities
                    
                    
                    2,001
                    
                    
                    
                    (4,448
                    )Capital
      contribution to subsidiary bank
                    
                    
                    —
                    
                    
                    
                    (7,052
                    )Net
      cash provided by (used in) investing activities
                    
                    
                    425
                    
                    
                    
                    (11,500
                    )Financing
      ActivitiesProceeds
      from issuance of common stock, net
                    
                    
                    —
                    
                    
                    
                    13,351Dividends
      paid
                    
                    
                    (104
                    )
                    
                    
                    —Purchase
      of Treasury stock
                    
                    
                    (312
                    )
                    
                    
                    —Purchase
      of common stock for stock compensation plans
                    
                    
                    (520
                    )
                    
                    
                    (1,038
                    )Net
      cash (used in) provided by financing activities
                    
                    
                    (936
                    )
                    
                    
                    12,313Net
      (Decrease) Increase in Cash and Cash Equivalents
                    
                    
                    (376
                    )
                    
                    
                    922Cash
      and Cash Equivalents-Beginning of Period
                    
                    
                    922
                    
                    
                    
                    —Cash
      and Cash Equivalents-End of Period
                    
                    $
                    546
                    
                    
                    $
                    922
  38
  DIRECTORS
      AND EXECUTIVE OFFICERS
  Directors
 Robert
      T. Strong
                
                James
      J. Clarke, Ph.D.President
      and Chief Executive Officer
                
                Principal
      of Clarke Consulting, Villanova, PennsylvaniaRobert
      J. Phillips
                
                Andrew
      E. DiPiero, Jr., Esq.Chairman
      of the Board. Partner, Phillips and Phillips
                
                Partner
      with Stampone D’Angelo Renzi DiPiero,Enterprises,
      Doylestown, Pennsylvania
                
                Attorney
      at Law, P.C., Cheltenham, PennsylvaniaGeorge
      M. Ager, Jr.
                
                Kenneth
      R. Gant, MBACurrently
      retired
                
                Associate
      Agent, Landis Agencies, Doylestown,PennsylvaniaJohn
      J. Augustine, CPA
                
                Marsh
      B. SpinkSenior
      Manager of Teleflex, Inc., Limerick,
                
                Managing
      Partner of Lawn-Crest Realty, Philadelphia,Pennsylvania
                
                Pennsylvania
  Executive
Officers
 Diane
      J. Colyer
                
                Robert
      FarrerCorporate
      Secretary and Operations Officer
                
                Customer
      Service Manager, Compliance Officer,Security
      Officer, Bank Secrecy Act Officer andCommunity
      Reinvestment Act Officer
  Curt T.
Schulmeister
 Chief
Lending Officer
 BANKING
      LOCATIONS
  Main
Office
  607
Lakeside Drive
 Southampton,
Pennsylvania
 (215)
364-4059
 www.quaintoak.com
 TRANSFER
      AGENT / REGISTRAR
  Shareholders
needing assistance with stock records, transfers or lost certificates, please
contact Quaint Oak Bancorp, Inc.’s transfer agent, Registrar and Transfer
Company.
  Registrar
and Transfer Company
 10
Commerce Drive
 Cranford,
New Jersey 07016
 (800)
368-5948
 www.rtco.com
     39